NACT TELECOMMUNICATIONS INC, 424B4, 1997-02-26

NACT TELECOMMUNICATIONS INC
424B4, 1997-02-26
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE> 1
As Filed Pursuant to Rule 424(b)(4)
Registration No. 333-17735

PROSPECTUS

3,000,000 Shares

NACT logo

NACT Telecommunications, Inc.
Common Stock

Of the 3,000,000 shares of Common Stock offered hereby, 2,000,000 are being
sold by NACT Telecommunications, Inc. ("NACT" or the "Company") and 1,000,000
are being sold by GST USA, Inc. ("GST USA" or the "Selling Stockholder"), the
parent corporation of the Company and a wholly-owned subsidiary of GST
Telecommunications, Inc. ("GST"). The Company will not receive any proceeds from
the sale of shares by the Selling Stockholder. Upon completion of this offering,
GST USA will own approximately 63% of the outstanding Common Stock of the
Company (approximately 60% if the Underwriters' over-allotment option is
exercised in full) and will continue to control the Company. See "Principal and
Selling Stockholder."

Prior to this offering, there has been no public market for the Common
Stock of the Company. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Common Stock
has been approved, subject to issuance, for quotation on the Nasdaq National
Market under the symbol "NACT."
------------------------

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
------------------------

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>
=====================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................... $10.00 $0.70 $9.30 $9.30
- -----------------------------------------------------------------------------------------------------
Total(3)..................... $30,000,000 $2,100,000 $18,600,000 $9,300,000
=====================================================================================================
</TABLE>

(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.

(2) Before deducting expenses payable by the Company and the Selling Stockholder
estimated at $433,333 and $216,667, respectively.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$34,500,000, $2,415,000 and $22,785,000, respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them, and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about March 3, 1997, at the office of the agent of Hambrecht
& Quist LLC in New York, New York.

HAMBRECHT & QUIST MONTGOMERY SECURITIES

February 26, 1997
<PAGE> 2

DIAGRAM OF A CONFIGURATION OF FOUR STXS,
TWO MCUS AND AN NTS.

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 NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus.

THE COMPANY

The Company provides advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities. As a
single source provider, the Company believes that it is the only company in its
market that designs, develops and manufactures all hardware and software
elements necessary for a fully integrated, turnkey telecommunications switching
solution. Because the Company provides a complete, integrated solution, its
customers do not require the multiple suppliers of hardware and value added
resellers of software that would otherwise be necessary to provide a wide range
of services and applications. The Company's customers include long distance
carriers, prepaid debit (calling) card and prepaid cellular network operators,
international call back/reorigination providers and other specialty
telecommunications service providers.

The Company's products and services include the STX application switching
platform (the "STX"), the NTS telemanagement and billing system (the "NTS") and
facilities management services. In May 1996, the Company introduced the STX, an
integrated digital tandem switching system that currently supports up to 1,024
ports per switch and can be combined with three additional STXs to provide a
total capacity of 4,096 ports per system. The STX includes proprietary systems
software that enables standard applications such as 1+ and optional advanced
applications such as international call back/reorigination, prepaid debit card
and prepaid cellular. The Company has targeted the STX, with its enhanced
features and scaleable capacity, to an expanded group of customers, including
independent telephone companies, CAPs/CLECs, shared tenant service providers,
Fortune 1000 corporations and local telephone companies outside the United
States. The Company believes that the STX offers value added features and
capacity at price points typically lower than those offered by its competitors.
The NTS performs call rating, accounting, switch management, invoicing and
traffic engineering for multiple switches that may either be NACT switches or a
number of other industry switches. In conjunction with the sale of a system, the
Company offers a facilities management service whereby the Company will operate
and maintain a customer's switch for a fee. In providing this service, the
Company enables its customers to direct their attention toward marketing their
products rather than focusing on the technical aspects of operating a switch.

Deregulation of long distance telecommunications as a result of the
divestiture of AT&T in 1984 and increased competition fostered by the
Telecommunications Act of 1996 have materially altered the dynamics of the
telecommunications industry by opening competition in the market to a wide group
of telecommunications companies, including a large number of specialty
telecommunications service providers that constitute a substantial portion of
the Company's targeted market. The Company believes that the STX and NTS are
well suited to exploit the opportunities being created in this deregulated
market environment.

Certain technical terms and acronyms used in this Prospectus are defined in
the "Glossary of Terms" beginning on page 58.

Upon completion of this offering, GST USA will own approximately 63% of the
outstanding Common Stock of the Company (approximately 60% if the Underwriters'
over-allotment option is exercised in full) and will continue to control the
Company. GST, the parent of GST USA, is a federally chartered Canadian
corporation that provides a broad range of telecommunications products and
services. The Common Shares of GST are traded on the American Stock Exchange
under the symbol "GST."

The Company was incorporated in Utah in January 1982. The Company
reincorporated in Delaware on February 13, 1997. The Company's address is 382
East 720 South, Orem, Utah 84058 and its telephone number is (801) 225-6248.

3
<PAGE> 4

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.............. 2,000,000 shares
Common Stock offered by the Selling
Stockholder.................................... 1,000,000 shares
Common Stock to be outstanding after the
offering....................................... 8,113,712 shares(1)
Use of proceeds.................................. For product development, sales and marketing,
the purchase of land and a building for the
Company's headquarters and the construction
costs to complete the building, other working
capital and general corporate purposes and
possible acquisitions of or investments in
complementary businesses or products.
Nasdaq National Market symbol.................... NACT
</TABLE>

SUMMARY FINANCIAL DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 552 $ 18,719
Working capital..................................................... 6,382 24,549
Total assets........................................................ 17,041 35,208
Total stockholders' equity.......................................... 11,416 29,582
</TABLE>

OTHER DATA(5):

<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS FISCAL YEAR ENDED ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, -------------------------- ---------------
1993(2) 1994 1995 1996 1995 1996
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Amortization of acquired intangibles included
in cost of sales.............................. $ 14 $185 $443 $362 $ 91 $ 91
Amortization of acquired intangibles included
in operating expenses........................ $ 20 $257 $520 $573 $143 $143
Total amortization of acquired intangibles..... $ 34 $442 $963 $935 $234 $234
</TABLE>

- ------------------------------
(1) Based on the number of shares of Common Stock outstanding as of February 4,
1997. Excludes 1,250,000 shares of Common Stock reserved for issuance
pursuant to the exercise of stock options, 850,000 of which were outstanding
as of February 4, 1997 having an exercise price of $9.35 per share. See
"Management--1996 Stock Option Plan."

(2) The Company changed its fiscal year-end to September 30th, effective with
the fiscal year ended September 30, 1993. Accordingly, the fiscal year ended
September 30, 1993 was a nine-month period.

(3) See Note 1 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used in computing net income per
share.

4
<PAGE> 5

(4) Adjusted to reflect the sale of 2,000,000 shares offered by the Company
hereby and the receipt of the net proceeds therefrom. See "Use of Proceeds."

(5) The "Other Data" presentation provides the effect of the amortization of
acquired intangibles, which increases the cost of sales and operating
expenses, and therefore decreases gross profit and operating income. The
impact of the effect of the amortization of the acquired intangibles on the
Company's operating income for the fiscal year ending September 30, 1997,
1998 and 1999 is anticipated to decrease the Company's operating income by
$935,486, $935,486 and $524,816, respectively. These intangibles arose as a
result of the acquisition of the Company by GST USA through a series of
purchases of newly issued shares and shares owned by former stockholders of
the Company. Such purchases occurred from September 1993 through December
1994. GST USA accounted for the acquisition using the purchase method of
accounting. The excess of the purchase price over the fair value of the
assets acquired totaled $6,912,322, was assigned by GST USA as product
support contracts, software development costs and goodwill, and, in
accordance with requirements of the Securities and Exchange Commission (the
"Commission"), has been recorded on the books of NACT as intangibles. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1 and 5 of Notes to Financial Statements.
------------------------------

Unless otherwise indicated, the information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option and (ii) reflects the
reincorporation of the Company in Delaware which was effected on February 13,
1997.

5
<PAGE> 6

RISK FACTORS

The shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information
contained in this Prospectus before purchasing the Common Stock offered hereby.

Dependence on Recently Introduced Product and Products Under
Development. In May 1996, the Company introduced the STX. During the quarter
ended December 31, 1996, sales of the STX comprised approximately 75% of the
Company's product sales. The Company's results of operations are highly
dependent on market acceptance of existing and future applications for the STX.
Increased market acceptance of the STX is dependent on a number of factors, many
of which are not in the Company's control, including the continued deployment of
new telecommunications services, the availability and price of competing
products and technologies and the success of the Company's expanded sales
activities. The Company intends to direct its sales and marketing efforts to a
broader customer base than it has previously addressed. No assurance can be
given that the Company will be successful in broadening its customer base. A
significant portion of the Company's initial sales of the STX were to customers
that had previously purchased the Company's earlier generation switch, the LCX.
Such customers exercised the limited time opportunity offered by the Company to
exchange their LCX for an allowance toward the purchase of an STX. There can be
no assurance that the initial level of sales experienced as a result of this
offer is reflective of an ongoing level of customer demand.

The Company plans to incorporate into the STX certain features and
enhancements such as SS7, E-1, R-2 signaling and ISDN, which are critical to the
Company's strategy to broaden its STX customer base. The Company may experience
delays in incorporating such features and enhancements into the STX. Any such
delays could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company is also currently developing an
improved billing system, which is being designed for real-time transaction
processing, with graphical user interface and improved call reports. Due to a
variety of factors, the Company may experience delays in developing its planned
new products. New products may require additional development work, enhancement,
testing or further refinement before they can be made commercially available by
the Company. There can be no assurance that the Company will be successful in
identifying, developing, manufacturing and marketing product enhancements or new
products that respond to technological changes or evolving industry standards.
In addition, there can be no assurance that the Company will not experience
difficulties that could delay or prevent the timely and successful development,
introduction and marketing of these products or that its new products and
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance. Should the Company be unsuccessful in its
efforts, the Company's business, financial condition and results of operations
would likely be materially adversely affected. See "-- Compliance with
Regulations and Evolving Industry Standards," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Products"
and "Business--Research and Development."

Need to Expand Sales and Technical Support Capabilities. The Company's
results of operations are dependent on its ability to expand its sales and
technical support capabilities. Historically, the Company has sold its products
through a small sales force located primarily in Utah, which the Company
recognizes must be substantially increased. The Company recently established a
regional sales presence in the States of Washington and Florida and is currently
establishing a sales force in New York. While the Company has committed and will
continue to commit funds to expand its sales organization, there can be no
assurance that the Company will be able to recruit, train, motivate, manage and
retain additional qualified sales personnel or that their activities will result
in additional revenues to the Company. In an attempt to broaden its customer
base, the Company will be marketing its products and services to larger
telephony providers whose procurement processes are generally more protracted
and will likely require additional sales efforts on the Company's part. In
addition, the Company recognizes that as its level of sales increases, it will
need to expand its technical support capabilities to service its expanding
customer base. Availability of qualified sales and technical support personnel
is limited, and competition for experienced sales and technical support
personnel in the telecommunications equipment industry is intense. A substantial
increase in sales and technical

6
<PAGE> 7

support personnel will also result in increased general and administrative
expenses. The failure to timely expand the Company's sales force and technical
support staff, hire and retain qualified personnel or effectively address the
requirements of new types of customers could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"--Management of Growth," "--Dependence on Key Personnel" and "Business--Sales
and Marketing."

Control by Existing Stockholder; Conflicts of Interest; Certain
Transactions. Prior to this offering, all of the Company's outstanding shares
of Common Stock were held by GST USA, a wholly-owned subsidiary of GST. Upon
completion of the offering, GST USA will beneficially own approximately 63% of
the outstanding Common Stock of the Company (approximately 60% if the
Underwriters' over-allotment option is exercised in full) and will alone control
sufficient votes to determine whether actions that require the consent of
stockholders, including the election of the Company's directors, will be taken.
The ability to elect the Company's Board of Directors will also provide GST USA
with effective control over actions taken by the Company. The Company believes
that GST USA will not be prohibited from acting in its own self interest in
respect of, among other things, the declaration of any dividends, the sale of
some or all of the assets of the Company or the prevention of an acquisition of
or change in control of the Company. There can be no assurance that conflicts of
interest between GST USA and the Company will not arise with respect to such
matters or other matters. Currently, there is no formal procedure for resolving
or preventing conflicts that may arise between the Company and GST USA and there
can be no assurance that GST USA will not act in its own interest on such
matters. If such a conflict were to arise, the inability of the Company to
operate independently of the influence of GST USA could have a material adverse
effect on the Company's business, financial conditions and results of
operations. Also, GST USA and the Company have entered into certain agreements,
which are not the result of arm's length negotiations between independent
parties, providing for indemnification and certain other rights and obligations
for each of them after consummation of the offering. See "Certain Transactions."
In addition, Thomas E. Sawyer, the Chairman of the Board Emeritus of the
Company, serves as a director and executive officer of each of GST and GST USA.
W. Gordon Blankstein, the Chairman of the Board of GST and GST USA, Stephen
Irwin, the Vice Chairman of the Board of GST, and Clifford V. Sander, Senior
Vice President of GST and GST USA and a director of GST USA, each serve as a
director of the Company. See "--Benefits of the Offering to Current Stockholder
and Key Personnel" and "Management--Compensation Committee Interlocks and
Insider Participation."

GST has, both with financial institutions and holders of publicly traded
debt, substantial amounts of outstanding indebtedness, a portion of which is
governed by indentures. The Company is subject to certain financial restrictions
by reason of its status as a "Restricted Subsidiary" of GST and GST USA under
such indentures. Such restrictions significantly limit or prohibit the ability
of GST and its Restricted Subsidiaries, including the Company, to incur
additional indebtedness or create liens on their assets. Effectively, the
ability of the Company to incur indebtedness is limited by the amount of
indebtedness that GST and its Restricted Subsidiaries, including the Company,
are permitted to incur pursuant to the indentures. In addition, such
restrictions or limitations also limit or prohibit the ability of the Company to
raise capital, pay dividends, sell assets, engage in mergers or acquisitions or
make investments, particularly in international markets. Such restrictions or
limitations also restrict or limit the ability of a third party to acquire a
controlling interest in the Company. There can be no assurance that these
financial restrictions will not have a material adverse effect on the Company's
business, financial conditions and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

Potential Fluctuations in Quarterly Operating Results; Timing of
Sales. The Company's quarterly operating results have varied in the past, and
may vary significantly in the future, depending on factors such as the timing of
new product introductions by the Company and its competitors, delays in new
product introductions by the Company, market acceptance of new or enhanced
versions of the Company's products, changes in the product or customer mix,
changes in the level of operating expenses, competitive pricing pressures, the
gain or loss of significant customers, increased research and development and
sales and marketing expenses associated with new product introductions,

7
<PAGE> 8

personnel changes and economic conditions in general and in the Company's
industry. Any unfavorable change in these or other factors could have a material
adverse effect on the Company's operating results for a particular quarter. Due
to the relatively fixed nature of most of the Company's costs, any shortfall in
revenues in any quarter would have a proportionately greater impact on the
Company's results of operations in that quarter, and may result in fluctuations
in the price of the Company's Common Stock.

The Company has experienced large fluctuations in network carrier sales
from quarter to quarter due to substantial sales generated by a limited number
of network carrier customers. When network carrier customers increase their
monthly sales volume substantially, they can then negotiate favorable long
distance rates on substantially the same pricing terms as the Company. When
network carrier customers place their long distance carrier traffic with someone
other than the Company, a significant drop in revenue may occur in quarterly
operating results. When new facilities management and network carrier customers
participate in the Company's facilities management and network carrier sales
program, significant increases in revenue may occur in quarterly operating
results. Due to the significant revenues generated from a single customer
through network carrier sales, the loss or gain of one or more customers could
cause a significant fluctuation in the Company's quarterly revenues.
Fluctuations in quarterly gross and net margins are less significant due to the
low margins generated from network carrier sales. However, due to the
significant revenues generated by an individual customer in network carrier
sales, significantly higher credit risks are involved with the Company's
customers using network carrier services. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Quarterly Results of
Operations."

Due to the high unit price and long lead times associated with revenues
derived from equipment orders, the Company's financial results may fluctuate
significantly depending upon the time of the actual shipment of such orders.
Consequently, operating results in any period should not be considered
indicative of the results to be expected for any future period. There can be no
assurance that the Company's revenues will increase, that its recent levels of
quarterly revenues and net income will be sustained, or that the Company will
achieve profitability in any future period. In addition, it is likely that in
some future quarters the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Management of Growth. The Company has recently experienced and is expected
to continue to experience growth in the number of its employees and the scope of
its operations. In particular, the Company intends to increase its engineering,
sales, marketing, manufacturing and technical support staffs. These increases
will result in increased responsibilities for management and are expected to
place a significant strain on the Company's operational, financial and other
resources. To manage potential future growth effectively, the Company must
expand its operational, financial and management information systems and must
hire, train, retain, motivate and manage a growing number of employees. The
future success of the Company also will depend on its ability to increase its
technical support capability and to attract and retain qualified technical
support, sales, marketing and engineering personnel, for whom competition is
intense. In particular, the current availability of qualified sales, technical
support and engineering personnel is limited, and competition for such personnel
is intense. The Company may experience difficulty in filling its needs for
qualified sales, technical support, engineering and other personnel who are
familiar with the Company's proprietary technology. The Company is currently
engaged in efforts to expand its manufacturing capacity. There can be no
assurance that the Company will be able to effectively achieve or manage any
such growth, and failure to do so could delay delivery of products, product
development cycles or otherwise have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's results
of operations will be adversely affected if revenues do not increase
sufficiently to compensate for the planned increase in operating expenses
incurred in anticipation of such growth.

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<PAGE> 9

See "--Need to Expand Sales and Technical Support Capabilities," "--Dependence
on Key Personnel," "Business--Employees" and "Management."

Dependence on Component Availability and Suppliers. The Company's ability
to deliver its products, in part, depends upon the availability of components
used in its products. The Company relies upon suppliers to manufacture and
deliver components in a timely and satisfactory manner. The Company is currently
dependent on Motorola, Inc., which is the sole supplier of certain of its CPUs.
There can be no assurance that such supplier will continue to meet the Company's
requirements. Certain integrated circuits and billing system database software
are presently available only from a single source or limited sources of supply.
To date, the Company has been able to obtain adequate supplies of these
components in a timely manner. However, the inability of the Company to obtain
sufficient components as needed and at a reasonable price would materially
adversely affect the Company's business, financial condition and results of
operations. The Company generally does not have any long-term contracts with its
suppliers and there can be no assurance that these suppliers will continue to be
able to meet the Company's requirements. Any significant interruption in the
supply of, or degradation in the quality of, any such item could have a material
adverse effect on the Company's business, financial condition and results of
operations.

The Company's customers frequently require delivery rapidly after placement
of the purchase order. Because the Company does not maintain significant
component inventories, a delay in shipment by a supplier could lead to lost
sales. The Company uses internal forecasts to determine its general materials
and components requirements. Lead times for materials and components may vary
significantly and depend on factors such as specific supplier performance,
contract terms and general market demand for components. If orders vary from
forecasts, the Company may experience excess or inadequate inventory of certain
materials and components. While the Company has not experienced shortages and
allocations of these components to date, any shortages in the future, including
those occasioned by increased sales, could result in delays in fulfillment of
customer orders. Such delays, shortages and allocations could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Competition. The market for telecommunications products is highly
competitive and subject to rapid technological change. The Company expects
competition to increase in the future from existing competitors in the
distributed switching systems market and from other companies that may enter the
Company's existing or future markets, including major central office switch
vendors. The Company currently competes with a number of lower capacity switch
manufacturers such as Communications Product Development, Inc. ("CPDI"),
Integrated Telephony Products, Inc. ("ITP") and PCS Telecom, Inc. ("PCS
Telecom"). The Company also competes with providers of open architecture
(programmable) hardware switching platforms that are enhanced by applications
providers and value added resellers. Such competitors include: Excel, Inc.
("Excel"), which has agreements with software applications providers such as
Boston Technology, Inc. and Magellan Network Systems, Inc. ("Magellan"); Summa
Four, Inc. ("Summa Four"), which collaborates with application developers such
as Open Development Corporation ("Open Development"); and Redcom Laboratories,
Inc. ("Redcom"). As the Company's business develops and it seeks to market its
switches to a broader customer base, the Company's competitors may include
larger switch and telecommunications equipment manufacturers such as Lucent
Technologies Inc., Harris Corporation ("Harris"), Siemens AG, Alcatel Alsthom
Compagnie, Generale D'Electricite, Telefonaktiebolaget, L.M. Ericcson and
Northern Telecom Ltd. Many of these current and potential competitors have
substantially greater financial, technical and marketing resources than the
Company. Increased competition could materially and adversely affect the
Company's business, financial condition and results of operations through price
reductions and loss of market share. There can be no assurance that the Company
will be able to continue to compete successfully with its existing competitors
or that it will be able to compete successfully with new competitors. See
"--Dependence on Recently Introduced Product and Products Under Development,"
"--Impact of Technological Change" and "Business--Competition."

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<PAGE> 10

Risks Associated with International Expansion. A component of the
Company's strategy is to expand into international markets. To date, the Company
has not made any international sales. There can be no assurance that the Company
will be able to successfully market, sell and deliver its products in
international markets. In addition to this uncertainty, there are certain risks
inherent in conducting business internationally, such as unexpected changes in
regulatory requirements, export restrictions, tariff and other trade barriers,
difficulties in staffing and managing foreign operations, different employment
laws and practices in foreign countries, longer payment cycles, problems in
collecting accounts receivable, political instability, exposure to currency
fluctuations, exchange rates, imposition of currency exchange controls,
potentially adverse tax consequences and country-specific product requirements,
any of which could adversely affect the success of the Company's international
operations. As the Company expands internationally, it will be exposed to gains
and losses on international currency transactions. An additional risk inherent
in conducting business in international markets is the requirement to achieve
and maintain International Standards Organization ("ISO") 9000 quality control
standards and other special standards requirements such as E-1 and R-2
signaling. There can be no assurance that one or more of these factors or the
failure to achieve and maintain such standards will not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, financial condition and results of operations.
Furthermore, there can be no assurance that the Company's products will be
accepted internationally or that the Company will be able to compete effectively
in international markets. In addition, if the revenues generated by
international offices opened by the Company are not adequate to offset the
expense of establishing and maintaining these foreign operations, the Company's
business, financial condition and results of operations would be materially
adversely affected. See "-- Dependence on Recently Introduced Product and
Products Under Development" and "Business--Sales and Marketing."

Limited Intellectual Property Protection; Risk of Third Party Claims of
Infringement. The Company's success is dependent in part on intellectual
property rights, including information technology, some of which is proprietary
to the Company. The Company relies on a combination of nondisclosure and other
contractual arrangements, technical measures and trade secret and trademark laws
to protect its proprietary rights. The Company does not presently hold any
patents for its existing products and presently has no patent applications
pending. The Company generally enters into confidentiality agreements with its
employees and attempts to limit access to and distribution of proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use or take
appropriate steps to enforce intellectual property rights. In addition, there
can be no assurance that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technology. Further, the laws of many foreign countries do not protect
the Company's intellectual property rights to the same extent as the laws of the
United States. The failure of the Company to protect its proprietary information
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Intellectual Property and
Other Proprietary Rights."

The telecommunications equipment industry is characterized by the existence
of a large number of patents and frequent litigation based on allegations of
patent infringement. From time to time, third parties may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies that are used by the Company. Litigation may be necessary to defend
against claimed infringements of the rights of others or to determine the scope
and validity of the proprietary rights of others. Future litigation may also be
necessary to enforce and protect trade secrets and other intellectual property
rights owned by the Company. Any such litigation could be costly and cause
diversion of management's attention, either of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. Adverse determinations in such litigation could result in the loss
of the Company's proprietary rights, subject the Company to significant
liabilities (including possible indemnification of its customers), require the
Company to secure licenses from third parties or prevent the Company from
manufacturing or selling its products, any one of which could have a material
adverse effect on the Company's business, financial condition

10
<PAGE> 11

and results of operations. The Company has not conducted a formal patent search
relating generally to the technology used in its products. In addition, since
patent applications in the United States are not publicly disclosed until the
patent issues and foreign patent applications generally are not publicly
disclosed for at least a portion of the time that they are pending, applications
may have been filed which, if issued as patents, would relate to the Company's
products. Software comprises a substantial portion of the technology in the
Company's products. The scope of protection accorded to patents covering
software-related inventions is evolving and is subject to a degree of
uncertainty that may increase the risk and cost to the Company if the Company
discovers the existence of third party patents related to its software products
or if such patents are asserted against the Company in the future. Patents have
been granted recently on fundamental technologies in software, and patents may
issue which relate to fundamental technologies incorporated into the Company's
products. See "Business--Intellectual Property and Other Proprietary Rights."

Pending Litigation. An action was commenced against the Company and a
customer of the Company alleging that the Company's telephone systems
incorporating prepaid debit card features infringe upon a patent issued in 1987.
The plaintiff in such action seeks injunctive relief, damages in an unspecified
amount, damages of up to three times the damages found for willful infringement
of such patent and an order requiring the Company to publish a written apology
to the plaintiff. Whether or not determined in favor of the Company, such
litigation could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel from productive
tasks. There can be no assurance that this litigation will not discourage
companies from purchasing the Company's products. In the event of an unfavorable
decision in this action, the Company may be required to discontinue the use and
sale of infringing products, expend significant resources to develop
non-infringing technology, obtain licenses from third parties, obtain a royalty
agreement with the plaintiff in the action to continue to offer prepaid debit
card services, cease to offer the prepaid debit card feature with its products,
and/or pay money damages. In addition, the Company may be liable to its
customers for indemnification under the Company's sales agreements. Accordingly,
an unfavorable decision could have a material adverse effect on the business,
financial condition and results of operations of the Company. See
"Business--Intellectual Property and Other Proprietary Rights" and
"Business--Legal Proceedings."

Compliance with Regulations and Evolving Industry Standards. The market
for the Company's products is characterized by the need to meet a significant
number of communications regulations and standards, some of which are evolving
as new technologies are deployed. In the United States, the Company's products
must comply with various regulations defined by the Federal Communications
Commission (the "FCC") and standards established by Underwriters Laboratories,
Bell Communications Research and the ISO. While some previously installed NACT
products are being brought into compliance with industry standards using
retrofit kits, the cost of which is being borne by the Company, the Company
believes that it is otherwise currently in compliance with all applicable
regulations and has all required licenses to conduct its business. However, the
failure of the Company's products to comply, or delays in compliance, with the
various existing and evolving industry standards could delay introduction of the
Company's products, which could have a material adverse effect on the Company's
business, financial condition and results of operations.

Impact of Technological Change. While the Company employs proprietary
software technology for the majority of its products and services and conducts
ongoing research and development, the future success of the Company will depend
in part upon its ability to keep pace with advancing technology, evolving
industry standards within the telecommunications industry and changing customer
requirements in a cost-effective manner. The STX is a closed architecture switch
by virtue of its proprietary operating system and applications software. The
closed architectural design limits the use of the switch to features available
within existing software or customized versions thereof. Other providers offer
open architecture switches that enable owners of such switches to add additional
applications that may be developed by third parties. There can be no assurance
that the Company's products will not be rendered obsolete by other
telecommunications products incorporating techno-

11
<PAGE> 12

logical advances designed by competitors that the Company is unable to
incorporate into its products in a timely manner.

The telecommunications equipment market is characterized by rapidly
changing technologies and frequent new product introductions. The rapid
development of new technologies increases the risk that current or new
competitors could develop products that would reduce the competitiveness of the
Company's products. The Company's success will depend to a substantial degree
upon its ability to respond to changes in technology and customer requirements.
This will require the timely selection, development and marketing of new
products and enhancements on a cost-effective basis. The development of new,
technologically advanced products is a complex and uncertain process, requiring
high levels of innovation. The introduction of new and enhanced products also
requires that the Company manage transitions from older products in order to
minimize disruptions in customer orders, avoid excess inventory of old products
and ensure that adequate supplies of new products can be delivered to meet
customer orders. There can be no assurance that the Company will be successful
in developing, introducing or managing the transition to new or enhanced
products or that any such products will be responsive to technological changes
or will gain market acceptance. The Company's business, financial condition and
results of operations would be materially adversely affected if the Company were
to be unsuccessful, or to incur significant delays, in developing and
introducing such new products or enhancements. See "--Dependence on Recently
Introduced Product and Products under Development" and "Business--Research and
Development."

Dependence on Key Personnel. The Company's future success will depend to a
large extent on the continued contributions of A. Lindsay Wallace, the Company's
President and Chief Executive Officer, Eric F. Gurr, the Company's Chief
Financial Officer, Treasurer and Secretary, Gary Brown, the Company's Vice
President of Research and Development and Geoffrey Shupe, the Company's Vice
President of Sales and Marketing. Such executive officers and key personnel
would be difficult to replace. In addition, while each of Messrs. Wallace, Gurr,
Brown and Shupe are party to an employment agreement with the Company, the
existence of such agreement will not assure the Company of such employee's
continued services. In addition the Company does not have "key person"
insurance. The loss of the services of one or more of the Company's executive
officers, or the inability of the Company to continue to attract qualified
personnel, could delay product development cycles or otherwise have a material
adverse effect on the Company's business, financial condition and results of
operations. Competition for qualified personnel in the telecommunications
equipment industry is intense. The Company may not be successful in attracting
and retaining the personnel it requires, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management--Employment and Consulting Agreements."

No Prior Market for the Company's Common Stock; Price Volatility. Prior to
this offering, there has been no public market for the Company's Common Stock,
and there can be no assurance that an active public trading market for the
Common Stock will develop or be sustained after the offering or that the market
price of the Common Stock will not decline below the initial public offering
price. The initial public offering price was determined by negotiations among
the Company, the Selling Stockholder and the representatives of the Underwriters
and may not necessarily reflect the market price of the Common Stock after the
offering. The market price of the Common Stock could be subject to wide
fluctuations in response to quarter to quarter variations in operating results,
announcements of technological innovations or new products by the Company or its
competitors, developments with respect to patents or proprietary rights, changes
in earnings estimates by securities analysts, or other events or factors. In
addition, the stock market has experienced extreme price and volume fluctuations
that have particularly affected the market prices of equity securities of many
technology companies and that have often been unrelated to the operating
performance of such companies. These Company-specific factors or broad market
fluctuations may materially adversely affect the market price of the Common
Stock. See "--Potential Fluctuations in Quarterly Operating Results; Timing of
Sales" and "Underwriting."

12
<PAGE> 13

Antitakeover Effects of Control by GST USA, Certain Charter Provisions and
Delaware Law. Upon the closing of this offering, GST USA will continue to own
approximately 63% of the outstanding Common Stock of the Company (approximately
60% if the Underwriters' over-allotment option is exercised in full). GST USA,
therefore, will continue to be in a position to prevent a takeover of the
Company by one or more third parties, which could deprive the Company's
stockholders of a control premium that might otherwise be realized by them in
connection with the acquisition of the Company. Under the terms of certain
indebtedness of GST and GST USA, GST USA may not distribute to its shareholders
in excess of 10% of the Company's outstanding Common Stock. The Company's Board
of Directors will also have the authority to issue up to 10,000,000 shares of
preferred stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of shares of preferred stock could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no present intention to
issue shares of preferred stock. In addition, the Company is subject to the
antitakeover provisions of Section 203 of the Delaware General Corporation Law,
which will prohibit the Company from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change of
control of the Company. See "Description of Capital Stock."

Benefits of the Offering to Current Stockholder and Key Personnel. GST
USA, the parent corporation of the Company, and certain key personnel of the
Company will benefit from the offering as a result of the creation of a public
market for the Company's Common Stock. In addition, GST USA will benefit from
the offering as a result of an increase in the market value of its investment in
the Company. Further, certain key personnel of the Company will benefit from the
offering in an amount equal to the difference between the initial public
offering price of $10.00 per share and the exercise price of the options held by
such personnel of $9.35 per share. The Company intends to use approximately $2.6
million of the net proceeds of the offering for the purchase of land and a
building for the Company's headquarters from GST Realco, Inc., a subsidiary of
GST ("GST Realco"). In addition, the Company intends to use approximately $1.9
million of the net proceeds of the offering to pay the additional construction
costs to complete the building. See "Use of Proceeds" and "Certain
Transactions."

Shares Eligible for Future Sale. Sales of a substantial number of shares
of Common Stock in the public market following this offering could adversely
affect the market price of the Common Stock. Upon completion of the offering,
the Company will have 8,113,712 shares of Common Stock outstanding. Of these
shares, the 3,000,000 shares sold in the offering will be freely transferable
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), unless they are held by "affiliates" of the Company as that
term is used under the Securities Act and the rules and regulations promulgated
thereunder. GST USA will own the remaining 5,113,712 shares of Common Stock,
constituting approximately 63% of the outstanding shares of Common Stock
(approximately 60% if the Underwriters' over-allotment option is exercised in
full). GST and GST USA have agreed not to, directly or indirectly, offer to
sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any securities issued by the
Company for a period of 180 days from the effective date of the Registration
Statement of which this Prospectus is a part without the prior written consent
of Hambrecht & Quist LLC. See "Underwriting." After expiration of such period,
such shares may be sold (i) in accordance with Rule 144 promulgated under the
Securities Act, (ii) in private offerings or (iii) upon registration under the
Securities Act without regard to the volume limitations of Rule 144. See "Shares
Eligible for Future Sale."

Prior to this offering, there has been no public market for the Common
Stock and any sale of substantial amounts of shares in the open market (or the
announcement of a plan to do so) may adversely affect the market price of the
Common Stock offered hereby. As soon as practicable after the effective date of
the Registration Statement of which this Prospectus is a part, the Company
intends to

13
<PAGE> 14

file a registration statement on Form S-8 under the Securities Act to register
shares of Common Stock reserved for issuance under its 1996 Stock Option Plan,
thus permitting the resale of such shares by non-affiliates in the public market
without restriction under the Securities Act. Such registration statement will
become effective immediately upon filing. See "Management--1996 Stock Option
Plan."

No Specific Use of Proceeds. The Company expects to use a substantial
portion of the net proceeds of this offering for product development, sales and
marketing, working capital and general corporate purposes. Other uses may
include possible acquisitions or investments in complementary businesses,
products or otherwise to obtain the right to use complementary technologies that
broaden or enhance the Company's current product offerings. The Company has no
present understandings or agreements with respect to any acquisitions,
investments or other transactions and accordingly, the proceeds will not be
completely applied to these uses for some period of time. Consequently, the
Company's Board of Directors will maintain substantial discretion as to the
allocation of such net proceeds. See "-- Control by Existing Stockholder;
Conflicts of Interest; Certain Transactions." Pending use, the Company plans to
invest the net proceeds in investment-grade, interest-bearing securities. See
"Use of Proceeds."

Dilution to Purchasers in Offering. Purchasers of the Common Stock offered
hereby will experience immediate and substantial dilution in net tangible book
value per share of the Common Stock from the initial public offering price per
share. There will be further dilution to the extent outstanding options to
purchase the Company's Common Stock are exercised. See "Dilution" and
"Management--1996 Stock Option Plan."

Restrictions on Dividends. The Company has never declared or paid cash
dividends on shares of its capital stock. The Company currently intends to
retain future earnings in its business and does not intend to pay cash dividends
in the foreseeable future. Moreover, the indentures governing certain
outstanding indebtedness of GST and GST USA restrict the Company's ability to
declare or pay cash dividends and, for the foreseeable future, effectively
prohibit such payments or declarations. See "--Control by Existing Stockholder;
Conflicts of Interest; Certain Transactions," "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

Forward-Looking Statements. This Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act, and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
which are intended to be covered by the safe harbors created thereby. Investors
are cautioned that all forward-looking statements involve risks and uncertainty.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.

14
<PAGE> 15

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered by the Company hereby after deducting underwriting
discounts and estimated offering expenses are estimated to be approximately
$18,166,667 (approximately $22,351,667 if the Underwriters' over-allotment
option is exercised in full). The Company will not receive any proceeds from the
sale of Common Stock by the Selling Stockholder. See "Principal and Selling
Stockholder."

The Company expects to use approximately $2,900,000 of the net proceeds of
the offering for product development, approximately $3,500,000 of the net
proceeds for sales and marketing, approximately $2,600,000 of the net proceeds
for the purchase of land and a building for the Company's headquarters from GST
Realco and approximately $1,900,000 of the net proceeds for the construction
costs to complete the building. The Company expects to use the remainder of the
net proceeds for working capital and general corporate purposes and possible
acquisitions or investments in complementary businesses, products or otherwise
to obtain the right to use complementary technologies that broaden or enhance
the Company's current product offerings. There are no present understandings or
agreements with respect to any acquisitions, investments or other transactions.
The principal purposes of this offering are to improve the Company's financial
position by obtaining additional working capital, to create a public market for
the Common Stock and to facilitate future access by the Company to public equity
markets. Pending such uses, the Company will invest the net proceeds of this
offering in investment-grade, interest-bearing securities.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its shares of
capital stock and does not intend to pay cash dividends in the foreseeable
future. Moreover, the indentures governing certain outstanding indebtedness of
GST and GST USA restrict the Company's ability to declare or pay cash dividends,
and, for the foreseeable future, effectively prohibit such payments or
declarations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources." See also "Certain
Transactions" for a description of a dividend consisting of stock of a
subsidiary declared and paid by the Company to its sole stockholder in 1995.

15
<PAGE> 16

CAPITALIZATION

The following table sets forth at December 31, 1996, the actual
capitalization of the Company and the capitalization of the Company as adjusted
to give effect to the sale of 2,000,000 shares of Common Stock offered by the
Company hereby and the receipt of the net proceeds therefrom. This table should
be read in conjunction with the financial statements and notes thereto and
"Selected Financial Data" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands, except
share and
per share data)
<S> <C> <C>
Long-term debt, net of current portion................................. $ 57 $ 57
--------- --------

Stockholders' equity:
Preferred Stock, no par value per share, none authorized, actual;
$.01 par value per share, 10,000,000 shares authorized, no shares
issued and outstanding, as adjusted............................... -- --
Common Stock, no par value per share, 10,000,000 shares authorized,
6,113,712 shares issued and outstanding, actual; $.01 par value,
25,000,000 shares authorized, 8,113,712 shares issued and
outstanding, as adjusted(1)....................................... 9,743 81
Additional paid-in capital........................................... -- 27,828
Retained earnings.................................................... 1,673 1,673
Unrealized depreciation on marketable securities..................... -- --
--------- ---------

Total stockholders' equity........................................ 11,416 29,582
--------- ---------
--
Total capitalization......................................... $11,473 $29,639
=========== ==========
</TABLE>

- ------------------------------
(1) Excludes 1,250,000 shares of Common Stock reserved for issuance pursuant to
the exercise of stock options, 850,000 of which were outstanding as of
February 4, 1997 having an exercise price of $9.35 per share. See
"Management--1996 Stock Option Plan."

16
<PAGE> 17

DILUTION

At December 31, 1996, the Company's net tangible book value was $6,481,645,
or $1.06 per share. Net tangible book value per share represents the amount of
total tangible assets less total liabilities divided by 6,113,712 shares of
Common Stock outstanding at December 31, 1996. Dilution per share represents the
difference between the amount per share paid by the purchasers of shares of
Common Stock in the offering made hereby and the pro forma net tangible book
value per share of Common Stock immediately after completion of the offering.
After giving effect to the sale of 2,000,000 shares of Common Stock offered by
the Company hereby and the application of the net proceeds therefrom, the pro
forma net tangible book value of the Company as of December 31, 1996 would have
been $24,648,312 or $3.04 per share. This represents an immediate increase in
net tangible book value of $1.98 per share to the existing stockholder and an
immediate dilution in net tangible book value of $6.96 per share to the
purchasers of Common Stock in the offering, as illustrated in the following
table:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $10.00
Net tangible book value per share before the offering............. $1.06
Increase per share attributable to new investors.................. 1.98
-----
Pro forma net tangible book value per share after the offering...... 3.04
------
Dilution per share to new investors................................. $ 6.96
======
</TABLE>

The following table sets forth, on a pro forma basis as of December 31,
1996, the differences between the existing stockholder and purchasers of shares
in the offering with respect to the number of shares purchased, the total
consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
--------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholder(1)..... 6,113,712 75.4% $ 8,918,744(2) 30.8% $ 1.46
New investors(1)............ 2,000,000 24.6 20,000,000 69.2 10.00
---------- ----- ---------- -----
Total............. 8,113,712 100.0% $28,918,744 100.0%
========== ===== ========== =====
</TABLE>

To the extent that outstanding stock options are exercised, there will be
further dilution to new investors. See "Capitalization" and "Management--1996
Stock Option Plan."
- ------------------------------
(1) Sales by the Selling Stockholder in the offering will reduce the number of
shares held by such stockholder to 5,113,712 shares, or approximately 63%
(approximately 60% if the Underwriters' over-allotment option is exercised
in full) of the total number of shares of Common Stock to be outstanding
after this offering and will increase the number of shares held by new
investors to 3,000,000, or approximately 37% (approximately 40% if the
Underwriters' over-allotment option is exercised in full) of the total
number of shares of Common Stock to be outstanding after the offering. See
"Principal and Selling Stockholder."

(2) Includes cash and Common Shares of GST issued to former stockholders of the
Company at prevailing market prices for such shares.

17
<PAGE> 18

SELECTED FINANCIAL DATA

The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with the financial statements and
the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus. The
statement of operations data for the fiscal years ended September 30, 1995 and
1996 and the balance sheet data as of September 30, 1995 and 1996 are derived
from, and are qualified by reference to, the Company's financial statements
audited by KPMG Peat Marwick LLP, independent certified public accountants,
included elsewhere in this Prospectus. The statement of operations data for the
fiscal year ended September 30, 1994 are derived from, and are qualified by
reference to, the Company's financial statements audited by Squire & Co.,
independent certified public accountants, included elsewhere in this Prospectus.
The statement of operations data for the years ended December 31, 1991 and 1992
and the balance sheet data as of December 31, 1991 and 1992 and September 30,
1994 are derived from the Company's audited financial statements not included
herein. The Company's statement of operations data for the nine months ended
September 30, 1993 and the three months ended December 31, 1995 and 1996 and the
balance sheet data as of September 30, 1993 and December 31, 1996 are derived
from the Company's unaudited financial statements. The unaudited financial
statements have been prepared by the Company on a basis consistent with the
Company's audited financial statements and include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
information set forth therein. The historical results are not necessarily
indicative of the results of operations to be expected in the future.

<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS THREE MONTHS
ENDED ENDED FISCAL YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
--------------- ------------- -------------------------- ---------------
1991 1992 1993(1) 1994 1995 1996 1995 1996
------ ------ ------------- ------ ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales....................... $1,666 $1,860 $ 2,422 $5,479 $ 7,604 $ 9,930 $1,969 $4,780
Network carrier sales............... -- -- -- -- 2,782 3,783 354 1,610
Wins sales(2)....................... -- -- -- -- 1,098 2,572 496 --
------ ------ ------ ------ ------ ------ ------ ------
Total revenues............... 1,666 1,860 2,422 5,479 11,484 16,285 2,819 6,390
Cost of goods sold:
Products............................ 753 813 788 1,845 2,645 3,942 713 1,730
Network carrier usage............... -- -- -- -- 2,731 3,382 311 1,558
Wins(2)............................. -- -- -- -- 787 2,572 496 --
Amortization of acquired
intangibles(3).................... -- -- 15 185 443 362 91 91
------ ------ ------ ------ ------ ------ ------ ------
Total cost of goods
sold(3).................... 753 813 803 2,030 6,606 10,258 1,611 3,379
------ ------ ------ ------ ------ ------ ------ ------
Gross profit(3)..................... 913 1,047 1,619 3,449 4,878 6,027 1,208 3,011
Operating expenses:
Research and development............ 277 374 275 677 1,183 1,352 295 423
Selling and marketing............... 72 124 178 457 925 954 207 357
General and administrative.......... 579 624 561 1,353 2,153 3,024 578 836
Amortization of acquired
intangibles(3).................... -- -- 20 257 520 573 143 143
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses(3)................ 928 1,122 1,034 2,744 4,781 5,903 1,223 1,759
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations(3)...... (15) (75) 585 705 97 124 (15) 1,252
Other income, net..................... 10 87 31 81 189 148 20 25
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes(3)............................ (5) 12 616 786 286 272 5 1,277
Income taxes (benefit)................ 0 (5) 157 293 206 78 1 569
Extraordinary income.................. 72 -- -- -- -- -- -- --
Cumulative effect on prior year
accounting change................... -- 162 -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income(3)......................... $ 67 $ 179 $ 459 $ 493 $ 80 $ 194 $ 4 $ 708
====== ====== ====== ====== ====== ====== ====== ======
Net income per share(3)............... $ 0.02 $ 0.06 $ 0.12 $ 0.08 $ 0.01 $ 0.03 $ 0.00 $ 0.12
====== ====== ====== ====== ====== ====== ====== ======
Weighted average shares
outstanding(4)...................... 2,856 2,870 3,847 5,998 6,114 6,114 6,114 6,114
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

18
<PAGE> 19

<TABLE>
<CAPTION>
DECEMBER
31, SEPTEMBER 30, DECEMBER 31,
----------- ----------------------------------- ------------
1991 1992 1993 1994 1995 1996 1996
---- ---- ------ ------ ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................... $227 $208 $ 352 $1,186 $ 1,122 $ 694 $ 552
Working capital.......................... 174 35 3,131 3,280 4,145 4,245 6,382
Total assets............................. 623 884 8,474 9,072 13,178 14,685 17,041
Long-term debt, net of current portion... 270 150 387 -- 85 58 57
Total stockholders' equity............... (52) 128 6,094 6,969 9,630 10,210 11,416
</TABLE>

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

(1) The Company changed its fiscal year-end to September 30th, effective with
the fiscal year ended September 30, 1993. Accordingly, the fiscal year
ended September 30, 1993 was a nine-month period.

(2) Fiscal 1995 and 1996 include the accounts of the Company and its
wholly-owned subsidiary, Wasatch International Network Services, Inc.
("Wins"), which commenced operations in fiscal 1995 and had total assets,
revenues and a net loss of $316,455, $1,097,950 and $2,361, respectively,
as of and for the year ended September 30, 1995. Wins was a wholly-owned
subsidiary of the Company in 1995. All significant intercompany
transactions and balances have been eliminated in consolidation. On October
1, 1995, the Company transferred ownership and operations of Wins to GST
USA in the form of a dividend accounted for at historical cost. In fiscal
1996, the Company provided carrier services to GST USA for the Wins
operation for which it received $2,571,731. The Company discontinued
providing carrier services to Wins on October 1, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 1 of Notes to Financial Statements.

(3) From September 1993 through December 1994, GST USA acquired a 100% interest
in the Company's Common Stock through a series of purchases of newly issued
shares and shares owned by former stockholders of the Company. GST USA
accounted for the acquisition using the purchase method of accounting. The
excess of the purchase price over the fair value of the assets acquired in
the amount of $6,912,322 was assigned by GST USA as product support
contracts, software development costs and goodwill. In accordance with
requirements of the Commission, this intangible amount has been included in
the balance sheets of the Company with related amortization recorded in
cost of goods sold and other operating expenses for the nine months ended
September 30, 1993, the fiscal years ended September 30, 1994, 1995 and
1996 and the three months ended December 31, 1995 and 1996.

Amortization expense included in Cost of goods sold -- product was
$14,460, $184,869, $442,734, $362,428, $90,607 and $90,607 for the nine
months ended September 30, 1993, the fiscal years ended September 30, 1994,
1995 and 1996 and the three months ended December 31, 1995 and 1996,
respectively. Amortization expense included as a component of operating
expenses was $20,304, $257,176, $519,780, $573,058, $143,000 and $143,265
for the nine months ended September 30, 1993, the fiscal years ended
September 30, 1994, 1995 and 1996 and the three months ended December 31,
1995 and 1996, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Notes 1 and 5 of Notes
to Financial Statements.

(4) See Note 1 of Notes to Financial Statements for an explanation of the method
used to determine the number of shares used in computing net income per
share.

19
<PAGE> 20

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

OVERVIEW

NACT provides advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities. During
the period from 1987 through 1989, the Company developed and began selling its
LCX 120C switch application product and NTS 1000 billing system. During the
period from 1990 through 1995, the Company developed enhancements to the LCX,
including T-1 capability, enhancement of its prepaid debit card services,
automated operator, international call back and call reorigination. During the
same period, the Company also developed the Master Control Unit. In May 1996,
the Company completed development of and began selling the STX, an integrated
digital tandem switching system that includes proprietary systems software that
enables standard applications such as 1+ and optional advanced applications such
as international call back/reorigination, prepaid debit card and prepaid
cellular.

The Company sells its products in the United States to enhanced
telecommunications network service providers through a direct sales force. The
Company has had no international product sales to date. The Company intends to
expand the marketing of its products generally and to commence sales outside the
United States.

In response to customer demand, in fiscal 1995, the Company began offering
facilities management and network carrier services. Facilities management
services enable a customer to concentrate on marketing its products while the
Company maintains such customer's switch(es) in the Company's facilities for a
fee. Such services can include network carrier usage in addition to the
management of a switch. The Company provides network carrier usage at
competitively priced domestic and international rates. Revenues associated with
such facilities management services, including network carrier usage, are
presented in the Company's financial statements as network carrier sales. The
gross profits associated with such sales are substantially lower than those
associated with product sales. In addition, given the small number of customers
and the high volume of revenues generated from an individual customer through
network carrier sales, the loss or gain of one or more customers could cause a
significant fluctuation in the Company's quarterly revenues.

In 1995, the Company formed Wins, a wholly-owned subsidiary, to provide
specialized long distance services (e.g. prepaid debit card, international call
back/reorigination) to potential switching system customers who wanted to enter
the specialized long distance service market before making a major capital
investment in switching equipment. By providing this service, the Company
believes it was able to retain customers it might otherwise have lost. In many
cases, as customers built up substantial customer bases, they purchased their
own NACT switching equipment. The Company's financial statements for the fiscal
year ended September 30, 1995 include the accounts of the Company and Wins. On
October 1, 1995, the Company transferred ownership and operations of Wins to GST
USA in the form of a dividend accounted for at historical cost. From October 1,
1995 through September 30, 1996, the Company provided carrier services to GST
USA for the Wins operation. The Company ceased providing carrier services to
Wins on October 1, 1996. Therefore, no revenue will be recognized by the Company
from this operation after September 30, 1996.

GST USA acquired a 100% interest in the Company's Common Stock through a
series of purchases of newly issued shares and shares owned by former
stockholders of the Company from September 1993 through December 1994. GST USA
accounted for the acquisition using the purchase method of accounting. The
excess of the purchase price over the fair value of the assets acquired was
accounted for by GST USA as product support contracts, software development
costs and goodwill. In accordance with requirements of the Commission, the
Company's financial statements for fiscal 1993 through the first quarter of
fiscal 1997 reflect these intangible assets on its balance sheet, with related
amortization recorded in cost of goods sold and other operating expense in the
respective years. Product support contracts and software development costs are
being amortized over a five year straight-line period and

20
<PAGE> 21

goodwill is being amortized over a 20 year straight-line period. For the fiscal
years ending September 30, 1997, 1998 and 1999, the impact of the amortization
of acquired intangibles on the Company's gross margin is anticipated to decrease
the Company's gross profit by $362,428, $362,428 and $163,099, respectively, and
to decrease the Company's operating income by $935,486, $935,486, and $524,816,
respectively. See "Prospectus Summary--Summary Financial Data" and "Selected
Financial Data."

The Company is subject to certain financial restrictions by reason of its
status as a "Restricted Subsidiary" of GST and GST USA under indentures relating
to certain outstanding indebtedness of GST and GST USA. Such restrictions
significantly limit or prohibit the ability of GST and its Restricted
Subsidiaries to incur additional indebtedness or to create liens on their
assets. Effectively, the ability of the Company to incur indebtedness is limited
by the amount of indebtedness that GST and its Restricted Subsidiaries is
permitted to incur pursuant to the terms of the indentures. Upon completion of
this offering, GST USA will own approximately 63% of the outstanding Common
Stock of the Company (approximately 60% if the Underwriters' over-allotment
option is exercised in full) and will continue to control the Company. See "Risk
Factors--Control by Existing Stockholder; Conflicts of Interest; Certain
Transactions."

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data
presented as a percentage of revenues, for the periods indicated:

<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED DECEMBER
SEPTEMBER 30, 31,
------------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales............................ 100.0% 66.2% 61.0% 69.8% 74.8%
Network carrier sales.................... 0.0 24.2 23.2 12.6 25.2
Wins sales............................... 0.0 9.6 15.8 17.6 --
----- ----- ----- ---- ----
Total revenues........................ 100.0 100.0 100.0 100.0 100.0
Cost of goods sold:
Products................................. 33.7 23.0 24.2 25.3 27.1
Network carrier usage.................... 0.0 23.7 20.8 11.0 24.4
Wins..................................... 0.0 6.9 15.8 17.6 --
Amortization of acquired intangibles..... 3.4 3.9 2.2 3.2 1.4
----- ----- ----- ---- ----
Total cost of goods sold.............. 37.1 57.5 63.0 57.1 52.9
----- ----- ----- ---- ----
Gross profit............................... 62.9 42.5 37.0 42.9 47.1
Operating expenses:
Research and development................. 12.4 10.3 8.3 10.5 6.6
Selling and marketing.................... 8.3 8.1 5.8 7.3 5.6
General and administrative............... 24.7 18.7 18.6 20.5 13.1
Amortization of acquired intangibles..... 4.7 4.5 3.5 5.1 2.2
----- ----- ----- ---- ----
Total operating expenses......... 50.1 41.6 36.2 43.4 27.5
Income (loss) from operations.............. 12.8 0.9 0.8 (0.5) 19.6
Interest and other income, net............. 1.5 1.6 0.9 0.7 0.4
----- ----- ----- ---- ----
Income before income taxes................. 14.3 2.5 1.7 0.2 20.0
Income taxes............................... 5.3 1.8 0.5 0.0 8.9
----- ----- ----- ---- ----
Net income................................. 9.0% 0.7% 1.2% 0.2% 11.1%
===== ===== ===== ==== ====
</TABLE>

21
<PAGE> 22

Three Months Ended December 31, 1995 and 1996

Revenues. Revenues increased 127.0% from $2.8 million in the first quarter
of fiscal 1996 to $6.4 million in the equivalent 1997 fiscal quarter. Product
sales increased 142.8% from $2.0 million in the first quarter of fiscal 1996 to
$4.8 million in the equivalent 1997 fiscal quarter primarily due to increasing
per unit sales of the STX. Network carrier sales increased 353.8% from $0.4
million in the first quarter of fiscal 1996 to $1.6 million in the equivalent
1997 fiscal quarter primarily due to increased carrier usage volumes from
existing network carrier customers. Network carrier sales to Overseas Telecom
("Overseas") were $0.3 million, or 78.3% of total network carrier sales, and
$0.7 million, or 44.3% of total network carrier sales, in the first quarter of
fiscal 1996 and 1997, respectively. On October 1, 1996, the Company discontinued
providing carrier services to Wins.

Gross Profit.

Product Sales. Gross profit on product sales increased 142.9% from
$1.3 million in the first quarter of fiscal 1996 to $3.0 million in the first
quarter of fiscal 1997 primarily due to increasing per unit sales volume of the
STX. Gross profit on product sales as a percent of product sales was 63.8% in
each of the first quarter of fiscal 1996 and fiscal 1997.

Network Carrier Sales. Gross profit on network carrier sales
increased 19.3% from $43,541 in the first quarter of fiscal 1996 to $51,960 in
the first quarter of fiscal 1997 primarily due to an increase in sales volume in
carrier usage. Gross profit on network carrier sales as a percentage of network
carrier sales decreased from 12.3% in the first quarter of fiscal 1996 to 3.2%
in the first quarter of fiscal 1997 primarily due to a change in the Company's
underlying carrier during the first quarter of fiscal 1996, which increased
usage costs to several international countries in which the Company's network
carrier service customers were doing a high volume of traffic.

Wins. There was no gross profit in the first quarter of fiscal 1996.
The Company transferred ownership and operations of Wins to GST USA on October
1, 1995 and provided carrier services at cost to GST USA for the Wins operation
in the first quarter of fiscal 1996.

Research and Development. Research and development expenses increased
43.5% from $0.3 million in the first quarter of fiscal 1996 to $0.4 million in
the first quarter of fiscal 1997 primarily due to an increase in personnel and
other expenditures for planning and implementation of several hardware and
software research and development projects designed to enhance the STX
applications platform. The Company's capitalized software development costs were
$0.2 million and $0.1 million in the first quarter of fiscal 1996 and 1997,
respectively. The Company expects that research and development expenses will
increase in the future to facilitate the rapid deployment of new products and
applications.

Selling and Marketing. Selling and marketing expenses increased 72.5% from
$0.2 million in the first quarter of fiscal 1996 to $0.4 million in the first
quarter of fiscal 1997 primarily due to the increase in the size of the
Company's sales staff, the opening of new domestic sales offices and increased
advertising and trade show expenditures made to enhance the Company's marketing
program.

General and Administrative. General and administrative expenses increased
44.5% from $0.6 million in the first quarter of fiscal 1996 to $0.8 million in
the first quarter of fiscal 1997 due to the expansion of the manufacturing and
technical support departments in order to support the Company's increased unit
shipments and installations of the STX.

Income Taxes. The Company's effective tax rate was 44.5% for the three
month period ended December 31, 1996 which is higher than the respective
statutory federal and state tax rates due to amortization of goodwill. This
higher effective tax rate is expected to continue during the amortization period
of the acquired goodwill from GST USA.

Fiscal Years Ended September 30, 1994, 1995 and 1996

Revenues. Revenues increased by 41.8% from $11.5 million in fiscal 1995 to
$16.3 million in fiscal 1996. Product sales increased by 30.6% from $7.6 million
in fiscal 1995 to $9.9 million in fiscal 1996 primarily due to the introduction
of the Company's new STX product line in May 1996. Network

22
<PAGE> 23

carrier sales increased by 36.0% from $2.8 million in fiscal 1995 to $3.8
million in fiscal 1996 due to increased carrier usage volumes from existing
network carrier customers. Network carrier sales to Overseas were $0.8 million,
or 28.6% of total network carrier sales, and $2.1 million, or 55.6% of total
network carrier sales, in fiscal 1995 and 1996, respectively. Wins generated
$1.1 million in revenues in fiscal 1995. On October 1, 1995, the Company
transferred ownership and operations of Wins to GST USA. Revenues generated from
Wins network carrier sales in fiscal 1996 were $2.6 million.

Revenues increased by 109.6% from $5.5 million in fiscal 1994 to $11.5
million in fiscal 1995. Product sales increased by 38.8% from $5.5 million in
fiscal 1994 to $7.6 million in fiscal 1995 primarily due to an increase in unit
sales to prepaid debit card and international call back/reorigination customers,
the expansion of the Company's customer base through increased sales and
marketing efforts, an increased market acceptance of the Company's products and
the release of new hardware and software enhancements resulting in repeat sales
to the Company's existing customer base. The Company began providing network
carrier services in fiscal 1995 to switch customers that desired to house their
switch in the Company's switch facility for a fee and purchase aggregated
network pricing for domestic and international carrier services from the
Company. Network carrier sales were $2.8 million in fiscal 1995. Network carrier
sales to Overseas were $0.8 million, or 28.6% of total network carrier sales, in
fiscal 1995.

Gross Profit.

Product Sales. Gross profit on product sales increased 20.8% from
$5.0 million in fiscal 1995 to $6.0 million in fiscal 1996 due to an increase in
product sales resulting from the introduction of the STX in May 1996. Gross
profit on product sales as a percent of product sales decreased from 65.2% in
fiscal 1995 to 60.3% in fiscal 1996 primarily due to lower margins resulting
from the discontinuance of the LCX as the Company transitioned to the STX.
Margins on initial STX sales were lower due to special STX upgrade pricing
provided to the Company's current customers through June 1, 1996. Gross profit
on product sales increased 36.5% from $3.6 million in fiscal 1994 to $5.0
million in fiscal 1995 due to an increase in product sales volumes. Gross profit
on product sales as a percent of product sales decreased from 66.2% in fiscal
1994 to 65.2% in fiscal 1995 due to the Company's decision to discount the LCX
sales price to maintain sales volumes.

Network Carrier Sales. Gross profit on network carrier sales
increased from $0.1 million in fiscal 1995 to $0.4 million in fiscal 1996 due to
increased network carrier sales volume. Gross profit on network carrier sales as
a percent of network carrier sales increased from 1.8% in fiscal 1995 to 10.6%
in fiscal 1996 due to increased volume discounts received from the underlying
carriers as a result of increased network carrier usage. The Company began its
network carrier operations in fiscal 1995 and therefore, there was no network
carrier gross profit in fiscal 1994.

Wins. Wins generated $0.3 million of gross profit in fiscal 1995 or
28.3% of Wins sales. The Company transferred ownership and operations of Wins to
GST USA on October 1, 1995 and provided carrier services at cost to GST USA for
the Wins operations in fiscal 1996.

Overall. Gross profit increased 23.6% from $4.9 million in fiscal
1995 to $6.0 million in fiscal 1996 due to an increase in both product and
network sales volume. Gross profit as a percentage of net revenues decreased
from 42.5% in fiscal 1995 to 37.0% in fiscal 1996 primarily due to lower margins
resulting from the discontinuance of the LCX as the Company transitioned to the
STX and lower margins on initial sales of the STX. Gross profit increased by
41.4% from $3.4 million in fiscal 1994 to $4.9 million in fiscal 1995 due to an
increase in product sales volume and commencement of network carrier operations.
Gross profit as a percentage of net revenues decreased from 62.9% in fiscal 1994
to 42.5% in fiscal 1995 due to the commencement of network carrier operations,
which has substantially lower gross margins than the Company's product lines.

Research and Development. Research and development expenses increased by
14.3% from $1.2 million in fiscal 1995 to $1.4 million in fiscal 1996 as the
Company moved to more rapidly develop an

23
<PAGE> 24

improved billing system and to maintain ongoing research and development of the
Company's existing hardware and software product lines.

Research and development expenses increased by 74.9% from $0.7 million in
fiscal 1994 to $1.2 million in fiscal 1995 primarily due to the expansion of the
Company's engineering staff and overhead as a result of a decision by the
Company to more rapidly develop the STX switch and to maintain ongoing research
and development of the Company's existing hardware and software product lines.
The Company capitalizes software costs when technological feasibility is
obtained. When the product becomes commercially available, the Company amortizes
the capitalized costs to cost of sales over a three-year period. The Company's
capitalized software development costs were $0.2 million and $0.4 million in
fiscal 1995 and 1996, respectively. See Note 1 to the Company's Financial
Statements included elsewhere herein. The Company expects that research and
development expenses will increase in the future to facilitate the rapid
deployment of new products and applications.

Selling and Marketing. Selling and marketing expenses increased 3.1% from
$0.9 million in fiscal 1995 to $1.0 million in fiscal 1996 primarily due to
continued expansion of the Company's sales and marketing staff and
notwithstanding a decrease in expenses associated with fees paid to the Chairman
of the Board of the Company. Fiscal 1996 selling and marketing expenses were
offset by the transfer of certain salary and fringe benefit expenses to general
and administrative when the Director of Sales and Marketing was promoted to
Executive Vice President and then to President and Chief Executive Officer. The
Company anticipates that selling and marketing expenses will increase as a
result of the planned expansion of the Company's sales force. See "Business--The
NACT Strategy."

Selling and marketing expenses increased by 102.4% from $0.5 million in
fiscal 1994 to $0.9 million in fiscal 1995 primarily due to an expansion of the
Company's sales and marketing staff and increased commissions and travel
expenses related thereto, and an increase in advertising and trade show expenses
as the Company enhanced its marketing program.

General and Administrative. General and administrative expenses increased
by 40.5% from $2.2 million in fiscal 1995 to $3.0 million in fiscal 1996
primarily due to an increase in the provision for bad debt, continued expansion
of the manufacturing and technical support departments, the expansion of the
finance department and implementation of a Company-wide quality assurance
program, which is anticipated to culminate in an ISO 9000 certification. The
increase in the provision for bad debt was a result of increased sales volume
and the addition of a $310,000 reserve for accounts receivable due from
Overseas, which was transferred to a note receivable. In order to reduce the
level of bad debt in the future, the Company now requires that all credit card
charges on Overseas' accounts be directly credited to the Company's bank
account. In addition, Overseas is required to pay the Company on a weekly basis
all cash Overseas collects in excess of cash needed for Overseas' ongoing
operating expenses. Further, the Company now requires a deposit of 60% of the
purchase price of a switch or a purchase order from a third-party leasing
company for funding prior to shipment. The Company also requires network carrier
customers to prepay their estimated carrier usage each month. The Company
expects that general and administrative expenses will increase in fiscal 1997 as
a result of increased levels of staffing.

General and administrative expenses increased by 59.1% from $1.4 million in
fiscal 1994 to $2.2 million in fiscal 1995 when the Company expanded the
manufacturing and technical support departments to facilitate higher product
sales volumes.

Income Taxes. The Company recorded provisions for income taxes with
effective rates of 37.3%, 71.9% and 28.8% of income before taxes for fiscal
1994, 1995 and 1996, respectively. The increase in the effective tax rate in
1995 is a result of additional amortization of goodwill which is not deductible
for income tax purposes and the absence of a research and development tax credit
which was available in 1994. Management periodically evaluates its income tax
liability based on a current assessment of its related oligations. Based on
those assessments, the liability was increased by $36,214 in 1995 and was
decreased by $70,040 in 1996. Future effective tax rates are expected to be in
excess of statutory rates during the amortization period of the acquired
goodwill from GST USA, as the goodwill is not deductible for income tax
purposes.

24
<PAGE> 25

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain unaudited quarterly financial
information for the nine quarters in the period ended December 31, 1996.
Management believes that this information has been prepared on the same basis as
the audited consolidated financial statements appearing elsewhere in this
Prospectus and all necessary adjustments (consisting only of normal recurring
adjustments) have been included to present fairly the unaudited quarterly
results when read in conjunction with the audited financial statements of the
Company and the notes thereto appearing elsewhere in this Prospectus. These
operating results are not necessarily indicative of results that may be expected
for any subsequent periods.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales......... $1,833 $1,973 $1,870 $ 1,928 $1,969 $1,612 $2,450 $ 3,899 $4,780
Network carrier
sales............... 326 634 879 943 354 904 1,139 1,386 1,610
Wins sales............ -- 240 371 487 496 594 778 704 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
revenues..... 2,159 2,847 3,120 3,358 2,819 3,110 4,367 5,989 6,390
Cost of goods sold:
Products.............. 599 701 769 578 713 775 1,001 1,452 1,730
Network carrier
usage............... 279 617 656 1,179 311 514 1,113 1,444 1,558
Wins.................. -- 178 233 376 496 594 778 704 --
Amortization of
acquired
intangibles......... 110 110 110 111 91 90 91 91 91
------ ------ ------ ------ ------ ------ ------ ------ ------
Total cost of
goods sold... 988 1,606 1,768 2,244 1,611 1,973 2,983 3,691 3,379
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit.......... 1,171 1,241 1,352 1,114 1,208 1,137 1,384 2,298 3,011
Operating expenses:
Research and
development......... 251 322 314 296 295 332 328 396 423
Selling and
marketing........... 128 307 229 261 207 236 241 270 357
General and
administrative...... 441 414 541 757 578 699 813 934 836
Amortization of
acquired
intangibles......... 130 130 130 130 143 143 143 144 143
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses..... 950 1,173 1,214 1,444 1,223 1,410 1,525 1,744 1,759
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............ 221 68 138 (330) (15) (273) (141) 554 1,252
Other income, net....... 28 56 62 43 20 16 34 77 25
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes.......... 249 124 200 (287) 5 (257) (107) 631 1,277
Income taxes
(benefit)............. 179 89 144 (206) 1 (74) (31) 182 569
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 70 $ 35 $ 56 $ (81) $ 4 $ (183) $ (76) $ 449 $ 708
====== ====== ====== ====== ====== ====== ====== ====== ======
Net income (loss) per
share................. $ 0.01 $ 0.01 $ 0.01 $ (0.01) $ 0.00 $(0.03) $(0.01) $ 0.07 $ 0.12
====== ====== ====== ====== ====== ====== ====== ====== ======
Weighted average shares
outstanding........... 6,114 6,114 6,114 6,114 6,114 6,114 6,114 6,114 6,114
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

25
<PAGE> 26

<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
--------------------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales......... 84.9% 69.3% 59.9% 57.4% 69.8% 51.8% 56.1% 65.1% 74.8%
Network carrier
sales............... 15.1 22.3 28.2 28.1 12.6 29.1 26.1 23.1 25.2
Wins sales............ 0.0 8.4 11.9 14.5 17.6 19.1 17.8 11.8 0.0
---- ---- ----- ----- ----- ----- ----- ----
Total
revenues..... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold:
Products.............. 27.8 24.6 24.7 17.2 25.3 24.9 22.9 24.3 27.1
Network carrier
usage............... 12.9 21.7 21.0 35.1 11.0 16.5 25.5 24.1 24.4
Wins.................. 0.0 6.2 7.5 11.2 17.6 19.1 17.8 11.8 0.0
Amortization of
acquired
intangibles......... 5.1 3.9 3.5 3.3 3.2 2.9 2.1 1.5 1.4
---- ---- ----- ----- ----- ----- ----- ----
Total cost of
goods sold... 45.8 56.4 56.7 66.8 57.1 63.4 68.3 61.7 52.9
---- ---- ----- ----- ----- ----- ----- ----
Gross profit.......... 54.2 43.6 43.3 33.2 42.9 36.6 31.7 38.3 47.1
Operating expenses:
Research and
development......... 11.6 11.3 10.1 8.9 10.5 10.7 7.5 6.6 6.6
Selling and
marketing........... 5.9 10.8 7.3 7.8 7.3 7.6 5.5 4.5 5.6
General and
administrative...... 20.5 14.5 17.3 22.5 20.5 22.5 18.6 15.6 13.1
Amortization of
acquired
intangibles......... 6.0 4.6 4.2 3.9 5.1 4.6 3.3 2.4 2.2
---- ---- ----- ----- ----- ----- ----- ----
Total operating
expenses..... 44.0 41.2 38.9 43.1 43.4 45.4 34.9 29.1 27.5
---- ---- ----- ----- ----- ----- ----- ----
Income (loss) from
operations............ 10.2 2.4 4.4 (9.9) (0.5) (8.8) (3.2) 9.2 19.6
Other income, net....... 1.3 2.0 2.0 1.3 0.7 0.5 0.7 1.3 0.4
---- ---- ----- ----- ----- ----- ----- ----
Income (loss) before
income taxes.......... 11.5 4.4 6.4 (8.6) 0.2 (8.3) (2.5) 10.5 20.0
Income taxes
(benefit)............. 8.3 3.2 4.6 (6.2) 0.1 (2.4) (0.7) 3.0 8.9
---- ---- ----- ----- ----- ----- ----- ----
Net income (loss)....... 3.2% 1.2% 1.8% (2.4)% 0.1% (5.9)% (1.8)% 7.5% 11.1%
==== ==== ===== ===== ===== ===== ===== ====
</TABLE>

Product sales and gross profit decreased in the second quarter of fiscal
1996 as a result of decreased customer demand for, and the attendant lower sales
volume and discounting of, the LCX during the transition from the LCX to the
STX. The Company's first sale of an STX occurred in May 1996. As a result of
favorable sales of STX upgrades to existing customers of the Company, which
sales were made on favorable and limited time upgrade pricing terms, revenues
and gross profits increased in the third quarter of fiscal 1996. Revenues and
gross profits in the fourth quarter of fiscal 1996 and the first quarter of
fiscal 1997 increased as a result of higher product sales associated with sales
of new and larger capacity STXs to new customers under the Company's standard
STX pricing terms. There were no Wins sales during the first quarter of fiscal
1997 due to the discontinuance of network carrier sales to Wins on October 1,
1996. Selling and marketing expenses increased substantially in the first
quarter of fiscal 1997 due to the hiring of additional sales personnel, the
opening of new domestic sales offices and increased advertising and trade show
expenses.

The Company has experienced large fluctuations in network carrier sales and
related usage costs from quarter to quarter due to the substantial sales and
related usage costs generated from a limited number of network carrier
customers. When network carrier sales customers substantially increase their
monthly sales volume, they can then negotiate competitive long distance rates.
When network carrier customers place their long distance carrier traffic with
someone other than the Company, a substantial drop in revenue and usage costs
may occur in the quarterly operating results. When new network carrier customers
join the Company's network carrier sales program, substantial increases in
revenue may occur in the quarterly operating results. Since gross profit margins
on network carrier sales are small, increases in usage costs may negatively
impact quarterly network carrier gross profit margins if the increased costs are
not passed on to the network carrier customers in a timely manner.

26
<PAGE> 27

Network carrier sales decreased between the fourth quarter of fiscal 1995
and the first quarter of fiscal 1996 due to the loss of a significant network
carrier customer that was able to obtain carrier usage rates directly from
another carrier at competitive rates. This customer is currently one of the
largest purchasers of the Company's products. Network carrier sales increased
between the first quarter of fiscal 1996 and the second quarter of fiscal 1996
due to increased carrier usage volumes from the Company's other network carrier
customers. These other network carrier customers were primarily international
call back/reorigination providers. The unusually large network carrier gross
profit margin in the third quarter of fiscal 1996 was a result of a credit
issued by one of the Company's carriers for usage overcharges billed to and
expensed by the Company in a prior period.

Operating results have in the past and may in the future fluctuate due to
factors such as the timing of new product introductions by the Company and its
competitors, delays in new product introductions by the Company, market
acceptance of new or enhanced versions of the Company's products, changes in the
product or customer mix, changes in the level of operating expenses, competitive
pricing pressures, the gain or loss of significant customers, increased research
and development and sales and marketing expenses associated with new product
introductions and economic conditions in general and in the Company's industry.
Due to the high unit price and long lead times associated with revenues derived
from equipment orders, the Company's financial results may fluctuate
significantly depending upon the time of the actual shipment of such orders. All
of the above factors are difficult for the Company to forecast, and these or
other factors can materially adversely affect the Company's business, financial
condition and results of operations for one quarter or a series of quarters. The
Company's expense levels are based in part on its expectations regarding future
sales and are fixed in the short term to a large extent. Therefore, the Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected shortfall in sales. Any significant decline in demand relative to the
Company's expectations or any material delay of customer orders could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Fluctuations in operating results may cause volatility in the price of the
Company's Common Stock. See "Risk Factors--No Prior Market for the Company's
Common Stock; Price Volatility."

LIQUIDITY AND CAPITAL RESOURCES

The primary source of financing for the Company has been cash flow from
operations and proceeds of $2.6 million from the sale of securities in fiscal
1993 and 1994. These proceeds were used for research and development and sales
and marketing operations, the acquisition of capital equipment and to finance
inventory and accounts receivable growth.

Net cash used by operating activities in fiscal 1994 and 1996 totalled $0.3
million and $0.1 million, respectively. Net cash provided by operating
activities in fiscal 1995 was $0.4 million. The increase in net cash used by
operating activities from 1995 to 1996 was due primarily to the STX upgrade
program that allowed current customers to trade-in their LCX switching systems
for credit against a new STX switch during a limited period through June 1, 1996
and as a result of increased internal financing of customer switch and billing
systems.

The Company made capital expenditures of $0.2 million, $0.3 million, and
$0.3 million in fiscal 1994, 1995 and 1996, respectively, primarily for the
purchase of computers and testing equipment. The Company has made commitments
for capital expenditures in fiscal 1997 of approximately $5.0 million for the
purchase and furnishing of its new corporate offices and manufacturing building,
and $0.3 million for the purchase of the source code for the development of SS7
capability in the STX. Excluding the cost to purchase and furnish the Company's
new office and manufacturing building, the Company expects that its capital
expenditures in fiscal 1997 will increase above recent historical levels. See
"Business--Facilities" and "Certain Transactions."

As of December 31, 1996, the Company's principal source of liquidity was
cash of $0.6 million. In addition, the Company has a lease credit line facility
of $0.5 million. The Company believes that cash generated from proceeds of this
offering, available funds, anticipated cash flows from operations and its line
of credit will satisfy the Company's working capital and capital expenditure
requirements for at

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least the next twelve months. However, there can be no assurance that the
Company will not be required to seek additional capital sooner or, if so
required, that adequate capital will be available on terms acceptable to the
Company, or at all.

A significant portion of the Company's initial sales of the STX were sold
to existing customers that had previously purchased the Company's earlier
generation LCX switch. Such customers were able to purchase the STX by
exchanging their LCX for an allowance toward the purchase of an STX pursuant to
an upgrade program offered by the Company. The Company initiated this program to
effect the rapid development of the STX. This STX upgrade program was limited to
customers that purchased an LCX switch in 1994, 1995 or 1996 and submitted a
$10,000 deposit to the Company by June 1, 1996. Approximately 30 customers,
representing 43 LCXs, were eligible for this upgrade program. The upgrade
program was not extended to any customer after June 1, 1996. The Company
believes that this upgrade program was successful. The program encouraged
existing customers that needed an immediate increase in port capacity to
purchase an NACT product and provided the Company with referrals for its new
STX. These referrals have provided the basis for additional sales to a broader
base of new customers in the Company's market areas. The Company recorded the
returned LCXs on its accounting records as inventory at an average cost of
$42,000. The cost to refurbish a returned LCX is between $1,000 and $2,000.
Based on port size, the original manufacturing cost of these refurbished LCXs
ranged from $45,000 to $60,000. At December 31, 1996, the value of the returned
LCXs held as inventory by the Company was $1,440,000, which represents 34 LCX
units. During the first quarter of fiscal 1997, five LCXs were sold at price
ranges from $60,000 to $80,000 per unit. Approximately ten of the LCXs will be
used to provide spare parts for maintaining the approximately 40 LCXs remaining
in service with existing customers and the sale of 34 additional LCXs held for
resale at December 31, 1996. The Company believes that all LCXs currently held
for resale will be sold at prices in excess of their recorded inventory cost.
However, if the LCXs cannot be sold, the resulting loss could negatively impact
the liquidity of the Company.

The Company has sold carrier services to Overseas since 1994. Overseas is
located in Brazil and provides international call back/reorigination services to
companies and individuals primarily in Brazil and the Czech Republic. During the
fiscal year ended September 30, 1996, Overseas became delinquent on certain of
its payments. Subsequent to year-end, the Company and Overseas entered into a
note receivable agreement which provides for repayment of the non-current
outstanding balance of $930,000, bearing interest at 12.0%. The Company has
secured this note with the accounts receivable, customer lists and certain
assets of Overseas. The terms of this agreement provide for payments in the
amount of 6.0% of Overseas' monthly gross revenue plus 25.0% of its monthly net
income, with a minimum payment in the amount of $2,500. The Company has
established an allowance of $310,000 to provide for possible future losses
related to this note based on currently available information. The Company
believes that, based on Overseas' recent cash flows, Overseas will be able to
meet its notes and accounts receivable obligations to the Company considering
the allowance for doubtful accounts. If Overseas is unable to meet its payment
obligations and/or the note becomes uncollectible, the resulting loss could
negatively impact the Company's liquidity.

Overseas is currently the only customer for which the Company has converted
a significant account receivable to a note receivable. The Company's general
policy is to not convert any additional accounts receivable to notes receivable.
Rather, the Company would require payment on a cash basis. Pursuant to
arrangements with Overseas, Overseas' switch is located in the Company's switch
facility in Orem, Utah. Therefore, the Company has ready access to Overseas'
switch. Information relating to all of Overseas' customers is located on the
switch. This provides the Company with ready access to Overseas' customer base.
In the event that the Company were to exercise its right to enforce its security
interest under the note due from Overseas, the Company might need to establish a
local presence in Brazil to service this customer base. There can be no
assurance that the Company could timely and effectively establish such a
presence.

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FORWARD LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which are intended to be covered by the safe harbors created thereby.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Prospectus will prove to be
accurate. Factors that could cause actual results to differ from the results
discussed in the forward-looking statements include, but are not limited to,
those discussed in "Risk Factors." In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.

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BUSINESS

The Company provides advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities. As a
single source provider, the Company believes that it is the only company in its
market that designs, develops and manufactures all hardware and software
elements necessary for a fully integrated, turnkey telecommunications switching
solution. Because the Company provides a complete, integrated solution, its
customers do not require the multiple suppliers of hardware and value added
resellers of software that would otherwise be necessary to provide a wide range
of services and applications. The Company's customers include long distance
carriers, prepaid debit card and prepaid cellular network operators,
international call back/reorigination providers and other specialty
telecommunications service providers.

The Company's products and services include the STX application switching
platform, the NTS telemanagement and billing system and facilities management
services. In May 1996, the Company introduced the STX, an integrated digital
tandem switching system that currently supports up to 1,024 ports per switch and
can be combined with three additional STXs to provide a total capacity of 4,096
ports per system. The STX includes proprietary systems software that enables
standard applications such as 1+ and optional advanced applications such as
international call back/reorigination, prepaid debit card and prepaid cellular.
The Company has targeted the STX, with its enhanced features and scaleable
capacity, to an expanded group of customers, including independent telephone
companies, CAPs/CLECs, shared tenant service providers, Fortune 1000
corporations and local telephone companies outside the United States. The
Company believes that the STX offers value added features and capacity at price
points typically lower than those offered by its competitors. The NTS performs
call rating, accounting, switch management, invoicing and traffic engineering
for multiple switches that may either be NACT switches or a number of other
industry switches. In conjunction with the sale of a system, the Company offers
a facilities management service whereby the Company will operate and maintain a
customer's switch for a fee. In providing this service, the Company enables its
customers to direct their attention toward marketing their products rather than
focusing on the technical aspects of operating a switch.

INDUSTRY BACKGROUND

Deregulation of long distance phone service in 1984 opened competition in
the telecommunications market to companies such as MCI Communications, Inc.
("MCI"), Sprint Corporation ("Sprint"), WorldCom Inc. ("WorldCom"), and many
smaller specialty services providers. Today, there are over 450 long distance
companies in the United States according to the FCC. In addition to basic long
distance calling (1+), many of these companies are providing high value added,
specialty long distance products such as international call back/reorigination,
prepaid debit card and prepaid cellular to differentiate their services from
each other and to generate higher margin revenue than basic long distance phone
services can provide.

International call back/reorigination. International call
back/reorigination companies provide least cost long distance calling services
from one foreign country to another through the use of a switch located in the
United States that takes advantage of the lower rate per call charged in the
United States. According to M.J. Scheele and Associates ("M.J. Scheele"), the
international call back/ reorigination market increased from $300.0 million in
1994 to $485.0 million in 1995, with estimated growth in 1996 to over $750.0
million and over $1.1 billion by 1997. M.J. Scheele also estimates that growth
in the number of call back/reorigination providers will continue as well from
103 by the end of 1995 to 144 by the end of 1996 and 188 by the end of 1997. The
Company believes that as deregulation takes place in specific countries,
international call back/reorigination providers will be positioned for
additional opportunities to provide direct dial international calling by virtue
of their established customer base.

Prepaid debit cards/Prepaid cellular. Prepaid debit cards allow users to
make long distance calls from any touch tone phone based on a given number of
minutes that have been credited to the card. Prepaid debit card applications
include promotional campaigns, fund raising for charitable organizations and
budgeted out-of-town calling for travelling employees. In addition, prepaid
debit cards allow

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long distance companies to generate revenues from a base of customers who would
otherwise not have the opportunity to take advantage of long distance services
due to credit and other considerations. The United States prepaid debit card
market is expected to grow from $12.0 million in 1992 to approximately $1.1
billion in 1996 to over $2.0 billion in 2000, according to MultiMedia Publishing
Company ("MultiMedia"). An emerging application in the prepaid market is prepaid
cellular, a service whereby cellular phone users can limit their monthly dollar
usage automatically in the same manner that a prepaid debit card limits the time
a user can call. The Company believes that the potential prepaid cellular market
is not currently being effectively addressed in the United States. The potential
market, which, according to MultiMedia, is approximately $1.5 billion and is
expected to exceed $3.0 billion by 2000, consists of a large number of potential
users who either are denied traditional cellular service due to lack of credit
or need to limit the usage of cellular service. Prepaid cellular offers a way to
capture revenue from these potential subscribers.

1+. 1+ is a dialing method that enables equal access to telephone networks
by all service providers offering direct dial long distance, whether inside or
outside of a caller's own area code. This protocol also enables the introduction
of telephone exchanges with the same three digits as area codes. The 1+ market
is comprised of both large global companies including MCI, Sprint, AT&T and
WorldCom and smaller, entrepreneurial long distance providers that are either
facilities based or switchless. Historically, these smaller specialty services
providers have competed exclusively based on price. However, the Company
believes that these companies are competing increasingly based on their ability
to provide enhanced services as well as on price. According to Frost & Sullivan,
revenues in the United States 1+ market were over $60.0 billion in 1995 and are
predicted to exceed $70.0 billion by 1998. The share of total long distance
revenues related to international services rose from 16.0% in 1994 to 17.0% in
1995 and is likely to exceed 20.0% by 1999. Additionally, Frost & Sullivan
estimates that the international market is growing over two times as fast as the
domestic market.

As long distance service providers have increasingly offered enhanced
services to their customers, demand for these services has also increased in the
local exchange market. Competitors such as CAPS/CLECs, cellular and PCS service
providers, specialized mobile radio companies and, more recently, cable
television providers have begun rapidly deploying enhanced services and
providing cost effective interfaces to long distance carriers. In addition, the
Telecommunications Act of 1996 allows CLECs to compete with the incumbent LEC
(generally, the RBOC or GTE) for basic local telephone service. NationsBanc
Capital Markets, Inc., in 1996, has estimated that the business and
institutional market for telecommunications services totals approximately $72.0
billion, all of which is addressable by CLECs. Additionally, demand for enhanced
services is expected to increase internationally as new service opportunities
result from the combination of privatization of previously government-owned
telecommunications systems, competition created in these international markets
and the creation of services in developing countries with typically low
densities of telephones.

The Company believes that companies competing in this new environment
require switching platform systems that are flexible to meet the diverse
requirements of an expanding array of applications. These systems must be
compatible with the variety of transmission technologies utilized by telephone
companies and must be capable of processing multiple concurrent services. In
order to provide enhanced services to end users, a provider must purchase (i)
one or more applications switch platforms, (ii) software applications to run the
switches and provide system functionality and (iii) a billing system.
Historically, an entrepreneur interested in entering the international call
back/ reorigination, prepaid debit card and prepaid cellular markets had to
purchase each of these components from a separate vendor. Customers who purchase
components from different sources must, either on their own or through the
services of a consultant, configure the disparate components and provide for the
system's maintenance and upgrading. This requires a significant expenditure of
time and money, limits interoperability and technology upgrading, and diverts
company resources. The Company believes that in today's market environment its
customers require solutions that allow quick, easy entry into the market,
flexibility to add new services and additional capacity, high reliability and
low cost.

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THE NACT SOLUTION

The Company provides its customers with a complete, integrated package
consisting of both the application platform hardware and the operations
application software necessary to provide a full array of intelligent network
services. The Company offers a switching solution that includes essentially all
of the key elements necessary to enable a customer to offer enhanced services
such as the installation of the switch, the training of the customer for the use
of the switch, available applications, a billing system and ongoing customer
support. The Company believes that it is the only provider of a system that
integrates all of these components into one comprehensive package that includes
a broad range of applications, competitive pricing, interoperability and
scaleable port capacity. The Company sells its products to long distance
carriers, international call back/reorigination providers, prepaid debit card
and prepaid cellular network operators and other specialty telecommunications
service providers.

The Company offers a turnkey system, integrated with customer support, that
can be quickly implemented and upgraded to meet evolving market requirements.
The Company makes available to its customers a full array of technical and
commercial support on a 24-hour-a-day, seven-day-a-week basis. The Company also
offers to manage and operate a customer's application platform and provide
competitively priced network services. Further, the Company continually develops
enhancements to its software applications in an effort to enable its customers
to utilize the latest technologies and most efficient systems available. The
Company strives to address its customers' specific needs and regularly enhances
its products to meet such needs. The Company believes its products enable its
customers to enter the marketplace and expand their businesses with increased
switching capacity and software applications as the need arises.

THE NACT STRATEGY

The Company's objective is to be a leading manufacturer and supplier of
turnkey solutions to providers of enhanced telecommunications services on a
worldwide basis. Key elements of the Company's strategy are to:

- Provide a Complete Integrated Switch Solution. The Company's product
strategy is to offer a switching platform consisting of both the hardware
and software necessary to provide intelligent network services, thus
offering a single source solution to its customers. The Company provides
its customers with a switching solution that includes essentially all of
the key elements a customer needs to offer enhanced telephone services.
The Company's package also includes installation and training with respect
to the use of the switch and the applications. The Company additionally
offers its facilities management services to operate and maintain a
customer's switch if a customer does not have the time or necessary
technical capability to do so on its own.

- Focus on Growth-Oriented Telecommunications Providers. The Company
focuses on emerging providers of enhanced long distance and local
telecommunications services that are entering existing service markets
recently opened to competition. The Company expects to capitalize on the
opportunities created by the deregulation of the telecommunications
industry worldwide and the resulting increased demand for advanced,
integrated telecommunications switching equipment by offering enhanced
services and network management and billing systems. The Company believes
that as the telecommunications industry continues to evolve, individual
providers will offer more diverse services and, as a result, will require
intelligent switches with application software and flexible billing
systems.

- Build Direct Sales Organization. The Company believes that a direct
sales organization that understands and can solve complex switching and
network management and billing system requirements will enable the Company
to increase product sales to specialty telecommunications network service
providers. To date, the Company has sold its products through a small, in-
house direct sales and technical support force located primarily in Utah.
The Company has recently established a sales presence in the States of
Washington and Florida, is currently

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establishing a sales force in New York and intends to further expand its
sales organization both domestically and internationally.

- Target Customers with Large Capacity Requirements. Historically, the
Company has focused its sales and marketing efforts on small,
entrepreneurial telecommunications service providers for which 480 port
integrated switching systems were adequate to serve their customer base.
With the introduction of the STX and its enhanced, interoperable feature
set and capacity to provide 4,096 ports, the Company is capable of
addressing the port requirements of larger customers. This customer base
consists of larger IXCs and LECs, rural independent telephone companies,
CLECs, organizations with large volumes of telecommunications traffic
(especially multi-national corporations) and manufacturers of large port
capacity switches that do not have integrated capabilities to provide
enhanced telephony services.

- Expand into International Markets. The Company believes that the
international markets for competitive services present significant
opportunities for its products. To facilitate the implementation of its
international strategy, the Company is developing and adapting its
existing products to meet international standards such as E-1 and R-2
signaling. The Company intends to build its international presence by
forming relationships with distributors, service providers and large
telecommunications equipment manufacturers and by creating an
international sales force.

- Maintain a High Level of Customer Satisfaction. The Company's customers
operate in an environment in which reliability and availability of
technical support are increasingly critical factors. The Company's
manufacturing and technical support operations are intended to achieve
high reliability of its products and services. The Company's technical
support staff provides business consulting as well as trouble-shooting
services to its customers. The Company believes that its research and
development efforts contribute materially to ongoing customer satisfaction
by providing product features requested by customers. The Company makes a
significant number of sales as a result of repeat sales and referrals from
its existing customers. The Company also believes that significant
investments in research and development will be important in maintaining
and building its customer base.

PRODUCTS

The Company's product line consists of the STX solution, the NTS billing
system and the LCX switching platform.

The STX Solution

The Company's STX solution consists of an integrated application switching
platform and a suite of applications software. The Company sells an optional
companion Master Control Unit ("MCU") to integrate and service multiple STXs and
to add redundancy to the network. The Company has targeted the STX to an
expanded group of customers, including larger enhanced long distance providers,
independent telephone companies, CAPs/CLECs, shared tenant service providers,
Fortune 1000 corporations and local telephone companies in other countries. The
Company believes that its STX switching platform meets or exceeds the
scaleability, performance, interoperability and reliability standards of this
expanded customer base.

The Company believes that the STX offers valued added features and capacity
at price points typically below those offered by its competitors. A 1,024 port
STX configuration with two applications in addition to 1+, 10 languages and a
complete NTS billing system with RAID level five is priced at approximately
$330,000. A similarly configured 4,096 port STX system, which includes four STXs
and an integrated MCU, is priced at approximately $859,000.

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The STX Switching Platform

The STX application switching platform was designed as a hardware platform
for the enhanced service features that are delivered by the Company's own suite
of applications software. The STX platform consists of a digital tandem switch
that currently supports up to 1,024 ports per switch. It is a single chassis
design with dual disk drives or RAID mass storage, digital audiotape (DAT) or
digital linear tape (DLT) back-up, console and dual modems. The simplicity of
its design makes it a reliable hardware platform to which enhanced
telecommunications service features can easily be added by software. The STX
platform has also been designed so that users can easily replace boards by
hotswapping them, a process that does not require the user to shut down or
temporarily disable the switching system.

The STX applications platform has a cost-effective design incorporating
only three types of boards, CPU, T-1 and DSP, and a chassis with a backplane
that supports 2,048 time slots. The current CPU board is powered by a 33 MHz
Motorola 68040 processor and contains 64 or 128 megabytes of RAM, a SCSI-2
peripheral interface, two ARCnet LAN controllers (backplane and external for
communication with the MCU and other STX switches), eight RS-232 serial ports
and alarm LEDs and external relays. The T-1 board is powered by a Motorola
processor and has two megabytes of RAM, an ARCnet LAN controller, and eight T-1
interface controllers that handle 192 ports. The DSP board uses a Motorola
processor with eight megabytes of RAM, an ARCnet controller, three DSP
processors (96 or 120 channels of tone decoding or encoding) and a 64-channel
audio device for the playback of integrated audio messages or the temporary
recording of audio. Each DSP board may cache up to seven megabytes of
frequently-used audio phrases, regardless of language. All boards have been
designed with low-cost components.

The STX hardware platform can operate on a standalone basis with a port
capacity of 1,024. The Company's optional MCU can link up to four STXs which can
be served by a common database for a total system capacity of 4,096 ports. The
STX is also designed to work seamlessly with the Company's NTS 1000 billing
system.

Applications Software

The Company's suite of STX applications software consists of over one
million lines of code. This software supports major application features that
are fully integrated and interoperable. The major applications features include
equal access calling (1+), automated operator (0+), live operator service
provider support (0-), real-time validation of credit card and billing numbers,
prepaid debit cards, prepaid cellular, international call back/reorigination,
phone centers, real-time rating, fraud minimization, external computer
application programming interfaces, call re-origination, and integrated audio
with more than twenty languages. Interoperability enables several applications
packages to be used in conjunction with each other. For example, a prepaid,
international call back call can be assisted by a live operator and rated as a
prepaid, operator-assisted, international call back call. Almost all features
are implemented in software, allowing unlimited capability for enhancement and
customization.

Master Control Unit

The Master Control Unit allows interconnectivity between multiple NACT
applications platforms and permits database information to become centralized by
connecting collocated NACT systems. Interconnectivity permits expanded carrier
call routing. With more ports available due to the MCU, the likelihood of a
caller receiving a "system busy" signal is greatly reduced. Downtime of a single
switch has minimal caller impact when proper carrier management is used.

The Company's turnkey STX solution provides:

Scaleability. The STX architecture allows configurations from 24 to 1,024
ports in a single chassis. The MCU allows up to four STX platforms to use a
single, common database and to appear as a single applications system of up to
4,096 ports with common control of required features such as concurrency

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checking and fraud minimization. With the current Motorola 68040 CPU board, the
STX accommodates 1,024 ports and the MCU accommodates four 1,024 port STX
platforms. With a new CPU board under development by the Company, incorporating
a Motorola 68060 microprocessor, the STX and MCU systems will achieve the full
capacity of their architectures of 2,048 and 8,192 ports, respectively.

Performance. The STX applications platform with the Motorola 68040 CPU
board can process seven to eight million call minutes per month in a 1,024 port
nonblocked configuration. The Motorola 68060 processor will increase capacity to
15 million call minutes in a 2,048 port nonblocked configuration. By linking
four STXs with the MCU, capacity will be increased to up to 60 million call
minutes per month using the Motorola 68060 CPU board. See "-- Research and
Development."

Interoperability. The STX applications platform has been developed to
allow multiple application packages to run simultaneously and in a seamless
fashion. An example would be a client wishing to use international call
back/reorigination, with the assistance of an operator to place the call, and
the cost of the call being debited from the client's prepaid calling account.
Virtually all features are implemented in the software allowing unlimited
capability for enhancement and customization.

Reliability. The STX applications platform is designed using digital
components and is capable of running on single or redundant power supplies. When
multiple STX platforms are placed under the control of an MCU, the failure of a
single STX platform is handled through carrier routing of calls into the
remaining STX systems. With the introduction of the redundant MCU feature,
currently under development, the failure of a single STX will not compromise the
flow of calls through the system.

NTS Billing System

The NTS 1000 is a call rating, accounting, switch management, invoicing and
traffic engineering system designed to process the day-to-day operations of a
small-to-medium sized long distance company. The NTS 1000 can collect calls from
most major switching platforms including the STX and LCX application platforms
and can rate all types of call traffic and, using a sophisticated rating engine,
provides the owner with a highly flexible and completely customized rating
capability. The accounting system handles all of the required information for
managing a long distance customer base including configuration of authorization
codes, ANIs, accounts receivable, and management of delinquent accounts. A major
feature of the NTS 1000 is its switch management capability. When coupled with
the STX and LCX application platforms, information that has been entered into
the NTS 1000 can be electronically transferred into these systems, thereby
minimizing data entry needs. This integrated communication between the NTS 1000
and the LCX and STX also allows for automatic disabling of authorization codes
or ANIs when credit limits are exceeded. The NTS 1000 also has complete
international call back/reorigination and prepaid debit card management support,
as well as a complete invoicing package that supports multiple invoice styles
and options for summary reports. It has a sophisticated traffic engineering
reporting package that provides the ability to generate over 20 types of reports
with a user specified beginning and ending time range. A basic NTS 1000 system,
when sold individually, is priced at approximately $27,000.

The NTS 1000 system uses high performance Pentium or Pentium Pro servers
using RAID and error correcting code (ECC) memory with the option of adding
additional processors. It uses SCO's latest Unix offering, 5.0, which supports
multiple processors and has full LAN support and enhanced Unix graphical user
interface (GUI) system administration tools. The NTS 1000 uses Unify's
relational database management system (RDBMS) for storage of information and for
screen entry and reports. Access to the application can be either through a LAN
using a terminal emulation package on PCs or using terminals connected directly
through RS-232 ports.

LCX Switching Platform

Prior to introducing the STX, the Company's principal product was the LCX
applications platform, which has a maximum capacity of 480 ports in a single
cabinet configuration. While the Company continues to sell refurbished LCXs and
support users of LCXs, the Company does not plan to

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manufacture additional LCXs or develop ongoing enhancements for the LCX. The
versatility of the LCX, which was designed to operate in an unattended
environment, enables it to provide, in an integrated fashion, the following
applications: long distance, pay phone or courtesy phone network management,
international call back/reorigination and prepaid debit card. During the
introduction of the STX, the Company offered an option to customers of the LCX
to return their LCX system in exchange for a discount on their purchase of an
STX system. The Company refurbishes and resells the returned LCX systems, which
are attractive to customers with lower capacity and feature requirements. The
reliability of the LCX enables the system to be easily refurbished by general
cleaning and functional testing procedures. The system is then upgraded to the
latest LCX configuration, including both hardware and software, and made ready
for shipment to customers. Refurbished LCXs are currently being sold with any
two applications and five languages. A 360 port LCX with a NTS billing system is
priced at approximately $80,000 and is targeted to smaller customers who are
considering buying a PC-based switch without an integrated billing system for
essentially the same price.

SERVICES

The Company offers facilities management services to its customers who do
not have or plan to hire technical operators. This service allows the customer
to concentrate on marketing its products while the Company operates and
maintains its switch for a fee. The Company began offering facilities management
services to facilitate sales of its switches. The Company also provides
competitively priced domestic and international network services to its
customers, thereby facilitating their smooth entry into the communications
business. Through the aggregation of customer traffic, the Company has
negotiated favorable carrier rates from the major interexchange carriers.
Currently, the switch room that houses a customer's equipment is located at the
Company's headquarters in Orem, Utah. However, in conjunction with the expansion
of the Company's sales organization domestically and internationally, the
Company is exploring the possibility of providing facilities management services
to its customers in locations where it opens sales offices. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

CUSTOMERS

The Company's applications platforms and billing systems have been accepted
in a variety of segments of the telecommunications industry and serve a broad
array of domestic and international applications. To date, the Company estimates
that it has installed over 300 application platforms and billing systems.
Representative companies using NACT applications platforms and billing systems
by industry segment are:

<TABLE>
<S> <C>
International Call Back/Reorigination Interexchange/Long Distance Carriers
- --------------------------------------------------------------------------------------------
GST Telecommunications, Inc. Apartment Services, Inc.
Intertoll Communications Network Corp. Bee Line Long Distance
Justice Technology Corp.* National Telephone Exchange, Inc.
Ursus Telecom Corporation*

Other
Prepaid Debit Cards and Prepaid Cellular -
- ----------------------------------------------
American Cellular Rental Inc. (cellular) Custom Teleconnect, Inc.
Hello Card, Inc.* IEC Communications, Inc. (Hambrecht & Quist)*
International Telecom Inc. (Alaska Telecom) Questar InfoComm, Inc.
JD Services, Inc.* Telecommunications Technology, Inc. (TTI)
VarTec National, Inc.* Strategic Alliances, Inc.*
</TABLE>

- ---------------
* Indicates multiple systems

36
<PAGE> 37

The Company's customers are diverse and represent many different aspects of
the telecommunications industry. These customers have implemented a wide variety
of features on the LCX and STX. Some examples of leading customer applications
include the following:

- One of the most often used applications of the Company's applications
platform switching equipment is the prepaid debit card application. One
of the Company's customers was primarily in the long distance service
business when the decision to enter into the prepaid market led to the
purchase of a single NACT switch. This customer was able to obtain
contracts with a major convenience store chain and a large truck rental
chain. Today, this customer is operating three STX switches due to the
growth of its segment of the prepaid debit card market.

- A firm with a marketing plan for developing an international call back
business came to the Company looking for a solution. The firm saw an
opportunity in the international call back market but did not want to
spend time learning how to run and manage a switching and billing system.
With the Company's integrated switching, billing and applications
platform product, this customer has been able to enter the market quickly
and has grown to generate several million dollars of revenues per month.
This customer is now selling usage to carriers, currently has four LCX
switching application platforms and is in the process of upgrading two of
its switches to the STX.

- A firm that provides operator services to several hotels in Las Vegas,
Nevada uses an NACT switch for both payphones and guest rooms services.
This customer uses the automated operator feature to provide both
auto-collect and third party calls. In addition, the Company's
applications switching platform processes 0+ calls using credit cards,
phone cards and travel and entertainment cards. The NTS is used to rate
the calls and process call records into a format for clearing to receive
payment.

During the fiscal years ended September 30, 1994 and 1995, Caribbean
Telephone & Telegraph, Inc. accounted for 12% and 16% of the Company's total
revenues, respectively. During the fiscal year ended September 30, 1996,
Intertoll Communications Network Corp. ("Intertoll") and Overseas accounted for
12% and 13% of the Company's total revenues, respectively. Revenues from
Intertoll consisted of both switch and network carrier sales while revenues from
Overseas were derived exclusively from network carrier sales. The Company
maintains a security interest in the systems it sells until the related account
balances are paid in full. Management provides an allowance for doubtful
accounts and notes based on current customer information and historical
statistics. See "Risk Factors--Potential Fluctuations in Quarterly Operating
Results; Timing of Sales" and Note 10 of Notes to Financial Statements.

SALES AND MARKETING

The Company has historically sold its products through a small direct sales
force located primarily at the Company's headquarters in Orem, Utah. The
Company's marketing strategy has been to generate leads through attendance at
trade shows, advertising in industry periodicals and referrals from existing
customers. The Company convenes annual two-day round table discussions for its
customers. The Company invites its customers and their competitors to meet in an
environment of cooperation and collaboration to discuss their experiences with
the Company's products, providing significant consideration for future NACT
product development and enhancement.

The Company has recently established a sales presence in the States of
Washington and Florida, is currently establishing a sales force in New York and
plans to establish sales forces in other cities in the United States and in
other countries it believes to be strategically advantageous. The Company
believes that a sales organization that understands and can solve complex
switching and network management and billing systems requirements is necessary
to sell its products to specialty telecommunications network service providers
and corporate end users. The Company intends to invest significantly to enlarge
its sales organization in order to expand its customer base and to be more

37
<PAGE> 38

geographically proactive. There can be no assurance that such increased sales
and marketing efforts will result in additional sales of the Company's products.

The Company believes that the development of a sales organization with
regional sales offices will enable sales personnel to follow up on leads in
person in remote locations as well as to generate additional leads through
direct solicitation. The Company's sales efforts will continue to include
responding to leads resulting from advertisements, attendance at trade shows and
from its relationship with its parent, GST, a provider of a broad range of
integrated telecommunications products and services. Further, the Company
expects that its technical support organization and customer referrals will
continue to be an important factor in the Company's sales. In attempting to
broaden its customer base, the Company will be marketing its products and
services to larger telephony providers whose procurement processes are generally
more protracted and may be expected to require additional effort on the
Company's part.

To date, the Company has made no direct sales to international customers.
The Company believes that the international market for its products will
represent growth potential in the future, particularly in the developing
countries and in countries in which the telecommunications industry is being
deregulated. The Company intends to address these opportunities by creating an
international sales force and by marketing its products through international
partners directly involved in telecommunications equipment sales.

TECHNICAL SUPPORT

The Company's technical support staff provides business consulting as well
as trouble-shooting services to its customers. The Company's customers operate
in an environment in which reliability and availability of technical support are
increasingly critical factors. Such value-added services have resulted in a
recurring stream of revenues for the Company.

Since inception, the Company has been committed to building a strong
service and support organization. The Company's technical support department
installs and supports systems sold by the Company and provides ongoing services
that include training, business consultations, trouble-shooting and upgrades.
Since the Company sells a single switching solution that includes essentially
all of the key elements a customer needs to offer enhanced services, a customer
need not look beyond the Company, its "single source," for its technical
switching solutions.

The technical support department is involved with a customer as soon as a
sale has been finalized. A detailed pre-installation checklist is completed with
the customer prior to installation. A technical support engineer installs the
equipment at the customer's location, configures software for the specific
applications to be utilized and brings up the telephone circuits. Typically, a
system is operational shortly after it is delivered.

After the equipment is installed, the Company's technical support
department works with the customer to keep the equipment functioning reliably.
Modem access to all customer equipment enables the Company's technical support
personnel to perform diagnostics, trouble-shoot equipment, perform software
upgrades, transmit programs and configure hardware from a remote location. In
addition, technical support provides consulting services on network issues and
additional applications.

To quickly and efficiently resolve customer issues, the technical support
department uses an automated tracking system that contains the complete
installed customer database, software and hardware configuration, site
addresses, contacts and modem phone numbers. An incoming customer call is
monitored on this system, and the status of the resolution of the customer
problem and the mean-time to repair are updated and maintained for reporting
back to the customer. An incident escalation procedure ensures that all customer
problems receive appropriate visibility until a solution has been achieved. The
technical support department maintains 24 hour, 7-day-a-week emergency service
coverage. The Company's equipment is warrantied for one year, after which the
customer pays an annual fee for factory support. Factory support includes toll
free telephone support, as well as all

38
<PAGE> 39

operating system software upgrades and free board repair. These upgrades allow
the Company's customers to take advantage of software enhancements offered by
the Company.

All of the Company's technical support operations are currently conducted
in Orem, Utah. The Company plans to expand the department into several key
locations in conjunction with the opening of additional sales offices.

RESEARCH AND DEVELOPMENT

The Company's research and development efforts are focused on the
development of new products and the addition of new features and capabilities to
its existing products. The research and development department continually works
to improve the quality of the Company's products and to ensure that such
products meet industry standards and government regulations. In addition, the
Company is working toward the successful development of new products that will
enable it to offer additional intelligence to a customer's existing network.
During the past 15 years, the Company's engineers have introduced seven hardware
platforms, 10 software applications, 20 international language software packages
and numerous enhancements to such products.

The Company is working to increase the port capacity of the STX and to
improve and supplement its enhanced services and its billing system platform.
The Company is incorporating the Motorola 68060 CPU board into the STX
application platform to enable the STX to support 2,048 ports per chassis or
8,192 ports per integrated MCU system. With the Motorola 68060 processor, the
STX is expected to process up to 15 million call minutes per month in a 2,048
port nonblocked configuration or can be combined with three additional STXs to
provide up to 60 million call minutes per month.

The Company is currently developing an improved billing system, the NTS
2000, which is being designed for real time transaction processing and will use
a graphic user interface and improved call reports and will allow for greater
customization of invoices, bills and reports. The Company expects that the NTS
2000 will be available for use with its applications platform switches in the
first half of 1997 and will be available for use with non-NACT switches in the
future. However, no assurance can be made that the development of the NTS 2000
will be completed on time or that the Company will not experience delays
inherent in the development of products incorporating new technology. Any delays
in incorporating this new product into the Company's product line could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The "server" side of the NTS 2000 will use one or more Pentium Pro
PC-server systems with the SCO UNIX operating system and an Informix database
management system. The "client" side will use a PC computer with the Windows 95
operating system. All processing will be based upon real time transaction
processing. The NTS 2000 will allow for the customization of reports and
customer invoices on "client" PC computers while providing standard features on
the "server" computers.

The telecommunications equipment market is characterized by rapidly
changing technologies and frequent new product introductions. The rapid
development of new technologies increases the risk that current or new
competitors could develop products that would reduce the competitiveness of the
Company's products. The Company's success will depend to a substantial degree
upon its ability to respond to changes in technology and customer requirements.
This will require the timely selection, development and marketing of new
products and enhancements on a cost-effective basis. The development of new,
technologically advanced products is a complex and uncertain process, requiring
high levels of innovation. Further, the telecommunications industry is
characterized by the need to design products that meet industry standards for
safety, emissions and network interconnection. With new and emerging
technologies, such standards are often changing or unavailable. As a result,
there is a potential for product development delay due to the need for
compliance with new or modified standards. The introduction of new and enhanced
products also requires that the Company manage transitions from older products
in order to minimize disruptions in customer orders, avoid excess inventory of
old products and ensure that adequate supplies of new products can be delivered
to meet customer orders. There can be no assurance that the Company will be
successful in developing,

39
<PAGE> 40

introducing or managing the transition to new or enhanced products or that any
such products will be responsive to technological changes or will gain market
acceptance. The Company's business, financial condition and results of
operations would be materially adversely affected if the Company were to be
unsuccessful, or to incur significant delays, in developing and introducing such
new products or enhancements. See "Risk Factors--Potential Fluctuations in
Quarterly Operating Results; Timing of Sales and "Risk Factors--Impact of
Technological Change."

As of December 31, 1996, approximately 22 full-time employees were engaged
in research and development. The Company spent $676,465, $1,183,422 and
$1,352,138 on research and development during the fiscal years ended September
30, 1994, 1995 and 1996, respectively. The Company expects that it will continue
to expend significant resources for product research and development.

MANUFACTURING AND QUALITY ASSURANCE

The Company's manufacturing operations consist primarily of material
requirements planning, material procurement and final assembly, test and quality
control of subassemblies and completed systems. The Company outsources its
printed circuit board assembly. The Company believes that by outsourcing its
printed circuit board assembly, the Company gains flexibility in the
manufacturing process and achieves lower direct labor and overhead costs.

The Company currently conducts its manufacturing operations in its facility
in Orem, Utah in a space of approximately 2,300 square feet. In fiscal 1997, the
Company is planning to move its entire operations to a facility that is being
built in Provo, Utah. The manufacturing operations will utilize over 10,000
square feet of the new facility. The Company believes that the increased space
will enable the Company to improve its productivity and manufacturing output
significantly. See "--Facilities."

The Company utilizes an annual planning forecast, which is modified
monthly, to determine its material and outsourcing requirements. The Company
orders materials with differing lead times, generally 30 to 180 days in advance.
The Company uses "just-in-time" ordering of materials that are readily available
to minimize inventory carrying costs. The Company's systems are manufactured to
a standard configuration that allows for better production planning, lower
direct labor and overhead costs and shorter order-to-shipment times.

The Company tests its systems in accordance with Company-designed quality
control specifications that are consistent with ISO 9000 requirements. ISO 9000
is an international quality certification process, developed in the European
Common Market and adopted in the United States as the method by which companies
can demonstrate the functionality of their quality control system.

ISO 9000 certification is a three step process: writing a "quality manual"
in accordance with the ISO 9000 requirements; documenting the processes and
procedures used to design, build, sell and finance products; and being audited
by an official ISO 9000 registrar. The Company has completed the "quality
manual," is currently documenting the processes and procedures and has selected
an ISO 9000 registrar to conduct the certification audit. In conjunction with
ISO 9000 certification, the Company presently has an in-house quality inspection
program where it tests all products prior to shipment to ensure the highest
standard of quality. The inability of the Company to meet and/or maintain ISO
standards would materially adversely effect the Company's business, financial
condition and results of operations.

On-time delivery of the Company's products is dependent upon the
availability of quality components and subassemblies used in its products. The
Company primarily uses standard parts and components for its products, procured
from multiple vendors. Certain integrated circuits, card cage chassis and
billing system database software are presently available only from a single
source or limited sources of supply. To date, the Company has been able to
obtain adequate supplies of these components in a timely manner. However, the
inability of the Company to obtain sufficient components as needed would
materially adversely affect the Company's business, financial condition and
results of operations.

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<PAGE> 41

COMPETITION

The market for switching equipment and network management and billing
systems is highly competitive, and the Company expects competition to increase
in the future. The market is subject to rapid technological change, regulatory
developments in the telecommunications industry and emerging industry standards.
The Company believes that the primary competitive factors in the market for
switching equipment and network telemanagement and billing systems are the
development and rapid introduction of new product features, price/performance,
reliability and quality of customer support. There can be no assurance that the
Company's products and products under development will be able to compete
successfully with respect to these or other factors. To the extent that current
or potential competitors can expand their current offerings to include products
that have functionality similar to the Company's products and planned products,
the Company's business, financial condition and results of operations could be
materially adversely affected.

The Company believes that it competes across three categories:

PC Based Switch Platforms. A PC-based switch platform is a personal
computer, usually with high capacity, that contains generic telephony boards for
interfacing with the public network. A typical platform provides a single
application such as debit card or international call back/reorigination which
are software applications that can be brought to market rapidly. Leading
providers of these types of switches are CPDI, ITP, and PCS Telecom. The users
of this equipment generally tend to be start-up operations that are concerned
about initial equipment costs and that are generally able to bring software
solutions to the market rapidly. While these users may feel that PC-based
solutions are relatively low cost, as their business grows, it becomes apparent
that these systems are costly to expand on a cost per port basis and offer few
features that are standard with switch-based platforms. Additionally, PC-based
systems are not regarded as a viable solution for larger users due to their
reliability needs and concerns.

Open Architecture (Programmable) Hardware Platforms. A programmable
hardware platform generally consists of proprietary switch hardware, together
with the necessary software to provide a programming application interface (API)
that allows other computers executing third-party application software to
control the calls within the switch hardware. Leading providers of these types
of switches are Summa Four, Excel and Redcom and the value added software
providers that support this type of hardware, such as Magellan, Boston
Technology and Open Development. The users of this type of equipment tend to be
companies that have the ability and desire to write their own applications code
or are willing to purchase their applications code from a specialized third
party developer.

Application Switch Platforms. An application switching platform is an
integrated hardware/software switching system that contains software
applications that perform basic 1+ and operator assisted services over the
public network. To provide intelligent functionality, an adjunct switch must be
connected to the application switch platform. Leading providers of application
switch platforms are Harris and Siemens Stromberg Carlson. The major users are
companies that are established in their telephony business such as 1+ providers
that now need to expand their offerings to their customers to remain competitive
in the marketplace. Enhanced services are particularly attractive to these
customers and play a large part in their decision making process.

As the Company's business develops and it seeks to market its switches to a
broader customer base, the Company's competitors may include larger switch and
telecommunications equipment manufacturers such as Lucent Technologies Inc.,
Harris, Siemens AG, Alcatel Alsthom Compagnie, Generale D'Electricite,
Telefonaktiebolaget, L.M. Ericcson and Northern Telecom Ltd. Many of the
Company's current and potential competitors have substantially greater
technical, financial, manufacturing and marketing resources than the Company. In
addition, many of the Company's competitors have long-established relationships
with telecommunications network service providers. There can be no assurance
that the Company will have the financial resources, technical expertise,
manufacturing, marketing, distribution and support capabilities to compete
successfully in the future. See "Risk Factors--Competition."

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<PAGE> 42

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

The Company's success is dependent in part on intellectual property rights,
including information technology, some of which is proprietary to the Company.
The Company relies on a combination of copyright, trade secret, and trademark
law, confidentiality procedures and other contractual restrictions to establish
and protect proprietary rights in its products and technologies. As part of
these confidentiality procedures, the Company generally enters into
confidentiality and non-disclosure agreements with its employees and limits
access to and distribution of its proprietary information. The Company has filed
federal trademark applications for the marks STX and NTS 2000 and is currently
conducting a review of its products to determine for which products it will seek
patent, trademark or copyright registration protection. While the Company
believes that its technology provides it with certain competitive advantages,
there can be no assurance that the Company's competitors will not be able to
develop similar technology. The Company currently licenses certain technology
from third parties and plans to do so in the future. See "Risk Factors--Limited
Intellectual Property Protection; Risk of Third Party Claims of Infringement."

The telecommunications equipment industry is characterized by the existence
of a large number of patents and frequent litigation based on allegations of
patent infringement. The scope of protection accorded to patents covering
software-related inventions is evolving and is subject to a degree of
uncertainty which may increase the risk and cost to the Company if such patents
are asserted against the Company in the future. In its sales agreements, the
Company typically indemnifies its customers for liabilities, up to the cost of
the equipment less 25% at each anniversary, resulting from claimed infringements
of patents or copyrights of third parties. In the event of litigation to
determine the validity of any third-party claims, such litigation, whether or
not determined in favor of the Company, could result in significant expense to
the Company and divert efforts of the Company's technical and management staff
from productive tasks. In the event of an adverse ruling in such litigation, the
Company might be required to discontinue the use and sale of infringing
products, expend significant resources to develop non-infringing technology or
obtain licenses from third parties. There can be no assurance that such licenses
from third parties would be available on acceptable terms, if at all.

On August 24, 1995, Aerotel, Ltd. and Aerotel U.S.A., Inc. (collectively,
"Aerotel") commenced an action against the Company and one of its customers
alleging that telephone systems manufactured and sold by the Company
incorporating prepaid debit card features infringe upon Aerotel's patent issued
in November 1987. The Company believes that it has valid defenses to the Aerotel
claims.

In the event of a successful claim against the Company and the failure of
the Company to develop or license a substitute technology, the Company's
business, financial condition and results of operations would be materially
adversely affected. See "Risk Factors--Pending Litigation" and "--Legal
Proceedings."

EMPLOYEES

At December 31, 1996, the Company had 75 full-time employees, of whom 22
were engaged in research and development, 15 in manufacturing and quality
control, 12 in sales and marketing, 16 in technical support and 10 in
administration and finance. None of the Company's employees is represented by a
collective bargaining agreement nor has the Company experienced any work
stoppage. The Company considers its relations with its employees to be good. See
"Risk Factors--Dependence on Key Personnel" and "Management--Employment and
Consulting Agreements."

FACILITIES

The Company's headquarters and principal administrative, engineering and
manufacturing facility is located in a facility containing approximately 13,400
square feet located in Orem, Utah. The Company leases this facility on a
month-to-month basis.

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<PAGE> 43

GST Realco has entered into a construction contract pursuant to which a
40,000-square-foot office building is currently being built for the Company in
Provo, Utah. It is anticipated that after the construction has been completed
(currently estimated to be no later than June 1997), the Company will move its
entire operations to such facility. To date, all of the construction costs have
been borne by GST Realco. The Company intends to purchase the land and the
building from GST Realco with a portion of the net proceeds of the offering. The
Company will pay the remaining costs to complete construction of the building.
See "Use of Proceeds" and "Certain Transactions."

LEGAL PROCEEDINGS

On August 24, 1995, Aerotel commenced an action against the Company and a
customer of the Company in the United States District Court, Southern District
of New York, alleging that telephone systems manufactured and sold by the
Company incorporating prepaid debit card features infringe upon Aerotel's patent
which was issued in November of 1987 (the "Aerotel Patent"). The complaint
further alleges defamation and unfair competition as a result of a Special
Report disseminated by the Company to its customers and tortious interference
with prospective business relations, alleging that the Company induced third
parties to abandon licensing negotiations with Aerotel. Aerotel seeks injunctive
relief, damages in an unspecified amount, damages of up to three times the
damages found for willful infringement of the Aerotel Patent and an order
requiring the Company to publish a written apology to Aerotel. An Answer and
Counterclaim has been filed in which the Company denies infringement of the
Aerotel Patent and seeks judgment that the Aerotel Patent is invalid and that
Aerotel has misused its patent in violation of antitrust laws. The Company also
denies that it has committed defamation, unfair competition and tortious
interference with prospective business relations. The Company believes that it
has valid defenses to the Aerotel claims. The Company has filed with the Court a
motion to have the Aerotel Patent declared unenforceable. The Court has not yet
ruled on the Company's motion. The case is still in the discovery phase. The
case is not expected to be tried until late 1997 at the earliest. In the event
of an unfavorable decision in this action, the Company would be required to
obtain a royalty agreement with Aerotel to continue to offer prepaid debit card
services or cease to offer an infringing prepaid debit card feature with its
products. An unfavorable decision could have a material adverse effect on the
business, financial condition and results of operations of the Company. See
"Risk Factors--Pending Litigation." In addition, the Company may be liable to
its customers for indemnification under the Company's sales agreements. See
"Business--Intellectual Property and Other Proprietary Rights."

The Company is not currently involved in any other material legal action.
From time to time, however, the Company may be subject to claims and lawsuits
arising in the normal course of business.

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<PAGE> 44

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers, directors and key employees of the Company, their
ages and present positions with the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- -------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Thomas E. Sawyer.......... 64 Chairman of the Board Emeritus
A. Lindsay Wallace........ 47 President, Chief Executive Officer and Director
Eric F. Gurr.............. 37 Chief Financial Officer, Treasurer and Secretary
W. Gordon Blankstein...... 46 Director
Stephen Irwin............. 55 Director
Robert L. Olson........... 46 Director
Clifford V. Sander........ 59 Director
Ronald S. Eliason......... 62 Director*
Gary D. Brown............. 42 Vice President of Research and Development
Geoffrey Shupe............ 41 Vice President of Sales and Marketing
</TABLE>

- ------------------------------
* This individual has agreed to serve as a director of the Company effective
upon completion of the offering.

THOMAS E. SAWYER has been the Chairman of the Board Emeritus since November
1996. Dr. Sawyer was a director of the Company from 1982 to November 1996, the
Chairman of the Board of Directors of the Company from October 1985 to November
1996 and was Chief Executive Officer of the Company from October 1988 to March
1996. In December 1993, he was appointed Chief Technology Officer of GST and was
appointed a director of GST in August 1995. Dr. Sawyer has over 35 years of
experience in information technology industries and 23 years of experience in
senior management of four publicly-traded information technology firms.

A. LINDSAY WALLACE has been the President and a director of the Company
since January 1996 and Chief Executive Officer of the Company since April 1996.
From January 1994 to January 1996, he was the Director of Sales and Marketing of
the Company and was the Executive Vice President of the Company from October
1995 to January 1996. From 1988 to December 1993, Mr. Wallace was a National
Account Manager of Sprint and opened the Sprint/Telnet data office in Salt Lake
City, Utah. From 1984 to 1988, he was President and Chief Executive Officer of
Hybrid Micrographics, Inc.

ERIC F. GURR has been the Company's Vice President of Finance and
Administration and Chief Financial Officer since August 1995 and Treasurer and
Secretary since June 1989. Between June 1989 and August 1995, Mr. Gurr served as
Controller and Director of Administration and Finance. Mr. Gurr served as Chief
Financial Officer and Treasurer of Wins, now a subsidiary of GST USA, from
January 1995 to September 1996. From 1985 to 1989, Mr. Gurr served as a Senior
Auditor for Deseret Management Corporation, a diversified conglomerate. Mr. Gurr
is a Certified Public Accountant.

W. GORDON BLANKSTEIN has been a director of the Company since April 1994.
Mr. Blankstein has been Chairman of the Board of GST since February 1995. He is
a founder, past President and Chairman of the Board and former director of ICG
Communications, Inc. Mr. Blankstein was the founder and a director of GST from
November 1992 to January 1993 and has been a director since January 1994. He was
elected Vice Chairman of the Board of GST in February 1994.

STEPHEN IRWIN has been a director of the Company since November 1996. Mr.
Irwin has been Vice Chairman of the Board and a director of GST since September
1995 and has been the Secretary of GST since November 1992. Mr. Irwin is an
attorney specializing in corporate matters, and has been of counsel to the New
York law firm of Olshan Grundman Frome & Rosenzweig LLP since 1990.

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<PAGE> 45

Mr. Irwin was a senior partner in Greenberg, Irwin and Weisinger, a New York law
firm specializing in securities, business and corporate matters, from 1968 to
1990.

ROBERT L. OLSON has been a director of the Company since November 1996. Mr.
Olson has been the Vice President and General Manager of Exchange and Wireless
Services of GST Telecom Inc., a wholly-owned subsidiary of GST USA ("GST
Telecom"), since March 1995. From 1986 to January 1995, Mr. Olson was Vice
President of Metroplex Communications Corporation.

CLIFFORD V. SANDER has been a director of the Company since November 1996.
Mr. Sander has been Senior Vice President and Treasurer of GST since March 1995.
He has also been the Executive Vice President and Chief Financial Officer of GST
Telecom since June 1994. From 1962 to 1994, Mr. Sander was in private accounting
practice in Portland, Oregon. He was acting Chief Financial Officer of Electric
Lightwave, Inc. ("ELI") during its formation in 1988 and continued to provide
accounting and financial consulting services to ELI through 1993. Mr. Sander is
a Certified Public Accountant.

RONALD S. ELIASON will become a director of the Company upon completion of
the offering. Mr. Eliason has been the President and Chief Executive Officer of
Campus Credit Union, a financial institution based in Provo, Utah, since June
1991. He was the Vice President-Administration and Chief Financial Officer of
Novell, Inc. from August 1985 to April 1990.

GARY D. BROWN has been the Company's Vice President of Research and
Development since June 1996. Prior to being named Vice President, he had served
as the Director of Research and Development since July 1990. In these positions,
he has helped conceive and direct all development activities of the Company.
From July 1985 until July 1990, Mr. Brown served as a Senior Software Engineer.
Prior to joining the Company in July 1985, Mr. Brown was a Lead Software
Engineer for a proprietary operating system at WICAT Systems, Inc. for over five
years.

GEOFFREY SHUPE has been the Company's Vice President of Sales and Marketing
since October 1996. Mr. Shupe is responsible for sales development, strategic
sales development, marketing and Technical Support. He joined the Company in
January 1994 as Major Account Manager for sales and became the Director of Sales
and Marketing in January 1996. Mr. Shupe was an account representative, Major
Account Representative, and National Account Manager for Sprint from February
1987 through December 1993.

The Board of Directors of the Company currently consists of five members.
Currently all directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Executive officers are elected by and serve at the discretion of the Board of
Directors.

Pursuant to the listing requirements of the Nasdaq National Market, the
Company is required to add two independent directors to its Board of Directors
and to establish an independent audit committee. The Nasdaq National Market
Qualifications Committee has granted the Company 90 days following the date of
this Prospectus to satisfy these requirements. A failure by the Company to
comply with these requirements may result in the delisting of the Common Stock
from the Nasdaq National Market. The Company has undertaken to add two
independent directors to its Board of Directors within 90 days after the date of
this Prospectus. In connection with this undertaking, the Board of Directors has
agreed to increase the authorized number of directors from five to seven. Mr.
Eliason, whose biographical data appears above, is not currently a director of
the Company, but has agreed to become a director of the Company upon completion
of this offering.

BOARD COMMITTEES

Prior to completion of this offering, the Board of Directors will authorize
three standing committees: Executive Committee, Audit Committee and Compensation
Committee. Following the completion of this offering, the Board of Directors
intends to fill the positions of the standing committees. Only independent
directors will be appointed to the Audit Committee.

45
<PAGE> 46

Executive Committee. The Executive Committee of the Board of Directors
will possess and exercise all the power and authority of the Board of Directors
in the management and direction of the business and affairs of the Company
except as limited by law and except for the power to change the membership or to
fill vacancies on the Board of Directors or the Executive Committee.

Audit Committee. The Audit Committee of the Board of Directors will review
the results and scope of the annual audit and other services provided by the
Company's independent accountant, review and evaluate the Company's internal
audit and control functions, and monitor transactions between the Company and
its principal stockholder and its employees, officers and directors.

Compensation Committee. The Compensation Committee of the Board of
Directors will administer the 1996 Stock Option Plan and review and approve the
compensation and benefits for the Company's executive officers.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to this offering, the Company's Board of Directors has reviewed and
approved the compensation and benefits of the Company's executive officers. No
interlocking relationship exists between any member of the Company's Board of
Directors and any member of the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past, except as follows: Thomas E. Sawyer, the Chairman of the Board Emeritus of
the Company serves as a director and executive officer of each of GST and GST
USA. W. Gordon Blankstein, the Chairman of the Board of GST and GST USA, Stephen
Irwin, the Vice Chairman of the Board of GST, and Clifford V. Sander, Senior
Vice President of GST and GST USA and a director of GST USA, each serve as a
director of the Company.

DIRECTOR COMPENSATION

The Company does not pay any compensation to employees of the Company or
GST who serve on the Board of Directors. However, the Board of Directors may in
the future authorize the payment of a fixed sum to directors for their
attendance at regular and special meetings of the Board of Directors as is
customary for similar companies. Independent directors will be reimbursed for
out-of-pocket expenses incurred in connection with attendance at such meetings.

Upon completion of this offering, the Company will grant five-year options
to purchase 25,000 shares of Common Stock at an exercise price per share equal
to the initial public offering price of the shares offered hereby to Mr.
Eliason, who will become a director of the Company upon completion of this
offering. The Company will also grant five-year options to purchase 25,000
shares of Common Stock to one other individual who will become a director of the
Company within 90 days following the date hereof, upon such person becoming a
director of the Company.

46
<PAGE> 47

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
of the Company's Chief Executive Officer and each other most highly compensated
executive officer of the Company whose aggregate cash compensation exceeded
$100,000 during the fiscal year ended September 30, 1996 (collectively, the
"Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------------
PAYOUTS
ANNUAL COMPENSATION AWARDS ---------
-------------------------------------- ---------- LONG-TERM
OTHER SECURITIES INCENTIVE
NAME AND PRINCIPAL ANNUAL UNDERLYING PLAN ALL OTHER
POSITION SALARY BONUS COMPENSATION(1) OPTIONS PAYOUTS($) COMPENSATION(2)
- ------------------------ -------- ------ --------------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Sawyer(3)..... $222,556 $2,066 $ 5,608 -- -- $ 4,492
Chairman of the Board
of Directors
A. Lindsay Wallace...... 149,841 1,036 27,036 -- -- 5,055
President and Chief
Executive Officer
</TABLE>

- ------------------------------
(1) Represents payments made pursuant to the Company's Profit Sharing Plan. The
Company terminated this plan in September 1996.

(2) Represents matching contributions by the Company to its 401(k) Plan.

(3) Dr. Sawyer served as the Company's Chief Executive Officer from October 1988
to March 1996. Since April 1996, his compensation has been paid entirely by
GST USA for services rendered to GST USA and its subsidiaries. It is
anticipated that Dr. Sawyer will continue to be compensated by GST USA until
June 30, 1997. See "Management--Employment and Consulting Agreements."

OPTION GRANTS TABLE

NACT Option Grants

There were no options to purchase shares of Common Stock of the Company
granted to the Named Executive Officers during the fiscal year ended September
30, 1996. The following table sets forth certain information regarding grants of
options to purchase Common Stock of the Company made to each of the Named
Executive Officers on November 26, 1996.

<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES STOCK PRICE
UNDERLYING % OF TOTAL APPRECIATION FOR
OPTIONS OPTIONS OPTION TERM(1)
GRANTED GRANTED TO EXERCISE EXPIRATION ---------------------
NAME (#) EMPLOYEES PRICE ($/SH) DATE 5%($) 10%($)
- ---------------------------- ---------- ------------ ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Sawyer............ 60,000(2) 7.1% $ 9.35 11/25/01 154,994 342,496
A. Lindsay Wallace.......... 160,000(3) 18.8% $ 9.35 11/25/01 413,317 913,323
</TABLE>

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

(1) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming (for illustrative purposes only) the
specified compounded rates of appreciation of the Common Stock of the
Company over the term of the option. These numbers do not take into account
provisions providing for termination of the option following termination of
employment, nontransferability or difference in vesting periods.

(2) Such options are currently vested and become exercisable in full on
September 30, 1998.

47
<PAGE> 48

(3) Options to purchase 80,000 shares of Common Stock vest and become
exercisable one-third on September 30, 1997, one-third on September 30, 1998
and the remaining one-third on September 30, 1999. Options to purchase
40,000 shares of Common Stock vest and become exercisable one-fourth on
September 30, 1997, one-fourth on September 30, 1998, one-fourth on
September 30, 1999 and the remaining one-fourth on September 30, 2000.
Options to purchase an additional 40,000 shares of Common Stock vest if and
when certain performance-based criteria are achieved and become exercisable
on September 30, 1998.

GST Option Grants

On June 1, 1996, GST granted options to purchase 5,000 of its Common Shares
at an exercise price of $10.00 per share to each of Dr. Sawyer and Mr. Wallace.
Such options expire on May 31, 2001. During the fiscal year ended September 30,
1996, Mr. Wallace exercised options to purchase 8,691 Common Shares of GST.

EMPLOYMENT AND CONSULTING AGREEMENTS

The Company has entered into an employment agreement with Mr. Wallace
pursuant to which, effective October 1, 1996, Mr. Wallace is employed as the
Company's President and Chief Executive Officer for a term ending on September
30, 2001. The agreement provides for an initial base salary of $160,000 annually
or such greater amount as the Board of Directors may determine, and incentive
compensation as awarded by the Board of Directors from time to time. In the
event of Mr. Wallace's death while employed by the Company, the agreement
provides for a payment of one and a half times his then current base annual
salary, over a period of one and a half years, to his designated beneficiary. In
the event of his disability, Mr. Wallace is to receive the full amount of his
base salary for six months. If such six-month period ends prior to September 30,
2001, he is to receive salary at a rate of one-half his then current base salary
for a further period ending on the earlier of one year thereafter or September
30, 2001. The agreement contains covenants restricting Mr. Wallace's ability to
engage in activities competitive with those of the Company for a period ending
on the earlier of two years after his termination or September 30, 2001. Upon a
change of control of the Company that results in Mr. Wallace's removal from the
Company's Board of Directors, a significant change in the conditions of his
employment or other breach of the agreement, he is to receive liquidated damages
equal to the "base amount," as defined in the United States Internal Revenue
Code of 1986, as amended (the "Code"), of his compensation.

GST USA and GST Telecom have entered into a consulting agreement dated
April 1, 1996 with Infotec Consulting, Inc. ("Infotec") under which Dr. Sawyer,
the Chairman of the Board Emeritus of the Company, is to provide personal
services to GST and its subsidiaries, including the Company, at the rate of $125
per hour for hours invoiced monthly until June 30, 1997. The agreement provides
that Dr. Sawyer shall render management and technical consulting services which
shall include the development and evaluation of strategic and operational
planning, merger and acquisition proposals, preparation of reports and studies
thereon and assistance in negotiations and discussions pertaining thereto. Such
consulting agreement also contains covenants restricting Dr. Sawyer's ability to
engage in activities competitive with those of GST and its subsidiaries. The
agreement also provides for a payment to Infotec of one and one half times the
amount paid to Infotec during the six months preceding Dr. Sawyer's death in the
event of Dr. Sawyer's death during the term of the agreement. The Company has
entered into a deferred compensation trust agreement with Dr. Sawyer whereby the
Company funded a trust with $144,000, with principal and related interest
thereon to be paid to Dr. Sawyer based upon a defined payment schedule.

1996 STOCK OPTION PLAN

The Company's 1996 Stock Option Plan (the "Stock Option Plan") was approved
by the Board of Directors and the sole stockholder of the Company on November
26, 1996. The purpose of the Stock Option Plan is to create additional
incentives for the Company's employees, directors and others who perform
substantial services to the Company by providing an opportunity to purchase
shares of the

48
<PAGE> 49

Common Stock pursuant to the exercise of options granted under the Stock Option
Plan. The Company may grant options that qualify as incentive stock options
under Section 422 of the Code, and non-qualified stock options. Incentive stock
options may be granted to employees (including officers and directors who are
employees). Non-qualified stock options may be granted to employees, officers,
directors, independent contractors and consultants of the Company. As of
February 4, 1997, 1,250,000 shares were reserved for issuance under the Stock
Option Plan and options to purchase 850,000 shares of Common Stock were
outstanding.

The maximum number of shares that may be subject to options granted under
the Stock Option Plan to any individual in any calendar year may not exceed
100,000 and the method of counting such shares shall conform to any requirements
applicable to "performance-based" compensation under Section 162(m) of the Code.
It is intended that compensation realized upon the exercise of an option granted
under the Stock Option Plan will thereupon be regarded as "performance-based"
under Section 162(m) of the Code and that such compensation may be deductible
without regard to the limits of Section 162(m) of the Code.

The Board of Directors or the Compensation Committee thereof (the
"Compensation Committee") composed of two or more non-management directors that
are "non-employee directors" within the meaning of Rule 16b-3 promulgated under
the Exchange Act and "outside directors" within the meaning of Section 162(m) of
the Code, is authorized to administer the Stock Option Plan in a manner that
complies with Rule 16b-3 under the Exchange Act. The Board of Directors or
Compensation Committee determines which eligible individuals are granted options
and the terms of such options, including the exercise price, number of shares
subject to the option and the vesting and exercisability thereof; provided, the
maximum term of an incentive stock option granted under the Stock Option Plan
may not exceed five years.

The exercise price of an incentive stock option granted under the Stock
Option Plan must equal at least 100% of the fair market value of the subject
stock on the date of grant and the exercise price of all non-qualified stock
options must equal at least 80% of the fair market value of the subject stock on
the date of grant; provided, however, that if an option granted to the Company's
Chief Executive Officer or to any of the Company's other four most highly
compensated officers is intended to qualify as "performance-based" compensation
under Section 162(m) of the Code, the exercise price must equal at least 100% of
the fair market value of the subject stock on the date of grant. With respect to
any participant who owns more than 10% of the voting power of the Common Stock
of the Company, the exercise price of any option granted must equal at least
110% of the fair market value on the date of grant. The aggregate fair market
value on the date of grant of the stock for which incentive stock options are
exercisable for the first time by an employee of the Company during any calendar
year may not exceed $100,000.

Options shall become exercisable at such times and in such installments as
the Board of Directors or Compensation Committee shall provide. Non-qualified
and incentive stock options granted under the Stock Option Plan are not
transferable other than by will or the laws of descent or distribution, and each
option that has not yet expired is exercisable only by the recipient during such
person's lifetime, or for 12 months thereafter by the person or persons to whom
the option passes by will or the laws of descent or distribution. The Stock
Option Plan may be amended at any time by the Board of Directors, although
certain amendments require stockholder approval. The Stock Option Plan will
terminate on November 25, 2006, unless earlier terminated by the Board of
Directors.

401(K) PLAN

The Company maintains a defined contribution 401(k) plan (the "401(k)
Plan") which is available to all employees of the Company who have attained the
age of twenty-one. Such eligible employees may elect to defer any percentage of
their current salary subject to a maximum of 15% or the statutory maximum
($9,500 in 1996), whichever is the lesser. The maximum salary that can be
considered for compensation purposes is $150,000 per year.

49
<PAGE> 50

The Company matches the deferrals of its employees to the extent of 50% of
such deferrals, up to a maximum of 7.5% of the annual compensation of such
employees. During the fiscal year ended September 30, 1996, the Company
contributed $59,881 to the 401(k) Plan.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except (i) for any
breach of the directors' duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or involving intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (iv) for any transaction from which the
director derives any improper personal benefit. In addition, the Company's
Bylaws provide that any director or officer who was or is a party or is
threatened to be made a party to any action or proceeding by reason of his or
her services to the Company will be indemnified to the fullest extent permitted
by the Delaware Law.

The Company intends to enter into indemnification agreements with each of
its directors and executive officers pursuant to which the Company will agree to
indemnify each of them against expenses and losses incurred for claims brought
against them by reason of their being a director or executive director of the
Company. In addition, the Company's directors and executive officers are covered
by GST's directors' and officers' liability insurance.

There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or executive officer.

The Company believes that the indemnification of its directors and officers
will facilitate the Company's ability to continue to attract and retain
qualified individuals to serve as directors and officers of the Company.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

OWNERSHIP OF COMMON SHARES OF GST BY
DIRECTORS AND OFFICERS OF THE COMPANY

The following table shows the amount and nature of beneficial ownership, as
of January 31, 1997, of Common Shares of GST beneficially owned by each director
of the Company, each Named Executive Officer and all directors of the Company
and Named Executive Officers as a group.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
- ------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Thomas E. Sawyer................................................... 374,004(2) 1.6%
A. Lindsay Wallace................................................. 35,634(3) *
W. Gordon Blankstein............................................... 399,300(4) 1.7%
Stephen Irwin...................................................... 276,345(5) 1.1%
Robert L. Olson.................................................... 5,153(6) *
Clifford V. Sander................................................. 419,100(7) 1.8%
All Named Executive Officers and directors as a group (6
persons)......................................................... 1,509,536(8) 6.2%
</TABLE>

- ---------------
* Less than 1%.

(1) Each director and Named Executive Officer has sole voting and investment
power with respect to all shares beneficially owned by him, unless otherwise
indicated.

50
<PAGE> 51

(2) Includes 155,000 Common Shares of GST issuable upon exercise of options.

(3) Includes 35,634 Common Shares of GST issuable upon exercise of options.

(4) Includes 177,500 Common Shares of GST issuable upon exercise of options held
in escrow pursuant to policies of the VSE. Does not include 200,000 Common
Shares of GST issuable upon the exercise of options that are not exercisable
until the market price of the Common Shares of GST on the American Stock
Exchange reaches certain levels for certain prescribed periods.

(5) Includes (i) 115,000 Common Shares of GST issuable upon exercise of options
and (ii) 100,000 Common Shares of GST issuable upon exercise of an
outstanding warrant. Does not include (i) 200,000 Common Shares of GST
issuable upon the exercise of options that are not exercisable until the
market price of the Common Shares of GST on the American Stock Exchange
reaches certain levels for certain prescribed periods and (ii) 200,000
Common Shares of GST issuable upon exercise of an outstanding warrant.

(6) Consists of Common Shares of GST issuable upon exercise of options.

(7) Includes 55,000 Common Shares of GST issuable upon exercise of options.

(8) Includes 643,287 Common Shares of GST issuable upon exercise of options.

CERTAIN TRANSACTIONS

From time to time the Company has made short-term loans to GST, or
subsidiary companies of GST, in order to provide for temporary working capital
requirements. Such loans were made at prevailing rates of interest, and all have
been repaid in full, with interest. At September 30, 1996 and at the date of
this Prospectus, no such loans were outstanding.

In early 1995, the Company began offering prepaid debit and international
call back/reorigination services to its customers that did not yet desire to
expend a substantial amount of capital on hardware. The Company incorporated
Wins to offer such services. The Company was able to increase sales of its
switch systems as a result of services provided by Wins as certain users of
these services grew to be able to justify the capital expenditure to purchase a
switch. Effective October 1, 1995, the Company declared a dividend consisting of
100% of the outstanding capital stock of Wins payable to its sole stockholder,
GST USA. Since becoming a subsidiary of GST USA, Wins has continued to refer
customers to the Company.

The Company provides facilities management services to certain of its
customers who have purchased switching and billing systems. Included in the
provision of facilities management services is the offering of network carrier
services. Prior to October 1, 1996, the Company offered such services to its
customers pursuant to a resale contract that it had negotiated with major
interexchange carriers. Effective October 1, 1996, the Company has been and will
continue to purchase all carrier service from GST or subsidiaries thereof. The
Company obtains such service from GST on terms no less favorable than those
accorded to the network carrier accounts of GST which enjoy the most
preferential rates.

The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy that all transactions by the
Company with officers, directors, 5% stockholders and their affiliates will be
entered into only if such transactions are approved by a majority of the
disinterested independent directors, are on terms no less favorable to the
Company than could be obtained from unaffiliated parties and are reasonably
expected to benefit the Company.

51
<PAGE> 52

PRINCIPAL AND SELLING STOCKHOLDER

Prior to this offering, 100% of the Company's issued and outstanding Common
Stock was owned by the Selling Stockholder. Upon completion of this offering,
the Selling Stockholder will own approximately 63% of the Common Stock
(approximately 60% if the Underwriters' over-allotment option is exercised in
full).

By virtue of its beneficial ownership of a majority of the outstanding
Common Stock of the Company upon completion of this offering, the Selling
Stockholder will continue to control actions that require the consent of
stockholders, including the election of directors. See "Risk Factors--Control by
Existing Stockholder; Conflicts of Interest; Certain Transactions." In addition,
certain members of GST's Board of Directors will continue to serve on the
Company's Board of Directors. See "Management."

The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Common Stock as of the date of this
Prospectus as adjusted to reflect the sale of the shares offered hereby by the
Selling Stockholder.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
----------------------- NUMBER OF -----------------------
SELLING STOCKHOLDER NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ---------------------------------- ----------- ------- -------------- ----------- -------
<S> <C> <C> <C> <C> <C>
GST USA, Inc.(2).................. 6,113,712 100% 1,000,000 5,113,712 63%
</TABLE>

- ------------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of Common Stock subject
to options held by that person that are currently exercisable or exercisable
within 60 days of the date hereof are deemed outstanding. Such shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of each other person. To the Company's knowledge, the
Selling Stockholder has sole voting and investment power with respect to
such shares.

(2) The address of the Selling Stockholder, GST USA, Inc., is 4317 N.E. Thurston
Way, Vancouver, Washington 98662.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.01 par value per share and 10,000,000 shares of preferred
stock, $.01 par value per share (the "Preferred Stock"). As of the date of this
Prospectus, there were outstanding 6,113,712 shares of Common Stock held of
record by one stockholder and no shares of Preferred Stock outstanding.

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Certificate of Incorporation
which is included as an exhibit to the Registration Statement of which this
Prospectus is a part and by the provisions of applicable law.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably dividends when, as, and
if declared by the Board of Directors out of funds legally available therefor
and, upon the liquidation, dissolution or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the preferred
stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any securities. The outstanding Common
Stock is, and the Common Stock to be outstanding

52
<PAGE> 53

upon completion of this offering will be, duly authorized and validly issued,
fully paid and nonassessable.

Subsequent to the completion of this offering, the Selling Stockholder will
own approximately 63% of the then-outstanding shares of Common Stock of the
Company (approximately 60% if the Underwriters' over-allotment option is
exercised in full) and, whether or not the Underwriters' over-allotment option
is exercised, will control actions that require the consent of stockholders,
including the election of directors. See "Risk Factors--Control by Existing
Stockholder; Conflicts of Interest; Certain Transactions."

PREFERRED STOCK

The Board of Directors is authorized, subject to any limitations prescribed
by Delaware law, to provide for the issuance of Preferred Stock in one or more
series, to establish from time to time the number of shares to be included in
each such series, to fix the rights, preferences and privileges of the shares of
each wholly unissued series and any qualifications, limitations or restrictions
thereon, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding), without
any further vote or action by stockholders. The Board of Directors may authorize
and issue Preferred Stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of Common Stock, because
the terms of the Preferred Stock that might be issued could conceivably prohibit
the Company's consummation of any merger, reorganization, sale of substantially
all its assets, liquidation or other extraordinary corporate transaction absent
approval of the outstanding shares of Preferred Stock. Thus, the issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no current plan to issue any
shares of Preferred Stock.

TRANSFER AGENT AND REGISTRAR

The Company has appointed Continental Stock Transfer & Trust Company, New
York, New York as Transfer Agent and Registrar for the Common Stock.

LISTING

The Common Stock has been approved, subject to issuance, for quotation on
the Nasdaq National Market under the symbol NACT.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 8,113,712 shares of
Common Stock outstanding. Of these shares, the 3,000,000 shares sold in this
offering will be freely transferable without restriction under the Securities
Act, unless they are held by "affiliates" of the Company as that term is used
under the Securities Act and the rules and regulations promulgated thereunder.

GST USA will own the remaining 5,113,712 shares of Common Stock,
constituting approximately 63% of the outstanding shares of Common Stock
(approximately 60% if the Underwriters' over-allotment option is exercised in
full). Each of GST and GST USA has agreed not to, directly or indirectly, offer
to sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any securities issued by the
Company for a period of 180 days from the effective date of the Registration
Statement of which this Prospectus is a part without the prior written consent
of Hambrecht & Quist LLC. See "Underwriting." After expiration of such period,
such shares may be sold (i) in accordance with Rule 144 promulgated under the
Securities Act, (ii) in private offerings or (iii) upon registration under the
Securities Act without regard to the volume limitations of Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated), including any affiliate of the
Company, who beneficially owns "restricted shares"

53
<PAGE> 54

for a period of at least two years is entitled to sell within any three-month
period, shares equal in number to the greater of (i) 1% of the then-outstanding
shares of Common Stock or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the filing of the required notice
of sale with the Commission. The seller also must comply with the notice and
manner of sale requirements of Rule 144, and there must be current public
information available about the Company. In addition, any person (or persons
whose shares are aggregated) who is not, at the time of the sale, nor during the
preceding three months, an affiliate of the Company, and who has beneficially
owned restricted shares for at least three years, can sell such shares under
Rule 144(k) without regard to notice, manner of sale, public information or the
volume limitations described above. In addition, the Commission has adopted
revisions to Rule 144 and Rule 144(k) which take effect in April 1997, the
effect of which shorten the holding period under Rule 144 from two years to one
year and shorten the holding period under Rule 144(k) from three years to two
years. See "Risk Factors-- Shares Eligible for Future Sale."

As soon as practicable after the effective date of the Registration
Statement of which this Prospectus is a part, the Company intends to file a
registration statement on Form S-8 under the Securities Act to register shares
of Common Stock reserved for issuance under the Stock Option Plan, thus
permitting the resale of such shares by nonaffiliates in the public market
without restriction under the Securities Act. Such registration statement will
become effective immediately upon filing.

Prior to this offering, there has been no public market for the Common
Stock. Any sale of substantial amounts of shares in the open market (or the
announcement of a plan to do so) may adversely affect the market price of the
Common Stock offered hereby.

54
<PAGE> 55

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives Hambrecht & Quist LLC
and Montgomery Securities, have severally agreed to purchase from the Company
and the Selling Stockholder the following respective number of shares of Common
Stock:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------ ---------
<S> <C>
Hambrecht & Quist LLC............................................. 1,137,500
Montgomery Securities............................................. 1,137,500
Alex. Brown & Sons Incorporated................................... 75,000
Lehman Brothers................................................... 75,000
Morgan Stanley & Co. Incorporated................................. 75,000
Oppenheimer & Co. Inc. ........................................... 75,000
Smith Barney Inc. ................................................ 75,000
J.C. Bradford & Co. .............................................. 35,000
Crowell, Weedon & Co. ............................................ 35,000
First Albany Corporation.......................................... 35,000
Furman Selz Inc. ................................................. 35,000
Gerard Klauer Mattison & Co., LLC................................. 35,000
Brad Peery Inc. .................................................. 35,000
The Robinson-Humphrey Co. Inc. ................................... 35,000
SoundView Financial Group, Inc. .................................. 35,000
Sutro & Co. Incorporated.......................................... 35,000
Unterberg Harris.................................................. 35,000
---------
Total............................................................. 3,000,000
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent accountants. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $0.40 per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $0.10 per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the Representatives of the Underwriters.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.

55
<PAGE> 56

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.

Each of GST and the Selling Stockholder has agreed that it will not,
without the prior written consent of Hambrecht & Quist LLC, offer to sell, sell,
grant an option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock owned by it during a period of 180 days from the
effective date of the Registration Statement of which this Prospectus is a part.
Upon the expiration of such 180-day period, approximately 5,113,712 shares will
be eligible for resale in accordance with Rule 144. The Company has agreed that
it will not, without the prior written consent of Hambrecht & Quist LLC, offer,
sell or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock during the 180-day period except that the Company
may grant additional options under its stock option plans and issue shares upon
exercise of options.

The Underwriters do not intend to confirm sales to accounts over which they
have discretionary authority.

Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined by
negotiations among the Company, the Selling Stockholder and the Representatives.
Among the factors considered in determining the initial public offering price
are prevailing market and economic conditions, revenues and earnings of the
Company, market valuations of other companies engaged in activities similar to
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's management
and other factors deemed relevant.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholder by Olshan Grundman Frome & Rosenzweig LLP,
505 Park Avenue, New York, New York 10022. Stephen Irwin, of counsel to Olshan
Grundman Frome & Rosenzweig LLP, is an officer and director of GST and a
director of the Company and holds 61,345 Common Shares of GST and has been
granted options and warrants to purchase an additional 615,000 Common Shares of
GST. Certain legal matters in connection with the offering will be passed upon
for the Underwriters by Brobeck, Phleger & Harrison LLP, One Market, Spear
Street Tower, San Francisco, California 94105.

EXPERTS

The financial statements of the Company as of September 30, 1995 and 1996
and for the years then ended have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

The financial statements of the Company for the year ended September 30,
1994 have been included herein in reliance on the report of Squire & Co.,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

56
<PAGE> 57

ADDITIONAL INFORMATION

The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form S-1 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Certain items are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, in each
instance, if such contract or document is filed as an exhibit, 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 all respects by such reference
to such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, NY 10048, and copies of all or any part thereof may be obtained
from such office after payment of fees prescribed by the Commission. Such
material may also be accessed electronically by the means of the Commission's
home page on the Internet at http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing financial statements which will be audited by its independent public
accounting firm, and such other periodic reports as the Company may determine to
be appropriate or as may be required by law.

57
<PAGE> 58

GLOSSARY OF TERMS

ANI (Automatic Number Identification): A feature that sends a calling
party's telephone number over the network to the called party.

ARCNET (Attached Resource Computer Network): One of the earliest and most
popular local area networks which operates at 2.5 Mbps (megabits per second)
using a modified token-passing protocol.

CAP (Competitive Access Provider): A company that provides its customers
with an alternative to the local telephone company for local transport of
private line, special access services and switched access services. CAPs are
also referred to in the industry as alternative access vendors, alternative
local telecommunications service providers (ALTs), metropolitan area network
providers (MANs) and Competitive Local Exchange Carriers (CLECs).

CENTRAL OFFICE SWITCHING: A switching regime that provides dial tone within
a narrowly defined geographical area, completes local calls within the area and
routes interexchange (long distance) calls to the switch of the interexchange
carrier.

CLEC (Competitive Local Exchange Carrier): A company that provides
customers with an alternative to the local telephone company for a wide range of
services, including private line, special access, switched access, local dial
tone and enhanced services. Prior to the installation of switching equipment in
their networks and the passage of deregulatory legislation, CLECs were commonly
referred to as CAPs, ALTs or MANs.

CPU (Central Processing Unit): The "computing" part or "brain" of a
computer. It manipulates data and processes instructions coming from software or
a human operator.

DIGITAL: Describes a method of storing, processing and transmitting
information through the use of distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital transmission and switching
technologies employ a sequence of these pulses to represent information, as
opposed to the continuously variable analog signal. The precise digital numbers
virtually eliminate any distortion (such as graininess or snow, in the case of
video transmission, or static or other background distortion, in the case of
audio transmission).

DISTRIBUTED SWITCHING SYSTEM: A switching regime that processes incoming
calls from widely dispersed locations and routes them to different, widely
dispersed locations.

DSP (Digital Signal Processor): A microprocessor that acts upon digital
signals in a more powerful and efficient manner than that provided by
conventional microprocessors.

E-1: The European equivalent of the North American 1.544 Mbps T-1, except
that E-1 carries information at the rate of 2.048 Mbps. This is the rate used by
European CEPT carriers to transmit thirty 64 Kbps (kilobits per second) digital
channels for voice or data calls, plus a 64 Kbps channel for signaling, and a 64
Kbps channel for synchronization and maintenance. CEPT stands for the Conference
of European Postal and Telecommunication Administrations.

INTERNATIONAL CALL BACK: A process whereby a call that originates in a
foreign country is not completed, and effectively re-dialed from the United
States at significantly lower rates than those prevailing in the foreign
country.

ISDN (Integrated Services Digital Network): A means of transmitting both
voice and data simultaneously over the same line. Primary rate ISDN consists of
24 channels operating at 64 Kbps, thereby producing a transmission capability of
1.5 Mbps.

IXC (InterExchange Carrier): A long distance telephone company, as
contrasted to the LEC -- the Local Exchange Carrier, a new word for a local
phone company. InterExchange Carriers used to be called "Other Common Carriers,"
except that such term did not include AT&T. Now, AT&T, MCI, Sprint and all long
distance carriers are called IXCs.

LAN (Local Area Network): A private data communications network linking a
variety of data devices, such as computer terminals, personal computers and
minicomputers, all housed in a defined building, plant or geographic area. LANs
range widely in size and complexity, from simple user-installable networks
connecting together a few personal computers to vast networks tying thousands of

58
<PAGE> 59

terminals to multiple mainframe computers. LANs will allow a computer user to
access a computer other than the user's own in order to send and retrieve
electronic mail and data files at transmission rates generally between 100 Kbps
and 50 Mbps. LANs are purchased or leased by customers; they generally do not
employ circuits from telephone common carriers or other network service
providers. LANs may, however, provide a bridge or gateway to other public or
private networks. Some telephone common carriers offer data communications
services with capabilities resembling those of LANs, as an alternative to the
purchase of a LAN.

LATA (Local Access and a Transport Area): The approximately 165 geographic
areas created by the consent decree related to the divestiture of AT&T in 1984
which define the regions in which each RBOC was allowed to provide service. The
consent decree was superseded by the Telecommunications Act.

LEC (Local Exchange Carrier): A company providing local telephone services,
also referred to in the industry as a "local exchange telephone company." These
include the RBOCs, GTE and more than 1,000 other independents.

PCS (Personal Communications Services): Digital wireless communications
services which use a microcell technology and operate at a higher speed then
cellular systems.

PORT: An entrance to or exit from a switch. The interface between a process
or program and a communications or transmission facility. A point in the
computer or telephone system where data may be accessed.

PREPAID DEBIT CARD: A debit (calling) card which allows the purchaser to
purchase, in advance, a given amount of long distance minutes. Upon completion
of the call, the card is debited the number of minutes actually used. Also
called a "prepaid calling card."

R-2 SIGNALING: A series of specifications that refer to European analog and
digital trunk signaling. R-2 is a type of loop start trunk in Europe that uses
compelled handshaking on every MF (multi-frequency) signaling digit.

RAID (Random Array of Independent Disks): A feature that prevents the loss
of data in the event of the failure of hard disk drives.

RBOC (Regional Bell Operating Company): Any of the seven regional companies
created by the AT&T divestiture to take over ownership of the Bell operating
companies within their region. They are Ameritech, Bell Atlantic, BellSouth,
NYNEX, Pacific Telesis, SBC Communications and US West. The RBOCs also have set
up numerous unregulated subsidiaries engaged in a variety of communications-
related and non-communications businesses. The divestiture agreement barred
RBOCs from engaging in certain business activities, such as providing long
distance service, but provided mechanisms for review, waiver, modification or
removal of the prohibitions. The RBOCs are also known as regional holding
companies (RHCs).

RS-232-C: Also known as RS-232 and in its latest version EIA/TIA-232-E. A
set of standards specifying various electrical and mechanical characteristics
for interfaces between computers, terminals and modems. The RS-232-C standard,
which was developed by the EIA (Electrical Industries Association), defines the
mechanical and electrical characteristics for connecting DTE and DCE data
communications devices. It defines what the interface does, circuit functions
and their corresponding connector pin assignments. The standard applies to both
synchronous and asynchronous binary data transmission. Most personal computers
use the RS-232-C interface to attach modems. Some printers also use RS-232-C.

SCO UNIX (Santa Cruz Operations UNIX): A powerful operating system for
computers. UNIX was developed in 1969 by Ken Thompson of AT&T Bell Laboratories,
sold to Novell, and resold to Santa Cruz Operations. UNIX enables a computer to
handle multiple users and multiple programs simultaneously. UNIX facilitates
moving programs among computers with little change; this moving is also known as
"porting."

59
<PAGE> 60

SCSI (Small Computer System Interface): A way for a personal computer (PC)
to communicate with and control as many as seven different devices -- such as
magnetic hard disks, optical disks, tape drives, printers and
scanners -- without siphoning excessive power away from the computer's main
processor.

SS7 (Signaling System 7): All phone systems require signalling, which is
the transmission of electrical signals to and from the user's premises and to
the telephone company central office. Signals serve the three basic functions of
supervising, alerting and addressing. Supervising consists of monitoring the
status of a line or circuit to see if it is busy, idle or requesting service.
Supervision is a term derived from the job telephone operators perform in
manually monitoring circuits on a switchboard. On switchboards, supervisory
signals are shown by a lit lamp indicating a request for service on an incoming
line or an on-hook condition of a switchboard cord circuit. In the network
(i.e., the automated part of the network), supervisory signals are indicated by
the voltage level on signaling leads, or the on-hook/off-hook status of
signaling tones or bits. Alerting consists of indicating the arrival of an
incoming call. Alerting signals are bells, buzzers, woofers, tones, strobes and
lights. Addressing consists of transmitting routing and destination signals over
the network. Addressing signals are in the form of dial pulses, tone pulses or
data pulses over loops, trunks and signaling networks. An out-of-band signalling
system is used to provide basic routing information, call set-up and other call
termination functions. Signalling is removed from the voice channel itself and
put on a separate data network.

SWITCH: A switch connects an originating call location with the final
destination of the call or with other intermediate switches. Switches consist of
a hardware platform having ports connecting to incoming and outgoing lines.
Switches can be tandem and/or digital. Tandem switches connect trunks to each
other and pass the calls to desired destinations. Digital switches employ a
sequence of binary encoded pulses along the connection.

T-1: A standard telecommunications industry signal format which allows for
the transmission of 24 simultaneous voice conversations. Referred to as a DS-1
in digital parlance. DS-1 service has a bit rate of 1.544 Mbps.

60
<PAGE> 61

NACT TELECOMMUNICATIONS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
Independent Auditors' Reports......................................................... F-2
Balance Sheets as of September 30, 1995 and 1996 and December 31, 1996 (unaudited).... F-4
Statements of Income for the Years Ended September 30, 1994, 1995 and 1996 and the
Three Months Ended December 31, 1995 and 1996 (unaudited)........................... F-5
Statements of Stockholder's Equity for the Years Ended September 30, 1994, 1995 and
1996 and the Three Months Ended December 31, 1995 and 1996 (unaudited).............. F-6
Statements of Cash Flows for the Years Ended September 30, 1994, 1995 and 1996 and the
Three Months Ended December 31, 1995 and 1996 (unaudited)........................... F-7
Notes to Financial Statements......................................................... F-9
</TABLE>

F-1
<PAGE> 62

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
NACT Telecommunications, Inc.:

We have audited the accompanying balance sheets of NACT Telecommunications,
Inc. as of September 30, 1995 and 1996, and the related statements of income,
stockholder's equity, and cash flows for the years then ended. 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 NACT Telecommunications,
Inc. as of September 30, 1995 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

KPMG PEAT MARWICK LLP

Salt Lake City, Utah

November 21, 1996, except as to Note 14
which is as of November 26, 1996

F-2
<PAGE> 63

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders of
NACT Telecommunications, Inc. (formerly known
as National Applied Computer Technologies, Inc.
Orem, Utah

We have audited the accompanying statements of income, stockholder's equity and
cash flows of NACT Telecommunications, Inc. (formerly known as National Applied
Computer Technologies, Inc.) for the year ended September 30, 1994. 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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of income, stockholder's equity, and cash
flows are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the statements of
income, stockholder's equity, and cash flows. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements of income,
stockholder's equity and cash flows. We believe that our audit of the statements
of income, stockholder's equity and cash flows provides a reasonable basis for
our opinion.

In our opinion, the statements of income, stockholder's equity and cash flows
referred to above present fairly, in all material respects, the results of
operations of NACT Telecommunications, Inc. for the year ended September 30,
1994, in conformity with generally accepted accounting principles.

Squire & Co.
Orem, Utah
January 5, 1995

F-3
<PAGE> 64

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------------- ----------
1995 1996 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $1,121,730 $ 694,359 $ 552,111
Marketable securities (note 2)............................ 846,213 250,000 --
Trade accounts receivable, less allowance for doubtful
accounts of $116,410 in 1995 and $100,000 in 1996....... 3,117,526 3,171,180 5,905,295
Notes receivable, less allowance for doubtful accounts of
$40,000 in 1995 and $310,000 in 1996.................... 606,670 561,396 1,091,958
Inventories............................................... 387,089 2,406,399 2,611,452
Prepaid expenses.......................................... 106,530 16,338 217,818
Deferred tax assets (note 7).............................. 165,094 418,449 428,831
----------- ----------- -----------
Total current assets.................................. 6,350,852 7,518,121 10,807,465
----------- ----------- -----------
Property and equipment, net (note 4)........................ 708,648 717,804 724,868
Notes receivable, less current portion...................... 216,912 1,179,750 414,961
Intangibles, net (note 5)................................... 5,635,025 5,075,366 4,933,942
Other assets................................................ 266,105 193,709 159,922
----------- ----------- -----------
$13,177,542 $14,684,750 $17,041,158
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $1,514,028 $2,251,800 $1,163,839
Accrued expenses.......................................... 373,496 266,451 320,308
Income taxes payable (note 7)............................. 138,979 199,557 270,915
Deferred revenue.......................................... 163,419 350,439 354,475
Current installments of capitalized leases (note 8)....... 15,436 21,848 22,359
Payable to GST USA (note 12).............................. -- 183,176 2,293,480
----------- ----------- -----------
Total current liabilities............................. 2,205,358 3,273,271 4,425,376
Capitalized leases, less current installments (note 8)...... 84,501 58,221 56,868
Deferred compensation (note 9).............................. 151,364 157,819 157,819
Deferred tax liabilities (note 9)........................... 1,106,280 985,508 985,508
----------- ----------- -----------
Total long-term liabilities........................... 1,342,145 1,201,548 1,200,195
----------- ----------- -----------
Commitments and contingencies (notes 8, 9, 10 and 11)
Stockholder's equity:
Common stock, no par value. Authorized 10,000,000 shares;
issued and outstanding 6,113,712 shares in 1995 and
1996.................................................... 8,854,937 9,244,847 9,742,298
Retained earnings......................................... 771,497 965,255 1,673,289
Unrealized appreciation (depreciation) on marketable
securities (note 2)..................................... 3,605 (171) --
----------- ----------- -----------
Total stockholder's equity............................ 9,630,039 10,209,931 11,415,587
----------- ----------- -----------
$13,177,542 $14,684,750 $17,041,158
=========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE> 65

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------- -----------------------
1994 1995 1996 1995 1996
--------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales.................... $5,478,957 $7,604,071 $9,929,702 $1,968,877 $4,779,805
Network carrier sales............ -- 2,781,761 3,783,445 354,780 1,609,819
Wins (note 1b)................... -- 1,097,950 2,571,731 496,000 --
--------- ----------- ----------- ----------- -----------
Total revenues............... 5,478,957 11,483,782 16,284,878 2,819,657 6,389,624
--------- ----------- ----------- ----------- -----------
Cost of goods sold (notes 1a and
5):
Products......................... 1,844,965 2,645,646 3,941,529 713,427 1,730,325
Network carrier usage............ -- 2,731,295 3,381,716 311,239 1,557,859
Wins (note 1b)................... -- 786,699 2,571,731 496,000 --
Amortization of acquired
intangibles.................... 184,869 442,734 362,428 90,607 90,607
--------- ----------- ----------- ----------- -----------
Total cost of goods sold..... 2,029,834 6,606,374 10,257,404 1,611,273 3,378,791
--------- ----------- ----------- ----------- -----------
Gross profit................. 3,449,123 4,877,408 6,027,474 1,208,384 3,010,833
Operating expenses (notes 1a and
5):
Research and development......... 676,465 1,183,422 1,352,138 295,291 423,611
Selling and marketing............ 457,373 924,542 953,486 206,785 356,617
General and administrative....... 1,352,796 2,152,898 3,024,361 578,575 835,846
Amortization of acquired
intangibles.................... 257,176 519,780 573,058 143,000 143,265
--------- ----------- ----------- ----------- -----------
Total operating expenses..... 2,743,810 4,780,642 5,903,043 1,223,651 1,759,339
--------- ----------- ----------- ----------- -----------
Income (loss) from
operations................ 705,313 96,766 124,431 (15,267) 1,251,494
--------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income.................. 88,118 155,949 127,043 28,402 25,973
Interest expense................. (23,998) (1,514) (14,202) (7,760) (1,901)
Miscellaneous income............. 16,886 34,635 34,670 60 983
--------- ----------- ----------- ----------- -----------
Total other income........... 81,006 189,070 147,511 20,702 25,055
--------- ----------- ----------- ----------- -----------
Income before income taxes......... 786,319 285,836 271,942 5,435 1,276,549
Income taxes (note 7).............. 293,428 205,517 78,184 1,000 568,515
--------- ----------- ----------- ----------- -----------
Net income......................... $ 492,891 $ 80,319 $ 193,758 $ 4,435 $ 708,034
========= =========== =========== =========== ===========
Net income per share............... $ 0.08 $ 0.01 $ 0.03 $ 0.00 $ 0.12
========= =========== =========== =========== ===========
Weighted average shares
outstanding...................... 5,998,205 6,113,712 6,113,712 6,113,712 6,113,712
========= =========== =========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE> 66

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)

STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
AND THREE MONTHS ENDED DECEMBER 31, 1995 AND 1996 (UNAUDITED)

<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
COMMON STOCK ON
--------------------- RETAINED MARKETABLE
SHARES AMOUNT EARNINGS SECURITIES TOTAL
-------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1993........... 5,773,712 $5,895,869 $ 198,287 -- $6,094,156
Stock issued, net of expenses............ 340,000 381,703 -- -- 381,703
Net income............................... -- -- 492,891 492,891
--------- ---------- ------- ------ ----------
Balances at September 30, 1994........... 6,113,712 6,277,572 691,178 -- 6,968,750
Capital contribution by parent company
(note 1h).............................. -- 414,981 -- -- 414,981
Addition to capital arising from push
down accounting........................ -- 2,162,384 -- -- 2,162,384
Net increase in unrealized appreciation
on marketable securities, net of tax
effect................................. -- -- -- $ 3,605 3,605
Net income............................... -- -- 80,319 80,319
--------- ---------- ------- ------ ----------
Balances at September 30, 1995........... 6,113,712 8,854,937 771,497 3,605 9,630,039
Capital contribution by parent company
(note 1h).............................. -- 389,910 -- -- 389,910
Net decrease in unrealized appreciation
on marketable securities, net of tax
effect................................. -- -- -- (3,776) (3,776)
Net income............................... -- -- 193,758 193,758
--------- ---------- ------- ------ ----------
Balances at September 30, 1996........... 6,113,712 $9,244,847 $ 965,255 $ (171) $10,209,931
Capital contribution by parent company
(note 1h).............................. -- 497,451 -- -- 497,451
Net increase in unrealized appreciation
on marketable securities............... -- -- -- 171 171
Net income............................... -- -- 708,034 -- 708,034
--------- ---------- ------- ------ ----------
Balances at December 31, 1996
(unaudited)............................ 6,113,712 $9,742,298 $1,673,289 -- $11,415,587
========= ========== ======= ====== ==========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE> 67

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------ -----------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 492,891 $ 80,319 $ 193,758 $ 4,435 $ 708,034
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization.......... 519,790 1,212,039 1,165,885 275,872 322,022
Provision for loss on accounts and
notes receivable..................... 62,879 229,342 942,785 56,908 217,553
Gain on sale of marketable securities
and equipment........................ (5,617) (34,635) (4,399) -- --
Capital contribution by parent
company.............................. -- 414,981 389,910 -- 497,451
Deferred taxes......................... (128,304) (271,762) (374,127) 10,382 (10,382)
Decrease (increase) in operating
assets:
Trade accounts and notes
receivable........................ (1,294,218) (2,266,741) (1,980,342) (130,789) (2,717,441)
Inventories.......................... (214,220) 19,873 (2,019,310) (214,312) (205,053)
Prepaid expenses..................... (9,545) (94,484) 89,441 47,029 (201,480)
Other assets......................... (219) (227,882) 58,360 (14,633) 33,787
Increase (decrease) in operating
liabilities:
Accounts payable..................... 92,733 1,210,516 888,670 (441,089) (1,087,961)
Accrued expenses..................... 42,508 148,411 45,287 (22,742) 53,857
Income taxes payable................. 174,532 (208,468) 60,578 15,228 71,358
Deferred revenue and deferred
compensation...................... (3,273) 180,844 193,475 (33,287) 4,036
Payable to GST USA................... -- -- 243,176 -- 2,110,304
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities............ (270,063) 392,353 (106,853) (446,998) (203,915)
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment....... (242,115) (326,796) (304,614) (29,618) (62,718)
Proceeds from sale of equipment.......... 820 34,635 -- -- --
Proceeds from sale of marketable
securities............................. -- -- 596,836 193,984 250,171
Purchase of marketable securities........ (837,811) -- -- -- --
Capitalization of software development
costs.. -- (162,025) (419,154) (165,847) (124,944)
Cash included in transfer of Wins to
parent (note 1)........................ -- -- (173,718) (173,718) --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities............ (1,079,106) (454,186) (300,650) (175,199) 62,509
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from payment of note receivable
from issuance of common stock.......... 2,250,000 -- -- -- --
Principal payments of long-term debt..... (150,000) -- -- -- --
Proceeds from issuance of long-term
debt................................... 82,700 -- -- -- --
Principal payments on capital lease
obligations............................ -- (2,271) (19,868) (325) (842)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities............ 2,141,006 (2,271) (19,868) (325) (842)
---------- ---------- ---------- ---------- ----------
Net (decrease) increase in cash............ 833,531 (64,104) (427,371) (622,522) (142,248)
Cash at beginning of year.................. 352,303 1,185,834 1,121,730 1,121,730 694,359
---------- ---------- ---------- ---------- ----------
Cash at end of year........................ $1,185,834 $1,121,730 $ 694,359 $ 499,208 $ 552,111
========== ========== ========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-7
<PAGE> 68

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)

STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------ -----------------------
1994 1995 1996 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for interest..... $ 23,998 $ 1,145 $ 17,707 $ 2,047 $ 1,902
Cash paid during the year for income
taxes.................................... 252,821 263,735 -- -- --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Disposition of fully depreciated asset..... $ -- $ -- $ 132,270 $ 132,270 $ --
Repossession of equipment in settlement of
accounts and notes receivable............ -- 128,936 45,000 -- --
Property purchased under capitalized
leases................................... -- 102,208 -- -- --
Conversion of convertible debenture to
equity................................... 320,000 -- -- -- --
Transfer of inventory to property, plant,
and equipment............................ 35,399 -- -- -- --
Increase in property, plant, and equipment
due to sales return...................... 117,987 -- -- -- --
Intangibles capitalized a result of push
down..................................... -- 2,162,384 --
Disposition of equipment................... -- -- 47,366 47,366 --
Sale of equipment to Wins on note
receivable............................... -- -- 60,000 -- --
SUPPLEMENTAL DISCLOSURE OF THE ASSETS AND
LIABILITIES TRANSFERRED TO GST (NOTE 1 B)
Cash....................................... -- -- $ (173,718) $ (173,718) $ --
Trade accounts receivable.................. -- -- (68,705) (68,705) --
Prepaid expenses........................... -- -- (751) (751) --
Property and equipment, net................ -- -- (46,020) (46,020) --
Other assets............................... -- -- (14,036) (14,036) --
Accounts payable........................... -- -- 150,898 150,898 --
Accrued expenses........................... -- -- 152,332 152,332 --
</TABLE>

See accompanying notes to financial statements.

F-8
<PAGE> 69

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)

NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994, 1995 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) ORGANIZATION AND DESCRIPTION OF BUSINESS

NACT Telecommunications, Inc. (the "Company") designs, develops and
manufactures advanced telecommunications switching platforms with integrated
applications software and network telemanagement capabilities.

From September 1993 through September 30, 1994, GST USA, Inc. ("GST USA")
acquired approximately an 80% interest in the common stock of the Company. This
acquisition was accomplished through a series of purchases of newly issued
shares and the shares of principal stockholders of the Company. In September
1993, the Company received a total of $2,528,306, net of expenses, for the
issuance of 3,340,000 newly issued common shares. GST USA also purchased
1,551,219 shares of Common Stock from the Company's principal stockholders.
During the year ended September 30, 1995, GST USA acquired the remaining
outstanding shares from stockholders of the Company. As a result of these
transactions, the Company is a wholly owned subsidiary of GST USA.

GST USA accounted for the acquisition using the purchase method of
accounting. The excess of the purchase price over the fair value of the assets
acquired totalled $6,912,322 and was assigned by GST USA as product support
contracts, software development costs and goodwill. This amount is included in
the accompanying balance sheet as intangible assets with related amortization
recorded in cost of goods sold and other operating expenses in their respective
fiscal years. Amortization of the intangible amounts discussed above decreased
income from operations by $442,045, $962,514 and $935,486 for the years ending
September 30, 1994, 1995 and 1996, respectively.

(B) WASATCH INTERNATIONAL NETWORK SERVICES

The 1995 financial statements include the accounts of the Company and its
wholly-owned subsidiary Wasatch International Network Services, Inc. ("Wins"),
which commenced operations in fiscal 1995 and had total assets, revenues, and
net loss of $316,455, $1,097,950 and $2,361, respectively, as of and for the
year ended September 30, 1995. All significant intercompany transactions and
balances have been eliminated in consolidation. On October 1, 1995, the Company
transferred ownership and operations of Wins to GST USA in the form of a
dividend at historical cost. From October 1, 1995 through September 30, 1996,
the Company provided carrier services to GST USA for the Wins operation for
which it received $2,571,731. GST USA began providing its own carrier services
for Wins on October 1, 1996.

Inventories are valued at the lower of cost (first-in, first-out) or
market. Inventories consisted of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------- DECEMBER 31,
1995 1996 1996
-------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials...................................... $316,940 $ 377,734 $ 417,160
Work-in-process.................................... 70,149 346,273 354,112
Finished goods..................................... -- 317,392 400,180
Refurbished inventory held for sale (See also Note
11).............................................. -- 1,365,000 1,440,000
-------- ---------- ----------
$387,089 $2,406,399 $2,611,452
======== ========== ==========
</TABLE>

F-9
<PAGE> 70

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1994, 1995 AND 1996

Refurbished inventory is stated at the estimated selling price less
refurbishing costs, selling costs and a normal profit margin. Management
periodically reviews the selling price of this inventory and will record
adjustments to the carrying value, if any, in the period in which they occur.
See Note 11.

(D) NOTES RECEIVABLE

Notes receivable are recorded at cost, less the related allowance for
impaired notes receivable. Management, considering current information and
events regarding the borrower's ability to repay their obligations, considers a
note to be impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the note
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the note's effective interest rate. Impairment losses are included
in the allowance for doubtful accounts through a charge to bad debt expense.
Cash receipts on impaired notes receivable are applied to reduce the principal
amount of such notes until the principal has been recovered and are recognized
as interest income thereafter.

(E) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method for financial reporting purposes. Depreciation is based
upon the estimated useful lives of individual classes of assets. The estimated
useful lives of the individual assets are as follows:

<TABLE>
<S> <C>
Furniture and fixtures................................. 7-10 years
Computer equipment..................................... 3-7 years
Application platform and test equipment................ 3-7 years
</TABLE>

(F) SOFTWARE DEVELOPMENT COSTS

Software development costs are capitalized upon the establishment of
technological feasibility of the product. Capitalization is discontinued when
the product is available for general release to customers. During 1995 and 1996,
the Company capitalized $162,025 and $419,154, respectively of software
development costs. No costs were capitalized in 1994.

(G) REVENUE RECOGNITION AND DEFERRED REVENUE

Revenue from product sales is recognized upon shipment of product. Revenue
from network carrier sales is recognized as the related service is provided.
Deferred revenue consists of warranty payments billed or received in advance and
deposits related to future product sales. Warranty payments are amortized over
the period of the warranty agreement which is typically one year.

(H) INCOME TAXES

The Company is a member of a controlled group which has elected for federal
income tax purposes to file a consolidated tax return with GST USA for the years
ending September 30, 1995 and 1996. In accordance with the tax sharing
arrangement with GST USA, the Company records the estimated income tax expense
as if the Company filed a tax return on a separate company basis using the asset
and liability method. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using

F-10
<PAGE> 71

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1994, 1995 AND 1996

enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. GST USA
agreed to make a capital contribution to the Company in an amount that
approximates the Company's current federal income tax expense for 1995 and 1996
in lieu of an intercompany payment for such taxes. Pursuant to the tax sharing
arrangement between the Company and GST USA, the adjustment recorded to
reconcile the intercompany and equity accounts with regard to differences
between the estimated tax determined at year end and the final tax amount are
recognized in income tax expense in the period determined.

(I) NET INCOME PER SHARE

Net income per share is based on the weighted average number of common
shares and common share equivalents resulting from stock options outstanding
during the period.

(J) FAIR VALUE DISCLOSURE

At September 30, 1995 and 1996, the book value of the Company's financial
instruments approximates fair value.

(K) USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.

(L) INTERIM FINANCIAL INFORMATION

The financial information at December 31, 1996 and for the three month
periods ended December 31, 1995 and 1996 is unaudited but includes all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for those periods. Results of the
December 31, 1996 period are not necessarily indicative of the results for the
entire year ending September 30, 1997.

(2) MARKETABLE SECURITIES

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("Statement 115") at October 1, 1994. Adoption of Statement 115 did
not have a material effect on the financial statements. Under Statement 115, the
Company classifies all of its marketable equity securities as available-for-sale
which are recorded at fair market value. Unrealized holding gains and losses are
excluded from earnings and are reported, net of tax, as a separate component of
stockholder's equity until realized. A decline in the market value of any
available-for-sale security below cost that is deemed other than temporary is
charged to earnings resulting in the establishment of a new cost basis for the
security. Dividend income is recognized when earned. Realized gains and losses
are included in earnings and are derived using the specific-identification
method for securities sold.

The Company's investment portfolio is comprised of U.S. Treasury
securities. The amortized cost of these securities at September 30, 1995, was
$840,667 with gross realized gains of $6,484 and gross unrealized losses of
$938. The amortized cost at September 30, 1996, was $250,273 with gross
unrealized losses of $273.

F-11
<PAGE> 72

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1994, 1995 AND 1996

(3) NOTES RECEIVABLE

Notes receivable at September 30, 1995 and 1996 include amounts due from
product sales of approximately $758,000 and $1,047,500, respectively. Interest
rates on the notes range from 9% to 14% with lives ranging from six months to
five years. Notes receivable at September 30, 1996 also include a note from
Overseas Telecom as discussed in Note 11. The recorded investment in notes
receivable for which an impairment has been recognized and the related allowance
for doubtful accounts at December 31, 1995 and 1996 were $168,451 and $928,210,
and $40,000 and $310,000, respectively. The activity in the allowance for
doubtful accounts for impaired notes receivable is as follows:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, THREE MONTHS
ENDED
------------------------- DECEMBER 31,
1994 1995 1996 1996
---- ------- -------- ------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts at beginning of
year................................................ -- -- $ 40,000 $310,000
Additions to bad debt expense......................... -- 40,000 270,000 63,000
----
--
--
-------- -------- --------
Allowance for doubtful accounts at end of year........ -- $40,000 $310,000 $373,000
----
--
--
-------- -------- --------
</TABLE>

(4) PROPERTY AND EQUIPMENT

Property and equipment are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1995 1996
--------- ---------
<S> <C> <C>
Furniture and equipment....................................... $ 168,838 $ 212,525
Computer equipment............................................ 386,729 440,827
Switch and testing equipment.................................. 535,367 492,052
---------- ----------
1,090,934 1,145,404
Less accumulated depreciation and amortization................ 382,286 427,600
---------- ----------
$ 708,648 $ 717,804
========== ==========
</TABLE>

(5) INTANGIBLES

Intangible assets are summarized as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- AMORTIZATION
1995 1996 PERIOD
--------- --------- ------------
<S> <C> <C> <C>
Goodwill........................................ $2,863,766 $2,863,766 20 years
Software development costs...................... 2,064,405 2,483,559 3-5 years
Product support contracts....................... 2,146,176 2,146,176 5 years
---------- ----------
7,074,347 7,493,501
Less amortization............................... 1,439,322 2,418,135
---------- ----------
$5,635,025 $5,075,366
========== ==========
</TABLE>

On an ongoing basis, management reviews the valuation and amortization of
intangible assets to determine possible impairment by comparing the carrying
value of the asset to its undiscounted estimated future cash flows.

F-12
<PAGE> 73

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1994, 1995 AND 1996

Amortization expense relating to these assets was $442,045, $962,514 and
$978,813 for 1994, 1995 and 1996, respectively. Of these amounts, $184,869,
$442,734, and $405,755 for 1994, 1995 and 1996, respectively, was recorded as a
component of cost of goods sold.

(6) STOCK OPTIONS

In January 1994, the Company adopted an incentive stock option plan. Under
the plan, 200,000 shares of common stock were reserved for granting of options
to key employees and other persons to purchase shares of the Company's common
stock. Incentive stock options were granted at their fair market value at the
date of the grant. The period for the exercise of each option was determined by
the plan committee, but the plan requires that the option period could not
exceed five years from the date of grant.

There were 77,500 stock options granted during 1994, with an exercise price
of $2.00 per share, all of which were outstanding at September 30, 1994. During
1995, the Company's incentive stock option plan was terminated, and the
outstanding stock options were converted into options in the option program of
GST Telecommunications, Inc., the parent of GST USA. See Note 14.

(7) INCOME TAXES

Income tax expense consists of:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- --------- --------
<S> <C> <C> <C>
Year ended September 30, 1994:
U.S. federal.......................................... $360,960 $(110,299) $250,661
State................................................. 59,841 (17,074) 42,767
-------- --------- --------
$420,801 $(127,373) $293,428
======== ========= ========
Year ended September 30, 1995:
U.S. federal.......................................... $414,981 $(237,014) $177,967
State................................................. 64,239 (36,689) 27,550
-------- --------- --------
$479,220 $(273,703) $205,517
======== ========= ========
Year ended September 30, 1996:
U.S. federal.......................................... $389,910 $(322,207) $ 67,703
State................................................. 60,358 (49,877) 10,481
-------- --------- --------
$450,268 $(372,084) $ 78,184
======== ========= ========
</TABLE>

F-13
<PAGE> 74

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1994, 1995 AND 1996

Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 34% to pretax income from continuing operations as a
result of the following:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense.......................... $267,348 $ 97,184 $ 92,460
Increase (reduction) in income taxes resulting from:
Amortization of goodwill............................... 20,757 48,899 48,899
State and local income taxes, net of federal income tax
benefit............................................. 28,226 18,183 2,297
Research and experimentation credit.................... (42,200) -- --
Meals and entertainment................................ 1,938 4,060 3,631
Adjustment of tax provision to actual(1)............... 17,359 36,214 (70,040)
Other, net............................................. -- 977 937
-------- -------- --------
$293,428 $205,517 $ 78,184
======== ======== ========
</TABLE>

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

(1) Represents for 1995 and 1996 management's adjustment to the Company's income
tax liability based on a current assessment of its related obligations.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 1995 and 1996, are presented below:

<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
Net current deferred tax assets:
Accounts receivable principally due to allowance for doubtful
accounts.................................................... $ 58,341 $ 152,930
Unearned product warranty...................................... 55,386 47,074
Accrued vacation payable....................................... 35,390 37,327
Unearned sales deposits........................................ 5,595 83,640
Inventory principally due to uniform capitalization and
reserves.................................................... 10,382 97,478
----------- ---------
Total gross deferred tax assets........................... 165,094 418,449
----------- ---------
Net long-term deferred tax liabilities:
Deferred compensation.......................................... 56,459 58,866
Plant and equipment, principally due to differences in
depreciation and capitalized interest....................... (48,804) (87,588)
Capitalized software........................................... (60,435) (200,619)
Push-down intangibles.......................................... (1,051,559) (756,269)
Unrealized (gain) loss on investments.......................... (1,941) 102
----------- ---------
Total gross deferred tax liabilities...................... (1,106,280) (985,508)
----------- ---------
Net deferred tax liability................................ $ (941,186) $(567,059)
=========== =========
</TABLE>

Management believes that existing taxable temporary differences will more
likely than not reverse within the applicable carryforward periods to allow
future realization of existing deferred tax assets.

F-14
<PAGE> 75

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1994, 1995 AND 1996

(8) LEASES

The Company entered into various capital leases for certain equipment that
expire at various dates during the next four years. At September 30, 1996, the
gross amount of equipment and related accumulated amortization recorded under
capital leases are as follows:

<TABLE>
<S> <C>
Equipment............................................... $106,691
Less accumulated amortization........................... 23,544
--------
$ 83,147
========
</TABLE>

The Company also has noncancelable operating leases, primarily for
facilities, that expire over the next year. These leases generally require the
Company to pay all executory costs such as maintenance and insurance. Rental
expense was $82,994, $116,944 and $100,299 for the years ended September 30,
1994, 1995 and 1996, respectively.

Future minimum capital lease payments as of September 30, 1996 are:

<TABLE>
<S> <C>
Year ending September 30:
1997................................................... $28,702
1998................................................... 24,304
1999................................................... 26,665
2000................................................... 15,058
2001................................................... --
-------
Total minimum lease payments...................... 94,729
Less amount representing interest (at rates ranging from
8.9% to 9.8%).......................................... 14,660
-------
Net minimum lease payments........................ 80,069
Less current installments of obligations under capital
leases................................................. 21,848
-------
Obligations under capital leases, excluding
current installments........................... $58,221
=======
</TABLE>

(9) PROFIT SHARING PLANS AND DEFERRED COMPENSATION TRUST

The Company sponsors a defined contribution 401(k) plan (the "Plan") for
employees who have completed one year of service and attained the age of 21.
Participants may defer up to 15% of eligible compensation. The Company, at its
discretion, may match 50% of participant contributions up to 7.5% of participant
compensation. Employer contributions made to the Plan were $32,577, $51,863 and
$59,881 for the years ended September 30, 1994, 1995 and 1996, respectively.

Through September 30, 1996, the Company provided a discretionary profit
sharing program for full time employees who had completed one full year of
employment. Under the plan, 10% of the increase in profits based on the
Company's previous highest retained earnings balance were allocated among
employees determined on length of employment and salary level at the discretion
of the Board of Directors. Contributions to the program were $105,181, $171,483
and $132,450 for the years ended September 30, 1994, 1995 and 1996,
respectively. The program was terminated on September 30, 1996.

The Company has entered into a Deferred Compensation Trust Agreement (the
"Trust") with the Chairman of the Company whereby the Company funded the trust
in the amount of $144,000. The

F-15
<PAGE> 76

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1994, 1995 AND 1996

principal and related interest thereon are payable to the Chairman based on a
defined payment schedule. The Company, at its sole discretion, may at any time
make additional contributions to the Trust. The Trust is subject to claims of
the Company's creditors in the event of the Company's insolvency.

(10) MAJOR CUSTOMERS, CONCENTRATION OF CREDIT RISK AND NETWORK CARRIER SALES

Sales to individual customers exceeding 10% of total revenues and total
trade accounts and notes receivables as of and for the years ended September 30,
1994, 1995 and 1996, were as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
REVENUES
----------------------
CUSTOMER 1994 1995 1996
- ---------------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Caribbean Telephone & Telegraph, Inc.................................. 12% 16% --
Intertoll Communications Network Corp................................. -- 8 12%
Overseas Telecom...................................................... 4 7 13
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
ACCOUNTS AND NOTES
RECEIVABLES
----------------------
CUSTOMER 1994 1995 1996
- ---------------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Caribbean Telephone & Telegraph, Inc.................................. 25% 7% --
Intertoll Communications Network Corp................................. -- 7 6%
Overseas Telecom...................................................... -- 7 22
</TABLE>

The Company's customers consist of business entities geographically
dispersed throughout the United States. The Company maintains a security
interest in the telecommunications systems it sells until the related account
balances are paid in full. Management provides an allowance for doubtful
accounts and notes based on current customer information and historical
statistics.

The Company had deposits with financial institutions in excess of the
federally insured amount of $100,000 in the amount of $1,068,364 and $467,737
for the years ended September 30, 1995 and 1996, respectively.

Network carrier sales originating from countries outside the United States
aggregated $736,669 and $2,104,399 for the years ended September 30, 1995 and
1996, respectively. These sales are payable in US dollars.

The Company has sold carrier services to Overseas Telecom ("Overseas")
since 1994. Overseas is located in Brazil and provides international call
back/reorigination services to companies and individuals primarily in Brazil and
the Czech Republic. During the year ended September 30, 1996, Overseas became
delinquent on certain of its payments. Subsequent to year-end, Overseas entered
into a note receivable agreement which provides for repayment of the non-current
outstanding amount (approximately $0.93 million at September 30, 1996) bearing
interest at 12%. The terms of this agreement provide for payments in the amount
of 6% of Overseas' monthly gross revenue. Additionally, 25% of its monthly net
income, with a minimum payment in the amount of $2,500, will also be allocated
to repayment of this note. The note is secured by Overseas' accounts receivable,
customer list and certain assets. Management has established an allowance of
$310,000 to provide for possible future losses relating to this note based on
currently available information.

F-16
<PAGE> 77

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1994, 1995 AND 1996

(11) COMMITMENTS AND CONTINGENCIES

At September 30, 1996, the Company was contingently liable under repurchase
agreements for a maximum of $1,035,032 to Zions Credit Corporation ("Zions").
Zions provides lease financing to the Company's customers on a recourse basis.
The Company has established a $200,000 revolving bank line of credit. No
balances were outstanding under this line of credit at September 30, 1996.

On August 24, 1995, Aerotel, Ltd. and Aerotel U.S.A., Inc., (collectively,
"Aerotel") filed a patent infringement suit against the Company alleging that
telephone systems manufactured and sold by the Company incorporating prepaid
calling features infringe upon a patent which was issued to Aerotel in November
1987. The complaint further alleges defamation and unfair competition by the
Company and seeks various damages. Aerotel seeks injunctive relief, damages in
an unspecified amount, damages of up to three times the damages found for
willful infringement of its patent and an order requiring the Company to publish
a written apology to Aerotel. The Company has filed an Answer and Counterclaim
denying patent infringement, defamation or unfair competition and seeking
judgment that the Aerotel patent is invalid and that Aerotel has misused its
patent in violation of antitrust laws. Based on information currently available,
management is of the opinion that there will be no material impact of the
Company's financial position, results of operations or liquidity as a result of
this suit. Accordingly, no provision for loss has been provided in the
accompanying financial statements. An unfavorable decision could have a material
adverse effect on the business, financial condition and results of operations of
the Company.

For a specified period of time subsequent to the release of its new STX
application platform, the Company allowed customers meeting certain criteria to
purchase the STX pursuant to a trade-in program. Under this program, customers
were granted a credit on the sales price of the STX purchase in exchange for a
prior model of the Company's application platform. At September 30, 1996,
refurbished inventory included 32 application platforms received under this
program which the Company was in the process of servicing and selling. Customers
had the right to purchase up to 11 STX systems under this program at September
30, 1996. The Company recorded inventory at an average cost of approximately
$42,000. Deposits totaling $385,000 had been received prior to September 30,
1996 from customers wishing to participate in the program.

GST Realco, Inc. ("GST Realco"), a subsidiary of GST USA, has entered into
a construction contract pursuant to which a 40,000 square foot office building
is currently being built for the Company in Provo, Utah. It is anticipated that
after the construction has been completed (currently estimated to be no later
than June 1997), the Company will move its entire operations to such facility.
The Company intends to purchase the land and the building from GST Realco.

(12) RELATED PARTY TRANSACTIONS

During the years ended September 30, 1995 and 1996, GST USA borrowed
$500,000 and $250,000, respectively, from the Company on short-term notes
bearing interest at 11 percent. The notes were repaid by year-end. The Company
recorded interest income of $9,823 and $2,602 relating to these notes during the
years ended September 30, 1995 and 1996, respectively.

Also during the year ended September 30, 1996, the Company sold $356,000 of
application platform switching products and $2,571,731 of wholesale carrier
usage to GST USA and purchased $361,000 of wholesale carrier usage from GST USA.
For the three months ended December 31, 1996, the Company purchased $1,422,343
of wholesale carrier usage from GST USA.

F-17
<PAGE> 78

NACT TELECOMMUNICATIONS, INC.
(A WHOLLY OWNED SUBSIDIARY OF GST USA)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1994, 1995 AND 1996

Since April 1, 1996, the Company's Chairman of the Board was compensated by
GST USA for services rendered to GST USA and its subsidiaries, which arrangement
is expected to continue through June 1997.

(13) ACCOUNTING STANDARDS ISSUED NOT YET ADOPTED

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation (FASB 123). The Company is required to adopt the provisions of this
statement in Fiscal 1996. This statement encourages all entities to adopt a fair
value based method of accounting for employee stock options or similar equity
instruments. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic-value method of accounting
prescribed by APB opinion No. 25, Accounting for Stock Issued to Employees (APB
25). Entities electing to remain with the accounting in APB 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting defined in this statement had been applied. It is
currently anticipated that the Company will continue to account for employee
stock options or similar equity instruments in accordance with APB 25 and
provide the disclosures required by FASB 123.

(14) SUBSEQUENT EVENTS

In November 1996, the Company adopted the 1996 Stock Option Plan ("1996
Plan") which was approved by the Board of Directors and GST USA . The Company
has reserved 1,250,000 shares for issuance under the 1996 Plan, of which options
to purchase 850,000 shares of Common Stock at an exercise price of $9.35 per
share were granted. The Company may grant incentive stock options and
nonqualified stock options to employees, officers, directors, independent
contractors, and consultants. The Board of Directors or the Compensation
Committee thereof determines which eligible individuals are granted options,
terms of the options, exercise price, number of shares subject to the option,
vesting and exercisability.

The Board of Directors has authorized the filing of a registration
statement with the Securities and Exchange Commission to permit the Company to
sell shares of its common stock to the public in an initial public offering.

(15) REINCORPORATION AND RECAPITALIZATION (UNAUDITED)

Prior to consummation of the initial public offering discussed in Note 14,
the Company plans to reincorporate in the State of Delaware. At such time, the
number of authorized shares of Common Stock, $0.01 par value per share, of the
Company will be 25,000,000 and the number of authorized shares of preferred
stock, $0.01 par value per share, of the Company will be 10,000,000.

F-18
<PAGE> 79

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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF ANY OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 6
Use of Proceeds............................ 15
Dividend Policy............................ 15
Capitalization............................. 16
Dilution................................... 17
Selected Financial Data.................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 20
Business................................... 30
Management................................. 44
Ownership of Common Shares of GST by
Directors and Officers of the Company.... 50
Certain Transactions....................... 51
Principal and Selling Stockholder.......... 52
Description of Capital Stock............... 52
Shares Eligible for Future Sale............ 53
Underwriting............................... 55
Legal Matters.............................. 56
Experts.................................... 56
Additional Information..................... 57
Glossary of Terms.......................... 58
Index to Financial Statements.............. F-1
</TABLE>

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

UNTIL MARCH 23, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS 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.

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

============================================================
3,000,000 SHARES

NACT LOGO

NACT TELECOMMUNICATIONS, INC.

COMMON STOCK
------------------------
PROSPECTUS
------------------------

HAMBRECHT & QUIST

MONTGOMERY SECURITIES
FEBRUARY 26, 1997

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