COMPU DAWN INC
SB-2/A, 1997-05-19
COMPUTER INTEGRATED SYSTEMS DESIGN
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      As filed with the Securities and Exchange Commission on May 19, 1997
    

                           Registration No. 333-18667

   
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            -------------------------
                                 AMENDMENT NO. 3
                                       TO
                                    FORM SB-2
                             REGISTRATION STATEMENT
                                    UNDER THE
                             SECURITIES ACT OF 1933
                            -------------------------
                                COMPU-DAWN, INC.
                 (Name of Small Business Issuer in its Charter)
    

   Delaware                         7373                       11-3344575
(State or other                (Primary Standard            (I.R.S. Employer
jurisdiction of          Industrial Classification       Identification Number)
incorporation or                    Code No.)
organization)
                                77 Spruce Street
                           Cedarhurst, New York 11516
                           Telephone : (516) 374-6700
                           Telecopier: (516) 374-9553

   
              (Address and telephone number of principal executive
          offices) (Address of principal place of business or intended
                 principal place of business)
                            -------------------------
                                 Mark Honigsfeld
                            Chairman of the Board and
                             Chief Executive Officer
                                COMPU-DAWN, INC.
                                77 Spruce Street
                           Cedarhurst, New York 11516
                            Telephone: (516) 374-6700
                           Telecopier: (516) 374-9553
            (Name, address and telephone number of agent for service)
                            -------------------------
                                   Copies to:
Fred Skolnik, Esq.                                    Chase A. Caro, Esq.
Gavin C. Grusd, Esq.                                  Caro & Graifman, P.C.
Certilman Balin Adler & Hyman, LLP                    60 East 42nd Street
90 Merrick Avenue                                     New York,  New York 10165
East Meadow, NY 11554                                 Telephone: (212) 682-6000
Telephone: (516) 296-7000                             Telecopier: (212) 867-4762
Telecopier: (516) 296-7111
    

         Approximate  date of  commencement  of proposed sale to the public:  As
soon as practicable after the effective date of the registration statement.
         If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list  the  Securities  Act  registration  statement  number  of the  earlier
effective registration statement for the same offering. o ______________
                         [Cover continued on next page.]


<PAGE>



         If this  form is a  post-effective  amendment  filed  pursuant  to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act  registration   statement  number  of  the  earlier  effective  registration
statement for the same offering. o ____

          If delivery of the  prospectus is expected to be made pursuant to Rule
434, please check the following box. o

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

<CAPTION>
                                         CALCULATION OF REGISTRATION FEE

                                                                             Proposed Maximum    Proposed Maximum
                                                        Amount to be          Offering Price    Aggregate Offering    Amount of
Titles of Each Class of Securities to be Registered    Registered (1)         per Share (2)         Price (2)       Registration Fee
- ------------------------------------------------    -------------------   ----------------   -------------------  ------------------
<S>                                                       <C>                  <C>                 <C>                <C>         
   
Common Shares (3)                                         1,380,000             $5.00              $6,900,000         $2,090.91
Underwriter's Common Share Purchase                         120,000              ---               $      120           ---
  Warrants (4)
Common Shares (5)                                           120,000             $8.25              $  990,000          $300.00
Common Shares (6)                                           389,200             $5.00              $1,946,000          $589.70
Common Shares (7)                                           250,250             $5.00              $1,251,250          $379.17
                                                                                                                     -------------
Total Registration Fee:                                                                                              $3,359.78 (8)
================================================ =======================  ===================== =================== ================
</TABLE>

(1)      Pursuant  to Rule 416  under the  Securities  Act of 1933,  as  amended
         ("Securities Act"), this Registration  Statement covers such additional
         indeterminate  number of Common Shares underlying warrants (the "Bridge
         Warrants")  issued to certain bridge lenders (the "Bridge Lenders") and
         Underwriter's   Common  Share  Purchase  Warrants  (the  "Underwriter's
         Warrants") as may be issued by reason of  adjustments  in the number of
         Common Shares  pursuant to  anti-dilution  provisions  contained in the
         Bridge Warrants and Underwriter's Warrants, respectively.  Because such
         additional  Common Shares will, if issued,  be issued for no additional
         consideration, no registration fee is required.
(2)      Estimated solely for the purpose of calculating the registration fee.
(3)      Includes 180,000 Common Shares subject to the Underwriter's over-
         allotment option.
(4)      To be issued to the Underwriter.
(5)      Issuable upon exercise of the Underwriter's Warrants.
(6)      Issuable upon exercise of the Bridge Warrants and registered on behalf 
         of the Bridge
         Lenders.
(7)      Registered on behalf of Selling Stockholders.
(8)      $3,112.71 of which was previously paid.
    

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




<PAGE>




   
                    SUBJECT TO COMPLETION, DATED MAY 19, 1997
PROSPECTUS
                                Compu-DAWN, Inc.
           1,200,000 Shares of Common Stock, par value $.01 per share
                        Offering Price Per Share - $5.00
                                 ---------------

         Compu-DAWN, Inc., a Delaware corporation (the "Company"), hereby offers
1,200,000  shares  of  Common  Stock,  par value  $.01 per  share  (the  "Common
Shares"). See "Risk Factors" and "Description of Securities". The "Risk Factors"
section begins on page 6 of this Prospectus.
    

         The Company will apply for inclusion of the Common Shares on The Nasdaq
SmallCap  Market,  although  there can be no assurances  that an active  trading
market will develop even if the securities are accepted for quotation. See "Risk
Factors - Lack of Prior Market for Common Shares; No Assurance of Public Trading
Market"  and  "Risk  Factors  -  Penny  Stock  Regulations  May  Impose  Certain
Restrictions on Marketability of Securities".

   
         Prior to this  offering  (the  "Offering"),  there  has been no  public
market for the Common  Shares.  It is  currently  anticipated  that the  initial
public  offering  price will be $5.00 per Common Share.  The price of the Common
Shares has been determined by negotiations between the Company and E.C. Capital,
Ltd.,  the  underwriter  of this  Offering  (the  "Underwriter"),  and  does not
necessarily bear any relationship to the Company's assets, book value, net worth
or  results  of  operations  or any other  established  criteria  of value.  For
additional  information  regarding  the factors  considered in  determining  the
initial public offering price of the Common Shares,  see "Risk Factors Arbitrary
Offering Price; Possible Volatility of Stock Price", "Risk Factors Lack of Prior
Market for Common Shares; No Assurance of Public Trading Market",  "Risk Factors
- - Impact of Proposed Nasdaq SmallCap Market Rules",  "Description of Securities"
and "Underwriting".

         The  registration  statement of which this Prospectus forms a part also
covers the  resale of an  aggregate  of  389,200  Common  Shares  (the  "Warrant
Shares")  underlying  warrants (the "Bridge  Warrants") issued to certain bridge
lenders (the "Bridge  Lenders")  (see  "Bridge  Financing")  and an aggregate of
250,250 Common Shares held by certain stockholders (collectively with the Bridge
Lenders,  the "Selling  Stockholders").  The Company will not receive any of the
proceeds from the resale of the Common Shares by the Selling  Stockholders.  The
Common  Shares  held by the  Selling  Stockholders  may be  resold  at any  time
following  the date of this  Prospectus,  subject to an  agreement  between  the
Bridge  Lenders  and the  Underwriter  restricting  the  transfer of the Warrant
Shares for a period of two years.  The  Underwriter  has agreed with the Company
not to waive the  lock-up  restriction.  The resale of the Common  Shares by the
Selling Stockholders is subject to Prospectus delivery and other requirements of
the Securities Act of 1933, as amended (the "Act").  Sales of such Common Shares
or the  potential  of such sales at any time may have an  adverse  effect on the
market price of the Common Shares  offered  hereby.  See  "Principal and Selling
Stockholders"  and "Risk Factors - Shares Eligible for Future Sale May Adversely
Affect the Market".
                                ----------------
                         [Cover Continued on Next Page]
    


<PAGE>



          AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES A
       HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK
            VALUE OF THE COMMON SHARES OFFERED HEREBY AND SHOULD BE
           CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
              ENTIRE INVESTMENT. SEE "RISK FACTORS" AND "DILUTION".
                                ----------------

          THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
           SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
           COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
           OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
            OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
                         CONTRARY IS A CRIMINAL OFFENSE.




   
                        Price        Underwriting Discounts       Proceeds to
                      to Public        and Commissions (1)        Company (2)
Per Share......           $5.00               $0.50                     $4.50
Total (3)......        $6,000,000           $600,000                $5,400,000

(1)      Does  not  reflect  additional  compensation  to  be  received  by  the
         Underwriter in the form of (i) a  non-accountable  expense allowance of
         $180,000 ($207,000 if the Overallotment Option (as hereinafter defined)
         is exercised in full),  $50,000 of which has already been paid,  (ii) a
         three  year  financial   advisory  and  investment   banking  agreement
         providing  for  aggregate  fees of  $108,000  payable in advance at the
         closing of this  Offering,  and (iii)  warrants (to be purchased by the
         Underwriter for one mil ($.001) per warrant) to purchase 120,000 Common
         Shares (10% of the total number of Common Shares sold pursuant  hereto)
         (the "Underwriter's Warrants"), exercisable for a period of four years,
         commencing one year from the date of this  Prospectus.  The Company and
         the  Underwriter  have agreed to indemnify  each other against  certain
         liabilities,  including liabilities under the Act. The Company has been
         informed   that,  in  the  opinion  of  the   Securities  and  Exchange
         Commission,  such  indemnification  is  against  public  policy  and is
         therefore unenforceable. See "Underwriting".

(2)      Before  deducting  expenses  of the  Offering  payable  by the  Company
         estimated  at $700,000,  including  the  Underwriter's  non-accountable
         expense  allowance and  financial  advisory fee referred to in footnote
         (1)  (not   assuming  the  exercise  of  the   Overallotment   Option),
         registration fees, transfer agent fees, NASD fees, Blue Sky filing fees
         and  expenses,  legal  fees  and  expenses,  and  accounting  fees  and
         expenses. See "Use of Proceeds" and "Underwriting".

(3)      Does  not   include   180,000   additional   Common   Shares  to  cover
         overallotments  which the  Underwriter has an option to purchase for 45
         days from the date of this  Prospectus at the initial  public  offering
         price, less the Underwriter's discount (the "Overallotment Option"). If
         the  Overallotment  Option is  exercised  in full,  the total  Price to
         Public will be $6,900,000,  Underwriting Discounts and Commissions will
         be  $690,000,   and  Proceeds  to  Company  will  be  $6,210,000.   See
         "Underwriting."
                                 ---------------
                         [Cover Continued on Next Page]
    


<PAGE>



   
         The Common Shares are offered by the Underwriter on a "firm commitment"
basis, when, as and if delivered to and accepted by the Underwriter, and subject
to prior sale, allotment and withdrawal,  modification of the offer with notice,
receipt and acceptance by the Underwriter  named herein and subject to its right
to reject  orders in whole or in part and to  certain  other  conditions.  It is
expected that the delivery of the  certificates  representing  the Common Shares
and payment  therefor will be made at the offices of the Underwriter on or about
May__, 1997.
    

                               E. C. CAPITAL, LTD.

                   The date of this Prospectus is May__, 1997.


<PAGE>



      IN CONNECTION  WITH THIS  OFFERING,  THE  UNDERWRITER  MAY OVERALLOT OR
EFFECT  TRANSACTIONS  WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
SHARES AT A LEVEL ABOVE THAT WHICH MIGHT  OTHERWISE  PREVAIL IN THE OPEN MARKET.
SUCH  TRANSACTIONS  MAY  BE  EFFECTED  IN  THE  NASDAQ  SMALLCAP  MARKET.   SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

      A SIGNIFICANT  PORTION OF THE COMMON SHARES TO BE SOLD IN THIS OFFERING
MAY BE SOLD TO  CUSTOMERS OF THE  UNDERWRITER.  SUCH SALES MAY AFFECT THE MARKET
FOR AND  LIQUIDITY  OF THE  COMPANY'S  SECURITIES  IN THE EVENT THAT  ADDITIONAL
BROKER-DEALERS  DO NOT MAKE A MARKET IN THE  COMPANY'S  SECURITIES,  AS TO WHICH
THERE  CAN  BE  NO  ASSURANCE.   SUCH  CUSTOMERS   SUBSEQUENTLY  MAY  ENGAGE  IN
TRANSACTIONS  FOR THE SALE OR PURCHASE OF THE COMMON SHARES  THROUGH AND/OR WITH
THE UNDERWRITER.

     ALTHOUGH IT HAS NO  OBLIGATION TO DO SO, THE  UNDERWRITER  MAY FROM TIME TO
TIME ACT AS A MARKET MAKER AND OTHERWISE  EFFECT  TRANSACTIONS  IN THE COMPANY'S
SECURITIES.  THE  UNDERWRITER,  IF IT PARTICIPATES  IN THE MARKET,  MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR THE COMMON SHARES.  HOWEVER,  THERE IS NO
ASSURANCE  THAT THE  UNDERWRITER  WILL OR WILL NOT  CONTINUE TO BE A  DOMINATING
INFLUENCE.  THE PRICES AND  LIQUIDITY OF THE  SECURITIES  OFFERED  HEREBY MAY BE
SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, OF THE UNDERWRITER'S PARTICIPATION
IN SUCH MARKET.  THE UNDERWRITER MAY DISCONTINUE  SUCH ACTIVITIES AT ANY TIME OR
FROM TIME TO TIME.  SEE "RISK FACTORS - LACK OF PRIOR MARKET FOR COMMON  SHARES;
NO ASSURANCE OF PUBLIC TRADING MARKET". 

                             ---------------------
   
            INVESTOR SUITABILITY REQUIREMENTS FOR CALIFORNIA OFFEREES

         California offerees must meet the following suitability requirements in
order to invest in the Common Shares being offered hereby: the offeree (a) has a
minimum net worth of  $250,000  and had during the last tax year,  or  estimates
that the offeree will have during the current tax year, gross income of $65,000,
or (b) has a  minimum  net worth of  $500,000.  Net  worth  shall be  determined
exclusive of home, home furnishings and automobiles.

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

             INVESTOR SUITABILITY REQUIREMENTS FOR VIRGINIA OFFEREES

   
         Virginia  offerees  must  meet  the  following   investor   suitability
requirements in order to invest in the Common Shares being offered  hereby:  the
offeree must have (a) a net worth of
    

                                        2

<PAGE>



   
at least  $225,000,  or (b) a net worth of at least $60,000 and an annual income
of at least  $60,000.  Net worth in all cases is exclusive of home,  furnishings
and  automobiles,  in  addition,  an offeree may not invest more than 10% of the
offeree's readily marketable assets in this Offering.
    

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

                                        3

<PAGE>



                               PROSPECTUS SUMMARY

   
         The following is a summary of certain information  (including financial
statements and notes thereto)  contained in this  Prospectus and is qualified in
its entirety by the more detailed  information  appearing  elsewhere  herein. In
addition,  unless otherwise indicated to the contrary, the information appearing
herein does not give effect to the  issuance of (a) 180,000  Common  Shares upon
exercise of the Overallotment Option; (b) 120,000 Common Shares upon exercise of
the Underwriter's  Warrants;  (c) 389,200 Common Shares upon the exercise of the
Bridge  Warrants;  or (d)  477,400  Common  Shares  upon the  exercise  of other
outstanding  options  and  warrants.   See  "Bridge  Financing".   However,  all
references  to  Common  Shares  and  prices  per share in this  Prospectus  give
retroactive effect to a 325 for 1 stock split effectuated on October 18, 1996 as
part  of  the  Company's   reincorporation   in  the  State  of  Delaware.   See
"Underwriting".  Each  prospective  investor is urged to read this Prospectus in
its entirety.
    


                                   The Company

         Compu-DAWN,  Inc. (the "Company") is primarily  engaged in the business
of designing, developing,  licensing, installing and servicing computer software
products  and  systems  for law  enforcement  and public  safety  agencies.  The
software systems include computer-aided  dispatching,  computer interfacing with
state and national crime  information  databases,  advanced mobile on-line radio
computing,  automatic vehicle location (employing dynamic map displays), records
management  and  photo-image  database  systems.  Certain of these  applications
utilize   telecommunications   and  space   satellite   technology,   and  other
infrastructure,  provided by third parties. The Company has developed,  licensed
and  installed  its  systems in more than 55 agencies  primarily  located in the
State of New York.

         The Company was incorporated  under the name Coastal Computer  Systems,
Inc. in New York on March 31, 1983 and was  reincorporated in Delaware under its
present name on October 18, 1996.

         The  Company's  executive  offices  are  located  at 77 Spruce  Street,
Cedarhurst, New York 11516 and its telephone number is (516) 374-6700.

         See "Risk  Factors" for a discussion of certain  factors that should be
considered in evaluating the Company and its business.


                                        4

<PAGE>



                                  The Offering

   
Common Shares Being 
Offered ...............  1,200,000 shares
Common Shares 
Outstanding
Prior to the
Offering (1)...........  1,282,700 shares
Common Shares to be 
Outstanding After
the Offering (2).......  2,482,700 shares
Use of Proceeds........  The net proceeds to the Company from the  sale  of the
                         1,200,000 Common Shares offered hereby are estimated to
                         be  $4,700,000.  The net  proceeds  are  expected to be
                         applied in the following  approximate  percentages  for
                         the following  purposes:  (i) product  enhancement  and
                         development  (26.6%);  (ii)  repayment of  indebtedness
                         (16.4%);  (iii) marketing and advertising (13.8%); (iv)
                         hiring and training of additional personnel (3.2%); (v)
                         purchase of equipment (3.2%);  and (vi) working capital
                         (36.8%).     See     "Use    of     Proceeds".     

Risk Factors..........   An investment in the securities offered hereby involves
                         a  high  degree  of  risk  and  immediate   substantial
                         dilution  of the book value of the Common  Shares,  and
                         should be considered only by persons who can afford the
                         loss of their entire investment. See "Risk Factors" and
                         "Dilution".    
    
   
Proposed Nasdaq 
SmallCap Market
Symbol(3)...........     "CODI"
    
- -----------------

   
(1)  Gives  effect to the issuance of 63,000  Common  Shares upon the closing of
     the Offering pursuant to the conversion,  at a price of $5.00 per share, of
     $200,000 in  indebtedness  and $100,000 in accrued and unpaid  compensation
     owed to Mark Honigsfeld,  Chairman of the Board and Chief Executive Officer
     of the Company, and $15,000 in accrued and unpaid compensation owed to Dong
     W. Lew,  President of the  Company.  See "Use of  Proceeds",  "Management's
     Discussion and Analysis of Financial  Condition and Results of Operations -
     Liquidity and Capital  Resources"  and "Certain  Relationships  and Related
     Transactions".

(2)  Does not give  effect to the  issuance of (i)  180,000  Common  Shares upon
     exercise of the  Overallotment  Option;  (ii)  120,000  Common  Shares upon
     exercise of the  Underwriter's  Warrants;  (iii) 389,200 Common Shares upon
     the exercise of the Bridge  Warrants;  (iv) 156,950  Common Shares upon the
     exercise  of  outstanding  options  which are  currently  exercisable  (the
     "Exercisable Options"); (v) 31,200 Common Shares upon the exercise of other
     outstanding warrants (the "Other Warrants");  or (vi) 289,250 Common Shares
     upon
    

                                        5

<PAGE>



   
     the  exercise  of other  outstanding  options  (collectively  with the
     Exercisable   Options  and  the  Other  Warrants,   the  "Other  Derivative
     Securities").  See "Bridge Financing",  "Management Stock Plans",  "Certain
     Relationships and Related Transactions" and "Underwriting".

(3)  Although the Company will apply for  inclusion of the Common  Shares on The
     Nasdaq  SmallCap  Market,  there  can be no  assurance  that the  Company's
     securities  will be included for  quotation,  or, if so included,  that the
     Company  will be able to continue to meet the  requirements  for  continued
     quotation,  or that a public trading market will develop or, if such market
     develops,  that it will be  sustained.  See  "Risk  Factors - Lack of Prior
     Market for Common Shares; No Assurance of Public Trading Market".
    

                          Summary Financial Information

         The following summary  financial  information has been derived from the
financial  statements of the Company included elsewhere in this Prospectus.  All
amounts  are in  dollars  except the number of Common  Shares.  The  information
should be read in  conjunction  with the  financial  statements  and the related
notes thereto. See "Financial Statements".

Statement of Operations Data

                                        Year Ended         Three Months Ended
                                       December 31,              March 31,

   
                                      1995       1996        1996       1997
                                     ----        ----        ----       ----
Revenues  .....................  $1,040,181    $ 477,527    $91,519   $185,801
Operating income (loss)........     129,981     (609,493)   (75,865)  (453,897)
Net income (loss) .............      78,660     (570,769)   (57,261)  (513,056)
Net income (loss) per share....         .05         (.34)      (.03)      (.31)
Weighted average number of
 Common Shares outstanding.....   1,678,913    1,678,913  1,678,913  1,678,913
    

Balance Sheet Data


   
                           December 31, 1996     March 31, 1997
                           ----------------  -----------------------------------
                                                                   Pro Forma As
                                            Actual   Pro Forma(1) Adjusted(1)(2)
Working capital (deficit)...    $ 180,236  ($148,064)   $36,836  $ 4,179,204
Total assets ...............    2,433,160  2,598,812  2,668,712    5,041,662
Total liabilities ..........    1,153,459  1,457,667  1,142,667      372,667
Total stockholders' equity..    1,279,701  1,141,145  1,526,045    4,668,995
- ---------------
    


                                        6

<PAGE>



   
(1)      Gives effect to (i) the exercise of options to purchase  233,000 Common
         Shares by Mark  Honigsfeld,  Chairman of the Board and Chief  Executive
         Officer of the Company,  at a price of $.30 per share,  or an aggregate
         of $69,900, in April 1997 (the "Honigsfeld Option Exercise"),  (ii) the
         conversion  of $200,000 in loans made by Mr.  Honigsfeld to the Company
         into 40,000 Common  Shares,  effective upon the closing of the Offering
         (the "Debt Conversion"), and (iii) the conversion of accrued and unpaid
         compensation  payable to Messrs.  Honigsfeld  and Lew in the amounts of
         $100,000  and  $15,000,  respectively,  into  20,000  and 3,000  Common
         Shares,  respectively,  effective upon the closing of the Offering (the
         "Accrued Compensation Conversion").

(2)      Adjusted  to give  effect to the  receipt  and  application  of the net
         proceeds of approximately $4,700,000 from the sale of the Common Shares
         offered hereby.
    


                                  RISK FACTORS

         An investment  in the  securities  offered  hereby is  speculative  and
involves a high  degree of risk and  substantial  dilution,  and should  only be
purchased  by  investors  who  can  afford  to  lose  their  entire  investment.
Prospective purchasers, prior to making an investment, should consider carefully
the following risks and speculative  factors  associated with this Offering,  as
well as other information set forth elsewhere in this Prospectus,  including the
information contained in the financial statements herein.

   
     1. Dependence on Offering Proceeds; Possible Need for Additional Financing.
The Company's cash  requirements  have been and will continue to be significant.
The Company is dependent on the proceeds  from this Offering in order to sustain
and further expand its operations. The Company believes that the net proceeds of
this  Offering,  together with  anticipated  increased  revenues  generated from
operations,  will be sufficient to conduct the Company's operations for at least
12  months.  In the  event  that the  Company's  plans  change,  or the costs of
operations  prove  greater than  anticipated,  the Company  could be required to
curtail  its  expansion  or seek  additional  financing  sooner  than  currently
anticipated. Mark Honigsfeld,  Chairman of the Board and Chief Executive Officer
of the  Company,  has agreed to loan to the  Company up to  $500,000 as and when
needed  during the twenty  six-month  period  ending July 1, 1999.  Such line of
credit provides for the grant to Mr. Honigsfeld of a security interest in all of
the  Company's  assets to secure the  repayment  of up to  $200,000 of such loan
proceeds.  See "Use of  Proceeds",  "Management's  Discussion  and  Analysis  of
Financial   Conditions  and  Results  of  Operations  -  Liquidity  and  Capital
Resources" and "Certain Relationships and Related Transactions".
    

      2. Inexperience of Underwriter. This is the first offering underwritten by
the  Underwriter.  There  can be no  assurance  that the  Underwriter's  limited
experience will not adversely affect the development of a trading market for, or
liquidity  of, the  Company's  securities.  Therefore,  purchasers of the Common
Shares  offered  hereby may suffer a lack of liquidity in their  investment or a
material diminution of the value of their investment. See "Underwriting".

                                        7

<PAGE>




   
     3.  Downward  Trend in  Revenues;  Current  Period and  Anticipated  Future
Losses.  For the years ended December 1996 and 1995, the Company's revenues were
$477,527 and $1,040,181,  respectively.  For the first quarter of 1997 and 1996,
the Company's revenues were $185,801 and $91,519,  respectively.  The decline in
revenues  between  1995 and 1996 was  primarily  the  result  of a  decrease  in
software sales (i.e. fewer units sold) which occurred due to the Company's focus
on raising  capital  (commencing in late 1995 and continuing  throughout  1996),
strategic  planning,  and the allocation  and devotion of substantial  personnel
time to the development of visual computer-aided  dispatching (or V-CAD) and new
wireless  mobile  computing  technology.  Such actions  diverted  the  Company's
resources away from sales  activities.  The revenue figures reflect an upturn in
sales  activity  commencing in early 1997. For the year ended December 31, 1996,
the Company  experienced  a net loss of $570,769.  For the first quarter of 1997
and 1996, the Company had a net loss of $513,056 and $57,261,  respectively. The
net loss  figures  are the result of the  incurrence  of  significant  expenses,
including, without limitation, research and development expenses, costs relating
to the enhancement and refining of the Company's current product line, marketing
costs, obligations under new key employee compensation agreements, the lease for
the  Company's   premises  which   commenced  in  September  1996,  and  general
administrative  expenses. The Company believes that, for the foreseeable future,
it  will  be  unable  to  achieve  sufficient   additional  revenues  to  offset
anticipated significant operating costs such as the foregoing.  Accordingly, the
Company anticipates that operating losses will continue at least for the next 12
months. The Company cannot predict the length of time such operating losses will
continue  or the  impact  such  operating  losses  will  have  on its  financial
condition and results of operations.  Additionally, the Company may experience a
nonrecurring deferred financing charge of up to approximately  $1,557,050 (which
includes,  among other things, the difference between (i) the fair market value,
at the time the Bridge Warrants were issued,  of the Common Shares issuable upon
exercisable  of the Bridge  Warrants  ($4.00  per  share) and (ii) the  original
exercise  price ($.50 per share) at the time the  promissory  notes (the "Bridge
Notes") issued in the Company's bridge  financing  transaction are repaid (which
will  occur on the  closing  date of the  Offering).  The  Bridge  Warrants  are
exercisable  at any time during the five year period  commencing  on the closing
date of the Offering at the amended exercise price of $3.00 per share. There can
be no assurance  that the  Company's  technology  and  products  will be able to
compete  successfully in the marketplace and/or generate significant revenue, or
that the  Company's  business  will be able to  operate  profitably.  See  "Risk
Factors - Competition",  "Business - Competition",  "Management's Discussion and
Analysis  of  Financial  Conditions  and  Results  of  Operations  - Results  of
Operations".
    

                  The Company's  quarterly  operating results have, in the past,
varied and may in the future vary significantly,  depending on facts such as the
size,  timing and  recognition  of revenue from  significant  software sales and
system  integration  activity,  the  time of new  product  releases  and  market
acceptance of these new releases, and increases in operating expenses. Thus, the
Company's  revenues  and  results of  operations  have and may  continue to vary
significantly from quarter to quarter,  period to period, and year to year based
upon  frequency  and volume of sales and  licensing  of the  Company's  software
applications and providing of consulting services during such period. Due to the
relatively  fixed  nature of  certain of the  Company's  costs  throughout  each
quarterly period,

                                        8

<PAGE>



including personnel and facilities costs, the decline of revenues in any quarter
typically  results  in lower  profitability  in that  quarter.  There  can be no
assurance that the Company will become  profitable or avoid losses in any future
period.

   
     4. Immediate and Substantial Dilution; Equity Securities Previously Sold at
Below Offering Price. Upon completion of this Offering,  assuming no exercise of
the  Overallotment  Option,  and without  giving  effect to the  exercise of the
Underwriter's  Warrant,  the pro forma net tangible  book value per share of the
Company's  Common  Shares as of March 31,  1997  would have been  $1.88.  At the
initial  public  offering  price of $5.00 per share,  investors in this Offering
will experience an immediate  dilution of approximately  $3.12, or 62.4%, in net
tangible  book  value per share,  and  existing  investors  will  experience  an
increase  of  approximately  $2.07 per share,  in each case  giving  retroactive
effect to the Debt  Conversion,  the  Accrued  Compensation  Conversion  and hte
Honigsfeld  Option  Exercise.  The  present  stockholders  of the  Company  have
acquired  their  respective  equity  interest at costs  substantially  below the
public  offering  price.  Accordingly,  to the extent  that the  Company  incurs
losses, the public investors will bear a  disproportionate  risk of such losses.
See  "Dilution",  "Bridge  Financing",  "Management  - Executive  Compensation",
"Management - Stock Plans" and "Underwriting".

     5. Evolving Market; New Product  Development;  Technological  Obsolescence.
The markets for the Company's  products are  characterized by evolving  industry
requirements,  rapid technological change and frequent new product introductions
which may result in product or technology obsolescence. Certain companies may be
developing technologies or products of which the Company is unaware which may be
functionally  similar,  or  superior,  to some or all of  those  offered  by the
Company.  As a result,  the ability of the Company to compete will depend on its
ability to adapt,  enhance and improve its existing products and technology and,
if  necessary,  to develop and  introduce  new  products and  technology  to the
marketplace in a timely and  cost-competitive  manner. There can be no assurance
that the Company will be able to compete  successfully,  that its competitors or
future  competitors  will not develop  technologies  or products that render the
Company's  products  or  technology  obsolete  or less  marketable,  or that the
Company will be able to successfully enhance its products or technology or adapt
them satisfactorily.
    

     New product development efforts are subject to all of the risks inherent in
the development of new technology and products including  unanticipated  delays,
expenses,   technical  problems  or  difficulties,   as  well  as  the  possible
insufficiency of funding to complete  development.  There can be no assurance as
to when, or whether, new products will be successfully  developed.  In addition,
no assurance can be given that additional technologies can be developed within a
reasonable  development schedule, if at all. Further,  there can be no assurance
that the Company would have  sufficient  economic or human resources to complete
such  development  in a timely  manner,  or at all,  or that it could enter into
economically  reasonable  arrangements  for the  completion  of such products by
third parties.



                                        9

<PAGE>

     Following  the  development  of  additional  products,   the  Company  must
successfully  complete a testing  program  for the  products  before they can be
marketed.  Although the Company  believes that its testing  program is adequate,
unforeseen  technical  problems arising out of such testing could  significantly
and adversely affect the Company's  ability to produce and market a commercially
acceptable  product.  In addition,  the  Company's  success will depend upon its
current and proposed  technologies  and  products  meeting  acceptable  cost and
performance  criteria in the  marketplace.  There can be no  assurance  that the
technologies and products will meet applicable  price or performance  objectives
or that  unanticipated  technical or other  problems  will not occur which would
result in increased costs or material  delays.  Also,  there can be no assurance
that new  technologies  will be  developed  in the  future  by the  Company.  If
superior technology is developed by the Company's competitors, such products may
render the Company's present products obsolete, and thus would have a materially
negative impact on the Company. See "Business".

   
     6. Failure to Integrate Various Product  Introductions  and Offerings.  The
Company believes that significant market  opportunities  exist for a provider of
fully integrated software designed for the public safety marketplace. One of the
Company's business  strategies is to provide a "total solution" fully integrated
software  product line used in public safety.  Although the Company has had some
success in the past integrating its software products with other systems,  there
can be no  assurance  that the  Company  will be able to fully  integrate  these
applications,  or newly created applications, or that achieving such integration
will  enable the  Company to improve its  competitive  position in the  software
market.  Moreover,  the  Company's  inability to further  integrate its products
could have a material  adverse  effect on the Company's  business and results of
operations. See "Business".

     7. Dependence on Business  Partnerships  and  Subcontractor  Relationships.
Historically,  the Company's customers have been in the "small size" and "medium
size" market  segments  (i.e.  public safety  departments or agencies with fewer
than 200 sworn officers or personnel).  The Company's business strategy includes
the  development  of systems for the "large  size" market  segment.  In order to
enter such  market,  the  Company,  in all  likelihood,  will need to  establish
business  partnerships  and/or  subcontractor  relationships  with large systems
integrators and public network  providers.  Although business  partnerships have
been entered into with AT&T Corp.  ("AT&T"),  GTE  Corporation  ("GTE") and Data
General Corporation ("Data General"), no revenues have been derived to date from
these  arrangements  and no  assurances  can be given that any revenues  will be
derived from these arrangements in the future. In addition, no assurances can be
given  that the  Company  will  enter into any other  business  partnerships  or
subcontractor  relationships.  The  failure  of the  Company  to enter into such
partnerships  or  relationships  would have a material  adverse  effect upon the
Company's  ability to implement  its business  plan.  See  "Business - Sales and
Marketing".

     8.  Intellectual  Property  Protection  and  Infringement.   The  Company's
technology   is  not   patented  and  the  Company  has  not  filed  any  patent
applications.  The  Company  instead  currently  relies  on  trade  secrets  and
copyright  rights to establish  and protect  certain  proprietary  rights in its
products.  These  measures  afford  limited  protection,  and  there  can  be no
assurance  that the steps  taken by the  Company  to protect  these  proprietary
rights will be adequate to prevent  misappropriation  of its  technology  or the
independent  development by others of similar  technology  especially in view of
the limited  resources of the Company and the potential cost of any legal action
to enforce such rights.
    

                                       10

<PAGE>





   
     The Company has not obtained any copyright registrations. Registration of a
copyright with the United States copyright office is not a requirement to make a
copyright legally effective,  but generally provides a rebuttable presumption of
its  validity.  In the absence of a  registered  copyright,  the Company will be
unable  to bring an  action  for  copyright  infringement.  A  copyright  may be
registered at any time prior to bringing an infringement  action. If the Company
registers a copyright after the  infringement  occurs (and prior to bringing the
infringement  action),  it may be limited  in its  ability to prove its case and
will be precluded from seeking  statutory damages (in lieu of actual damages and
lost profits,  and  attorney's  fees).  The Company  intends to seek  registered
copyright  protection  under  United  States  law  with  respect  to some of its
software,  although no assurance  can be given that the Company will obtain such
protection.  While the Company  believes  that it would be  impractical  and not
cost-effective  for a third party to attempt to copy  software such as that used
in its  products,  unauthorized  parties,  nevertheless,  might  attempt to copy
aspects, or reverse engineer certain,  of the Company's products,  or may obtain
and use information  that the Company  regards as proprietary.  The cost of, and
time dedicated to,  enforcement  by the Company of its rights,  if any, could be
significant.  Regardless of the outcome of such enforcement  proceedings,  there
can be no  assurance  that such  proceedings  will be  effective.  In  addition,
although the Company  believes  that there are no  infringement  or trade secret
misappropriation  claims against the Company and no grounds for the assertion of
any such claims,  the cost of  responding  to any such  assertion,  should it be
made,  could be  significant  and there is no assurance  that the Company  would
prevail.  See "Risk  Factors -  Competition",  "Business  Intellectual  Property
Rights and Licenses" and "Business - Competition".

     9.  Competition.  The  Company's  products  compete  with those of numerous
well-established  companies,  which  design,  sell,  produce or market  software
systems for public safety operations. Many of these companies have substantially
greater financial,  technical and other resources than those of the Company, and
they may have established reputations for success in the development, licensing,
sale and service of their products and technology.  Certain of those competitors
have the financial resources  necessary to enable them to withstand  substantial
price competition or downturns in the market for computer software products used
by  public  safety  agencies  and  organizations.   In  addition,   the  Company
anticipates  that a material  portion of the sale of its  products  will be made
through the competitive bid process.  There can be no assurance that the Company
will be able to compete effectively in such process. See "Business  Competition"
and "Business - Products and Services".

     10.  Limited  Sales and  Marketing  Experience.  The  Company  has  limited
experience  in the areas of sales,  marketing  and  distribution.  The Company's
sales and marketing staff will require additional personnel in the future. There
can be no assurance that the Company will be able to build an adequate sales and
marketing  staff,  that  establishing  such a sales and marketing  staff will be
cost-effective,  or that the  Company's  sales  and  marketing  efforts  will be
successful.  See "Risk Factors Challenges to Management of Growth" and "Business
- - Sales and Marketing".
    

                                       11

<PAGE>




   
     11.  Dependence on Significant  Customers.  Although the composition of the
Company's  largest  customers  has changed from year to year,  historically  the
Company's  revenues  have  been  materially  dependent  on a  limited  number of
customers.  Generally,  the Company does not receive  repeat  business  from its
customers for the design and installation of software systems.  Further revenues
from  customers  to whom the Company has licensed  software  systems are usually
derived from maintenance and support  contracts.  Accordingly,  the Company does
not  believe  that  the  makeup  of its  current  customers  is  material  to an
understanding  of the Company's  future  business  prospects.  While the Company
expects  its  customer  base to continue  to expand,  a limited  number of large
customers  may continue to account for a  significant  portion of the  Company's
sales during any given period for the foreseeable future. As such, the Company's
financial  condition  and results of operations  may be adversely  affected by a
delay,  reduction or  cancellation  of orders from one or more of its current or
future  significant  customers  or the loss of one or more such  customers.  See
"Risk Factors - Lengthy Sales Cycle" and "Business - Customers".

     12.  Product  Concentration.  Licensing  of products  and the  provision of
maintenance and support services to the law enforcement and public safety market
represented  substantially  all of the  Company's  revenues for the fiscal years
ended December 31, 1995 and 1996 and the first quarter of 1997, and are expected
to continue to account for all of the  Company's  revenues  for the  foreseeable
future.  Any factors  adversely  affecting the Company's  products,  such as the
introduction  of  superior  competitive  products  or shifts in the needs of the
marketplace,  would have a material  adverse  effect on the Company's  financial
condition and results of operations.  See "Risk Factors Competition",  "Business
Products and Services" and "Business-Competition".

     13.  Lengthy  Sales Cycle.  Licensing of the  Company's  software  products
typically involves a detailed technical  evaluation and a commitment of capital,
technical,  marketing and other resources,  with the attendant delays frequently
associated  with  customers'   internal  procedures  to  approve  large  capital
expenditures and to test and accept new technologies  that affect the customer's
operations  infrastructure.  For  those  and  other  reasons,  the  sales  cycle
associated  with the  Company's  products is typically  lengthy and subject to a
number of significant  risks,  including  customers'  budgetary  constraints and
internal acceptance procedure, that are beyond the Company's control. Because of
the lengthy  sales cycle and the  generally  large size of customer  orders,  if
revenues forecasted from a specific customer for a particular fiscal quarter are
not realized in that quarter,  the Company's  operating results for that quarter
could be  materially  adversely  affected.  See "Risk  Factors -  Dependence  on
Significant Customers".

     14. New Management Team; Dependence on Executive Management; Need to Retain
Key  Personnel.  The  Company's  executive  management  team,  Mark  Honigsfeld,
Chairman of the Board and Chief Executive  Officer of the Company,  Dong W. Lew,
President and Chief  Operating  Officer of the Company,  and Louis Libin,  Chief
Technology Officer of the Company, have worked together for only a brief period.
Mr.  Honigsfeld was elected  Chairman of the Board of the Company in August 1996
and was elected Chief Executive  Officer of the Company  effective as of October
1, 1996.  Mr.  Libin was  elected as a director  of the  Company  and became the
Company's  Chief  Technology  Officer in January 1997 and only began  serving as
Chief Technology Officer on a full-time basis in March 1997.
    

                                       12

<PAGE>





     The  Company has a  three-year  employment  agreement  with each of Messrs.
Honigsfeld,  Lew and  Libin,  each of which  includes,  among  other  things,  a
non-competition and non-solicitation provision. However, each agreement provides
that the employee can terminate his agreement  with the Company at any time upon
30 days  notice  for  any  reason.  Additionally,  Mr.  Honigsfeld's  employment
agreement  allows him to devote up to 10% of his working time,  and Mr.  Libin's
employment  agreement  allows  him to  devote  up to one  day a week,  to  other
endeavors which are not competitive  with the Company.  The loss of the services
of either Mr.  Honigsfeld,  Mr. Lew or Mr.  Libin would have a material  adverse
effect on the Company's business.

   
     The Company has obtained  "key-man" life insurance policies on the lives of
Messrs.  Honigsfeld and Libin, each of which provides for a death benefit to the
Company of  $1,000,000.  The Company  has been  unable to secure life  insurance
coverage for Mr. Lew in light of his age and history as a smoker. With regard to
Messrs.  Honigsfeld and Libin,  there can be no assurance that the death benefit
would be  adequate to fund the  Company's  needs  until a  replacement  could be
found.
    

     The success of the Company is also  dependent  upon its ability to hire and
retain  additional  qualified  and talented  executive,  technical and marketing
personnel.  There is always intense  competition for qualified  personnel in the
Company's business and its inability to recruit qualified personnel could have a
material adverse effect on its business and results of operations.  There can be
no assurance  that the Company will be able to retain the members of its current
management or  personnel,  or that it will be able to  successfully  attract and
retain  qualified  management,  engineering  and sales or other personnel in the
future. See "Management Employment Agreements".

   
     15.  Dependence on  Licensors.  The Company  currently  relies on operating
system software owned by certain third parties for certain software and platform
operating  systems  which the Company uses to create its  products,  and in some
cases  to  bundle  with its own  software  in its  products.  The  licenses  are
perpetual  in  duration  subject  to the  payment of an annual  maintenance  and
enhancement  fee,  which is based on the  number of end users of such  operating
system software,  or a monthly sublicense fee, which is based upon the number of
customers  to  which  the  Company's  products  (which  includes  such  licensed
operating  system  software)  are licensed.  Although the Company  believes that
there  are  alternatives  to the  operating  system  software  that the  Company
currently  uses,  termination  of any of these  licenses could delay the Company
from producing its products for approximately three to six months as a result of
the need to  revise  the  Company's  software  to make it  compatible  with such
alternative operating system software. Such result would have a material adverse
effect  on  the  Company.  See  "Business -  Intellectual  Property  Rights  and
Licenses".
    


                                       13

<PAGE>



   
     16. Challenges to Management of Growth. The Company anticipates a period of
rapid growth that is expected to place a strain on the Company's administrative,
financial and operational resources.  The Company's ability to manage any growth
effectively  will require it to continue to improve its  operational,  financial
and  management  controls,   reporting  systems  and  procedures,   install  new
management  information and control systems, and train,  motivate and manage its
employees.  There  can be no  assurance  that  the  Company  will  install  such
management  information and control systems in an efficient and timely manner or
that the new  systems  will be adequate  to support  the  Company's  operations.
Because  of the  complexity  of  its  products,  the  Company  has  in the  past
experienced,  and  expects in the future to  experience,  a time lag between the
date on which technical and sales personnel are hired and the time at which such
persons become fully productive.  In addition,  customer  satisfaction  could be
substantially  affected  by the  quality  of  the  Company's  post-sales  system
implementation   process  and,  in  many  cases,  its  maintenance  and  service
capabilities.  If the  Company  is unable to hire,  train and  retain  qualified
personnel and consultants to implement these services or is unable to manage the
post-sales  process  effectively,  its ability to attract repeat sales or obtain
references for new prospective  sales could be adversely  affected.  Such result
could  limit  the  Company's  growth  opportunities.  Additionally,  many of the
challenges of growth may be unforeseeable and beyond the control of the Company.
If the Company is unable to manage growth  effectively,  such that the Company's
sales and marketing  efforts  exceed its capacity to design,  develop,  install,
maintain and service its  products,  or if new  employees  are unable to achieve
adequate  performance  levels,  the Company's  business,  operating  results and
financial condition could be adversely affected.

     17. Unascertainable Risks Related to Possible Unspecified Acquisitions. The
Company  intends  to  explore  opportunities  to  add,  through  acquisition  or
licensing, technology or products to enhance or add to its current product line,
or to acquire a customer  base or sales  organization  to augment the  Company's
infrastructure.  The Company is not  actively  seeking any  acquisition  at this
time.  In  exploring  a potential  acquisition  or  license,  the  Company  will
consider,  among other criteria, the comparative cost to the Company in capital,
resources and personnel to create the  identified  technology or product,  or to
establish the targeted customer base or sales organization;  restrictions on the
Company  developing  similar technology or products arising from patent or other
intellectual  property protection;  and the synergy of the identified technology
or products, or customer base or sales organization, with the Company's products
and organization.  Although the Company anticipates it will follow the foregoing
general  criteria in  determining  whether or not to pursue any  acquisition  or
license,  management  will have sole discretion over whether or not to engage in
any such  transaction.  There can be no assurance that the Company will identify
any acquisition or licensing  candidates or, if it does, that it will be able to
reach any  agreements to acquire or license  technology or products,  or acquire
assets, on terms acceptable to the Company. Since the Company has not identified
any  potential  acquisition  candidates,  there is no basis for the  Company  to
evaluate the possible merits or risks relating to the technology or assets which
may be  acquired.  To the extent  that the  Company  effects an  acquisition  of
technology or products in the early stage of  development  or growth  (including
technology  or  products  which have not been  fully  tested or  marketed),  the
Company will be subject to numerous risks inherent in  developmental  technology
and an additional high level of risk associated with high-technology  industries

    

                                       14

<PAGE>



   
based on innovative technologies or processes.  Furthermore,  future acquisition
transactions may require the Company to obtain  additional  financing from banks
or other  financial  institutions or to undertake debt or equity  financing.  No
assurance can be given that the Company would be able to obtain  financing  upon
commercially  reasonable  terms, or at all.  Furthermore,  equity financing will
result in a dilution  of  existing  stockholders  of the  Company,  which may be
significant. If debt financing ultimately proves to be available, any borrowings
may subject  the  Company to various  risks  traditionally  associated  with the
incurring of indebtedness, including the risks of interest rate fluctuations and
insufficiency of cash flow to pay principal and interest. To the extent any such
transaction  involves the  acquisition of a business,  there can be no assurance
that the Company will  successfully  integrate  the  operations  of the acquired
business  with those of the Company,  or that all of the benefits  expected from
such  integration  will be realized.  Any delays or unexpected costs incurred in
connection  with such  integration  could have an adverse effect on the combined
company's business, operating results or financial condition. Furthermore, there
can be no  assurance  that  the  operations,  management  and  personnel  of the
companies will be compatible or that the Company will not experience the loss of
key  personnel.  The amount of net proceeds of this Offering,  if any,  expended
with respect to an  acquisition  will be determined by the Board of Directors of
the Company.  In most cases each acquisition may be consummated  without seeking
and obtaining  stockholder  approval,  in which case, the stockholders  will not
have an  opportunity  to  review  the  financial  statements  of an  acquisition
candidate.  Although the Company will endeavor to evaluate the risks inherent in
a  particular  acquisition,  there can be no  assurance  that the  Company  will
properly  ascertain or assess such significant  risk factors.  See "Risk Factors
Limited Sales and Marketing Experience",  "Business - Products and Services" and
"Business - Sales and Marketing".

     18. International  Expansion. As part of the Company's long range marketing
plan, the Company intends, in the future, to explore opportunities to expand its
operations into international markets which could require significant management
attention and financial resources.  Currently, the Company has not developed any
international  marketing  strategy,  has not given any significant  attention to
international   marketing,  and  has  no  timetable  in  mind  to  implement  an
international  marketing plan. For the foreseeable  future, the Company does not
expect  international  marketing  activities to be material nor does it have any
current  plans to devote  significant  capital  or  resources  to  international
marketing.  There can be no  assurance  that the  Company's  efforts  to develop
international sales and support channels will be successful. International sales
are subject to a number of risks,  including  potentially longer payment cycles,
unexpected changes in regulatory  requirements,  import and export  restrictions
and  tariffs,  difficulties  in staffing and managing  foreign  operations,  the
burden of  complying  with a variety  of foreign  laws,  greater  difficulty  in
accounts receivable collection,  potentially adverse tax consequences,  currency
fluctuations and potential political and economic instability. Additionally, the
protection of intellectual  property may be more difficult and costly to enforce
outside of the United  States.  In the event that the Company is  successful  in
expanding its sales and operations internationally, the imposition of, or change
in, price controls or other  restrictions on foreign currencies could materially
affect the Company's business, operating results and financial condition.
    


                                       15

<PAGE>



   
     19.  Control by Existing  Management  and  Stockholders;  Effect of Certain
Anti-Takeover  Considerations.  Upon  completion of the Offering,  the Company's
directors,  executive  officers  and certain  principal  stockholders  and their
affiliates  will  own  beneficially  approximately  39.3% of the  Common  Shares
(giving effect to the exercise of the Bridge Warrants and sales of Common Shares
by the Selling  Stockholders,  and without  giving effect to the exercise of the
Overallotment Option).  Accordingly, such holders, if acting together, will have
the ability to exert  significant  influence  over the election of the Company's
Board of Directors and other matters submitted to the Company's stockholders for
approval.  The voting  power of these  holders  may  discourage  or prevent  any
proposed  takeover of the Company  unless the terms thereof are approved by such
holders.  Pursuant to the  Company's  Certificate  of  Incorporation,  Preferred
Shares may be issued by the Company in the future without  stockholder  approval
and upon such terms as the Board of Directors may  determine.  The rights of the
holders of Common  Shares will be subject to, and may be adversely  affected by,
the rights of the  holders  of any  Preferred  Shares  that may be issued in the
future. The issuance of Preferred Shares could have the effect of discouraging a
third party from  acquiring a majority of the  outstanding  Common Shares of the
Company and  preventing  stockholders  from  realizing a premium on their Common
Shares.  The Certificate of Incorporation  also provides for staggered terms for
the members of the Board of  Directors.  A  staggered  Board of  Directors,  and
certain  provisions of the Company's  by-laws and of Delaware law  applicable to
the  Company  (which law  prohibits  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 it is approved in a prescribed manner), could delay or make
more  difficult a merger,  tender offer or proxy contest  involving the Company.
See  "Management",  "Principal and Selling  Stockholders"  and  "Description  of
Securities".

     20. Broad Discretion in Application of Proceeds; Repayment of Indebtedness.
While the Company  intends to use the net proceeds of this Offering as described
in the "Use of  Proceeds"  section of this  Prospectus,  the  Company  has broad
discretion  to adjust the  application  and  allocation  of such net proceeds in
order to  address  changed  circumstances  and  opportunities.  In  addition,  a
significant portion of the net proceeds of the Offering (36.8%) is allocated for
working  capital  purposes.  As a result of the  foregoing,  the  success of the
Company will be substantially  dependent upon the discretion and judgment of its
management with respect to the application and allocation of the net proceeds of
this  Offering.  Pending  use of the  proceeds,  the funds will be  invested  in
certificates of deposit,  high grade commercial paper and government  securities
or other low risk investments. See "Use of Proceeds".

     The Company intends to utilize an aggregate of $770,000,  or  approximately
16.4% of the net proceeds of this Offering,  to repay promissory notes issued in
connection with the Company's bridge financing transaction in October 1996. As a
result, these proceeds will not be available to fund future business activities.
See "Use of Proceeds", "Bridge Financing" and "Management".
    



                                       16

<PAGE>



   
     21. Lack of Prior Market for Common Shares;  Nasdaq SmallCap Market Listing
or No Assurance of Public  Trading  Market.  Prior to this  Offering,  no public
trading market existed for the Common Shares.  There can be no assurances that a
public  trading  market  for the  Common  Shares  will  develop or that a public
trading  market,  if  developed,   will  be  sustained.   Although  the  Company
anticipates  that, upon  completion of this Offering,  the Common Shares will be
eligible for inclusion on The Nasdaq SmallCap Market,  no assurance can be given
that the Common Shares will be listed  thereon.  Under  prevailing  rules of The
Nasdaq  Stock  Market,  Inc.,  in order to  qualify  for  initial  quotation  of
securities on The Nasdaq SmallCap  Market, a company,  among other things,  must
have at least  $4,000,000  in total  assets,  $2,000,000  in total  capital  and
surplus,  $1,000,000  in market value of public float and a minimum bid price of
$3.00 per share. Although the Company may, upon the completion of this Offering,
qualify  for  initial  quotation  of the Common  Shares on The  Nasdaq  SmallCap
Market,  in order for the Common  Shares to continue to be listed  thereon,  the
Company,  among other things,  generally  must have  $2,000,000 in total assets,
$1,000,000  in total  capital and surplus,  $1,000,000 in market value of public
float and a minimum bid price of $1.00 per share.

     Although it has no legal obligation to do so, the Underwriter may from time
to  time  act  as  a  market  maker  and  may  otherwise  effect  and  influence
transactions in the Company's  securities.  However,  there is no assurance that
the  Underwriter  will  continue  to effect and  influence  transactions  in the
Company's  securities.  The prices and liquidity of the Company's  Common Shares
may be  significantly  affected  by the  degree,  if any,  of the  Underwriter's
participation  in the market.  The Underwriter may voluntarily  discontinue such
participation  at any time.  Further,  the market  for,  and  liquidity  of, the
Company's Common Shares may be materially  adversely affected by the fact that a
significant  portion  of the  Common  Shares  may be  sold to  customers  of the
Underwriter.  See "Risk Factors - Inexperience of Underwriter",  "Risk Factors -
Impact of Proposed Nasdaq SmallCap Market Rules",  "Risk Factors - 'Penny Stock'
Regulations May Impose Certain  Restrictions on Marketability of Securities" and
"Underwriting".

     22.  Impact of Proposed  Nasdaq  SmallCap  Market  Rules.  The Nasdaq Stock
Market,  Inc.  has  proposed a rule  change  which,  if  adopted,  would  impose
substantially  more stringent  criteria for the initial and continued listing of
securities on The Nasdaq SmallCap  Market.  The proposed new rules provide that,
for initial listing on The Nasdaq SmallCap Market, a company would need to have,
among other things,  (i) either net tangible  assets (i.e.,  net of goodwill) of
$4,000,000,  a market capitalization of $50,000,000 or net income for two of the
last three fiscal years of $750,000, (ii) a minimum market value of public float
of $5,000,000, (iii) a minimum bid price of $4.00 per share, and (iv) either one
year of  operating  history  or a  market  capitalization  of  $50,000,000.  For
continued  listing on The Nasdaq SmallCap  Market, a company would need to have,
among other  things,  (i) either net  tangible  assets of  $2,000,000,  a market
capitalization  of  $35,000,000,  or net income for two of the last three fiscal
years  of  $500,000,  and  (ii) a  minimum  market  value  of  public  float  of
$1,000,000.  Additionally, for both initial listing and continued listing on The
Nasdaq  SmallCap  Market,  companies  would be  required  to have at  least  two
independent  directors,  and an Audit  Committee,  a majority  of the members of
which would need to be independent directors.
    


                                       17

<PAGE>



   
     If the Company is unable to satisfy the  requirements  for quotation on The
Nasdaq  SmallCap  Market,  trading,  if any, in the Common Shares offered hereby
would be conducted in the  over-the-counter  market in what is commonly referred
to as the "pink  sheets"  or on the NASD OTC  Electronic  Bulletin  Board.  As a
result,  an  investor  may find it more  difficult  to dispose  of, or to obtain
accurate  quotations  as to the price of, the  securities  offered  hereby.  The
above-described  rules may adversely  affect the liquidity of the market for the
Company's  securities.  If a trading  market does in fact develop for the Common
Shares offered hereby, there can be no assurance that it will be maintained.  In
any  event,  because  certain  restrictions  may be  placed  upon  the  sale  of
securities  at prices under $5.00 per share,  if the price of the Common  Shares
falls below such  threshold,  unless such Common Shares qualify for an exemption
from the "penny stock" rules,  such as a listing on The Nasdaq SmallCap  Market,
some brokerage firms will not effect  transactions  in the Company's  securities
and it is  unlikely  that any bank or  financial  institution  will  accept such
securities as collateral.  Such factors could have a material  adverse affect in
developing or sustaining any market for the Common  Shares.  See "Risk Factors -
Lack of Prior Market for Common Shares; No Assurance of Public Trading".

     23.  Arbitrary  Offering  Price;  Possible  Volatility of Stock Price.  The
initial public offering price of the Common Shares was determined by negotiation
between the Company and the  Underwriter,  may not be  indicative  of the market
price for such  securities  in the  future,  and does not  necessarily  bear any
relationship  to the  Company's  assets,  book  value,  net worth or  results of
operations of the Company or any other established  criteria of value. Among the
factors  considered  in  determining  the price of the  Common  Shares  were the
history of, and  prospects  for,  the  industry  in which the Company  operates,
estimates of the business  potential  of the Company,  the present  state of the
development of the Company's  business,  the Company's financial  condition,  an
assessment of the Company's management,  the general condition of the securities
markets at the time of this Offering,  and the demand for similar  securities of
comparable  companies.  It should be noted that the stock market in recent years
has experienced  extreme price and volume  fluctuations  that have  particularly
affected  the  market  prices  of  many  smaller  companies.   Frequently,  such
fluctuations   have  been  unrelated  or   disproportionate   to  the  operating
performance of such companies.  These fluctuations,  as well as general economic
and market conditions, may have a material adverse effect on the market price of
the  Common  Shares.  See   "Underwriting",   "Description  of  Securities"  and
"Financial Statements".

     24.  "Penny  Stock"   Regulations   May  Impose  Certain   Restrictions  on
Marketability  of  Securities.  The  Commission  has adopted  regulations  which
generally define "penny stock" to be any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions. If, as anticipated,
the Common  Shares  offered  hereby are  authorized  for quotation on The Nasdaq
SmallCap  Market upon the  completion of this  Offering,  such  securities  will
initially be exempt from the definition of "penny  stock".  If the Common Shares
offered  hereby are removed  from listing on The Nasdaq  SmallCap  Market at any
time,  the  Company's  Common  Shares  may become  subject to rules that  impose
additional  sales  practice   requirements  on  broker-dealers  that  sell  such
securities to persons other than established  customers and accredited investors
(generally  those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse).
    

                                       18

<PAGE>



   
For transactions  covered by these rules, the broker-dealer  must make a special
suitability  determination for the purchase of such securities and have received
the  purchaser's  written  consent  to the  transaction  prior to the  purchase.
Additionally,  for any transaction  involving a penny stock,  unless exempt, the
rules  require the  delivery,  prior to the  transaction,  of a risk  disclosure
document  mandated by the  Commission  relating to the penny stock  market.  The
broker-dealer   must  also   disclose  the   commission   payable  to  both  the
broker-dealer  and the  registered  representative,  current  quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must  disclose  this  fact and the  broker-dealer's  presumed  control  over the
market.  Finally,  monthly  statements  must be  sent  disclosing  recent  price
information  for the penny  stock held in the  account  and  information  on the
limited  market in penny  stocks.  Consequently,  the  "penny  stock"  rules may
restrict the ability of  broker-dealers  to sell the Company's Common Shares and
may affect the ability of  purchasers  in this  Offering  to sell the  Company's
Common  Shares  in the  secondary  market  as well as the  price at  which  such
purchasers can sell any such Common Shares.

     25. No  Dividends.  The Company has never paid any  dividends on its Common
Shares  and does  not  intend  to pay  dividends  on its  Common  Shares  in the
foreseeable   future.  Any  earnings  which  the  Company  may  realize  in  the
foreseeable  future are  anticipated to be retained to finance the growth of the
Company. See "Dividend Policy" and "Description of Securities".

     26. Shares Eligible for Future Sale May Adversely Affect the Market. All of
the Company's outstanding Common Shares are "restricted  securities" and, in the
future,  may be sold upon  compliance  with Rule 144 or pursuant to registration
under the Act (see discussion  below with respect to the  registration of Common
Shares held by certain  stockholders  of the Company and  underlying  the Bridge
Warrants held by the Bridge Lenders).  Rule 144 currently provides,  in essence,
that a person holding "restricted  securities" for a period of one year may sell
an amount every three months up to the greater of (a) 1% of the Company's issued
and outstanding securities of that class of securities or (b) the average weekly
volume of sales of such securities  during the four calendar weeks preceding the
sale if there is adequate current public  information  available  concerning the
Company.  Additionally,  non-affiliates  (who  have not been  affiliates  of the
Company for at least three  months) may sell their  "restricted  securities"  in
compliance  with Rule 144 without volume  limitations  after they have held such
securities for a period of two years. An aggregate of 406,250 Common Shares have
been owned by Mr. Lew for more than one year.  However,  such shares are subject
to an agreement with the  Underwriter  restricting the public sale thereof for a
period of one year without the Underwriter's consent.

     The Company is registering for resale 250,250 Common Shares held by certain
stockholders.  In addition,  the Company is  registering  for resale the 389,200
Common Shares  underlying the Bridge Warrants.  Such Common Shares may be resold
at any time  following  the date of this  Prospectus,  subject  to an  agreement
between  each  of  the  Bridge  Lenders  and  the  Underwriter  restricting  the
transferability  of the  Warrant  Shares for a period of two years.  Prospective
investors  should  be aware  that the  possibility  of  resales  by the  Selling
Stockholders,  as well as other stockholders of the Company, may have a material
depressive  effect on the market  price of the  Company's  Common  Shares in any
market  which may  develop.  See  "Bridge  Financing",  "Principal  and  Selling
Stockholders" and "Underwriting".
    

                                       19

<PAGE>





   
     27.  Limitations  on  Director  Liability.  The  Company's  Certificate  of
Incorporation provides, pursuant to Delaware law, that a director of the Company
shall not be personally  liable to the Company or its  stockholders for monetary
damages for breach of fiduciary  duty as a director,  with  certain  exceptions.
These  provisions  may  discourage  stockholders  from  bringing  suit against a
director  for  breach  of  fiduciary  duty  and may  reduce  the  likelihood  of
derivative  litigation  brought by stockholders on behalf of the Company against
any director. In addition,  the Company's Certificate of Incorporation  provides
for mandatory  indemnification  of directors and officers to the fullest  extent
permitted or not  prohibited  by Delaware  law. See  "Description  of Securities
Limitation on Liability of Directors; Indemnification".

     28. Impact of Inflation and Changing Interest Rates. Since the inception of
operations,  inflation has not  significantly  affected the operating results of
the Company.  However,  inflation and changing interest rates have a significant
effect on the economy in general  and,  therefore,  could  affect the  operating
results of the Company in the future.
    

                                 USE OF PROCEEDS

   
     The net  proceeds  to the  Company  from the sale of the  1,200,000  Common
Shares  offered  hereby  are  estimated  to  be  $4,700,000   (after   deducting
underwriting discounts of $600,000 and other expenses of this Offering estimated
to be $700,000, including the Underwriter's non-accountable expense allowance in
the amount of 3% of the gross proceeds of the Offering, and a $108,000 financial
consulting fee payable to the  Underwriter at the closing) (but not  considering
any exercise of the  Overallotment  Option or the Underwriter's  Warrants).  The
Company, based upon all currently available information, intends to utilize such
net proceeds approximately as follows:
    

<TABLE>
<CAPTION>

                                                              Approximate                Approximate
                                                                Amount of                 Percentage
                                                              Net Proceeds              of Net Proceeds
                                                              ------------              ---------------
<S>                                                         <C>                             <C>                     
   
Product enhancement and development(1)                      $  1,250,000                     26.6%
Repayment of indebtedness (2)                                    770,000                     16.4%
Marketing and advertising (3)                                    650,000                     13.8%
Hiring and training of additional personnel                      150,000                      3.2%
Purchase of equipment                                            150,000                      3.2%
Working capital (4)                                            1,730,000                     36.8%
                                                              -----------                   ------
          Total                                              $ 4,700,000                    100.0%
                                                             ===========                    ======
    
</TABLE>

                                       20

<PAGE>


(1)  Includes, without limitation,  costs to develop a radio modem to be used in
     connection  with  mobile  computing  software  systems.   See  "Business  -
     Products".

   
(2)  Represents  the  repayment of the Bridge Notes in the  aggregate  principal
     amount of $770,000 issued in connection with the Company's bridge financing
     transaction  in October 1996. The Bridge Notes are due and payable upon the
     closing of the Offering.  If such closing occurs on or before September 15,
     1997,  no interest  will be payable on the Bridge  Notes.  If the  Offering
     closes  after such date,  interest  shall  accrue on the  principal  of the
     Bridge Notes,  from the date such Bridge Notes were issued,  at the rate of
     12% per annum.  See "Risk  Factors - Broad  Discretion  in  Application  of
     Proceeds; Repayment of Indebtedness" and "Bridge Financing".
    

(3)  See "Business - Sales and Marketing".

   
(4)  To be used for general operating and overhead expenses.  Additionally,  the
     Company may use a portion of the  proceeds of this  Offering  allocated  to
     working  capital to acquire  technology  or assets to expand or enhance its
     product line and business.  At present,  the Company has not identified any
     acquisition  candidates,  nor can it  predict  that it  will  identify  any
     appropriate  acquisition  candidates  in the  future.  The  Company  is not
     actively seeking any acquisition candidates at this time. See "Risk Factors
     - Unascertainable  Risks Related to Possible Unspecified  Acquisitions" and
     "Business - Products and Services".
    

     The amounts  set forth above are  estimates.  Should a  reapportionment  or
redirection  of funds be determined to be in the best  interests of the Company,
the actual amount  expended to finance any category of expenses may be increased
or decreased by the Company's management, at its discretion.

     The Company  believes  that the proceeds of this  Offering  will enable the
Company  to expand  its  business,  which the  Company  anticipates,  but cannot
assure, will result in an increase in annual revenues. The Company believes that
the net proceeds of this Offering,  together with anticipated increased revenues
generated  from  operations,   will  be  sufficient  to  conduct  the  Company's
operations  for at least 12 months.  See "Risk  Factors - Dependence on Offering
Proceeds; Possible Need for Additional Financing".

   
     It is anticipated  that, to the extent that the Company's  expenditures are
less than projected and/or the proceeds of this Offering increase as a result of
the exercise by the  Underwriter  of its  Overallotment  Option,  the  resulting
balances  will be  retained  and  used for  general  working  capital  purposes.
Conversely,  to the extent that such  expenditures  require the  utilization  of
funds in excess of the amounts  anticipated,  additional financing may be sought
from other  sources,  including  Mr.  Honigsfeld  pursuant to the line of credit
discussed under "Certain Relationships and Related  Transactions".  There can be
no assurance that any additional financing will be available on terms acceptable
to the  Company  or  otherwise.  See "Risk  Factors  -  Dependence  on  Offering
Proceeds;  Possible  Need for  Additional  Financing"  and "Risk Factors - Risks
Attendant to Expansion".
    

                                       21

<PAGE>





     Pending use of the proceeds,  the funds will be invested in certificates of
deposit,  high grade  commercial paper and government  securities,  or other low
risk investments.

                                    DILUTION

   
     All references  herein to net tangible book value,  net tangible book value
per Common Share and the number of Common Shares  outstanding assume no exercise
of the Underwriter's  Overallotment  Option or the Underwriter's  Warrants.  See
"Underwriting".

     As of March 31, 1997, the Company had an aggregate of 986,700 Common Shares
outstanding and a net tangible book value (deficit) of ($628,273), or ($.64) per
share.  After  giving  retroactive  effect to the Debt  Conversion,  the Accrued
Compensation  Conversion,  and the Honigsfeld Option Exercise  (collectively the
"Pro Forma Transactions"), the Company's net tangible book value (deficit) as of
March 31,  1997 would have  decreased  by  $384,900  to  ($243,373)  and its net
tangible  book  value  (deficit)  per  share as of March  31,  1997  would  have
decreased  by $.45 per share to $(.19) per share.  Net  tangible  book value per
share  represents the total amount of the Company's  tangible  assets,  less the
total amount of its  liabilities,  divided by the total number of Common  Shares
outstanding.

     After giving retroactive effect to the Pro Forma Transactions, and the sale
of 1,200,000  Common  Shares by the Company at the  Offering  price of $5.00 per
Common Share,  with net proceeds of  $4,700,000,  the net tangible book value of
the Company as of March 31, 1997 would have been $4,668,995, or $1.88 per Common
Share. This amount represents an immediate  dilution (the difference between the
price per Common  Share to  purchasers  in this  Offering  and the pro forma net
tangible  book  value  per  Common  Share as of March  31,  1997,  after  giving
retroactive  effect  to the  Pro  Forma  Transactions  and the  issuance  of the
1,200,000 Common Shares) of  approximately  $3.12, or 62.4%, per Common Share to
new investors and an immediate  increase (the  difference  between the pro forma
net  tangible  book value per Common  Share as of March 31,  1997,  after giving
effect to the issuance of the  1,200,000  Common  Shares,  and the pro forma net
tangible book value per Common Share as of March 31, 1997,  before giving effect
to the  Offering), in each  case  giving  retroactive  effect  to the Pro  Forma
Transactions of approximately $2.07, or 41.4%, per Common Share to the Company's
current  stockholders.  Such increase to the Company's  current  stockholders is
solely  attributable  to the cash price paid by  purchasers of the Common Shares
offered for sale by the Company.
    


                                       22

<PAGE>


<TABLE>
   
The following table illustrates the per share dilution as of March 31, 1997:
<S>                                                                    <C>                <C>  
         Public offering price per share (1).........................                  $5.00


         Net tangible book value (deficit) per share
           historical at March 31, 1997..............................   ($.64)

         Increase per share attributable to the
            Pro Forma Transactions(2)................................     .45
                                                                        -----
         Net tangible book value per share (deficit) before
            giving effect to the Offering(2).........................    (.19)
         Increase per share attributable to the sale of the
           Common Shares offered hereby .............................    2.07
                                                                        -----
         Pro forma net tangible book value per share after the
           Offering (2) (3) .........................................                   1.88
                                                                                        ----
         Dilution per share to purchasers in the Offering (4) .......                   $3.12
                                                                                        ====
</TABLE>
    

(1)  Before  deduction of  underwriting  discounts and commissions and estimated
     expenses of the Offering.

   
(2)  Gives  effect  to  the  Debt  Conversion,   and  the  Accrued  Compensation
     Conversion and the Honigsfeld Option Exercise.

(3)  After  deduction of  underwriting  discounts and  commissions and estimated
     expenses of the Offering.

(4)  Does not give  effect to the  exercise of the  Underwriter's  Overallotment
     Option,  the  Underwriter's  Warrants,  the Bridge  Warrants,  or the Other
     Derivative  Securities  for the  purchase of 477,400  Common  Shares of the
     Company. See "Bridge Financing", "Management - Stock Option Plan", "Certain
     Relationships  and Related  Transactions",  "Description  of  Securities  -
     Common Shares" and "Underwriting".
    

     The following  table sets forth the relative cost and ownership  percentage
of the Common Shares offered hereby as compared to the Common Shares outstanding
immediately prior to the Offering.

<TABLE>
<CAPTION>
                   
                                          Common Shares                                            Average
                                              Acquired                  Total Consideration          Price
                                      Number         Percent           Amount         Percent       Per Share

<S>                                 <C>                <C>           <C>                <C>           <C> 
Current Stockholders........        1,282,700(1)       51.7%         $  553,325         8.4%          $.43
Purchasers of Common
    Shares in the Offering...       1,200,000(2)       48.3%         $6,000,000        91.6%         $5.00
                                    ---------         ------          ---------       -----
         Total...............       2,482,700(1)(2)   100.0%         $6,553,325       100.0%
                                    =========         =====           =========       =====
</TABLE>
    

                                       23

<PAGE>



   
(1)  Gives  effect to the issuance of 63,000  Common  Shares upon the closing of
     the Offering  pursuant to the Debt Conversion and the Accrued  Compensation
     Conversion.  Does not give effect to the exercise of the Bridge Warrants or
     the Other  Derivative  Securities.  See "Bridge  Financing",  "Management -
     Stock  Plans",   "Certain   Relationships  and  Related  Transactions"  and
     "Description of Securities - Common Shares".
    

(2)  Assumes  no  exercise  of  the  Underwriter's   Overallotment  Option.  See
     "Underwriting".

                                 CAPITALIZATION

   
     The  following  table sets forth the  capitalization  of the  Company as of
March 31, 1997 and as adjusted  to give effect to the  issuance  and sale of the
1,200,000  Common Shares  offered by the Company at $5.00 per Common Share,  and
the  application of net proceeds of  approximately  $4,700,000  therefrom.  This
table  should  be read in  conjunction  with  the  financial  statements  of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
    


<TABLE>
<CAPTION>
   
                                                                                March 31, 1997
                                                                                                    Pro Forma
                                                                    Actual     Pro Forma  (1)      As Adjusted(2)(3)

<S>                                                             <C>               <C>                   <C>     
Long-Term Debt................................................. $ 1,024,291       $824,291              $ 54,291
                                                                  ---------       -------               -------
Stockholders' Equity:
Preferred Shares, $.01 par value, 1,000,000
 shares authorized, none issued................................        -              -                     -

Common Shares, $.01 par value, 20,000,000 shares authorized,
  986,700 shares issued and outstanding (actual), 1,282,700
  shares issued and outstanding (pro forma)(1) and 2,482,700
  shares issued and outstanding (pro forma, as adjusted)(1)(2)..      9,867         12,827                24,827
Additional paid-in capital......................................  2,044,758      2,426,698             7,114,698
Retained earnings (Deficit).....................................   (913,480)      (913,480)           (2,470,530)
                                                                    -------         -------            ---------
Total Stockholders' Equity......................................  1,141,145      1,526,045             4,668,995
                                                                  ---------      ----------            ---------
Total Capitalization............................................ $2,165,436$     2,350,336            $4,723,286
                                                                  ==========     ==========            =========
</TABLE>

(1)  Gives  retroactive  effect to the Honigsfeld Option Exercise in April 1997,
     the   Debt   Conversion   and   Accrued   Compensation   Conversion.    See
     "Management-Stock   Plans"   and   "Certain   Relationships   and   Related
     Transactions".
    


                                       24

<PAGE>


   
(2)  Reflects the issuance of the 1,200,000 Common Shares of the Company offered
     hereby,  and the anticipated  application of the net proceeds of $4,700,000
     therefrom,  after  deducting  underwriting  discounts and  commissions  and
     estimated expenses of the Offering.

(3)  Reflects, a nonrecurring  deferred  financing charge of $1,557,050  (which
     includes, among other things, the difference between the fair market value,
     at the time the Bridge Warrants were issued,  of the Common Shares issuable
     upon  exercise  of the  Bridge  Warrants  ($4.00  per  share)  and (ii) the
     original  exercise  price of ($.50 per share) at the time the Bridge  Notes
     are repaid. See "Financial Statements, Note 7".
    

                                 DIVIDEND POLICY

     Holders of the Company's  Common Shares are entitled to dividends  when, as
and if  declared  by the  Board  of  Directors  out of funds  legally  available
therefor.  The Company has not  declared or paid any  dividends  in the past and
does  not  currently  anticipate  declaring  or  paying  any  dividends  in  the
foreseeable  future. The Company intends to retain earnings,  if any, to finance
the  development  and expansion of its business.  Future dividend policy will be
subject to the discretion of the Board of Directors and will be contingent  upon
future   earnings,   if  any,  the  Company's   financial   condition,   capital
requirements,  general business conditions, and other factors.  Therefore, there
can be no assurance that any dividends of any kind will ever be paid.

                                BRIDGE FINANCING

   
     In October  1996,  the Company  borrowed an aggregate  of $770,000  from 22
lenders  (the  "Bridge   Lenders")  in  a  financing   (the  "Bridge   Financing
Transaction")  in  which  the  Underwriter  acted  as the  placement  agent.  In
consideration for making the loans to the Company,  each Bridge Lender received,
for each  $10,000  loaned,  (i) a  promissory  note in the  principal  amount of
$10,000  (each a "Bridge  Note") and (ii) five year warrants for the purchase of
5,600 Common  Shares of the Company at an exercise  price of $.50 per share (the
"Bridge  Warrants").  Among  the  Bridge  Lenders  were  Dong W. Lew  ($70,000),
President of the Company, Mark Honigsfeld  ($60,000),  Chairman of the Board and
Chief  Executive  Officer of the Company,  Murray Gross  ($50,000),  a principal
stockholder of the Company (Mr. Gross  subsequently  transferred  all his Common
Shares in the Company to his  affiliate,  About Face,  Ltd.),  Robert H. Solomon
($45,000),  a  principal  stockholder  of the  Company,  and  John  P.  Hefferon
($10,000),  Executive  Vice  President  - Sales and  Marketing  of the  Company.
Subsequent to the closing of the Bridge Financing Transaction, two of the Bridge
Lenders agreed to cancel their Bridge  Warrants for the purchase of an aggregate
of 42,000  Common  Shares  (including  Mr.  Lew who  agreed to cancel his Bridge
Warrant for the purchase of 39,200 Common  Shares).  In addition,  subsequent to
such closing,  the Company and the Bridge Lenders agreed that the exercise price
of the Bridge Warrants would be $3.00 per share.  See  "Management",  "Principal
and Selling Stockholders" and "Certain Relationships and Related Transactions".


    

                                       25

<PAGE>


   
     Each of the  Bridge  Notes  is due and  payable  upon  the  closing  of the
Offering of the Company's securities described in this Prospectus, or over a 120
month period  commencing on September 15, 1999 if the Offering does not close by
then.  In the event such closing  occurs on or before  September  15,  1997,  no
interest  will be payable on the Bridge  Notes.  If the  Offering  closes  after
September 15, 1997 but before  September 15, 1999,  interest shall accrue on the
principal  of the Bridge  Notes,  from the date such Bridge Notes were issued at
the rate of 8% per annum.  If the  Offering  closes  after  September  15, 1999,
interest shall accrue on the principal of such Bridge Notes,  from the date such
Bridge Notes were issued,  at the rate of 12% per annum until such date, and the
Bridge Notes shall be payable in 120 equal  monthly  installments  with interest
accruing at the rate of 8% per annum.  The  Company  intends to use a portion of
the  proceeds of this  Offering to repay the Bridge  Lenders in full.  See "Risk
Factors  -  Broad   Discretion  in   Application   of  Proceeds;   Repayment  of
Indebtedness" and "Use of Proceeds".

     The  Company  entered  into the  Bridge  Financing  Transaction  because it
required  additional  financing  to fund  costs and  expenses  relating  to this
Offering, for certain Common Share repurchases that occurred upon the closing of
the Bridge Financing  Transaction,  to recruit additional personnel and training
costs, to fund product development costs, to relocate and expand its facilities,
and for working capital, and no other sources of financing were available to the
Company at that time. As part of the Bridge Financing  Transaction,  the Company
agreed to register, and has included in the Registration Statement of which this
Prospectus forms a part, the Common Shares underlying the Bridge Warrants issued
to the Bridge  Lenders  for resale  under the Act.  See  "Principal  and Selling
Stockholders" and "Underwriting".
    


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

Introduction

     The  Company  was  incorporated  in the State of New York on March 31, 1983
under the name of Coastal Computer Systems,  Inc. The Company was reincorporated
in the State of Delaware under its present name Compu-DAWN,  Inc. on October 18,
1996.  The  Company  is  engaged  in  the  business  of  designing,  developing,
licensing,  installing and servicing  computer software products and systems for
the law enforcement and public safety industry.

     The  Company  generates   revenues  from  the  granting  of  non-exclusive,
non-transferable  and non-assignable  licenses to use software it has developed,
through  fixed price  contracts.  Revenues  from such fixed price  contracts are
recognized using the percentage of completion method of accounting.  The Company
retains  title to the  software  and  warrants  that it will  provide  technical
support and repair any defects in the software at no charge. The warranty period
for each contract is negotiated  individually,  with the periods ranging from 90
days to three years. To date, repair costs have been minimal and, therefore, the
Company has not had to establish a reserve for warranty costs.


                                       26

<PAGE>



     The Company also provides  post-contract,  customer support to licensees of
its software. Revenues from such services are recognized ratably over the period
of performance. Fees billed and/or received prior to performance of services are
reflected as deferred revenues.

     The  Company's  revenues,   expenses  and  operating  results  have  varied
considerably  in the past and are likely to vary in the future.  Fluctuations in
revenues  depend on a number of factors,  some of which are beyond the Company's
control.  These factors  include,  among other things,  the timing of contracts,
delays  in  customer   acceptance  of  the  Company's  software  products,   and
competition. See "Risk Factors - Lengthy Sales Cycle".

   
     Historically,  the Company's  products were marketed primarily in the State
of New York.
    

Results of Operations

   
     Three Months Ended March 31, 1997 versus 1996 (unaudited)
    

     Revenues

   
     Total  revenues for the three months ended March 31, 1997 were  $185,801 as
compared to $91,519 for the corresponding  period of the prior year, an increase
of $94,282 or 103%.  The revenue  results  reflect an upturn in  software  sales
activity while maintenance income remained relatively stable.
    

     The Company  expects that it will be  successful  in obtaining  maintenance
contracts  for any new  systems  sold in the  future  and,  therefore,  deferred
maintenance revenues may vary accordingly.

   
     There is no assurance that the Company will be able to generate significant
revenues in future periods. In fact, for the foreseeable  future,  inherent with
the  typical  length  in the  sales  cycle for the  licensing  of the  Company's
software  products,  and with the  in-process  development of new products which
have not been brought to the market, the Company believes that it may experience
difficulties  in  generating   increased  revenues  from  new  sales.   However,
management of the Company  believes that through the use of the proceeds of this
Offering  for,  among other  things,  product  enhancement,  marketing,  and the
introduction of new products to the market, the Company will be able to increase
revenues over the long-term.
    

     Costs and Expenses

   
     Total costs for the three month  periods  ended March 31, 1997, as compared
to 1996,  increased to $639,698 from  $167,384.  This increase was primarily the
result of the costs  relating to the  enhancement  and refining of the Company's
current  product  line,  marketing  costs,  obligations  under new key  employee
compensation  agreements,  and the  lease for the  Company's  new  premises.  In
addition,  research and development costs increased to $47,913 from $30,914 when
comparing the three months ended March 31, 1997 to 1996.
    

                                       27

<PAGE>



   
     Income (Loss)

     For the three months  ended March 31,  1997,  the Company had a net loss of
$513,056,  or $.31 per share.  For the three months  ended March 31,  1996,  the
Company had a net loss of $57,261, or $.03 per share. The increased loss was due
to the  increased  costs,  as  described  above,  as well as the  effect  of the
amortization of the deferred financing costs which were recognized in connection
with the Bridge Financing Transaction.  Additionally, the Company may experience
a deferred  financing charge of up to  approximately  $1,557,050 at the time the
Bridge Notes are repaid. See "Financial Statements, Note 7".

     Year Ended December 31, 1996 versus 1995

          Revenues

     Total  revenues  for the year ended  December  31,  1996 were  $477,527  as
compared to $1,040,181 for the prior year, a decrease of $562,654 or 54.1%. This
decrease was primarily a result of the decrease in software  sales (due to fewer
units  sold).  Such  decrease  occurred  due to the  Company's  focus on raising
capital  (since late 1995 and  throughout  the year ended December 31, 1996) and
developing  new  technology,  which  diverted the Company's  resources away from
sales activities. Such development includes, among other things, the revising of
computer-aided  dispatching (CAD) and visual computer-aided  dispatching (V-CAD)
(which provides for visual graphic interface), and new wireless mobile computing
technology. The decision to focus on development activities rather than sales of
existing product was made in furtherance of the Company's long-term interest and
future  competitiveness  rather than to satisfy  short-term  goals.  The Company
believes that the development of enhanced and improved technology will allow the
Company to move away from customer specific one-time sales and enable it to mass
market certain of its products.  Management  does not believe that acceptance of
the Company's products or timing of contracts  significantly  contributed to the
decline in revenues during 1996. In addition, management of the Company does not
believe that  product  obsolescence  is a  significant  factor in the  Company's
business since it is continually  updating and enhancing its software  products.
As a result of the new systems licensed during 1995,  maintenance income for the
year ended December 31, 1996 increased by approximately  $52,000,  from $222,910
to $275,016, when compared to the year ended December 31, 1995.

     Costs and Expenses

     Total costs  increased from $910,200 to $1,087,020 when comparing the years
ended December 31, 1995 to 1996.

     Programming  costs  decreased from $404,165 for the year ended December 31,
1995 to $268,915 for the year ended December 31, 1996.  These costs decreased as
a direct  result of the  decrease in software  sales and  primarily  encompassed
salaries and wages and license fees for the Company's  main  computer  operating

    

                                       28

<PAGE>


   
system. General and administrative  expenses increased from $365,760 for 1995 to
$660,006 for 1996. This increase was primarily a result of increased payroll due
to new hires for  management  and  marketing.  Research  and  development  costs
increased from $140,275 to $158,099 when  comparing 1995 to 1996.  This increase
of 12.7% was due to increased payroll and related costs.
    

     Income (Loss)

   
     For the  year  ended  December  31,  1996,  the  Company  had a net loss of
$570,769,  or $.34 per share.  For the year ended December 31, 1995, the Company
had net income of  $78,660,  or $.05 per share.  The  principal  reason for this
decrease in earnings is the 54.1%  decrease in revenues as  discussed  above and
the  amortization  of the  deferred  financing  costs which were  recognized  in
connection with the Bridge Financing Transaction.  Additionally, the Company may
experience a deferred financing charge of up to approximately  $1,557,050 at the
time the Bridge Notes are repaid. See "Financial Statements, Note 7".
    

Liquidity and Capital Resources

   
     At March 31, 1997, the Company had cash of $30,016,  accounts receivable of
$197,011, a current ratio of .7:1 and a net worth of $1,141,145. At December 31,
1996,  the Company had cash of $286,497,  accounts  receivable  of  $100,010,  a
current  ratio of 1.5:1 and net worth of  $1,279,701.  Management of the Company
attributes  the  decline in its  financial  position  to the net loss during the
three month period ended March 31, 1997.

     In August 1996, the Company sold 480,300 of its Common Shares for aggregate
proceeds  of  $144,090.  Payment for these  shares was held in escrow  until the
consummation of the Bridge Financing  Transaction which was completed in October
1996 (as discussed below).

     In  October  1996,  in  the  Bridge  Financing  Transaction,   the  Company
successfully  completed the sale of 77 units,  each unit consisting of a $10,000
Bridge Note and a Bridge  Warrant to acquire  5,600 Common Shares of the Company
(Bridge Warrants to acquire 42,000 Common Shares were canceled subsequent to the
closing  of  the  Bridge  Financing   Transaction  as  discussed  under  "Bridge
Financing").  The  Bridge  Warrants  are  exercisable  only upon the  successful
completion of an initial public offering  ("IPO") of the Company's Common Shares
as discussed below. Each of the Bridge Notes is due and payable upon the closing
of the  Offering.  In the event such closing  occurs on or before  September 15,
1997, no interest will be payable on the Bridge Notes. See "Use of Proceeds" and
"Bridge Financing".

     In January 1997, the Company  entered into a secured  credit  facility loan
agreement (the "Credit  Agreement")  with Mark  Honigsfeld,  the Chairman of the
Board and  Chief  Executive  Officer  of the  Company.  Pursuant  to the  Credit
Agreement, the Company borrowed $200,000, all of which is currently outstanding.
The Company and Mr.  Honigsfeld have agreed to convert the outstanding loan into
40,000 Common Shares (an effective conversion price of $5.00 per share) upon the
closing of the Offering.  In April 1997, the Company and Mr. Honigsfeld  amended

    

                                       29

<PAGE>


   
the Credit Agreement to provide for an additional line of credit of $500,000. In
May  1997,  the  Company  borrowed  an  additional  $100,000  under  the  Credit
Agreement. The repayment of up to $200,000 under the Credit Agreement is secured
by a first  priority  security  interest in all the assets owned by the Company.
See "Certain Relationships and Related Transactions".

     A portion of the net proceeds of approximately $4,700,000 from the Offering
will be used for product enhancement and development, to repay the Bridge Notes,
for marketing and advertising,  for hiring and training of additional  personnel
and for the purchase of equipment. See "Use of Proceeds".

     Even though revenues declined  substantially during 1996, in such year, the
Company  moved  its  facilities  to new and more  costly  space  (see  "Business
Facilities" and "Financial  Statements,  Note 12a") and signed new  compensation
agreements with certain key employees (see "Management - Employment  Agreements"
and  "Financial  Statements,  Note 12d").  Both the new space and the  continued
employment  of these key  individuals  are  needed in order for the  Company  to
develop new, and enhance existing, products and to grow in the future. There can
be no  assurance,  however,  that  either of these  commitments  will  result in
increased revenues and earnings.  Until such time that the Company significantly
increases  revenues,  the new lease and  compensation  agreements  are likely to
result in continuing operating losses.
    

The Company currently has no planned capital commitments.

   
     Cash Flows - Three Months Ended March 31, 1997 versus 1996 (Unaudited)

     For the three  months  ended March 31,  1997,  cash  utilized by  operating
activities  was  $359,898 as compared to $27,998 of cash  provided by  operating
activities for the three months ended March 31, 1996. This is primarily a result
of the increased  operating  costs incurred  during the three months ended March
31, 1997.

     For the three  months  ended  March  31,  1997,  $12,617  was  provided  by
investing  activities,  primarily from the purchase by Mr.  Honigsfeld  from the
Company  of the  promissory  note  of  Dong  Lew (as  described  under  "Certain
Relationships and Related Transactions"),  net of fixed asset purchases. For the
three  months  ended  March 31,  1996,  no funds were  provided  or  utilized by
investing activities.

     For the three  months  ended March 31,  1997,  cash  provided by  financing
activities  aggregated  $90,800 due to the Company  borrowing  $200,000 from Mr.
Honigsfeld  under the Credit  Agreement,  net of certain  equity  purchases  and
expenses in connection with the Offering.  The Company  utilized cash of $10,774
in financing  activities for the three months ended March 31, 1996 primarily due
to certain equity transactions.
    




                                       30

<PAGE>



     Cash Flows - Year Ended December 31, 1996 versus 1995

     For the year ended December 31, 1996, cash utilized by operating activities
was $289,383 as compared to $50,654 of cash provided by operating activities for
the prior year. This is primarily a result of higher software sales generated in
1995 as compared to 1996 thereby generating more receipts from customers.

   
     For the year ended  December  31,  1995,  $32,712 was utilized by investing
activities,  primarily  for the  purchase  of fixed  assets.  For the year ended
December 31, 1996, $176,609 was utilized by investing  activities  primarily for
purchases of fixed assets and for a loan to an officer.

     For the year ended December 31, 1996, cash provided by financing activities
aggregated  $646,527,  primarily due to the  completion of the Bridge  Financing
Transaction in October 1996 in the amount of $770,000. The Company utilized cash
of  $98,063  in  financing  activities  for the year  ended  December  31,  1995
primarily  due to  payments  of debt and the  repurchase  of Common  Shares from
former shareholders.
    

     Other

   
     The Company  believes that the cash it generates from  operations,  and the
expected net proceeds  from the Offering,  will be  sufficient  for at least the
ensuing 12 month period.
    

Forward Looking Statements

     Except for historical  information  contained herein, the matters set forth
above  contain  forward  looking  statements  that  involve  certain  risks  and
uncertainties  that  could  cause  actual  results  to differ  from those in the
forward  looking  statements.  Potential  risks and  uncertainties  include such
factors as the level of spending by law  enforcement  and public safety agencies
for computer  application  software and hardware,  the  competitive  environment
within the industry,  the ability of the Company to expand its  operations,  the
competency required,  and experience,  of management to effectuate the Company's
business  plan,  the level of costs  incurred in  connection  with the Company's
planned expansion efforts, economic conditions in the industry and the financial
strength of the Company's customers and suppliers.


                                    BUSINESS

Introduction

     The Company is primarily engaged in the business of designing,  developing,
licensing,  installing and servicing computer  application  software systems for
law  enforcement  and public safety  agencies.  The Company's  software  systems
include  computer-aided  dispatching  ("CAD"),  computer interfacing with local,
state and national crime information databases, advanced wireless mobile on-line
communications computing ("AMO") (utilizing radio frequency), automatic vehicle

                                       31

<PAGE>



location  ("AVL")  (employing  dynamic map displays),  records  management,  and
photo-imaging  database systems. These modules may be integrated and licensed as
a package, or may be licensed individually.

   
     Certain  of  these  applications  utilize   telecommunications   and  space
satellite  technology,  other  infrastructure,  and  hardware  provided by third
parties.  The third party providers of such technology and infrastructure,  with
respect to a particular customer's system, vary depending on the location of the
customer  and whether or not the  customer  has a business  relationship  with a
third  party  provider.  Accordingly,  the  Company  is  not  dependent  on  any
particular third party's  technology or infrastructure  for its software systems
to function.  These third parties are typically  major CDPDs  (cellular  digital
packet  data  providers)  such  as  AT&T,  Bell  Atlantic   Corporation   ("Bell
Atlantic"),  NYNEX Corp.  ("NYNEX"),  and GTE, or dedicated radio frequency data
network  providers such as RAM Mobile Data USA Limited  Partnership ("RAM Mobile
Data") and  Motorola  Inc.  ("Motorola").  The  Company's  AMO  system  requires
computer  hardware and services from third party providers,  and interfaces with
dedicated  radio  frequencies  owned by the  Company's  customers  which require
special  radio  equipment  provided by companies  such as Motorola and Dataradio
Corp.  The Company's  customers may purchase  such  technology,  infrastructure,
services and hardware directly from these providers,  and, with respect to radio
equipment, through authorized dealers as well.
    

     The Company's  software is compatible with virtually all operating systems.
The Company has  installed  its systems in more than 55 agencies,  primarily law
enforcement  agencies  located in the state of New York. The Company  provides a
full range of product  support and  maintenance  services,  both  on-site and by
remote connection.

Industry Background

     The goal of law  enforcement  and public safety agencies is to maximize the
safety  and  improve  the  quality  of  life  of  people  and  communities.  The
effectiveness  of a law  enforcement or public safety agency is dependent on its
personnel and resources. Such effectiveness is enhanced by maximizing the patrol
time of agency personnel,  and the availability of timely, accurate and reliable
information. This allows services to be provided in an efficient, cost-effective
manner.  Computer  technology is an important tool for providing  information to
law enforcement and public safety personnel,  reducing  administrative  time and
streamlining procedures, to support an agency's strategic and operational goals.

     Generally,  a law  enforcement  or public safety  agency's  strategy is not
geared to one  overall  plan for an entire  community,  but is based on  several
individual plans addressing the unique needs of the neighborhoods  that comprise
that community. Agencies need the ability to maximize their resources, customize
information, analyze crime information by sector, district and area, and analyze
repeat call areas that tax agencies'  resources.  Additionally,  agencies have a
need to respond to  incidents  and 911 calls as  rapidly,  efficiently  and cost
effectively as possible.


                                       32

<PAGE>



     Computer  technology  has been  developed  for the public  safety market to
address these needs. CAD systems, integrated with enhanced 911 ("E911") systems,
allow a  dispatcher  to  retrieve  information  about  the 911  caller,  and the
location and the  individuals  involved in the incident being  reported.  Mobile
wireless communication systems in vehicles provide agency personnel in the field
with the ability to receive  information  regarding  an incident  and the people
involved, such as location, "mug shots" and photographs,  and arrest and booking
data.  Such systems also enable such personnel to go "on-line" with the agency's
database,  and with other vehicles, in real time. Wireless communication systems
also provide  personnel  with the capability to file reports from their vehicles
instead of having to return to the station.  This  increases  personnel time and
visibility in the community.  AVL system  technology  provides a dispatcher with
the capability of immediately  identifying the location of the most  appropriate
vehicle to  investigate  an incident,  significantly  shortening  response time.
Without an AVL system, a dispatcher has to alert the vehicles in the field of an
incident  and then wait,  as they report  their  location  and/or  availability,
before  determining which vehicle would be the most appropriate to respond to an
incident. Information sharing technology allows agencies to link their databases
to local,  state and national  crime  databases to access  information  for more
in-depth and  efficient  investigation  of  incidents.  Records  management  and
photograph imaging systems for law enforcement  agencies make arrest and booking
procedures and incident investigations more efficient, while similar systems for
fire and EMS departments  contribute to the efficient deployment of firefighting
and emergency  equipment and investigation of incidents.  Without a computerized
records management  system,  records and reports would need to be handwritten or
typed,  and physically  stored in various  filing  cabinets,  file rooms,  or on
microfilm or  microfiche.  In such form,  such reports are  comparatively  error
prone, and may be misplaced or unavailable,  which makes retrieval difficult and
time consuming. Computerized records systems allow for easy entry and retrieval,
and increased productivity, enabling agency personnel to spend more time "on the
beat" in the community.

     In essence,  the foregoing computer  technology enables law enforcement and
public safety  agencies to allocate and utilize  resources and manpower hours to
maximize their goal of public safety.

   
     The  Company  believes  that  the  market  for  application   software  and
technology  products utilized in the law enforcement and public safety market is
growing  due to (i) an  increased  public  and  governmental  priority  for  law
enforcement  and  public  safety,  (ii)  an  awareness  that  specific  computer
technology for the law  enforcement  and public safety market now exists,  (iii)
the availability of federal funding  assistance to obtain computer equipment and
technology,  (iv)  breakthroughs in development of new mobile wireless  computer
communications  technology  and (v)  acknowledgment  by  certain  agencies  that
computer-aided  law enforcement has contributed to a recent drop in crime rates,
and the ability to  effectively  handle  increasing  incidents of crime  without
increasing personnel. For example, The New York Times recently reported that New
York City's mayor and top police  officials  attribute that city's drop in crime
rate, in part, to a series of new police strategies which includes,  among other
things, the use of computer technology that has allowed the police department to
identify  crime  patterns  much more  quickly  and flood  problem  streets  with
undercover  and beat  officers.  Also, the city of Chicago has installed an E911
dispatch  system which has contributed to a recent decline in crime. In addition
to New York City and Chicago (which do not utilize Company systems), the city of
Glens Falls,  New York, a customer of the Company,  recently advised the Company
that, although incidents of crime had increased, its computer system enabled the
police department to effectively respond to, and handle, these incidents without
increasing personnel.
    

                                       33

<PAGE>



Development of Technology

   
     The  Company's  current  technology  has been  developed  and enhanced over
approximately an eight year period by Dong H. Lew, the Company's President, Alan
Daniels (the Company's founder and former President) and technicians employed by
the Company. Mr. Daniels no longer has any daily involvement with the operations
or research and development activities of the Company;  however, he is available
as needed by the Company, from time to time, pursuant to an informal arrangement
to provide consulting  services on technical issues and software  programming on
an hourly  basis.  The  Company's  technology  is not patented or covered by any
registered copyrights;  however, the Company believes that its software programs
have  copyright  protection  under  common law. The Company does not license any
technology  from third  parties  other than  technology  for  certain  operating
software. The Company continually undertakes research and development, under the
supervision of Mr. Lew, and Louis Libin, the Company's Chief Technology Officer,
to develop new,  and enhance  existing,  technology  and  products.  The Company
cannot,  however,  give any  assurance  that it will develop any new products or
technology,  or enhancements for existing  products and technology,  or that the
Company will have the services of Mr. Lew or Mr. Libin indefinitely.  If it does
develop or enhance any products or  technology,  the Company  cannot predict the
pace or time period of such new developments or enhancements, the costs relating
to such research and development (which could be significant or prohibitive), or
the availability of qualified technical personnel.  See "Risk Factors - Evolving
Market;  New Product  Development;  Technological  Obsolescence",  "Risk Factors
Intellectual  Property  Protection  and  Infringement",   "Risk  Factors  -  New
Management  Team;  Dependence  on  Executive  Management;  Need  to  Retain  Key
Personnel" , "Risk Factors - Dependence on Licensors" and "Business Intellectual
Property Rights and Licenses".
    

Products and Services

     Products

     The Company's software products consist of CAD systems,  computer interface
systems  which  connect  the  customer's  computer  system to  local,  state and
national crime information databases,  AMO communication systems utilizing radio
frequency,  AVL systems  employing  dynamic  map  displays,  records  management
systems, and photo-imaging  database systems.  Certain of the Company's software
systems  also   interface   with  and  utilize   space   satellite   technology,
telecommunications  technology,   computer  hardware  and  other  infrastructure
provided by third parties.  The Company's  software is compatible with virtually
all operating systems, utilizing a variety of software, including Windows(R) and
Unix(R). The Company's software also allows linkage of its products to mainframe
systems and is adaptable to both small and large hardware systems.

     The Company  markets its  products to law  enforcement  agencies  under the
ALECS 2000(TM)  (Advanced Law Enforcement  Computer  System) product line and to
fire and EMS departments  under its AFFECT(TM)  (Advanced  Firefighter  Computer
Technology) product line.

     The Company  licenses its  software to  customers in modules  pursuant to a
perpetual license. Customers may acquire all the modules as an integrated "total
solution" package, or any of the modules individually, on a stand alone basis or
as an addition to, or as a  replacement  for, an existing  system.  The software
modules  licensed from the Company can be integrated  with the customer's  other
software systems.  The Company's "total solution" package of integrated  modules


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maximizes efficiency since data entered into one module will be available in all
modules in real time. A hybrid  network  comprised  of certain of the  Company's
modules  and other  software  systems may  require  data to be entered  into the
Company modules and other software systems separately.

     The  price to the  customer  of the  Company's  products,  whether a "total
solution"  package or individual  modules,  varies depending on several factors,
including the need for, and existence of,  communication  infrastructure  in the
customer's  jurisdiction (such as radio towers necessary for AMO radio frequency
modules),  volume of use of telecommunications  systems (such as telephone lines
and radio cells), and the customer's computer hardware requirements to implement
the software system.

     The  Company's  ALECS  2000(TM)  product line for law  enforcement  and its
AFFECT(TM)  product  line for fire and EMS are  similar in many  respects.  Both
address the reporting of incidents, the dispatch of resources and the deployment
of personnel.

   
     In May 1997,  the Company  received  the 1997 Long Island  Software  Awards
("LISA") software product of the year award for its ALECS 2000(TM) software. The
Company competed with 15 finalists for this award including,  among others, Long
Island Lighting Company ("LILCO"), Henry Schein, Inc., Life Sciences Associates,
Lightstone Group, and Quantum Research and Technologies,  Inc. The 1997 LISA was
sponsored by the Long Island Research Institute, State University of New York at
Stony  Brook,  Cheyenne  Software,  Inc.,  Computer  Associates,   Inc.,  LILCO,
Renaissance Technologies and Symbol Technologies, Inc., among others.
    

     The Company's modules are described below. See "Business - Customers".

     Computer-Aided Dispatching - CAD and AVL

   
     The  Company's  CAD system,  under both the ALECS  2000(TM) and AFFECT (TM)
product lines, integrates several software and communications technologies, such
as E911 dispatch systems,  mapping software  integrated with global  positioning
systems for vehicle  tracking,  and  geo-based  mapping  systems,  which include
street addresses and intersections, longitude/latitude, and other information to
identify the  locations and addresses of  incidents.  The  integration  of these
systems  with the  Company's  CAD  software  provides to police and other public
safety  agencies the capability to respond rapidly and efficiently to incidents,
and streamlines record management, enhancing productivity and accuracy of record
keeping.  The  Company  is  currently  developing,  and  readying  for beta site
testing,   visual  CAD  software  (known  as  V-CAD,  or  Visual  Computer-Aided
Dispatching),  which,  in  addition  to having  greater  functionality  than the
current CAD system, is more user-friendly and provides the dispatcher with touch
screen graphical interfacing and the ability to dispatch police, fire and/or EMS
agencies at the same time.

     The CAD system allows the dispatcher receiving the E911 call to immediately
identify the caller's telephone number, the related address, and the name of the
telephone number owner (unless the call is made from a cellular phone).  The CAD
system enables the  dispatcher to access any records  maintained in the agency's
database  relative to that  person or the  location of the  incident  (e.g.  gun
permit  issued,  prior  domestic  violence or prank  calls) as well as in local,
state and national crime information databases.
    


                                       35

<PAGE>



     Once a decision is made to dispatch a vehicle to an  incident,  a record is
created and the location of the incident appears on a computer-generated  map of
the area. Using AVL software,  which links the customer's  system and a receiver
in each of the customer's vehicles to GPSs (global positioning satellites),  the
map also shows the position of vehicles  "in the field"  which are  available to
respond to the incident.  The dispatcher  can then select the closest  available
vehicle to respond to the  incident and can observe the movement of that vehicle
as it responds to the call.

     Wireless Mobile Data Communications System - AMO

     The Company has recently  developed and begun to market a wireless AMO data
communications  system which permits "on-line" real time access between vehicles
in the field and the central  database,  between the central database and local,
state or national  databases,  crime  information  centers and other centralized
computer records,  and between vehicles.  The Company's AMO system employs radio
frequency  networks (i.e.  private radio networks,  public radio  networks,  and
cellular  and short  range  spread  spectrum  technology)  to  provide  complete
communication  and access from the vehicle to the central  databases  as well as
vehicle to vehicle.  The Company's  AMO system allows the agency's  personnel to
log onto the customer's  central database  directly from their vehicles and have
access  to all  information  in such  central  database.  Additionally,  the AMO
technology  provides  capability for the agency's personnel to input information
into the agency's database directly from their vehicles,  and transfer or access
information  from vehicle to vehicle.  In comparison,  other currently  existing
competitive  mobile data access systems do not provide for on-line and real time
access to information between vehicles and the central databases, but only allow
for the  transmittal  of batch data from the central  databases  to vehicles and
vice versa.  AMO employs unique "text to voice"  technology  which converts data
received  by the  vehicles'  systems  from text into voice  data,  and, by voice
recognition,  converts  voice  commands into text to be sent to the  dispatcher.
This  enhances the safety of vehicle  operators  since they can receive and give
information  without having to divert their  attention to read a computer screen
or input  information by keyboard.  Furthermore,  the main police,  fire and EMS
radio channels are not employed and remain available.

     AMO, through the use of photo imaging technology,  allows "mug shots" to be
rapidly made  available at a crime or incident  scene,  or the  personnel at the
scene can create a permanent computer photograph record of the accident or crime
scene and transmit it directly  into the agency's  central  database or to other
vehicles.

     The Company intends to use a portion of the net proceeds from this Offering
to develop a radio modem to be used in connection  with the Company's AMO system
and other mobile computing software systems.  However, the Company cannot assure
that it will be  successful  in  developing  such a  radio  modem.  See  "Use of
Proceeds".

     The Company has sold AMO  systems  to, and  installed  such AMO systems in,
Onondaga  County  (New  York)  for its E911  department  which  covers  multiple
agencies such as police, fire and EMS departments,  the Putnam County (New York)
Sheriff's Department,  the Johnson City Police Department (in Broome County, New
York),  the Glens Falls Police  Department (in Warren County,  New York) and the
Long Beach and Garden City Police  Departments (in Nassau County, New York). See
"Business - Customers".

     As a recently  developed  product,  AMO is subject to the risks inherent in
the  development  of  new   technology,   including   unanticipated   delays  in


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<PAGE>



implementing the system,  expenses,  technical  problems or difficulties and the
possible  insufficiency of funding to complete development.  See "Risk Factors -
Evolving Market; New Product Development; Technological Obsolescence".

     Records Management

     The Company's  records  management  systems for law  enforcement  and other
public safety  agencies offers a wide range of options and flexibility to fit an
agency's  needs  and  budget.  The  ALECS  2000(TM)  records  management  system
processes data from the incident report through  prosecution,  and is made up of
component   sub-modular   units,   including  a  records  management  system,  a
photograph/"mug  shot" imaging system, a parking violation  system,  and a false
alarm billing system.  The AFFECT(TM)  records  management system processes data
from the incident  report through closing the  investigation,  and also provides
information such as the location of resources,  including,  without  limitation,
hydrants  and  secondary  sources of water (such as ponds,  lakes,  rivers,  and
seawater access), foam and other chemical fire extinguishing material, hoses and
jaws-of-life.

     As discussed above, the Company's  records  management  systems obviate the
need for  handwritten  or typed  reports and physical  filing  systems which are
cumbersome,  error prone, and make for difficult and time consuming  information
retrieval.

     Local Court Records Management and Sheriff's Records Management

     The Company's  products also include records  management  systems which are
specifically designed for local courts and sheriff departments.  The local court
records management system records summonses, tracks fines payable and enters the
appropriate dates on court calendars.  The sheriff's  records  management system
provides   several   functions   through  the   following   sub-modules:   civil
warrants/attachment records management,  pistol permit records management, photo
imaging/booking for county jails, property records management,  jewelry recovery
and pawn shop records management,  and police academy records management. One of
the goals of this  technology  is to  streamline  procedures  and allow for more
efficient allocation of resources and manpower hours.

     Services

   
          Installation and Training
    

     System  installation  is an integral  part of the Company's  services.  The
Company's  installation  procedure commences with an in-depth  consultation with
the customer to determine the appropriate  modules needed to meet the customer's
particular  requirements within budgetary parameters.  Once the customer's needs
have been  identified,  the Company provides  customized  system design and file
creation. The Company then implements the system, undertakes system start-up and
provides training for the customer's personnel in the operation of the Company's
software products.  Customer training is conducted either at the customer's site
or at a remote  location,  and can range up to several  days,  depending  on the
customer's particular system.

     Support and Maintenance

     The Company  provides  post-installation  system  software  maintenance and
training support for all of its software products. The Company's systems support
teams,  which  include  communications  and  software  technicians  and  program


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<PAGE>



developers,  are available to assist customers via telephone  access, 24 hours a
day, seven days a week, 52 weeks a year, and provide on-site  support,  pursuant
to a software  maintenance  agreement.  Software updates and enhancements to the
modules are included under  maintenance  contracts.  Customers pay the Company a
set monthly service fee (currently ranging between 1% and 2% of the installation
contract  value)  which  is  dependent  on  the  extent  and  complexity  of the
customer's system. Currently, the Company has maintenance agreements with all of
its customers. During the fiscal years ended December 31, 1995 and 1996, support
and maintenance income represented  approximately 21% and 58%, respectively,  of
the Company's revenues. See "Business-Customers".

     Possible Future Acquisitions

   
     In addition to the foregoing products and services,  the Company intends to
explore  opportunities to add, through  acquisition or licensing,  technology or
products to enhance or add to its current product line, or to acquire a customer
base or sales organization to augment the Company's infrastructure.  The Company
is not actively  seeking any  acquisition at this time. In exploring a potential
acquisition or license,  the Company will consider,  among other  criteria,  the
comparative  cost to the Company in capital,  resources  and personnel to create
the identified technology or product, or establish the targeted customer base or
sales organization, restrictions on the Company developing similar technology or
products arising from patent or other intellectual property protection,  and the
synergy of the identified technology or products with the Company's products and
organization.  At present,  the Company has not  identified  any  acquisition or
license  candidates  and it does  not  have  any  current  plans,  proposals  or
arrangements with respect to any acquisitions;  however,  it is actively seeking
such  candidates.  There can be no assurance  that the Company will identify any
acquisition  or  licensing  candidates  or, if it does,  that it will be able to
reach any  agreements to acquire or license  technology or products,  or acquire
assets,   on  terms  acceptable  to  the  Company.   With  respect  to  possible
acquisitions or licensing agreements,  the Company may, from time to time, enter
into agreements with related parties (of which none are presently contemplated).
In such case, the Company  anticipates that the terms of such agreements will be
commercially  reasonable  and no less  favorable to the Company than the Company
could obtain from unrelated  third parties.  Additionally,  the Company  intends
that such agreements will be approved by a majority of disinterested  directors.
See "Risk  Factors -  Unascertainable  Risks  Related  to  Possible  Unspecified
Acquisitions" and "Use of Proceeds".
    

Intellectual Property Rights and Licenses

   
     The  Company's  products are based on  approximately  3,000  interdependent
software  application  programs and system utility modules,  including  software
developed for creating  applications of the modules. The Company's technology is
not  patented  and the  Company  has not  obtained,  or applied  for,  copyright
registration  for any of its software.  Although the registration of a copyright
in the United States copyright  office provides a rebuttable  presumption of the
copyright's  validity,  such  registration  is not  required to make a copyright
legally  effective,  and the Company  believes  that its software  programs have
copyright protection.

     The Company believes that it takes at least two to three months of training
for a programmer to grasp the complete structure of the Company's software.  The
Company  requires  every  employee to sign an  agreement  of  nondisclosure  and
assignment of development  rights.  While large software vendors often institute
lawsuits to protect  software  property rights against  infringers,  the Company
believes that, in its case,  the complexity and total system  integration of the

    

                                       38

<PAGE>


   
Company's  products best protects its trade  secrets.  There can be no assurance
that the  intellectual  property  and  contractual  rights on which the  Company
relies to protect its  intellectual  property and  confidential  and proprietary
information  will provide it with  meaningful  protections.  See "Risk Factors -
Intellectual Property Protection and Infringement".
    


     The Company utilizes certain  operating system software (written in the "M"
computer programming language and owned by Intersystems, Inc. ("Intersystems")),
in the  development  of its software  systems.  The Company uses such  operating
system software  pursuant to a perpetual license which allows the Company to use
such software to create its software  modules,  and, in some cases,  to "bundle"
such  operating  system  software  with its own software as part of its software
products.  The  Company  pays  Intersystems  a monthly  fee to  sublicense  such
operating software (based on the number of product units in which  Intersystem's
operating system software is included),  and an annual fee to use such operating
software to create  software (based on the number of product units for which the
third party's  operating system software is used to create).  The termination of
this license could have a material  adverse  effect on the Company's  ability to
produce and deliver its software  products on a timely basis. If such license is
terminated,  the  Company  would be required  to license  alternative  operating
system  software.  The Company  believes  alternative  operating system software
written in different versions of the "M" computer  programming language is owned
by, and currently available from, other sources. However, the Company would have
to revise its software to make it  compatible  with such  alternative  operating
system  software,  which the Company  believes  would result in  production  and
delivery  delays of  approximately  three to six  months.  See  "Risk  Factors -
Dependence on Licensors".

Sales and Marketing

     According to the National Directory of Fire Chiefs and Emergency Department
(1993) and the National Directory of Law Enforcement  Administration (1996), the
national law enforcement and public safety market is estimated to have more than
18,000 law enforcement agencies and more than 35,000 fire departments.  Based on
management's exposure to the marketplace, the Company believes that the majority
of such  agencies  currently  have  limited or no  computerization  of their law
enforcement  and public  safety  activities.  The Company  believes  that mobile
wireless computer communications, computer-aided dispatching, integrated mapping
and photo-imaging technology have not been marketed extensively to a majority of
these agencies.

     The Company  intends to implement the following  marketing  strategy with a
portion of the proceeds of this  Offering,  although no assurances  can be given
that, if such marketing  strategy is  implemented,  it will be  successful.  See
"Risk Factors - Limited Sales and Marketing Experience" and "Use of Proceeds".

     Direct Marketing

     The Company  currently  participates  to a limited  extent in public safety
conferences  and trade shows,  holds  regional  seminars,  presents and conducts
demonstrations,  and conducts targeted mailings and phone campaigns. The Company
intends to expand such direct marketing significantly following the consummation
of this Offering.

                                       39

<PAGE>

     Current Customers

     Generally, once a system is designed and installed for a customer, there is
little repeat business other than maintenance and support,  and the provision of
software enhancements or updates.  Accordingly, the Company intends to intensify
sales efforts to current  customers for add-on products and to obtain references
for other prospective  customers,  a strategy which has been somewhat successful
with current sales resources. See "Business-Customers".

     Subcontracting and Business Partnership Opportunities

   
     The  Company is  pursuing a  strategy  whereby it seeks to create  business
partnerships and subcontractor  relationships  with large system integrators and
public  network  providers in order to have the resources  needed to establish a
presence in the "large size" market  segment (i.e.  departments or agencies with
more than 200 sworn officers or personnel).  Business partnerships are currently
in place with AT&T Wireless  Data,  Inc., GTE Mobilnet  Service Corp.,  and Data
General.  The Company is also seeking  subcontractor  relationships  with system
integrators and network  providers  including  International  Business  Machines
Corp.  ("IBM") (with which the Company has acted as a subcontractor in the past,
as described  below),  Bell Atlantic,  Motorola and RAM Mobile Data. No revenues
have been derived to date from the Company's  established business  partnerships
(which  set  forth  the  relationship  of the  parties  in the event of a system
installation  and do not relate to any  particular  customer  contracts)  and no
assurances  can be given that the Company  will derive  revenues  therefrom.  In
addition,  no assurances can be given that the Company will enter into any other
business partnerships or subcontractor relationships.

     The Company monitors  governmental  announcements  of officially  published
requests for proposals  ("RFPs") to find business  partnership or subcontracting
opportunities.  The selection of the appropriate  large system integrator by the
Company as a potential business partner or prime contractor often depends on the
specifications  in the RFP. The Company's  strategy  includes contact with large
system  integrators to demonstrate the Company's product  capabilities and, more
importantly,  to establish a credible presence for participating in "large size"
market segment projects. Although, in the past, the Company has had some success
in partnering with large system integrators,  no assurance can be given that the
Company will be viewed by these  entities as an acceptable  business  partner or
subcontractor  in the  future.  If the  Company  is unable to  establish  such a
business relationship,  its plans to expand into the "large size" market segment
may be delayed or hindered  due to a limitation  of resources  needed to respond
competitively   to  RFPs  or  to  meet  "large  size"  market   segment   agency
requirements.   See  "Risk   Factors-Dependence  on  Business  Partnerships  and
Subcontractor  Relationships",  "Risk  Factors  - Limited  Sales  and  Marketing
Experience" and "Business - Competition".
    



                                       40

<PAGE>



     Increase in Sales Staff

   
     Until  recently,  the  Company had no sales  staff and sales  efforts  were
conducted by one of the Company's principals and its project manager.  Since the
closing of the Bridge  Financing  Transaction,  the  Company has  retained  four
full-time sales associates. The Company intends to use a portion of the proceeds
of this  Offering  to  increase  sales  staff in order to  penetrate  geographic
markets  beyond New York.  In  addition,  the  Company  has  engaged a marketing
support  person,  a  technical  writer  and  other   individuals  to  coordinate
installations,  handle subcontract relations with large system integrators,  and
provide technical sales support. See "Risk Factors - Challenges to Management of
Growth",  "Risk Factors - Limited Sales and  Marketing  Experience"  and "Use of
Proceeds".
    

Customers

   
     The Company has installed  various modules of its software systems for, and
provides maintenance and support services to, 58 customers,  54 of which are law
enforcement  agencies and four of which  include fire and EMS  departments.  The
following  customers  accounted for the following  percentage of software  sales
revenues  for the fiscal year ended  December  31,  1995:  Onondaga  County (New
York), 42.8% and the Queens County (New York) District Attorney, 21.4%. No other
customer  accounted for 10% or more of the Company's  software sales during such
period.  The following  customers  accounted for the  following  percentages  of
software sales for the year ended December 31, 1996:  Madison County (New York),
28.2% and Westchester County (New York),  18.6%. No other customer accounted for
10% or more of the  Company's  software  sales during such  period.  The project
undertaken by the Company for Onondaga  County is described  below.  The Company
provided  consulting  services to the Queens County District  Attorney's  Office
with  respect  to  the  conversion  of an  early  dialect  of the  "M"  computer
programming  language  running on that agency's old hardware system to a current
standard  version  of  "M"  running  on  a  high-speed  multi-processor  Unix(R)
computer.  The  Company  sold to, and  installed  in,  Madison  County a records
management system, a CAD system, and a specialized version of a network wireless
radio system  between fixed  points,  for that  county's  fire  department.  The
Company  sold to, and  installed  in,  Westchester  County a records  management
system,  a CAD system,  a photo imaging system and special modules such as civil
warrant processing,  jury duty processing,  pawn shop records and police academy
records.  The Company does not rely on past  customers for future  revenues from
sales and installations of software systems.  Accordingly,  the Company will not
suffer any material adverse effect if the Company does not sell software systems
to such customers in the future.

     Based on the  experience  of management  in the  marketplace,  management's
discussions  with a senior New York State Division of Criminal  Justice Services
official and an E911 consultant to a major telecommunications  company, a recent
referendum in Bergen County,  New Jersey supporting the regionalized  sharing of
services by towns and municipalities, and the specifications of RFPs received by
the Company  soliciting  bids for law  enforcement  and public  safety  software
systems,  the  Company  believes  that  there  is a trend  away  from  town  and

    

                                       41

<PAGE>



   
municipality dispatching and toward county-wide dispatching. As a result of this
trend,  the  Company  believes  that there will be a need in the near future for
comprehensive  public safety  systems which will address and integrate the needs
of police,  fire and EMS  departments.  As a "total  solution"  software  system
provider,  the Company believes that, with the proceeds of this Offering and the
successful implementation of its marketing and product development plan, it will
be in a  position  to meet  such  needs.  See  "Risk  Factors  -  Dependence  on
Significant Customers", "Use of Proceeds" and "Business - Sales and Marketing".
    

     Typically, a customer will procure a software system from the Company under
a perpetual license,  pursuant to which the Company will be paid a percentage of
the license fee at the time the contract is entered into,  and then will receive
further installments as certain performance milestones are met, until completion
of the contract. After the contract is completed, any further revenues from that
customer are usually derived from a maintenance and support contract.  From time
to time, however,  the Company may receive additional contracts from an existing
customer for add-on modules,  an aspect of business which the Company intends to
market more aggressively in the future. See "Business-Sales and Marketing".

     The  length  of time  that it  takes to  complete  a  systems  installation
contract varies (generally from three to twelve months), depending on the nature
and complexity of the system and the customer's internal procurement procedures.
During the period of time that  installments are being paid, the customer,  or a
small  number of  customers  with  contracts  in  progress,  may  account  for a
significant percentage of the Company's revenues.  However, once those contracts
are completed, such customers will no longer represent a material portion of the
Company's  future  revenues.  Accordingly,  the  Company  does  not rely on such
customers for a continuing  revenue stream and the Company does not believe that
the make-up of its current significant customers is material to an understanding
of the Company's future business  prospects.  However,  the Company  anticipates
that at any particular time a limited number of large customers will continue to
represent a significant  portion of its revenues for the foreseeable future. See
"Risk  Factors - Lengthy  Sales Cycle",  "Risk  Factors - Evolving  Market;  New
Product Development;  Technological  Obsolescence",  "Risk Factors - Significant
Customers" and "Business - Sales and Marketing".

     The following two examples are  illustrative of the diverse  application of
the Company's products and services:

   
     (i)  The Onondaga  County Police  Department  utilizes an AMO  application,
          designed, developed and installed by the Company, which links over 700
          police,  fire and EMS  vehicles.  For this  project,  the  Company was
          retained by IBM as a  subcontractor  to design,  develop,  install and
          service  all  the  required  AMO   software.   The  project   included
          integration by the Company of IBM and Digital Equipment Corp. hardware
          which  already  contained   application  software  provided  by  other
          subcontractors   for  both  records   management  and   computer-aided
          dispatch; and
    

     (ii) The Company, as prime contractor,  designed, developed and installed a
          "total  solution"  system for the Putnam County  Sheriff's  Office,  a
          comparatively small agency of seven vehicles.  The system consisted of
          a records management system, a CAD system and an AMO system.

                                       42

<PAGE>


Competition

     The Company faces competition in the "small size" market segment (which the
Company  views as  departments  or agencies  with 20 or fewer sworn  officers or
personnel)  and the "medium  size" market  segment  (which the Company  views as
departments  or  agencies  with 21 to 200  sworn  officers  or  personnel)  from
companies such as NewWorld Systems, Pamet Systems, Inc. and Software Corporation
of America.  Although such competitors  have  significantly  greater  financial,
technical and other resources than those of the Company,  the Company feels that
it has been  able to  compete  successfully  in such  market  due to its  "total
solution" system integration  technology and local presence,  the Company having
installed  systems in over 50 "small  size" and  "medium  size" law  enforcement
agencies in the state of New York.  The Company  believes  further  that,  as it
expands its presence to other geographical  areas and market segments,  sales to
such agencies are likely to develop outside of its current primary market of New
York.

   
     The Company  believes  that more intense  competition  exists in the "large
size" market segment in which the system price ranges widely (between $1 million
and $100  million)  depending on the size of the customer and the  complexity of
the system (as  compared to the  Company's  typical sale in the "small size" and
"medium size" market segments, which historically has ranged between $25,000 and
$350,000). The "large size" market is dominated by software vendors, such as PRC
Public Safety, Inc. and Systemhouse,  Ltd., and large system integrators such as
IBM, Andersen  Consulting,  Electronic Data Systems and Harris  Corporation.  In
order to  penetrate  the "large size"  market  segment,  the Company is pursuing
business  partnerships  or  subcontracting   relationships  with  large  systems
integrators  having greater  financial  resources and name  recognition than the
Company.  The  Company  believes  that,  in the  future,  through  an  extensive
marketing plan, it can build brand name awareness for its products and services.
The Company cannot, however, assure that it will be successful in this strategy.
See "Risk Factors - Competition" and "Business - Sales and Marketing".
    

     The  Company  believes  that the  mobile  wireless  computer  communication
technology  sub-market is in its infancy.  With the development of the Company's
AMO system  utilizing radio frequency  networks as discussed  above, the Company
believes that, with sufficient  resources,  it will be capable of increasing its
sale price range to between $75,000 and $1 million per  installation,  depending
on the customer size and the extent and complexity of the system.

     The Company further believes that large software  companies,  communication
equipment   companies  and  computer   hardware   companies  are  currently  not
concentrating  their  resources on the law  enforcement and public safety market
because of that market's  special  requirements  for secure radio operations and
the  particular   applications  and  expertise  needed  to  meet  those  special
requirements.  Additionally,  most "large size" agencies have a general need for
highly specific  customized  systems and systems  integration.  Generally,  such
companies  that do have an interest in pursuing the law  enforcement  and public


                                       43

<PAGE>


safety  markets  look for a business  partner,  like the  Company,  that has the
necessary  expertise  to design and install law  enforcement  and public  safety
systems.  The Company also believes that, as a "total solution"  provider in the
field of law enforcement and public safety computer  technology,  it is, subject
to  obtaining  the   appropriate   resources,   positioned  to  develop  generic
communications software protocols for secure on-line radio frequency mobile data
transmission  basic to almost  all mobile  computers  for  police,  fire and EMS
departments.  See "Business - Products and  Services"  and  "Business  Sales and
Marketing".

Employees

   
     The  Company  currently  has  24  full-time  employees  and  one  part-time
employee, including eight software developers/programmers, one technical writer,
one marketing employee,  four sales persons, and 12 executive and administrative
personnel.  The Company also has two part-time industry consultants.  Management
believes that its relations with its employees are satisfactory.
    

     The Company's  Product  Development Group performs research and development
activities  and  its  Customer  Service  Support  Group  handles  installations,
maintenance and service.  The Company's new customers are trained by consultants
who  generally  are  retired  and   active-duty   police  officers  from  police
departments  that have systems  installed by the Company.  The  Company's  daily
operations  are  managed  by  a  software  development  manager,  a  manager  of
operations, and a director of technology.

Facilities

     The  Company's   executive   offices  are  located  at  77  Spruce  Street,
Cedarhurst,  New York where it leases  approximately 5,000 square feet of space.
The  premises  are held  pursuant  to a five year  double net lease  expiring in
September 2001 that provides for a base annual rental of approximately  $85,000.
The  Company  believes  that its  premises  are  adequate  for its needs for the
foreseeable future.


                                       44

<PAGE>



<TABLE>

<CAPTION>
                                                    MANAGEMENT

Executive Officers and Directors

       The names and ages of, and the positions held by, the executive  officers
and directors of the Company are set forth below.
                                                                                             
<S>                               <C>              <C>                                         <C>
                                                                                               Class of
Name                              Age              Positions Held                              Directorship(1)

   
Dong W. Lew                         67             President,  Chief Operating                         I
                                                   Officer, Treasurer and Director
    

Mark Honigsfeld                     43             Chairman of the Board,  Chief                      II
                                                   Executive Officer, Secretary
                                                   and Director

Louis Libin                         38             Chief Technology Officer and                      III
                                                   Director

John P. Hefferon                    51             Executive Vice President - Sales                    -
                                                   and Marketing

William D. Rizzardi                 54             Director                                            I

Harold Lazarus, Ph.D.               70             Director                                           II
</TABLE>


- ------------------
(1) The Company's  Certificate  of  Incorporation  provides for three classes of
directors. The term of each class is three years except that the initial term of
office of the Class I directors  will expire at the Company's  annual meeting of
stockholders  in 1997 and the initial  term of office of the Class II  directors
will expire at the Company's annual meeting in 1998.

       Dong W. Lew
                Mr. Lew joined the  Company in 1988.  He was  elected a director
       and the  President  in August  1992 and was elected  Treasurer  in August
       1996.  He  graduated  from  the  Massachusetts  Institute  of  Technology
       ("M.I.T.")  with a Bachelor of Arts Degree in  Business  and  Engineering
       Administration,  and has  over 25  years of  experience  in the  computer
       industry.  From  1981  to  1988,  Mr.  Lew  was an  independent  computer
       consultant providing turnkey computer systems with custom software to the
       manufacturing and publishing  industries.  Prior to 1981, he was employed
       in computer  systems  design and  managerial  capacities by such firms as
       Mergenthaler,  Inc.,  Harris-Intertype,  Inc., and Codesco International,
       Inc.


                                       45

<PAGE>



       Mark Honigsfeld
                Mr.  Honigsfeld  joined the  Company as  Chairman  of the Board,
       Secretary and a director in August 1996 and,  effective  October 1, 1996,
       he was  elected  Chief  Executive  Officer of the  Company.  In 1978,  he
       founded Facelifters Home Systems,  Inc. ("FACE"), a cabinet manufacturing
       and installation  company for which he served as Chief Executive  Officer
       and  Chairman of the Board until April 25,  1996.  On such date,  FACE, a
       publicly-traded  company,  was  acquired  by a New  York  Stock  Exchange
       company in a transaction  valued at  approximately  $70 million to FACE's
       stockholders. Prior to the merger, FACE's revenues on an annualized basis
       approached  $50 million.  As the  founder,  Chief  Executive  Officer and
       Chairman  of the Board,  Mr.  Honigsfeld  was  directly  involved  in the
       planning  and  development  of  almost  all  areas  of  FACE's  business,
       including  corporate  finance,  public  offerings,   investor  relations,
       mergers and  acquisitions,  licensing,  product  design and  engineering,
       sales and marketing, manufacturing, field installation, customer service,
       management  information  services and management  training.  Prior to the
       sale  transaction,  FACE had  approximately  600 employees and associates
       representing  its  products  and  services at 28  locations in 14 states,
       approximately  135  telemarketing  personnel,  180  direct  sellers,  120
       manufacturing    employees   and   165   supervisory,    management   and
       administrative personnel. In addition, FACE had working arrangements with
       approximately  175  independent  contracting  companies  nationwide.  Mr.
       Honigsfeld  holds a Bachelor of Science Degree in Industrial  Arts, magna
       cum  laude,  and a Master of  Science  Degree in  Industrial  Arts,  with
       honors, from City College of the City University of New York.

   
       Louis Libin
                Mr. Libin joined the Company in January 1997 on a per diem basis
       as Chief Technology Officer and a director.  Effective March 10, 1997, he
       began to serve as the Company's Chief  Technology  Officer on a full-time
       basis.  Since  1989,  Mr.  Libin has  represented  the  United  States on
       satellite and transmission issues at the International Telecommunications
       Union  (the  "ITU")  in  Geneva,  Switzerland.  Mr.  Libin  has also been
       Chairman of the Expert Group On Broadcast Interactive Services of the ITU
       since  1991.  From 1987 to 1997,  Mr.  Libin  served as the  Director  of
       Technology  (specializing  in  broadcast  transmission  systems)  for the
       General  Electric  Corporation  ("GE")  and  the  National   Broadcasting
       Corporation.  From 1995 to 1997,  Mr.  Libin  also  served  as  Assistant
       Secretary  of all GE's  wholly-owned  subsidiaries  that are  involved in
       broadcast media, with the responsibility  for technical  developments and
       all Federal  Communications  Commission  (the "FCC") issues and licenses.
       From 1983 to 1986, Mr. Libin was a project manager for Radio  Corporation
       of America ("RCA") until RCA's  acquisition by GE. From 1981 to 1982, Mr.
       Libin was  employed  by the Loral  Corporation  as an  electronic  design
       engineer where he designed radio frequency  systems for the United States
       military.  From 1980 to 1981,  Mr.  Libin was a design  engineer  for the
       Chryon  Corporation,  a computer graphics company.  From 1979 to 1980, he
       worked for  Burroughs  Computer  Systems,  Inc. (now part of Unisys) as a
       field  engineer.  Additionally,  since  1988,  Mr.  Libin  has acted as a
       consultant  and  advisor to the FCC in  connection  with the  planning of
       communications  systems  and  logistics  for major  events in the  United
       States  and  abroad,   including  political   conventions,   presidential
       inaugurations, and
    

                                       46

<PAGE>



     the  Olympics.  Mr. Libin is an active  member of the  National  Society of
     Professional  Engineers  and  the  Association  of  Federal  Communications
     Consulting Engineers. He also sits on the Engineering Advisory Board of the
     National Association of Broadcasters.  Mr. Libin received a B.S.E.E. Degree
     in  Electrical  Engineering  from the Pratt  Institute  and  completed  his
     graduate studies in optical  electronics at M.I.T.'s  Executive  Program in
     1991. Mr. Libin has planned and managed telecommunications  projects in the
     United States and in Europe. Mr. Libin was responsible for the planning and
     implementation  of a new television and  telecommunications  network in New
     Zealand in 1990. Mr. Libin has also provided expert consulting on satellite
     issues in certain of the republics of the former  Soviet  Union.  Mr. Libin
     was also instrumental in the development of the new transmission technology
     and the algorithms for software  modeling of the new North American digital
     terrestrial  television  system which was approved by the FCC in 1996.  Mr.
     Libin has  published  numerous  scientific  papers in radio  frequency  and
     telecommunications.

       John P. Hefferon
                Mr.  Hefferon  joined the Company in October  1996 as  Executive
       Vice President - Sales and Marketing.  From January 1973 to January 1987,
       he served  in  various  positions  with Wang  Laboratories,  Inc.  ("Wang
       Laboratories"),  including sales representative, branch manager, district
       manager, Atlantic area director and Eastern Regional Vice President Sales
       and  Marketing of Wang  Financial  Information  Services  Corporation,  a
       subsidiary of Wang  Laboratories  (a position he held for eleven  years).
       From  January 1987 to November  1988,  Mr.  Hefferon  worked for Computer
       Leasing,  Inc.  where he was involved in arranging  lease  financing  for
       multi-million dollar IBM mainframes in the Fortune 500 marketplace.  From
       late 1988 through March 1990, Mr. Hefferon was Eastern Regional  Director
       for Imnet, Inc., a start-up imaging software company.  From March 1990 to
       August 1995, Mr. Hefferon served in several executive sales and marketing
       positions with Allerion, Inc., a network systems integrator.  From August
       1995 to October 1996,  Mr.  Hefferon  served as Vice President - Sales of
       Ultradata Inc., an application software company.

       William D. Rizzardi
                Mr.  Rizzardi  joined the Company in January 1997 as a director.
       Since December 1996, Mr. Rizzardi has been the President of Environmental
       Solutions Corporation,  a bio-remediation company. From 1995 to 1996, Mr.
       Rizzardi  was an  independent  management  consultant  to the Long Island
       Research Institute, a not-for-profit  technology development  laboratory.
       From 1979 to 1994,  Mr.  Rizzardi  held various  positions  with Northrop
       Grumman  Corporation  and its  affiliates,  including a Vice President of
       Grumman  Data  Systems  Division,   where  he  was  responsible  for  the
       development,  operations and support of all  information  systems for the
       Grumman Corporation,  Corporate Vice President of Information  Management
       and Chief  Information  Officer of Grumman Data Systems  Division,  and a
       Vice  President  of  Northrop  Grumman  Corporation  - Data  Systems  and
       Services  Division  following the  acquisition of Grumman  Corporation by
       Northrop Corporation.  Mr. Rizzardi received a Bachelor of Science Degree
       in Nuclear  Physics from City College of the City  University of New York
       and a B.S.E.E. Degree in Management from the Sloan School of M.I.T.

                                       47

<PAGE>



        Harold Lazarus, Ph.D 

   
               Dr.  Lazarus  joined the Company as a director in March 1997. Dr.
        Lazarus has been a Professor of Management  at the Hofstra  University
        Frank G. Zarb School of Business (the "Hofstra Business School") since
        1980.  From 1973 to 1980,  Dr.  Lazarus  served as Dean of the Hofstra
        Business School. Dr. Lazarus is an organization development consultant
        who  lectures in Europe,  Asia,  North  America  and South  America on
        leadership,  time  management,  total  quality  management,   managing
        change, effective meetings,  problem solving, decision making, mission
        statements, management by objectives, and communications.  Dr. Lazarus
        was  Professor of  Management  at the New York  University  Leonard N.
        Stern School of Business for ten years, and he also taught at Columbia
        University Graduate School of Business and Harvard University Business
        School.  Dr. Lazarus  currently  serves as a director of  Graham-Field
        Health Products, Inc., a New York Stock Exchange - listed manufacturer
        and  wholesaler  with $200 million in annual  sales.  Dr.  Lazarus has
        served on several boards of directors of public companies in the past,
        including FACE, Ideal Toy Corporation, Superior Surgical Manufacturing
        Company, and Stage II Apparel  Corporation.  Dr. Lazarus has published
        seven books and 65 articles on business management. He also chairs the
        board of Phi Beta Kappa Alumni of Long Island (New York).  Dr. Lazarus
        received a Masters of Science Degree and a Doctor of Philosophy Degree
        in Management and Marketing from Columbia University.
    

       Each  director  will  hold  office  until  the  next  annual  meeting  of
stockholders  during  the year in which  the term of his  class of  directorship
expires and until his  successor is elected and  qualified.  Executive  officers
serve at the pleasure of the Board of Directors.  See "Risk Factors - Control of
the Company" and "Certain Relationships and Related Transactions".

       There is no  family  relationship  among any of the  Company's  executive
officers and directors.

Executive Compensation

       The following  table provides  summary  information  concerning  cash and
certain other  compensation  paid or accrued by the Company to, or on behalf of,
Mr. Lew, the Company's President, and Mr. Honigsfeld,  the Company's Chairman of
the Board and Chief Executive  Officer,  during the last three fiscal years. Mr.
Honigsfeld  was  elected  Chairman of the Board and Chief  Executive  Officer in
August 1996 and October 1996,  respectively.  No other executive  officer of the
Company had a combined salary and bonus in excess of $100,000 for the year ended
December 31, 1996.


                                       48

<PAGE>


<TABLE>


<CAPTION>
                                            SUMMARY COMPENSATION TABLE

                                             Annual Compensation            Long-Term  Compensation
                                                                         Awards                 Payouts
                                                                 Restricted  Securities
      Name and                                  Other Annual       Stock   Underlying      LTIP       All Other
Principal Positions      Year  Salary    Bonus  Compensation      Award(s)    Options     Payout     Compensation

<S>                      <C>    <C>       <C>         <C>            <C>      <C>         <C>            <C>             
   
Mark Honigsfeld (1)      1996   $62,500(2) -           -              -       233,000      -             -
Chairman of the Board,   1995    -         -           -              -         -          -             -
Chief Executive Officer  1994    -         -           -              -         -          -             -
and Secretary
Dong W. Lew (3)          1996   $87,500(4)$15,000 (5)  -              -       156,950      -             -
President and            1995   $70,980    -           -              -         -          -             -
Treasurer                1994   $70,980    -           -              -         -          -             -
- -----------
    
</TABLE>

(1)    Mr. Honigsfeld was elected Chief Executive Officer of the Company and was
       entitled to compensation effective as of October 1, 1996.

   
(2)    Represents  accrued and unpaid salary relating to 1996 (based on a salary
       of $250,000 per annum) which is being converted into 12,500 Common Shares
       at the closing of the Offering. See "Management - Employment Agreements".
    

(3)    Mr. Lew acted as the Company's  Chief  Executive  Officer  during 1994,
       1995 and the period January 1, 1996 to September 30, 1996.

(4)    Based upon a salary of $75,000 per annum from January 1, 1996 to 
       September 30, 1996 and $125,000 per annum from October 1, 1996 to 
       December 31, 1996.

   
(5)    Represents an accrued and unpaid signing bonus (relating to the execution
       of Mr.  Lew's  employment  agreement  in  October  1996)  which  is being
       converted  into 3,000 Common Shares at the closing of the  Offering.  See
       "Management - Employment Agreements".
    

       Each  non-employee  director  of the  Company  is  entitled  to receive a
director's fee of $500 per meeting (other than telephonic  meetings) and options
to purchase 5,000 Common Shares of the Company each year,  which options will be
exercisable  for a period of ten years  from the date of grant,  at an  exercise
price equal to the market price of the  Company's  Common  Shares on the date of
the grant.  Additionally,  each  non-employee  director will be  reimbursed  for
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors of the Company.  The members of the Board of Directors  intend to meet
regularly, as needed.





                                       49

<PAGE>



       The following table sets forth certain information  concerning individual
grants of stock options during the fiscal year ended December 31, 1996:

       
<TABLE>
<CAPTION>
                        OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1996

                         Number of                       Percentage of Total
                         Common Shares Underlying        Options Granted To
Name                     Options Granted                Employees in Fiscal Year     Exercise Price    Expiration Date
- ----                     ---------------                ------------------------     --------------    ---------------

<S>                            <C>                                <C>                   <C>              <C>  
Mark Honigsfeld                233,000                            46.9%                 $.30            July 31, 2001
Dong W. Lew                    156,950                            31.6%                 $.30            July 31, 2001

</TABLE>
   
       No options were exercised during the fiscal year ended December 31, 1996;
however, in April 1997, Mr. Honigsfeld exercised his options for the purchase of
233,000 Common Shares.
    

Employment Agreements

       The Company is a party to Employment  Agreements with Mark Honigsfeld and
Dong W. Lew,  each for a term of three years  commencing  as of October 1, 1996,
subject to continuing,  automatic one-year extensions, unless either the Company
or the  individual  notifies  the  other,  at least 90 days  prior to any annual
anniversary date, of its desire not to extend the term thereof.  Each Employment
Agreement provides for earlier termination as discussed below.

     Pursuant to their respective Employment  Agreements,  Mr. Honigsfeld serves
as Chairman of the Board and Chief Executive  Officer of the Company and Mr. Lew
serves as President and Chief Operating Officer of the Company.

   
       The  Employment  Agreements  provide  for  base  annual  compensation  of
$250,000 and $125,000 for Messrs.  Honigsfeld and Lew, respectively.  No amounts
due Mr.  Honigsfeld  under his Employment  Agreement have been paid to date. The
Employment  Agreement  for Mr. Lew provides for a signing bonus in the amount of
$15,000,  none of  which  has been  paid to  date.  Of the  accrued  and  unpaid
compensation payable to Mr. Honigsfeld,  $100,000 is being converted into 20,000
Common Shares at the closing of the Offering.  In addition,  the $15,000 signing
bonus  payable to Mr. Lew is being  converted  into 3,000  Common  Shares at the
closing of the Offering.

       In addition to base compensation,  each of Messrs.  Honigsfeld and Lew is
entitled to receive (i) an annual bonus  amount  equal to a  percentage  of base
salary  (ranging  from 7 1/2% to 20%) based upon the Company  achieving  certain
sales levels  (ranging from  $3,750,000 to $6,000,000 in the initial year,  with
$1,000,000 increased sales level thresholds per year if the bonus is earned in a
particular  year) and (ii) an annual  bonus based on the  Company's  EBITANC (as
defined  below),  if any.  Such  latter  bonus for each ranges from 5% to 10% of
EBITANC based on EBITANC thresholds ranging from $250,000 to $1,500,000. EBITANC
is an amount equal to the Company's  earnings  before  deducting the  following:
interest expense,  taxes, and any one time  nonrecurring  charges resulting from
divestitures, acquisitions, consolidations, restructurings and changes in
    

                                       50

<PAGE>



   
accounting  principles.  The use of  EBITANC,  as opposed to  earnings,  has the
effect  of  increasing  the  earnings  base  (by  the  amount  of  the  excluded
deductions) for the purpose of calculating the bonus.

       The  Employment  Agreements  for Messrs.  Honigsfeld and Lew also provide
that each is  entitled  to  receive,  for each  year  thereof,  options  for the
purchase of 5,000  Common  Shares of the  Company for each  $100,000 of EBITANC.
Such options would be exercisable for a five year period at an exercise price of
no less than 110% of the market  value of the  Common  Shares on the date of the
grant.  Messrs.  Honigsfeld  and Lew are also  entitled  to  receive  an expense
allowance of up to $500 per month and an  automobile  allowance in the amount of
$1,000 per month.
    

       Each  Employment  Agreement  provides that,  notwithstanding  the rolling
three year term thereof,  it may be  terminated  prior to such  expiration  date
under the following circumstances: (i) death; (ii) total disability (as provided
for in the Employment Agreements);  (iii) termination by the Company for "cause"
(as defined in the Employment  Agreements);  (iv)  termination by the Company at
any time upon written  notice to the employee;  (v)  termination by the employee
upon 30 days written notice to the Company;  (vi) termination by the employee at
any time for "good reason" (as defined in the Employment  Agreements);  or (vii)
termination  by the  Company  at any time  within 12 months  after a "change  in
control"  (as  defined  in  the  Employment   Agreements).   Additionally,   Mr.
Honigsfeld's  Employment Agreement allows him to devote up to 10% of his working
time to other endeavors which are not in competition with the Company.

       The  Employment   Agreements   provide  for  compensation  under  certain
circumstances  upon termination of employment (in addition to accrued but unpaid
compensation)  as  follows:  (i)  in the  event  of the  employee's  death,  the
employee's  estate or spouse shall be entitled to receive an amount equal to the
employee's  monthly  salary as of the date of death  multiplied by the number of
full  years  that  he was  an  employee  of the  Company  or a  subsidiary  or a
predecessor  in  interest  thereof;  (ii)  in the  event  of  termination  of an
Employment  Agreement  due to  disability,  the  employee  shall be  entitled to
receive an amount equal to his monthly  salary as of the date of  termination of
such Employment Agreement, multiplied by the number of full years that he was an
employee of the Company or a subsidiary  or a  predecessor  in interest  thereof
(but, in no event, would the disabled employee be entitled to an amount equal to
less than six  months of  salary);  and  (iii) in the  event of  termination  of
employment  by the  Company  following  a "change of  control" or for any reason
other than death,  disability or "cause",  or in the event of  termination of an
Employment  Agreement by the employee for "good  reason",  the employee shall be
entitled to receive his full salary for the  unexpired  term of such  agreement,
without mitigation of damages based upon employment obtained elsewhere.

       The Employment  Agreements  provide for a restriction on the solicitation
of  customers  of the  Company for a period of two years  following  termination
thereof,  and a covenant  not to compete  with the  Company  for a period of six
months  following  termination of employment for cause.  See "Risk Factors - New
Management Team; Dependence on Executive Management; Need to Retain Key
Personnel".

                                       51

<PAGE>



   
       Effective  January 6, 1997,  the Company and Louis Libin  entered  into a
three-year  employment  agreement,  providing  for Mr.  Libin  to  serve  as the
Company's Chief Technology Officer on a non-full-time per diem basis until March
10, 1997,  and on a full-time  basis  commencing on such date.  Such  employment
agreement provides for a salary of $200,000,  $225,000 and $250,000 per annum in
the first,  second and third  years,  respectively.  Additionally,  Mr.  Libin's
Employment  Agreement  allows  him to  devote  up to one  day a  week  to  other
endeavors  which are not in  competition  with the  Company.  Other terms of Mr.
Libin's employment  agreement conform in structure to the material provisions of
Messrs.  Honigsfeld's and Lew's Employment Agreements such as bonuses, benefits,
restrictive covenants and termination.

Stock Plans

  1996 Stock Option Plan
    

       The Company's  1996 Stock Option Plan (the "1996 Plan")  provides for the
grant of options intended to qualify as "incentive stock options" ("ISOs") under
Section 422 of the Internal  Revenue Code of 1986, as amended (the "Code"),  and
options that are not intended to so qualify ("Nonstatutory Stock Options").  The
total  number of Common  Shares  reserved  for  issuance  under the 1996 Plan is
2,000,000  (subject to adjustment in the event of a stock split, stock dividend,
recapitalization  or similar  capital  change) plus an  indeterminate  number of
Common Shares issuable upon the exercise of "reload options".

       The 1996 Plan is presently  administered by the Board of Directors of the
Company,  which  selects the eligible  persons to whom options shall be granted,
determines  the number of Common  Shares  subject to each  option,  the exercise
price therefor and the periods during which options are exercisable,  interprets
the provisions of the 1996 Plan and, subject to certain  limitations,  may amend
the 1996 Plan. Each option granted under the 1996 Plan is evidenced by a written
agreement between the Company and the optionee.

       Options may be granted to all full-time  employees  (including  officers)
and  directors of, and certain  consultants  and advisors to, the Company or any
subsidiary of the Company.

       The exercise  price for ISOs granted  under the 1996 Plan may not be less
than the fair  market  value of the  Common  Shares  on the date the  option  is
granted, except for ISOs granted to 10% stockholders which must have an exercise
price of not less than 110% of the fair market value of the Common Shares on the
date the option is granted. The exercise price for Nonstatutory Stock Options is
determined  by the Board of  Directors.  ISOs granted under the 1996 Plan have a
maximum  term of ten years,  except for 10%  stockholders  who are  subject to a
maximum term of five years. The term of Nonstatutory Stock Options is determined
by the  Board  of  Directors.  Options  granted  under  the  1996  Plan  are not
transferable, except by will and the laws of descent and distribution. The total
amount of ISOs that may be granted to any individual person in any calendar year
is limited;  however,  there is no limit as to Nonstatutory  Stock Options.  The
Company and the Underwriter have agreed that, for a period of one year after the
date of this Prospectus, there shall

                                       52

<PAGE>



not be  outstanding  more than  1,100,000  options and warrants  (excluding  the
Bridge Warrants and Underwriter's Warrants).

   
       As of the date of this  Offering,  there are  outstanding  under the 1996
Plan (i)  currently  exercisable  options held by Mr. Lew for the purchase of an
aggregate  of  156,950  Common  Shares at an  exercise  price of $.30 per share;
above);  (ii) ten year options held by Messrs.  Honigsfeld  and Hefferon for the
purchase of 100,000 and 5,000 Common Shares, respectively,  at an exercise price
of $3.00 per share,  which vest in January 1998;  (iii) ten year options held by
Messrs.  Libin and Rizzardi for the purchase of 50,000 and 5,000 Common  Shares,
respectively,  at an exercise price of $3.00 per share,  which vest in one-third
increments in January 1998,  1999,  and 2000;  (iv) ten year options held by Dr.
Lazarus for the  purchase of 5,000 Common  Shares at an exercise  price of $3.00
per share, which vest in one-third  increments in March 1998, 1999 and 2000; (v)
various  options  granted to certain  non-executive  employees of the Company to
purchase an aggregate of 124,250 Common Shares;  and (vi) reload options,  which
apply to all the  options  granted  under the 1996  Plan.  Most  grants  were at
exercise prices at least equal to the fair market value of the Company's  Common
Shares  on the  date  of  grant,  as  determined  by  the  Board  of  Directors.
Compensation  expense has been reflected for certain options granted at exercise
prices which were below the deemed fair value at date of grant.

       1997 Qualified Employee Stock Purchase Plan

       The Company's  1997  Qualified  Employee  Stock  Purchase Plan (the "1997
Plan") provides for the grant of options  intended to qualify as "employee stock
options" under  Sections  421,423 and 424 of the Code. A total of 250,000 Common
Shares are reserved for issuance  under the 1997 Plan  (subject to adjustment in
the event of a stock split, stock dividend or similar capital change).

       The 1997 Plan is presently  administered by the Board of Directors of the
Company.  Any person who has been an  employee  of the  Company for at least one
year,  who works at least 20 hours per week  continuously,  or full-time  for at
least five months in each calendar  year,  and who does not have more than 5% or
more of the total combined voting power or value of all classes of capital stock
of the Company,  is eligible to participate in the 1997 Plan. The exercise price
of the options shall be the lesser of 85% of the fair market value of the Common
Shares at the time of the grant,  or 85% of the fair market  value of the Common
Shares at the time the option is exercised.  No employee can be granted  options
to buy more than 5,000 Common  Shares,  or a number of Common  Shares  valued in
excess of $25,000,  per year. As of the date of this  Offering,  no options have
been granted under the 1997 Plan.
    

                       PRINCIPAL AND SELLING STOCKHOLDERS

   
       The following table sets forth certain information as of the date of this
Prospectus with respect to the beneficial  ownership of the  outstanding  Common
Shares of the  Company  by (i) any  holder  of more  than 5% of the  outstanding
Common Shares; (ii) the Company's  directors;  (iii) the directors and executive
officers  of the  Company as a group;  and (iv) the  Selling  Stockholders.  The
number of Common Shares under the column below entitled "Number of Common Shares
Beneficially
    

                                       53

<PAGE>



   
Owned Before the Offering" includes, for the holders of the Bridge Warrants, the
Common Shares underlying the Bridge Warrants (which become  exercisable upon the
consummation of the Offering).
    
<TABLE>

<CAPTION>
                                                                                        Percentage of Class(1)
Name and Address         Number of Common                         Number of Common       ----------------------
of Beneficial Owner;     Shares Beneficially     Number  of     Shares Beneficially     
Name of Selling          Owned Before the      Common Shares     Owned After the          Before       After
Stockholder              Offering                Offered            Offering             Offering     Offering(2)

<S>                         <C>                <C>                <C>                       <C>         <C>  
   
Dong W. Lew(3)            869,650(4)(5)(6)           0            566,200(4)              58.3%       18.7%
Mark Honigsfeld(3)        656,800(7)            33,600            623,200                 49.9%       21.7%
About Face, Ltd. (8 )     103,075(4)(9)        103,075                  0                  7.9%          -
Robert H. Solomon(10)     100,275(4)(11)       100,275                  0                  7.7%          -
Robert LoRusso(12)        100,100(4)           100,100                  0                  7.8%          -
Harvey Bibicoff(13)        70,000(14)           70,000                  0                  5.2%          -
Apollo Equities(15)        56,000(14)           56,000                  0                  4.2%          -
James Favia                42,000(14            42,000                  0                  3.2%          -
Sydney Gluck               22,400(14)           22,400                  0                  1.7%          -
Steven Wallitt             16,800(14)           16,800                  0                  1.3%          -
John Eckhoff               14,000(14)           14,000                  0                   *            -
Kenneth Moschetto          14,000(14)           14,000                  0                   *            -
Lawrence Levine            11,200(14            11,200                  0                   *            -     
Maretza Jimenez
  Campos                   11,200(14)           11,200                  0                   *            -
Lori Siegal                11,200(14)           11,200                  0                   *            -
Horizon Acquisitions        8,400(14)            8,400                  0                   *            -
Stuart Copperman            5,600(14)            5,600                  0                   *            -
Teddy Selinger              5,600(14)            5,600                  0                   *            -
John P. Hefferon            5,600(14)            5,600                  0                   *            -
Peter Guardino              2,800(14)            2,800                  0                   *            -
James Portnof               2,800(14)            2,800                  0                   *            -
Windsor L. P.               2,800(14)            2,800                  0                   *            -
Louis Libin (3)                 0                    0                  0                   -            -
William D. Rizzardi (3)         0                    0                  0                   -            -
Harold Lazarus (16)             0                    0                  0                   -            -
Directors and executive
  officers as a group
  (6 persons)              1,532,050(4)(5)(6)   39,200           1,189,40               100.0%         39.3%
                                     (7)(17)
</TABLE>

    

*      Less than 1%.

(1)  Does not give  effect to the  exercise of the  Underwriter's  Overallotment
     Option or the Underwriter's Warrants. See "Underwriting".

   
(2)  Gives  effect to the issuance and sale of 389,200  Common  Shares  issuable
     upon the exercise of the Bridge Warrants.

(3)  The address for Messrs.  Lew,  Honigsfeld,  Libin and Rizzardi is 77 Spruce
     Street, Cedarhurst, New York.
    


                                       54

<PAGE>



   
(4)  The  number  of Shares  reflected  as being  owned by Mr.  Lew  before  the
     Offering includes all of the shares  beneficially owned by Messrs.  LoRusso
     and Solomon and About Face,  Ltd.,  as such shares are subject to a limited
     irrevocable proxy which will expire upon consummation of this Offering. See
     "Certain Relationships and Related Transactions".

(5)  Includes 156,950 shares issuable upon the exercise of options granted under
     the 1996 Plan and 3,000  shares  issuable  at the  closing of the  Offering
     pursuant to the conversion of accrued and unpaid compensation in the amount
     of $15,000.  See  "Management  - Stock  Plans" and  "Management  Employment
     Agreements".

(6)  In October  1996,  the Company made a $70,000 loan to Mr. Lew, the proceeds
     of which  were  utilized  by him to  participate  in the  Bridge  Financing
     Transaction.  In March 1997, Mr. Honigsfeld  purchased from the Company the
     promissory  note  evidencing the loan. Mr. Lew has pledged 28,000 shares to
     secure the repayment of the loan to Mr. Honigsfeld.  Mr. Lew retains voting
     rights to such shares  unless and until there is a default  under the terms
     of the loan. See "Certain Relationships and Related Transactions".

(7)  Represents (i) 33,600 shares issuable upon the exercise of Bridge Warrants,
     (ii) 563,200  shares held by the Mark  Honigsfeld  Living Trust dated March
     27,  1996  (the   "Honigsfeld   Trust")  whose  sole   beneficiary  is  Mr.
     Honigsfeld's  wife and (iii) 60,000 shares issuable to the Honigsfeld Trust
     at the closing of the Offering  pursuant to the conversion of  indebtedness
     in the amount of  $200,000,  and  accrued  and unpaid  compensation  in the
     amount of $100,000, owed by the Company to Mr. Honigsfeld.  Mr. Honigsfeld,
     the settlor and trustee of the Honigsfeld Trust, has the right to terminate
     the  Honigsfeld  Trust and  receive the  shares.  See  "Bridge  Financing",
     "Management-Employment  Agreements" and "Certain  Relationships and Related
     Transactions".

(8)  About Face,  Ltd.'s address is 6539 Waggoner Drive,  Dallas,  Texas.  About
     Face,  Inc.,  a Texas  corporation,  is the general  partner of About Face,
     Ltd.,  a  Texas  limited   partnership.   Murray  Gross  is  the  principal
     stockholder  of About Face,  Inc.  Mr.  Gross is also a limited  partner of
     About Face, Ltd.

(9)  Includes 28,000 shares issuable upon the exercise of the Bridge Warrants.

(10) Mr. Solomon's address is 68 West Park Avenue, Long Beach, New York.

(11) Includes 25,200 shares issuable upon the exercise of the Bridge Warrants.

(12) Mr. LoRusso's address is 410 Jericho Turnpike, Jericho, New York.

(13) Mr. Bibicoff's address is 55 Maple Run Drive, Jericho, New York.

(14) Represents shares issuable upon the exercise of the Bridge Warrants.
    

                                       55

<PAGE>



   
(15) Apollo Equities' address is 30 Broad Street, New York, New York.

(16) The  address  for Dr.  Lazarus  is  Management,  228  Weller,  134  Hofstra
     University, Hempstead, New York.

(17) Includes  5,600 shares  issuable to Mr.  Hefferon  upon the exercise of the
     Bridge Warrants.

       The Company will not receive any of the  proceeds  from the resale of the
Common Shares by the Selling Stockholders. The Common Shares held by the Selling
Stockholders  may be resold at any time  following the date of this  Prospectus,
subject to an agreement  between each of the Bridge Lenders and the  Underwriter
restricting  the transfer of the Warrant  Shares for a period of two years.  The
sale of such Common  Shares or the  potential of such sales at any time may have
an adverse effect on the market prices of the Common Shares offered hereby.  The
Underwriter  has agreed  with the  Company  that it will not waive the  transfer
restrictions  with respect to the Warrant Shares prior to the  expiration  date.
See "Risk  Factors - Shares  Eligible For Future Sale May  Adversely  Affect the
Market"and "Underwriting".
    

       The Common  Shares  offered may be sold from time to time directly by the
Selling Stockholders.  Alternatively,  the Selling Stockholders may from time to
time offer such Common Shares  through  underwriters,  dealers,  or agents.  The
distribution of Common Shares by the Selling Stockholders may be effected in one
or more  transactions  that  may  take  place  on the  over-the-counter  market,
including ordinary broker's transactions,  privately-negotiated  transactions or
through  sales  to one or more  broker-dealers  for  resale  of such  shares  as
principals,  at market prices  prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Stockholders in connection  with such sales of Common Shares.  The Common Shares
offered by the Selling  Stockholders may be sold by one or more of the following
methods,  without  limitation:  (i) a block trade in which a broker or dealer so
engaged  will  attempt to sell the Common  Shares as agent but may  position and
resell a portion of the block as principal to facilitate the  transaction;  (ii)
purchases by a broker or dealer as principal and resale by such broker or dealer
for  its  account  pursuant  to  this  Prospectus;   (iii)  ordinary   brokerage
transactions  in which the broker  solicits  purchasers;  and (iv)  face-to-face
transactions  between  sellers  and  purchasers  without  a  broker-dealer.   In
effecting  sales,  brokers or dealers  engaged by the Selling  Stockholders  may
arrange for other brokers or dealers to  participate.  The Selling  Stockholders
and  intermediaries  through  whom  such  Common  Shares  are sold may be deemed
"underwriters"  within the meaning of the Act with respect to the Common  Shares
offered,  and  any  profits  realized  or  commissions  received  may be  deemed
underwriting compensation.

       At the time a particular  offer of Common  Shares is made by or on behalf
of a Selling Stockholder,  to the extent required, a Prospectus  Supplement will
be  distributed  which will set forth the number of Common  Shares being offered
and the terms of the offering,  including the name or names of any underwriters,
dealers or agents, the purchase price paid by any underwriter for

                                       56

<PAGE>



Common  Shares  purchased  from  the  Selling  Stockholder  and  any  discounts,
commissions  or  concessions  allowed or reallowed  or paid to dealers,  and the
proposed selling price to the public.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   
       Effective  August 1996,  the Company  issued 330,200 Common Shares to the
Honigsfeld  Trust in  consideration  for $.30 per share or an aggregate price of
$99,060. Upon Mr. Honigsfeld accepting the position as Chairman of the Board, he
was issued a five year option for the purchase of up to 233,000 Common Shares of
the Company  pursuant  to the 1996 Plan at an exercise  price of $.30 per share.
This option was exercised in full in April 1997 and the underlying Common Shares
were issued to the Honigsfeld Trust. See "Management - Stock Plans".

       In  September  1996,  the  Company  entered  into  a  certain  consulting
agreement  with Alan Daniels and Geraldine Lum Daniels,  the Company's  founders
and two of the Minority  Stockholders  (as defined  below),  providing  for Alan
Daniels  and  Geraldine  Lum Daniels to assist the Company  with  technical  and
marketing issues until the Bridge Financing  Transaction  closed (which occurred
in October  1996) in  consideration  for a  one-time  payment of $25,290 at such
closing.

       In  October  1996,  the  Company  repurchased  65,000  Common  Shares and
canceled  warrants for the  purchase of 50,700  Common  Shares (the  "Repurchase
Agreements") from 13 individuals (the "Minority Stockholders"), such repurchases
occurring upon the consummation of the Bridge Financing Transaction. Pursuant to
the Repurchase  Agreements,  the Minority  Stockholders were paid $.30 per share
and  received  new  warrants  exercisable  for a five year period to purchase an
aggregate of 31,200 Common Shares at an exercise price of $5.00 per share.

       In October 1996, the Company loaned $70,000 to Dong W. Lew, President and
Chief Operating Officer of the Company, for purposes of his participation in the
Bridge Financing Transaction.  Such loan was evidenced by a promissory note (the
"Lew Note"),  providing for the payment of principal and interest at the rate of
8% per annum in 120 equal monthly  installments,  subject to acceleration on the
closing date of this Offering. Payment of the Lew Note is secured by a pledge of
28,000  Common  Shares of the Company.  All voting  rights to such shares remain
with Mr. Lew except in the event of a default on the payment of the Lew Note. In
March  1997,  Mr.  Honigsfeld  purchased  the  Lew  Note  from  the  Company  in
consideration for the payment in cash of the outstanding principal amount of the
Lew Note. Mr.  Honigsfeld  concurrently  received an assignment of the Company's
rights as pledgee of Mr.  Lew's  Common  Shares.  In May 1997,  the Lew Note was
amended  to make it  nonrecourse  except to the  pledged  Common  Shares  and to
conform the payment terms to those of the Bridge Notes. See "Bridge Financing".

       In January 1997, the Company  entered into the secured  Credit  Agreement
with Mr.  Honigsfeld.  Pursuant to the Credit  Agreement,  the Company  borrowed
$200,000,  all of which is  outstanding.  The  Company  entered  into the Credit
Agreement because it required additional financing to fund the Company's working
capital needs and no other sources of financing were available at that time. The
Company and Mr. Honigsfeld have agreed that, at the closing of the Offering, the
$200,000
    

                                       57

<PAGE>



   
indebtedness  will be converted  into 40,000 Common  Shares.  In April 1997, the
Company  and Mr.  Honigsfeld  amended  the Credit  Agreement  to provide  for an
additional  line of credit of  $500,000.  In May 1997,  the Company  borrowed an
additional $100,000 under the Credit Agreement.  The repayment of up to $200,000
under the Credit Agreement is secured by a first priority  security  interest in
all the assets of the Company. The Company believes that the terms of the Credit
Agreement  are  commercially  reasonable  and are at least as  favorable  to the
Company as the Company could have obtained  from an unrelated  third party.  The
Credit Agreement was approved by, among others, all the disinterested  directors
of the Company.

       Reference  is  made  to  "Management  -  Employment   Agreements"  for  a
 discussion  of certain  conversions  into  Common  Shares of accrued and unpaid
 compensation that are to occur at the
closing of the Offering.

       To the extent that the Company may enter into any agreements with related
parties in the future (of which none are presently  contemplated),  the Board of
Directors of the Company has determined  that the terms of such  agreements must
be commercially reasonable and no less favorable to the Company than the Company
could obtain from unrelated third parties.  Additionally, the Board of Directors
of the Company has further determined that such agreements must be approved by a
majority of disinterested  directors.  See "Risk Factors - Challenges to Growth;
Unascertainable Risks Related to Possible Acquisitions".
    

                            DESCRIPTION OF SECURITIES

Common Shares

   
       The Company is authorized to issue up to 20,000,000  Common  Shares,  par
value $.01 per share, of which 1,282,700 shares are issued and outstanding as of
the date of this  Prospectus  (giving effect to the Debt  Conversion and Accrued
Compensation  Conversion  that will occur upon the closing of the  Offering,  as
discussed  under  "Management - Employment  Agreements").  The Common Shares are
currently  owned  by  five  stockholders  of  record.  All  of  the  issued  and
outstanding Common Shares are validly issued, fully paid and non-assessable.  An
additional  866,600 Common Shares are reserved for issuance upon the exercise of
outstanding options and warrants, including the Bridge Warrants.
    

       Holders of the Common Shares of the Company are entitled to share equally
on a per  share  basis in such  dividends  as may be  declared  by the  Board of
Directors out of funds legally available therefor.  There are presently no plans
to pay dividends with respect to the Common Shares. See "Dividend Policy".  Upon
liquidation,  dissolution  or  winding  up of  the  Company,  after  payment  of
creditors  and the holders of any senior  securities  of the Company,  including
Preferred  Shares, if any, the assets of the Company will be divided pro rata on
a per share basis among the holders of the Common Shares.  The Common Shares are
not subject to any liability for further assessments. There are no conversion or
redemption  privileges,  nor any sinking  fund  provisions,  with respect to the
Common Shares, and the Common Shares are not subject to call. The holders of the
Common Shares do not have any preemptive or other subscription rights.

                                       58

<PAGE>




     Holders of the Common  Shares are  entitled to cast one vote for each share
held at all stockholders' meetings including the annual meeting for the election
of directors. The Common Shares do not have cumulative voting rights.

Preferred Shares

       The Company's  Certificate of Incorporation  authorizes  1,000,000 "blank
check"  Preferred  Shares,  par  value  $.01 per  share,  whereby  the  Board of
Directors of the Company shall have the authority, without further action by the
holders of the outstanding Common Shares, to issue Preferred Shares from time to
time in one or more series, to fix the number of shares  constituting any series
and the stated value thereof,  if different  from the par value,  and to fix the
terms of any such series,  including dividend rights, dividend rates, conversion
or exchange  rights,  voting rights,  rights and terms of redemption  (including
sinking fund provisions), the redemption price and the liquidation preference of
such series.  As of the date of this  Prospectus,  there are no Preferred Shares
issued and  outstanding,  and the  Company  has no plans to issue any  Preferred
Shares.

Delaware Anti-Takeover Law; Staggered Board of Directors

       The Company is governed by the  provisions  of Section 203 of the General
Corporation Law of Delaware,  an anti-takeover  law enacted in 1988. In general,
the law  prohibits a Delaware  public  corporation  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 it is approved in a prescribed manner.

       The Company's  Certificate of Incorporation  provides for staggered terms
for the Board of  Directors  in three  classes.  The term of each class is three
years  (except  that the initial  term of office of the Class I  directors  will
expire at the Company's  annual meeting of  stockholders in 1997 and the initial
term of office of the Class II  directors  will expire at the  Company's  annual
meeting of  stockholders  in 1998).  Each  director  holds office until the next
annual meeting of stockholders during the year in which the term of his class of
directorship  expires  and until his  successor  is elected and  qualified.  The
Company  currently has five  directors (two in Classes I and II and one in Class
III). Accordingly,  based on the current size of the Board and the makeup of the
classes of directors,  the term of no more than two directors will expire in any
given year.

       As a result of Section 203 of the General Corporation Law of Delaware and
the Company's  staggered Board of Directors,  potential acquirors of the Company
may be discouraged from attempting to effect  acquisition  transactions with the
Company,  thereby  possibly  depriving  holders of the  Company's  securities of
certain  opportunities  to sell or  otherwise  dispose  of  such  securities  at
above-market prices pursuant to such transactions.




                                       59

<PAGE>

Limitation on Liability of Directors; Indemnification

       Article X of the Company's  Certificate of  Incorporation  eliminates the
personal liability of directors to the Company and its stockholders for monetary
damages  for  breach of  fiduciary  duty as a  director  to the  fullest  extent
permitted by Section 102 of the Delaware General  Corporation Law, provided that
this provision  shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or  omissions  not in good  faith  or  which  involve  intentional
misconduct or a knowing violation of law; (iii) arising under Section 174 of the
Delaware General Corporation Law (with respect to unlawful dividend payments and
unlawful stock purchases or redemptions); or (iv) for any transaction from which
the director derived an improper personal benefit.

       Additionally,   the  Company  has   included   in  its   Certificate   of
Incorporation and its by-laws  provisions to indemnify its directors,  officers,
employees and agents and to purchase insurance with respect to liability arising
out of the  performance  of their duties as directors,  officers,  employees and
agents as permitted by Section 145 of the Delaware General  Corporation Law. The
Delaware  General  Corporation  Law provides  further  that the  indemnification
permitted  thereunder shall not be deemed exclusive of any other rights to which
the  directors,  officers,  employees  and  agents  may be  entitled  under  the
Company's by-laws, any agreement, vote of stockholders or otherwise.

       Furthermore, the Company has entered into an indemnification agreement to
indemnify its directors and officers, under certain circumstances, to the extent
provided in the Certificate of Incorporation and Bylaws of the Company,  subject
to Delaware General  Corporation  Law,  against any claim or action against,  or
involving,  any of them in  their  respective  capacities  as a  director  or an
officer of the Company or its affiliates.

       The effect of the  foregoing  is to require  the  Company,  to the extent
permitted by law, to indemnify the officers, directors,  employees and agents of
the  Company  for any claim  arising  against  such  persons  in their  official
capacities if such person acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.

       In connection with the Offering,  the Underwriter has agreed to indemnify
the Company, its directors,  officers,  and each person who controls the Company
within the meaning of Section 15 of the Act with respect to any  statement in or
omission from the  Registration  Statement or the Prospectus or any amendment or
supplement  thereto if such  statement  or omission  was made in  reliance  upon
information furnished in writing to the Company by the Underwriter  specifically
for or in connection with the  preparation of the  Registration  Statement,  the
Prospectus, or any such amendment or supplement thereto.

       Insofar as indemnification  for liabilities  arising under the Act may be
permitted to directors,  officers or persons controlling the Company 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 Act and is therefore unenforceable.


                                       60

<PAGE>



       The Company  intends to obtain  directors  and officers  insurance in the
approximate amount of $1,000,000.

Transfer Agent

       The transfer  agent for the  Company's  Common  Shares is American  Stock
Transfer Company.

                                  UNDERWRITING

General

   
       Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an  exhibit  to the  Registration  Statement  of which this
Prospectus  is a part,  the  Underwriter  has agreed to purchase  the  1,200,000
Common Shares offered hereby from the Company on a "firm  commitment"  basis, if
any are purchased.  The  Underwriter has advised the Company that it proposes to
offer the Common Shares to the public at a price of $5.00 per Common  Share,  as
set forth on the cover page of this Prospectus, and that it may allow to certain
dealers who are NASD members concessions not to exceed $___ per Common Share, of
which an amount not in excess of $___ per Common Share may be reallowed to other
dealers who are members of the NASD.  After the  Offering,  the public  offering
price, concession and reallowance may be changed by the Underwriter.

       The  Company  has  granted an  Overallotment  Option to the  Underwriter,
exercisable  during  the 45 day  period  from  the date of this  Prospectus,  to
purchase up to a maximum of 180,000  additional  Common  Shares at the  Offering
price, less the underwriting discount, to cover overallotments, if any.
    

       The  Underwriting  Agreement  provides  for  reciprocal   indemnification
between  the  Company  and  the  Underwriter   against  certain  liabilities  in
connection with the Registration Statement,  including liabilities arising under
the Act. Insofar as indemnification for liabilities arising under the Act may be
provided to officers,  directors or persons controlling the Company, the Company
has been informed that, in the opinion of the Commission,  such  indemnification
is against public policy and is therefore unenforceable.

       The  Company  has  agreed  to pay to the  Underwriter  a  non-accountable
expense  allowance of 3% of the  aggregate  Offering  price of the Common Shares
offered  hereby,   including  any  Common  Shares  purchased   pursuant  to  the
Overallotment Option, $50,000 of which has already been paid.

       The  Company  has agreed to sell to the  Underwriter,  or its  designees,
warrants to purchase an aggregate of 10% of the Common  Shares sold  pursuant to
this  Offering,  exclusive  of the exercise of the  Underwriter's  Overallotment
Option, for a purchase price of one mil ($.001) per warrant (the  "Underwriter's
Warrants").  The Underwriter's  Warrants shall be exercisable during a four year
period  commencing one year from the closing date of this Offering.  Any profits
realized  upon the sale of the  Common  Shares  issuable  upon  exercise  of the
Underwriter's Warrants may be deemed

                                       61

<PAGE>



to be additional  underwriting  compensation.  The exercise  price of the Common
Shares  issuable upon exercise of the  Underwriter's  Warrant shall be $8.25 per
share (165% of the initial  public  offering  price of the Common  Shares).  The
exercise  price of the  Underwriter's  Warrants and the number of Common  Shares
covered thereby are subject to adjustment in certain events to prevent dilution.
For the life of the Underwriter's  Warrants, the holders thereof are given, at a
nominal cost,  the  opportunity to profit from a rise in the market price of the
Company's  Common  Shares  with a resulting  dilution  in the  interest of other
stockholders.  The Company may find it more  difficult to raise  capital for its
business  if  the  need  should  arise  while  the  Underwriter's  Warrants  are
outstanding. At any time when the holders of the Underwriter's Warrants might be
expected  to  exercise  them,  the  Company  would  probably  be able to  obtain
additional  capital  on more  favorable  terms.  The  Company  has  granted  the
Underwriter certain "demand" and "piggyback" registration rights with respect to
the Underwriter's Warrants and the underlying Common Shares.

       At the  closing  of the sale of the Common  Shares  offered  hereby,  the
Company will enter into a three year financial  advisory and investment  banking
agreement with the Underwriter,  pursuant to which the Company will be obligated
to pay the Underwriter $108,000 in advance for financial and investment advisory
services to the Company.

       At the closing of this  Offering,  the Company and the  Underwriter  will
enter into a non-exclusive  merger and acquisition  agreement  pursuant to which
the Underwriter would be compensated at the rate of between 2% - 5% of the value
of any consummated  transaction with respect to which the Company was introduced
to the other party by the Underwriter.

       Additionally,  for a period  of three  years  following  the date of this
Prospectus,  the Underwriter has been granted the right to sell, for the account
of any officer,  director or holder of 5% or more of the Company's Common Shares
(collectively,  the  "Insiders"),  any of the  Company's  securities  which  the
Insiders  propose to sell  pursuant  to Rule 144  promulgated  under the Act, on
terms at least as favorable as the Insiders can secure elsewhere.

       The Company has also agreed to have a designee of the  Underwriter  serve
as a director of the Company, or as an observer of the Board of Directors, for a
period of three years following the date of this Prospectus.

   
       The Company's current  stockholders have agreed that, except with respect
to the Common Shares underlying the Bridge Warrants owned by them, they will not
transfer any of their Common Shares  publicly for a period of one year following
the date of this  Prospectus  without  the  prior  consent  of the  Underwriter.
Notwithstanding the foregoing,  Robert LoRusso,  About Face, Ltd., and Robert H.
Solomon,  principal  stockholders  of the Company,  are exempt from such consent
requirement  with  respect  to the  100,100  75,075 and  75,075  Common  Shares,
respectively  owned by them. The Underwriter has advised the Company that it has
no current plans,  proposals,  arrangements or understandings with, and it knows
of no plans,  proposals,  arrangements  or  understandings  with  respect to, or
related to, the offering of such 250,250  Common  Shares by Messrs.  LoRusso and
Solomon and About Face, Ltd. The holders of the Bridge Warrants have
    

                                       62

<PAGE>



agreed  with the  Underwriter  that they will not  transfer  any of the  Warrant
Shares  for a period of two years  following  the date of this  Prospectus.  The
Underwriter  has agreed  with the  Company  that it will not waive the  transfer
restriction  with respect to the Warrant  Shares prior to the  expiration of the
lock-up period.  In the event the Underwriter  enters into transactions with any
of the  Selling  Stockholders  involving  (i)  from 5% up to 10% of the  Selling
Stockholders' Common Shares, the Company will file a "sticker" supplement to the
Prospectus and (ii) over 10% of the Selling  Stockholders'  Common  Shares,  the
Company will file a post-effective  amendment to the  Registration  Statement of
which this Prospectus is a part. See "Principal and Selling Stockholders".

   
       The Company has agreed not to issue any equity securities,  or securities
convertible into, or exchangeable or exercisable for, equity  securities,  for a
period  of  twelve  months  from the date of this  Prospectus,  except  that the
Company may issue (i) Common Shares upon the exercise of the Bridge Warrants and
the  Underwriter's  Warrants;  (ii) Common Shares upon the exercise of the Other
Derivative  Securities  that  are  currently  outstanding,  as well as upon  the
exercise of options  hereafter  granted,  of up to 867,000  Common Shares in the
aggregate;  and (iii) Common  Shares and Preferred  Shares in connection  with a
merger or acquisition transaction.
    

       The  foregoing  is a summary of certain  provisions  of the  Underwriting
Agreement and  Underwriter's  Warrants  which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part.

       The  Underwriter,   a  registered  broker-dealer,   purchases  and  sells
securities  on  behalf  of  its  customers.  The  Underwriter  also  engages  in
investment  banking  activities and provides  companies with financial  advisory
services. The Underwriter has been in business for approximately two years. This
is the first offering  underwritten by the Underwriter.  There is no affiliation
or  material   relationship   between  any  promoter  of  the  Company  and  the
Underwriter. See "Risk Factors Inexperience of Underwriter".

Determination of Public Offering Price

       Prior to this  Offering,  there has been no public  market for the Common
Shares.  The  initial  public  offering  price for the  Common  Shares  has been
determined by negotiations  between the Company and the  Underwriter.  Among the
factors considered in the negotiations were an analysis of the areas of activity
in which the Company is engaged,  the present state of the  Company's  business,
the Company's financial  condition,  the Company's  prospects,  an assessment of
management,  the general  condition of the securities market at the time of this
Offering and the demand for similar  securities  of  comparable  companies.  The
public  offering  price  of the  Common  Shares  does not  necessarily  bear any
relationship  to  assets,  earnings,  book  value  or  other  criteria  of value
applicable to the Company.

       The  Company  anticipates  that the  Common  Shares  will be  listed  for
quotation on The Nasdaq SmallCap  Market under the symbol "CODI",  but there can
be no assurance that an active trading

                                       63

<PAGE>



market will develop,  even if the  securities  are accepted for  quotation.  The
Underwriter intends to make a market in the Common Shares of the Company.

                                  LEGAL MATTERS

   
       The validity of the  securities  being offered hereby will be passed upon
for the Company by Certilman Balin Adler & Hyman,  LLP, 90 Merrick Avenue,  East
Meadow,  New York  11554.  Certain  legal  matters  will be passed  upon for the
Underwriter by Caro & Graifman, P.C., 60 East 42nd Street, New York, New York
10165.
    

                                     EXPERTS

   
       The  financial  statements of the Company as of December 31, 1996 and for
the years ended December 31, 1996 and 1995 included in this Prospectus have been
audited  by  Lazar,   Levine  &  Company  LLP,   independent   certified  public
accountants, as set forth in their report thereon appearing elsewhere herein and
are included in reliance  upon such report given upon the authority of such firm
as experts in accounting and auditing.
    

                             ADDITIONAL INFORMATION

       The Company has filed a Registration Statement on Form SB-2 under the Act
with the  Commission  in  Washington,  D.C.  with  respect to the Common  Shares
offered hereby.  This Prospectus,  which is part of the Registration  Statement,
does not contain all of the information set forth in the Registration  Statement
and the exhibits  thereto.  For further  information with respect to the Company
and  the  Common  Shares  offered  hereby,  reference  is  hereby  made  to  the
Registration Statement and such exhibits,  which may be inspected without charge
at the office of the  Commission at 450 Fifth  Street,  N.W.,  Washington,  D.C.
20549.  Reports and other  information  filed by the Company with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at the following  addresses:  New York Regional  Office,  Seven World
Trade Center,  New York, New York 10048; and Chicago  Regional Office,  Citicorp
Center, 500 West Madison Street,  Chicago,  Illinois 60661-2511.  Copies of such
material can be obtained from the Public Reference  Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Furthermore,
the  Commission  maintains  a Web site  that  will  contain  reports,  proxy and
information  statements and other information regarding the Company. The address
of such Web site is http://www.sec.gov.




                                       64


<PAGE>

                        - INDEX TO FINANCIAL STATEMENTS -



<TABLE>
                                                                                         Page(s)

<S>                                                                                      <C>
Independent Auditors' Report                                                              F  - 2

Financial Statements:

   
     Balance Sheets as of March 31, 1997  (unaudited)  and December 31, 1996 and          F - 3
     1995 

     Statements of  Operations  for the Three Month Periods Ended March 31, 1997          F - 4
     and 1996 (unaudited) and for the Years Ended December 31, 1996 and 1995 

     Statement  of  Shareholders'  Equity for the Two Years in the Period  Ended          F - 5
     December  31,  1996 and for the Three  Month  Period  Ended  March 31, 1997
     (unaudited) 

     Statements  of Cash Flows for the Three Month  Periods Ended March 31, 1997          F - 6
     and 1996 (unaudited) and for the Years Ended December 31, 1996 and 1995 
    

Notes to Financial Statements                                                             F - 8

</TABLE>

































                                      F - 1

<PAGE>
                          INDEPENDENT AUDITORS' REPORT




To the Shareholders
Compu-DAWN, Inc.
Cedarhurst, New York



We have  audited  the  accompanying  balance  sheets of  Compu-DAWN,  Inc. as of
December  31,  1996 and 1995 and the  statements  of  operations,  shareholders'
equity and cash flows for the years  ended  December  31,  1996 and 1995.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits 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 Compu-DAWN,  Inc. as of
December 31, 1996 and 1995 and the results of its  operations and its cash flows
for the years ended  December 31, 1996 and 1995,  in conformity  with  generally
accepted accounting principles.





                                                   LAZAR, LEVINE & COMPANY LLP




New York, New York
February 13, 1997


                                      F - 2

<PAGE>
<TABLE>
<CAPTION>
                                Compu-DAWN, Inc.
                                 BALANCE SHEETS

                               - ASSETS (Note 8) -
                                                                                                 March 31,        December 31,
                                                                                                  1997                1996
                                                                                               (Unaudited)
CURRENT ASSETS:
<S>                                                                                           <C>                  <C>        
   
   Cash (Note 2b)                                                                             $    30,016          $   286,497
   Accounts receivable, net of allowances for doubtful accounts of $35,000 and
      $30,000 for 1997 and 1996, respectively (Note 2b)                                           197,011              100,010
   Prepaid expenses                                                                                22,281               19,281
   Loan receivable from officer  (Note 3)                                                            -                  69,247
   Income tax refund receivable (Notes 2f and 11)                                                  36,004               36,004
                                                                                              -----------          -----------
TOTAL CURRENT ASSETS                                                                              285,312              511,039
                                                                                              -----------          -----------

FIXED ASSETS (Notes 2c, 4 and 6)                                                                  182,597              138,814
                                                                                              -----------          -----------
    

OTHER ASSETS:
   Deferred offering costs (Note 13)                                                              212,368              139,326
   Deferred compensation                                                                          339,960               34,056
   Financing costs (Note 7)                                                                     1,557,050            1,588,400
   Security deposits                                                                               21,525               21,525
                                                                                              -----------          -----------
                                                                                                2,130,903            1,783,307
                                                                                              -----------          -----------

                                                                                               $2,598,812           $2,433,160
                                                                                               ==========           ==========

   
     - LIABILITIES  AND  SHAREHOLDERS'  EQUITY - CURRENT  LIABILITIES:  Accounts
payable $ 92,037 $ 123,473 Accrued expenses and other current  liabilities (Note
5)  300,759  136,661  Deferred  revenue  (Note 2d)  32,282  28,100 Due to former
shareholders  (Note 9) - 34,710  Capitalized  lease  payable - current  (Note 6)
8,298 7,859 ------------  ----------- TOTAL CURRENT  LIABILITIES 433,376 330,803
- ------------ -----------     

   
NON-CURRENT LIABILITIES:
   Note payable - officer (Note 8)                                                                200,000                 -
   Capitalized lease payable (Note 6)                                                              27,654               29,541
   Deferred rent liability (Note 12a)                                                              26,637               23,115
   Promissory notes payable  (Note 7)                                                             770,000              770,000
                                                                                             ------------         ------------
                                                                                                1,024,291              822,656
                                                                                             ------------         ------------

COMMITMENTS AND CONTINGENCIES (Notes 10, 12, 13 and 14)

SHAREHOLDERS' EQUITY (Note 9):
   Preferred stock, $.01 par value; 1,000,000 shares authorized,
      none issued or outstanding                                                                     -                    -
   Common stock, $.01 par value, 20,000,000 shares authorized, 986,700
      shares issued for 1997 and 1996, respectively                                                 9,867                9,867
   Additional paid-in capital                                                                   2,044,758            1,670,258
   Retained earnings (deficit)                                                                   (913,480)            (400,424)
                                                                                             ------------         ------------
                                                                                                1,141,145           1,279, 701
                                                                                             ------------          -----------
    

                                                                                               $2,598,812           $2,433,160
                                                                                               ==========           ==========
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                      F - 3

<PAGE>
<TABLE>
                                Compu-DAWN, Inc.
                            STATEMENTS OF OPERATIONS



<CAPTION>
   
                                                                   For the Three Months Ended        For the Year Ended
                                                                             March 31,                   December 31,
                                                               ------------------------------     -------------------------
                                                                  1997             1996              1996             1995
                                                               --------------    -----------      ------------    ---------
                                                                (Unaudited)      (Unaudited)

REVENUES (Notes 2d and 10):
<S>                                                             <C>                <C>            <C>              <C>        

   Software sales                                               $   98,484         $ 18,925       $   202,511      $   817,271
   Maintenance income                                               87,317           72,594           275,016          222,910
                                                               -----------        ---------       -----------      -----------
                                                                   185,801           91,519           477,527        1,040,181
                                                               -----------        ---------       -----------      -----------

COSTS AND EXPENSES:
   Programming costs and expenses                                   76,837           51,902           268,915          404,165
   General and administrative expenses                             514,948           84,568           660,006          365,760
   Research and development (Note 2e)                               47,913           30,914           158,099          140,275
                                                               -----------        ---------       -----------      -----------
                                                                   639,698          167,384         1,087,020          910,200
                                                               -----------        ---------       -----------      -----------

INCOME (LOSS)  FROM  OPERATIONS                                   (453,897)         (75,865)         (609,493)         129,981
                                                               -----------        ---------       ------------     -----------

OTHER INCOME (EXPENSES):
   Interest and other income                                         1,342              780             4,845            1,367
   Interest expense and financing costs (Note 7)                   (60,501)            (176)          (36,274)            (993)
   Loss on abandonment of leasehold improvements
       (Note 12a)                                                  -                 -                 (5,378)            -
                                                               ------------       ---------       -----------      -----------
                                                                   (59,159)             604           (38,807)             374
                                                               -----------        ---------       -----------      -----------

INCOME (LOSS) BEFORE PROVISION (CREDIT)
   FOR INCOME TAXES                                               (513,056)         (75,261)         (646,300)         130,355

   Provision (credit) for income taxes (Notes 2f and 11)            -               (18,000)          (75,531)          51,695
                                                               -----------        ---------       -----------      -----------


NET INCOME (LOSS)                                                $(513,056)       $ (57,261)      $  (570,769)    $     78,660
                                                                 =========        =========       ===========      ===========

EARNINGS (LOSS) PER COMMON SHARE
   (Note 2g)                                                         $(.31)           $(.03)            $(.34)            $.05
                                                                     =====            =====             ======            ====

WEIGHTED AVERAGE NUMBER OF COMMON
   AND COMMON EQUIVALENT SHARES
   OUTSTANDING (Note 2g)                                         1,678,913        1,678,913         1,678,913        1,678,913
                                                                 =========        =========         =========        =========
</TABLE>
    








   The accompanying notes are an integral part of these financial statements.

                                      F - 4

<PAGE>
<TABLE>
                                Compu-DAWN, Inc.
                        STATEMENT OF SHAREHOLDERS' EQUITY

<CAPTION>
                                                                               Additional   Retained                Total
                                               Preferred        Common Stock    Paid-in     Earnings   Treasury  Shareholders'
                                                Stock       Shares    Amount    Capital     (Deficit)     Stock  Equity (Deficit)
                                               ---------  ---------  -------   ----------   --------   --------- ----------------

<S>                                            <C>        <C>       <C>          <C>        <C>          <C>       
   
Balance at January 1, 1995 (Note 9)                -      1,157,000  $11,570   $   54,430   $  91,685  $(38,500)    $  119,185
   Purchases of treasury stock, 107,250 
       shares at cost (Note 9)                     -           -        -            -           -      (33,000)       (33,000)
    

   Net income                                      -           -        -            -         78,660      -            78,660
                                                ------    ---------   ------    ---------      ------    ------         ------
                                               

Balance at December 31, 1995                       -      1,157,000   11,570       54,430     170,345   (71,500)       164,845

   
   Cancellation of shares held in treasury
      (Note 9)                                     -       (685,750)  (6,858)     (64,642)       -       71,500           -

   Issuances of common stock (Note 9)              -        580,450    5,805      168,330        -         -           174,135

   Warrants issued pursuant to debt offering
      (Note 7)                                     -           -        -       1,509,200        -         -         1,509,200
    

   
   Options issued below fair value (Note 9)        -           -        -          37,000        -         -            37,000

   Purchase of outstanding options (Note 9)        -           -        -         (15,210)       -         -           (15,210)

   Purchases and cancellation of outstanding
      shares (Note 9)                              -        (65,000)    (650)     (18,850)       -         -            (19,500)

   Net loss                                        -            -       -            -       (570,769)     -           (570,769 )
                                                ------    ---------   ------    ---------     --------   -----         --------  
                                                

BALANCE AT DECEMBER 31, 1996                       -        986,700    9,867    1,670,258    (400,424)    -          1,279,701

   Options issued below fair value (Note 9)        -           -        -         374,500        -        -            374,500

   Net loss (unaudited)                            -           -        -            -       (513,056)    -           (513,056)
                                                -----     ---------   ------    ---------     -------    -----       ---------

BALANCE AT MARCH 31, 1997 (Unaudited)              -        986,700  $ 9,867   $2,044,758   $(913,480)  $  -        $1,141,145
                                                =====     =========   ======    =========     =======    =====       =========
</TABLE>
    


   The accompanying notes are an integral part of these financial statements.

                                      F - 5


<PAGE>
<TABLE>

                                                      Compu-DAWN, Inc.
                                                  STATEMENTS OF CASH FLOWS                                        Page 1 of 2
                                                  ------------------------


<CAPTION>
   
                                                               For the Three Months Ended              For the Year Ended
                                                                        March 31,                         December 31,
                                                                  1997             1996               1996            1995
                                                             -------------   ---------------      -----------    -----------
                                                                (Unaudited)       (Unaudited)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
    

<S>                                                            <C>               <C>                <C>              <C> 
   
CASH FLOWS FROM OPERATING ACTIVITIES:
   Cash received from customers                                $    87,982       $   192,154        $ 582,053     $1,027,473
   Cash paid to suppliers and employees                           (447,827)         (164,254)        (825,948)      (977,193)
   Interest paid                                                    (1,395)             (176)          (1,995)          (993)
   Interest and other income received                                1,342               780            3,791          1,367
   Income taxes paid                                                  -                 (506)         (47,284)          -
                                                               -----------        ----------         --------       --------
   Net cash provided (utilized) by operating activities           (359,898)           27,998         (289,383)        50,654
                                                               -----------        ----------         --------       --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Loans made to officer                                              -                 -             (70,000)          -
   Principal repayments of officer's loan                           69,247              -                 753           -
   Purchase of fixed assets                                        (56,630)             -             (95,117)       (29,232)
   Proceeds from sale of fixed assets                                 -                 -               2,500           -
   Payment of security deposits                                       -                 -             (14,745)        (3,480)
                                                               -----------         ---------         ---------       --------
   Net cash provided (utilized) by investing activities             12,617              -            (176,609)       (32,712)
                                                               -----------         ---------         ---------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Loan received from officer                                      200,000              -                -              -
   Proceeds from debt offering                                        -                 -             770,000           -
   Expenses associated with debt offering                             -                 -            (100,100)          -
   Payments for common stock and options acquired                  (34,710)          (10,164)         (21,583)       (29,167)
   Principal payments of other long-term debt                         -                 -              (3,726)       (67,235)
   Payments of capital lease obligations                            (1,448)             (610)          (2,828)        (1,661)
   Expenses associated with initial public offering                (73,042)             -            (139,326)          -
   Proceeds from sale of shares                                       -                 -             144,090           -
                                                               -----------         ---------         --------        -------
   Net cash provided (utilized) by financing activities             90,800           (10,774)         646,527        (98,063)
                                                               -----------         ---------         --------        -------

NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                               (256,481)           17,224          180,535        (80,121)

   Cash and cash equivalents, at beginning of year                 286,497           105,962          105,962        186,083
                                                                ----------         ---------         --------        -------

CASH AND CASH EQUIVALENTS, END OF YEAR                         $    30,016       $   123,186      $   286,497       $105,962
                                                                ==========         =========        =========        =======
</TABLE>
    




    The accompanying notes are an integral part of these financial statements







                                      F - 6

<PAGE>



<TABLE>
                                Compu-DAWN, Inc.
                      STATEMENTS OF CASH FLOWS Page 2 of 2
                            ------------------------


<CAPTION>
   
                                                                 For the Three Months Ended           For the Year Ended
                                                                          March 31,                       December 31,
                                                                    1997                1996           1996           1995
                                                              --------------        ----------     ------------   ----------
                                                                  (Unaudited)       (Unaudited)

RECONCILIATION OF NET INCOME (LOSS) TO
    NET CASH (UTILIZED) PROVIDED BY
    OPERATING ACTIVITIES:
<S>                                                                <C>               <C>             <C>           <C>      
      Net income (loss)                                            $(513,056)        $(57,261)       $(570,769)    $  78,660
      Adjustments to reconcile net income (loss) to net cash
         (utilized) provided by operating activities:
          Allowance for doubtful accounts                              5,000             -              12,000        13,000
          Depreciation and amortization                               44,196            9,565           45,947        12,370
          Deferred tax expense (benefit)                                -                -               6,200        (4,450)
          Deferred rent liability                                      3,522           (3,558)          (3,315)       26,430
          Compensatory stock                                          68,596             -              32,988          -
          Loss on disposal of fixed assets                              -                -               7,617          -
      Changes in assets and liabilities:
        Decrease (increase) in accounts receivable                  (102,000)         126,635          106,456       (28,139)
        (Increase) decrease in prepaid expenses                       (3,000)             468          (16,714)          501
        (Increase) in tax refund receivable                             -                -             (36,004)         -
        Increase (decrease) in accounts payable and
          accrued expenses                                           132,662           (3,347)         221,692      (119,715)
        (Increase) decrease in deferred revenue                        4,182          (26,000)          (1,930)       15,430
        (Decrease) increase in income taxes payable                     -             (18,504)         (93,551)       56,567
                                                            ----------------   ---------------      -----------    ---------

NET CASH (UTILIZED) PROVIDED BY
    OPERATING ACTIVITIES                                           $(359,898)       $  27,998        $(289,383)    $  50,654
                                                                   =========        ==========        =========     ========
</TABLE>
    


SUPPLEMENTAL SCHEDULE OF NON-CASH
    INVESTING AND FINANCING ACTIVITIES:
    (a) During 1996 and 1995, the Company incurred capital lease  obligations of
        $33,595 and $7,271,  respectively  in  connection  with the  purchase of
        office equipment.













   The accompanying notes are an integral part of these financial statements.






                                      F - 7

<PAGE>

   
                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (Information as of and for the Periods Ended
                      March 31, 1997 and 1996 is unaudited)
    


NOTE 1 - DESCRIPTION OF COMPANY:

     Compu-DAWN,  Inc., the Company,  was incorporated under the name of Coastal
     Computer   Systems,   Inc.,  in  New  York  on  March  31,  1983,  and  was
     reincorporated  in Delaware under its present name on October 18, 1996. The
     Company is engaged in the  business of  designing,  developing,  licensing,
     installing   and   servicing   computer   software   products  and  systems
     predominantly for public safety and law enforcement agencies. The Company's
     customers, to date, are primarily located in New York State.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     The Company's accounting policies are in accordance with generally accepted
     accounting  principles.   Outlined  below  are  those  policies  which  are
     considered particularly significant.

     (a)  Use of Estimates:

          In  preparing  financial   statements  in  accordance  with  generally
          accepted accounting principles, management makes certain estimates and
          assumptions,  where  applicable,  that affect the reported  amounts of
          assets  and  liabilities  and  disclosures  of  contingent  assets and
          liabilities  at the date of the financial  statements,  as well as the
          reported amounts of revenues and expenses during the reporting period.
          While actual  results  could differ from those  estimates,  management
          does not expect such  variances,  if any, to have a material effect on
          the financial statements.

     (b)  Concentration of Credit Risk /Fair Value:

          Financial   instruments  that  potentially   subject  the  Company  to
          concentration  of credit risk consist  principally of cash investments
          and accounts receivable.

          The  Company  maintains,  at  times,  deposits  in  federally  insured
          financial   institutions  in  excess  of  federally   insured  limits.
          Management monitors the soundness of these financial  institutions and
          feels the Company's risk is negligible.

          Management believes that concentrations of credit risk with respect to
          accounts  receivable  are  limited  due to the  Company's  methods  of
          progress billings and collections.

   
          As of March 31, 1997 and December 31, 1996, the fair value of cash and
          cash equivalents,  receivables, obligations under accounts payable and
          debt instruments approximate the carrying value.
    

     (c)  Fixed Assets:

          Fixed  assets are  recorded at cost.  Depreciation  of fixed assets is
          provided on a straight-line basis as follows:

             Computer equipment                      3 years
             Furniture and fixtures                  5 years
             Motor vehicles                          5 years

                                      F - 8

<PAGE>



   
                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (Information as of and for the Periods Ended
                      March 31, 1997 and 1996 is unaudited)
    


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

     (c)  Fixed Assets:

          Maintenance   and  repairs  are   expensed  as   incurred.   Leasehold
          improvements  are  amortized  over the useful life of the asset or the
          lease,  whichever is shorter.  Capital  leases are amortized  over the
          term of the  respective  leases  or the  useful  lives of the  related
          assets, whichever is shorter.

   
          Depreciation and amortization expense for the years ended December 31,
          1996  and  1995   aggregated   $25,046  and   $12,370,   respectively.
          Depreciation  and  amortization  expense for the three  month  periods
          ended  March  31,  1997  and  1996  aggregated   $12,847  and  $9,565,
          respectively.
    

     (d)  Revenue Recognition:

          The Company  generates  revenues  from the  granting of  nonexclusive,
          non-transferable  and  non-assignable  licenses to use software it has
          developed,  through  fixed price  contracts.  Revenues from such fixed
          price  contracts  are  recognized  using the  percentage of completion
          method of  accounting.  The Company  retains title to the software and
          warranties  that it will  provide  technical  support  and  repair any
          defects in the  software at no charge.  The  warranty  period for each
          contract is negotiated individually,  for periods ranging from 90 days
          to three years. To date,  repair costs have been minimal and therefore
          the Company has not established a reserve for such warranty costs.

          In addition,  the Company provides  post-contract  customer support to
          licensees of its software.  Revenues from such services are recognized
          ratably over the period of  performance.  Fees billed and/or  received
          prior to performance of services are reflected as deferred revenue.

     (e)  Software Development Costs:

   
          The Company reflects costs incurred in establishing the  technological
          feasibility  of a computer  software  product to be leased or sold, as
          research and development  costs, and expenses such costs in the period
          incurred.  Research and development costs for the years ended December
          31, 1996 and 1995  aggregated  $158,099  and  $140,275,  respectively.
          Research and development costs for the three month periods ended March
          31, 1997 and 1996 aggregated $47,913 and $30,914, respectively.
    

          After  technological  feasibility  has  been  established,  all  costs
          incurred on the software  product are to be capitalized  and amortized
          on a product by product  basis.  Capitalization  of computer  software
          costs is  discontinued  when the  product is  available  to be sold or
          leased.

          To date,  the Company has only sold or leased  software which has been
          developed for specific  customers.  As such,  all costs  incurred have
          been expensed as research and development costs.

          Costs associated with post-contract customer support (maintenance) are
          charged to expense when related  revenue is  recognized  or when those
          costs are incurred, whichever occurs first.


                                      F - 9

<PAGE>

   
                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (Information as of and for the Periods Ended
                      March 31, 1997 and 1996 is unaudited)
    


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

     (f)  Income Taxes:

          The Company has adopted Financial Accounting Standards Board Statement
          No. 109  "Accounting  for Income Taxes" ("SFAS 109").  Under SFAS 109,
          deferred  tax  assets  and   liabilities   are  determined   based  on
          differences  between the  financial  reporting and tax basis of assets
          and  liabilities  and are  measured by applying  enacted tax rates and
          laws to  taxable  years in which  such  differences  are  expected  to
          reverse.

     (g)  Earnings Per Share:

          Earnings  per share  has been  computed  on the basis of the  weighted
          average  number  of  common  shares  and  common   equivalent   shares
          outstanding during each period presented. In accordance with the rules
          of the  Securities  and  Exchange  Commission,  all shares  issued and
          "cheap"  options and warrants are being treated as outstanding for all
          periods presented.

     (h)  Statements of Cash Flows:

          For purposes of the  statements of cash flows,  the Company  considers
          all highly  liquid  investments  with an  original  maturity  of three
          months or less to be cash equivalents.


NOTE 3 - LOAN RECEIVABLE - OFFICER:

     In October  1996,  the Company made a loan of $70,000 to an officer for the
     purpose of such  officer's  participation  in a debt offering (see Note 7).
     Such loan is evidenced by a promissory  note  requiring  120 equal  monthly
     payments,  at an annual  interest  rate of 8% and is  secured  by shares of
     common  stock  owned by the  individual  with a value  equal to 120% of the
     outstanding balance. This note which may be prepaid at any time is also due
     and payable upon the closing of a public  offering of the Company's  common
     stock  should  such occur  within  three  years of the date of the note and
     yield gross proceeds of at least $4,500,000.

   
     In March 1997, the Chairman of the Board of the Company purchased this note
     from the  Company  in  consideration  for the  payment  in cash of the then
     outstanding  amount.  The  Chairman of the Board  concurrently  received an
     assignment of the Company's collateral for this note.
    


NOTE 4 - FIXED ASSETS:

     Fixed assets consist of the following:

   
                                                        March 31,   December 31,
                                                         1997          1996

     Computer equipment                                 $183,948       $139,916
     Furniture and fixtures                               16,877         16,499
     Motor vehicles                                       12,597         12,597
     Leasehold improvements                               57,565         45,345
     Assets under capitalized leases                      41,484         41,484
                                                         -------        -------
                                                         312,471        255,841
     Less:  accumulated depreciation and amortization    129,874        117,027
                                                         -------        -------
                                                        $182,597       $138,814
                                                         =======        =======
    


                                     F - 10

<PAGE>



   
                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (Information as of and for the Periods Ended
                      March 31, 1997 and 1996 is unaudited)


NOTE 5 - ACCRUED EXPENSES:

     Accrued expenses is comprised of the following:
    

                                               March 31,        December 31,
                                                1997                1996

   
     Payroll and payroll taxes                  $258,132          $121,037
     Interest                                     42,627            15,624
                                                --------          --------
                                                $300,759          $136,661
                                                ========          ========


NOTE 6 - CAPITALIZED LEASE OBLIGATIONS:
    

     The Company has entered into various capital leases for furniture, fixtures
     and equipment  which expire in years through 2001. The assets and liability
     under these  capital  leases are recorded at the lower of the present value
     of the minimum lease  payments or the fair market value of the assets.  The
     assets are depreciated over their estimated  useful lives.  Depreciation of
     assets under capital  leases for the years ended December 31, 1996 and 1995
     aggregated $5,989 and $1,315, respectively.

     Minimum  future lease payments under capital leases as of December 31, 1996
     are as follows:

                   1997                                         $11,711
                   1998                                          10,049
                   1999                                           8,388
                   2000                                           8,388
                   2001                                           7,689
                                                                -------
          Total minimum lease payments                           46,225
          Less: amount representing interest                      8,825
                                                                -------
                                                                $37,400
                                                                =======

   
     Depreciation  of assets under  capital  leases for the three month  periods
     ended March 31, 1997 and 1996 aggregated $2,337 and $658, respectively.
    

NOTE 7 - DEBT OFFERING:

   
     In October 1996, the Company successfully completed the sale of 77 units in
     a private offering,  each unit consisting of a $10,000 principal amount 12%
     promissory note ("bridge note") and a redeemable  stock purchase warrant to
     acquire  5,600 shares of the  Company's  common stock for  aggregate  gross
     proceeds of $770,000.  The warrants are  exercisable at a price of $.50 per
     share only upon the  successful  completion of an Initial  Public  Offering
     ("IPO"),  see Note 13, of the Company's  common  stock.  See Note 14(b) re:
     Subsequent Events.
    

     Each of the bridge notes is due and payable upon the closing of the IPO. In
     the event such closing occurs on or before  September 15, 1997, no interest
     will be payable on these notes. In the event that the Company closes an IPO
     after  September 15, 1997 but before  September  15, 1999,  the notes shall
     bear  interest at a rate of 8% per annum and be payable upon the closing of
     the IPO. In the event the Company  does not close an IPO by  September  15,
     1999,  interest  shall accrue at a rate of 12% per annum  through such date
     and the notes  shall be  payable  in 120 equal  monthly  installments  with
     interest at a rate of 8% per annum beginning September 16, 1999.


                                     F - 11

<PAGE>



   
                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (Information as of and for the Periods Ended
                      March 31, 1997 and 1996 is unaudited)
    


NOTE 7 - DEBT OFFERING (Continued):

   
     In  accordance  with APB No. 14, the  proceeds  of debt  issued  with stock
     purchase  warrants should be allocated based on the fair values of the debt
     without  the  warrants  and  of  the  warrants   themselves   when  issued.
     Accordingly,  the  Company  has  reflected  deferred  financing  costs  and
     additional  paid-in  capital based upon the  difference  between the deemed
     fair value of the warrants ($4.00) and the warrant exercise price.
    

     Financing  costs,  which  represent  costs incurred in connection with this
     private  offering,  are being charged to operations as additional  interest
     expense over the term of the bridge notes.

     In  September  1996,  prior to the closing of this  private  offering,  the
     Company  entered  into a  consulting  agreement  with  one of its  founding
     shareholders which provided for a one-time payment at closing of $25,290.

   
NOTE 8 - NOTE PAYABLE - OFFICER:
    

     In January 1997, the Company  entered into a secured credit  agreement with
     its Chairman of the Board which  provides for up to $200,000 of borrowings.
     These  borrowings  are  secured  by all the  assets  of the  Company,  bear
     interest  at a rate of 10% per annum and mature  upon the closing of an IPO
     (see Note 13).

   
     See Note 14(c) re: Subsequent Events.

NOTE 9 - CAPITAL STOCK AND EQUIVALENTS:
    

     In October 1996,  simultaneously  with its  reincorporation in the State of
     Delaware,  (see Note 1) the Company  increased  its  authorized  capital to
     20,000,000  shares of common stock, $.01 par value, and 1,000,000 shares of
     preferred stock, $.01 par value. The Company also effected a stock split of
     its issued and outstanding common stock on a 325 for 1 basis,  resulting in
     1,157,000 shares. This stock split has been reflected  retroactively in the
     accompanying  financial  statements and accordingly,  all references to the
     number of common  shares  issued and  outstanding  have been  restated.  No
     preferred shares are issued and outstanding.

     During 1994 the Company repurchased 578,500 shares of its common stock from
     certain  shareholders  at an  aggregate  cost of $38,500.  These shares are
     reflected  as shares held in treasury  for 1995 and as being  cancelled  in
     1996.

     During 1995 the Company  repurchased  an additional  107,250  shares of its
     common stock from  certain  shareholders  at an aggregate  cost of $33,000.
     These  shares are also  reflected  as treasury  stock for 1995 and as being
     cancelled in 1996.

     In August 1996,  the Company  sold 480,300  shares of its common stock at a
     price of $.30 per share,  for cash proceeds of $144,090 and issued  100,150
     shares of its common stock in lieu of payment of legal and consulting  fees
     of $30,045, for an aggregate amount of $174,135.


                                     F - 12

<PAGE>



   
                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (Information as of and for the Periods Ended
                      March 31, 1997 and 1996 is unaudited)


NOTE 9 - CAPITAL STOCK AND EQUIVALENTS (Continued):
    

     The Company had also granted,  to certain former  shareholders,  options to
     purchase an aggregate of 50,700 shares of common stock  (post-split)  at an
     aggregate exercise price of $156. In October 1996, following the successful
     completion  of a debt  offering  (see Note 7),  the  Company  entered  into
     agreements  with  the  former  shareholders,  canceling  these  unexercised
     options in  consideration  of payment of $.30 for each underlying share and
     the issuance of warrants to purchase an aggregate of 31,200 shares of stock
     at an exercise  price of $5.00 per share.  The  payment  for these  options
     aggregating $15,210 has been charged against additional paid-in capital.

     The Company also  purchased,  in October 1996,  65,000 shares held by these
     former  shareholders  at a per  share  price of  $.30.  These  shares  were
     cancelled upon the repurchase, and accordingly, common stock and additional
     paid-in capital have been reduced by $650 and $18,850, respectively.

   
     In addition,  in October 1996, the Company  established a Stock Option Plan
     under which  options  (including  non-statutory  options) to purchase up to
     2,000,000  shares may be granted to eligible  persons.  As of December  31,
     1996,  the Company had granted  options to purchase an aggregate of 491,950
     shares of common stock at prices  ranging  from $.30 to $4.00,  aggregating
     $221,485.   In   connection   therewith  the  Company   recorded   deferred
     compensation  (measured  as the excess of the fair value of the  underlying
     stock over the  exercise  price of the option at date of grant) of $37,000.
     As of March 31, 1997, the Company granted additional options to purchase an
     aggregate of 187,250  shares of common stock at an exercise  price of $3.00
     aggregating $561,750. Accordingly, the Company recorded additional deferred
     compensation  costs of  $374,500.  Deferred  compensation  costs  are being
     amortized over the vesting period of the related  options.  Amortization of
     such costs for the year ended December 31, 1996 and the three-month  period
     ended March 31, 1997, aggregated $2,943 and $68,597, respectively.

     In April 1997, subsequent to the balance sheet date, options were exercised
     to purchase  233,000 shares of common stock for which the Company  received
     $69,900 in gross proceeds. (See also Note 2g regarding earnings per share).

     In 1997, the Company established the 1997 Qualified Employee Stock Purchase
     Plan  which  provides  for the  grant of up to a total of  250,000  options
     intended  to qualify as  employee  stock  options.  The  exercise  price of
     options  granted  under this plan shall be the lesser of 85% of fair market
     value of the  Company's  common  shares at date of grant or 85% of the fair
     market value on the exercise  date.  To date,  no options have been granted
     under the 1997 plan.

NOTE 10 - ECONOMIC DEPENDENCY:
    

     To date, the Company's revenues have been materially dependent on a limited
     number of customers.  The nature of the Company's  business (see Note 1) is
     such that  during any  individual  accounting  period it will  license  its
     software  products  to  a  limited  number  of  significant  customers.  In
     addition,  revenues  from the  Company's  products are  primarily  from the
     public safety and law enforcement markets.

     Also,  the Company  currently  relies on a limited number of (two or three)
     software  licensors  of its main  computer  operating  system.  The Company
     cannot assure that if any of these licenses are terminated, it will be able
     to replace those licenses on a timely basis.


                                     F - 13

<PAGE>



   
                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (Information as of and for the Periods Ended
                      March 31, 1997 and 1996 is unaudited)
    


NOTE 11 - INCOME TAXES:

     The income tax expense (benefit) is comprised of the following:

   
                   For the Three Months Ended      For the Year Ended
                           March 31,                  December 31,
                   ---------------------------     -------------------
                       1997            1996          1996        1995
                   ------------     ----------     -------     -------

     CURRENT:
       Federal     $     -          $  (7,735)   $(50,709)     $39,050
       State             -             (4,065)    (18,622)      17,095
     DEFERRED: 
       Federal           -             (4,165)     (4,165)      (3,000)
       State             -             (2,035)     (2,035)      (1,450)
                   ------------     ----------   ---------     -------
                   $     -           $(18,000)   $(75,531)     $51,695
                   ============     ==========   =========     =======

     The Company has net operating losses carryforwards as of December 31, 1996,
     of  approximately  $400,000,  which may be applied  against  future taxable
     income, and which expire in various years beginning after 2011. Since there
     is no assurance  that the Company will generate  future  taxable  income to
     utilize  the  deferred  tax asset  resulting  from its net  operating  loss
     carryforwards, the Company has not recognized this asset.

     Due to the carryback of the 1996 loss to previous  years,  the Company will
     recoup the maximum amount  refundable for taxes it paid. The following is a
     reconciliation  of the maximum  statutory federal tax rate to the Company's
     effective tax rate:
    

                                                  For the Year Ended
                                                      December 31,
                                                 1996            1995

   
     Federal statutory rate                     (34.0%)          34.0%
     State income taxes                          (7.0)            7.9
     Other - benefit from tax loss carryback     28.9            (2.0)
                                                ------           -----
                                                (12.1%)          39.7%
                                                ======           =====

NOTE 12 - COMMITMENTS:

     (a)  In October  1996,  the Company  entered into a lease,  for its current
          executive  offices,  which provides for base annual rental of $85,000.
          This lease,  which is for an initial term of five years, has scheduled
          annual  increases,  and can be  renewed  for an  additional  five year
          period. The total amount of the base rent payments is being charged to
          expenses  using the  straight-line  method over the term of the lease.
          The  Company has  recorded a deferred  credit to reflect the excess of
          rent expense  over cash  payments  since the  inception of this lease.
          Previously,  the Company was occupying space pursuant to a lease which
          expires in March 1997. The Company  elected to write-off the remaining
          balance of  unamortized  leasehold  improvements  on this old space of
          $5,378 during 1996.
    



                                     F - 14

<PAGE>



   
                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (Information as of and for the Periods Ended
                      March 31, 1997 and 1996 is unaudited)


NOTE 12 - COMMITMENTS (Continued):

          The Company also sublets to an unaffiliated  third party,  space which
          was previously  utilized as its executive  offices under a lease which
          expires in February  1998. As of March 31, 1997 and December 31, 1996,
          the Company had a remaining  accrued  liability  of $9,584 and $12,198
          which  represents  the net cost to the  Company  in  excess  of rental
          income.
    

          Total  net  rent  expense  for  operating  leases,  consisted  of  the
          following:

<TABLE>
<CAPTION>
   
                                          For the Three Months         For the Year Ended
                                             Ended March 31,                December 31,
                                        -----------------------       -----------------------
                                            1997        1996             1996          1995
                                        ----------    ---------       -----------     -------
    

         <S>                            <C>            <C>            <C>             <C>    
   
          Minimum rentals                  $32,918      $10,050       $  48,677       $39,544
          Sublease rentals                  (4,500)      (4,500)        (18,000)       (1,500)
                                        ----------    ---------       ----------      -------
            Total net rent expense         $28,418    $   5,550       $  30,677       $38,044
                                        ==========    =========        ==========      ======
    

</TABLE>

          At December  31,  1996,  future  minimum  rentals  (based upon the new
          space) and sublease income are as follows:

                           Total           Sublease
                           Rent            Income              Net

          1997           $  95,428          $18,000          $ 77,428
          1998              87,616            3,000            84,616
          1999              87,975             -               87,975
          2000              93,075             -               93,075
          2001              72,675             -               72,675
                          --------           ------           -------
          Total           $436,769          $21,000          $415,769
                          ========          =======           ========

     (b)  The Company also leases  certain  types of equipment  under  operating
          leases which expire at various  dates through  1999.  Lease  payments,
          which are charged to operations,  aggregate  approximately  $1,100 per
          month.

     (c)  The  Company  is also  committed  to  provide  post-contract  customer
          support, to two of its customers through a third-party  provider.  The
          agreement with the third party  provides for monthly  payments of $483
          and expires in July 1997.

   
     (d)  Effective  October 1, 1996,  the  Company  entered  into a  three-year
          employment  agreement  with the  Chairman  of its Board of  Directors,
          whereby he will also serve as Chief Executive  Officer of the Company.
          This  agreement  provides  for annual  compensation  of $250,000 and a
          signing bonus based on a fixed formula.  See Note 14(a) re: Subsequent
          Events.

          Effective  October 1, 1996,  the  Company  entered  into a  three-year
          employment  agreement with its President and Chief Operating  Officer.
          This  agreement  provides  for annual  compensation  of $125,000 and a
          signing bonus of $15,000. See Note 14(a) re: Subsequent Events.
    


                                     F - 15

<PAGE>


   
                                Compu-DAWN, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (Information as of and for the Periods Ended
                      March 31, 1997 and 1996 is unaudited)


NOTE 12 - COMMITMENTS (Continued):
    

          The  agreements  with both of these  officers  provide for  continuing
          automatic one year extensions, increases as determined by the Board of
          Directors, annual bonuses based on sales and pretax income and include
          provisions for termination and covenants not to compete.  In addition,
          the  agreements  provide for common  stock  option  grants  based upon
          levels of Company earnings.

          In January  1997,  the Company  entered into a  three-year  employment
          agreement with an employee to serve as the Company's Chief  Technology
          Officer. Such agreement provides for annual base salaries of $200,000,
          $225,000  and   $250,000  in  the  first,   second  and  third  years,
          respectively.  Other  terms of this  employment  agreement  conform in
          structure  to the material  provisions  of the  employment  agreements
          described above.


   
NOTE 13 - PROPOSED INITIAL PUBLIC OFFERING:

     The Company is preparing to undertake an initial public offering ("IPO") of
     1,200,000  shares of its common stock at a price of $5.00 per share,  or an
     aggregate of  approximately  $4,700,000 of net  proceeds.  The net proceeds
     from this  offering  will be used to repay the  promissory  notes  from the
     private  offering (see Note 6), build a staff of regional sales managers to
     cover the United States and for marketing, product development, etc.

     The  proposed  offering  also covers the resale of an  aggregate of 389,200
     (see Note 14b) shares of common stock  underlying  the  warrants  issued in
     connection  with the debt  offering  and an  aggregate  of  250,250  shares
     currently held by certain shareholders. The Company will not receive any of
     the proceeds from the resale of these shares.


NOTE 14 - SUBSEQUENT EVENTS:

     (a)  The Company  had accrued  compensation  payable to two  officers  (the
          President  and the Chairman of the Board) in the  aggregate  amount of
          $125,000 as of March 31, 1997. In April 1997,  the officers  agreed to
          convert  $115,000  of  such  compensation  into  common  shares  at  a
          conversion  price of $5.00 per share (the IPO price),  such conversion
          to occur upon the consummation of the IPO. See Note 13.

     (b)  In April 1997,  the holders of the bridge notes (see Note 6) agreed to
          (i) increase the exercise  price of the five year  warrants  issued to
          them from $.50 per warrant to $3.00 per warrant and (ii)  increase the
          holding period of these warrants from six months to two years from the
          effective date of the IPO.

          In  connection  with an  agreement  reached with certain of the bridge
          noteholders,  the Company  canceled bridge warrants to purchase 42,000
          shares.  The  number of shares  underlying  the  bridge  warrants  has
          therefore been reduced from 431,200 to 389,200 common shares.

     (c)  In April 1997,  the  Chairman  of the Board of the  Company  agreed to
          convert a note  payable to him by the Company (see Note 8) into common
          shares at a  conversion  price of $5.00 per share (the IPO price) upon
          the  consummation  of such IPO. In addition,  this  officer  agreed to
          provide a $500,000 credit line to the Company (at terms similar to the
          $200,000  loan) for a period of two years.  To date,  the  Company has
          borrowed  $100,000  against  this new  $500,000  credit  line which is
          payable in eight equal quarterly installments.
    

                                     F - 16

<PAGE>



       No  dealer,  salesman  or 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 or the Underwriter.  Neither the delivery of this Prospectus nor any
sale made hereunder shall under any  circumstances  create any implication  that
there has been no change in the  affairs of the Company  since the date  hereof.
This  Prospectus  does not constitute an offer of any securities  other than the
securities to which it relates or an offer to any person in any  jurisdiction in
which such an offer would be unlawful.
                                                          --------------

                    TABLE OF CONTENTS
                                                                    Page
Prospectus Summary......................................................
Risk Factors............................................................
Use of Proceeds.........................................................
Dilution................................................................
Capitalization..........................................................
Dividend Policy.........................................................
Bridge Financing........................................................
Management's Discussion and Analysis of
   Financial Condition and Results of
   Operations...........................................................
Business................................................................
Management..............................................................
Principal and Selling Stockholders......................................
Certain Relationships and Related Transactions..........................
Description of Securities...............................................
Underwriting............................................................
Legal Matters...........................................................
Experts.................................................................
Additional Information..................................................
Financial Statements....................................................
                                                          --------------

       Until , 1997 (25 days  after the date of this  Prospectus),  all  dealers
effecting   transactions   in  the   registered   securities,   whether  or  not
participating  in this  distribution,  may be required to deliver a  Prospectus.
This is in addition to the  obligation  of dealers to deliver a Prospectus  when
acting  as  underwriters  and  with  respect  to  their  unsold   allotments  or
subscriptions.








                        1,200,000 Shares of Common Stock








                                COMPU-DAWN, INC.












                                   PROSPECTUS














                               E. C. Capital, Ltd.










                                                                   , 1997




<PAGE>

                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

         Article X of the Company's Certificate of Incorporation  eliminates the
personal liability of directors to the Company and its stockholders for monetary
damages  for  breach of  fiduciary  duty as a  director  to the  fullest  extent
permitted by Section 102 of the Delaware General  Corporation Law, provided that
this provision  shall not eliminate or limit the liability of a director (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or  omissions  not in good  faith  or  which  involve  intentional
misconduct or a knowing violation of law, (iii) arising under Section 174 of the
Delaware General Corporation Law (with respect to unlawful dividend payments and
unlawful stock purchases or redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.

         Additionally,   the  Company  has  included  in  its   Certificate   of
Incorporation and its by-laws  provisions to indemnify its directors,  officers,
employees and agents and to purchase insurance with respect to liability arising
out of the  performance  of their duties as directors,  officers,  employees and
agents as permitted by Section 145 of the Delaware General  Corporation law. The
Delaware  General  Corporation  law provides  further  that the  indemnification
permitted  thereunder shall not be deemed exclusive of any other rights to which
the  directors,  officers,  employees  and  agents  may be  entitled  under  the
Company's by-laws, any agreement, vote of stockholders or otherwise.

         The effect of the  foregoing  is to require  the  Company to the extent
permitted by law to indemnify the officers,  directors,  employees and agents of
the  Company  for any claim  arising  against  such  persons  in their  official
capacities if such person acted in good faith and in a manner that he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.

         In  connection  with  the  Offering,  the  Underwriter  has  agreed  to
indemnify the Company, its directors, and each person who controls it within the
meaning of Section 15 of the Act with  respect to any  statement  in or omission
from the registration statement or the Prospectus or any amendment or supplement
thereto if such  statement  or omission  was made in reliance  upon  information
furnished in writing to the Company by the  Underwriter  specifically  for or in
connection with the preparation of the registration  statement,  the Prospectus,
or any such amendment or supplement thereto.

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

                                      II-1

<PAGE>



Item 25. Other Expenses of Issuance and Distribution.

         The estimated expenses to be incurred by the Company in connection with
the issuance and  distribution of the securities  being  registered,  other than
underwriting discounts and commissions, are estimated as follows:



     SEC Registration Fee                                 3,359.78
     NASD Filing Fee                                      2,000.00
     Blue Sky Fees and Expenses                          25,000.00
     Registrant's Counsel Fees and Expenses             150,000.00
     Accountant's Fees and Expenses                      85,000.00
     Underwriter's Non-Accountable Expense Allowance    180,000.00
     Underwriter's Consulting Fee                       108,000.00
     Printing and Engraving Expenses                     50,000.00
     NASDAQ Listing Fees                                 10,000.00
     Blue Sky Counsel Fees                               35,000.00
     Transfer Agent and Registrar's Fees and Expenses    15,000.00
     Miscellaneous Expenses                              36,640.22
                                                       -----------
     Estimated Total                                   $700,000.00
                                                        ==========


Item 26.          Recent Sales of Unregistered Securities.

         The Company  sold the  following  Common  Shares  during the past three
years.  The number of Common Shares referred to herein gives effect to a 325 for
1 stock split  effectuated on October 18, 1996 in connection  with the Company's
reincorporation in the State of Delaware.

         In October  1996,  the Company  borrowed  $770,000  from the  following
bridge  lenders (the "Bridge  Lenders") in a bridge  financing  transaction.  In
consideration  for making the loans,  the Company issued Bridge  Warrants to the
Bridge  Lenders for the purchase of an aggregate of 431,200  Common  Shares at a
price of $.50 per share.

                                      II-2


<PAGE>



                                           Number of
                                       Common Shares
  Name                              Underlying Warrants

Dong W. Lew                                    39,200
Mark Honigsfeld                                33,600
Robert H. Solomon                              25,200
Murray Gross                                   28,000
Harvey Bibicoff                                70,000
Apollo Equities                                56,000
James Favia                                    42,000
Sydney Gluck                                   22,400
Steven Wallitt                                 16,800
John Eckhoff                                   14,000
Kenneth Moschetto                              14,000
Lawrence Levine                                11,200
Maretza Jimenez
  Campos                                       11,200
Lori Siegal                                    11,200
Horizon Acquisitions                            8,400
Stuart Copperman                                5,600
Teddy Selinger                                  5,600
John P. Hefferon                                5,600
Scott Cohen                                     2,800
Peter Guardino                                  2,800
James Portnof                                   2,800
Windsor L. P.                                   2,800
                                             ---------

         Total                                431,200


         Subsequent  to the closing of the bridge  financing  transaction,  the
exercise  price of the  Bridge  Warrants  was  increased  to $3.00 per share and
Messrs.  Lew and Cohen agreed to the  cancellation of the Bridge Warrants issued
to them.

         In August 1996,  the Company sold an aggregate of 480,300 Common Shares
at a price  of  $.30  per  share  to the  following  persons  for the  following
consideration:

                                    Number of                      Aggregate
Name                                Common Shares                 Consideration

Murray Gross                         50,000                        $15,000.00
Robert LoRusso                      100,100                          30,030.00
Mark Honigsfeld
 Living Trust                       330,200                          99,060.00
                                    -------                          ---------
 Total                              480,300                        $129,090.00
                                    =======                          ==========


         Additionally,  in August 1996,  the Company issued 25,075 Common Shares
to Mr. Gross in payment of consulting  fees of $7,522.50 in connection  with the
Company's marketing  activities and 75,075 Common Shares to Robert H. Solomon in
payment of legal and consulting fees of $22,522.50.

         In April 1997,  the Company  issued  233,000  Common Shares to the Mark
Honigsfeld  Living Trust upon the exercise of a certain option by Mr. Honigsfeld
for the purchase of such shares at an exercise price of $.30 per share.

                                      II-3

<PAGE>



         All the foregoing  transactions were private transactions not involving
a public  offering  and were  exempt  from the  registration  provisions  of the
Securities Act pursuant to Section 4(2) thereof. The bridge financing securities
were  sold  only to  accredited  investors.  The  Company  determined  that  the
stockholders  to whom the Company  issued  Common  Shares in the August 1996 and
April 1997 transactions discussed above were sophisticated investors.  Except as
otherwise  indicated  below,  sales of the securities were without the use of an
underwriter,  and the  certificates  evidencing the  securities  relating to the
foregoing  transactions bear restrictive legends permitting the transfer thereof
only upon  registration  of such securities or an exemption under the Securities
Act.

         The  Underwriter  of this  Offering  acted as  placement  agent for the
Company in connection with the bridge financing  transaction on a "best efforts,
all or none" basis. The Underwriter received a placement fee of 10% of the gross
proceeds of the Bridge Financing transaction,  or $77,000, and a non-accountable
expense  allowance  of  3%  of  the  gross  proceeds  of  the  Bridge  Financing
transaction or $23,100.  The Company also paid the fees and disbursements of the
Underwriter's  counsel in connection  with  representing  the Underwriter in its
capacity of placement agent in the Bridge Financing transaction.

Item 27.          Exhibits.

Exhibit
Number         Title of Exhibit

1.1  Form  of  Underwriting  Agreement  by  and  between  the  Company  and  the
     Underwriter.

1.2  Form of Financial  Consulting  Agreement  between the  Underwriter  and the
     Company.*

2.1  Agreement of Merger between the Company and Coastal Computer Systems, Inc.,
     a New York corporation.*

3.1  Articles of Incorporation of the Company.*

3.2  By-Laws of the Company.*

4.1  Specimen Common Share Certificate.*

4.2  Form of Underwriter's Common Share Purchase Warrant.*

5.1  Opinion of Certilman Balin Adler & Hyman, LLP, counsel for the Company.

10.1 Restated  and  Amended  Employment  Agreement  dated as of  October 1, 1996
     between the Company and Dong W. Lew.*

10.2 Restated  and  Amended  Employment  Agreement  dated as of  October 1, 1996
     between the Company and Mark Honigsfeld.*


                                      II-4
<PAGE>



10.3 $70,000  Promissory  Note dated  October  30,  1996 from Dong W. Lew to the
     Company.*

10.4 Form of Warrant between the Company and each of the Bridge Lenders.*

10.5 1996 Stock Option Plan.*

10.6 Lease dated October 1, 1996 between Summit Equities Corp. and the Company.*

10.7 Pledge and  Hypothecation  Agreement  dated  October 30,  1996  between the
     Company and Dong W. Lew.*

10.8 Credit  Agreement  dated  January  20,  1997  between  the Company and Mark
     Honigsfeld.*

10.9 $100,000  Promissory  Note dated  January 20, 1997 from the Company to Mark
     Honigsfeld.*

10.10$50,000  Promissory  Note dated  February 19, 1997 from the Company to Mark
     Honigsfeld.*

10.11$50,000  Promissory  Note  dated  March 5,  1997 from the  Company  to Mark
     Honigsfeld.*

10.12Form of  Indemnification  Agreement  between the Company and the  Company's
     directors and officers.*

10.13Consulting  Agreement dated September 27, 1996 between the Company and Alan
     Daniels and Geraldine Lum Daniels.*

10.14Employment  Agreement  dated  January 6, 1997 between the Company and Louis
     Libin.*

10.15Amended and  Restated  Credit  Agreement  dated April 30, 1997  between the
     Company and Mark Honigsfeld.

10.16$100,000  Promissory  Note  dated  May 8,  1997  from the  Company  to Mark
     Honigsfeld.

23.1 Consent of Lazar, Levine & Company LLP, independent auditors.

23.2 Consent of  Certilman  Balin Adler & Hyman,  LLP  (included  in its opinion
     filed as Exhibit 5.1 hereto).

27.1 Financial Data Schedule.

         *Previously filed.
                                     II-5
<PAGE>






Item 28.          Undertakings.

(a)      Rule 415 Offering.

         The undersigned Company will:

(1)      file,  during any  period in which  offers or sales are being  made, a
         post-effective amendment to this registration statement to:

          (i)  include  any  prospectus  required  by  section  10(a)(3)  of the
     Securities Act;

          (ii) reflect in the prospectus any facts or events which, individually
     or together, represent a fundamental change in the information set forth in
     the registration statement; and

          (iii) include any  additional or changed  material  information on the
     plan of distribution.

(2)      for  determining   liability  under  the  Securities  Act,  treat  each
         post-effective  amendment  as  a  new  registration  statement  of  the
         securities offered,  and the offering of the securities at that time to
         be the initial bona fide offering.

(3)      file a post-effective amendment to remove from registration any of the 
         securities that remain unsold at the end of the offering.

(b)      Equity Offerings of Nonreporting Small Business Issuers.

         The undersigned Company will provide to the Underwriter, at the closing
specified  in the  underwriting  agreement,  Common Share  certificates  in such
denominations  and  registered in such names as required by the  Underwriter  to
permit prompt delivery to each purchaser.

(c)      Indemnification.

         Insofar as indemnification for liabilities arising under the Securities
Act may be  permitted to  directors,  officers  and  controlling  persons of the
Company pursuant to the provisions  referred to in Item 24 of this  Registration
Statement, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.

         In the event that a claim for indemnification  against such liabilities
(other  than the  payment  by the  Company  of  expenses  incurred  or paid by a
director,  officer  or  controlling  persons of the  Company  in the  successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling  person in connection with the securities being  registered,  the
Company will,

                                      II-6

<PAGE>



unless in the opinion of its counsel the matter has been settled by  controlling
precedent,  submit to a court of appropriate  jurisdiction  the question whether
such  indemnification  by it is  against  public  policy  as  expressed  in  the
Securities Act and will be governed by the final adjudication of such issue.

(d)      Rule 430A.

         The undersigned Company will:

(1)      for  determining  any liability  under the  Securities  Act,  treat the
         information  omitted from the form of prospectus  filed as part of this
         Registration  Statement in reliance  upon Rule 430A and  contained in a
         form of prospectus  filed by the Company under Rule 424(b)(1) or (4) or
         497(h) under the Securities Act, as part of this Registration Statement
         as of the time the Commission declared it effective;

(2)      for  determining  any liability  under the  Securities  Act, treat each
         post-effective  amendment  that  contains a form of prospectus as a new
         registration  statement for the securities  offered in the Registration
         Statement,  and that  offering  of the  securities  at that time as the
         initial bona fide offering of those securities.

(e)      Rule 424(c) Supplement; Post Effective Amendment.

         The  undersigned  Company  will, in the event the  Underwriter  in this
         Offering  enters into  transactions  with the Selling  Stockholders  or
         waives   the   lock-up   restrictions   applicable   to  such   Selling
         Stockholders' Common Shares:

(1)      involving from 5% up to 10% of the Selling Stockholders' Common Shares,
         file "sticker"  supplements  to the Prospectus  pursuant to Rule 424(c)
         under the Securities Act; or

(2)      involving over 10% of the Selling  Stockholders'  Common Shares, file a
         post-effective amendment to the Registration Statement.



                                      II-7

<PAGE>



                                   SIGNATURES

         In accordance  with the  requirements of the Securities Act of 1933, as
amended, the Company certifies that it has reasonable grounds to believe that it
meets  all of the  requirements  for  filing on Form  SB-2 and  authorized  this
Registration  Statement  to be signed on its behalf by the  undersigned,  in the
County of Nassau, State of New York, on May__, 1997.

                                     COMPU-DAWN, INC.

                                     By: /s/ Mark Honigsfeld
                                        Mark Honigsfeld, Chief Executive Officer


         In accordance  with the  requirements of the Securities Act of 1933, as
amended, this Registration  Statement was signed by the following persons in the
capacities and on the dates stated.

Signature                      Title                            Date


/s/ Mark Honigsfeld            Chairman of the Board,            May ___, 1997
- --------------------------
Mark Honigsfeld                Chief Executive Officer,
                               Secretary and Director
                               (Principal Financial Officer
                               and Principal Accounting Officer)

 *                             President, Chief Operating        May ___, 1997
- -------------------------      Officer, Treasurer and
Dong W. Lew                    Director
                                           

 *                             Director                          May ___, 1997
- -------------------------
Louis Libin

 *                             Director                          May ___, 1997
- -------------------------
William D. Rizzardi

 *                             Director                          May ___, 1997
- -------------------------
Harold Lazarus, Ph.D.


*By: /s/ Mark Honigsfeld
    --------------------
    Mark Honigsfeld
    Attorney-in Fact



                                        II-8

<PAGE>

                                COMPU-DAWN, INC.

                        1,200,000 Shares of Common Stock




                             UNDERWRITING AGREEMENT


                                                              Mineola, New York
                                                                  _______, 1997


E.C. Capital, Ltd.
One Expressway Plaza
Roslyn Heights, New York  11577



Ladies and Gentlemen:

     The undersigned,  COMPU-DAWN, INC., a Delaware corporation (the "Company"),
hereby confirms its agreement with E. C. Capital, Ltd. (being referred to herein
variously as "you" or the "Underwriter"), as follows:

     1. Purchase and Sale of Securities.

          1.1 Firm Securities.

               1.1.1  Purchase  of  Firm   Securities.   On  the  basis  of  the
          representations  and warranties herein  contained,  but subject to the
          terms and conditions herein set forth, the Company agrees to issue and
          sell to the Underwriter,  and the Underwriter  agrees to purchase from
          the Company, 1,200,000 shares of the Company's Common Stock, par value
          $.01 per share  ("Common  Stock"),  at a  purchase  price of $5.00 per
          share (or $4.50 per share net of  discounts  and  commissions).  (such
          shares of Common  Stock  being  also  referred  to herein as the "Firm
          Securities").

               1.1.2 Payment and Delivery. Delivery of, and payment for the Firm
          Securities  shall be made at 10:00 A.M.,  New York time,  on the fifth
          business day following the Effective Date (as that term is hereinafter
          defined) of the  Registration  Statement (as that term is  hereinafter
          defined) or at such earlier time as the Underwriter  shall  determine,
          or at such other time as shall be agreed upon by the  Underwriter  and
          the Company,  at the offices of the Underwriter or at such other place
          as shall be agreed upon by the Underwriter  and the Company.  The hour
          and date of delivery  and payment for the Firm  Securities  are called
          the "Closing Date." Payment for the Firm  Securities  shall be made on
          the Closing Date at the Underwriter's election by certified or

                                        1

<PAGE>



          bank  cashier's  check(s)  in  immediately   available  New  York
          Clearing  House  funds,  payable  to the  order  of the  Company  upon
          delivery to you of certificates (in form and substance  complying with
          applicable law and satisfactory to the  Underwriter)  representing the
          Firm  Securities  for  the  account  of  the  Underwriter.   The  Firm
          Securities  shall be  registered  in such  name or  names  and in such
          authorized  denominations as the Underwriter may request in writing at
          least three full business days prior to the Closing Date.  The Company
          will permit the Underwriter to examine and package the Firm Securities
          for delivery,  at the Company's  transfer  agent or  correspondent  at
          least one full  business  day prior to the Closing  Date.  The Company
          shall not be obligated to sell or deliver the Firm  Securities  except
          upon tender of payment by the Underwriter for all the Firm Securities.

          1.2 Over-Allotment Option.

               1.2.1 Option  Securities.  For the purposes  only of covering any
          over-allotments  in connection with the  distribution  and sale of the
          Firm Securities,  the Underwriter is hereby granted a non-transferable
          option to purchase up to an additional  180,000 shares of Common Stock
          from the Company ("Over-allotment  Option"). Such additional shares of
          Common Stock are hereinafter  referred to as the "Option  Securities."
          The  Firm  Securities  and  the  Option  Securities  are,  hereinafter
          referred to  collectively  as the "Public  Securities."  The  purchase
          price to be paid for the Option  Securities will be the same price per
          Option  Security as the price per Firm  Security  set forth in Section
          1.1.1 hereof.

               1.2.2  Exercise  of Option.  The  Over-allotment  Option  granted
          pursuant to Section  1.2.1 hereof may be exercised by the  Underwriter
          as to all or any part of the Option  Securities at any time, from time
          to time,  within  forty-five  days  after  the  effective  date of the
          Registration Statement ("Effective Date"). The Underwriter will not be
          under any  obligation to purchase any Option  Securities  prior to the
          exercise  of the  Over-allotment  Option.  The  Over-allotment  Option
          granted  hereby  may be  exercised  by the  giving of oral or  written
          notice to the Company from the Underwriter (any such oral notice which
          must be confirmed by a letter or telecopier notice within  twenty-four
          hours  or such  oral  notice)  setting  forth  the  number  of  Option
          Securities  to be  purchased,  the date and time for  delivery of, and
          payment  for,  the  Option  Securities,  and  stating  that the Option
          Securities  referred to therein are to be used only for the purpose of
          covering  over-allotments in connection with the distribution and sale
          of the Firm  Securities.  If such  notice  is given at least  two full
          business  days prior to the Closing  Date,  the date set forth therein
          for such delivery and payment will be the Closing Date. If such notice
          is given thereafter,  the date set forth therein for such delivery and
          payment  will not be earlier  than five full  business  days after the
          date of the  notice.  If such  delivery  and  payment  for the  Option
          Securities  does not occur on the Closing  Date,  the date and time of
          the closing for such Option Securities will be as set forth

                                        2

<PAGE>



          in the notice  (hereinafter  the  "Option  Closing  Date").  Upon
          exercise  of  the  Over-allotment  Option,  the  Company  will  become
          obligated to convey to the Underwriter,  and, subject to the terms and
          conditions set forth herein,  the Underwriter will become obligated to
          purchase, the number of Option Securities specified in such notice.

               1.2.3  Payment and  Delivery.  Payment for the Option  Securities
          shall be made on the Option Closing Date at the Underwriter's election
          by certified or bank cashier's  check(s) in immediately  available New
          York Clearing House funds, payable to the order of the Company, at the
          offices of the  Underwriter  or at such other place as shall be agreed
          upon  by the  Underwriter  and the  Company  upon  delivery  to you of
          certificates  representing  such  securities  for the  account  of the
          Underwriter. The certificates representing the Option Securities to be
          delivered will be in such authorized  denominations  and registered in
          such names as the Underwriter  requests in writing not less than three
          full  business  days prior to the Closing  Date or the Option  Closing
          Date, as the case may be. The Company will permit the  Underwriter  to
          examine  and  package  the  Option  Securities  for  delivery  at  the
          aforesaid  office of the Company's  transfer agent or correspondent at
          least one full business day prior to such Option Closing Date.

          1.3 Underwriter's Warrants.

               1.3.1  Warrants.  The Company  hereby agrees to issue and sell to
          the  Underwriter  (and/or  its  designees)  on the  Closing  Date,  in
          exchange  for a check in the amount of $100,  an  aggregate of 120,000
          Warrants  ("Underwriter's  Warrants"),  each Underwriter's  Warrant to
          purchase  one  share of  Common  Stock of the  Company  at an  initial
          exercise  price of $8.25 per share.  The  Underwriter's  Warrants  are
          exercisable  for  a  four-year  period   commencing  on  the  one-year
          anniversary  of the Effective Date and shall be  substantially  in the
          form attached thereto as Exhibit A. The Underwriter's Warrants and the
          shares of Common Stock  issuable  upon  exercise of the  Underwriter's
          Warrants   are   hereinafter   referred   to   collectively   as   the
          "Underwriter's    Securities."   The   Public   Securities   and   the
          Underwriter's  Securities are hereinafter  referred to collectively as
          the "Securities."

               1.3.2  Payment  and  Delivery.   Delivery  and  Payment  for  the
          Underwriter's   Warrants  in  the  authorized   names  and  authorized
          denominations  designated  by the  Underwriter  shall  be  made on the
          Closing Date.

     2.  Representations  and Warranties of the Company.  The Company represents
and warrants to the Underwriter as follows:

          2.1 Filing of Registration Statement.

               2.1.1  Pursuant  to  the  Act.The  Company  has  filed  with  the
          Securities and Exchange Commission ("Commission") a registration

                                        3

<PAGE>



          statement  and an amendment or amendments  thereto,  on Form SB-2
          (Reg.  No.  333-18667),  including any related  prospectus  subject to
          completion  ("Preliminary  Prospectus"),  for the  registration of the
          Public  Securities  under  the  Securities  Act of  1933,  as  amended
          ("Act"), which registration statement and amendment or amendments have
          been prepared by the Company in conformity  with the  requirements  of
          the  Act,  and  the  rules  and  regulations  ("Regulations")  of  the
          Commission under the Act. Except as the context may otherwise require,
          such registration  statement,  as amended, on file with the Commission
          at the time the registration  statement becomes  effective  (including
          the  prospectus,  financial  statements,  schedules,  exhibits and all
          other documents  filed as a part thereof or  incorporated  therein and
          all  information  deemed to be a part thereof as of such time pursuant
          to  paragraph  (b) of Rule 430A of the  Regulations),  is  hereinafter
          called  the  "Registration  Statement,"  and  the  form  of the  final
          prospectus  dated the Effective Date (or, if  applicable,  the form of
          final prospectus filed with the Commission pursuant to Rule 424 of the
          Regulations), is hereinafter called the "Prospectus." The Registration
          Statement  will be declared  effective by the  Commission  on the date
          hereof.

               2.1.2  Pursuant to the  Exchange  Act. The Company has filed with
          the  Commission  a  registration  statement  on Form 8-A  (File  No. 
                          )providing for the  registration  under the Securities
          Exchange Act of 1934, as amended  ("Exchange  Act"),  of the Public 
          Securities.Such registration of the Public Securities will be declared
          effective by the Commission on or prior to the thirtieth day following
          the Closing date.

          2.2 No Stop Orders,  Etc. Neither the Commission nor, to the Company's
     knowledge,  any state regulatory  authority has issued any order preventing
     or suspending the use of any  Preliminary  Prospectus or has instituted or,
     to the Company's  knowledge,  threatened to institute any proceedings  with
     respect to such an order.

          2.3   Disclosures  in   Registration   Statement.   At  the  time  the
     Registration Statement became effective and at all times subsequent thereto
     up to the Closing Date:


               2.3.1 Securities Act Representation and 10b-5 Representation: The
          Registration  Statement and the Prospectus will contain,  with respect
          to the  Company  and the persons  listed on  Schedule  2.3.1  attached
          hereto,  all  material  statements  which  are  required  to be stated
          therein in accordance  with the Act and the  Regulations,  and will in
          all material  respects  conform to the requirements of the Act and the
          Regulations.  Neither the Registration  Statement nor any amendment or
          supplement  thereto,  on the  Effective  Date,  contained  any  untrue
          statement  of a material  fact or omitted to state any  material  fact
          required  to be stated  therein or  necessary  to make the  statements
          therein not  misleading  and that on the Closing Date,  the Prospectus
          and any  amendment or  supplement  thereto will not contain any untrue
          statement of a material

                                        4

<PAGE>



          fact or omit to state any  material  fact  necessary  in order to
          make the statements therein, in light of the circumstances under which
          they were made, not misleading.  When any  Preliminary  Prospectus was
          first  filed  with  the  Commission  (whether  filed  as  part  of the
          Registration  Statement for the  registration of the Securities or any
          amendment  thereto or pursuant to Rule 424(a) of the  Regulations) and
          when any amendment thereof or supplement  thereto was first filed with
          the Commission, such Preliminary Prospectus and any amendments thereof
          and supplements thereto, at the time such filing was made, complied in
          all material  respects with the  applicable  provisions of the Act and
          the Regulations.  The representation and warranty made in this Section
          2.3.1  does not apply to  statements  made or  statements  omitted  in
          reliance upon and in conformity with written information  furnished to
          the Company by the Underwriter  expressly for use in the  Registration
          Statement,  Preliminary  Prospectus,  or  Prospectus  or any amendment
          thereof or supplement thereto ("Underwriter's Information").

          2.3.2  Disclosure of Contracts.  The  description in the  Registration
     Statement and the  Prospectus of contracts and other  documents is accurate
     and presents fairly the information  required to be disclosed and there are
     no  contracts  or  other   documents   required  to  be  described  in  the
     Registration Statement or the Prospectus or to be filed with the Commission
     as exhibits to the Registration  Statement which have not been so described
     or filed.  Each  contract or other  instrument  (however  characterized  or
     described)  to which the  Company  is a party or by which its  property  or
     business is or may be bound or affected and (i) which is referred to in the
     Prospectus,  or (ii) is  material  to the  business of the Company has been
     duly and  validly  executed,  is in full force and  effect in all  material
     respects and is enforceable in accordance with its terms,  and none of such
     contracts or instruments  has been assigned by the Company and the Company,
     to the best of its  knowledge,  is not in default  thereunder  and,  to the
     Company's knowledge, no event has occurred which, with the lapse of time or
     the giving of notice, or both, would constitute a default thereunder except
     as otherwise disclosed in the Prospectus).  None of the material provisions
     of such contracts or instruments  violates or will result in a violation of
     any existing applicable law, rule, regulation, judgment, order or decree of
     any governmental  agency or court having  jurisdiction over the Company, or
     any of its respective assets, including, without limitation, those relating
     to environmental laws and regulations.

               2.3.3 Prior Securities Transactions. No securities of the Company
          have  been  sold by the  Company  or by or on  behalf  of,  or for the
          benefit of, any person or persons controlling, controlled by, or under
          common  control  with the Company  within the three years prior to the
          date hereof, except as disclosed in the Registration Statement.

          2.4 Changes After Dates in Registration Statement.

               2.4.1 No Material Adverse Change. Since the

                                        5

<PAGE>



          respective  dates  as  of  which  information  is  given  in  the
          Registration  Statement  and  the  Prospectus,   except  as  otherwise
          specifically  stated therein,  (i) there has been no material  adverse
          change in the condition,  financial or otherwise, or in the results of
          operation,  business or business  prospects of the Company  ("Material
          Adverse Change"),  including,  but not limited to, a material loss of,
          or interference with, its business from fire, storm, explosion,  flood
          or other  casualty,  whether or not covered by insurance,  or from any
          labor  dispute  or  court or  governmental  action,  order or  decree,
          whether or not arising in the ordinary  course of  business,  and (ii)
          there have been no  transactions  entered into by the  Company,  other
          than those in the ordinary course of business, which are material with
          respect to the  condition,  financial or otherwise,  or the results of
          its operations, business or business prospects.

               2.4.2 Recent  Securities  Transactions.  Etc.  Subsequent  to the
          respective dates as of which  information is given in the Registration
          Statement and the Prospectus, and except as may otherwise be indicated
          or contemplated herein or therein,  the Company has not (i) issued any
          securities  or  incurred  any  liability  or  obligation,   direct  or
          contingent, for borrowed money; or (ii) declared or paid any dividend
          or made any other distribution on or in respect to its capital stock.

          2.5  Independent  Accountants.  Lazar,  Levine & Company,  LLP,  whose
     reports  are  filed  with  the  Commission  as  part  of  the  Registration
     Statement,  are  independent  accountants  as  required  by the Act and the
     Regulations.

          2.6  Financial  Statements.  The financial  statements,  including the
     notes  thereto  and  supporting  schedules  included  in  the  Registration
     Statement and  Prospectus,  fairly present the financial  condition and the
     results of  operations  of the  Company at the dates and for the periods to
     which  they  apply;  such  financial   statements  have  been  prepared  in
     conformity  with generally  accepted  accounting  principles,  consistently
     applied; and the supporting schedules, if any, included in the Registration
     Statement present fairly the information required to be stated therein.

          2.7 Authorized Capital;  Options:  Etc. The Company had at the date or
     dates  indicated  in  the  Prospectus,  the  duly  authorized,  issued  and
     outstanding  capitalization as set forth in the Registration  Statement and
     the  Prospectus.  Based  on the  assumptions  stated  in  the  Registration
     Statement and the Prospectus, the Company will have on the Closing Date the
     adjusted stock capitalization set forth therein. Except as set forth in the
     Registration Statement and the Prospectus, on the Effective Date there are,
     and on the  Closing  Date there  will be, no  options,  warrants,  or other
     rights to purchase or otherwise  acquire any authorized but unissued shares
     of Common Stock of the Company or any security  convertible  into shares of
     Common Stock of the Company,  or any contracts or  commitments  to issue or
     sell shares of Common Stock or any such

                                        6

<PAGE>



      options, warrants, rights or convertible securities.

          2.8 Valid Issuance of Securities; Etc.

               2.8.1   Outstanding   Securities.   All  issued  and  outstanding
          securities of the Company have been duly authorized and validly issued
          and are fully paid and  non-assessable;  the holders  thereof  have no
          rights of rescission with respect thereto; and none of such securities
          were issued in  violation of the  preemptive  rights of any holders of
          any security of the Company or similar  contractual  rights granted by
          the Company.  The outstanding  options and warrants to purchase shares
          of Common Stock  constitute  the valid and binding  obligations of the
          Company,  enforceable in accordance with their terms,  except (i) such
          enforceability    may   be   limited   by   bankruptcy,    insolvency,
          reorganization, fraudulent conveyance, marshaling and/or similar laws,
          now or hereafter in effect  affecting  creditors'  rights and remedies
          (including  such as may deny  giving  effect to  waivers  of  debtor's
          rights),  (ii) as enforceability of any indemnification  provision may
          be limited under Federal and State laws,  and (iii) that the remedy of
          specific  performance  and  injunction  and other  forms of  equitable
          relief may be subject to the equitable  defenses and to the discretion
          of the courts  before  which any  proceeding  therefor  may be brought
          (regardless of whether such  enforceability is considered a proceeding
          in equity or in law).  The  authorized  Common  Stock and  outstanding
          options and warrants to purchase shares of Common Stock conform to all
          statements  relating thereto  contained in the Registration  Statement
          and the  Prospectus.  The offers and sales of the  outstanding  Common
          Stock, options and warrants to purchase shares of Common Stock were at
          all relevant times either  registered  under the Act and registered or
          qualified  under the applicable  state  securities or Blue Sky Laws or
          exempt from such registration requirements.

               2.8.2 Securities Sold Pursuant to this Agreement.  The Securities
          have been duly  authorized  and,  when  issued  and paid for,  will be
          validly issued, fully paid and non-assessable;  the Securities are not
          and will not be subject to the preemptive rights of any holders of any
          security of the Company or similar  contractual  rights granted by the
          Company;  and all  corporate  actions  required  to be  taken  for the
          authorization,  issuance and sale of the Securities have been duly and
          validly taken. When issued, the Underwriter's Warrants will constitute
          valid and binding  obligations of the Company to issue and sell,  upon
          exercise thereof and payment therefor,  the number of shares of Common
          Stock of the Company called for thereby and the Underwriter's Purchase
          Options,  the Underwriter's  Warrants and the Warrants are enforceable
          against the Company in accordance with their respective terms,  except
          (i) such  enforceability  may be  limited by  bankruptcy,  insolvency,
          reorganization, fraudulent conveyance, marshaling and/or similar laws,
          now or hereafter in effect  affecting  creditors'  rights and remedies
          (including  such as may deny  giving  effect to  waivers  of  debtor's
          rights),  (ii) as enforceability of any indemnification  provision may
          be limited under Federal and State laws,  and (iii) that the remedy of
          specific

                                        7

<PAGE>



          performance  and injunction  and other forms of equitable  relief
          may be subject to the equitable  defenses and to the discretion of the
          courts before which any proceeding therefor may be brought (regardless
          of whether such enforceability is considered a proceeding in equity or
          in law).

          2.9 Registration  Rights of Third Parties.  Except as set forth in the
     Prospectus,  no holders of any  securities of the Company or of any options
     or warrants of the Company  exercisable  for or convertible or exchangeable
     into  securities  of the  Company  have the right to require the Company to
     register any such securities of the Company under the Act or to include any
     such  securities  in a  registration  statement  to be filed by the Company
     except  as set  forth in the  letter of intent  dated  September  16,  1996
     between the Company and the Underwriter.

          2.10 Validity and Binding Effect of Agreements.  This  Agreement,  the
     employment  agreements with each of Dong W. Lew ("Lew") and Mark Honigsfeld
     ("Honigsfeld")  ("Employment  Agreements"),  and the Underwriter's  Warrant
     have been duly and validly  authorized  by the Company and  constitute,  or
     when  executed  and  delivered  will  constitute,  the  valid  and  binding
     agreements of each of the Company, Lew and Honigsfeld,  as the case may be,
     enforceable against each of them in accordance with their respective terms,
     except (i) such  enforceability  may be limited by bankruptcy,  insolvency,
     reorganization,  fraudulent conveyance, marshaling and/or similar laws, now
     or hereafter in effect affecting  creditors' rights and remedies (including
     such as may deny  giving  effect to waivers of  debtor's  rights),  (ii) as
     enforceability  of  any  indemnification  provision  may be  limited  under
     Federal and State laws,  and (iii) that the remedy of specific  performance
     and  injunction  and other forms of equitable  relief may be subject to the
     equitable  defenses and to the  discretion  of the courts  before which any
     proceeding   therefor   may  be  brought   (regardless   of  whether   such
     enforceability is considered a proceeding in equity or in law).

          2.11 No Conflicts,  Etc. The execution,  delivery,  and performance by
     the  Company of this  Agreement,  the  consummation  by the  Company of the
     transactions herein contemplated and the compliance by the Company with the
     terms  hereof do not and will not,  with or without the giving of notice or
     the lapse of time or both,  (i) result in a breach of, or conflict with any
     of the terms and provisions of, or constitute a default under, or result in
     the creation,  modification,  termination or imposition of any lien, charge
     or encumbrance  upon any of its property or assets pursuant to the terms of
     any indenture,  mortgage,  deed of trust, note, loan or credit agreement or
     any other  agreement or instrument  evidencing  an obligation  for borrowed
     money,  or any other  agreement or  instrument to which it is a party or by
     which it may be bound or to which any of its property or assets is subject;
     (ii)  result in any  violation  of the  provisions  of its  Certificate  of
     Incorporation  or By-Laws;  and (iii) violate any existing  applicable law,
     rule, regulation, judgment, order or decree of any governmental agency or

                                        8

<PAGE>



     court,  domestic  or  foreign,  having  jurisdiction  over  it or  its
     operations or any of its  properties  or business;  or (iv) have a material
     adverse effect on any permit, license, certificate, registration, approval,
     consent,  license or franchise  concerning it or its operations;  except in
     the case of (i) or (iii), where such default,  breach, violation or effect,
     either singly or in the aggregate, would not have a material adverse effect
     on its financial condition or results of operations.

          2.12 No Defaults:  Violations.  Except as described in the Prospectus,
     no  default  exists  in the due  performance  and  observance  of any term,
     covenant  or  condition  of  any  material  license,  contract,  indenture,
     mortgage,  deed of  trust,  note,  loan or credit  agreement,  or any other
     agreement or instrument evidencing an obligation for borrowed money, or any
     other material agreement or instrument to which the Company,  or any of its
     subsidiaries, if any, is a party or by which the Company may be bound or to
     which any of the properties or assets of the Company is subject,  except in
     each case where such default  would not have a material  adverse  effect on
     the Company's  financial  condition or results of  operations.  Neither the
     Company nor any of its subsidiaries, if any, is in violation of any term or
     provision of its  Certificate  Incorporation  or By-Laws or in violation of
     any franchise, license, permit, applicable law, rule, regulation,  judgment
     or decree of any governmental agency or court, domestic or foreign,  having
     jurisdiction over it or its operations,  properties or business,  except as
     described in the Prospectus and except where such violation  would not have
     a  material  adverse  effect  on  its  financial   condition,   results  of
     operations, business, prospect or properties.

          2.13 Corporate Power; Licenses; Consents.

               2.13.1  Conduct  of  Business.  The  Company  has  all  requisite
          corporate power and authority,  and has all necessary  authorizations,
          approvals, orders, licenses,  certificates and permits of and from all
          governmental  regulatory  officials  and  bodies  to own or lease  its
          properties  and conduct its business as  described in the  Prospectus,
          and is and has  been  doing  business  in  compliance  with  all  such
          material authorizations,  approvals, orders licenses, certificates and
          permits and all federal,  state and local laws, rules and regulations,
          except where  failure to so comply  would not have a material  adverse
          effect on the condition (financial or otherwise), business prospect or
          properties of the Company.

               2.13.2  Transactions  Contemplated  Herein.  The  Company has all
          corporate  power and  authority  to enter into this  Agreement  and to
          carry out the  provisions  and  conditions  hereof,  and all consents,
          authorizations,  approvals and orders required in connection therewith
          have been  obtained.  No  consent,  authorization  or order of, and no
          filing with,  any court,  government  agency or other body is required
          for the valid issuance,  sale and delivery of the Securities  pursuant
          to  this  Agreement,  the  warrant  Agreement  and  the  Underwriter's
          Purchase Options,

                                        9

<PAGE>



          and as  contemplated  by the  Prospectus,  except with respect to
          applicable federal and state securities laws.

          2.14 Title to property: Insurance. The Company has good and marketable
     title to, or valid and enforceable  leasehold estates in, all items of real
     and personal  property  (tangible  and  intangible)  owned or leased by it,
     respectively  free and clear of all liens,  encumbrances,  Claims  security
     interests,  defects and  restrictions  of any material  nature  whatsoever,
     other than those referred to in the Prospectus, liens for taxes not yet due
     and payable and liens of an immaterial  nature arising by operation of law.
     The  Company has insured  its  properties  against  loss or damage by fire,
     other  casualty  and other  insurance in amounts and on terms as is usually
     maintained by similarly  situated  companies engaged in the same or similar
     business.

          2.15 Litigation;  Governmental Proceedings. Except as set forth in the
     Prospectus,  there is no action, suit,  proceeding,  inquiry,  arbitration,
     investigation,  litigation or  governmental  proceeding  pending or, to the
     Company's  knowledge,  threatened  against,  or involving the properties or
     business of the Company which might  materially  and  adversely  affect the
     financial position,  prospects, value or the operation of the properties or
     the  business of the Company or which  question the validity of the capital
     stock of the  Company or this  Agreement  or of any  action  taken or to be
     taken by the Company  pursuant to, or in connection  with,  this Agreement.
     There  are no  outstanding  orders,  judgments  or  decrees  of any  court,
     governmental  agency or other tribunal naming the Company and enjoining the
     Company from taking,  or requiring the Company,  to take, any action, or to
     which the Company,  or its respective  properties or business,  is bound or
     subject.

          2.16 Good Standing. The Company has been duly organized and is validly
     existing as a  corporation  and is in good  standing  under the laws of its
     state of  incorporation.  The Company is duly qualified and licensed and in
     good  standing  as a  foreign  corporation  in each  jurisdiction  in which
     ownership or leasing of any  properties or the character of its  operations
     requires  such  qualification  or  licensing,  except  where the failure to
     qualify would not have a material adverse effect on its financial condition
     or results of operations.

          2.17 Taxes. The Company has filed all returns (as hereinafter defined)
     required  to be filed with taxing  authorities  prior to the date hereof or
     has duly obtained  extensions of time for the filing  thereof.  The Company
     has paid all taxes (as  hereinafter  defined)  shown as due on such returns
     that were filed and has paid all taxes  imposed on or assessed  against it,
     other  than  any  which  the  Company  is  contesting  in good  faith.  The
     provisions  for taxes payable,  if any,  shown on the financial  statements
     filed with, or as part of the Registration Statement are sufficient for all
     accrued and unpaid taxes,  whether or not disputed,  and for all periods to
     and including the dates of such consolidated financial statements.

                                       10

<PAGE>



     Except as disclosed in writing to the Underwriter,  (i) no issues have
     been  raised  (and  are  currently  pending)  by any  taxing  authority  in
     connection  with  any of the  returns  or  taxes  asserted  as due from the
     Company,  and (ii) no waivers of statutes of limitation with respect to the
     returns or  collection  of taxes have been given by or  requested  from the
     Company.  The term "taxes" mean all federal,  state,  local,  foreign,  and
     other net income,  gross income,  gross receipts,  sales,  use, ad valorem,
     transfer,   franchise,  profits,  license,  lease,  service,  service  use,
     withholding,  payroll,  employment,  excise, severance,  stamp, occupation,
     premium, property,  windfall profits, customs, duties or other taxes, fees,
     assessments,  or charges of any kind  whatever,  together with any interest
     and any  penalties,  additions to tax, or  additional  amounts with respect
     thereto.  The term  "returns"  means all  returns,  declarations,  reports,
     statements, and other documents required to be filed in respect of taxes.

          2.18 Employee Options. No shares of Common Stock are eligible for sale
     pursuant  to Rule 701  promulgated  under  the Act in the  12-month  period
     following the Effective Date.

          2.19 Transactions Affecting Disclosure to NASD.

               2.19.1 Finder's Fees. There are no claims,  payments,  issuances,
          arrangements  or  understandings  for  services  in  the  nature  of a
          finder's or origination fee with respect to the sale of the Securities
          hereunder  or  any  other  arrangements,  agreements,  understandings,
          payments or issuance  with  respect to the Company that may affect the
          Underwriter's compensation,  as determined by the National Association
          of Securities  Dealers,  Inc. ("NASD"),  other than payments or future
          payments to the Underwriter,  as a placement agent fee with respect to
          the Company's  private  placement of promissory notes in the aggregate
          principal  amount of $770,000.00 and 431,200.00  Common Stock Purchase
          Warrants (the "Bridge Warrants") which closed on October 28, 1996.

               2.19.2 Payments Within Twelve Months.  Except as set forth in the
          Registration  Statement,  the  Company  has not  made  any  direct  or
          indirect  payments  (in  cash,  securities  or  otherwise)  to (i) any
          person,   as  a  finder's  fee,   investing   fee  or  otherwise,   in
          consideration  of such  person  raising  capital  for the  Company  or
          introducing  to  the  Company  persons  who  provided  capital  to the
          Company,  (ii) to any NASD  member,  or (iii) to any  person or entity
          that has any direct or indirect  affiliation or  association  with any
          NASD member, within the twelve month period prior to the date on which
          the  Registration  Statement  was filed with the  Commission  ("Filing
          Date") or thereafter, other than payments to the Underwriter.

               2.19.3 Use of Proceeds.  None of the net proceeds of the offering
          will be paid by the  Company to any NASD  member or any  affiliate  or
          associate  of any  NASD  member,  except  as  specifically  authorized
          herein.

                                       11

<PAGE>



               2.19.4 Insiders' NASD Affiliation.  No officer or director of the
          Company  or  holder of five  percent  (5%) or more of any class of the
          Company's  securities  has  any  direct  or  indirect  affiliation  or
          association  with  any  NASD  member.  The  Company  will  advise  the
          Underwriter  and the  NASD  if any 5% or  greater  stockholder  of the
          Company is or becomes an  affiliate  or  associated  person of an NASD
          member participating in the distribution.

          2.20 Foreign Corrupt Practices Act. Neither the Company nor any of its
     subsidiaries,  officers,  directors,  employees, agents or any other person
     acting on behalf of the  Company  has,  directly  or  indirectly,  given or
     agreed to give any money,  gift or similar  benefit (other than legal price
     concessions  to  customers  in the  ordinary  course  of  business)  to any
     customer,  supplier,  employee  or  agent of a  customer  or  supplier,  or
     official or employee of any governmental  agency or  instrumentality of any
     government  (domestic or foreign) or any  political  party or candidate for
     office (domestic or foreign) or any political party or candidate for office
     (domestic  or foreign) or other person who was, is, or may be in a position
     to help or hinder the  business of the Company (or assist it in  connection
     with any  actual or  proposed  transaction)  which (i)  might  subject  the
     Company to any damage or penalty  in any civil,  criminal  or  governmental
     litigation  or  proceeding,  (ii) if not  given in the past,  might  have a
     materially  adverse  effect on the assets,  business or  operations  of the
     Company as reflected in any of the  financial  statements  contained in the
     Prospectus or (iii) if not continued in the future,  might adversely affect
     the assets, business, operations or prospects of the Company. The Company's
     internal  accounting  controls and  procedures  are sufficient to cause the
     Company  to comply  with the  Foreign  Corrupt  Practices  Act of 1977,  as
     amended.

          2.21  Nasdaq  Eligibility.  As  of  the  Effective  Date,  the  Public
     Securities have been approved for quotation on The Nasdaq SmallCap Market.

          2.22 Intangibles. The Company owns or possesses the requisite licenses
     or rights to use all trademarks, service marks, service names, trade names,
     patents and patent applications, copyrights and other rights (collectively,
     "Intangibles")  described  as being  licensed  to,  or owned  by, it in the
     Registration  Statement.  The Intangibles which have been registered by the
     Company, if any, in the United States Patent and Trademark Office have been
     fully  maintained  and are in full force and  effect.  There is no claim or
     action by any person pertaining to, or proceeding pending or threatened and
     the Company has not received any notice

                                       12

<PAGE>



of conflict with the asserted  rights of others which  challenges  its exclusive
right with respect to any Intangibles used in the conduct of its business except
as described in the Prospectus.  To the Company's knowledge, the Intangibles and
the Company's  current  products,  services and processes do not infringe on any
intangibles held by any third party. To the Company's knowledge,  no others have
infringed upon the Intangibles of the Company.

          2.23 Relations with Employees.

               2.23.1  Employee  Matters.  The Company is in  compliance  in all
          material  respects  with  all  federal,   state  and  local  laws  and
          regulations  respecting the employment of its employees and employment
          practices,  terms and  conditions  of  employment  and wages and hours
          relating thereto.  There are no pending  investigations  involving the
          Company  by the U.S.  Department  of Labor or any  other  governmental
          agency responsible for the enforcement of such federal, state or local
          laws and  regulations.  There is no unfair  labor  practice  charge or
          complaint  against  the  Company  pending  before the  National  Labor
          Relations Board or any strike,  picketing,  boycott, dispute, showdown
          or stoppage pending or threatened  against or involving the Company or
          any  predecessor  entity,  and  none has ever  occurred.  No  question
          concerning  representation  exists  respecting  the  employees  of the
          Company and no collective bargaining agreement or modification thereof
          is  currently  being  negotiated  by  the  Company.  No  grievance  or
          arbitration  proceeding  is  pending  under any  expired  or  existing
          collective bargaining agreements, if any, of the Company.

               2.23.2  Employee  Benefit  Plans.  Other than as set forth in the
          Registration  Statement,  the Company  does not  maintain,  sponsor or
          contribute  to, or is it  required  to  contribute  to, any program or
          arrangement  that is an "employee  pension benefit plan," an "employee
          welfare benefit plan," or a,  "multi-employer  plan" as such terms are
          defined  in  Sections  3(2),  3(1)  and  3(37),  respectively,  of the
          Employee  Retirement Income Security Act of 1974, as amended ("ERISA")
          ("ERISA  Plans").  The  Company has not,  at any time,  maintained  or
          contributed to a defined  benefit plan, as defined in Section 3(35) of
          ERISA. If the Company does maintain or contribute to a defined benefit
          plan,  any  termination  of the plan on the date hereof would not give
          rise to liability under Title IV of ERISA. No ERISA Plan (or any trust
          created thereunder) has engaged in any prohibited  transactions within
          the  meaning of Section 406 of ERISA or Section  4975 of the  Internal
          Revenue Code of 1986,  as amended  ("Code"),  which could  subject the
          Company to

                                       13

<PAGE>



          any tax penalty  for  prohibited  transactions  and which has not
          adequately  been  corrected.  Any ERISA Plan is in compliance with all
          material reporting,  disclosure and other requirements of the Code and
          ERISA as they  relate to any such ERISA  Plan.  Determination  letters
          have been received from the Internal  Revenue  Service with respect to
          each ERISA Plan which is intended to comply with Code Section  401(a),
          stating  that such ERISA Plan and the  attendant  trust are  qualified
          thereunder.  The Company has never  completely or partially  withdrawn
          from a "multi-employer plan."

          2.24  Officers'  Certificate.  Any  certificate  signed  by  any  duly
     authorized  officer of the Company and  delivered to you or to your counsel
     shall  be  deemed a  representation  and  warranty  by the  Company  to the
     Underwriter as to the matters covered thereby.

          2.25 [Reserved]

          2.26 Agreements With Insiders and Others. The Company has caused to be
     duly executed lock-up agreements, in substantially the form provided by the
     Underwriter, pursuant to which (i) all of the officers and directors of the
     Company agree not to sell any shares of Common Stock for twelve (12) months
     following the Effective  Date of the  Registration  Statement,  except with
     respect to shares of Common Stock underlying Bridge  Warrants,(ii)  certain
     persons  who  beneficially  own or hold  five  percent  (5%) or more of the
     outstanding  Common  Stock of the  Company  agree not to sell any shares of
     Common Stock owned by them or their family members and  affiliates  (either
     pursuant  to Rule 144 of the  Regulations  or  otherwise)  for a period  of
     twelve (12) months  following  the Effective  Date,  except with respect to
     shares of Common Stock underlying  Bridge  Warrants,  and (iii) all persons
     (including  persons who own Bridge  Warrants who are covered by subsections
     (i) and (ii) of this  Section  2.26) who  beneficially  own or hold  Bridge
     Warrants to purchase shares of Common Stock agree not to sell any shares of
     Common Stock  underlying the Bridge  Warrants owned by them or their family
     members and affiliates  (either  pursuant to Rule 144 of the Regulations or
     otherwise) for a period of twenty-four  (24) months following the Effective
     Date.

          2.27 Employment Agreements. The Company has entered into an Employment
     Agreement with each of Messrs. Lew and Honigsfeld in substantially the same
     form as set forth in an exhibit to the Registration  Statement,  for a term
     of three (3) years commencing on the Effective Date.


                                       14

<PAGE>



          2.28 [Reserved]

          2.29 Sale,  Disposal or Conversion of Securities.  For the twelve (12)
     month period commencing on the Effective Date, the Company will not sell or
     otherwise dispose of any equity securities or securities  convertible into,
     or  exchangeable  or  exercisable  for,  equity  securities of the Company,
     except for (i) the  issuance of stock  options,  or shares of Common  Stock
     issuable upon the exercise thereof, which have been or may be granted up to
     an  aggregate  of 1,100,000  shares of Common  Stock,  (ii) the issuance of
     Public  Securities,  (iii) shares of Common  Stock  issuable  directly,  or
     indirectly,  upon the  exercise  of the  Underwriter's  Warrants,  (iv) the
     issuance of common or preferred  securities in connection  with a merger or
     acquisition  by the Company,  (v)  issuance of shares upon  exercise of the
     Bridge  Warrants,  (vi) the issuance of common or preferred  securities  in
     connection with the establishment of any joint venture  relationship with a
     third party to manufacture products or develop products or technology,  and
     (vii) the  issuance  of common or  preferred  securities  to raise  capital
     specifically for the manufacture of products or the development of products
     or  technology  of Common Stock upon the  exercise of the Bridge  Warrants,
     issuances  for purposes  described in  subsections  (vi) and (vii) shall be
     withheld.

     3. Covenants of the Company. The Company covenants and agrees as follows:

          3.1 Amendments to Registration Statement.  The Company will deliver to
     the  Underwriter,  prior to filing,  any  amendment  or  supplement  to the
     Registration  Statement  or  Prospectus  proposed  to be  filed  after  the
     Effective  Date and not file any such  amendment or supplement to which the
     Underwriter shall reasonably object.

          3.2 Federal Securities Laws.

               3.2.1  Compliance.  During the time when a Prospectus is required
          to be delivered  under the Act,  the Company  will use all  reasonable
          efforts to comply with all  requirements  imposed  upon it by the Act,
          the Regulations and the Exchange Act and by the regulations  under the
          Exchange Act, as from time to time in force,  in  accordance  with the
          provisions  hereof and the  Prospectus  which  requires the Company to
          keep the Registration  Statement effective until the Termination Date.
          If at any time  when a  Prospectus  or a Warrant  Exercise  Prospectus
          relating to the Public Securities or the  Underwriter's  Securities is
          required to be

                                       15

<PAGE>



          delivered under the Act and, in any event,  until the Termination
          Date,  any event  shall  have  occurred  as a result of which,  in the
          feasible  opinion  of  counsel  for the  Company  or  counsel  for the
          Underwriter,   such  Prospectus,  as  then  amended  or  supplemented,
          includes an untrue  statement  of material  fact or omits to state any
          material fact  required to be stated  therein or necessary to make the
          statements  therein,  in light of the  circumstances  under which they
          were made, not misleading,  or if it is necessary at any time to amend
          the  Prospectus  to comply with the Act,  the Company  will notify the
          Underwriter promptly and prepare and file with the Commission, subject
          to Section 3.1 hereof,  an  appropriate  amendment  or  supplement  in
          accordance with Section 10 of the Act.

               3.2.2 [Reserved]

               3.2.3 Exchange Act  Registration.  For a period of five (5) years
          from the  Effective  Date,  the Company  will use its best  efforts to
          maintain the  registration  of the Common Stock and the Warrants under
          the provisions of the Exchange Act.

          3.3 Blue Sky Filing.  The  Company  will  endeavor  in good faith,  in
     cooperation with the Underwriter,  at or prior to the time the Registration
     Statement  becomes  effective,  to qualify  the Public  Securities  and the
     Underwriter's Securities for offering and sale under the securities laws of
     such  jurisdictions as the Underwriter may reasonably  designate,  provided
     that no such qualification  shall be required in any jurisdiction where, as
     a result  thereof,  the  Company  would be  subject  to  service of general
     process or to  taxation  as a foreign  corporation  doing  business in such
     jurisdiction.  In each  jurisdiction  where  such  qualification  shall  be
     effected,  the Company will, unless the Underwriter agrees that such action
     is not at the time necessary or advisable,  use all  reasonable  efforts to
     file and make such  statements  or  report  at such  times as are or may be
     required by the laws of such jurisdiction.

          3.4 Delivery to Underwriter of Prospectuses.  The Company will deliver
     such  number of  Prospectuses  to the  Underwriter  as  reasonably  needed,
     without charge, from time to time, during the period when such prospectuses
     are required to be delivered under the Act. Additionally,  the Company will
     deliver,  as  soon  as  the  Registration  Statement  or any  amendment  or
     supplement  thereto becomes effective,  two original executed  Registration
     Statements,  including exhibits, and all post-effective  amendments thereto
     and copies of all exhibits file therewith or incorporated therein by

                                       16

<PAGE>



     reference and all original executed consents of certified experts.

          3.5 Events  Requiring  Notice to Underwriter.  The Company will notify
     the Underwriter immediately and confirm the notice in writing (i) filing of
     any post-effective amendment or supplement to the Registration Statement or
     Prospectus,  (ii) of the issuance by the Commission of any stop order or of
     the  initiation,  or the  threatening,  of any proceeding for that purpose,
     (iii) of the issuance by any state securities commission of any proceedings
     for the  suspension  of the  qualification  of the  Public  Securities  for
     offering  of  sale  in  any  jurisdiction  or of  the  initiation,  or  the
     threatening, of any proceeding for that purpose, (iv) of the receipt of any
     comments or request for any additional  information from the Commission and
     the  Company's  response  thereto,  if any, and (v) of the happening of any
     event  during the period  described  in Section  3.4 hereof  which,  in the
     judgment of the Company, makes any statement of a material fact made in the
     Registration  Statement  or the  Prospectus  untrue or which  requires  the
     making of any  changes in the  Prospectus  in order to make the  statements
     therein,  in light of the  circumstances  under  which they were made,  not
     misleading or which requires the making of any changes in the  Registration
     Statement in order to make the statements  therein not  misleading.  If the
     Commission or any state  securities  commission shall enter a stop order or
     suspend  such  qualification  at any time,  the  Company  will  make  every
     reasonable effort to obtain promptly the lifting of such order.

          3.6 Review of  Financial  Statements.  For a period of five years from
     the Effective Date, the Company, at its expense,  shall cause its regularly
     engaged independent  certified public accountants to review (but not audit)
     the  Company's  financial  statements  for each of the first  three  fiscal
     quarters prior to the announcement of quarterly financial information,  the
     filing of the  Company's  Form 10-Q  quarterly  report  and the  mailing of
     quarterly financial information to stockholders.

          3.7 Unaudited Financials.  The Company will furnish to the Underwriter
     as early as practicable subsequent to the date hereof and at least two full
     business  days prior to the Closing  Date,  a copy of the latest  available
     unaudited  interim  financial  statements  ("Unaudited  Financials") of the
     Company  (which in no event  shall be as of a date more  than  thirty  days
     prior  to the  Effective  Date)  which  have  been  read  by the  Company's
     independent accountants, as stated in their letter to be furnished pursuant
     to Section 4.3 hereof.

                                       17

<PAGE>




          3.8  Secondary  Market  Trading,  Moody's  OTC  Industrial  Manual and
     Standard  & Poor's.  The  Company  will use its best  efforts  and take all
     necessary and  appropriate  actions to achieve  accelerated  publication in
     Standard and Poor's Corporation  Records Corporate  Descriptions or Moody's
     OTC Industrial Manual within ten (10) days after the Effective Date, and to
     maintain such publication with updated  quarterly  information for a period
     of five  years  from the  Effective  Date,  including  the  payment  of any
     necessary fees and expenses.  This  obligation  shall exist only so long as
     the  Company  qualifies  for such  listing  and shall be at the  reasonable
     discretion of the Underwriter. The Company shall take such action as may be
     reasonably  requested  by the  Underwriter  to  obtain a  secondary  market
     trading  exemption in such States as may be  requested by the  Underwriter,
     including the payment of any necessary fees and expenses.

          3.9 [Reserved]

          3.10 [Reserved]

          3.11 [Reserved]

          3.12 Reports to the Underwriter.

               3.12.1 Periodic Reports, Etc. For a period of five years from the
          Effective Date, the Company will furnish to the Underwriter  copies of
          such financial  statements  and other periodic and special  reports as
          the Company  from time to time  furnishes  generally to holders of any
          class of its securities, and promptly furnish to the Underwriter (i) a
          copy of each periodic  report to the Company shall be required to file
          with the  Commission,  (ii) a copy of every press release  released by
          the  Company,  (iii)  copies of each Form SR, (iv) a copy of each Form
          8-K or Schedules  13D, 13G, 14D-1 or 13E-4 received or prepared by the
          Company,  and (v)  such  additional  documents  and  information  with
          respect to the Company and the affairs of any future  subsidiaries  of
          the Company,  which may be properly  disclosed to the Underwriter,  as
          the Underwriter may from time to time, reasonably request.

               3.12.2 [Reserved]

          3.13 [Reserved]

          3.14 Application of Net Proceeds. The Company will apply

                                       18

<PAGE>



          the net  proceeds  from the  offering  received by it in a manner
          consistent  with the  application  described under the caption "USE OF
          PROCEEDS" in the Prospectus.

          3.15 Payment of Expenses.

               3.15.1 General Expenses. The Company hereby agrees to pay on each
          of the Closing Date and the Option Closing Date, if any, to the extent
          not paid at Closing Date, all expenses  incident to the performance of
          the obligations of the Company under this Agreement, including but not
          limited to (i) the preparation, printing, filing, delivery and mailing
          (including the payment of postage with respect to such mailing) of the
          Registration   Statement,   the   Prospectus   and   the   Preliminary
          Prospectuses  and the  printing  and  mailing  of this  Agreement  and
          related  documents,  including the cost of all copies  thereof and any
          amendments thereof or supplements  thereto supplied to the Underwriter
          in  quantities  as  may  be  required  by the  Underwriter,  (ii)  the
          printing,  engraving,  issuance  and  delivery of the shares of Common
          Stock and the Underwriter's Warrants,  including any transfer or other
          taxes  payable  thereon,   (iii)  the   qualification  of  the  Public
          Securities and Bridge Securities under state or foreign  securities or
          Blue Sky laws,  including the filing fees under such Blue Sky laws the
          costs of printing and mailing the  "Preliminary  Blue Sky Memorandum,"
          and all amendments and supplements thereto, fees of Underwriter's Blue
          Sky counsel,  which fees shall not exceed an  aggregate of  $25,000.00
          ($10,000.00 of which has already been paid) and  disbursements of such
          counsel, and fees and disbursements of local counsel, if any, retained
          for such purpose and approved by the  Company,  (iv) costs  associated
          with applications for assignments of a rating of the Public Securities
          by qualified  rating  agencies,  (v) filing  fees,  costs and expenses
          (including  fees  and  disbursements  for the  Underwriter's  counsel)
          incurred in registering  the offering with the NASD, (vi) costs not to
          exceed,   in  the   aggregate,   $10,000   for   placing   "tombstone"
          advertisements in The Wall Street Journal,  the Northeast  editions of
          The New York Times,  or the Investment  Dealer Digest,  (vii) fees and
          disbursements of the transfer and warrant agent,  (viii) the Company's
          expenses  associated  with "due  diligence"  meetings  arranged by the
          Underwriter,  (ix) the preparation,  binding and delivery of four sets
          of  transactions  "bibles,"  in form  and  style  satisfactory  to the
          Underwriter,  (x) any listing of the Public  Securities  on the Nasdaq
          SmallCap  Market,  or any  listing in  Standard  & Poor's  Corporation
          Records or Moody's OTC Industrial Manual, and (xi) all other costs and
          expenses  incident to the  performance  of its  obligations  hereunder
          which are

                                       19

<PAGE>



          not otherwise  specifically  provided for in this Section 3.15.1.
          Since an  important  part of the  public  offering  process is for the
          Company to appropriately  and accurately  describe both the background
          of the  principals  of  the  Company  and  the  Company's  competitive
          position  in its  industry,  the  Company  will  engage as  reasonably
          requested  by the  Underwriter,  and will pay  for,  an  investigative
          search firm of the Underwriter's choice to conduct an investigation of
          principals of the Company mutually selected by the Underwriter and the
          Company  (this  amount  will be  credited  against  the  Underwriter's
          non-accountable  expense  allowance if the offering is  consummated as
          provided herein).  The Underwriter may deduct from the net proceeds of
          the Public Offering payable to the Company on the Closing Date, or the
          Option  Closing Date, if any, the expenses set forth herein to be paid
          by the Company to the Underwriter and/or to third parties, only to the
          extent such deduction  does not conflict with the  description or "Use
          of Proceeds" in the Registration Statement and Prospectus.

                    3.15.2 Non-Accountable  Expenses. The Company further agrees
               that,  in addition to the  expenses  payable  pursuant to Section
               3.15.1, it will pay to the Underwriter a non-accountable  expense
               allowance  equal to three  (3%)  percent  of the  gross  proceeds
               received by the Company  from the sale of the Public  Securities,
               of which  $50,000.00  has been paid to date, and the Company will
               pay the balance on the  Closing  Date and any  additional  monies
               owed  attributable  to the Option  Securities or otherwise on the
               Option Closing Date by certified or bank  cashier's  check or, at
               the election of the  Underwriters  by deduction from the proceeds
               of the offering contemplated herein. If the offering contemplated
               by this Agreement is not  consummated  for any reason  whatsoever
               then the Company's  liability for payment to the  Underwriter  of
               the  non-accountable  expense allowance shall be equal to the sum
               of the Underwriter's  actual  out-of-pocket  expenses (including,
               but not limited to,  counsel fees,  "roadshow"  and due diligence
               expenses).   The  Underwriter  shall  retain  such  part  of  the
               non-accountable  expense allowance previously paid as shall equal
               its actual out-of-pocket  expenses. If the amount previously paid
               is insufficient to cover such actual out-of-pocket  expenses, the
               Company shall remain liable for and promptly pay any other actual
               out-of-pocket expenses. If the amount previously paid exceeds the
               amount of the  actual  out-of-pocket  expenses,  the  Underwriter
               shall promptly remit to the Company any such excess.

          3.16  Financial  Consulting  Agreement.  At the  closing of the Public
     Offering, the Company shall engage the Underwriter as

                                       20

<PAGE>



     its  non-exclusive   financial  consultant  pursuant  to  a  Financial
     Consulting  Agreement for a period of three (3) years following the date of
     Closing,  providing for a monthly consulting fee of $3,000 with the payment
     of the  aggregate of said monthly fees in the amount of $108,000 to be paid
     at the closing of the Public Offering.

          3.17 Non-exclusive Merger and Acquisition  Agreement.  At the Close of
     the Public  Offering,  the Company shall enter into a non-exclusive  merger
     and  acquisition   agreement  with  the   Underwriter,   compensating   the
     Underwriter  at the  rate of 5% for the  first  $1,000,000,  4% of the next
     $1,000,000,  3% of the next $1,000,000,  and 2% thereafter, of the value of
     any transaction that was introduced by the Underwriter to the Company,  and
     consummated by the Company and such  introduced  party,  in connection with
     any merger, acquisition, business combination or like transaction. Such fee
     shall be payable in cash at the Closing of said transaction.

          3.18 Stabilization. Neither the Company, nor, to its knowledge, any of
     its employees,  directors or stockholders has taken or will take,  directly
     or  indirectly,  any action  designed to or which has  constituted or which
     might  reasonably be expected to cause or result in, under the Exchange Act
     or otherwise, stabilization or manipulation of the price of any security of
     the Company to facilitate the sale or resale of the Public Securities.

          3.19  Internal  Controls.  The Company  maintains and will continue to
     maintain a system of internal  accounting  controls  sufficient  to provide
     reasonable  assurances  that: (i)  transactions  are executed in accordance
     with management's general or specific authorization,  (ii) transactions are
     recorded  as  necessary  in  order  to  permit   preparation  of  financial
     statements in accordance with generally accepted accounting  principles and
     to maintain  accountability for assets, (iii) access to assets is permitted
     only in accordance with management's general or specific authorization, and
     (iv) the  recorded  accountability  for assets is  compared  with  existing
     assets at reasonable intervals and appropriate action is taken with respect
     to any differences.

          3.20 Printer.  The Company agrees to use a printer for the printing of
     the  Preliminary  Prospectus and  Prospectus  with an office located in New
     York which is reasonably acceptable to the Underwriter.


                                       21

<PAGE>



          3.21 Transfer Agent.  The Company shall retain American Stock Transfer
     Company as its transfer  agent for the Common  Stock.  For a period of five
     years  following the Effective  Date, the Company will not switch  transfer
     agents without the Underwriter's  consent,  which shall not be unreasonably
     withheld.

          3.22 Sale of  Securities.  To the extent  that the  Company is legally
     permitted  to do so, it shall not permit or cause a private or public  sale
     or private or public  offering  of any of its  securities  (in any  manner,
     including   pursuant  to  Rule  144  under  the  Act)  owned  nominally  or
     beneficially   by  the   officers,   directors  and   shareholders   owning
     beneficially more than one (1%) percent of the outstanding shares of Common
     Stock of the company (the  Insiders)  if such  offering or sale would be in
     violation of the Insider's "lockup" agreement with the Underwriter.

          3.23 DTC Securities Position Reports.  For a period of five (5) years,
     the Company,  at its expense,  shall provide the Underwriter with copies of
     the  Company's  DTC  Securities  Position  Reports on a monthly  basis,  if
     requested by the Underwriter to do so.

          3.24 Public  Relations Firm. The Company agrees if requested that they
     will  engage  a  public   relations  firm  reasonably   acceptable  to  the
     Underwriter  and the Company for a minimum of 12 months from the  Effective
     Date.

          3.25 CUSIP  Numbers.  The Company  shall obtain CUSIP  numbers for the
     Public  Securities as promptly as  practicable  after the initial filing of
     the Registration Statement with the Commission.

     4.  Conditions  of  Underwriter's  Obligations.   The  obligations  of  the
Underwriter to purchase and pay for the Securities, as provided herein, shall be
subject to the continuing  accuracy of the representations and warranties of the
Company as of the date hereof and as of each of the Closing  Date and the Option
Closing  Date,  if any,  to the  accuracy of the  statements  of officers of the
Company made pursuant to the provisions  hereof,  and to the  performance by the
Company of its obligations hereunder and to the following conditions:

          4.1 Regulatory Matters.

               4.1.1 Effectiveness of Registration Statement.

                                       22

<PAGE>



               The Registration  Statement shall have become effective not later
          than 5:00 P.M.,  New York time,  on the next day following the date of
          this Agreement,  or such other time and date, not later than 5:00 p.m.
          New York City time,  on the seventh  (7th) day  thereafter,  as may be
          approved by you, and such Registration Statement shall be effective at
          each of the  Closing  Date and the Option  Closing  Date,  and no stop
          order suspending the effectiveness of the Registration Statement shall
          have been issued and no  proceedings  for that purpose shall have been
          instituted or shall be pending or  contemplated  by the  Commission at
          the  Closing  Date and any request on the part of the  Commission  for
          additional information shall have been complied with to the reasonable
          satisfaction  of  Blodnick,  Blodnick  & Zelin,  P.C.,  counsel to the
          Underwriter.

               4.1.2 NASD Clearance.  By the Closing Date, the Underwriter shall
          have received clearance from the NASD as to the amount of compensation
          allowable  or  payable  to  the   Underwriter   as  described  in  the
          Registration Statement.

               4.1.3 No Blue Sky Stop Orders.  No order  suspending  the sale of
          the  Securities  in any  jurisdiction  designated  by you  pursuant to
          Section 3.3 hereof  shall have been issued  either on the Closing Date
          or the Option Closing Date, and no proceedings  for that purpose shall
          have been instituted or shall be contemplated.

               4.1.4 NASDAQ  SmallCap  Market;  Other Markets.  The Company will
          apply to include the Public  Securities  for  quotation  on the Nasdaq
          SmallCap  Market  and other  such  markets  as the  Underwriter  shall
          reasonably request,  including,  without limitation,  the Boston Stock
          Exchange,  the Chicago Stock Exchange, and the Pacific Stock Exchange,
          as  soon  as  reasonably  practicable  following  the  filing  of  the
          registration  statement  relating  to the  Public  Offering  with  the
          Commission.

          4.2 Company Counsel Matters.

               4.2.1 Opinion of Counsel.  On the Closing Date,  the  Underwriter
          shall have received the favorable  opinion of Certilman  Balin Adler &
          Hyman, LLP, counsel to the Company,  dated the Closing Date, addressed
          to  the  Underwriter,  and  in  form  and  substance  satisfactory  to
          Blodnick,  Blodnick & Zelin, P.C., counsel to the Underwriter,  to the
          effect that:

                    (i) The Company has been duly organized and

                                       23

<PAGE>



                    is validly  existing  as a  corporation  and is in good
                    standing under the laws of its state of incorporation and to
                    such counsel's knowledge, is duly qualified and licensed and
                    in good standing as a foreign corporation in New York, which
                    to the knowledge of such counsel is the only jurisdiction in
                    which it owns or leases any real  property or the  character
                    of its operations  requires such qualification or licensing,
                    except  where  the  failure  to  qualify  would  not  have a
                    material  adverse  effect  on  its  financial  condition  or
                    results of operations.

                         (ii) The Company has all requisite  corporate power and
                    authority,  to own or lease its  properties  and conduct its
                    business as described in the Prospectus. The Company has all
                    corporate  power and authority to enter into this  Agreement
                    and to carry out the provisions and conditions  hereof,  and
                    to such counsel's knowledge,  all consents,  authorizations,
                    approvals and orders hereof  required in connection with the
                    execution  and delivery of, and entry into,  this  Agreement
                    have  been  obtained.   To  such  counsel's  knowledge,   no
                    consents,  approvals,  authorizations  or orders  of, and no
                    filing with any court or governmental  agency or body (other
                    than such as may be  required  under the Act and  applicable
                    Blue Sky laws),  is  required  for the valid  authorization,
                    issuance,  sale  and  delivery  of the  Securities  and  the
                    consummation of the transactions and agreements contemplated
                    by  this  Agreement,   the  Underwriter's  Warrant,  and  as
                    contemplated  by  the   Prospectus,   other  than  all  such
                    authorizations,  approvals, consents, orders, registrations,
                    licenses and permits  which have been duly  obtained and are
                    in full  force and  effect  and have been  disclosed  to the
                    Underwriter,  other than the continuing effectiveness of the
                    Registration  Statement  [and the  delivery  of the  Warrant
                    Exercise Prospectus].

                         (iii) All  issued  and  outstanding  securities  of the
                    Company have been duly authorized and validly issued and are
                    fully  paid  and  non-assessable;   and  to  such  counsel's
                    knowledge none of such  securities  were issued in violation
                    of the  preemptive  rights of any holders of any security of
                    the  Company or similar  contractual  rights  granted by the
                    Company.  The  outstanding  options and warrants to purchase
                    shares  of Common  Stock  constitute  the valid and  binding
                    obligations of the Company,  enforceable in accordance  with
                    their terms,  except (i) such  enforceability may be limited
                    by  bankruptcy,   insolvency,   reorganization,   fraudulent
                    conveyance, marshaling and/or similar laws, now or hereafter
                    in  effect   affecting   creditors'   rights  and   remedies
                    (including  such as may deny  giving  effect to  waivers  of
                    debtor's rights), (ii) as

                                       24

<PAGE>



                    enforceability of any indemnification  provision may be
                    limited  under  Federal and State  laws,  and (iii) that the
                    remedy of  specific  performance  and  injunction  and other
                    forms of  equitable  relief may be subject to the  equitable
                    defenses and to the  discretion  of the courts  before which
                    any  proceeding  therefor  may  be  brought  (regardless  of
                    whether such  enforceability  is  considered a proceeding in
                    equity or in law). The authorized  and  outstanding  capital
                    stock of the  Company  is as set  forth  under  the  caption
                    "Capitalization" in the Prospectus.

                         (iv) The Securities have been duly authorized and, when
                    issued and paid for, will be validly issued,  fully paid and
                    non-assessable.  The  Securities  are not,  and will not, be
                    subject  to the  preemptive  rights  of any  holders  of any
                    security  of the Company  or, to such  counsel's  knowledge,
                    similar  contractual  rights  granted  by the  Company.  All
                    corporate action required to be taken for the authorization,
                    issuance  and  sale of the  Securities  has  been  duly  and
                    validly taken. When issued, the Underwriter's  Warrants will
                    constitute  valid and binding  obligations of the Company to
                    issue and sell, upon exercise thereof and payment  therefor,
                    the number of shares of Common  Stock of the Company  called
                    for thereby and such and the  Underwriter's  Warrants,  when
                    issued,  in each  case,  will  be  enforceable  against  the
                    Company in accordance with their  respective  terms,  except
                    (i)  such  enforceability  may  be  limited  by  bankruptcy,
                    insolvency,    reorganization,     fraudulent    conveyance,
                    marshaling  and/or  similar laws, now or hereafter in effect
                    affecting creditors' rights and remedies and (including such
                    as may deny giving  effect to waivers of  debtor's  rights),
                    (ii) as enforceability of any indemnification  provision may
                    be limited under Federal and State laws,  and (iii) that the
                    remedy of  specific  performance  and  injunction  and other
                    forms of  equitable  relief may be subject to the  equitable
                    defenses and to the  discretion  of the courts  before which
                    any  proceeding  therefor  may  be  brought  (regardless  of
                    whether such  enforceability  is  considered a proceeding in
                    equity  or  in  law).  The  certificates   representing  the
                    Securities are in due and proper form.

                         (v) To such counsel's knowledge, except as set forth in
                    the Prospectus,  no holders of any securities of the Company
                    or of any  options,  warrants or  securities  of the Company
                    exercisable   for  or  convertible  or   exchangeable   into
                    securities  of the  Company  have the right to  require  the
                    Company to register any such securities of the Company under
                    the Act or to include any such  securities in a registration
                    statement to be filed by the Company.


                                       25

<PAGE>



                         (vi) To such counsel's knowledge,  there is no claim or
                    action by any person  pertaining to, or proceeding,  pending
                    or to such counsel's knowledge threatened,  which challenges
                    the  exclusive  rights of the  Company  with  respect to any
                    Intangibles used in the conduct of its business  (including,
                    without limitation, any such licenses or rights described in
                    the  Prospectus as being owned or possessed by the Company);
                    and to  such  counsel's  knowledge,  the  Company's  current
                    products,  services  and  processes  do not  infringe on any
                    intangibles held by third parties.

                         (vii) This Agreement and the Underwriter's Warrant have
                    each been duly and validly authorized and, when executed and
                    delivered by the Company,  will constitute valid and binding
                    obligations of the Company,  enforceable against the Company
                    in accordance with their respective  terms,  except (i) such
                    enforceability  may be  limited by  bankruptcy,  insolvency,
                    reorganization,  fraudulent  conveyance,  marshaling  and/or
                    similar   laws,   now  or  hereafter  in  effect   affecting
                    creditors'  rights and remedies and  (including  such as may
                    deny giving effect to waivers of debtor's  rights),  (ii) as
                    enforceability  of  any  indemnification  provision  may  be
                    limited  under  Federal and State  laws,  and (iii) that the
                    remedy of  specific  performance  and  injunction  and other
                    forms of  equitable  relief may be subject to the  equitable
                    defenses and to the  discretion  of the courts  before which
                    any  proceeding  therefor  may  be  brought  (regardless  of
                    whether such  enforceability  is  considered a proceeding in
                    equity or in law).


                         (viii) The execution,  delivery and  performance by the
                    Company of this  Agreement,  and the  Underwriter's  Warrant
                    Agreement,  the  issuance  and sale of the  Securities,  the
                    consummation  of the  transactions  contemplated  hereby and
                    thereby and the compliance by the Company with the terms and
                    provisions hereof and thereof,  do not and will not, with or
                    without the giving of notice or the lapse of time,  or both,
                    (a) to such counsel's knowledge, conflict with, or result in
                    a  breach  of,  any  of  the  terms  or  provisions  of,  or
                    constitute  a default  under,  or result in the  creation or
                    modification  of any  lien,  security  interest,  charge  or
                    encumbrance  upon any of the  properties or assets of any of
                    the Company pursuant to the terms of, any material mortgage,
                    deed of trust, note, indenture,  loan, contract,  commitment
                    or other material agreement or instrument,  to which it is a
                    party or by which it or any of its  properties or assets may
                    be bound,  (b) result in any violation of the  provisions of
                    the Company's  Certificate of Incorporation or By-Laws,  (c)
                    to such counsel's

                                       26

<PAGE>



                    knowledge,   violate  any   statute  or  any   material
                    judgment,  order or decree, rule or regulation applicable to
                    the Company of any court,  domestic  or  foreign,  or of any
                    federal,  state  or  other  regulatory  authority  or  other
                    governmental  body  having  jurisdiction  over  any  of  the
                    Company's or its properties or assets, which might result in
                    any material and adverse change in the condition  (financial
                    or  otherwise),  business  prospects  or  properties  of the
                    Company, or might materially affect the properties or assets
                    thereof, or (d) to such counsel's knowledge, have a material
                    adverse  effect  on  any  material  permit,   certification,
                    registration, approval, consent, license or franchise of the
                    Company.

                         (ix) The Registration  Statement and the Prospectus and
                    any post-effective  amendments or supplements thereto (other
                    than the financial  statements,  schedules and data included
                    therein,  as to which no opinion need be rendered) comply as
                    to form in all material  respects with the  requirements  of
                    the Act  and  Regulations.  The  Securities  and  all  other
                    securities  issued or issuable by the Company conform in all
                    material  respects to the description  thereof  contained in
                    the   Registration   Statement  and  the   Prospectus.   The
                    descriptions   in  the   Registration   Statement   and  the
                    Prospectus    of    statutes,    regulations,     government
                    classifications,  contracts  and other  documents  have been
                    reviewed by us, and, based upon such review, are accurate in
                    all  material  respects and present  fairly the  information
                    required  to be  disclosed  with  respect  thereto.  To such
                    counsel's knowledge,  each statute or regulation or legal or
                    governmental  proceeding  required  to be  described  in the
                    Prospectus is not  described as required,  and all contracts
                    or documents known to counsel, of a character required to be
                    described in the Registration Statement or the Prospectus or
                    to be filed as exhibits to the Registration Statement are so
                    described or filed as required.

                         (x) Counsel has participated in one or more personal or
                    telephonic    conferences    with    officers    and   other
                    representatives  of  the  Company,  representatives  of  the
                    independent   public   accountants   for  the   Company  and
                    representatives  of the Underwriter at which the contents of
                    the  Registration  Statement,  the  Prospectus  and  related
                    matters  were  discussed  and  although  such counsel is not
                    passing upon and does not assume any  responsibility for the
                    accuracy   completeness   or  fairness  of  the   statements
                    contained  in  the  Registration  Statement  and  Prospectus
                    (except as  otherwise  set forth in this  opinion),  to such
                    counsel's knowledge,  no facts have come to the attention of
                    such  counsel  which  lead them to believe  that  either the
                    Registration Statement or any amendment

                                       27

<PAGE>



                    or supplement  thereto, as of the date of such opinion,
                    contained any untrue statement of a material fact or omitted
                    to state a material  fact  required to be stated  therein or
                    necessary to make the statements  therein not misleading (it
                    being  understood  that such counsel need express no opinion
                    with respect to the financial  statements  and schedules and
                    other  financial  and  statistical   data  included  in  the
                    Registration  Statement  or  Prospectus),  and  that  on the
                    Closing Date, the Prospectus and any amendment or supplement
                    thereto contained any untrue statement or a material fact or
                    omit to state any material  fact  necessary in order to make
                    the statements  therein, in light of the circumstances under
                    which they were made, not misleading.

                         (xi) The  Registration  Statement has become  effective
                    under the Act,  and, to such  counsel's  knowledge,  no stop
                    order  suspending  the  effectiveness  of  the  Registration
                    Statement  has  been  issued  and no  proceedings  for  that
                    purpose have been  instituted  or are pending or  threatened
                    under the Act or applicable state securities laws.

                         (xii) DELETED

                         (xiii) Except as described in the  Prospectus,  to such
                    counsel's   knowledge,   no   default   exists  in  the  due
                    performance and observance of any material term, covenant or
                    condition  of any  material  license,  contract,  indenture,
                    mortgage,  deed of trust,  note,  loan or  credit  agreement
                    known to such counsel,  or any other  material  agreement or
                    instrument evidencing an obligation for borrowed money known
                    to  such  counsel,   or  any  other  material  agreement  or
                    instrument  to which the  Company is a party or by which the
                    Company  may be bound or to which any of the  properties  or
                    assets  of  the  Company  is  subject.   To  such  counsel's
                    knowledge,  the Company is not in  violation  of any term or
                    provision of its Certificate of  Incorporation or By-Laws or
                    of any  material  term of any material  franchise,  license,
                    permit, applicable law, rule, regulation, judgment or decree
                    of any  governmental  agency or court,  domestic or foreign,
                    having  jurisdiction  over  it or any of its  properties  or
                    business, except as described in the Prospectus.

                         (xiv) To such counsel's knowledge,  except as described
                    in the  Prospectus,  the Company does not own an interest in
                    any corporation,  partnership, joint venture, trust or other
                    business entity.

                         (xv) To such counsel's knowledge, except as

                                       28

<PAGE>



                    set forth in the Prospectus,  there is no action,  suit
                    or proceeding before or by any court of governmental  agency
                    or body,  domestic or foreign,  now pending,  or  threatened
                    against the Company,  which might result in any material and
                    adverse  change in the condition  (financial or  otherwise),
                    business or prospects of the  Company,  or might  materially
                    and adversely affect the properties or assets thereof.

                         (xvi) To such counsel's knowledge,  except as described
                    in the Prospectus, there are no claims, payments, issuances,
                    arrangements or understandings for services in the nature of
                    a finder's or  origination  fee with  respect to the sale of
                    the   Securities    hereunder   or   financial    consulting
                    arrangements   or  any   other   arrangements,   agreements,
                    understandings,  payments or  issuances  that may affect the
                    Underwriter's  compensation,  as  determined  by the NASD in
                    connection with the offer and sale of the Securities.

     Unless the context clearly indicates otherwise,  the term "Company" as used
in this Section 4.2.1 shall include each subsidiary, if any, of the Company. The
opinion of counsel for the Company and any opinion  relied upon by such  counsel
for the Company  shall  include a statement  to the effect that it may be relied
upon by counsel for the Underwriter.

               4.2.2 [Reserved]

               4.2.3  Option  Closing  Date  Opinion of  Counsel.  On any Option
          Closing  Date,  the  Underwriter  shall have  received the opinions of
          Certilman,  Balin,  Adler & Hyman, LLP, counsel to the Company,  dated
          the Option Closing Date addressed to the  Underwriter  and in the form
          and substance reasonably  satisfactory to Blodnick,  Blodnick & Zelin,
          P.C., counsel to the Underwriter,  confirming as of the Option Closing
          Date,  the  statements  made by such  counsel to the  Company in their
          opinion delivered on the Closing Date.

               4.2.4 Reliance.  In rendering such opinion, such counsel may rely
          (i) as to matters  involving  the  application  of laws other than the
          laws  of the  United  States  and  jurisdictions  in  which  they  are
          admitted,  to the extent such  counsel  deems proper and to the extent
          specified in such  Opinions if at all, upon an opinion or opinions (in
          form and substance reasonably  satisfactory to Underwriter's  counsel)
          of other  counsel  reasonably  acceptable  to  Underwriter's  counsel,
          familiar with the applicable  laws, and (ii) as to matters of fact, to
          the extent they deem proper, on

                                       29

<PAGE>



          certificates   or  other   written   statements  of  officers  of
          departments  of various  jurisdictions  having  custody  of  documents
          respecting  the  corporate  existence or good standing of the Company,
          provided that copies of any such statements or  certificates  shall be
          delivered  to  Underwriter's  counsel  if  requested.  The  opinion of
          counsel for the Company  shall  include a statement to the effect that
          it may be relied  upon by counsel for the  Underwriter  in its opinion
          delivered to the Underwriter.

               4.2.5 Secondary Market Trading Survey.  On the Effective Date the
          Underwriter shall have received the Secondary Market Trading Survey.

          4.3 Cold Comfort Letter. At the time this Agreement is executed and at
     each of the Closing  Date and the Option  Closing  Date,  if any, you shall
     have  received  a  letter,  addressed  to the  Underwriter  and in form and
     substance  satisfactory in all respects  (including the non-material nature
     of the changes or decreases,  if any, referred to in clause (iii) below) to
     you and to Blodnick,  Blodnick & Zelin,  P.C., counsel for the Underwriter,
     from Lazar,  Levine & Company,  LLP, dated as of the date of this Agreement
     and as of the Closing Date and the Option Closing Date.

          4.4 Officers' Certificates.

               4.4.1 Officers' Certificate.  At each of the Closing Date and the
          Option  Closing  Date, if any, the  Underwriter  shall have received a
          certificate  of the Company signed by the Chairman of the Board or the
          President,  Principal  Accounting  Officer  and the  Secretary  of the
          Company,  dated the Closing Date or the Option  Closing  Date,  as the
          case  may  be,  respectively,  to the  effect  that  the  Company  has
          performed or complied with all  conditions by the Company prior to and
          as of the Closing  Date,  or the Option  Closing Date, as the case may
          be, and that the  conditions set forth in Section 4.5 hereof have been
          satisfied  as of such date and that,  as of the  Closing  Date and the
          Option  Closing  Date,  as the case may be,  the  representations  and
          warranties  of the  Company set forth in Section 2 hereof are true and
          correct in all material  respects.  In addition,  the Underwriter will
          have received a certificate signed by the Chairman of the Board of the
          Company showing compliance in connection with information  supplied to
          state securities commissions.

               4.4.2  Secretary's  Certificate.  At each of the Closing Date and
          the Option Closing Date, if any, the Underwriter

                                       30

<PAGE>



          shall have  received a certificate  of the Company  signed by the
          Secretary of the Company, dated the Closing Date or the Option Closing
          Date,  as the  case  may be,  respectively,  certifying  (i)  that the
          By-Laws and Certificate of  Incorporation  of the Company are true and
          complete,  have not been  modified  and are in full force and  effect,
          (ii) that the resolutions relating to the public offering contemplated
          by this  Agreement  are in full  force  and  effect  and have not been
          modified,  (iii) all correspondence between the Company or its counsel
          and the Commission, (iv) all correspondence between the Company or its
          counsel and the NASD concerning  inclusion on Nasdaq and (v) as to the
          incumbency of the officers of the Company.  The documents  referred to
          in such certificate shall be attached to such certificate.

          4.5 No Material Changes.  Prior to and on each of the Closing Date and
     the Option  Closing  Date,  if any,  (i) there  shall have been no Material
     Adverse Change since the Effective  Date,  (ii) the Company shall not be in
     default under any provision of any instrument  relating to any  outstanding
     indebtedness  which  default  would have a material  adverse  effect on the
     Company,  (iii) no material  amount of the assets of the Company shall have
     been  pledged  or  mortgaged,  except  as set  forth  in  the  Registration
     Statement and Prospectus,  (iv) no action suit or proceeding,  at law or in
     equity,  shall have been  pending or  threatened  against the  Company,  or
     affecting any of its property or business before or by any court or federal
     or state  commission,  board  or other  administrative  agency  wherein  an
     unfavorable decision, ruling or finding may materially adversely affect the
     business,  operations,  prospects or  financial  condition or income of the
     Company,  except as set forth in the Registration Statement and Prospectus,
     (v) no stop order shall have been issued  under the Act and no  proceedings
     therefor  shall have been  initiated or threatened by the  Commission,  and
     (vi) the  Registration  Statement and the  Prospectus and any amendments or
     supplements  thereto contain all material  statements which are required to
     be  stated  therein  in  accordance  with the Act and the  Regulations  and
     conform in all  material  respects to the  requirements  of the Act and the
     Regulations,  and neither the Registration Statement nor the Prospectus nor
     any  amendment or  supplement  thereto  contains any untrue  statement of a
     material  fact or omits to state any  material  fact  required to be stated
     therein  or  necessary  to make  the  statements  therein,  in light of the
     circumstances under which they were made, not misleading.

          4.6  Delivery  of  Agreements.   The  Company  has  delivered  to  the
     Underwriter executed copies of the Underwriter's Purchase Option.

                                       31

<PAGE>





          4.7  Opinion of Counsel  for  Underwriter.  All  proceedings  taken in
     connection  with the  authorization,  issuance or sale of the Securities as
     herein contemplated shall be reasonably  satisfactory in form and substance
     to you and to Blodnick, Blodnick & Zelin, P.C., counsel to the Underwriter,
     and you shall have  received from such counsel a favorable  opinion,  dated
     the Closing Date and the Option  Closing Date, if any, with respect to such
     of these  proceedings  as you may  reasonably  require.  On or prior to the
     Effective  Date,  the Closing Date and the Option Closing Date, as the case
     may  be,  counsel  for the  Underwriter  shall  have  been  furnished  such
     documents, certificates and opinions as they may reasonably require for the
     purpose of enabling them to review or pass upon the matters  referred to in
     this  Section 4.7, or in order to evidence the  accuracy,  completeness  or
     satisfaction of any of the representations, warranties or conditions herein
     contained.

     5.  Conditions of Obligations of the Company.  The  Registration  Statement
shall have become effective not later than 5:00 P.M., New York time, on the next
day following the date of this Agreement, or such other time and date, not later
than 5:00 p.m. New York City time, on the seventh (7th) day  thereafter,  as may
be approved by the Company,  and such Registration  Statement shall be effective
at each of the  Closing  Date and the  Option  Closing  Date,  and no stop order
suspending  the  effectiveness  of the  Registration  Statement  shall have been
issued and no proceedings  for that purpose shall have been  instituted or shall
be pending or contemplated by the Commission at the Closing Date and any request
on the  part of the  Commission  for  additional  information  shall  have  been
complied with to the reasonable satisfaction of Certilman, Balin, Adler & Hyman,
LLP, counsel to the Company.

     6. Underwriter's Representations and Warranties. The Underwriter Represents
and Warrants to the Company that:

          6.1  Organization;  Good  Standing.  The  Underwriter  has  been  duly
     organized and is validly  existing as a corporation and is in good standing
     under the laws of its state of incorporation.

          6.2 Corporate Power; Licenses; Consents. The Underwriter is registered
     as a broker-dealer with the Securities and Exchange  Commission and in each
     state where such  registration is required where the Underwriter  acts as a
     broker-dealer.


                                       32

<PAGE>



          6.3  Litigation.  Except as set forth in the  Prospectus,  there is no
     action,  suit, or proceeding against the Underwriter which will prevent the
     Underwriter   from  completing  all  that  is  necessary  to  complete  the
     underwriting of the securities of the Company.

          6.4  Binding  Obligation;   Enforceability.  This  Agreement  and  the
     transactions contemplated hereby have been duly authorized by, and executed
     on  behalf  of  the  Underwriter  and  constitute  the  valid  and  binding
     obligations of the Underwriter, enforceable in accordance with its terms.


     7. Indemnification.

          7.1 Indemnification of Underwriter.

               7.1.1 General.  Subject to the  conditions  set forth below,  the
          Company  agrees to indemnify  and hold harmless the  Underwriter,  its
          directors, officers, agents and employees and each person, if any, who
          controls the Underwriter  ("controlling person") within the meaning of
          Section 15 of the Act or Section  20(a) of the Exchange  Act,  against
          any and all loss,  liability,  claim,  damage and  expense  whatsoever
          (including  but not  limited  to any and all  legal or other  expenses
          reasonably  incurred in investigating,  preparing or defending against
          any litigation,  commenced or threatened,  or any claim whatsoever) to
          which  they or any of them may  become  subject  under  the  Act,  the
          Exchange  Act or any other  statute or at common law or  otherwise  or
          under the laws of foreign countries,  arising out of or based upon any
          untrue  statement  or alleged  untrue  statement  of a  material  fact
          contained  in  (i)  any  Preliminary   Prospectus,   the  Registration
          Statement or the  Prospectus (as from time to time each may be amended
          and supplemented);  (ii) in any post-effective amendment or amendments
          or any new registration  statement and prospectus in which is included
          securities  of the  Company  issued or issuable  upon  exercise of the
          Underwriter's  Warrants; or (iii) any application or other document or
          written   communication   (in  this  Section  6  collectively   called
          "application")   executed  by  the  Company  or  based  upon   written
          information  furnished by the Company in any  jurisdiction in order to
          qualify the Securities under the securities laws thereof or filed with
          the Commission,  any state securities  commission or agency, Nasdaq or
          any securities exchange; or the omission or alleged omission therefrom
          of a material fact required to be stated  therein or necessary to make
          the statements therein in the light of

                                       33

<PAGE>



          the circumstances under which they were made, not misleading, and
          with respect to the Registration  Statement and any amendment thereto,
          as of the effective  date thereof,  unless such  statement or omission
          was made in reliance  upon,  and in strict  conformity  with,  written
          information  furnished to the Company with respect to the  Underwriter
          by  or  on  behalf  of  the  Underwriter  expressly  for  use  in  any
          Preliminary Prospectus,  the Registration Statement or Prospectus,  or
          any amendment or supplement  thereof,  or in any  application,  as the
          case may be; provided, however, that the foregoing indemnity agreement
          with  respect  to any  preliminary  prospectus  shall not inure to the
          benefit of the Underwriter from whom the person asserting such losses,
          claims,  damages or liabilities  purchased Public  Securities,  or any
          person  controlling such Underwriter,  if a copy of the Prospectus (as
          then amended or  supplemented  if the Company shall have furnished any
          amendments  or  supplements  thereto)  was not  sent or given by or on
          behalf of such  Underwriter  to such person,  if required by law so to
          have been  delivered,  at or prior to the written  confirmation of the
          sale of the Public  Securities to such person,  and if the  Prospectus
          (as so amended  or  supplemented)  would have cured the defect  giving
          rise to such loss,  claim,  damage or  liability.  The Company  agrees
          promptly  to  notify  the  Underwriter  of  the  commencement  of  any
          litigation or proceedings  against the Company or any of its officers,
          directors or controlling persons in connection with the issue and sale
          of the Securities or in connection with the Registration  Statement or
          Prospectus.

               7.1.2 Procedure. If any action is brought against the Underwriter
          or  controlling  person in  respect of which  indemnity  may be sought
          against the Company pursuant to Section 5.1.1,  the Underwriter  shall
          promptly  notify the  Company in  writing of the  institution  of such
          action  and the  Company  shall  assume the  defense  of such  action,
          including the employment and fees of counsel  (subject to the approval
          of the Underwriter) and payment of actual expenses. The Underwriter or
          controlling  person  shall  have the right to employ  its or their own
          counsel in any such case,  but the fees and  expenses of such  counsel
          shall be at the expense of the Underwriter or such controlling  person
          unless (i) the  employment of such counsel shall have been  authorized
          in  writing  by the  Company in  connection  with the  defense of such
          action,  or (ii) the Company shall not have  employed  counsel to have
          charge of the defense of such action,  or (iii) such indemnified party
          or parties shall have reasonably  concluded that there may be defenses
          available  to it or them which are  different  from or  additional  to
          those  available  to the Company (in which case the Company  shall not
          have the right to

                                       34

<PAGE>



          direct the  defense of such  action on behalf of the  indemnified
          party or parties), in any of which events the fees and expenses of not
          more than one additional firm of attorneys selected by the Underwriter
          and  controlling  person,  as a  single  group,  shall be borne by the
          Company. Notwithstanding anything to the contrary contained herein, if
          the Underwriter or controlling person shall assume the defense of such
          action as provided above,  the Company shall have the right to approve
          the terms of any settlement of such action which approval shall not be
          unreasonably withheld.

          7.2  Indemnification  of  the  Company.   The  Underwriter  agrees  to
     indemnify and hold harmless the Company, its directors,  officers,  agents,
     employees  and  controlling  persons  against any and all loss,  liability,
     claim,  damage and expense  described in the foregoing  indemnity  from the
     Company to the  Underwriter,  as incurred,  but only with respect to untrue
     statements or omissions, or alleged untrue statements or omissions directly
     relating to the transactions effected by the Underwriter in connection with
     this  offering,  made  in  any  Preliminary  Prospectus,  the  Registration
     Statement or Prospectus or any amendment or supplement  thereto,  or in any
     application,  in reliance  upon,  and in strict  conformity  with,  written
     information  furnished to the Company with respect to the Underwriter by or
     on  behalf  of  the  Underwriter  expressly  for  use in  such  Preliminary
     Prospectus,  the  Registration  Statement or Prospectus or any amendment or
     supplement thereto or in any such application.  In case any action shall be
     brought against the Company or any other person so indemnified based on any
     Preliminary  Prospectus,  the  Registration  Statement or Prospectus or any
     amendment or supplement thereto or an application,  and in respect of which
     indemnity may be sought against the Underwriter, the Underwriter shall have
     the rights and duties given to the Company,  and the Company and each other
     person  so  indemnified  shall  have the  rights  and  duties  given to the
     Underwriter by the provisions of Section 6.1.2.

          7.3 Contribution.

               7.3.1  Contribution  Rights.  In  order to  provide  for just and
          equitable  contribution  under  the Act in any case in  which  (i) any
          person  entitled to  indemnification  under this Section 6 makes claim
          for  indemnification  pursuant hereto but it is judicially  determined
          (by the entry of a final  judgment  or decree by a court of  competent
          jurisdiction and the expiration of time to appeal or the denial of the
          last right of appeal) that such indemnification may not be enforced in
          such case notwithstanding

                                       35

<PAGE>



          the fact that this Section 6 provides for indemnification in such
          case,  or  (ii)  contribution  under  the  Act,  the  Exchange  Act or
          otherwise  may  be  required  on  the  part  of  any  such  person  in
          circumstances for which indemnification is provided under this Section
          6, then, and in each such case, the Company and the Underwriter  shall
          contribute to the aggregate losses,  liabilities,  claims, damages and
          expenses  of the  nature  contemplated  by  said  indemnity  agreement
          incurred  by the  Company and the  Underwriter,  and their  respective
          directors,  officers,  agents,  employees and  controlling  persons as
          incurred,  in such proportions that the Underwriter is responsible for
          that  portion  represented  by the  percentage  that the  underwriting
          discount  appearing on the cover page of the  Prospectus  bears to the
          initial   offering  price   appearing   thereon  and  the  Company  is
          responsible  for the balance;  provided,  that,  no person guilty of a
          fraudulent  misrepresentation  (within the meaning of Section 11(f) of
          the Act) shall be entitled to contribution from any person who was not
          guilty  of  such  fraudulent  misrepresentation.  Notwithstanding  the
          provisions of this Section 6.3, the Underwriter  shall not be required
          to  contribute  any  amount in excess of the amount by which the total
          price  at  which  the  Public   Securities   underwritten  by  it  and
          distributed  to the public  were  offered to the  public  exceeds  the
          amount  of any  damages  which  the  Underwriter  has  otherwise  been
          required  to pay in  respect  of  such  losses,  liabilities,  claims,
          damages and  expenses.  For purposes of this Section,  each  director,
          officer and employee of the Underwriter,  and each person, if any, who
          controls the  Underwriter  within the meaning of Section 15 of the Act
          shall have the same rights to contribution as the Underwriter.

               7.3.2 Contribution  Procedure.  Within fifteen days after receipt
          by any party to this  Agreement (or its  representative)  of notice of
          the commencement of any action,  suit or proceeding,  such party will,
          if a claim for  contribution  in respect thereof is to be made against
          another party ("contributing party"), notify the contributing party of
          the  commencement   thereof,   but  the  omission  to  so  notify  the
          contributing party will not relieve it from any liability which it may
          have to any other party other than for contribution hereunder. In case
          any such action,  suit or proceeding is brought against any party, and
          such party notifies a contributing  party or its representative of the
          commencement   thereof   within  the  aforesaid   fifteen  days,   the
          contributing  party will be entitled to  participate  therein with the
          notifying party and any other contributing  party similarly  notified.
          Any such contributing party shall not be liable to any

                                       36

<PAGE>



          party seeking  contribution  on account of any  settlement of any
          claim,  action or proceeding  which was effected by such party without
          the  written  consent of such  contributing  party.  The  contribution
          provisions contained in this Section are intended to supersede, to the
          extent permitted by law, any right to contribution  under the Act, the
          Exchange Act or otherwise available.


     8. Additional Covenants.

          8.1 Board  Designee.  For a period of three  years from the  Effective
     Date, the Underwriter  shall have the right to send a  representative  (who
     need not be the same  individual  from  meeting to meeting) to observe each
     meeting  of the  Board  of  Directors.  The  Company  agrees  to  give  the
     Underwriter written notice of each such meeting at the same time and in the
     same manner as  Directors  of the Company are  informed  and to provide the
     Underwriter  with an agenda  and  minutes  of the  meeting no later than it
     gives such  notice and  provides  such items to the other  directors.  Such
     observer  will  have the  right to  attend  all  meetings  of the  Board of
     Directors, but shall have no voting rights. Such observer shall be entitled
     to receive reimbursement for all reasonable out-of-pocket expenses incurred
     in attending such meetings,  including but not limited to food, lodging and
     transportation.

          8.2 [Reserved]

          8.3 [Reserved]

          8.4 Press  Releases.  The  Company  will not issue a press  release or
     engage in any  other  publicity  until 25 days  after  the  Effective  Date
     without the Underwriter's prior written consent.


          8.5  Form  S-8 or any  Similar  Form.  The  Company  shall  not file a
     Registration  Statement on Form S-8 (or any similar or successor  form) for
     the  registration of shares of Common Stock  underlying stock options for a
     period of ________ year(s) from the Effective Date without the Underwriters
     written consent.

          8.6 [Reserved]

          8.7  Compensation  and Other  Arrangements.  The Company hereby agrees
     that for a period of three years from the Effective

                                       37

<PAGE>



     Date, all the compensation and other arrangements  between the Company
     and its  officers,  directors  and  affiliates  shall  be  determined  by a
     compensation  committee of the Company's Board of Directors,  a majority of
     whom are not employed by the Company.

     9. Covenants of the Underwriter. The Underwriter, covenants and agrees with
the Company as follows:

          9.1  Compliance  with NASD  Rules of Fair  Practice.  The  Underwriter
     hereby agrees to comply with the National Association of Securities Dealers
     Regulation, Inc.'s Rules of Fair Practice.

          9.2 Waiver of "Lock-Up".  The  Underwriter  shall not  consummate  any
     transactions  with the Company's bridge lender described in the Prospectus,
     or waive the "lock-up"  applicable to such bridge lender's securities until
     the Company has complied with its undertaking to the Registration Statement
     to file "sticker"  supplements to the Prospectus pursuant to rule 424(c) of
     the  Act,  or to  file  a  post-effective  amendment  to  the  Registration
     Statement.

     10.  Representations  and  Agreements  to Survive  Delivery.  Except as the
context  otherwise  requires,  all  representations,  warranties  and agreements
contained in this Agreement  shall be deemed to be  representations,  warranties
and  agreements  at the  Closing  Date  or the  Option  Closing  Date  and  such
representations,  warranties  and  agreements  of the  Underwriter  and Company,
including the indemnity  agreements  contained in Section 6 hereof, shall remain
operative and in full force and effect regardless of any  investigation  made by
or on behalf of the  Underwriter,  the Company or any  controlling  person,  and
shall survive  termination of this Agreement or the issuance and delivery of the
Securities  to the  Underwriter  until  the  earlier  of the  expiration  of any
applicable  statute of limitations  and the seventh  anniversary of the later of
the  Closing  Date or the  Option  Closing  Date,  if any,  at  which  time  the
representations,  warranties and agreements shall terminate and be of no further
force and effect.

     11. Effective Date of This Agreement and Termination Thereof

          11.1  Effective  Date.  This Agreement  shall become  effective on the
     Effective  Date at the time that the  Registration  Statement  is  declared
     effective.   The  time  of  the  initial  public  offering  of  the  Public
     Securities,  for the purpose of this Section 10 shall mean the time,  after
     the Registration Statement becomes

                                       38

<PAGE>



     effective,  of  the  release  by you  for  publication  of  the  first
     newspaper  advertisement  which is subsequently  published  relating to the
     Public  Securities or the time,  after the Registration  Statement  becomes
     effective,  when  the  Public  Securities  are  first  released  by you for
     offering to the pubic by the  Underwriter or dealers by letter or telegram,
     whichever  shall first occur.  You may prevent this Agreement from becoming
     effective without  liability to any other party,  except as noted below, by
     giving the notice  indicated  below in this  Section 9 before the time this
     Agreement  becomes  effective.  The Underwriter  agrees to give the Company
     notice of the commencement of the offering described herein.

          11.2 Termination.

               11.2.1 By the Underwriter.  The Underwriter  shall have the right
          to terminate this Agreement at any time prior to any Closing Date, (i)
          if any  domestic  or  international  event  or act or  occurrence  has
          materially disrupted,  or in your opinion will in the immediate future
          materially  disrupt,  general securities markets in the United States;
          or (ii) if trading on the New York Stock Exchange,  the American Stock
          Exchange or in the over-the-counter  market shall have been suspended,
          or minimum or maximum  prices for trading have been fixed,  or maximum
          ranges for prices for  securities  shall have been  fixed,  or maximum
          ranges for  prices for  securities  shall  have been  required  on the
          over-the-counter  market by the NASD or by order of the  Commission or
          any other government  authority having  jurisdiction,  or (iii) if the
          United  States  shall  have  become  involved  in a  war  or  material
          hostilities,  or (iv) if a banking  moratorium  has been declared by a
          New York State or federal authority, or (v) if a moratorium on foreign
          exchange trading has been declared which materially  adversely impacts
          the United States securities market, or (vi) if the Company shall have
          sustained  a  material  loss  by  fire,  flood,  accident,  hurricane,
          earthquake,  theft, sabotage or other calamity or malicious act which,
          whether  or not such loss  shall  have  been  injured,  will,  in your
          opinion,  make it  inadvisable  to proceed  with the  delivery  of the
          Securities, or (vii) if either Lew or Honigsfeld shall no longer serve
          the  Company in his  present  capacity,  or (viii) if the  Company has
          materially  breached  any  of  its   representations,   warranties  or
          obligations  hereunder,  or (ix) if the Underwriter  shall have become
          aware  after the date  hereof of a Material  Adverse  Change,  or such
          adverse  material  change  in  general  market  conditions  as in  the
          Underwriter's  reasonable  judgment  would  make it  impracticable  to
          proceed with the offering,  sale and/or  delivery of the Securities or
          to enforce contracts made by the Underwriter

                                       39

<PAGE>



          for the sale of the Securities.

               11.2.2  By the  Company.  The  Company  shall  have the  right to
          terminate  this  Agreement as set forth in Section ___  (Conditions of
          the  Obligation  of the  Company)  and (ii) in the event any action or
          proceeding  of the  nature  referred  to in  section  [6].3  shall  be
          instituted  against the  Underwriter  at any time prior to the Closing
          Date hereunder, or in the event there shall be filed by or against the
          Underwriter  in any court  pursuant to any  federal,  state,  local or
          municipal  statute,  a petition in  bankruptcy or  insolvency,  or for
          reorganization  or for the appointment of a receiver or trustee of its
          assets or if the Underwriter  shall make an assignment for the benefit
          of creditors, the Company shall have the right on three days notice to
          the  Underwriter to terminate this Agreement  without any liability to
          the Underwriter of any kind.

          11.3 Notice.  If you elect to prevent  this  Agreement  from  becoming
     effective or to terminate this Agreement as provided in this Section 11 the
     Company  shall be notified on the same day as such  election is made by you
     by telephone or telecopy, confirmed by letter.


          11.4 Expenses.  In the event that this Agreement  shall not be carried
     out for any  reason,  within the time  specified  herein or any  extensions
     thereof pursuant to the terms herein, the obligations of the Company to pay
     the  expenses  related to the  transactions  contemplated  herein  shall be
     governed by Section 3.15 hereof.

          11.5 Indemnification. Notwithstanding any contrary provision contained
     in this  Agreement,  any  election  hereunder  or any  termination  of this
     Agreement,  and whether or not this Agreement is otherwise carried out, the
     provisions  of Section 5 shall not be in any way effected by such  election
     or  termination  or failure to carry out the terms of this Agreement or any
     part hereof.

     12. Miscellaneous.

          12.1 Notices. All communications hereunder, except as herein otherwise
     specifically provided,  shall be in writing and shall be mailed,  delivered
     or telecopied and confirmed:



                                       40

<PAGE>



If to the Underwriter:

           European Community Capital, Ltd.
           300 Old Country Road
           Mineola, New York  11501
           Attention:  Mr. Greg Small
           Fax: (516) 625-9223

Copy to:

           Blodnick, Blodnick & Zelin, P.C.
           Expressway Plaza Two, Suite 200
           Roslyn Heights, New York  11577
           Attn:  Edward K. Blodnick, Esq.
           Fax (516) 294-5677



                                       41

<PAGE>



If to the Company:

                  Compu-Dawn, Inc.
                  77 Spruce Street
                  Cedarhurst, New York  11516
                  Attn:  Mark Honigsfeld
                  Fax (516) 374-9553

Copy to:

                  Robert H. Solomon, Esq.
                  68 West Park Avenue
                  Long Beach, New York  11561
                  Fax (516) 431-0312

                           -and-

                  Certilman Balin Adler & Hyman, LLP
                  90 Merrick Avenue
                  East Meadow, New York  11554
                  Attention:  Fred Skolnik, Esq.
                  Fax No. (516) 296-7111

          12.2 Headings.  The headings contained herein are for the sole purpose
     of  convenience  of reference  and shall not in any way limit or affect the
     meaning  or  interpretation  of any of the  terms  or  provisions  of  this
     Agreement.

          12.3  Amendment.  This  Agreement  may only be  amended  by a  written
     instrument executed by each of the parties hereto.

          12.4  Entire  Agreement.  This  Agreement  (together  with  the  other
     agreements and documents being delivered  pursuant to or in connection with
     this Agreement) constitutes the entire agreement of the parties hereto with
     respect to the subject  matter hereof,  and supersede all prior  agreements
     and  understandings of the parties,  oral and written,  with respect to the
     subject matter hereof.

          12.5 Binding Effect.  This Agreement shall inure solely to the benefit
     of and  shall  be  binding  upon,  the  Underwriter,  the  Company  and the
     controlling  persons,  directors  and  officers  referred  to in  Section 6
     hereof, and their respective successors,  legal epresentatives and assigns,
     and no  other  person  shall  have or be  construed  to have  nay  legal or
     equitable  right,  remedy or claim  under or in  respect of or by virtue of
     this Agreement or any provisions herein contained.

          12.6 Governing Law; Jurisdiction.  This Agreement shall be governed by
     and construed and enforced in accordance with the law of the

                                       42

<PAGE>



     State  of New  York,  without  giving  effect  to  conflicts  of  law,
     principles  of such  state.  The  Company  hereby  agrees  that any action,
     proceeding or claim against it arising out of,  relating in any way to this
     Agreement  shall be brought and  enforced in the courts of the State of New
     York, New York County or the Federal District Court of the United States of
     America for the Southern  District of New York, and irrevocably  submits to
     such jurisdictions,  which  jurisdictions  shall be exclusive.  The Company
     hereby waives any objection to such  exclusive  jurisdiction  and that such
     courts  represent an inconvenient  forum. Any such process or summons to be
     served upon the Company or the  Underwriter may be served by transmitting a
     copy thereof by registered or certified  mail,  return  receipt  requested,
     postage  prepaid,  addressed  to it at the  address set forth in Section 10
     hereof.  Such mailing shall be deemed  personal  service and shall be legal
     and binding upon the Company or the Underwriter, as the case may be, in any
     action, proceeding or claim. The Company and the Underwriter agree that the
     prevailing  party(ies) in any such action shall be entitled to recover from
     the other  party(ies)  all of its reasonable  attorneys'  fees and expenses
     relating to such action or proceeding  and/or  incurred in connection  with
     the preparation therefor.

          12.7 Execution in Counterparts;  Facsimile Signatures.  This Agreement
     may be executed in one or more  counterparts,  and by the different parties
     hereto in  separate  counterparts,  each of which  shall be deemed to be an
     original, but all of which taken together shall constitute one and the same
     agreement,  and shall become  effective when one or more  counterparts  has
     been  signed by each of the  parties  hereto and  delivered  to each of the
     other parties  hereto.  Facsimile  signatures  hereon shall be deemed to be
     original signatures.

          12.8 Waiver.  Etc. The failure of any of the parties  hereto to at any
     time enforce any of the provisions of this Agreement shall not be deemed or
     construed  to be a waiver of any such  provision,  nor to in any way effect
     the validity of this Agreement or any provision  hereof or the right of any
     of the parties  hereto to  thereafter  enforce each and every  provision of
     this Agreement. No wavier of any breach,  non-compliance or non-fulfillment
     of any of the  provisions of this Agreement  shall be effective  unless set
     forth in a written instrument executed by the party or parties against whom
     or which  enforcement  of such  waiver is sought  and no waiver of any such
     breach,  non-compliance or non-fulfillment  shall be construed or deemed to
     be  a  waiver  of  any  other  or  subsequent  breach,   non-compliance  or
     non-fulfillment.


                                       43

<PAGE>




     If the  foregoing  correctly  sets  forth  the  understanding  between  the
Underwriter and the Company,  please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.

Very truly yours,

COMPU-DAWN, INC.


By: Mark Honigsfeld
    Chief Executive Officer


Accepted as of the date first above written.

Mineola, New York

E.C. CAPITAL, LTD



Name:   Greg Small
Title:  President



                                       44

<PAGE>





                                                              May 19, 1997


Compu-DAWN, Inc.
77 Spruce Street
Cedarhurst, NY  11516

           Re: Registration Statement on Form SB-2 (Registration No. 333-18667)

Gentlemen:

                  In our  capacity as counsel to  Compu-DAWN,  Inc.,  a Delaware
corporation  (the  "Company"),  we have been  asked to render  this  opinion  in
connection with the Company's  Registration Statement on Form SB-2 (Registration
No. 333-18667) (the "Registration Statement"),  being filed contemporaneously by
the Company with the Securities and Exchange Commission under the Securities Act
of 1933, as amended,  covering the issuance of 1,500,000 Common Shares, $.01 par
value,  of the Company (the "Issuable  Shares")  (including  1,200,000  Issuable
Shares  being  offered for sale to the public (the "Public  Offering"),  180,000
Issuable Shares covering an overallotment  of the Public  Offering,  and 120,000
Issuable Shares underlying the Underwriter's Common Share Purchase Warrant), and
the resale of 639,450  Common  Shares  (including  389,200  Common  Shares  (the
"Warrant Shares") underlying  warrants held by certain selling  stockholders and
250,250  Common  Shares  (the "Other  Resale  Shares")  held by certain  selling
stockholders).  The  Issuable  Shares,  the Warrant  Shares and the Other Resale
Shares are collectively referred to as the "Shares".

                  In  connection   with  our  opinion,   we  have  examined  the
Certificate  of  Incorporation  and  By-Laws of the  Company,  the  Registration
Statement,  as amended, and certain agreements entered into, and instruments and
warrants  issued,  by the Company in connection with the issuance of the Shares.
We are also familiar with  proceedings of the Board of Directors of the Company,
or otherwise have relied upon  representations  made by officers of the Company,
relating  to the  authorization  of the  issuance  of the  Shares.  We have also
examined such other  instruments  and documents as we deemed  relevant under the
circumstances.

                  For  purposes  of  the  opinions,  we  have  assumed  (i)  the
authenticity of all documents submitted to us as originals,  (ii) the conformity
to the  originals  of all  documents  submitted  as  certified,  photostatic  or
facsimile copies and the authenticity of the originals, (iii) the legal capacity
of natural persons,  (iv) the due  authorization,  execution and delivery of all
documents by all parties and the validity and binding effect thereof and (v) the
conformity to the  proceedings  of the Board of Directors of all minutes of such
proceedings and all representations,  oral and written,  made by officers of the
Company with respect  thereto.  We have also assumed that the corporate  records
furnished to us by the Company  include all corporate  proceedings  taken by the
Company to date.


<PAGE>


Compu-DAWN, Inc.
May 19, 1997
Page 2

                  Based solely upon and subject to the foregoing,  including the
assumptions  made,  we are of the opinion that (i) the  Issuable  Shares and the
Warrant Shares have been duly and validly authorized,  and when issued and fully
paid for, shall be duly and validly  authorized  and issued,  and fully paid and
nonassessable  Common Shares, $.01 par value, of the Company; and (ii) the Other
Resale  Shares  are duly and  validly  authorized  and  issued,  fully  paid and
nonassessable Common Shares, $.01 par value, of the Company.

                  We hereby  consent  to the use of our  opinion  as herein  set
forth as an exhibit  to the  Registration  Statement  and to the use of our name
under  the  caption  "Legal  Matters"  in the  Prospectus  forming a part of the
Registration Statement.

                  This  opinion  is  as of  the  date  hereof,  and  we  do  not
undertake,  and hereby disclaim,  any obligation to advise you of any changes in
any of the matters set forth herein.

                  We are rendering this opinion only as to the matters expressly
set forth herein, and no opinion should be inferred as to any other matters.

                  This  opinion  is for  your  exclusive  use  only and is to be
utilized and relied upon only in connection with the matters expressly set forth
herein.

                                              Very truly yours,


                                             CERTILMAN BALIN ADLER & HYMAN, LLP












<PAGE>



                       AMENDED AND RESTATED LOAN AGREEMENT

                                   (Revolving)

         Amended  and  Restated  Loan  Agreement,  dated as of April  30,  1997,
between Mark Honigsfeld, residing at 969 East End, Woodmere, New York 11598 (the
"Lender"), and Compu-Dawn, Inc., a Delaware Corporation, with offices located at
77 Spruce Street, Cedarhurst, New York 11516 (the "Borrower").

     1. Amendment and  Restatement.  This Agreement amends and restates the Loan
Agreement  dated  January  21,  1997  between  the  Lender and  Borrower  in its
entirety.

     2. Loan.

          (a) The  Lender  shall  lend to the  Borrower  during the term of this
     agreement sums of money not to exceed the aggregate  amount of Five Hundred
     Thousand ($500,000.00) Dollars.

          (b) The  Borrower  may  borrow  sums  from the  Lender  up to the loan
     commitment at any time from the date of this Agreement to July 1, 1999.

     3. Procedure for borrowing.  The Borrower may borrow in amounts of not less
than $25,000,  and in additional  multiples of not less than $25,000,  by giving
written  notice to the Lender at least ten days before the date the amount is to
be borrowed,  which date is hereinafter  referred to as the Closing Date, and by
delivering  to the  Lender on the  Closing  Date a note in the form of Exhibit A
attached  hereto and by complying with the  conditions  for borrowing  stated in
this agreement.

     4. Note  Provisions.  Each note delivered for an amount borrowed shall bear
interest at the rate of 10% per annum and the interest  shall be paid  quarterly
upon the unpaid  principal  amount,  commencing  six (6) months from the date of
issuance or on such date set forth in the note (the "Initial Payment Date"). The
principal sum of each note shall be due and payable in eight (8) equal quarterly
installments  commencing on the Initial Payment Date and the entire amount shall
be payable thirty (30) months from the date of issuance.

     5.  Prepayment.  The  Borrower  may  prepay  any  note in whole or in part,
provided any partial  prepayment shall be applied on unpaid  installments on the
note in the  inverse  order of  maturity  and may not be made in amounts of less
than $5,000 or multiples thereof.

     6. Default. The Borrower shall be in default if:

          (a) It fails to pay any  installment  of  principal or interest on any
     note when due or within ten days thereafter;

          (b) It becomes insolvent or admits in writing its inability to pay its
     debts as they mature;  or applies for,  consents to, or  acquiesces  in the
     appointment  of a trustee or receiver  for any of its  property;  or in the
     absence of an application,  consent,  or acquiescence a trustee or receiver
     is  appointed  for it or a  substantial  part  of its  property  and is not
     discharged within 30 days; or it otherwise commits an act of bankruptcy; or
     any bankruptcy, reorganization, debt arrangement, or


<PAGE>


     other  proceeding  under any  bankruptcy  or  insolvency  law,  or any
     dissolution or liquidation  proceeding,  is instituted by or against it and
     if instituted is consented to or acquiesced in by it or remains for 30 days
     undismissed;

          (c) It defaults in the performance of the terms and conditions of this
     agreement and such default  continues for 30 days after notice thereof from
     the Lender or from the holder of a note;

     7.  Acceleration.  If any of the events listed in paragraph 6(a) occur, the
unpaid installments of the note shall immediately become due and payable.

     8.  Acceleration  at  Option  of  lender.  If any of the  events  listed in
paragraph  6(b) or 6(c) occur and shall  continue,  the Lender may  declare  the
notes immediately due and payable,  at which time all unpaid  installments shall
immediately  become  due and  payable.  The  Lender  shall  promptly  advise the
Borrower in writing of any acceleration under this paragraph, but the failure to
do so shall not impair the effect of a subsequent declaration.

     9.  Security.  The Security  Agreement  dated  January 21, 1997 between the
Lender and the Borrower shall apply to this Agreement.

     10. Benefit.  This agreement shall be binding on the respective  successors
and assigns of the Lender and the Borrower and shall inure to the benefit of the
successors and assigns of the Lender.

     11. Delay.  No delay on the part of the Lender or the holder of any note in
the  exercise  of any right shall  operate as a waiver,  nor shall any single or
partial  exercise  of any right  preclude  other or  additional  exercise of any
right.

     12. Notices.  All notices shall be in writing and shall be addressed to the
respective  parties at their principal office,  by first class,  certified mail,
return receipt requested, postage prepaid.

     IN WITNESS  WHEREOF,  the parties have caused this agreement to be executed
by their proper  officers and by having their seals  affixed on the day and year
first above written.

                                                    Lender:


                                                    ---------------------
                                                    MARK HONIGSFELD

                                                    Borrower:
                                                    COMPU-DAWN, INC.


                                                     By:
                                                     Dong W. Lew, President


<PAGE>

                                 Promissory Note


$100,000                                                     Date:  May 8, 1997
- --------


         The  undersigned,  for value received,  promises to pay to the order of
Mark Honigsfeld at 969 East End, Woodmere, New York, the sum of $100,000 payable
in eight (8) quarterly  installments  of $12,500.00,  the first  installment due
August 1, 1997, with interest at the rate of 10% per annum from the date hereof,
payable  quarterly  commencing  on August 1, 1997,  on the  principal  remaining
unpaid.

         This note  evidences  and  indebtedness  incurred  under an Amended and
Restated  Loan   Agreement   (Revolving)   dated  April  30,  1997  between  the
undersigned,  therein  called the Borrower,  and the payee,  therein  called the
Lender, the terms and conditions (including,  without limitation, terms relating
to prepayment,  default and  acceleration) of which are  incorporated  into this
note to the extent that such terms do not conflict with the terms of this note.

         Presentation and demand for payment,  notice of dishonor,  protest, and
notice of protest and hereby waived.

                                                 Compu-DAWN, Inc.


                                                 By:/s/ Dong W. Lew, President
                                                 Dong W. Lew, President


<PAGE>

               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT



We  hereby  consent  to the  use in this  Amendment  No.  3 to the  Registration
Statement  on Form SB-2 of our report dated  February  13, 1997  relating to the
financial statements of Compu-DAWN,  Inc. and to the reference to our Firm under
the caption "Experts" in the Prospectus.





                                                 /s/ Lazar, Levine & Company LLP
                                                 LAZAR, LEVINE & COMPANY LLP



New York, New York
May 19, 1997


<PAGE>



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<ARTICLE>                     5
<LEGEND>
     (Replace this text with the legend)
</LEGEND>
<CURRENCY>                                     1
       
<S>                         <C>                        
<PERIOD-TYPE>               3-Mos
<FISCAL-YEAR-END>               Dec-31-1997
<PERIOD-START>                  Jan-01-1997
<PERIOD-END>                    Mar-31-1997
<EXCHANGE-RATE>                 1
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<SECURITIES>                    0
<RECEIVABLES>                   232,011
<ALLOWANCES>                    35,000
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<PP&E>                          312,471
<DEPRECIATION>                  129,874
<TOTAL-ASSETS>                  2,598,812
<CURRENT-LIABILITIES>           433,376
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           0
                     0
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<TOTAL-LIABILITY-AND-EQUITY>    2,598,812
<SALES>                         185,801
<TOTAL-REVENUES>                185,801
<CGS>                           0
<TOTAL-COSTS>                   639,698
<OTHER-EXPENSES>                0
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<INTEREST-EXPENSE>              60,501
<INCOME-PRETAX>                 (513,056)
<INCOME-TAX>                    0
<INCOME-CONTINUING>             (513,056)
<DISCONTINUED>                  0
<EXTRAORDINARY>                 0
<CHANGES>                       0
<NET-INCOME>                    (513,056)
<EPS-PRIMARY>                   (.31)
<EPS-DILUTED>                   (.31)
        

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