NHANCEMENT TECHNOLOGIES INC, SB-2/A, 1997-01-13

NHANCEMENT TECHNOLOGIES INC
SB-2/A, 1997-01-13
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1997

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

AMENDMENT NO. 2

TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
NHANCEMENT TECHNOLOGIES INC.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <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>
<S> <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>
------------------------
Copies to:
<TABLE>
<S> <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.
------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================
PROPOSED MAXIMUM
DOLLAR AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share............................ 2,645,000 shares $4.50 $11,902,500 $3,607
=================================================================================================
</TABLE>

(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.
================================================================================
<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 13, 1997

PRELIMINARY PROSPECTUS
2,300,000 SHARES

[NHANCEMENT TECHNOLOGIES INC. LOGO]

NHANCEMENT TECHNOLOGIES INC.

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>
<CAPTION>
========================================================================================================
UNDERWRITING PROCEEDS PROCEEDS
PRICE TO DISCOUNTS AND TO THE TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(1)(2) STOCKHOLDER
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
- --------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $ $
========================================================================================================
</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 January , 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>

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

(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
------ ------ ------ ------------ ------------
<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 use up to
$500,000 (approximately 8.7% of the net proceeds) to repay certain notes
associated with the VPI Acquisition. 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 anniversary of the consummation of the VPI Acquisition, but are payable

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<PAGE> 17

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 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)................ $2,025,000 35.1% $2,025,000 28.7%
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)...................... 2,764,500 47.9 4,047,900 57.3
---------- ----- ---------- -----
Total......................... $5,770,000 100.0% $7,053,400 100.0%
========== ===== ========== =====
</TABLE>

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

(1) Includes repayment of certain principal and interest amounts 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 in November 1996 to the Company 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, and Mr. Zorn in the respective principal
amounts of $50,000, $35,000, $50,000 and $100,000. The proceeds from such
financings were used for general corporate purposes. See "Business -- Recent
Financings."

(2) Includes (i) the repayment of approximately $86,512 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 $413,024 in principal and accrued interest on certain notes
held by a former director of BFI, bearing

14
<PAGE> 18

interest at the rates of 10% to 12%, and due February 15, 1997, (iii) the
repayment of approximately $15,810 in principal and accrued interest on
loans made in April 1995 to the Company from Douglas Zorn, Executive Vice
President, Chief Financial and Operating Officer and a director of the
Company, and from a former director of BFI, in the respective principal
amounts of $2,500 and $10,000, bearing interest at 12% and due February 15,
1997, and (iv) the repayment of approximately $12,654 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 up to $500,000 for the repayment of
certain notes due the sole shareholder of VPI pursuant to the terms of the
VPI Acquisition, 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.

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, simultaneously with 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.

22
<PAGE> 26

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, Chicago, 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. In respect of the SportsTrac sublicense, the Company paid to STI a
royalty of $42,500 on the $500,000 portion of the initial fee which was subject
to the STI royalty. 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.

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

33
<PAGE> 37

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 exercisable to purchase 500,000 restricted shares of
Common Stock at an initial exercise price of 120% of the Offering Price. 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 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,

34
<PAGE> 38

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 10,635
square feet. Total monthly office rental expense for all such offices is
approximately $17,750. 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.

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<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 notes in the principal amount of
$25,000 and warrants to purchase 25,000 shares in exchange for Mr. Williams'
payment to BFI of $25,000 and Mr. Zorn's receipt of an unsecured promissory note
from BFI in the principal amount of $25,000. 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.

43
<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, simultaneous with
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. Concurrently with the
consummation of a proposed initial public offering (IPO) of the Company's common
stock, which is expected to be in January 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, concurrently with 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, concurrently with 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 concurrently with the IPO (see below).

On October 25, 1996, the Company entered into an Agreement and Plan of
Merger which provides for the merger, concurrently with 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 IPO), for all the issued

F-26
<PAGE> 81

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

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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, 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 entered into an Agreement and Plan of
Merger (the Merger) with NHancement whereby NHancement would acquire,
concurrently with 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 exercisable to purchase 500,000 shares of restricted
Common Stock at an initial exercise price of 120% of the Offering Price. 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 Form of Promissory Note
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>

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

* To be filed by amendment.

** 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 13, 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
---------- ----- ----
<S> <C> <C>

/s/ ESMOND T. GOEI Chairman, President, Chief January 13, 1997
- --------------------------------------------- Executive Officer and
Esmond T. Goei Director (Principal
Executive Officer)

/s/ DOUGLAS S. ZORN Executive Vice President, January 13, 1997
- --------------------------------------------- Secretary, Chief Operating
Douglas S. Zorn and Financial Officer,
Treasurer and Director
(Principal Financial and
Accounting Officer)

/s/ JAMES S. GILLESPIE Vice President of Sales and January 13, 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 Form of Promissory Note
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

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

* To be filed by amendment.

** 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 3.1

CERTIFICATE OF INCORPORATION OF
NHANCEMENT TECHNOLOGIES INC.
A DELAWARE CORPORATION

ARTICLE 1

The name of the Corporation is Nhancement Technologies Inc.
(hereinafter referred to as the "Corporation").

ARTICLE 2

The address of the Corporation's registered office in the State of
Delaware is The Prentice-Hall Corporation System, Inc., 1013 Centre Road,
Wilmington, Delaware 19805, County of New Castle. The name of its registered
agent at such address is The Prentice-Hall Corporation System, Inc.

ARTICLE 3

The nature of the business of the Corporation and the purposes for
which it is organized are to engage in any business and in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware (the "GCL") and to possess and employ all powers and privileges
now or hereafter granted or available under the laws of the State of Delaware to
such corporations.

ARTICLE 4

4.1 Authorized Shares. The total number of shares which the Corporation
is authorized to issue is one thousand and ten (1,010) shares of which one
thousand (1,000) shares shall be common stock, par value $.01 per share, and ten
(10) shares shall be preferred stock, par value $.01 per share.

4.2 Common Stock. Each holder of common stock shall be entitled to one
vote for each share of common stock held on all matters as to which holders of
common stock shall be entitled to vote. Except for and subject to those
preferences, rights, and privileges expressly granted to the holders of all
classes of stock at the time outstanding having prior rights, and series of
preferred stock which may from time to time come into existence, and except as
may be provided by the laws of the State of Delaware, the holders of common
stock shall have exclusively all other rights of stockholders of the
Corporation, including, but not by way of limitation, (i) the right to receive
dividends when, as and if declared by the board of
<PAGE> 2
directors out of assets lawfully available therefor, and (ii) in the event of
any distribution of assets upon the dissolution and liquidation of the
Corporation, the right to receive ratably and equally all of the assets of the
Corporation remaining after the payment to the holders of preferred stock of the
specific amounts, if any, which they are entitled to receive as may be provided
herein or pursuant hereto.

4.3 Preferred Stock. The preferred stock authorized by this Certificate
of Incorporation may be issued from time to time in one or more series. The
board of directors of the Corporation is authorized, subject to limitations
prescribed by law, to provide by resolution or resolutions for the issuance of
the shares of preferred stock as a class or in series, and, by filing a
certificate of designation, pursuant to the GCL, setting forth a copy of such
resolution or resolutions, to establish from time to time the number of shares
to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of the class or of each such series, and
the qualifications, limitations, and restrictions thereof. The authority of the
board of directors with respect to the class or each series shall include, but
not be limited to, determination of the following:

(a) The number of shares constituting any series and the
distinctive designation of that series;

(b) The dividend rate on the shares of the class or of any series,
whether dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares of
the class or of that series;

(c) Whether the class or any series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;

(d) Whether the class or any series shall have conversion
privileges, and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the board of
directors shall determine;

(e) Whether or not the shares of the class or of any series shall
be redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;

(f) Whether the class or any series shall have a sinking fund for
the redemption or purchase of shares of the class or of that series, and, if so,
the terms and amount of such sinking fund;

(g) The rights of the shares of the class or of any series in the
event of voluntary or involuntary dissolution or winding up of the corporation,
and the relative rights of priority, if any, of payment of shares of the class
or of that series;

-2-
<PAGE> 3
(h) Any other powers, preferences, rights, qualifications,
limitations, and restrictions of the class or of any series.

ARTICLE 5

5.1 Number and Election of Directors. The number of directors of the
Corporation shall be fixed from time to time in the manner provided in the
bylaws and may be increased or decreased from time to time in the manner
provided in the bylaws. Election of directors need not be by written ballot
except and to the extent provided in the bylaws of the Corporation. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and qualified, subject,
however, to such director's prior death, resignation, retirement,
disqualification or removal from office.

5.2 Quorum. A quorum of the board of directors for the transaction of
business shall not consist of less than a majority of the total number of
directors, except as may be provided in this Certificate of Incorporation or in
the bylaws with respect to filling vacancies.

5.3 Newly Created Directorships and Vacancies. Except as otherwise
fixed relative to the rights of the holders of any class or series of stock
having a preference over the common stock as to dividends or upon liquidation to
elect directors under specified circumstances, newly created directorships
resulting from any increase in the number of directors and any vacancies on the
board of directors resulting from death, resignation, disqualification, removal
or other cause shall be filled solely by the affirmative vote of a majority of
the remaining directors then in office, or by a sole remaining director, even
though less than a quorum of the board of directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the new directorship which was created or in which the vacancy
occurred and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the board of
directors shall shorten the term of any incumbent director.

ARTICLE 6

Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the board
of directors is expressly authorized to adopt, repeal, alter, amend and rescind
any or all of the bylaws of the Corporation, but such authorization shall not
divest the stockholders of the power, nor limit their power to adopt, amend or
repeal bylaws.

ARTICLE 7

7.1 Stockholder Actions. Any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of such stockholders and may not be effected by any consent
in writing by such stockholders.

-3-
<PAGE> 4
7.2 Meetings. Meetings of stockholders may be held within or without
the State of Delaware, as the bylaws may provide. Except as otherwise required
by law and subject to the rights of the holders of any class or series of stock
having a preference over the common stock, special meetings of the stockholders
may be called only by the chairman of the board, the chief executive officer,
the president, the board of directors pursuant to a resolution approved by a
majority of the entire board of directors, or as may be designated in the bylaws
of the Corporation.

7.3 Corporate Books. The books of the Corporation may be kept (subject
to any provision contained in the statutes) outside the State of Delaware at
such place or places as may be designated from time to time by the board of
directors or in the bylaws of the Corporation.

ARTICLE 8

The board of directors of the Corporation, when evaluating any offer of
another party to (a) make a tender or exchange offer for any equity security of
the Corporation, (b) merge or consolidate the Corporation with another
corporation, or (c) purchase or otherwise acquire all or substantially all of
the properties and assets of the Corporation, shall in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to (i) all relevant
factors including, without limitation, the social, legal, environmental and
economic effects on the employees, customers, suppliers and other affected
persons, firms and corporations and on the communities and geographical areas in
which the Corporation and its subsidiaries operate or are located and on any of
the businesses and properties of the Corporation or any of its subsidiaries, as
well as such other factors as the directors deem relevant, and (ii) not only the
consideration being offered, in relation to the then current market price for
the Corporation's outstanding shares of capital stock, but also in relation to
the then current value of the Corporation in a freely negotiated transaction and
in relation to the board of directors' estimate of the future value of the
Corporation (including the unrealized value of its properties and assets) as an
independent going concern.

ARTICLE 9

Notwithstanding any other provisions of the Certificate of
Incorporation of the Corporation or of the bylaws of the Corporation (and
notwithstanding the fact that a lessor percentage may be specified by law, the
Certificate of Incorporation or the bylaws), the affirmative vote of the holders
of not less than eighty percent (80%) of the outstanding shares of the capital
stock of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class), shall be required to amend or repeal
or adopt any provisions inconsistent with Articles 7, 8 and 9 of this
Certificate of Incorporation.

-4-
<PAGE> 5
ARTICLE 10

A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability for (i) any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) violations of Section 174 of the GCL, or (iv) any transaction from
which the director derived any improper personal benefit. If the GCL hereafter
is amended to eliminate or limit further the liability of a director in addition
to the elimination and limitation of liability provided by the preceding
sentence, the liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the GCL as so amended. Any repeal or
modification of the foregoing provisions of this Article 10 by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation under this Article 10, as in effect immediately
prior to such repeal or modification, with respect to any liability that would
have accrued, but for this Article 10, prior to such repeal or modification.

ARTICLE 11

The Corporation shall indemnify, to the fullest extent permitted by
applicable law as in effect from time to time, any person against all liability
and expense (including attorneys' fees) incurred by reason of the fact that he
is or was a director or officer of the Corporation or any of its subsidiaries,
or while serving as a director or officer of the Corporation or any of its
subsidiaries, he is or was serving at the request of the Corporation or any of
its subsidiaries as a director, officer, partner or trustee of, or in any
similar managerial or fiduciary position of, or as an employee or agent of,
another corporation, partnership, joint venture, trust, association, or other
entity. Expenses (including attorneys' fees) incurred in defending an action,
suit, or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit, or proceeding to the fullest extent permitted
by Delaware law. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, fiduciary, or agent
of the Corporation or any of its subsidiaries against any liability asserted
against and incurred by such person in any such capacity or arising out of such
person's position, whether or not the Corporation would have the power to
indemnify against such liability under the provisions of this Article 11. The
indemnification provided by this Article 11 shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under this Certificate
of Incorporation, any bylaw, agreement, vote of stockholders or disinterested
directors, statute, or otherwise, and shall inure to the benefit of their heirs,
executors, and administrators. The provisions of this Article 11 shall not be
deemed to preclude the Corporation from indemnifying other persons from similar
or other expenses and liabilities as the board of directors or the stockholders
may determine in a specific instance or by resolution of general application.

-5-
<PAGE> 6
ARTICLE 12

Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.

ARTICLE 13

The name and address of the incorporator is:

Lester R. Woodward
370 Seventeenth Street, Suite 4700
Denver, CO 80202

The names and mailing addresses of the persons who are to serve as
directors of the Corporation until the first annual meeting of stockholders or
until their successors are elected and qualified or until their earlier
resignations or removal are:

Name Address
Esmond T. Goei 1746 Cole Boulevard, Suite 265
Golden, Colorado 80401

Douglas S. Zorn 1746 Cole Boulevard, Suite 265
Golden, Colorado 80401

James S. Gillespie 39899 Balentine Drive
Newark, California 94560

-6-
<PAGE> 7
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation on the 16th day of October, 1996.

/s/ Lester R. Woodward
--------------------------------
Lester R. Woodward, Incorporator

-7-
<PAGE> 8

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
NHANCEMENT TECHNOLOGIES INC.
A DELAWARE CORPORATION

ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTIONS 242 AND 245 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE

NHancement Technologies Inc., (the "Corporation") a corporation duly
existing under and by virtue of a Certificate of Incorporation dated and filed
October 16, 1996 with the Delaware Secretary of State pursuant to the General
Corporation Law of the State of Delaware ("GCL"), DOES HEREBY CERTIFY:

FIRST: The Board of Directors and Stockholders of the Corporation, by
written consent pursuant to a special meeting of the Board of Directors and
Stockholders of the Corporation dated January 7, 1997, have proposed and
adopted the following Amended and Restated Certificate of Incorporation of the
Corporation:

ARTICLE 1

The name of the Corporation is NHancement Technologies Inc.

ARTICLE 2

ARTICLE 3

The nature of the business of the Corporation and the purposes for
which it is organized are to engage in any business and in any lawful act or
activity for which corporations may be organized under the GCL and to possess
and employ all powers and privileges now or hereafter granted or available
under the laws of the State of Delaware to such corporations.

<PAGE> 9
ARTICLE 4

4.1 Authorized Shares. The total number of shares which the
Corporation is authorized to issue is twenty two million (22,000,000) shares of
which twenty million (20,000,000) shares shall be common stock, par value $.01
per share, and two million (2,000,000) shares shall be preferred stock, par
value $.01 per share.

4.2 Common Stock. Each holder of common stock shall be entitled
to one vote for each share of common stock held on all matters as to which
holders of common stock shall be entitled to vote. Except for and subject to
those preferences, rights, and privileges expressly granted to the holders of
all classes of stock at the time outstanding having prior rights, and series of
preferred stock which may from time to time come into existence, and except as
may be provided by the laws of the State of Delaware, the holders of common
stock shall have exclusively all other rights of stockholders of the
Corporation, including, but not by way of limitation, (i) the right to receive
dividends when, as and if declared by the board of directors out of assets
lawfully available therefor, and (ii) in the event of any distribution of
assets upon the dissolution and liquidation of the Corporation, the right to
receive ratably and equally all of the assets of the Corporation remaining
after the payment to the holders of preferred stock of the specific amounts, if
any, which they are entitled to receive as may be provided herein or pursuant
hereto.

4.3 Preferred Stock. The preferred stock authorized by this
Certificate of Incorporation may be issued from time to time in one or more
series. The board of directors of the Corporation is authorized, subject to
limitations prescribed by law, to provide by resolution or resolutions for the
issuance of the shares of preferred stock as a class or in series, and, by
filing a certificate of designation, pursuant to the GCL, setting forth a copy
of such resolution or resolutions, to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of the class or of each such series, and
the qualifications, limitations, and restrictions thereof. The authority of
the board of directors with respect to the class or each series shall include,
but not be limited to, determination of the following:

(a) The number of shares constituting any series and the
distinctive designation of that series;

(b) The dividend rate on the shares of the class or of
any series, whether dividends shall be cumulative, and, if so, from which date
or dates, and the relative rights of priority, if any, of payment of dividends
on shares of the class or of that series;

(c) Whether the class or any series shall have voting
rights, in addition to the voting rights provided by law, and, if so, the terms
of such voting rights;

-2-
<PAGE> 10
(e) Whether or not the shares of the class or of any
series shall be redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they shall be
redeemable and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates;

(f) Whether the class or any series shall have a sinking
fund for the redemption or purchase of shares of the class or of that series,
and, if so, the terms and amount of such sinking fund;

(g) The rights of the shares of the class or of any
series in the event of voluntary or involuntary dissolution or winding up of
the corporation, and the relative rights of priority, if any, of payment of
shares of the class or of that series;

(h) Any other powers, preferences, rights,
qualifications, limitations, and restrictions of the class or of any series.

ARTICLE 5

5.1 Number and Election of Directors. The number of directors of
the Corporation shall be fixed from time to time in the manner provided in the
bylaws and may be increased or decreased from time to time in the manner
provided in the bylaws. Election of directors need not be by written ballot
except and to the extent provided in the bylaws of the Corporation. A director
shall hold office until the annual meeting for the year in which his term
expires and until his successor shall be elected and qualified, subject,
however, to such director's prior death, resignation, retirement,
disqualification or removal from office. Any director, or the entire Board of
Directors, may be removed with or without cause by a vote of the holders of a
majority of all classes of stock then entitled to vote.

5.2 Quorum. A quorum of the board of directors for the
transaction of business shall not consist of less than a majority of the total
number of directors, except as may be provided in this Certificate of
Incorporation or in the bylaws with respect to filling vacancies.

5.3 Newly Created Directorships and Vacancies. Except as
otherwise fixed relative to the rights of the holders of any class or series of
stock having a preference over the common stock as to dividends or upon
liquidation to elect directors under specified circumstances, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the board of directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, or by
a sole remaining director, even though less than a quorum of the board of
directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the new directorship
which was created or in which the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number of
directors constituting the board of directors shall shorten the term of any
incumbent director.

-3-
<PAGE> 11

ARTICLE 6

ARTICLE 7

7.1 Stockholder Actions. Any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of such stockholders and may not be effected by any
consent in writing by such stockholders.

7.2 Meetings. Meetings of stockholders may be held within or
without the State of Delaware, as the bylaws may provide. Except as otherwise
required by law and subject to the rights of the holders of any class or series
of stock having a preference over the common stock, special meetings of the
stockholders may be called only by the chairman of the board, the chief
executive officer, the president, the executive vice president, the holders of
at least ten percent (10%) of the outstanding shares of all classes of stock
then entitled to vote at such special meeting or the board of directors
pursuant to a resolution approved by a majority of the entire board of
directors, or as may be designated in the bylaws of the Corporation.

7.3 Corporate Books. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the Corporation.

ARTICLE 8

The board of directors of the Corporation, when evaluating any offer
of another party to (a) make a tender or exchange offer for any equity security
of the Corporation, (b) merge or consolidate the Corporation with another
corporation, or (c) purchase or otherwise acquire all or substantially all of
the properties and assets of the Corporation, shall in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its stockholders, give due consideration to (i) all relevant
factors including, without limitation, the social, legal, environmental and
economic effects on the employees, customers, suppliers and other affected
persons, firms and corporations and on the communities and geographical areas
in which the Corporation and its subsidiaries operate or are located and on any
of the businesses and properties of the Corporation or any of its subsidiaries,
as well as such other factors as the directors deem relevant, and (ii) not only
the consideration being offered, in relation to the then current market price
for the Corporation's outstanding shares of capital stock, but also in relation
to the then current value of the Corporation in a freely negotiated

-4-
<PAGE> 12
transaction and in relation to the board of directors' estimate of the future
value of the Corporation (including the unrealized value of its properties and
assets) as an independent going concern.

ARTICLE 9

Notwithstanding any other provisions of the Certificate of
Incorporation of the Corporation or of the bylaws of the Corporation (and
notwithstanding the fact that a lessor percentage may be specified by law, the
Certificate of Incorporation or the bylaws), the affirmative vote of the
holders of not less than sixty six and two-thirds percent (66-2/3%) of the
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class), shall be required to amend or repeal or adopt any provisions
inconsistent with Articles 7, 8 and 9 of this Certificate of Incorporation.

ARTICLE 10

A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability for (i) any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) violations of Section 174 of the GCL, or (iv) any
transaction from which the director derived any improper personal benefit. If
the GCL hereafter is amended to eliminate or limit further the liability of a
director in addition to the elimination and limitation of liability provided by
the preceding sentence, the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the GCL as so amended.
Any repeal or modification of the foregoing provisions of this Article 10 by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation under this Article 10, as in effect
immediately prior to such repeal or modification, with respect to any liability
that would have accrued, but for this Article 10, prior to such repeal or
modification.

ARTICLE 11

-5-
<PAGE> 13
of such action, suit, or proceeding, to the fullest extent permitted by
Delaware law, upon receipt of an undertaking to repay the amount of expenses so
advanced if it shall be determined that the Agent is not entitled to be
indemnified. The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, fiduciary, or agent of
the Corporation or any of its subsidiaries against any liability asserted
against and incurred by such person in any such capacity or arising out of such
person's position, whether or not the Corporation would have the power to
indemnify against such liability under the provisions of this Article 11. The
indemnification provided by this Article 11 shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under this
Certificate of Incorporation, any bylaw, agreement, vote of stockholders or
disinterested directors, statute, or otherwise, and shall inure to the benefit
of their heirs, executors, and administrators. The provisions of this Article
11 shall not be deemed to preclude the Corporation from indemnifying other
persons from similar or other expenses and liabilities as the board of
directors or the stockholders may determine in a specific instance or by
resolution of general application.

ARTICLE 12

Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.

ARTICLE 13

-6-
<PAGE> 14
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Esmond T. Goei 1746 Cole Boulevard, Suite 265
Golden, Colorado 80401
Douglas S. Zorn 1746 Cole Boulevard, Suite 265
Golden, Colorado 80401

James S. Gillespie 39899 Balentine Drive
Newark, California 94560
</TABLE>

SECOND: That the aforesaid Amended and Restated Certificate of
Incorporation was adopted in accordance with the applicable provisions of
Section 242 of the GCL.

IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by Esmond T. Goei, President
of the Corporation this 7th day of January, 1997.

------------------------------------
By: Esmond T. Goei
Title: President

-7-

<PAGE> 1
Exhibit 3.2

NHANCEMENT TECHNOLOGIES INC.

AMENDED AND RESTATED BYLAWS

Article I

OFFICES

The registered office of NHancement Technologies Inc. (the
"Corporation") in the State of Delaware shall be in the City of Wilmington,
County of New Castle, State of Delaware. The Corporation shall have offices at
such other places as the board of directors, in its discretion, may from time
to time determine.

Article II

STOCKHOLDERS

Section 1. Annual Meetings.

The annual meeting of stockholders for the election of directors and
for the transaction of such other business as may properly come before the
meeting shall be held on the third Tuesday of May in each year, or on such date
as the board of directors shall each year fix. Each such annual meeting shall
be held at such place, within or without the State of Delaware, and hour as
shall be determined by the board of directors. The day, place and hour of each
annual meeting shall be specified in the notice of such annual meeting. Any
annual meeting of stockholders may be adjourned from time to time and place to
place until its business is completed.

Section 2. Business Conducted at Meetings.

At an annual meeting of stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the board of directors, (b) otherwise properly brought before the meeting by
or at the direction of the board of directors, or (c) otherwise properly
brought before the meeting by a stockholder. For business to be properly
brought before a meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the secretary of the Corporation. To be
timely with respect to an annual meeting, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 120 in advance of the date of the Corporation's
proxy statement released to stockholders in connection with the previous year's
annual

<PAGE> 2
meeting of stockholders, except that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed by more than
30 calendar days from the date contemplated at the time of the previous year's
proxy statement, a proposal shall be received by the Corporation a reasonable
time before the solicitation is made. To be timely with respect to any meeting
other than an annual meeting, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation a
reasonable time before the solicitation is made. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (a) a brief description of the business desired to be
brought before the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at a meeting except in accordance with the procedures set forth in
this Section 2. The presiding officer at a meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section
2, and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.

Section 3. Special Meetings.

Except as otherwise required by law or by the Certificate of
Incorporation and subject to the rights of the holders of any class or series of
stock having a preference over the common stock, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer, the president, the executive vice president, the holders of
at least ten percent (10%) of the outstanding shares of all classes of stock
then entitled to vote at such special meeting or the board of directors pursuant
to a resolution approved by a majority of the entire board of directors. The
term "entire board of directors," as used in these Bylaws, means the total
number of directors which the Corporation would have if there were no vacancies.

Section 4. Stockholder Action: How Taken.

Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such stockholders and may not be effected by any consent in writing by such
stockholders.

Section 5. Notice of Meeting.

Written notice stating the place, date and hour of the meeting and, in
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, except as otherwise required by statute or the Certificate
of

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<PAGE> 3
Incorporation, either personally or by mail, prepaid telegram, telex, facsimile
transmission, cablegram, or radiogram, to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be given
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at his address as it appears on the stock records of the
Corporation. If given personally or otherwise than by mail, such notice shall
be deemed to be given when either handed to the stockholder or delivered to the
stockholder's address as it appears on the stock records of the Corporation.

Section 6. Waiver.

Attendance of a stockholder of the Corporation, either in person or by
proxy, at any meeting, whether annual or special, shall constitute a waiver of
notice of such meeting, except where a stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A written waiver of notice of any such meeting signed by a
stockholder or stockholders entitled to such notice, whether before, at or
after the time for notice or the time of the meeting, shall be equivalent to
notice. Neither the business to be transacted at, nor the purposes of, any
meeting need be specified in any written waiver of notice.

Section 7. Voting List.

The secretary shall prepare and make available, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing the
address and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, for a period of at
least ten days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present.

Section 8. Quorum.

Except as otherwise required by law, the Certificate of Incorporation
or these Bylaws, the holders of not less than one-third of the shares entitled
to vote at any meeting of the stockholders, present in person or by proxy,
shall constitute a quorum, and the act of the majority of such quorum shall be
deemed the act of the stockholders. If a quorum shall fail to attend any
meeting, the chairman of the meeting may adjourn the meeting from time to time,
without notice if the time and place are announced at the meeting, until a
quorum shall be present.

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At such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the original meeting. If the
adjournment is for more than thirty days or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.

If a notice of any adjourned special meeting of stockholders is sent
to all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then, notwithstanding the prior paragraph
and except as otherwise required by law, those present at such adjourned
meeting shall constitute a quorum, and all matters shall be determined by a
majority of votes cast at such meeting.

Section 9. Record Date.

In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting, or at any adjournment of a meeting of
stockholders; or entitled to receive payment of any dividend or other
distribution or allotment of any rights; or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock; or for the purpose of
any other lawful action; the board of directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors. The record date
for determining the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournments thereof shall not be more than
sixty nor less than ten days before the date of such meeting. The record date
for any other action shall not be more than sixty days prior to such action.
If no record date is fixed, (i) the record date for determining stockholders
entitled to notice of or to vote at any meeting shall be the close of business
on the day next preceding the day on which notice is given or, if notice is
waived by all stockholders, at the close of business on the day next preceding
the day on which the meeting is held; and (ii) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the board of directors adopts the resolution relating to such other
purpose. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.

Section 10. Procedure.

The order of business and all other matters of procedure at every
meeting of the stockholders may be determined by the presiding officer.

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<PAGE> 5
Article III

DIRECTORS

Section 1. Number.

Except as otherwise fixed pursuant to the provisions of the
Certificate of Incorporation, including Article 4 relating to the rights of the
holders of any class or series of stock having a preference over the common
stock, the number of directors shall be fixed from time to time exclusively by
resolutions adopted by the board of directors; provided, however, that the
number of directors shall at no time be less than three nor greater than eleven
and further provided that no decrease in the number of directors constituting
the board of directors shall shorten the term of any incumbent director.

Section 2. Election and Terms.

A director shall hold office until the next annual meeting after he is
elected and until his successor shall be elected and qualified, subject,
however, to such director's prior death, resignation, retirement,
disqualification or removal from office. Subject to the rights of holders of
any class or series of stock having a preference over the common stock,
nominations for the election of directors may be made by the board of directors
or a committee appointed by the board of directors or by any stockholder
entitled to vote in the election of directors generally. However, any
stockholder entitled to vote in the election of directors generally may
nominate one or more persons for election as directors at a meeting only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the secretary of the Corporation no later than (i)
with respect to an election to be held at an annual meeting of stockholders,
ninety days prior to the anniversary date of the immediately preceding annual
meeting, and (ii) with respect to an election to be held at a special meeting
of stockholders for the election of directors, the close of business on the
tenth day following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (a) the name and address of
the stockholder who intends to make the nomination and of the person or persons
to be nominated; (b) representation that the stockholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and

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<PAGE> 6

Exchange Commission; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected. The presiding officer of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure. Any director, or the entire Board of Directors, may
be removed with or without cause by a vote of the holders of a majority of all
classes of stock then entitled to vote.

Section 3. Newly Created Directorships and Vacancies.

Except as otherwise fixed pursuant to the provisions of Certificate of
Incorporation, including Article 4 relating to the rights of the holders of any
class or series of stock having a preference over the common stock, newly
created directorships resulting from any increase in the number of directors
and any vacancies on the board of directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office or a
sole remaining director, even though less than a quorum of the board of
directors. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the new directorship
which was created or in which the vacancy occurred and until such director's
successor shall have been elected and qualified.

Section 4. Regular Meetings.

The first meeting of each newly elected board of directors elected at
the annual meeting of stockholders shall be held immediately after and at the
same place as, the annual meeting of the stockholders, provided a quorum is
present, and no notice of such meeting shall be necessary in order to legally
constitute the meeting. Regular meetings of the board of directors shall be
held at such times and places as the board of directors may from time to time
determine.

Section 5. Special Meetings.

Special meetings of the board of directors may be called at any time,
at any place and for any purpose by the chairman of the executive committee,
the chairman of the board, the chief executive officer, or by any officer of
the Corporation upon the request of a majority of the entire board of
directors.

Section 6. Notice of Meetings.

Notice of regular meetings of the board of directors need not be
given.

Notice of every special meeting of the board of directors shall be
given to each director at his usual place of business or at such other address
as shall have been furnished by him for such purpose. Such notice shall be
properly and timely given if it is (a) deposited in the United States mail not
later than the third calendar day preceding the date of the meeting or

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(b) personally delivered, telegraphed, sent by facsimile transmission or
communicated by telephone at least twenty-four hours before the time of the
meeting. Such notice need not include a statement of the business to be
transacted at, or the purpose of, any such meeting.

Section 7. Waiver.

Attendance of a director at a meeting of the board of directors shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. A written waiver of notice signed by a director or
directors entitled to such notice, whether before, at, or after the time for
notice or the time of the meeting, shall be equivalent to the giving of such
notice.

Section 8. Quorum.

Except as may be otherwise provided by law, in the Certificate of
Incorporation, or in these Bylaws, the presence of a majority of the entire
board of directors shall be necessary and sufficient to constitute a quorum for
the transaction of business at any meeting of the board of directors, and the
act of a majority of the directors present at a meeting at which a quorum is
present shall be deemed the act of the board of directors. Less than a quorum
may adjourn any meeting of the board of directors from time to time without
notice.

Section 9. Participation in Meetings by Telephone.

Members of the board of directors, or of any committee thereof, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.

Section 10. Powers.

The business, property and affairs of the Corporation shall be managed
by or under the direction of its board of directors, which shall have and may
exercise all the powers of the Corporation to do all such lawful acts and
things as are not by law, by the Certificate of Incorporation, or by these
Bylaws, directed or required to be exercised or done by the stockholders.

Section 11. Compensation of Directors.

Directors shall receive such compensation for their services as shall
be determined by a majority of the entire board of directors, provided that
directors who are serving the Corporation as officers or employees and who
receive compensation

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for their services as such officers or employees shall not receive any salary
or other compensation for their services as directors.

Section 12. Action without a Meeting.

Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of
the board of directors or any committee thereof may be taken without a meeting
if written consent thereto is signed by all members of the board of directors
or of such committee, as the case may be, and such written consent is filed
with the minutes of proceedings of the board or committee. Any such consent
may be in counterparts and shall be effective on the date of the last signature
thereon unless otherwise provided therein.

Article IV

COMMITTEES

Section 1. Designation of Committees.

The board of directors may establish committees for the performance of
delegated or designated functions to the extent permitted by law, each
committee to consist of one or more directors of the Corporation. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of such absent or
disqualified member.

Section 2. Committee Powers and Authority.

The board of directors may provide, by resolution or by amendment to
these Bylaws, that a committee may exercise all the power and authority of the
board of directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; provided, however, that a committee may not
exercise the power or authority of the board of directors in reference to
amending the Certificate of Incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of shares of stock adopted by the board of directors, pursuant to Article 4 of
the Certificate of Incorporation, fix the designations and any of the
preferences or rights of shares of preferred stock relating to dividends,
redemption, dissolution, any distribution of property or assets of the
Corporation, or the conversion into, or the exchange of shares for, shares of
any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any

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<PAGE> 9
series of stock or authorize the increase or decrease of the shares of any
series), adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease, or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending
these Bylaws; and, unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.

Section 3. Committee Procedures.

To the extent the board of directors or the committee does not
establish other procedures for the committee, each committee shall be governed
by the procedures established in Article III, Section 4 (except as they relate
to an annual meeting of the board of directors) and Article III, Sections 5, 6,
7, 9, 10, and 12 of these Bylaws, as if the committee were the board of
directors.

Article V

OFFICERS

Section 1. Number.

The officers of the Corporation shall be appointed or elected by the
board of directors. The officers shall be a chief executive officer, a
president and a chief operating officer, such number of executive vice
presidents as the board of directors may from time to time determine, such
number of vice presidents as the board of directors may from time to time
determine, a secretary, such number of assistant secretaries as the board of
directors may from time to time determine, and a treasurer. Any person may
hold two or more offices at the same time. Section 2. Additional Officers.

The board of directors may appoint such other officers as it shall
deem appropriate.

Section 3. Term of Office, Resignation.

All officers, agents and employees of the Corporation shall hold their
respective offices or positions at the pleasure of the board of directors and
may be removed at any time by the board of directors with or without cause.
Any officer may resign at any time by giving written notice of his resignation
to the chief executive officer, the president or to the secretary, and
acceptance of such resignation shall not be necessary to make it effective
unless the notice so provides. Any vacancy occurring in any office shall be
filled by the board of directors.

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Section 4. Duties.

The officers of the Corporation shall perform the duties and exercise
the powers as may be assigned to them from time to time by the board of
directors or the president and chief executive officer. In the absence of such
assignment, the officers shall have the duties and powers described in Sections
5 through 10 of this Article V.

Section 5. Chairman of the Board, President and Chief Executive Officer.

The chairman of the board, president and chief executive officer shall
be the chairman of the board of directors and the chief executive officer of
the Corporation and any authority and duties conferred by law exclusively upon
the president, and, subject to the direction and control of the board of
directors, shall manage the business of the Corporation. The chairman of the
board, president and chief executive officer may execute contracts, deeds and
other instruments on behalf of the Corporation. As chairman of the board, he
shall preside at all meetings of the stockholders and directors at which he may
be present and shall have such other duties, powers and authority as may be
prescribed elsewhere in these Bylaws. The board of directors may delegate such
other authority and assign such additional duties to the chairman of the board
as it may from time to time determine. The chairman of the board, president
and chief executive officer shall have full authority on behalf of the
Corporation to attend any meeting, give any waiver, cast any vote, grant any
discretionary or directed proxy to any person, and exercise any other rights of
ownership with respect to any shares of capital stock or other securities held
by the Corporation and issued by any other corporation or with respect to any
partnership, trust or similar interest held by the Corporation.

Section 6. Executive Vice President and Chief Operating Officer.

The executive vice president and chief operating officer shall be the
chief operating officer of the Corporation and, subject to the direction and
control of the board of directors and the chairman of the board, president and
chief executive officer, shall manage the business of the Corporation. The
executive vice president and chief operating officer may execute contracts,
deeds and other instruments on behalf of the Corporation. In the absence of
the chairman of the board, president and chief executive officer or in the
event of his disability, inability or refusal to act, the executive vice
president and chief operating officer shall perform the duties and exercise the
power of the chairman of the board, president and chief executive officer. The
executive vice president and chief operating officer shall have full authority
on behalf of the Corporation to attend any meeting, give any waiver, cast any
vote, grant any discretionary or directed proxy to any person,

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and exercise any other rights of ownership with respect to any shares of
capital stock or other securities held by the Corporation and issued by any
other corporation or with respect to any partnership, trust or similar interest
held by the Corporation.

Section 7. Vice President.

Each vice president, if any, shall perform such functions as may be
prescribed by the board of directors, the chairman of the board, president and
the chief executive officer, or the executive vice president and chief
operating officer. Each vice president may execute contracts, deeds and other
instruments on behalf of the Corporation. The vice president shall have full
authority on behalf of the Corporation to attend any meeting, give any waiver,
cast any vote, grant any discretionary or directed proxy to any person, and
exercise any other rights of ownership with respect to any shares of capital
stock or other securities held by the Corporation and issued by any other
corporation or with respect to any partnership, trust or similar interest held
by the Corporation. Upon the death, disability or absence of the executive
vice president and chief operating officer, the vice president (or if more than
one holds office, the vice president among those present who has held such
office for the longest continuous period, unless another method of selection
has been established by resolution of the board of directors) shall perform the
duties and exercise the powers of the executive vice president and chief
operating officer. Each vice president shall perform such other duties as the
board, the chairman of the board, president and chief executive officer, the
executive vice president and chief operating officer may from time to time
prescribe or delegate to him.

Section 8. Secretary.

The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and, upon the request of a person entitled to call a
special meeting of the board of directors, he shall give notice of any such
special meeting. He shall keep the minutes of all meetings of the
stockholders, the board of directors, or any committee established by the board
of directors. The secretary shall be responsible for the maintenance of all
records of the Corporation and may attest documents on behalf of the
Corporation. The secretary shall perform such other duties as the board, the
chairman of the board, president and chief executive officer, the executive
vice president and chief operating officer or any vice president may from time
to time prescribe or delegate to him.

Section 9. Treasurer.

The treasurer shall be responsible for the control of the funds of the
Corporation and the custody of all securities owned by the Corporation. The
treasurer shall perform such other

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duties as the board, the chairman of the board, president and chief executive
officer, the executive vice president and chief operating officer or any vice
president may from time to time prescribe or delegate to him.

Section 10. Compensation.

Officers shall receive such compensation, if any, for their services
as may be authorized or ratified by the board of directors. Election or
appointment as an officer shall not of itself create a right to compensation
for services performed as such officer.

Article VI

INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES

Section 1. Directors and Officers.

Subject to the Certificate of Incorporation and the other sections of
this Article VI, the Corporation shall indemnify, to the fullest extent
permitted by, and in the manner permissible under, the laws of the State of
Delaware in effect on the date hereof and as amended from time to time, any
person who was or is threatened to be made, a party to any threatened, pending
or completed action, suit, or proceeding, whether criminal, civil,
administrative, or investigative, by reason of the fact that he, is or was a
director or officer of the Corporation, or, is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, association, or other
enterprise, against expenses (including attorneys' fees), judgments, fines,
ERISA excise taxes or penalties, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
including any action, suit or proceeding by or in the right of the Corporation
(a "Proceeding"). The Corporation shall advance all reasonable expenses
incurred by or on behalf of any such person in connection with any Proceeding
within ten days after the receipt by the Corporation of a statement or
statements from such person requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the expenses incurred by such
person and shall include or be preceded or accompanied by an undertaking by or
on behalf of such person to repay any expenses advanced if it shall ultimately
be determined that such person is not entitled to be indemnified against such
expenses. Costs, charges or expenses of investigating or defending Proceedings
for which indemnity shall be sought hereunder may be incurred without the
Corporation's consent; provided that no settlement of any such Proceeding may be
made

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without the Corporation's consent, which consent shall not be unreasonably
withheld.

Section 2. Determination of Right to Indemnification.

(a) Any indemnification requested by any person under Section 1 of
this Article VI shall be made no later than forty-five (45) days after receipt
of the written request of such person, unless a determination is made within
said forty-five (45) day period (i) by a majority vote of directors who are not
parties to such Proceedings, or (ii) in the event a quorum of non-involved
directors is not obtainable, at the election of the Corporation, by independent
legal counsel in a written opinion, that such person is not entitled to
indemnification hereunder.

(b) Notwithstanding a determination under Section 2(a) above that
any person is not entitled to indemnification with respect to a Proceeding,
such person shall have the right to apply to any court of competent
jurisdiction for the purpose of enforcing such person's right to
indemnification pursuant to these Bylaws. Neither the failure of the
Corporation (including its board of directors or independent legal counsel) to
have made a determination prior to the commencement of such action that such
person is entitled to indemnification hereunder, nor an actual determination by
the Corporation (including its board of directors or independent legal counsel)
that such person is not entitled to indemnification hereunder, shall be a
defense to the action or create any presumption that such person is not
entitled to indemnification hereunder.

(c) The Corporation shall indemnify any person against all
expenses incurred in connection with any hearing or Proceeding under this
Section 2 if such person prevails on the merits or otherwise in such
Proceeding.

Section 3. Subrogation.

In the event of payment under these Bylaws, the indemnifying party or
parties shall be subrogated to the extent of such payment to all of the rights
of recovery of the indemnified person therefor, and such indemnified person
shall execute all papers required and shall do everything that may be necessary
to secure such rights, including the execution of such documents necessary to
enable the indemnifying party or parties to effectively bring suit to enforce
such rights.

Section 4. Presumptions and Effect of Certain Proceedings.

(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that such person is entitled to indemnification
under this Article, and the Corporation shall have the burden of proof to
overcome that

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presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.

(b) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in these Bylaws) of itself adversely affect the right of any person to
indemnification or create a presumption that such person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that such person had reasonable cause to believe that his conduct
was unlawful.

Section 5. Exception to Right of Indemnification or Advancement of Expenses.

Notwithstanding any other provision of these Bylaws, no person shall
be entitled to indemnification or advancement of expenses under these Bylaws
with respect to any Proceeding brought by such person, unless the bringing of
such Proceeding or making of such claim shall have been approved by the board
of directors.

Section 6. Contract.

The foregoing provisions of this Article VI shall be deemed to be a
contract between the Corporation and each director and officer who serves in
such capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
Proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.

The foregoing rights of indemnification shall not be deemed exclusive
of any other rights to which any director or officer may be entitled apart from
the provisions of this Article VI.

Section 7. Surviving Corporation.

The board of directors may provide by resolution that references to
"the Corporation" in this Article VI shall include, in addition to this
Corporation, all constituent corporations absorbed in a merger with this
Corporation so that any person who was a director or officer of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, employee, or agent of another corporation,
partnership, joint venture, trust, association, or other entity shall stand in
the same position under the provisions of this Article VI with respect to this
Corporation as he would if he had served this Corporation in the same capacity
or is or was so

-14-
<PAGE> 15
serving such other entity at the request of this Corporation, as the case may
be.

Section 8. Inurement.

The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors, and administrators of such person.

Section 9. Employees and Agents.

To the same extent as it may do for a director or officer, the
Corporation may indemnify and advance expenses to a person who is not and was
not a director or officer of the Corporation but who is or was an employee or
agent of the Corporation.

Article VII

CAPITAL STOCK

Section 1. Certificates.

Each stockholder of the Corporation shall be entitled to a certificate
or certificates signed by or in the name of the Corporation by the chairman of
the board and chief executive officer, the president or a vice president, and
by the treasurer, an assistant treasurer, the secretary or an assistant
secretary, certifying the number of shares of stock of the Corporation owned by
such stockholder. Any or all the signatures on the certificate may be a
facsimile.

Section 2. Facsimile Signatures.

In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he, she
or it was such officer, transfer agent or registrar at the date of issue.

Section 3. Registered Stockholders.

The Corporation shall be entitled to treat the holder of record of any
share or shares of stock of the Corporation as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it has actual or other notice thereof, except as provided by law.

-15-
<PAGE> 16
Section 4. Cancellation of Certificates.

All certificates surrendered to the Corporation shall be cancelled
and, except in the case of lost, stolen or destroyed certificates, no new
certificates shall be issued until the former certificate or certificates for
the same number of shares of the same class of stock have been surrendered and
cancelled.

Section 5. Lost, Stolen or Destroyed Certificates.

The board of directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate or
certificates to be lost, stolen or destroyed. In its discretion, and as a
condition precedent to the issuance of any such new certificate or
certificates, the board of directors may require that the owner of such lost,
stolen or destroyed certificate or certificates, or such person's legal
representative, give the Corporation and its transfer agent or agents,
registrar or registrars a bond in such form and amount as the board of
directors may direct as indemnity against any claim that may be made against
the Corporation and its transfer agent or agents, registrar or registrars on
account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate.

Section 6. Transfer of Shares.

Shares of stock shall be transferable on the books of the Corporation
by the holder thereof, in person or by duly authorized attorney, upon the
surrender of the certificate or certificates representing the shares to be
transferred, properly endorsed, with such proof or guarantee of the
authenticity of the signature as the Corporation or its agents may reasonably
require.

Section 7. Transfer Agents and Registrars.

The Corporation may have one or more transfer agents and one or more
registrars of its stock, whose respective duties the board of directors may,
from time to time, define. No certificate of stock shall be valid until
countersigned by a transfer agent, if the Corporation shall have a transfer
agent, or until registered by the registrar, if the Corporation shall have a
registrar. The duties of transfer agent and registrar may be combined.

-16-
<PAGE> 17
Article VIII

SEAL

The board of directors may adopt and provide a seal which shall be
circular in form and shall bear the name of the Corporation and the words
"Seal" and "Delaware," and which, when adopted shall constitute the corporate
seal of the Corporation.

Article IX

FISCAL YEAR

The fiscal year for the Corporation shall be established by resolution
of the Board of Directors.

Article X

AMENDMENTS

Subject to the provisions of the Certificate of Incorporation, these
Bylaws may be altered, amended or repealed at any regular meeting of the
stockholders (or at any special meeting thereof duly called for that purpose)
by a majority vote of the shares represented and entitled to vote at such
meeting; provided that in the notice of such special meeting, notice of such
purpose shall be given. Subject to the laws of the State of Delaware, the
Certificate of Incorporation and these Bylaws, the board of directors may, by
majority vote of those present at any meeting at which a quorum is present,
amend these Bylaws, or enact such other Bylaws as in their judgment may be
advisable for the regulation of the conduct of the affairs of the Corporation.

----------------------------------------
Secretary

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<PAGE> 1
EXHIBIT 10.11

BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT

BioFactors, Inc.
1746 Cole Boulevard
Suite 265
Golden, CO 80401

Ladies and Gentlemen:

1. Purchase and Sale of the Units. BioFactors, Inc. ("BioFactors"
or the "Company") has authorized the issuance and sale of up to 10 Units to the
purchasers hereunder (individually, a "Purchaser," and collectively, the
"Purchasers") pursuant to the terms of the offer set forth in this Unit
Subscription Agreement (this "Agreement") dated as of October 3, 1996.

1.1 Subscription. The undersigned hereby tenders this
Agreement and applies for the purchase of the number of Units indicated on page
9 hereof, at a purchase price of Fifty Thousand Dollars ($50,000.00) per Unit
(the "Purchase Price"). Simultaneously with delivery of this Agreement, the
undersigned is delivering funds, in the full amount of the Purchase Price for
the Units for which he is subscribing, by wire transfer to the Escrow Account
as instructed by the Escrow Agent.

1.2 Description of the Units. Each Unit consists of:

(a) A promissory note of the Company in the
principal amount of Fifty Thousand Dollars ($50,000), bearing simple interest
at the rate of 10% per annum from the Closing (as defined below) (computed on
the basis of a 360-day year consisting of twelve 30-day months), substantially
in the form set forth in Exhibit A hereto (herein referred to individually as a
"Note" and collectively as the "Notes," which terms shall also include any
notes delivered in exchange or replacement therefor). The Notes shall mature
and the principal and all accrued interest payable thereon shall become due and
payable in full on March 31, 1997 (the "Maturity Date"); provided, however,
that, in the event the proposed IPO (defined in Section 2) is consummated prior
to the Maturity Date, the Note shall be paid within five (5) business days of
the date of disbursement of the proceeds of the IPO. The terms of the Notes
may be amended by Purchasers holding in the aggregate 50% or more of the
outstanding principal amount of the Notes.

(b) A warrant to purchase 50,000 shares ("Warrant
Shares") of the Company's common stock, $0.01 par value per share ("Common
Stock"), exercisable at any time commencing on the later of June 30, 1997 or
one year after the effective date of the Registration Statement (defined below)
relating to the IPO (the "IPO Effective Date") and terminating thirty-six (36)
months thereafter, at a price (as from time to time adjusted) per share of 120%
of the price per share to the public of the Common Stock at the IPO (the "IPO
Price"), substantially in the form set forth in Exhibit B hereto (herein
referred to as a "Warrant" and collectively as the "Warrants") (a Note and a
Warrant, together, being a "Unit"). The portion of the Purchase Price
allocated to each Warrant

<PAGE> 2
Share shall be $0.10 (being an aggregate of Five Thousand Dollars ($5,000.00)
on a Warrant to purchase 50,000 Warrant Shares), which is hereby agreed to be
the fair market value of such Warrant. The exercise price and the number of
Warrant Shares are subject to adjustment in the event of a split-up of shares
of the Company, the issuance by the Company of a stock dividend or similar
event as more fully set forth therein.

1.3 Agreement to Purchase. Subject to the terms and
conditions of this Agreement, each Purchaser agrees, severally, but not
jointly, to purchase at the Closing (as defined in Section 1.5), and the
Company agrees to sell and issue to each Purchaser at the Closing, Units as set
forth opposite each such Purchaser's name on the Schedule of Purchasers
attached hereto as Schedule A at the aggregate Purchase Price set forth
thereon.

1.4 Acceptance or Rejection. The undersigned understands
and agrees that the Company reserves the right to reject this subscription for
the Units in whole or in part in any order, if, in its sole discretion, it
deems such action in the best interest of the Company, at any time prior to the
Closing, notwithstanding prior receipt by the undersigned of notice of
acceptance of the undersigned's subscription. In the event of rejection of
this subscription, or in the event the sale of the Units subscribed for by the
undersigned is not consummated by the Company for any reason (in which event
this Subscription Agreement shall be deemed to be rejected), this Subscription
Agreement and any other agreement entered into between the undersigned and the
Company relating to this subscription shall thereafter have no force or effect
and the Company shall promptly return or cause to be returned to the
undersigned the purchase price remitted to the Company by the undersigned,
without interest thereon or deduction therefrom, in exchange for the Units.

1.5 Closing. The closing of this offering shall take
place at 10:00 a.m., Denver time, on October 11, 1996, at the offices of Davis,
Graham & Stubbs LLP, 370 Seventeenth Street, Suite 4700, Denver, Colorado, or
at such other date, time and place as shall be designated by the Company (the
"Closing"). At or promptly after the Closing, the Company will execute and
deliver the Notes and the Warrants, each dated the date of the Closing, to each
Purchaser against receipt of the full Purchase Price.

2. Planned Initial Public Offering; Warrant Adjustment.

2.1 Initial Public Offering. The term "IPO" as used
herein shall mean the proposed underwritten initial public offering of the
Company's securities, or the securities of a holding company formed to hold the
capital stock of BioFactors, pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended (the "Securities Act"). The
undersigned understands and agrees that there can be no assurances that a
registration statement ("Registration Statement") will be filed or, if filed,
will be declared effective by the Securities and Exchange Commission (the
"Commission") or, if the Registration Statement is declared effective by the
Commission, that the Company, or the holding company as the case may be, will
be able to consummate such IPO.

2.2 Warrant Adjustments. If, prior to or concurrently
with the IPO, BioFactors is merged with another entity (the "Merger") for the
purposes of forming a holding company to hold the capital stock of BioFactors
("Newco"), wherein Newco is the registrant in the IPO and, if upon such
Merger, the exchange ratio of BioFactors Common Stock to Newco common stock is
not one-to-one, then the number of shares of BioFactors Common Stock for which
each Warrant is exercisable immediately prior to the Merger shall be adjusted
such that upon the Merger exchange the Warrant

-2-

<PAGE> 3
shall be exercisable for the same number of shares of Newco common stock as it
would have been exercisable for BioFactors Common Stock but for the Merger.

3. Registration Rights. The Company agrees to enter into a
registration rights agreement substantially in the form set forth in Exhibit C
hereto (the "Rights Agreement") with each of the Purchasers.

4. Representations and Warranties of the Purchasers. Each
Purchaser severally, but not jointly, hereby represents and warrants to, and
agrees with, the Company that:

4.1 Such Purchaser is aware that the investment in the
Units involves a high degree of risk of loss of his or its entire investment.

4.2 Such Purchaser has received the Executive Summary of
the Company's business plan dated October 3, 1996, the unaudited balance sheets
of the Company as of December 31, 1995 and as of June 30, 1996, and the
unaudited income statement for the year ended December 31, 1995 and for the
period ended June 30, 1996 (collectively, the "Financial Statements"), and
understands and acknowledges that there is no assurance that the business plan
will be accomplished or as to the future performance of the Company.

4.3 The undersigned represents and warrants that he
understands that, as a result of certain subsequent events, the information
contained in the Company's Confidential Private Offering Memorandum dated
September 12, 1996 is stale, materially incorrect and cannot be relied upon in
making an investment decision. The undersigned further represents and warrants
that he has not relied upon the information contained in the Company's
Confidential Private Offering Memorandum dated September 12, 1996 in making his
decision on whether or not to invest in the Units.

4.4 Such Purchaser understands and acknowledges that
there may be certain adverse tax consequences to him or it in connection with
his or its purchase of the Units (including, but not limited to, the tax
consequences described in Section 7), that the Company is not giving and has
not given any advice on the tax consequences of the investment and that the
Company has advised all the Purchasers to seek the advice of their own experts
in such areas prior to making this investment.

4.5 This Agreement has been duly executed and delivered
by such Purchaser and constitutes such Purchaser's valid and legally binding
obligations, enforceable in accordance with its terms. Each Purchaser
represents that he or it has full power and authority to enter into this
Agreement.

4.6 The Confidential Investor Questionnaire being
delivered by the Purchaser to the Company simultaneously herewith is true,
complete and correct in all material respects; and the Purchaser understands
that the Company has determined that the exemption of the Units from the
registration provisions of the Securities Act pursuant to Regulation D thereof,
which is available for non-public offerings, is applicable to the offer and
sale of the Units, and that such determination is based in part upon the
representations, warranties and agreements made by the Purchaser herein and in
the Purchaser's Confidential Investor Questionnaire.

4.7 The Note and the Warrant to be received by such
Purchaser pursuant to the terms hereof (collectively, the "Securities"), will
be acquired for investment for such Purchaser's own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part
thereof,

-3-
<PAGE> 4
and such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. Notwithstanding such
representations, the undersigned realizes that the basis for the exemption may
not be present if the undersigned has in mind merely acquiring the Securities
for a fixed or determined period in the future, or for a market rise, or for
sale if the market does not rise. The undersigned does not have any such
intention.

4.8 Such Purchaser understands that the Securities he or
it is receiving hereunder are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Securities Act of 1933, as amended (the "Act"), only in
certain limited circumstances, in particular, the Securities may not be sold
pursuant to Rule 144 promulgated under the Act ("Rule 144") unless all of the
conditions of Rule 144 are met. The undersigned also understands that, except
as otherwise provided herein, the Company is under no obligation to register
the Units or any of the components of the Units on his or its behalf or to
assist him or it in complying with any exemption from registration under the
Securities Act or applicable state securities laws. The undersigned further
understands that sales or transfers of the Units and the components of the
Units are further restricted by state securities laws and the provisions of
this Agreement.

4.9 The undersigned's overall commitment to investments
which are not readily marketable is not disproportionate to the undersigned's
net worth, and an investment in the Units will not cause such overall
commitment to become excessive.

4.10 The undersigned is not relying on the Company, or its
affiliates, with respect to economic considerations involved in this
investment. The undersigned represents and warrants that he or it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Units and has obtained,
in his or its own judgment, sufficient information from the Company to evaluate
the merits and risks of an investment in the Company. The undersigned further
represents and warrants that he or it has not utilized any person as a
purchaser representative as such term is defined in Regulation D in connection
with evaluating such merits and risks, but rather has relied solely upon his or
its own investigation in making a decision to invest in the Company.

4.11 No representations or warranties have been made to
the Purchaser by the Company or any of its directors, agents, employees or
affiliates; and in entering into this transaction the Purchaser is not relying
upon any information other than that contained in the Financial Statements
distributed and the results of independent investigations, if any, by the
Purchaser.

4.12 The undersigned represents and warrants that he or it
has had a reasonable opportunity to ask questions and to receive satisfactory
answers concerning the offering and other matters pertaining to his or its
investment and all such questions have been answered to the Purchaser's full
satisfaction; the Purchaser further represents and warrants that he or it has
had reasonable opportunity to obtain all the information he or it considers
necessary or appropriate for deciding whether to purchase the Units.

4.13 The undersigned represents and warrants that he or it
is an "Accredited Investor" within the meaning of Rule 501(a) of Regulation D,
promulgated under the Act.

-4-
<PAGE> 5
4.14 The undersigned represents and warrants that he or it
is not a "member," an "affiliate" of a member, or a "person associated with a
member" of the National Association of Securities Dealers, Inc. (the "NASD")
within the meaning of Section 3 of the NASD Bylaws.

4.15 The address set forth on the signature page hereto is
the Purchaser's true and correct domicile, and the Purchaser has no present
intention of becoming a resident of any other state or jurisdiction.

4.16 Without in any way limiting the representations set
forth above, such Purchaser further agrees not to make any disposition of the
Securities unless there is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or such Purchaser shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a statement of the circumstances surrounding the proposed
disposition, and, if reasonably requested by the Company, such Purchaser shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
shares under the Act. It is agreed that the Company will not require opinions
of counsel for transactions made pursuant to Rule 144 except if reasonably
requested by the Company.

4.17 It is understood that the Securities may bear one or
all of the following legends:

(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR APPLICABLE
STATE SECURITIES LAWS PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT, BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE
WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY
ACCEPTABLE TO THE CORPORATION THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH
ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT, AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW."

(b) Any legend required by the laws of the State
of Delaware or applicable state securities laws.

5. Conditions of Purchaser's Obligations at Closing. The
obligations of each Purchaser under Section 1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions,
the waiver of which shall not be effective against any Purchaser who does not
consent in writing thereto:

5.1 Performance. The Company shall have performed and
complied with all agreements, obligations, and conditions contained in this
Agreement that are required to be performed or complied with, and shall have
obtained all necessary consents, approvals and waivers as are necessary or
appropriate for consummation of the transactions contemplated by this
Agreement, on or before the Closing.

-5-
<PAGE> 6
5.2 Qualifications. The Company shall have obtained all
necessary Blue Sky law permits and qualifications, or secured exemptions
therefrom, required by any state for the offer and sale of the Units.

5.3 Minimum Subscription. The Company shall have
accepted subscriptions, and received cleared funds, for the purchase of at
least six (6) units offered pursuant hereto.

5.4 Rights Agreement. The Company and the Purchasers
shall have executed the Rights Agreement.

6. Conditions of the Company's Obligations at Closing. The
obligations of the Company to the Purchasers under this Agreement are subject
to the fulfillment on or before the Closing of the following conditions:

6.1 Representations and Warranties. The representations
and warranties of the Purchasers contained in Section 4 shall be true on and as
of the Closing.

6.2 Payment of Purchase Price. The Purchasers shall have
delivered the aggregate Purchase Price for the Units as specified in Section
1.1.

6.3 Minimum Subscription. The Company shall have
accepted subscriptions, and received cleared funds, for the purchase of at
least six (6) units offered pursuant hereto.

7. Certain Tax Consequences. Each Purchaser hereby acknowledges
that for federal income tax purposes the purchase price of each Unit is
required to be allocated between the Note and the Warrant, that the amount
allocable to the Note will be less than the principal amount of the Note, and
that the allocation of consideration made herein between the Note and the
Warrant (being $45,000 and $5,000, respectively, per Unit) shall be binding
upon each Purchaser unless such Purchaser explicitly discloses on his tax
return that it is making a different allocation. It is further understood that
such allocation does not bind the Internal Revenue Service ("IRS"), and in the
event the IRS determines that the fair market value of the Warrant is greater
than the amount of the Purchase Price allocated to the Warrant based on the
fair market value per Warrant Share set forth in Section 1.2(b), the cost basis
of the Note would have to be reduced by the amount of such excess and the Note
would be deemed to be issued at a further discount. Individual cash basis
holders of Notes must report the difference between the allocated cost of the
Notes and the aggregate principal and interest received as ordinary income upon
payment of the Notes. Gain on the sale or exchange of a discounted Note will
be ordinary income up to the accrued portion of the discount and interest.
Other Note holders are subject to the rules under Internal Revenue Code
Sections 1281-1283 regarding the ratable accrual of the discount and interest
on short-term obligations.

8. Indemnity. The undersigned agrees to indemnify and hold
harmless the Company, its officers and directors, employees and its affiliates
and each other person, if any, who controls any thereof, against any loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation commenced or threatened or any claim
whatsoever) arising out of or based upon any false representation or warranty
or breach or failure by the undersigned to comply with any covenant or
agreement made by the undersigned herein or in any other document furnished by
the undersigned to any of the foregoing in connection with this transaction.

-6-
<PAGE> 7
9. Miscellaneous.

9.1 Survival of Warranties. The warranties,
representations, and covenants of the Company and the Purchasers contained in
or made pursuant to this Agreement shall survive the execution and delivery of
this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Purchasers or the Company.

9.2 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

9.3 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of Colorado, disregarding any
Colorado principles of conflicts of laws that otherwise would provide for the
application of the substantive laws of another jurisdiction.

9.4 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.

9.5 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

9.6 Finder's Fee. Except for fees, if any, paid by the
Company to selected agents employed by the Company in connection with the sale
of the Units, each party represents that it neither is nor will be obligated
for any finder's fee or commission in connection with this transaction. The
Purchaser agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Purchaser or any of its officers, partners, employees
or representatives is responsible.

9.7 Notices. Unless otherwise provided, all notices,
offers, acceptances and any other acts required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified, upon receipted delivery by
facsimile transmission, one (1) day after deposit with Federal Express or
similar air courier, two (2) days in the case of non-U.S. purchasers, or four
(4) days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid, and addressed to the party to be notified at
the address indicated below for such party, or at such other address as such
party may designate by ten (10) days' advance written notice to the other, as
follows:

Purchaser: At the address designated on the appropriate
signature page of this Agreement.

The Company: BioFactors, Inc.
1746 Cole Boulevard, Suite 265
Golden, CO 80401
Attn: General Counsel

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<PAGE> 8
Tel: 303-271-0505
Fax: 303-271-9493

9.8 Entire Agreement; Amendments and Waivers. This
Agreement and the Notes constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of Notes representing a majority of the
aggregate principal amount of all of the Notes then outstanding. Any amendment
or waiver effected in accordance with this Section 9.8 shall be binding upon
each holder of any securities acquired under this Agreement at the time
outstanding (including securities, if any, for which any such securities are
convertible or exercisable), each future holder of all such securities, and the
Company.

9.9 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-8-
<PAGE> 9
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

ALL SUBSCRIBERS MUST COMPLETE THIS PAGE

<TABLE>
<CAPTION>
<S> <C> <C>
x $50,000 Per Unit = $
--------------------- ---------------------
# Units Subscribed For Purchase Price
</TABLE>

Manner in which Title is to be held (Please Check One):

<TABLE>
<S> <C>
[ ] Individual [ ] Trust/Estate/Pension or Profit
Sharing Plan
Date Opened:
-----------------
[ ] Joint Tenants with Right of [ ] As a Custodian for
Survivorship ------------------------------------
Under the Uniform Gift to Minors Act
of the State of
------------------------------------

[ ] Community Property [ ] Married with Separate Property

[ ] Tenants in Common [ ] Keogh

[ ] Corporation/Partnership/ [ ] Tenants by the Entirety
Limited Liability Company

[ ] IRA
</TABLE>

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

IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE PAGES 10 AND 11.
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGES 12 AND 13.

-9-
<PAGE> 10
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
day of , 1996.
- ------ --------
Dr. Kenneth A. Barton
- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Dr. Kenneth A. Barton
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

836 Hwy 34
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

Monmouth, NJ 07747
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

###-##-####
------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Kenneth A. Barton
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5 day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-10-
<PAGE> 11
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
31st day of October, 1996.

Santanu Das
- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Santanu Das
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

14 Hunter Ridge
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

Monroe, CT 06462
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

###-##-####
------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Santanu Das
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-10-
<PAGE> 12
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
14th day of October, 1996.

Robert Gilman
- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Robert Gilman
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

505 Tadmore Ct.
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

Schaumburg, IL 60194
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

###-##-####
------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Robert Gilman
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-10-
<PAGE> 13
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
day of , 1996.
- ------ --------

- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Dr. Gilbert Glass
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

65 Hance Rd.
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

Fairhaven, NJ 07704
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

###-##-####
------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Gilbert L. Glass
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-10-
<PAGE> 14
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
5th day of November, 1996.

Esmond T. Goei
- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Esmond T. Goei
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

4486 Hogan Court
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

Longmont, CO 80503
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

###-##-####
------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Esmond T. Goei
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Douglas S. Zorn
------------------------------------
Name: Douglas S. Zorn
Title: Vice President & COO

-10-
<PAGE> 15
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
10th day of October, 1996.

Low Keng Tee
- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Low Keng Tee
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

BIK. 541, Hougang Ave. 8,
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

#07-1209, Singapore 530541
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Low Keng Tee
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-10-
<PAGE> 16
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
1st day of November, 1996.

Edward Marucci
- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Edward Marucci
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

40 Andrea Dr.
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

N. Caldwell, NJ 02006
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

###-##-####
------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Edward Marucci
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-10-
<PAGE> 17
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
31st day of October, 1996.

Gary R. Perrine and Rebecca C. Perrine, JTWRS
- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Gary R. Perrine Rebecca C. Perrine
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

2470 Tarpon Rd. 2470 Tarpon Rd.
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

Naples, FL 34102 Naples, FL 34102
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

###-##-#### ###-##-####
------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Gary R. Perrine /s/ Rebecca C. Perrine
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-10-
<PAGE> 18
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
2nd day of November, 1996.

Alfred B. & Cheryl M. Schwimer, JTWROS
- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Alfred Schwimer Cheryl Schwimer
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

5450 Whitley Park Terr. 5450 Whitley Park Terr.
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

Bethesda, MD 20814 Bethesda, MD 20814
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

###-##-#### ###-##-####
------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Alfred Schwimer /s/ Cheryl Schwimer
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-10-
<PAGE> 19
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY NATURAL PERSONS

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
5th day of November, 1996.

Douglas S. Zorn
- --------------------------------------------------------------------------------
Print Exact Name in Which Title is to be Held

<TABLE>
<S> <C>
Douglas S. Zorn
------------------------------------------- ------------------------------------------
Name (Please Print) Name of Additional Purchaser

33 Golden Eagle Lane
------------------------------------------- ------------------------------------------
Residence: Number and Street Address of Additional Purchaser

Littleton, CO 80127
------------------------------------------- ------------------------------------------
City, State and Zip Code City, State and Zip Code

###-##-####
------------------------------------------- ------------------------------------------
Social Security Number Social Security Number

/s/ Douglas S. Zorn
------------------------------------------- ------------------------------------------
(Signature) (Signature of Additional Purchaser)
</TABLE>

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-10-
<PAGE> 20
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, Trust, Etc.)

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
30th day of October, 1996.

Admiral Capital Corporation
- --------------------------------------------------------------------------------
Name of Entity (Please Print)

Date of Incorporation or Organization: May 26, 1993

State of Principal Offices: California

Federal Taxpayer Identification: 94-2899100

By: /s/ Gary L. Nemetz
-----------------------------------------
Name: Gary L. Nemetz
Title: President

[seal]

Admiral Capital Corp.
- ------------------------------------ ------------------------------
(If Entity is a Corporation) 2420 Sand Hill Rd., Suite 101
Menlo Park, CA 94025
415-854-9479
------------------------------
Address

94-2899100
------------------------------
Taxpayer Identification Number

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Douglas S. Zorn
------------------------------------
Name: Douglas S. Zorn
Title: Vice President & COO

-12-
<PAGE> 21
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, Trust, Etc.)

IN WITNESS WHEREOF, the undersigned has executed this Agreement on the
31st day of October, 1996.

Voice Plus, Inc.
- --------------------------------------------------------------------------------
Name of Entity (Please Print)

Date of Incorporation or Organization: 1987

State of Principal Offices: California

Federal Taxpayer Identification: 22 2710213

By: /s/ James S. Gillespie
-----------------------------------------
Name: James S. Gillespie
Title: President

[seal]

39899 Balentine D.
- ------------------------------------ ------------------------------
(If Entity is a Corporation) Suite 350
Newark, CA 94560
------------------------------
Address

###-##-####
------------------------------
Taxpayer Identification Number

ACCEPTED this 5th day of November, 1996, on behalf of the Company.

BIOFACTORS, INC.

By: /s/ Esmond T. Goei
------------------------------------
Name: Esmond T. Goei
Title: President & CEO

-12-
<PAGE> 22
BIOFACTORS, INC.
UNIT SUBSCRIPTION AGREEMENT
DATED AS OF OCTOBER 3, 1996

SCHEDULE A

SCHEDULE OF PURCHASERS

NAME OF NUMBER OF AGGREGATE
PURCHASER UNITS PURCHASE PRICE
--------- ----- --------------

A-1
<PAGE> 23
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, BUT ONLY UPON A
HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE
SECURITIES ACT, AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW.

No. of Shares of Common Stock: Warrant No.
------------ --------------

BIOFACTORS, INC.
COMMON STOCK
PURCHASE WARRANT

THE TRANSFERABILITY OF THIS WARRANT IS
RESTRICTED AS PROVIDED IN SECTION 3

THIS IS TO CERTIFY THAT ________________, or registered assigns, is entitled to
purchase from BioFactors, Inc., a Delaware corporation (hereinbelow called the
"Issuer" or the "Company"), at any time commencing on the one-year anniversary
of the IPO Effective Date, but not later than 5:00 p.m. Denver time, on the
four-year anniversary of the IPO Effective Date (the "Expiration Date"),
_________shares of Common Stock, in whole or in part, at an initial exercise
price equal to 120% of the IPO Price (subject to adjustment as provided
herein), ____________, all on the terms and conditions hereinbelow provided.

Section 1. Certain Definitions. As used in this Warrant,
unless the context otherwise requires:

"Common Stock" shall mean the Issuer's authorized Common
Stock, par value $0.01 per share.
<PAGE> 24
"Common Stock Warrants" shall mean this Warrant and those
other Warrants for the purchase of up to 500,000 shares, in the aggregate, of
Common Stock, which were issued by the Issuer pursuant to the Unit Subscription
Agreement dated as of October 3, 1996 by and among the Company and the
Purchasers named therein (the "Agreement").

"Exercise Price" shall mean the purchase price per share of
Common Stock as set forth on the first page of this Warrant, as adjusted from
time to time pursuant to Section 4 hereof.

"IPO" shall mean the underwritten initial public offering of
securities of the Company or the Registrant (as defined in the Agreement)
pursuant to a registration statement filed with the Securities and Exchange
Commission of 1933, as amended "the "Securities Act").

"IPO Effective Date" shall mean the effective date of the
registration statement filed in connection with the IPO.

"IPO Price" shall mean the price at which a share of Common
Stock is offered to the public in the IPO.

"Marketable Securities" shall mean securities registered under
the Securities Act and, if such securities are held by an affiliate of the
Issuer, which are permitted to be sold under Rule 144 in a single ninety-day
period.

"Warrant Stock" shall mean the shares of Common Stock
purchasable by the holder of a Warrant upon the exercise of such Warrant.

"Warrant" shall mean this Warrant and all additional or new
warrants issued upon division or combination of, or in substitution for, this
Warrant. All such additional or new warrants shall at all times be identical
as to terms and conditions and date, except as to the number of shares of
Common Stock for which they may be exercised.

Section 2. Exercise of Warrant. The holder of this Warrant
may, at any time commencing on the one-year anniversary of the IPO Effective
Date, but not later than the Expiration Date, exercise this Warrant in whole at
any time or in part from time to time for the number of shares of Common Stock
which such holder is then entitled to purchase hereunder.

The holder of this Warrant may exercise this Warrant, in whole
or in part by delivering to the Issuer at its office maintained for such
purpose pursuant to Section 16, (i) a written notice of such holder's election
to exercise this Warrant, which notice shall specify the number of shares of
Common Stock to be purchased, (ii) this Warrant and (iii) a sum equal to the
aggregate Exercise Price for such shares of Common Stock in immediately
available funds.

Such notice shall be in the form of Subscription set out at
the end of this Warrant. Upon delivery thereof, the Issuer shall cause to be
executed and delivered to such holder within ten business days a certificate or
certificates representing the aggregate number of fully-paid and nonassessable
shares of Common Stock issuable upon such exercise.

-2-
<PAGE> 25
Subject to the restrictions in Sections 12 and 13, the stock
certificate or certificates for Warrant Stock so delivered shall be in such
denominations as may be specified in said notice and shall be registered in the
name of such holder or such other name or names as shall be designated in said
notice. Such certificate or certificates shall be deemed to have been issued
and such holder or any other person so designated to be named therein shall be
deemed to have become a holder of record of such shares, including to the
extent permitted by law the right to vote such shares or to consent or to
receive notice as a stockholder, as of the time said notice is delivered to the
Issuer as aforesaid. If this Warrant shall have been exercised only in part,
the Issuer shall, at the time of delivery of said certificate or certificates,
deliver to such holder a new Warrant dated the date it is issued, evidencing
the rights of such holder to purchase the remaining shares of Common Stock
called for by this Warrant, which new Warrant shall in all other respects be
identical with this Warrant, or, at the request of such holder, appropriate
notation may be made on this Warrant and the Warrant shall be returned to such
holder.

The Issuer shall pay all expenses, taxes and other charges
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2.

All shares of Common Stock issuable upon the exercise of this
Warrant in accordance with the terms hereof shall be validly issued, fully paid
and nonassessable, and free from all liens and other encumbrances thereon,
other than liens or other encumbrances created by the holder hereof.

The Issuer will not close its books in any manner which
interferes with the timely exercise of this Warrant. The Issuer will from time
to time take all such action as may be necessary to assure that the par value
per share of the unissued Common Stock acquirable upon exercise of this Warrant
is at all times equal to or less than the Exercise Price then in effect.

In no event shall any fractional share of Common Stock of the
Issuer be issued upon any exercise of this Warrant.

Section 3. Restrictions Upon Transferability. Neither this
Warrant nor any Warrant Stock issuable upon exercise hereof has been registered
under the Securities Act, and none of such securities may be offered, sold,
pledged, hypothecated, assigned or transferred except (i) pursuant to a
registration statement under such Act which has become effective and is current
with respect to such securities, or (ii) pursuant to a specific exemption from
registration under the Securities Act, but only upon a holder thereof first
having obtained the written opinion of counsel to the Issuer, or other counsel
reasonably acceptable to the Issuer, that the proposed disposition is
consistent with all applicable provisions of the Securities Act, as well as any
applicable "blue sky" or other state securities law. Upon exercise, in part or
in whole, of this Warrant, each certificate issued representing shares of
Warrant Stock underlying this Warrant shall bear a legend to the foregoing
effect.

-3-
<PAGE> 26
Section 4. Adjustment of Exercise Price and Warrant Stock.
If the Issuer shall at any time prior to the Expiration Date subdivide its
outstanding Common Stock, by split-up or otherwise, or combine its outstanding
Common Stock, or issue additional shares of its Common Stock in payment of a
stock dividend in respect of its Common Stock, the number of shares of Warrant
Stock then issuable on the exercise of the unexercised portion of this Warrant
shall forthwith be proportionately increased in the case of a subdivision or
stock dividend, or proportionately decreased in the case of a combination, and
the Exercise Price then applicable to shares covered by the unexercised portion
of this Warrant shall forthwith be proportionately decreased in the case of a
subdivision or stock dividend, or proportionately increased in the case of a
combination, but in all cases without regard to fractions. Whenever the
Exercise Price is adjusted as herein provided, the Issuer shall promptly
deliver to the registered holder of this Warrant a certificate of its principal
financial officer setting forth the Exercise Price after such adjustment and a
brief statement of the facts requiring such adjustment.

Section 5. Division and Combination. This Warrant, subject
to Sections 12 and 13, may be divided or combined with other Warrants upon
presentation at the aforesaid office of the Issuer, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued, signed by the holder hereof or its agent or attorney. The Issuer shall
pay all expenses, taxes and other charges incurred by the Issuer in the
performance of its obligations in connection with the preparation, issue and
delivery of Warrants under this Section 5. The Issuer agrees to maintain at
its aforesaid office books for the registration of the Warrants.

Section 6. Reclassification, Etc. In case of any
reclassification or change of the outstanding Common Stock of the Issuer (other
than as a result of a subdivision, combination or stock dividend), or in case
of any consolidation of the Issuer with, or merger of the Issuer into, another
corporation or other business organization (other than a consolidation or
merger in which the Issuer is the continuing corporation and which does not
result in any reclassification or change of the outstanding Common Stock of the
Issuer), at any time prior to the expiration of this Warrant, then, as a
condition of such reclassification, reorganization, change, consolidation or
merger, lawful provision shall be made, and duly executed documents evidencing
the same from the Issuer or its successor shall be delivered to the registered
holder of this Warrant, so that the registered holder of this Warrant shall
have the right prior to the expiration of this Warrant to purchase, at a total
price not to exceed that payable upon the exercise of the unexercised portion
of this Warrant, the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, reorganization, change,
consolidation or merger by a holder of the number of shares of Common Stock of
the Issuer which might have been purchased by the registered holder of this
Warrant immediately prior to such reclassification, reorganization, change,
consolidation or merger, and in any such case appropriate provisions shall be
made with respect to the rights and interest of the registered holder of this
Warrant to the end that the provisions hereof (including without limitation,
provisions for the adjustment of the Exercise Price and of the number of shares
purchasable upon exercise of this Warrant) shall thereafter be applicable in
relation to any shares of stock and other securities and property thereafter
deliverable upon exercise hereof. Notwithstanding the foregoing, if pursuant
to the terms of such

-4-
<PAGE> 27
consolidation or merger, the consideration to be received by the holders of
Common Stock of the Issuer is cash and/or Marketable Securities, this Warrant
shall expire to the extent unexercised on the closing of such merger or
consolidation.

Section 7. Certain Notices. If at any time prior to the
expiration or exercise of this Warrant, the Issuer shall pay any dividend or
make any distribution upon its Common Stock or shall make any subdivision or
combination of or other change in its Common Stock, the Company shall cause
notice thereof to be mailed, first class, postage prepaid, to the registered
holder of this Warrant at least ten days prior to the date as of which holders
of Common Stock who shall participate in such dividend, distribution,
subdivision, combination or other change are to be determined. Such notice
shall also specify the time as of which holders of Common Stock who shall
participate in such event are to be determined. The Company shall also provide
to the registered holder of this Warrant at least ten days prior written notice
of the closing of the sale of shares of Common Stock in an underwritten public
offering pursuant to an effective registration statement under the Securities
Act. Failure to give any such notice, or any defect therein, shall not affect
the legality or validity of any such event.

Section 8. Reservation and Authorization of Common Stock;
Registration with or Approval of any Governmental Authority. The Issuer shall
at all times reserve and keep available for issuance upon the exercise of
Warrants such number of its authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of all outstanding Warrants.

Section 9. Stock and Warrant Books. The Issuer will not at
any time, except upon dissolution, liquidation or winding up, close its stock
books or Warrant books so as to result in preventing or delaying the exercise
of any Warrant.

Section 10. Elimination of Fractional Interests. The Issuer
shall not be required to issue certificates representing fractions of shares on
the exercise of this Warrant, nor shall it be required to issue scrip or pay
cash in lieu of fractional interests, it being the intent of the parties that
all fractional interests shall be eliminated.

Section 11. No Voting Rights. This Warrant shall not entitle
the holder hereof to any voting rights or other rights as a stockholder of the
Issuer.

Section 12. Transfer. This Warrant and all rights hereunder
is not transferable in whole or in part, except, in the case of a corporation
or partnership, by distribution to shareholders or partners of the holder, and,
in the case of an individual, to an immediate family member or by will or the
laws of descent and distribution or pursuant to a domestic relations order. A
permitted transfer shall be made at the office or agency of the Issuer at which
this Warrant is exercisable, by the registered holder hereof in person or by
duly authorized attorney, upon surrender of this Warrant together with the
assignment hereof properly endorsed, and promptly thereafter a new warrant
shall be issued and delivered by the Issuer, registered in the name of the
assignee. Until registration of transfer hereof on the books of the Issuer,
the Issuer may treat the registered holder hereof as the owner hereof for all
purposes.

-5-
<PAGE> 28
Section 13. Investment Representations; Restrictions on
Transfer of Warrant Stock. Unless a current registration statement under the
Securities Act, shall be in effect with respect to the Warrant Stock to be
issued upon exercise of this Warrant, the registered holder hereof, by
accepting this Warrant, covenants and agrees that, at the time of exercise
hereof, and at the time of any proposed transfer of securities acquired upon
exercise hereof, such registered holder will deliver to the Issuer a written
statement that the securities acquired by the registered holder upon exercise
hereof are for the account of the registered holder or are being held by the
registered holder as trustee, investment manager, investment advisor or as any
other fiduciary for the account of the beneficial owner or owners for
investment and are not acquired with a view to, or for sale in connection with,
any distribution thereof (or any portion thereof) and with no present intention
(at any such time) of offering and distributing such securities (or any portion
thereof). Further, the registered holder shall comply with such provisions of
applicable state securities laws as counsel to the Issuer or other counsel
reasonably acceptable to the Issuer shall advise.

Section 14. Loss, Destruction of Warrant Certificates. Upon
receipt of evidence reasonably satisfactory to the Issuer of the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity and/or security satisfactory to
the Issuer, and reimbursement to the Issuer of all reasonable expenses
incidental thereto, and upon surrender and cancellation of such Warrant, if
mutilated, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing
the right to purchase the same aggregate number of shares of Common Stock.

Section 15. Amendments. The terms of this Warrant may be
amended, and the observance of any term herein may be waived, but only with the
written consent of the Issuer as authorized by its Board of Directors and the
holder of this Warrant or the holders of Common Stock Warrants then exercisable
for a majority of the shares of Common Stock issuable upon exercise of all of
the then outstanding Common Stock Warrants.

Section 16. Office of the Issuer. So long as any of the
Warrants remains outstanding, the Issuer shall maintain an office in Colorado
where the Warrants may be presented for exercise, transfer, division or
combination as in this Warrant provided. Such office shall be at 1746 Cole
Boulevard, Suite 265, Golden, Colorado, 80401, unless and until the Issuer
shall designate and maintain some other office for such purposes and deliver
written notice thereof to the holders of all outstanding Warrants.

Section 17. Notices Generally. Any notice, demand or
delivery pursuant to the provisions hereof shall be sufficiently delivered or
made if sent by first class mail, postage prepaid, addressed to any holder of a
Warrant at its last known address appearing on the books of the Issuer, or,
except as herein otherwise expressly provided, to the Issuer at its principal
executive office at 1746 Cole Boulevard, Suite 265, Golden, Colorado, 80401, or
such other address as shall have been furnished to the party giving or making
such notice, demand or delivery.

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<PAGE> 29
Section 18. Successors and Assigns. This Warrant shall bind
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, and, without limiting the generality of the
foregoing, shall inure to the benefit of and be enforceable by each person who
shall from time to time be a holder of any of the Warrants.

Section 19. Governing Law. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware.

[The rest of this page intentionally left blank.]

-7-
<PAGE> 30

IN WITNESS WHEREOF, the Issuer has caused this Warrant to be
signed in its name by its President or a Vice President and its corporate seal
to be impressed hereon and attested by its Secretary or an Assistant Secretary.

Dated: October 3, 1996

BIOFACTORS, INC.,
a Delaware corporation

By:
-------------------------------------------------
Esmond T. Goei
Its: President and Chief Executive Officer

[SEAL]

ATTEST:

- -------------------------------------------
Douglas S. Zorn
Its: Vice President/Secretary and
Chief Financial Officer

-8-
<PAGE> 31
SUBSCRIPTION FORM

(to be executed only upon exercise of Warrant)

The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for and purchases _______ shares of the Common Stock of
BioFactors, Inc., a Delaware corporation, purchasable with this Warrant, and
herewith makes payment therefor (by check in the amount of $___________), all
at the price and on the terms and conditions specified in this Warrant and
requests that certificates for the shares of Common Stock hereby purchased (and
any securities or other property issuable upon such exercise) be issued in the
name of and delivered to _______________________________ whose address is
_______________________________ and, if such shares of Common Stock shall not
include all of the shares of Common Stock issuable as provided in this Warrant
that a new Warrant of like tenor and date for the balance of the Common Stock
issuable hereunder be delivered to the undersigned.

Dated:

__________________________________________
(Signature of Registered Owner)

__________________________________________
(Street Address)

__________________________________________
(City) (State) (Zip Code)

NOTICE: The signature to the subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.

The signature to this subscription must be guaranteed by a
bank or trust company or by a firm having membership on the
New York Stock Exchange.

<PAGE> 32
FORM OF ASSIGNMENT

For value received hereby sell, assign and
-------------------------------
transfer unto
------------------------------------------------------------------
Please print or typewrite name and address of assignee

- --------------------------------------------------------------------------------
the within Warrant, and do hereby irrevocably constitute and appoint
----------
attorney to transfer the within
- ----------------------------------------
Warrant on the books of the within named Company with full power of
substitution in the premises.

Dated:
--------------------

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

In the presence of:

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

<PAGE> 33
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR UNDER ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, BUT ONLY UPON A
HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT
THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE
SECURITIES ACT, AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW.

BIOFACTORS, INC.
PROMISSORY NOTE

THE TRANSFERABILITY OF THIS NOTE IS
RESTRICTED AS PROVIDED IN SECTION 3

$ No.
-------- --------
, 1996
-------------

FOR VALUE RECEIVED, the undersigned, BIOFACTORS, INC., a
Delaware corporation ("Maker" or the "Company"), hereby promises to pay to the
order of ______________________________, or registered assigns ("Holder") at
such place as the Holder may from time to time designate in writing, the
principal sum of ___________________ THOUSAND DOLLARS ($____________________),
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts,
together with simple interest thereon (computed on the basis of a 360-day year
consisting of twelve 30-day months) at the rate of ten percent (10%) per annum,
at the principal office of the Company on the Maturity Date as set forth in the
Unit Agreement (as defined in Section 1).

1. The Notes. This Note is one of several promissory notes made
and issued by the Company in an aggregate principal amount of up to $500,000
(individually, a "Note," and collectively, the "Notes") pursuant to, and
subject to and entitled to the benefit of, that certain Unit Subscription
Agreement dated as of October 3, 1996, by and among the Company and the
Purchasers named therein, as the same may be amended, modified or supplemented
from time to time as permitted thereby (as amended, the "Unit Agreement").
Reference is made to the Unit Agreement for agreements of the parties
applicable to this Note. Capitalized terms used herein without definition
shall have the meaning set forth in the Unit Agreement.
<PAGE> 34
2. Prepayment. The Company may prepay this Note in whole at any
time, or in part from time to time, without penalty or premium, upon thirty
(30) days' written notice to the Holder. Each partial prepayment shall first
be applied to interest accrued through the date of prepayment and then to
principal.

3. Restrictions Upon Transferability. This Note has not been
registered under the Securities Act, and may not be offered, sold, pledged,
hypothecated, assigned or transferred except (i) pursuant to a registration
statement under such Act which has become effective and is current with respect
to this Note, or (ii) pursuant to a specific exemption from registration under
the Securities Act, but only upon a Holder hereof first having obtained the
written opinion of counsel to the Company, or other counsel reasonably
acceptable to the Company, that the proposed disposition is consistent with all
applicable provisions of the Act as well as any applicable "blue sky" or other
state securities law.

4. Registered Note. This Note is a registered Note and is
transferable only by surrender thereof at the principal offices of the Company,
duly endorsed or accompanied by a written instrument of transfer duly executed
by the registered holder of this Note or his attorney duly authorized in
writing. The Maker may treat the person whose name appears in the Note
register as the owner hereof for the purpose of receiving payment as herein
provided. Transfers are subject to the restrictions set forth in the Unit
Agreement.

5. Waiver of Demand, Protest, etc. Maker hereby waives
diligence, presentment, demand, protest and notice of any kind whatsoever.
Maker promises to pay costs of collection and reasonable attorneys' fees if
default is made in the payment of this Note. The right to plead any and all
statutes of limitation as a defense to this Note or to any agreement to pay the
same, is hereby expressly waived by the undersigned to the full extent
permitted by law.

6. Notice. Any notice required or permitted hereunder shall be
given in accordance with the Unit Agreement.

7. Governing Law. THE MAKER AND THE HOLDER AGREE THAT THIS NOTE
AND THE LEGAL RELATIONS BETWEEN THE MAKER AND THE HOLDER, 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.

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<PAGE> 35
8. Severability. If any provision of this Note is invalid,
illegal, or unenforceable, the balance of this Note shall remain in effect, and
if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances. The
rate of interest on this Note is subject to any limitations imposed by
applicable usury laws.

IN WITNESS WHEREOF, the Maker has caused this Note to be signed in its
corporate name by a duly authorized officer and to be dated as of the date
first above written.

MAKER:

BIOFACTORS, INC.

By:
-------------------------------------------
Esmond T. Goei
Its: President and Chief Executive Officer

ATTEST:

- -------------------------
Secretary

-3-

<PAGE> 1

EXHIBIT 10.12

NHANCEMENT TECHNOLOGIES INC.

EQUITY INCENTIVE PLAN

ARTICLE I
PURPOSE

The purpose of the NHancement Technologies Inc. Equity Incentive Plan
(the "Plan") is to attract and retain directors, officers, other employees and
consultants of NHancement Technologies Inc. and its Subsidiaries and to provide
such persons with incentives to continue in the long-term service of the
Company and to create in such persons a more direct interest in the future
success of the operations of the Company by relating incentive compensation to
increases in stockholder value.

ARTICLE II
STRUCTURE OF THE PLAN

The Plan is divided into four separate programs:

A. The Discretionary Stock Option Grant Program under which
eligible persons may, at the discretion of the Committee or the Board, be
granted Stock Options;

B. The Automatic Stock Option Grant Program under which eligible
non-employee Board members shall automatically receive an annual grant of 2,400
Stock Options;

C. The Restricted Stock Program under which eligible persons may,
at the discretion of the Committee or the Board, be granted rights to receive
shares of Common Stock, subject to certain restrictions; and

D. The Supplemental Bonus Program under which eligible persons
may, at the discretion of the Committee or the Board, be granted a right to
receive payment, in cash, shares of Common Stock, or a combination thereof, of
a specified amount.

ARTICLE III
DEFINITIONS

As used in this Plan:

"10% Stockholder" shall mean the owner of stock (as determined under
Section 424(d) of the Code) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Subsidiary.

<PAGE> 2
"Award" shall mean a grant made under this Plan in the form of Stock
Options, Restricted Stock or Supplemental Bonuses.

"Board" shall mean the Company's Board of Directors.

"Change in Control" shall mean a change in ownership or control of the
Company effected through any of the following transactions:

(i) the acquisition, directly or indirectly by any person
or group (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act) other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of securities possessing more than thirty percent (30%) of the
total combined voting power of the Company's outstanding securities;

(ii) a change in the composition of the Board over a
period of eighteen (18) consecutive months or less such that fifty
percent (50%) or more of the Board members cease to be directors who
either (A) have been directors continuously since the beginning of
such period or (B) have been unanimously elected or nominated by the
Board for election as directors during such period;

(iii) a stockholder-approved merger or consolidation to
which the Company is a party and in which (A) the Company is not the
surviving entity or (B) securities possessing more than thirty percent
(30%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such
transaction; or

(iv) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation or
dissolution of the Company.

"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.

"Committee" shall mean the Employee Committee and/or the Incentive
Plan Committee, as applicable.

"Common Stock" shall mean the Company's common stock, $.01 par value.

"Company" shall mean NHancement Technologies Inc.

"Date of Grant" shall mean the date specified by the Committee on
which a grant of an Award shall become effective, which shall not be earlier
than the date on which the Committee takes action with respect thereto.

-2-
<PAGE> 3
"Employee" shall mean an individual who is in the employ of the
Company or any Subsidiary.

"Employee Committee" shall mean a committee composed of at least one
member of the Board of Directors who may, but need not, be a Non-Employee
Director. The Employee Committee is empowered hereunder to grant Awards to
Eligible Employees who are not directors or "officers" of the Company as that
term is defined in Rule 16a-1(f) of the Exchange Act nor "covered employees"
under Section 162(m) of the Code, and to establish the terms of such Awards at
the time of grant, but shall have no other authority with respect to the Plan
or outstanding Awards except as expressly granted by the Plan.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

"Fair Market Value" of a share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be deemed
equal to the closing selling price per share of Common Stock on the
date in questions, as such price is reported on the Nasdaq National
Market or any successor system. If there is not closing selling price
for the Common Stock on the date in question, then the Fair market
Value shall be the closing selling price ion the last preceding date
for which such quotation exists.

(ii) If the Common Stock is at the time listed on any
stock exchange, then the Fair Market Value shall be deemed equal to
the closing selling price per share of Common Stock on the date in
question on the stock exchange determined by the Compensation
Committee to be the primary market for the Common Stock, as such price
is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock
on the date in questions, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.

(iii) In the event the Common Stock is not traded publicly,
the Fair Market Value of a share of Common Stock shall be determined,
in good faith, by the Committee after such consultation with outside
legal, accounting and other experts as the Committee may deem
advisable, and the Committee shall maintain a written record of its
method of determining such value.

"Incentive Plan Committee" shall mean a committee consisting entirely
of Non-Employee Directors of the Board, who are empowered hereunder to take all
action required in the administration of the Plan and the grant and
administration of Awards hereunder. The Incentive Plan Committee shall be so
constituted at all times as to permit the Plan to comply with Rule 16b-3 or any
successor rule promulgated under the Exchange Act. Members of the Incentive
Plan Committee shall be appointed from time to time by the

-3-
<PAGE> 4
Board, shall serve at the pleasure of the Board and may resign at any time upon
written notice to the Board.

"Incentive Stock Option" shall mean a Stock Option that (i) qualifies
as an "incentive stock option" under Section 422 of the Code or any successor
provision and (ii) is intended to be an incentive stock option.

"Non-Employee Director" shall mean a director of the Company who meets
the definition of (i) a "non-employee director" set forth in Rule 16b-3 under
the Exchange Act, as amended, or any successor rule and (ii) an "outside
director" set forth in Treasury Regulation 1.162-27, as amended, or any
successor rule.

"Non-Statutory Option" shall mean a Stock Option that (i) does not
qualify as an "incentive stock option" under Section 422 of the Code or any
successor provision or (ii) is not intended to be an incentive stock option.

"Optionee" shall mean the person so designated in an agreement
evidencing an outstanding Stock Option.

"Option Price" shall mean the purchase price payable by a Participant
upon the exercise of a Stock Option.

"Participant" shall mean a person who is selected by the Committee to
receive benefits under this Plan and (i) is at that time a director, officer or
other Employee of the Company or any Subsidiary, (ii) is at that time a
consultant or other independent advisor who provides services to the Company or
a Subsidiary, or (iii) has agreed to commence serving in any capacity set forth
in (i) or (ii) of this definition.

"Plan" shall mean the Company's Equity Incentive Plan as set forth
herein.

"Plan Effective Date" shall mean January 7, 1997, the date on which
this Plan was approved by the Company's Board.

"Redemption Value" shall mean the amount, if any, by which the Fair
Market Value of one share of Common Stock on the date on which the Stock Option
is exercised exceeds the Option Price for such share.

"Restricted Stock" shall mean shares of Common Stock granted under
Article IX that are subject to restrictions imposed pursuant to said Article.

"SEC" shall mean the U.S. Securities and Exchange Commission and any
successor thereto.

"Stock Option" shall mean a right granted under the Plan to a
Participant to purchase Common Stock at a stated price for a specified period
of time.

-4-
<PAGE> 5
"Subsidiary" shall mean a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest; provided, however, for purposes of
determining whether any person may be a Participant for purposes of any grant
of Incentive Stock Options, "Subsidiary" means any subsidiary corporation of
the Company as defined in Section 424(f) of the Code.

"Supplemental Bonus" shall mean the right to receive payment in cash
of an amount determined pursuant to Article X of this Plan.

"Term" shall mean the length of time during which a Stock Option may
be exercised.

ARTICLE IV
ADMINISTRATION OF THE PLAN

A. Delegation to the Committee. This Plan shall be administered
by the Incentive Plan Committee. References herein to the "Committee" shall
mean the Employee Committee and/or the Incentive Plan Committee, as applicable.
References herein to the Incentive Plan Committee refer solely to the Incentive
Plan Committee.

Members of the Incentive Plan Committee and the Employee Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The action of a majority of the members of
the Incentive Plan Committee and the Employee Committee present at any meeting,
or acts unanimously approved in writing, shall be the acts of the Incentive
Plan Committee and the Employee Committee, respectively.

B. Powers of the Committee. The Incentive Plan Committee shall
have full power and authority, subject to the provisions of this Plan, to
establish such rules and regulations as it may deem appropriate for proper
administration of this Plan and to make such determinations under, and issue
interpretations of, the provisions of this Plan and any outstanding Awards as
it may deem necessary or advisable. In addition, the Incentive Plan Committee
shall have full power and authority to administer and interpret the Plan and
make modifications as it may deem appropriate to conform the Plan and all
actions pursuant to the Plan to any regulation or to any change in any law or
regulation applicable to this Plan.

C. Actions of the Committee. All actions taken and all
interpretations and determinations made by the Committee in good faith
(including determinations of Fair Market Value) shall be final and binding upon
all Participants, the Company and all other interested persons. No director or
member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan,
and all directors and members of the Committee shall, in addition to their
rights as directors, be fully protected by the Company with respect to any such
action, determination or interpretation.

-5-
<PAGE> 6
D. Awards to Officers and Directors.

1. All awards to officers shall be determined by the
Incentive Plan Committee. The Incentive Plan Committee shall be composed
entirely of two or more Non-Employee Directors; provided, however, that if the
Incentive Plan Committee is not composed as such, the Board shall have the
right to take such action with respect to any Award to an officer as it deems
necessary or advisable to comply with Rule 16b-3 of the Exchange Act and any
related rules, including but not limited to seeking stockholder ratification of
such Award or restricting the sale of the Award or any shares of Common Stock
underlying the Award for a period of six-months.

2. Discretionary awards to Non-Employee Directors, if
any, shall be determined by the Board.

ARTICLE V
ELIGIBILITY

A. Discretionary Stock Option Grant Program, Restricted Stock
Program and Supplemental Bonus Program. The persons eligible to participate in
the Discretionary Stock Option Grant Program, the Restricted Stock Program and
the Supplemental Bonus Program are as follows:

1. Employees of the Company or a Subsidiary;

2. Members of the Board; and

3. Consultants and other independent advisors who provide
services to the Company or a Subsidiary.

B. Automatic Stock Option Grant Program. Only Non-Employee
Directors are eligible for the Automatic Stock Option Grant Program.

C. Selection of Participants. The Committee shall from time to
time determine the Participants to whom Awards shall be granted pursuant to the
Discretionary Stock Option Grant Program, the Restricted Stock Program and the
Supplemental Bonus Program.

ARTICLE VI
SHARES AVAILABLE UNDER THE PLAN

A. Maximum Number. The number of shares of Common Stock issued
or transferred and covered by outstanding awards granted under this Plan shall
not in the aggregate exceed 976,500 shares of Common Stock, which may be Common
Stock of original issuance or Common Stock held in treasury, or a combination
thereof. This

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<PAGE> 7
authorization shall be increased automatically on each succeeding annual
anniversary of the Plan Effective Date by an amount equal to that number of
shares equal to one-half of one percent of the Company's then issued and
outstanding shares of Common Stock. The shares may be divided among the
various Plan components as the Incentive Plan Committee shall determine, except
that no more than 976,500 Shares shall be issued in connection with the
exercise of Incentive Stock Options under the Plan. Any portion of the shares
added on each succeeding anniversary of the Plan Effective Date which are
unused during the Plan year beginning on such anniversary date shall be carried
forward and be available for grant and issuance in subsequent Plan years, while
up to 100% of the shares to be added in the next succeeding Plan year
(calculated on the basis of the current Plan year's allocation) may be borrowed
for use in the current Plan year. Shares of Common Stock that may be issued
upon the exercise of Stock Options shall be applied to reduce the maximum
number of shares remaining available for use under the Plan. The Company shall
at all times during the term of the Plan and while any Stock Options are
outstanding retain as authorized and unissued Common Stock, or as treasury
Common Stock, at least the number of shares of Common Stock required under the
provisions of this Plan, or otherwise assure itself of its ability to perform
its obligations hereunder.

B. Unused and Forfeited Stock. The following shares of Common
Stock shall automatically become available for use under the Plan: (i) any
shares of Common Stock that are subject to an Award under this Plan that are
not used because the terms and conditions of the Award are not met, including
any shares of Common Stock that are subject to a Stock Option that expires or
is terminated for any reason, (ii) any shares of Common Stock with respect to
which a Stock Option is exercised that are used for full or partial payment of
the Option Price, and (iii) any shares of Common Stock withheld by the Company
in satisfaction of the withholding taxes incurred in connection with the
exercise of a Non-Statutory Option.

C. Capital Changes. If any change is made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Company's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities for which
any one person may be granted Awards under this Plan per calendar year, (iii)
the number and/or class of securities for which grants are subsequently to be
made pursuant to Article VI of this Plan, and (iv) the number and/or class of
securities and the Option Price per share in effect under each outstanding
option under this Plan. Such adjustments to the outstanding options are to be
effected in a manner that shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Committee
shall be final, binding and conclusive.

-7-
<PAGE> 8
ARTICLE VII
DISCRETIONARY STOCK OPTION GRANT PROGRAM

A. Discretionary Grant of Stock Options to Participants. The
Committee may from time to time authorize grants to Participants of options to
purchase shares of Common Stock upon such terms and conditions as the Committee
may determine in accordance with the following provisions (in connection with
any grants under this paragraph II.A to Non-Employee Directors, "Committee"
shall mean the entire Board of Directors):

1. Each grant shall specify the number of shares of Common Stock
to which it pertains;

2. Each grant shall specify the Option Price per share;

3. Each grant shall specify the form of consideration to be paid
in satisfaction of the Option Price and the manner of payment
of such consideration, which may include (i) cash in the form
of currency or check or other cash equivalent acceptable to
the Company, (ii) shares of Common Stock that are already
owned by the Optionee and have a Fair Market Value at the time
of exercise that is equal to the Option Price, (iii) shares of
Common Stock with respect to which a Stock Option is
exercised, (iv) a recourse promissory note in favor of the
Company, (v) any other legal consideration that the Committee
may deem appropriate and (vi) any combination of the
foregoing;

4. Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a broker of some or all of
the shares of Common Stock to which the exercise relates;

5. Any grant may provide that shares of Common Stock issuable
upon the exercise of a Stock Option shall be subject to
restrictions whereby the Company has the right or obligation
to repurchase all or a portion of such shares if the
Participant's service to the Company is terminated before a
specified time, or if certain other events occur or conditions
are not met;

6. Successive grants may be made to the same Participant
regardless of whether any Stock Options previously granted to
the Participant remain unexercised;

7. Each grant shall specify the period or periods of continuous
service by the Optionee to the Company or any Subsidiary that
are necessary before the Stock Option or installments thereof
shall become exercisable;

-8-
<PAGE> 9
8. All Stock Options that meet the requirements of the Code for
incentive stock options shall be Incentive Stock Options
unless (i) the option agreement clearly designates the Stock
Options granted thereunder, or a specified portion thereof, as
a Non-Statutory Option, or (ii) a grant of Incentive Stock
Options to the Participant would be prohibited under the Code
or other applicable law;

9. Each grant shall specify the Term of the Stock Option, which
Term shall not be greater than 10 years from the Date of
Grant; and

10. Each grant shall be evidenced by an agreement, which shall be
executed on behalf of the Company by any officer thereof and
delivered to and accepted by the Optionee and shall contain
such terms and provisions as the Committee may determine
consistent with this Plan.

B. Special Terms Applicable to Incentive Stock Options. The
following additional terms shall be applicable to all Incentive Stock Options
granted pursuant to this Plan. Stock Options that are specifically designated
as Non-Statutory Options shall not be subject to the terms of this paragraph
VII.B.

1. Incentive Stock Options shall be granted only to Employees of
the Company or a Subsidiary;

2. The Option Price per share shall not be less than the Fair
Market Value per share of Common Stock on the Date of Grant;

3. The aggregate Fair Market Value of the shares of Common Stock
(determined as of the respective Date(s) of Grant) with
respect to which Incentive Stock Options granted to any
Employee under the Plan (or any other plan of the Company or a
Subsidiary) are exercisable for the first time during any one
calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). To the extent the Employee holds two (2)
or more such Stock Options that become exercisable for the
first time in the same calendar year, the foregoing limitation
on the treatment of such Stock Options as Incentive Stock
Options shall be applied on the basis of the order in which
such Stock Options are granted; and

4. If any Employee to whom an Incentive Stock Option is granted
is a 10% Stockholder, then the Option Price per share shall
not be less than one hundred ten percent (110%) of the Fair
Market Value per share of Common Stock on the Date of Grant,
and the option Term shall not exceed five (5) years measured
from the Date of Grant.

-9-
<PAGE> 10
ARTICLE VIII
AUTOMATIC STOCK OPTION GRANT PROGRAM

A. Automatic Grant of Stock Options to Certain Directors. Each
director of the Company who is not an Employee and serves as a director for a
full fiscal year shall be granted in consideration for such director's service
for that year a Non- Statutory Option to purchase 2,400 shares of Common Stock.
Each such Non-Statutory Option shall be granted upon such terms and conditions
as the Incentive Plan Committee may determine in accordance with the following
provisions:

1. Each Stock Option granted pursuant to this Article shall be
granted within thirty (30) days following the date of the
annual meeting of the Company's stockholders for the relevant
fiscal year.

2. Each grant shall specify the Option Price per share, which
Option Price shall be the Fair Market Value per share of
Common Stock on the Date of Grant;

3. Each grant shall specify the form of consideration to be paid
in satisfaction of the Option Price and the manner of payment
of such consideration, which may include (i) cash in the form
of currency or check or other cash equivalent acceptable to
the Company, (ii) nonforfeitable shares of Common Stock, which
are already owned by the Optionee and have a Fair Market Value
at the time of exercise that is equal to the Option Price,
(iii) a recourse promissory note in favor of the Company, (iv)
any other legal consideration that the Committee may deem
appropriate and (v) any combination of the foregoing;

4. Any grant may provide for deferred payment of the Option Price
from the proceeds of sale through a broker of some or all of
the shares of Common Stock to which the exercise relates;

5. Successive grants shall be made to the same director
regardless of whether any Stock Options previously granted to
the director remain unexercised;

6. Each Stock Option granted pursuant to this Article shall vest
as follows: (i) one-third on the first anniversary of the date
of grant, (ii) one-third on the second anniversary of the date
of grant, (iii) one-third on the third anniversary of the date
of grant.

7. No Stock Option granted pursuant to this Article may be
exercised more than 10 years from the Date of Grant; and

8. Each grant shall be evidenced by an agreement, which shall be
executed on behalf of the Company by any officer thereof and
delivered

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<PAGE> 11
to and accepted by the Optionee and shall contain such terms
and provisions as the Committee may determine consistent with
this Plan.

ARTICLE IX
RESTRICTED STOCK PROGRAM

A. Awards Granted. Coincident with or following designation for
participation in the Plan, a Participant may be granted one or more Restricted
Stock Awards consisting of shares of Common Stock. The number of shares
granted as a Restricted Stock Award shall be determined by the Committee.

B. Restrictions. A Participant's right to retain a Restricted
Stock Award granted to such Participant under Article IX.A shall be subject to
such restrictions, including but not limited to his or her continuous
employment by the Company for a restriction period specified by the Committee
or the attainment of specified performance goals and objectives, as may be
established by the Committee with respect to such award. The Committee may in
its sole discretion require different periods of employment or different
performance goals and objectives with respect to different Participants, to
different Restricted Stock Awards or to separate, designated portions of the
shares constituting a Restricted Stock Award.

C. Privileges of a Stockholder, Transferability. A Participant
shall have all voting, dividend, liquidation and other rights with respect to
shares of Common Stock in accordance with its terms received by him or her as a
Restricted Stock Award under this Article IX upon his or her becoming the
holder of record of such shares; provided, however, that the Participant's
right to sell, encumber or otherwise transfer such shares shall be subject to
the limitations of Article XII hereof.

D. Enforcement of Restrictions. The Committee may in its sole
discretion require of the placing a legend on the stock certificates referring
to the restrictions to enforce the restrictions referred to in paragraphs IX.A
and IX.B.

ARTICLE X
SUPPLEMENTAL BONUS PROGRAM

A. Non-Statutory Stock Options. The Committee, at the time of
grant or at any time prior to exercise of any Non- Statutory Option, may
provide for a Supplemental Bonus from the Company or a Subsidiary in connection
with a specified number of shares of Common Stock then purchasable, or which
may become purchasable, under such Non-Statutory Option. Such Supplemental
Bonus shall be payable in cash upon the exercise of the Non-Statutory Option
with regard to which such Supplemental Bonus was granted. A Supplemental Bonus
shall not exceed the amount necessary to reimburse the Participant for the
income tax liability incurred by him or her upon the exercise of the
Non-Statutory Option, calculated using the maximum combined federal and
applicable state income tax rates

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<PAGE> 12
then in effect and taking into account the tax liability arising from the
Participant's receipt of the Supplemental Bonus.

B. Restricted Stock Awards. The Committee, either at such time
as the restrictions with respect to a Restricted Stock Award lapse or a Section
83(b) election is made under the Code by the Participant with respect to shares
issued in connection with a Restricted Stock Award, may provide for a
Supplemental Bonus from the Company or a Subsidiary. Such Supplemental Bonus
shall be payable in cash and shall not exceed the amount necessary to reimburse
the Participant for the income tax liability incurred by him or her with
respect to shares issued in connection with a Restricted Stock Award,
calculated using the maximum combined federal and applicable state income tax
rates then in effect and taking into account the tax liability arising from the
Participant's receipt of the Supplemental Bonus.

ARTICLE XI
TERMINATION OF SERVICE

A. Incentive Stock Options. The following provisions shall
govern the exercise of any Incentive Stock Options held by any Employee whose
employment is terminated:

1. If the Optionee's employment with the Company is terminated
for any reason other than such Optionee's death or disability,
all Incentive Stock Options held by the Optionee shall be
exercisable, to the extent that such Stock Options were
exercisable on the date the Optionee's employment terminated,
for a period of three (3) months following such termination of
employment.

2. If the Optionee's employment with the Company is terminated
because of such Optionee's death or disability within the
meaning of Section 22(e)(3) of the Code, all Incentive Stock
Options held by the Optionee shall become immediately
exercisable and shall be exercisable for a period of twelve
(12) months following such termination of employment.

3. In no event may any Incentive Stock Option remain exercisable
after the expiration of the Term of the Stock Option. Upon
the expiration of any three (3) or twelve (12) month exercise
period, as applicable, or, if earlier, upon the expiration of
the Term of the Stock Option, the Stock Option shall terminate
and shall cease to be outstanding for any shares for which the
Stock Option has not been exercised.

B. Non-Statutory Options. The following provisions shall govern
the exercise of any Non-Statutory Options:

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<PAGE> 13
1. If the Optionee's employment, service on the Board or
consultancy is terminated for any reason other than such
Optionee's death or disability, all Non-Statutory Options held
by the Optionee shall be exercisable, to the extent such Stock
Options were exercisable on the date of such termination, for
a period of three (3) months following such termination.

2. If the Optionee's employment, service on the Board or
consultancy is terminated because of such Optionee's death or
disability, all Non-Statutory Options held by the Optionee
shall become immediately exercisable and shall be exercisable
for a period of twelve (12) months following such termination.

3. In no event may any Non-Statutory Option remain exercisable
after the expiration of the Term of the Stock Option. Upon
the expiration of any three (3) or twelve (12) month exercise
period, as applicable, or, if earlier, upon the expiration of
the Term of the Stock Option, the Stock Option shall terminate
and shall cease to be outstanding for any shares for which the
Stock Option has not been exercised.

C. Restricted Stock Awards. In the event of the death or
disability (within the meaning of Section 22(e) of the Internal Revenue Code)
or retirement of a Participant, all employment period and other restrictions
applicable to Restricted Stock Awards then held by him or her shall lapse, and
such awards shall become fully nonforfeitable. Subject to Articles XI and XV,
in the event of a Participant's termination of employment for any other reason,
any Restricted Stock Awards as to which the employment period or other
restrictions have not been satisfied shall be forfeited.

ARTICLE XII
TRANSFERABILITY OF STOCK OPTIONS

During the lifetime of the Optionee, Incentive Stock Options shall be
exercisable only by the Optionee and shall not be assignable or transferable.
In the event of the Optionee's death prior to the end of the Term, any Stock
Option may be exercised by the personal representative of the Optionee's
estate, or by the person(s) to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and distribution.
Upon the prior written consent of the Board and subject to any conditions
associated with such consent, a Non-Statutory Option may be assigned in whole
or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family (as that term is defined in Rule 16a-1(e) of the
Exchange Act) or to a trust established exclusively for one or more such family
members. In addition, the Board, in its sole discretion, may allow a
Non-Statutory Option to be assigned in other circumstances deemed appropriate.
The terms applicable to the assigned portion shall be the same as those in
effect for the Stock Option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Committee may deem
appropriate. Notwithstanding

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<PAGE> 14
any assignment or transfer of a Stock Option, in no event may any Stock Option
remain exercisable after the expiration of the Term of the Stock Option.

ARTICLE XIII
STOCKHOLDER RIGHTS

The holder of a Stock Option shall have no stockholder rights with
respect to the shares subject to the Stock Option until such person shall have
exercised the Stock Option, paid the Option Price and become a holder of record
of the purchased shares of Common Stock.

ARTICLE XIV
ACCELERATION OF VESTING

The Committee may, at any time in its sole discretion, accelerate the
vesting of any Award made pursuant to this Plan by giving written notice to the
Participant. Upon receipt of such notice, the Participant and the Company
shall amend the agreement relating to the Award to reflect the new vesting
schedule. The acceleration of the exercise period of an Award shall not affect
the expiration date of such Award.

ARTICLE XV
CHANGE IN CONTROL

In the event of a Change in Control of the Company, all Awards
outstanding under the Plan as of the day before the consummation of such Change
in Control shall automatically accelerate for all purposes under this Plan so
that each Stock Option shall become fully exercisable with respect to the total
number of shares subject to such Stock Option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock as of such date,
without regard to the conditions expressed in the agreements relating to such
Stock Option, and the restrictions on each Restricted Stock Award shall lapse
and such shares of Restricted Stock shall no longer be subject to forfeiture.

ARTICLE XVI
CANCELLATION AND REGRANT OF OPTIONS

The Committee shall have the authority to effect, at any and from time
to time, with the consent of the affected Optionees, the cancellation of any or
all outstanding Stock Options and/or any Restricted Stock Awards and grant in
substitution new Stock Options and/or Restricted Stock Awards covering the same
or different number of shares of Common Stock with an Option Price set, in
accordance with Article VII, on the new Date of Grant.

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<PAGE> 15
ARTICLE XVII
FINANCING

The Committee may, in its sole discretion, authorize the Company to
make a loan to a Participant in connection with the exercise of a Stock Option,
and may authorize the Company to arrange or guaranty loans to a Participant by
a third party in connection with the exercise of a Stock Option.

ARTICLE XVIII
TAX WITHHOLDING

A. Tax Withholding. The Company's obligation to deliver shares
of Common Stock upon the exercise of Stock Options under the Plan shall be
subject to the satisfaction of all applicable federal, state and local income
and employment tax withholding requirements.

B. Surrender of Shares. The Committee may, in its discretion,
provide any or all holders of Non-Statutory Options under the Discretionary
Stock Option Grant Program with the right to use shares of Common Stock in
satisfaction of all or part of the taxes incurred by such holders in connection
with the exercise of such Stock Options. Such right may be provided to any
such holder in either or both of the following formats:

1. The election to have the Company withhold, from the shares of
Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option, a portion of those shares with an
aggregate Fair Market Value less than or equal to the amount
of taxes due as designated by such holder; or

2. The election to deliver to the Company, at the time the
Non-Statutory Option is exercised, one or more shares of
Common Stock previously acquired by such holder with an
aggregate Fair Market Value less than or equal to the amount
of taxes due as designated by such holder.

ARTICLE XIX
EFFECTIVE DATE AND TERM OF THE PLAN

This Plan shall become effective on the Plan Effective Date. This
Plan shall terminate upon the earliest of (i) ten (10) years after the Plan
Effective Date or (ii) the termination of all outstanding Awards in connection
with a Change in Control. Upon such plan termination, all outstanding Awards
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such Awards.

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<PAGE> 16
ARTICLE XX
AMENDMENT OF THE PLAN

A. The Incentive Plan Committee shall have complete and exclusive
power and authority to amend or modify the Plan in any or all respects, unless
stockholder approval of such amendments or modifications is required under
applicable law. No such amendment or modification shall adversely affect the
rights and obligations with respect to Awards outstanding under the Plan at the
time of such amendment or modification, unless the Participant consents to such
amendment or modification.

B. Stock Options in excess of the number of shares of Common
Stock then available for issuance may be granted under this Plan, provided any
excess shares actually issued under this Plan shall be held in escrow until
such further action, necessary to approve a sufficient increase in the number
of shares available for issuance under the Plan, is taken. If such further
action is not obtained within 12 months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding, and (ii) the
Company shall promptly refund to the Optionees the exercise price paid for any
excess shares issued under the Plan and held in escrow, together with interest
for the period the shares were held in escrow, and such shares shall thereupon
be automatically cancelled and cease to be outstanding. If stockholder
approval of a sufficient increase in the number of shares subject to the Plan
does not occur within 12 months of the grant of any Stock Option intended to be
an Incentive Stock Option which is granted pursuant to this Article XX.B, such
Stock Option shall be deemed to be a Non-Statutory Option.

ARTICLE XXI
REGULATORY APPROVALS

The implementation of the Plan, the granting of any Award under the
Plan and the issuance of any shares of Common Stock under any Award shall be
subject to the Company's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the Awards granted
pursuant to the Plan and the shares of Common Stock issued pursuant to any
Award under the Plan. No Stock Option shall be exercisable, no shares of
Common Stock or other assets shall be issued or delivered under the Plan, and
no transfer of any Non-Statutory Option shall be approved by the Committee,
unless and until there shall have been compliance with (i) all applicable
requirements of Federal and state securities laws, including the filing and
effectiveness of a registration statement on Form S-8 under the Securities Act
of 1933, as amended, covering the shares of Common Stock issuable under the
Plan, and (ii) all applicable listing requirements of the Nasdaq SmallCap
Market or the Nasdaq National Market, as applicable.

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<PAGE> 17
ARTICLE XXII
NO EMPLOYMENT/SERVICE RIGHTS

Nothing in this Plan shall confer upon any Participant any right to
continue in service for any period or specific duration or interfere with or
otherwise restrict in any way the rights of the Company (or any Subsidiary
employing or retaining such person) or of the Participant, which rights are
hereby expressly reserved by each, to terminate such person's service at any
time for any reason, with or without Cause.

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<PAGE> 1
EXHIBIT 10.23

EMPLOYMENT AGREEMENT

This Employment Agreement (this "Agreement") is made this 1st
day of November, 1996 by and between Voice Plus, Inc., a California corporation
("Employer"), and Diane E. Nowak, an individual resident of the State of Arizona
("Employee").

WITNESSETH

WHEREAS, pursuant to an Agreement and Plan of Merger dated as
of October 25, 1996, Employer has agreed to a merger whereupon it will become a
wholly owned subsidiary of NHancement Technologies inc., a Delaware corporation
(the "Merger"); and

WHEREAS, upon consummation of the Merger, Employer desires to
employ Employee and Employee agrees to be employed by Employer for the period
and upon and subject to the terms herein provided.

THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements contained herein and intending to be legally
bound, Employer and Employee agree as follows:

1. TERMS OF EMPLOYMENT

a) Term. Employer agrees to employ Employee for a period of
two (2) years commencing on the effective date of the Merger (the "Term"), and
for such additional term as may be agreed to in writing by the Parties hereto,
unless sooner terminated pursuant to Section 6 below.

b) Compensation. Employer will pay Employee a base salary for
her services during the term of her employment hereunder at an annual rate of
Sixty-Five Thousand Dollars ($65,000), payable in equal monthly installments in
accordance with Employer's standard practice, subject only to such payroll and
withholding deductions as are required by law, and subject to the same annual
incremental increase as is applicable to Employer's personnel with
responsibilities similar to those of Employee ("Similar Personnel").

c) Bonus and Commissions.

i) Commissions. During the Term hereof, Employer agrees to pay
Employee commissions based on a negotiated Sales Manager Compensation Plan
(the "Plan"). The Plan for the first year of the Term is attached hereto as
EXHIBIT A.

<PAGE> 2
ii) Annual Performance Bonus. During the
Term hereof, Employer agrees to pay Employee an
annual performance-based bonus based on Employee
meeting negotiated performance targets set forth in
the Plan.

d) Insurance. Employer agrees to provide Employee with health,
hospitalization, life and disability insurance coverage in accordance with
coverage provided or offered to Similar Personnel.

e) Provision of Vehicle. Employer agrees that Employee shall
be provided with a vehicle, owned or leased by Employer, for her exclusive use
in connection with her employment hereunder.

2. OFFICE AND DUTIES. Employee shall have the title of Vice
President Sales Western Region and shall have responsibility, subject to the
direct supervision of Employer's President, for overseeing all sales and
marketing activities of Employer for its Western Region. Employee shall perform
such other tasks, not inconsistent with his position, as may from time to time
be assigned to her. Employee shall devote all of her business time, labor,
skill, undivided attention and best ability to the performance of her duties
hereunder in a manner which will faithfully and diligently further the business
and interests of Employer. During the term of her employment, Employee shall not
directly or indirectly pursue any other business activity without Employer's
prior written consent. Employee agrees that she will travel to whatever extent
is reasonably necessary in the conduct of Employer's business.

3. REIMBURSEMENT OF EXPENSES. Upon presentation of appropriate
documentation, Employee shall be entitled to be reimbursed in accordance with
such procedures as Employer has heretofore or may hereafter establish, for
reasonable and necessary expenses incurred by her in connection with the
performance of her duties hereunder.

4. VACATION DURING EMPLOYMENT. Employee shall be entitled to
such reasonable vacations as may be allowed by Employer in accordance with its
customary practice with respect to Similar Personnel.

5. ADDITIONAL BENEFITS. In addition to the benefits set forth
in Sections 1, 3 and 4, Employee shall be entitled to receive such fringe
benefits as are generally available to Similar Personnel, but Employer shall not
be required to establish or continue any such benefits or to take any action to
cause Employee to be eligible for any of such benefits on a basis more favorable
than that applicable to Similar Personally generally.

6. TERMINATION OF EMPLOYMENT.

a) Notwithstanding any other provision of this
Agreement, Employee's employment may be terminated:

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<PAGE> 3
i) By Employer for cause upon thirty (30) days' notice to
Employee setting forth in writing its election to terminate the
Agreement and the specific reasons for termination. For purposes of
this Agreement, "Cause" justifying the termination of this Agreement by
Employer is defined as: (1) willful misconduct or malfeasance relative
to the promotion and best interests of Employer's business; (2) willful
failure or refusal to perform the services required of her hereby, or
to carry out proper directions by Employer with respect to the services
to be rendered by her hereunder or the manner of rendering such
services, her willful misconduct in the performance of her duties
hereunder; and/or (3) Employee's conviction of a crime that either
results in imprisonment or involves defalcation or other activities
injurious to Employer; provided, however, that Employee shall have
thirty (30) days from the date of such notice to cure any default
pursuant to this subsection (a) other than a conviction of a crime.

ii) By Employer upon thirty (30) days' notice to Employee if
she should be prevented by illness, accident or other disability
(mental or physical) from discharging her duties hereunder for one or
more periods totaling six (6) months during any consecutive twelve (12)
month period.

iii) In the event of Employee's death during the term of her
employment.

iv) By Employer for any material breach by Employee of any of
the terms of this Agreement, if such material breach has not been
substantially cured within thirty (30) days following written notice of
such breach specifying the breach relied on for such termination, and
failure to cure such breach within such period or, if cure cannot
reasonably be effected within such 30-day period, if Employee does not
commence to cure the breach within such 30-day period and thereafter
pursue such cure continuously and with due diligence, until cure has
been fully effected.

b) Termination pursuant to subsection (a) shall
terminate all obligations of the parties hereunder except for the obligations
set forth in Sections 7 and 8.

c) In the event of a termination, other than pursuant
to subsection (a), during the term of this Agreement, Employer's obligation to
pay compensation pursuant to Section 1(b) hereunder for the duration of the Term
shall continue.

7. ASSIGNMENT OF INVENTIONS: WORK PRODUCT.

a) Employee further agrees that during his employment
she shall not make, use or permit to be used any notes, memoranda, reports,
lists, records, drawings, sketches, specifications, software programs, data,
documentation or other materials of any nature relating to any matter within the
scope of the business of Employer or concerning any of its dealings or

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<PAGE> 4
affairs otherwise than for the benefit of Employer. She further agrees that she
shall not, after the termination of her employment, use or permit to be used any
such notes, memoranda, reports, lists, records, drawings, sketches,
specifications, software programs, data, documentation or other materials, it
being agreed that all of the foregoing shall be and remain the sole and
exclusive property of Employer and that immediately upon the termination of her
employment she shall deliver all of the foregoing, and all copies thereof, to
Employer, at its main office.

b) If at any time or times during her employment,
Employee shall (either alone or with others) make, conceive, discover or reduce
to practice any invention, modification, discovery, design, development,
improvement, process, software program, work of authorship, documentation,
formula, data, technique, know-how, secret or intellectual property right
whatsoever or any interest therein (whether or not patentable or registrable
under copyright or similar statutes or subject to analogous protection) (herein
called "Developments") that (i) relates to the business of Employer or, any
customer of or supplier to Employer or any of the products or services being
developed, manufactured or sold by Employer or which may be used in relation
therewith, (ii) results from tasks assigned her by Employer or (iii) results
from the use of premises or personal property (whether tangible or intangible)
owned, leased or contracted for by Employer, such Developments and the benefits
thereof shall immediately become the sole and absolute property of Employer and
its assigns, and Employee shall promptly disclose to Employer (or any persons
designated by it) each such Development and hereby assigns any rights she may
have or acquire in the Developments and benefits and/or rights resulting
therefrom to Employer and its assigns without further compensation and shall
communicate, without cost or delay, and without publishing the same, all
available information relating thereto (with all necessary plans and models) to
Employer.

c) Upon disclosure of each Development to Employer,
Employee will, during her employment and at any time thereafter, at the request
and cost of Employer, sign, execute, make and do all such deeds, documents, acts
and things as Employer and its duly authorized agents may reasonably require:

i) to apply for, obtain and vest in the name of
Employer alone (unless Employer otherwise directs) letters
patent, copyrights or other analogous protection in any
country throughout the world and when so obtained or vested to
renew and restore the same; and

ii) to defend any opposition proceedings in respect
of such applications and any opposition proceedings or
petitions or applications for revocation of such letters
patent, copyright or other analogous protection.

d) In the event Employer is unable, after reasonable
effort, to secure Employee's signature on any letters patent, copyright or other
analogous protection relating to a Development, whether because of any physical
or mental incapacity or for any other reason whatsoever, Employee hereby
irrevocably designates and appoints Employer and its duly authorized officers
and agents as her agent and attorney-in-fact, to act for and in her behalf and

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<PAGE> 5
stead to execute and file any such application or applications and to do all
other lawfully permitted acts to further the prosecution and issuance of letters
patent, copyright or other analogous protection thereon with the same legal
force and effect as if executed by Employee.

8. NON-COMPETITION; CONFIDENTIALITY.

a) No Solicitation of Customers. Employee covenants
and agrees that she will not, directly or indirectly, until the lapse of two (2)
years after her termination pursuant to Sections 1 or 6, without the prior
written approval of Employer, call upon, cause to be called upon, solicit or
assist in the solicitation of, any customer or potential customer of Employer
for the purpose of diverting any existing or future business of such customers
to a Competing Business.

b) No Hiring of Employees. Employee covenants and
agrees that she will not, directly or indirectly, until the lapse of two (2)
years after her termination pursuant to Sections 1 or 6, without the prior
written approval of Employer, employ, engage, or seek to employ or engage,
directly or indirectly, any employee of Employer.

c) Confidentiality. Employee will not, without
Employer's prior written approval reveal to any person or entity any of the
trade secrets or confidential information concerning the organization, business
or finances of Employer or of any third party which Employer is under an
obligation to keep confidential (including but not limited to trade secrets or
confidential information respecting inventions, products, designs, methods,
know-how, techniques, systems, processes, software programs, works of
authorship, customer lists, projects, plans and proposals), except as may be
required in the ordinary course of performing her duties as an employee of
Employer, and she shall keep secret all matters entrusted to her and shall not
use or attempt to use any such information in any manner which may injure or
cause loss or may be calculated to injure or cause loss whether directly or
indirectly to Employer.

d) Equitable Remedies. The services to be rendered by
Employee and the information disclosed to Employee prior to and during the term
hereof are of a unique and special character, and any breach of Sections 7 or 8
hereof will cause Employer immediate and irreparable injury and damage, for
which monetary relief would be inadequate or difficult to quantify. Therefore,
Employer will be entitled to, in addition to all other remedies available to it,
injunctive relief and specific performance to prevent a breach and to secure the
enforcement of all provisions of Sections 7 and 8 hereof. Injunctive relief may
be granted immediately upon the commencement of any such action.

9. PROPERTY OF EMPLOYER. All books, documents, lists and
records pertaining to Employer's business (collectively, the "Records"), whether
the Records are written, typed, printed, contained on microfilm, contained on
computer disc, contained in tape or are set forth in some other medium of
expression, are the sole and exclusive property of Employer. Upon the
termination of Employee's employment with Employer, Employee shall promptly
return to

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<PAGE> 6
Employer all Records and copies thereof that are in Employee's possession or
that Employee has removed from Employer's premises.

10. 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 both
parties.

11. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not affect its interpretation.

12. 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.

13. SEVERABILITY. If any provision of this Agreement is held
illegal, invalid, or unenforceable, such illegality, invalidity, or
unenforceability shall not affect any other provisions hereof. This Agreement
shall, in such circumstances, be deemed modified to the extent necessary to
render enforceable the provisions hereof.

14. 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 Employer, to:
Voice Plus, Inc.
39899 Balentine Drive
Newark, CA 94560
Attention: James S. Gillespie

With a copy to:

NHancement Technologies Inc.
1746 Cole Boulevard, Suite 265
Golden, CO 80401
Attention: Linda K. Wackwitz, General Counsel

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<PAGE> 7
If to Employee, to:
Diane E. Nowak
4690 E. Elwood, Suite 15
Phoenix, AZ 85040

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.

15. WAIVER. The failure of any party to insist upon strict
performance of any of the terms or conditions of this Agreement shall not
constitute a waiver of any of his/its rights hereunder.

16. ASSIGNMENT. Employee may not assign any of his rights or
delegate any of his obligations hereunder, and such purported assignment or
delegation shall be void.

17. 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,
except as expressly provided herein.

18. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH ARIZONA LAW EXCEPT FOR ANY ARIZONA
CONFLICT-OF-LAW PRINCIPLE THAT MIGHT REQUIRE THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION.

SUBMISSION TO JURISDICTION; SERVICE; WAIVERS. WITH
RESPECT TO ANY CLAIM ARISING OUT OF THIS AGREEMENT, EACH PARTY HERETO (A)
IRREVOCABLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE JURISDICTION OF THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF MARICOPA, ARIZONA, AND
APPELLATE COURTS THEREFROM, (B) AGREES THAT THE VENUE FOR ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EXCLUSIVE TO
AND LIMITED TO SUCH COURTS, AND (C) IRREVOCABLY WAIVES ANY OBJECTION IT MAY HAVE
AT ANY TIME TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT, IRREVOCABLY WAIVES
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT
TO OBJECT, WITH RESPECT TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER IT. EACH PARTY HERETO
HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION
OR PROCEEDING IN ANY OF THE AFORESAID COURTS BY THE MAILING OF COPIES

-7-
<PAGE> 8
OF SUCH PROCESS TO THE OTHER PARTY OR PARTIES HERETO, BY CERTIFIED OR REGISTERED
MAIL AT THE ADDRESS SPECIFIED IN PARAGRAPH 12.

19. ATTORNEYS' FEES. In the event it becomes necessary for
either party hereunder to employ an attorney to enforce or interpret the
Agreement, the prevailing party, if any, shall be entitled to recover reasonable
attorneys' fees, costs and necessary disbursements from the opposing party.

[The remainder of this page intentionally left blank.]

-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this
EMPLOYMENT AGREEMENT as of the date first above written.

EMPLOYER:
VOICE PLUS, INC.

By: /s/ James S. Gillespie
-----------------------------
James S. Gillespie, President

EMPLOYEE:

/s/ Diane E. Nowak
-----------------------------
Diane E. Nowak

-9-

<PAGE> 10

VOICE PLUS, INC.

1996 SALES MANAGER COMPENSATION PLAN

This Compensation Plan defines the basis for which Voice Plus, Inc.,
("VPI") Sales Managers are paid for the sales of company products. This Plan is
effective for a period of twelve months commencing March 1, 1996. It is the
SOLE plan for the payment of salaries, commissions and bonuses to all Sales
Managers.

The Compensation Agreement between VPI and each VPI Sales Manager
consists of the terms of this Plan and the terms stated in that sales manager's
completed and executed "Sales Manager and Territory Compensation Schedule",
which form is attached as Appendix A.

I. DEFINITIONS

a. "Total Order Value" is the dollar amount of a system sale as
indicated on a valid, signed purchase order or purchase
agreement accepted by VPI.

b. The "Net Order Value" is the Total Order Value minus the
following items or changes on which commissions are not
receivable.

1. Message Waiting Light Devices;
2. Discounted Installation charges;
3. Transportation and packing charges;
4. Any and all taxes charged on the sale; and
5. Trade-In Credit
6. Literature, User Guides, etc.

c. A "Sale" is deemed to occur only upon completion of all of the
following:

1. VPI's receipt of a valid purchase order or signed
purchase agreement;
2. VPI's formal booking of the order;
3. Shipment of the order;
4. Signed Acceptance of Equipment by Purchaser; and
5. Receipt of payment from customer.

A sale is deemed to be "In Process" during the period that
some, but not all, of the foregoing events have been completed.

II. TERRITORY AND ACCOUNTS

a. The Sales Manager will cover the territory and vertical accounts
assigned by the President of VPI, as set forth in Appendix A.
The President, may, in his sole discretion, make changes in
assignments. All assignments and changes will be in writing.

b. The Sales Manager is specifically prohibited from selling to the
following accounts or classes of accounts, unless otherwise
authorized in writing by the President:

1. Any firm or individual whom the Sales Manager knows, or
has reason to know or otherwise suspect, is purchasing
any part of the system for delivery outside the
continental United States.

2. Any firm outside the assigned sales territory or
vertical market, unless specifically authorized in
writing by the President or Sales Management.

<PAGE> 11

III. COMPENSATION

a. Base Salary

The amount of base salary, if any, payable to Sales Manager, is
stated on Appendix A.

b. Commissions

Sales Manager entitled to commissions at the rates stated in
Appendix A based on the Net Order Value of all Sales by the
Sales Manager. A commission is not earned until completion of
the Sale, as defined herein. The Commission which the Sales
Manager would otherwise have earned on a Sale which is not
completed within 60 days of the invoice date may be modified or
forfeited.

c. Payment

Commissions will be paid in the middle of month pay cycle of the
month following completion of a Sale. Base Salary, if any, will
be paid in our regular payroll cycle.

VPI reserves the right to amend this Section III at any time,
by written notice, receipt of which shall be acknowledged by all
sales personnel.

IV. SALE CANCELLATIONS

Upon cancellation of a Sale on which commission and/or bonus has
previously been paid, the commission and bonus paid the Sales Manager
will be debited against subsequent commissions and bonuses earned by
that Sales Manager until fully liquidated.

V. INTER-TERRITORIAL SALES

At the time it becomes known that a sales effort is being made which, if
successful, will result in delivery and installation in another
territory, the Sales Manager must immediately notify the President, who
will make a determination regarding the appropriate commission/bonus
split between or among the Salespersons, if applicable. Such
determination will be based on an equitable division of revenue value
according to the degree of involvement in the Sale by each of the
affected parties. The normal division will be forty percent (40%) to the
Salesperson from the installing region and sixty percent (60%) to the
Salesperson from the selling region.

The total amount of commission/bonus paid to one or more salespersons
will not exceed the amount that would have been normally paid to a
single salesperson.

VI. RESIGNATION OR TERMINATION

Upon termination of employment with VPI, whether voluntary or
involuntary, commissions earned and payable to the Sales Manager under
the Plan will be paid. With respect to Sales In Process at the time of
termination, employee will be paid a portion of the Commission he/she
would have otherwise been entitled, allocated according to the
proportion of work completed, which allocation is to be determined in
the sole discretion of the President of VPI and such commissions will be
paid immediately upon completion of the Sale. The following schedule
defines the value associated with each step of the Sale in Progress.
Payment to a terminated Sales Manager will follow this schedule:

Booked 30%
Shipped 20%
Cutover 20%
Accepted & Paid 30% _______
Initial

Upon termination of employment the Sales Manager shall promptly return
to the Company all Company property, cash advances, correspondence,
customer files, and other papers and materials in his possession which
relate to the business of the Company.

VII. GENERAL PROVISIONS

a. Taxes

All earnings, whether salary, car allowance, commission or
bonus, will be subject to applicable withholding of federal,
state, and local taxes.

<PAGE> 12

b. Benefits

The Sales Manager is eligible for the standard VPI Benefits
Package for exempt personnel in effect during the term of Sales
Manager's employment.

c. Acknowledgement

Two copies of this Plan and of the completed Sales Manager
Territory Compensation Schedule in the form of Appendix A, shall
be forwarded to each participant. The Sales Manager shall sign
one copy of the complete Appendix A and the acknowledgement of
receipt and acceptance at the end of the Plan, and return these
to the Company.

d. Customer Agreement

The Sales Manager is not authorized and hereby agrees not to
alter or amend in any way a contract or agreement between the
Company and a customer, either before or after execution of said
documents.

e. Payments to Customer or Customer Representatives

The Sales Manager shall not pay, assign, or give any part of the
commission or any other money, property or thing of value to any
agent, customer or representative of the customer or any other
person as an inducement or reward for assistance in making a
Sale. Gifts and entertainment above nominal value shall not be
given to a customer, agent or representative except in
accordance with the Company's written policy.

VII. AMENDMENT OF PLAN

This Plan may be amended as VPI, in its sole judgement, considers
modifications to be necessary or desirable. However, no modification
will reduce any commission or bonus which has been previously earned by
a Salesperson under this Plan, nor shall any modified plan be
retroactive. The Salesperson will be advised of any amendment in
writing.

IX. AUTHORITY OF SALES PERSONNEL

The Sales Manager is not authorized to sign binding agreements of any
kind on behalf of VPI.

X. VIOLATION OF PROVISIONS OF THE PLAN

Violation of any of the provisions of this Plan may, in VPI's
discretion, be grounds for termination of employment.

ATTACHMENT: APPENDIX A, Territory and Compensation Schedule

ACKNOWLEDGEMENT

I acknowledge receipt of a copy of the VPI 1996 Sales Manager's Compensation
Plan, together with a completed Appendix A, Territory and Compensation
Schedule, which jointly define the terms of my compensation agreement with the
Company and agree to abide by all its terms.

BY: ______________________________ DATE: _______________

<PAGE> 13

APPENDIX A

VOICE PLUS, INC. TERRITORY AND COMPENSATION SCHEDULE

Sales Manager: Diane E. Nowak

Territory: Western U.S.

Quarterly Quota: $300,000

Yearly Quota: $1,500,000 (Individual)

Base Salary: $65,000

Auto: Company vehicle provided

Medical Benefits: Standard: Accept _____ Reject _____

Expenses: Reasonable business related expenses will be reimbursed
upon approval of manager.

COMMISSIONS

New Systems & Parts

8% Of Sale at 100% of Retail Pricing (Retail is 2x + Installation)

6% Of Sale at 99-90% of Retail

5% Of Sale at 89-85% of Retail

10% Of GM less than 85% of Retail

Reconditioned Equipment & Parts

8% Of Sale

Rentals

10% Of monthly base rental fee, paid monthly

Maintenance

10% Of paid maintenance fee for a new VPI customer.

Service

6% If over $2,500 and submitted to order processing as a scheduled event.
Requests made directly to the Operations Dept. are excluded.

Managerial Override:

25% Of commission paid to Sales Personnel, under direct report
(except Sohaski).

25% Of Commissions paid to Sohaski as calculated under standard rather than
gross margin commission plan.

Other

Health Plan Available, with employee contribution
401K Plan Available
Long Term Disability, Life Insurance Available

Note: Discounted Service is not commissionable.

By: ______________________________ Date: _______________

<PAGE> 1
EXHIBIT 10.24

EMPLOYMENT AGREEMENT

This Employment Agreement (this "Agreement") is made this 1st
day of November, 1996 by and between Voice Plus, Inc., a California corporation
("Employer"), and Bradley Eickman, an individual resident of the State of
California ("Employee").

WITNESSETH

WHEREAS, upon consummation of the Merger, Employer desires to
employ Employee and Employee agrees to be employed by Employer for the period
and upon and subject to the terms herein provided.

THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and agreements contained herein and intending to be legally
bound, Employer and Employee agree as follows:

1. TERMS OF EMPLOYMENT

a) Term. Employer agrees to employ Employee for a
period of two (2) years commencing on the effective date of the Merger (the
"Term"), and for such additional term as may be agreed to in writing by the
Parties hereto, unless sooner terminated pursuant to Section 6 below.

b) Compensation. Employer will pay Employee a base
salary for his services during the term of his employment hereunder at an annual
rate of Sixty-Five Thousand Dollars ($65,000), payable in equal monthly
installments in accordance with Employer's standard practice, subject only to
such payroll and withholding deductions as are required by law, and subject to
the same annual incremental increase as is applicable to Employer's personnel
with responsibilities similar to those of Employee ("Similar Personnel").

c) Bonus and Commissions.

i) Commissions. During the Term hereof,
Employer agrees to pay Employee commissions based on a negotiated Sales
Personnel Compensation Plan (the "Plan"). The Plan for the first year of the
Term is attached hereto as EXHIBIT A.
<PAGE> 2
ii) Annual Performance Bonus. During the Term
hereof, Employer agrees to pay Employee an annual performance-
based bonus based on Employee meeting negotiated performance
targets as set forth in the Plan.

d) Insurance. Employer agrees to provide Employee
with health, hospitalization, life and disability insurance coverage in
accordance with coverage provided or offered to Similar Personnel.

e) Provision of Vehicle. Employer agrees that
Employee shall be provided with a vehicle, owned or leased by Employer, for his
exclusive use in connection with his employment hereunder.

2. OFFICE AND DUTIES. Employee shall have the title of
Director of Operations and shall have responsibility, subject to the direct
supervision of Employer's President, for overseeing Employer's Operations
Department and ensuring the quality of customer support and the performance of
installation and maintenance; it being understood that during the Term hereof,
Employee's responsibilities will shift to include sales in the service-provider
marketplace. Employee shall perform such other tasks, not inconsistent with his
position, as may from time to time be assigned to him. Employee shall devote all
of his business time, labor, skill, undivided attention and best ability to the
performance of his duties hereunder in a manner which will faithfully and
diligently further the business and interests of Employer. During the term of
his employment, Employee shall not directly or indirectly pursue any other
business activity without Employer's prior written consent. Employee agrees that
he will travel to whatever extent is reasonably necessary in the conduct of
Employer's business.

3. REIMBURSEMENT OF EXPENSES. Upon presentation of appropriate
documentation, Employee shall be entitled to be reimbursed in accordance with
such procedures as Employer has heretofore or may hereafter establish, for
reasonable and necessary expenses incurred by him in connection with the
performance of his duties hereunder.

4. VACATION DURING EMPLOYMENT. Employee shall be entitled to
such reasonable vacations as may be allowed by Employer in accordance with its
customary practice with respect to Similar Personnel.

6. TERMINATION OF EMPLOYMENT.

a) Notwithstanding any other provision of this
Agreement, Employee's employment may be terminated:

-2-
<PAGE> 3
i) By Employer for cause upon thirty (30) days'
notice to Employee setting forth in writing its election to
terminate the Agreement and the specific reasons for
termination. For purposes of this Agreement, "Cause"
justifying the termination of this Agreement by Employer is
defined as: (1) willful misconduct or malfeasance relative to
the promotion and best interests of Employer's business; (2)
willful failure or refusal to perform the services required of
him hereby, or to carry out proper directions by Employer with
respect to the services to be rendered by him hereunder or the
manner of rendering such services, his willful misconduct in
the performance of his duties hereunder; and/or (3) Employee's
conviction of a crime that either results in imprisonment or
involves defalcation or other activities injurious to
Employer; provided, however, that Employee shall have thirty
(30) days from the date of such notice to cure any default
pursuant to this subsection (a) other than a conviction of a
crime.

ii) By Employer upon thirty (30) days' notice to
Employee if he should be prevented by illness, accident or
other disability (mental or physical) from discharging his
duties hereunder for one or more periods totaling six (6)
months during any consecutive twelve (12) month period.

iii) In the event of Employee's death during the term
of his employment.

iv) By Employer for any material breach by Employee
of any of the terms of this Agreement, if such material breach
has not been substantially cured within thirty (30) days
following written notice of such breach specifying the breach
relied on for such termination, and failure to cure such
breach within such period or, if cure cannot reasonably be
effected within such 30-day period, if Employee does not
commence to cure the breach within such 30-day period and
thereafter pursue such cure continuously and with due
diligence, until cure has been fully effected.

b) Termination pursuant to subsection (a) shall
terminate all obligations of the parties hereunder except for the obligations
set forth in Sections 7 and 8.

7. ASSIGNMENT OF INVENTIONS; WORK PRODUCT.

a) Employee further agrees that during his employment
he shall not make, use or permit to be used any notes, memoranda, reports,
lists, records, drawings, sketches, specifications, software programs, data,
documentation or other materials of any nature relating to any matter within the
scope of the business of Employer or concerning any of its dealings or

-3-
<PAGE> 4
affairs otherwise than for the benefit of Employer. He further agrees that he
shall not, after the termination of his employment, use or permit to be used any
such notes, memoranda, reports, lists, records, drawings, sketches,
specifications, software programs, data, documentation or other materials, it
being agreed that all of the foregoing shall be and remain the sole and
exclusive property of Employer and that immediately upon the termination of his
employment he shall deliver all of the foregoing, and all copies thereof, to
Employer, at its main office.

b) If at any time or times during his employment,
Employee shall (either alone or with others) make, conceive, discover or reduce
to practice any invention, modification, discovery, design, development,
improvement, process, software program, work of authorship, documentation,
formula, data, technique, know-how, secret or intellectual property right
whatsoever or any interest therein (whether or not patentable or registrable
under copyright or similar statutes or subject to analogous protection) (herein
called "Developments") that (i) relates to the business of Employer or, any
customer of or supplier to Employer or any of the products or services being
developed, manufactured or sold by Employer or which may be used in relation
therewith, (ii) results from tasks assigned him by Employer or (iii) results
from the use of premises or personal property (whether tangible or intangible)
owned, leased or contracted for by Employer, such Developments and the benefits
thereof shall immediately become the sole and absolute property of Employer and
its assigns, and Employee shall promptly disclose to Employer (or any persons
designated by it) each such Development and hereby assigns any rights he may
have or acquire in the Developments and benefits and/or rights resulting
therefrom to Employer and its assigns without further compensation and shall
communicate, without cost or delay, and without publishing the same, all
available information relating thereto (with all necessary plans and models) to
Employer.

c) Upon disclosure of each Development to Employer,
Employee will, during his employment and at any time thereafter, at the request
and cost of Employer, sign, execute, make and do all such deeds, documents, acts
and things as Employer and its duly authorized agents may reasonably require:

ii) to defend any opposition proceedings in
respect of such applications and any opposition proceedings or
petitions or applications for revocation of such letters
patent, copyright or other analogous protection.

d) In the event Employer is unable, after reasonable
effort, to secure Employee's signature on any letters patent, copyright or other
analogous protection relating to a Development, whether because of any physical
or mental incapacity or for any other reason whatsoever, Employee hereby
irrevocably designates and appoints Employer and its duly authorized officers
and agents as his agent and attorney-in-fact, to act for and in his behalf and

8. NON-COMPETITION; CONFIDENTIALITY.

a) No Solicitation of Customers. Employee covenants
and agrees that he will not, directly or indirectly, until the lapse of two (2)
years after his termination pursuant to Sections 1 or 6, without the prior
written approval of Employer, call upon, cause to be called upon, solicit or
assist in the solicitation of, any customer or potential customer of Employer
for the purpose of diverting any existing or future business of such customers
to a Competing Business.

b) No Hiring of Employees. Employee covenants and
agrees that he will not, directly or indirectly, until the lapse of two (2)
years after his termination pursuant to Sections 1 or 6, without the prior
written approval of Employer, employ, engage, or seek to employ or engage,
directly or indirectly, any employee of Employer.

c) Confidentiality. Employee will not, without
Employer's prior written approval reveal to any person or entity any of the
trade secrets or confidential information concerning the organization, business
or finances of Employer or of any third party which Employer is under an
obligation to keep confidential (including but not limited to trade secrets or
confidential information respecting inventions, products, designs, methods,
know-how, techniques, systems, processes, software programs, works of
authorship, customer lists, projects, plans and proposals), except as may be
required in the ordinary course of performing his duties as an employee of
Employer, and he shall keep secret all matters entrusted to him and shall not
use or attempt to use any such information in any manner which may injure or
cause loss or may be calculated to injure or cause loss whether directly or
indirectly to Employer.

-5-
<PAGE> 6
Employer all Records and copies thereof that are in Employee's possession or
that Employee has removed from Employer's premises.

11. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not affect its interpretation.

12. 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.

If to Employer, to:
Voice Plus, Inc.
39899 Balentine Drive
Newark, CA 94560
Attention: James S. Gillespie

With a copy to:
NHancement Technologies Inc.
1746 Cole Boulevard, Suite 265
Golden, CO 80401
Attention: Linda K. Wackwitz, General Counsel

-6-
<PAGE> 7
If to Employee, to:
Bradley Eickman
1398 Linfield Drive
Roseville, CA 95678

15. WAIVER. The failure of any party to insist upon strict
performance of any of the terms or conditions of this Agreement shall not
constitute a waiver of any of his/its rights hereunder.

16. ASSIGNMENT. Employee may not assign any of his rights or
delegate any of his obligations hereunder, and such purported assignment or
delegation shall be void.

18. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH CALIFORNIA LAW EXCEPT FOR ANY CALIFORNIA
CONFLICT-OF-LAW PRINCIPLE THAT MIGHT REQUIRE THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION.

SUBMISSION TO JURISDICTION; SERVICE; WAIVERS. WITH RESPECT TO
ANY CLAIM ARISING OUT OF THIS AGREEMENT, EACH PARTY HERETO (A) IRREVOCABLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE JURISDICTION OF THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA CLARA, CALIFORNIA, AND APPELLATE
COURTS THEREFROM, (B) AGREES THAT THE VENUE FOR ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EXCLUSIVE TO AND LIMITED
TO SUCH COURTS, AND (C) IRREVOCABLY WAIVES ANY OBJECTION IT MAY HAVE AT ANY TIME
TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT BROUGHT IN ANY SUCH COURT, IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT
TO OBJECT, WITH RESPECT TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER IT. EACH PARTY HERETO
HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH SUIT, ACTION
OR PROCEEDING IN ANY OF THE AFORESAID COURTS BY THE MAILING OF COPIES

-7-
<PAGE> 8
OF SUCH PROCESS TO THE OTHER PARTY OR PARTIES HERETO, BY CERTIFIED OR REGISTERED
MAIL AT THE ADDRESS SPECIFIED IN PARAGRAPH 12.

[The remainder of this page intentionally left blank.]

-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this
EMPLOYMENT AGREEMENT as of the date first above written.

EMPLOYER:

VOICE PLUS, INC.

By: /s/ James S. Gillespie
-----------------------------
James S. Gillespie, President

EMPLOYEE:
/s/ Bradley Eickman
-----------------------------
Bradley Eickman

-9-
<PAGE> 10

VOICE PLUS, INC.

1996 SALES PERSONNEL COMPENSATION PLAN

This Compensation Plan defines the basis for which Voice Plus, Inc.,
("VPI") Sales Managers are paid for the sales of company products. This Plan is
effective for a period of twelve months commencing on your start date. It is the
SOLE plan for the payment of salaries, commissions and bonuses to all Sales
Personnel.

The Compensation Agreement between VPI and each VPI Salesperson consists
of the terms of this Plan and the terms stated in that salesperson's completed
and executed "Salesperson and Territory Compensation Schedule", which form is
attached hereto as Appendix A.

I. DEFINITIONS

a. "Total Order Value" is the dollar amount of a system sale as
indicated on a valid, signed purchase order or purchase
agreement accepted by VPI.

b. The "Net Order Value" is the Total Order Value minus the
following items or changes on which commissions are not
receivable.

c. A "Sale" is deemed to occur only upon completion of all of the
following:

A sale is deemed to be "In Process" during the period that
some, but not all, of the foregoing events have been completed.

II. TERRITORY AND ACCOUNTS

a. The Salesperson will cover the territory and vertical accounts
assigned by the President of VPI, as set forth in Appendix A.
The President, may, in his sole discretion, make changes in
assignments. All assignments and changes will be in writing.

b. The Salesperson is specifically prohibited from selling to the
following accounts or classes of accounts, unless otherwise
authorized in writing by the President:

1. Any firm or individual whom the Salesperson knows, or
has reason to know or otherwise suspect, is purchasing
any part of the system for delivery outside the
continental United States.

2. Any firm outside the assigned sales territory or
vertical market, unless specifically authorized in
writing by the President or Sales Management.

<PAGE> 11
III. COMPENSATION

a. Base Salary

The amount of base salary, if any, payable to Sales Manager, is
stated on Appendix A.

b. Commissions

c. Payment

Commissions will be paid in the middle of month pay cycle of the
month following completion of a Sale. Base Salary, if any, will
be paid in our regular payroll cycle.

VPI reserves the right to amend this Section III at any time,
by written notice, receipt of which shall be acknowledged by all
sales personnel.

IV. SALE CANCELLATIONS

V. INTER-TERRITORIAL SALES

The total amount of commission/bonus paid to one or more salespersons
will not exceed the amount that would have been normally paid to a
single salesperson.

VI. RESIGNATION OR TERMINATION

Booked 30%
Shipped 20%
Cutover 20%
Accepted & Paid 30% /s/
_______
Initial

VII. GENERAL PROVISIONS

a. Taxes

All earnings, whether salary, car allowance, commission or
bonus, will be subject to applicable withholding of federal,
state, and local taxes.

b. Benefits

The Sales Manager is eligible for the standard VPI Benefits
Package for exempt personnel in effect during the term of Sales
Manager's employment.

c. Acknowledgement

d. Customer Agreement

The Sales Manager is not authorized and hereby agrees not to
alter or amend in any way a contract or agreement between the
Company and a customer, either before or after execution of said
documents.
<PAGE> 12

e. Payments to Customer or Customer Representatives

VII. AMENDMENT OF PLAN

IX. AUTHORITY OF SALES PERSONNEL

The Sales Manager is not authorized to sign binding agreements of any
kind on behalf of VPI.

X. VIOLATION OF PROVISIONS OF THE PLAN

Violation of any of the provisions of this Plan may, in VPI's
discretion, be grounds for termination of employment.

ATTACHMENT: APPENDIX A, Territory and Compensation Schedule

ACKNOWLEDGEMENT

BY: /s/ DATE: 12-9-96
------------------------ -------

<PAGE> 13

APPENDIX A

VOICE PLUS, INC. TERRITORY AND COMPENSATION SCHEDULE

Salesperson:

Territory: U.S. with focus on service provider market

Quarterly Quota: $

Yearly Quota: $

Base Salary: $

Auto: Allowance: N/A Expense Report: at $0.28/mile

Medical Benefits: Standard: Accept _____ Reject _____

Expenses: Reasonable business related expenses will be reimbursed
upon approval of manager.

ADDITIONAL BONUS PROGRAM

Mr. Brown will be paid a $100,000 bonus, payable in 24 equal installments
commencing the first pay cycle after employment.

COMMISSIONS

New Systems & Parts

6% Of Sale at 100% of Retail Pricing (Retail is 2x + Installation)

4% Of Sale at 99-90% of Retail

3% Of Sale at 89-85% of Retail

7% Of GM less than 85% of Retail

6%-8% Of GM for severely discounted sales.

Reconditioned Equipment & Parts

6% Of Sale

Rentals

8% Of monthly base rental fee, paid monthly

Maintenance

10% Of paid maintenance fee for a new VPI customer.

Service

6% If over $2,500 and submitted to order processing as a scheduled event.
Requests made during the Operations Dept. are excluded.

Other

Health Plan Available, with employee contribution
401K Plan Available
Long Term Disability, Life Insurance Available

Note: Discounted Service is not commissionable.

By: /s/ Date: 12-9-96
______________________________ _______________

<PAGE> 1

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> 2

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> 3
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> 4
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

San Francisco, California

January 10, 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 10, 1997

<PAGE> 1
Exhibit 23.4

January 8, 1997

Mr. Esmond T. Goei
President
NHancement Technologies Inc.
1746 Cole Boulevard, Suite 265
Golden, Colorado 80401

Dear Mr. Goei:

I am writing to inform you of my consent to be nominated as a member of the
Board of Directors of NHancement Technologies Inc. (the "Company") and to be
named as a proposed director in the Company's Form SB-2 Registration Statement
and any amendments thereto in connection with the Company's proposed initial
public offering. It is my understanding that I will be elected as a director of
the Company concurrent with the consummation of the Company's initial public
offering.

Very truly yours,

/s/ WILLIAM BREHM

William Brehm

<PAGE> 1
Exhibit 23.5

January 8, 1997

Mr. Esmond T. Goei
President
NHancement Technologies Inc.
1746 Cole Boulevard, Suite 265
Golden, Colorado 80401

Dear Mr. Goei:

Very truly yours,

/s/ GARY L. NEMETZ

Gary L. Nemetz

<PAGE> 1
Exhibit 23.6

January 8, 1997

Mr. Esmond T. Goei
President
NHancement Technologies Inc.
1746 Cole Boulevard, Suite 265
Golden, Colorado 80401

Dear Mr. Goei:

Very truly yours,

/s/ RICHARD H. WILLIAMS

Richard H. Williams