TELESENSORY CORP, S-1/A, 1996-10-08

TELESENSORY CORP
S-1/A, 1996-10-08
ELECTRONIC COMPONENTS, NEC

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996
REGISTRATION NO. 333-09295
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

TELESENSORY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

--------------
<TABLE>
<S> <C> <C>
CALIFORNIA 3698 77-0208927
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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455 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 960-0920
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

LARRY ISRAEL
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
TELESENSORY CORPORATION
455 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 960-0920
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS)

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

COPIES TO:

MARIO M. ROSATI EDWARD M. LEONARD
MICHAEL J. DANAHER BROBECK, PHLEGER & HARRISON LLP
WILSON SONSINI GOODRICH & ROSATI TWO EMBARCADERO PLACE
PROFESSIONAL CORPORATION 2200 GENG ROAD
650 PAGE MILL ROAD PALO ALTO, CA 94303
PALO ALTO, CA 94304 (415) 424-0160
(415) 493-9300

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

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

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

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $.02 value... 3,335,000 $10.00 $33,350,000 $14,990
=============================================================================================================
</TABLE>

(1) Includes 435,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) of the Securities Act of 1933, as
amended.

(3) Registration Fee paid by Telesensory Corporation on July 31, 1996.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

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

SUBJECT TO COMPLETION, DATED OCTOBER 8, 1996

PROSPECTUS

2,900,000 SHARES

[LOGO OF TELESENSORY APPEARS HERE]

COMMON STOCK

-----------

Of the 2,900,000 shares of common stock, $.02 par value (the "Common Stock"),
offered hereby (the "Offering"), 2,275,000 shares are being sold by Telesensory
Corporation, a California corporation ("Telesensory" or the "Company"), and
625,000 shares are being sold by the Selling Shareholders. The Company will not
receive any of the proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders." Prior to this Offering,
there has been no public market for the Common Stock. It is currently
anticipated that the initial public offering price for the Common Stock will be
between $8.00 and $10.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company has applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "TLSN."

-----------

SEE "RISK FACTORS," BEGINNING ON PAGE 7 HEREIN FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.

-----------

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

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PRICE TO PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS
--------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
Total (3)......... $ $ $ $
</TABLE>
- -------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."

(2) Before deducting expenses of the Offering payable by the Company, estimated
at $800,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
435,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. Of the shares
subject to this option, all 435,000 shares will be sold by the Company. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriting."

-----------

The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters and subject to
approval of certain legal matters by counsel for the Underwriters. It is
expected that delivery of the Common Stock will be made against payment
therefor on or about , 1996, in New York, New York.

-----------

JEFFERIES & COMPANY, INC. VAN KASPER & COMPANY

, 1996
<PAGE>

Low Vision Products

READING VIEWING SMALL OBJECTS
Magnification and electronic Small objects, such as pill bottles,
enhancement provided by Aladdin(R) food packages, stamps, and coins can
video magnifiers permit severely be easily read when the image is
visually impaired people to read magnified and enhanced by a video
very small print. Books, newspapers, magnifier.
recipes, personal correspondence,
and photographs all become
accessible.

WRITING COMPUTER DISPLAY MAGNIFICATION
Writing becomes possible for Super Vista provides 2x-16x
visually impaired persons when they magnification of text and graphics
can see what they are writing. Here, displays for most PC-compatible
the Aladdin is being used to help software application programs. Here,
write a check. Super Vista is being used with
Microsoft Windows.

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

Explanatory Note: The following language appears in both print and braille in
the printed prospectus.

Telesensory Corporation manufactures innovative electronic and computer-
based products to assist people with severe visual disabilities to achieve
greater independence and privacy. The Company's products for people with
severely impaired vision ("Low Vision Products") include the Aladdin family of
video magnifiers. The Company's products for blind people (the "Blindness
Products") include braille devices which allow blind people to use personal
computers.

This page is printed in braille, a pattern of raised dots which provides
blind people with a means of reading character information using their
fingertips. For this sheet, interpoint braille has been used, which saves
paper and space by embossing braille on both sides of the sheet. The
characters are "interpointed" so that the embossed dots on each side do not
interfere with each other.

The braille language was originally developed by Frenchman Louis Braille in
the late 19th century. It is adaptable for virtually any written language.
Many versions of braille are now used by blind people worldwide.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including information under "Risk Factors." Except as
otherwise noted, all information in this Prospectus, including financial
information, share and per share data, assumes (i) the issuance of 87,500
shares of Common Stock upon the net exercise of all outstanding warrants, and
(ii) no exercise of the Underwriters' over-allotment option. See
"Underwriting." This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from the results discussed in these forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those set forth in the Section entitled "Risk Factors" and elsewhere in this
Prospectus.

THE COMPANY

Telesensory Corporation ("Telesensory" or the "Company"), founded in 1970,
develops, manufactures and markets innovative electronic and computer-based
products to assist people with severe visual disabilities to achieve greater
independence and privacy. The Company is the leading provider of such products
in North America, and one of the two leading companies worldwide. The Company
makes video magnifiers and other electronic and computer-based assistive
devices for people who are severely visually impaired (the "Low Vision
Products") and various braille-related and other electronic and computer-based
assistive devices for those who are totally blind or without useable light
perception (the "Blindness Products").

Severe visual impairment is defined by the National Center for Health
Statistics as the inability to read ordinary newspaper print even when wearing
glasses or contact lenses. Such people also have difficulty with daily
activities such as reading mail and prescription bottles, balancing checkbooks,
viewing photographs and working with small objects. The number of people in the
United States who are severely visually impaired is estimated at 4.3 million. A
much smaller population, estimated at 100,000 in the United States, is either
totally blind or lacks useable light perception. Populations in other developed
countries are believed to exhibit similar rates of visual impairment. Age-
related macular degeneration, which has no known cure, is the leading cause of
visual impairment and currently affects 20% of individuals over age 65. Other
leading causes of visual impairment and blindness include diabetes and
glaucoma.

Disabled people, including those who are visually disabled, are increasingly
seeking to participate fully in workplace, recreation and other daily
activities enjoyed by non-disabled people. There is also a growing awareness of
the need to enhance the quality of lives of disabled people. For example, the
Americans with Disabilities Act (the "ADA") mandates that public facilities and
services be accessible to disabled people, including those with visual
impairments. The Company believes that these trends, combined with an aging but
active population that desires to preserve its independence, have contributed
to a growing demand for devices to assist visually disabled people and the
development of a consumer market willing and able to purchase assistive devices
without government assistance. The Company believes that only a small
percentage of visually impaired people are familiar with or own electronic
assistive devices. For example, the Company estimates that annual unit sales of
all electronic and computer-based magnification systems in the United States
are made to fewer than 0.5% of the 4.3 million people who are severely visually
impaired.

Low Vision Products accounted for 71% of the Company's net revenue in 1995.
Low Vision Products consist of video magnifiers and computer screen
magnification systems, which provide adjustable magnification, enhanced
contrast and a larger field of view. In 1994, the Company introduced the
Aladdin, a highly innovative, advanced video magnifier. In 1995, the Aladdin
won the American Society of Aging's Gold Award for outstanding product design
for mature consumers. Primarily as a result of the introduction of the Aladdin,
unit sales of video magnifiers increased 53% in 1995 over the prior year, to
11,091 units, and increased 18% in the first half of 1996 as compared to the
first half of 1995. The Company believes that its sales of video magnifiers, in
both units and dollars, represented approximately 55% of the market in the
United States in 1995 and significantly exceeded comparable figures for any of
its competitors worldwide.

3
<PAGE>

Blindness Products accounted for 29% of the Company's net revenue in 1995.
The principal product line consists of refreshable computer-controlled braille
displays that enable blind persons to operate personal computers. Other
Blindness Products include optical character reading systems with synthesized
speech or braille output, and braille printers. The Company believes that it is
one of the top three manufacturers worldwide for the majority of its Blindness
Products.

Telesensory believes that it has the largest worldwide distributor and dealer
network of any company marketing assistive devices to severely visually
impaired people. For distribution of its Low Vision Products, the Company uses
a network of approximately 110 United States and 30 international distributors
and dealers. For distribution of its Blindness Products, the Company uses
approximately 37 United States and generally the same 30 international
distributors and dealers that distribute its Low Vision Products, as well as an
in-house sales team. International sales represented approximately 35% of total
sales in 1995. The Company and its distributors sell to government agencies,
institutions, schools, corporations and individuals. The Company estimates that
government funded purchases accounted for approximately 40% of domestic sales
and a higher percentage of international sales in 1995.

Since 1994, the Company has taken a number of steps to enhance net revenue
and profitability. These steps included the appointment of Larry Israel as
President and Chief Executive Officer in July 1994, the implementation of a
cost reduction program, the closure of the Company's manufacturing facility in
Ireland, the reorganization of the Company into two operating divisions, the
adoption of a continuous flow manufacturing process for its Low Vision Products
and the introduction of the Aladdin line of video magnifiers. The Company also
strengthened its international operations by acquiring its distributors in the
United Kingdom and France in March 1996. Pre-tax earnings have increased from a
loss of $1.3 million in 1993 to a profit of $2.3 million in 1995 and a profit
of $1.4 million for the first six months of 1996. See "Selected Consolidated
Financial Data."

The Company's goal is to be the market leader in the development,
manufacture, and marketing of electronic and computer-based assistive devices
for visually impaired individuals. To achieve this goal, the Company is seeking
to: (i) increase consumer demand for electronic and computer-based assistive
devices by increasing consumer awareness of the Company's products and
expanding distribution channels, (ii) develop new products and enhance existing
products, (iii) continue to reduce manufacturing costs, (iv) develop new
markets and business opportunities through strategic alliances and acquisitions
both in the United States and internationally, and (v) develop new applications
for the Company's products.

The Company's principal executive offices are located at 455 North Bernardo
Avenue, Mountain View, California 94043, and its telephone number is (415) 960-
0920.

RISK FACTORS

The discussion of risk factors on pages 7 to 13 of this Prospectus should be
considered carefully in evaluating an investment in the Common Stock. The risks
of investing in the Common Stock include the following factors: "Adverse Effect
on Price of Common Stock Due to Fluctuations in Operating Results;" "Failure to
Expand Consumer Market;" "Dependence on Development of New Products and Product
Enhancements;" "Highly Competitive Markets;" "Dependence on Limited Sources of
Supply;" "Risks Associated with Manufacturing;" "Dependence on International
Sales;" "Dependence on Independent Distributors;" "Dependence on Referral
Business;" "Dependence on Government Funding and Reimbursement;" "Risks
Associated with Acquisitions;" "Intellectual Property and Risk of Third Party
Claims of Infringement;" "Dependence on Key Personnel;" "Risks Associated with
Government Regulation of the Company's Products;" "Risks Associated with
Significant Growth;" "Ownership by Management and Affiliates;" "Anti-Takeover
Effects of Preferred Stock;" "No Prior Trading Market for Common Stock;
Potential Volatility of Stock Price;" "Shares Eligible for Future Sale; Lock-up
Agreements; Possible Adverse Effect on Future Market Price;" "Dilution;"
"Management Discretion Over Proceeds of the Offering;" and "No Dividends."

4
<PAGE>

THE OFFERING

<TABLE>
<C> <S>
Common Stock offered by the Company.......... 2,275,000 shares
Common Stock offered by the Selling
Shareholders................................ 625,000 shares
Common Stock to be outstanding after this
Offering.................................... 5,254,322 shares(1)
Use of Proceeds.............................. For repayment of bank indebtedness and
other general corporate purposes, including
working capital, marketing, product devel-
opment and possible acquisitions. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol....... TLSN
</TABLE>
- ----------
(1) Excludes 623,494 shares of Common Stock issuable upon the exercise of stock
options outstanding as of June 30, 1996, at a weighted average exercise
price of $2.98 per share. See "Management -- Stock and Employee Benefit
Plans," and Note 9 of Notes to Consolidated Financial Statements.

Aladdin(R), OsCaR(R), PowerBraille(TM), ScreenPower(R), Visualtek(R),
VTEK(R), the Telesensory logo and Telesensory(TM), and Vista(R), are trademarks
of the Company. This Prospectus also contains trademarks and tradenames of
other companies.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table presents, for the periods and dates indicated, summary
consolidated historical financial data for the Company. This information should
be read in conjunction with "Capitalization," "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's consolidated financial statements and the
notes thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............... $ 27,083 $ 27,588 $ 30,671 $ 15,317 $ 17,240
Cost of revenue........... 14,697 15,332 16,670 8,455 9,795
-------- -------- -------- -------- --------
Gross profit............. 12,386 12,256 14,001 6,862 7,445
-------- -------- -------- -------- --------
Operating expenses:
Product development...... 2,876 2,617 2,286 1,170 1,129
Sales, general and
administrative.......... 10,303 9,020 9,374 4,634 4,885
Restructuring............ 507 332 -- -- --
-------- -------- -------- -------- --------
Total operating
expenses............... 13,686 11,969 11,660 5,804 6,014
-------- -------- -------- -------- --------
Operating income (loss)... (1,300) 287 2,341 1,058 1,431
Other income (expense),
net...................... (8) (178) (83) (53) (67)
-------- -------- -------- -------- --------
Income (loss) before
income taxes............. (1,308) 109 2,258 1,005 1,364
Income taxes.............. 21 268 867 386 213(1)
-------- -------- -------- -------- --------
Net income (loss)......... $ (1,329) $ (159) $ 1,391 $ 619 $ 1,151(1)
======== ======== ======== ======== ========
Net income (loss) per
share(2)................. $ (0.36) $ (0.04) $ 0.42 $ 0.18 $ 0.35(1)
Shares used in per share
calculation(2)........... 3,656 3,679 3,317 3,518 3,250
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
ACTUAL AS ADJUSTED(3)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents..................................... $ 317 $15,764
Working capital.......................................... 3,967 21,626
Total assets............................................. 14,713 30,160
Short-term borrowings and long-term debt................. 2,945 150
Shareholders' equity..................................... 5,947 24,189
</TABLE>
- ----------

(1) The Company's effective tax rate for the six months ended June 30, 1996 was
affected by a one-time tax valuation allowance adjustment, which reduced
income tax expense and correspondingly increased net income for the period
by $312,000 or $0.10 per share. Without that adjustment, for the six months
ended June 30, 1996, income taxes would have been $525,000, net income
would have been $839,000 and net income per share would have been $0.26.

(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net income (loss) per share.

(3) Adjusted to reflect the sale of 2,275,000 shares of Common Stock offered by
the Company hereby, at an assumed public offering price of $9.00 per share
and after deducting the estimated underwriting discount and offering
expenses, and the anticipated application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Underwriting."

6
<PAGE>

RISK FACTORS

The following factors should be considered carefully by potential investors
in evaluating an investment in the shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in these forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those set forth in
the following risk factors and elsewhere in this Prospectus.

ADVERSE EFFECT ON PRICE OF COMMON STOCK DUE TO FLUCTUATIONS IN OPERATING
RESULTS

The Company's sales and operating results have fluctuated on a quarterly
basis and may do so in future periods. The Company's operating results are
affected by a number of factors, many of which are beyond the Company's
control. Factors contributing to these fluctuations include the timing of the
introduction and market acceptance of new products or product enhancements by
the Company and its competitors, changes in pricing by the Company and its
competitors, order cancellation or deferral by a customer, the failure to
receive an anticipated order, the relatively long sales cycle for the
Company's products to government agencies, governmental budget constraints and
the level of government funding, the cost and delays in delivery of components
and subassemblies and delays in delivery of services by suppliers, unexpected
manufacturing and other difficulties, increased product development costs and
fluctuations in general economic conditions. For example, the Company
anticipates that both net revenue and net income for the third quarter of 1996
are likely to be adversely affected as a consequence of quality problems
encountered by the Company in July and a temporary suspension of shipments of
some products for approximately one week in August. See "Management's
Discussion and the Company's Analysis of Financial Condition and Results of
Operations."

The Company typically ships products within a short time after receipt of an
order and does not usually have a significant backlog. As a result, backlog at
any point in time is not a good indicator of future net revenue, and net
revenue for any particular quarter cannot be predicted with any degree of
accuracy. Accordingly, the Company's expectations for both short- and long-
term future net revenue are based in large part on its own estimate of future
demand and not on firm customer orders. Expense levels are based, in part, on
these estimates and, since the Company is limited in its ability to reduce
expenses quickly, operating results would be adversely affected if orders and
net revenue do not meet expectations in a particular period. Due to all of the
foregoing factors, it is possible that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

FAILURE TO EXPAND CONSUMER MARKET

The Company's future success will depend upon, among other factors, its
ability to increase levels of consumer awareness of and demand for the
Company's products. The Company believes that only a very small percentage of
the available customer base for the Company's products currently own
electronic or computer-based assistive devices for visual impairment. The
Company has invested and is continuing to invest in advertising and
promotional campaigns to increase consumer awareness of and demand for its
products. There can be no assurance that such advertising and promotional
campaigns will be successful. If the Company failed to increase consumer
awareness of and demand for its products and failed to increase penetration of
the consumer market, or if the consumer market failed to grow or grows more
slowly than anticipated, the Company's business, financial condition and
results of operations would be materially adversely affected.

DEPENDENCE ON DEVELOPMENT OF NEW PRODUCTS AND PRODUCT ENHANCEMENTS

The Company's future success will depend upon, among other factors, its
ability to develop, manufacture, introduce and successfully achieve market
acceptance of new products and product enhancements. The extent and rate at
which market acceptance and penetration are achieved by future products is a
function of many variables, including price, features, reliability, marketing
and sales efforts, the development of new applications for these products,
competitive factors and general economic conditions affecting purchasing
patterns. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful

7
<PAGE>

development, introduction or marketing of new or enhanced products or that
such products will achieve market acceptance. The failure of the Company to
successfully develop and introduce new products or product enhancements would
have a material adverse effect on the Company's business, financial condition
and results of operations.

HIGHLY COMPETITIVE MARKETS

The Company competes worldwide with a number of manufacturers and
distributors of electronic and computer-based assistive devices for people
with severe visual disabilities. The Company's principal competitors based in
the United States include Optelec, Inc., HumanWare, Inc., Xerox Assistive
Technologies (a division of Xerox Corporation) and Arkenstone, Inc. The
Company's principal competitors based outside the United States include Tieman
B.V., Alva B.V., Reinecker GmbH, Metec GmbH, Low Vision International, KGS,
and Pulse Data International. Most of these companies compete with the Company
on a worldwide basis, and some of these companies have substantially greater
financial and operating resources than the Company. There can be no assurance
that the Company's competitors will not develop enhancements to, or future
generations of, competitive products that offer superior price or features
than the Company's products. Furthermore, there is no assurance that other
companies will not develop and market alternative technological approaches for
meeting the needs of severely visually impaired and blind people. Some of the
Company's markets have low cost barriers to entry, and there can be no
assurance that other companies that are not currently competitors of the
Company will not enter the Company's markets.

In addition, the Company's competitors outside the United States have cost
structures and product prices based on foreign currencies. Accordingly,
currency fluctuations could cause the Company's dollar-priced products to be
less competitive than competitors' products priced in other currencies.
Currency fluctuations could also increase the Company's costs relative to
those of its competitors, which could make it more difficult for the Company
to maintain its competitiveness in such foreign markets. Additionally, certain
foreign countries that offer reimbursement for assistive devices favor local
manufacturers, which could limit the Company's ability to compete successfully
in those countries. Furthermore, the Company believes that a number of
companies may be currently researching and testing various medical treatments
and procedures to reduce the incidence of severe visual impairment or arrest
vision deterioration. In the event such treatments or procedures prove to be
effective, demand for the Company's products could be reduced, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.

DEPENDENCE ON LIMITED SOURCES OF SUPPLY

The Company's products have a large number of components produced by outside
suppliers. In certain instances the Company is dependent upon a sole supplier
or a limited number of suppliers, or has qualified only a single or limited
number of suppliers, for certain key components or sub-assemblies utilized in
its products. The Company's reliance on a limited group of suppliers, and
particularly on sole source suppliers, involves several risks, including the
potential inability to obtain an adequate supply of components and reduced
control over price and delivery time. Any prolonged inability to obtain
adequate deliveries could require the Company to pay more for components,
parts and other supplies, seek alternative sources of supply, delay shipment
of products and damage relationships with current and prospective customers.
Any such delay or damage could have a material adverse effect on the Company's
business, financial condition and results of operations.

RISKS ASSOCIATED WITH MANUFACTURING

The Company conducts substantially all of its manufacturing activities at
its leased facilities in Mountain View, California. The Company may experience
delays or technical and manufacturing difficulties in future product
introductions or in achieving volume production of new products or
enhancements to existing products. The Company may also incur substantial
unanticipated costs in connection with the development of new products or
product enhancements, such as greater-than-expected tooling costs and other
purchasing inefficiencies. In addition, the Company's Mountain View facility
is located in a seismically active area. A major catastrophe (such as an
earthquake or other natural disaster) could result in a prolonged interruption
of the Company's business. In addition, some of the Company's manufacturing
facilities, equipment and operations are subject to

8
<PAGE>

periodic inspection by various regulatory authorities, including inspections
for good manufacturing practices ("GMP") compliance by the Food and Drug
Administration ("FDA") and comparable state agencies. Failure to comply with
GMP or any other manufacturing requirement could result in the issuance of
warning letters, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production and criminal prosecution.
Any of the foregoing events could materially adversely affect the Company's
business, financial condition and results of operations. See "Business --
Manufacturing" and "-- Government Regulation and Safety Requirements."

DEPENDENCE ON INTERNATIONAL SALES

The Company derives a substantial portion of its revenues from international
sales. In 1993, 1994, 1995 and the first six months of 1996, the Company's
international sales were $8.9 million, $8.8 million, $10.8 million and $6.9
million, or 33%, 32%, 35% and 40%, respectively, of net revenue. As a
consequence, the Company is subject to risks associated with international
sales, including fluctuations in foreign currency exchange rates, shipping
delays, generally longer receivables collection periods, changes in applicable
regulatory policies, international monetary conditions, domestic and foreign
tax policies, trade restrictions, duties and tariffs, and economic and
political instability. Each of these factors could have a significant impact
on the Company's ability to deliver products on a competitive, profitable and
timely basis. A substantial amount of the Company's international sales are
denominated in United States dollars. Accordingly, an increase in the value of
the United States dollar relative to various foreign currencies could make the
Company's products less competitive in foreign markets, or require the Company
to reduce its prices to remain competitive, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. For those international transactions denominated in local
currencies (both sales and purchases of components), trade receivables and
accounts payable arising from international operations may contribute to
fluctuations in the Company's operating results. Additionally, future
imposition of, or significant increases in the level of, customs duties,
import quotas or other trade restrictions, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business -- Sales, Distribution and Marketing" and "--
Customer Service and Support."

DEPENDENCE ON INDEPENDENT DISTRIBUTORS

The Company is substantially dependent on the efforts of its independent
distributors and dealers for sales of its products and for customer service
and support. The Company's distribution and dealer agreements generally grant
exclusive territorial rights, exclusive market segment rights or some
combination thereof, and generally are terminable by either party on notice
periods ranging from three months to one year. In the event of a termination
of any such distributor or dealer relationship, there can be no assurance that
the Company could quickly find alternative distributors or dealers. In
addition, if a distributor or dealer terminates its relationship with the
Company and begins to distribute competitive products, the Company's ability
to compete in the former distributor or dealer's territory could be materially
adversely affected. Thus, the loss of one or more of the Company's
distributors or dealers could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, the
Company has in the past extended significant amounts of trade credit to its
distributors and dealers, which, in one instance, was approximately $1,000,000
as of June 30, 1996. The failure of a distributor or dealer to repay trade
credits could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Sales,
Distribution and Marketing."

DEPENDENCE ON REFERRAL BUSINESS

As part of its mix of marketing strategies, the Company and its distributors
and dealers maintain close working relationships with many low vision clinics,
blindness service agencies, rehabilitation organizations, ophthalmologists,
optometrists, rehabilitation counselors or similar advisors to people with
visual problems. A significant amount of the Company's business is derived
from referrals from such people, organizations and agencies. Sometimes such
relationships are a matter of contract, but more often they are informal
relationships

9
<PAGE>

developed over an extended period of time. The Company's competitors compete
with the Company for such referral sources. The loss of one or more of these
referral sources could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Sales, Distribution and Marketing."

DEPENDENCE ON GOVERNMENT FUNDING AND REIMBURSEMENT

Historically, in the United States approximately 40% of the Company's
products have been purchased by institutions, agencies and other service
providers that are heavily dependent on federal, state and local government
funding. In the United States, the purchase of the Company's products is
typically not covered by private health insurance or reimbursable under
Medicare or other publicly-funded insurance programs. However, federal block
grants, augmented by state funding, are generally available to state
rehabilitation and education agencies to purchase the Company's products. Many
other countries have social welfare systems that provide reimbursement for the
procurement of the Company's products. In recent years, primarily as a result
of budget constraints, the level of government funding has been subject to
wide fluctuations or cutback, which has resulted in the delay or cancellation
of orders and has had an adverse effect on the Company's business, financial
condition and results of operations. If government funding were to be reduced,
it would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Reimbursement and Third-
Party Payment."

RISKS ASSOCIATED WITH ACQUISITIONS

The Company's business strategy includes seeking to acquire businesses that
would enable it to better meet the needs of its customers. The Company
acquired two of its international distributors in March 1996. The Company may
pursue additional acquisitions in the future. The Company is not currently
negotiating any potential acquisition, and there is no assurance that the
Company will be able to conclude any such transactions. Acquisitions involve
numerous risks, including difficulties in the assimilation of the acquired
company's employees, operations and products, uncertainties associated with
operating in new markets and working with new customers, the potential loss of
the acquired company's key employees and the costs associated with completing
the acquisition and integrating the acquired company. Furthermore, any future
acquisitions may result in potentially dilutive issuances of equity
securities, increased debt, cash payments and contingent liabilities and
amortization expense related to intangible assets acquired, any of which could
materially adversely affect the Company's business, financial condition and
results of operations. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

INTELLECTUAL PROPERTY AND RISK OF THIRD PARTY CLAIMS OF INFRINGEMENT

10
<PAGE>

be made available to the Company on acceptable terms, if at all, or that the
Company, if it were to contest the validity of any issued or pending patents,
would prevail. In addition, the Company could incur substantial costs in
defending itself in suits brought against the Company on its patents or in
bringing suits against third parties. The Company primarily relies on trade
secret or proprietary process protection, which it seeks to protect, in part,
through appropriate confidentiality and proprietary information agreements
with its employees and consultants. There can be no assurance that the
proprietary information or confidentiality agreements will not be breached,
that the Company will have adequate remedies for any breach, or that the
Company's trade secrets and proprietary know-how will not otherwise become
known to or be independently developed by others. Furthermore, there can be no
assurance that other companies with significantly greater financial resources
will not enter the Company's markets. See "Business -- Patents and Proprietary
Rights."

DEPENDENCE ON KEY PERSONNEL

The Company's operating results depend to a significant extent upon the
continued service of a number of key executive, engineering, marketing, sales,
and technical personnel, particularly its Chairman, President and Chief
Executive Officer, Larry Israel. Except for the Company's Vice President,
European Operations, none of the Company's employees is subject to any
employment agreement. Consequently, any of the Company's employees may
voluntarily terminate their employment with the Company at any time. The loss
of the services of one or more of the Company's key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company maintains key employee life insurance on
the life of Larry Israel in the amount of $1,000,000. There can be no
assurance that such amount will be sufficient to compensate the Company for
the loss of the services of such individual. The Company also believes that
its future success will depend in large part on its ability to attract and
retain qualified personnel. The competition for such personnel is intense, and
the loss of such persons, as well as the failure to recruit additional
personnel in a timely manner, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-- Employees" and "Management -- Employment Agreement."

RISKS ASSOCIATED WITH GOVERNMENT REGULATION OF THE COMPANY'S PRODUCTS

In the United States, many of the Company's products are regulated as
medical devices by the FDA under the Federal Food, Drug, and Cosmetic Act. The
Company's products are exempt from the 510(k) premarket notification process.
However, the Company is required to register as a medical device manufacturer
with the FDA and state agencies such as the California Department of Health
Services, to list its products with the FDA, and to adhere to applicable FDA
regulations regarding GMPs which include testing, control and documentation
requirements. The Company is also regulated by the FDA under the Radiation
Control for Health and Safety Act, which requires companies who produce
electronic products to comply with certain standards, including design and
operation requirements, and to certify product labeling and submit reports to
FDA that their products comply with such standards. A failure of the Company
to comply with GMP or any other applicable requirement could result in the
issuance of warning letters, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production and criminal
prosecution, any one of which would have a material adverse effect on the
Company's business, financial condition and results of operations. On August
16, 1996, the Company was notified by the FDA that its testing program for
certifying some of its video magnifier products was not in compliance with the
U.S. Federal Performance Standard for Television Receivers, 21 CFR 1020.10,
and was therefore disapproved, which required a temporary suspension of
shipment of certain products. Upon presentation of additional information to
the FDA, the disapproval was rescinded on August 23, 1996. The FDA also
advised the Company that certain video magnifier units shipped prior to August
1995 did not have the required certification labels affixed to them and,
therefore, that purchaser notification and corrective action might be
required. The Company submitted an application for exemption from notification
requirements. The FDA has advised the Company that it will not act on this
application until the Company has tested a representative sample of such
previously-shipped units to determine if they are in compliance with the
applicable performance standards. The Company is obligated to complete such
testing and to provide the requested information to the FDA by November 10,
1996. The Company believes that all of its previously-shipped video magnifier
products

11
<PAGE>

are in compliance with applicable performance standards, and therefore it is
unlikely that any further action will be required. However, if the FDA denies
the Company's application and requires notification to consumers, it could
have a material adverse effect on the Company's business, financial condition
and results of operations. Regulations regarding the manufacture and sale of
the Company's products are subject to change and there can be no assurance
that the Company's current or future products will continue to be exempt from
the 510(k) premarket notification process. If the Company's products were to
become subject to the 510(k) premarket notification process or the more
rigorous premarket (PMA) process, the Company could experience substantial
cost increases, including product development costs, as well as substantial
delays in new product introductions, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.

Sales of medical devices outside the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain clearance or approval for sale internationally may be
longer or shorter than that required for FDA clearance or approval, and the
requirements may differ. For sales of the Company's products in Europe, the
European Union has promulgated rules requiring that electronic products
delivered to Europe after January 1, 1996 bear the "CE" mark, a symbol of
compliance with applicable European electronic device directives. Failure of
the Company to comply with international regulatory requirements could have an
adverse effect on the Company's ability to sell its products in these markets,
which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation and Safety Requirements."

RISKS ASSOCIATED WITH SIGNIFICANT GROWTH

The Company has recently experienced, and may continue to experience,
significant growth in the scope of its operating and financial systems. This
may result in additional responsibilities for many management and staff
personnel, and may place a significant strain on the Company's management,
operating and financial systems, and resources. To accommodate sustained
growth, compete effectively, and manage planned future growth, the Company may
be required to implement and improve operational, financial and management
information systems, procedures and controls. The Company's future success,
and maintenance of a sustained growth rate, will be heavily influenced by its
ability to undertake and manage these activities in a successful manner. The
Company's failures in these areas could have a material adverse effect on the
Company's business, financial condition and results of operations.

OWNERSHIP BY MANAGEMENT AND AFFILIATES

Immediately following this Offering, assuming no exercise of the
Underwriters' over-allotment option, the Company's executive officers,
directors and their affiliates will beneficially own approximately 19% of the
outstanding shares of the Company's Common Stock, including options held by
them that are exercisable within 60 days of June 30, 1996. As a result, such
persons, acting together, would have the ability to exercise significant
influence over all matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership might have the effect of delaying or preventing a
change in ownership of the Company.

ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK

The Board of Directors has the authority to issue up to 5,000,000 shares of
undesignated Preferred Stock and to determine the powers, rights, preferences
and restrictions granted to or imposed upon any unissued series of
undesignated Preferred Stock, and to fix the number of shares constituting any
series and the designation of such series, without any further vote or action
by the Company's shareholders. The Preferred Stock could be issued with
voting, liquidation, dividend and other rights superior to the rights of the
holders of Common Stock. The issuance of Preferred Stock could have the effect
of delaying or preventing a change in control of the Company, and may affect
the market price of the Common Stock, and the voting and other rights of the
holders of Common Stock. See "Principal and Selling Shareholders" and
"Description of Capital Stock."

12
<PAGE>

NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE

Prior to this Offering, there has been no public market for the Common Stock
of the Company, and there can be no assurance that an active trading market
will develop or be sustained after this Offering. The initial public offering
price will be determined through negotiations among the Company, the Selling
Shareholders and the Representatives of the Underwriters based on several
factors and may not be indicative of the market price of the Common Stock
after this Offering. See "Underwriting." The market prices for securities of
companies similar to the Company have been highly volatile. Announcements
regarding technological innovations or new commercial products by the Company
or its competitors, government regulations, or developments concerning
proprietary rights have historically had and are expected to continue to have,
a significant effect on the market prices of the stocks of similar companies.
The market price of the shares of Common Stock may be highly volatile and may
be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of
technological innovations, new products, or new contracts by the Company or
its competitors, developments with respect to copyrights or proprietary
rights, general market conditions or other factors. In addition, the stock
market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the Common
Stock of similar companies and that have often been unrelated to the operating
performance of particular companies. These broad market fluctuations may also
adversely effect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has occurred against the issuing company.
There can be no assurance that such litigation will not occur in the future
with respect to the Company. Such litigation could result in substantial costs
and a diversion of management's attention and resources, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Any adverse determination in such litigation could also
subject the Company to significant liabilities. See "Dilution" and "Shares
Eligible for Future Sale."

The Company has been advised by the Representatives that the Representatives
presently intend to make a market in the Common Stock offered hereby; however,
the Representatives are not obligated to do so, and any market making activity
may be discontinued at any time without notice. There can be no assurance that
an active public market for the Common Stock will develop and continue after
this Offering.

SHARES ELIGIBLE FOR FUTURE SALE; LOCK-UP AGREEMENTS; POSSIBLE ADVERSE EFFECT
ON FUTURE MARKET PRICE

In addition to the 2,275,000 shares of Common Stock offered by the Company
and the 625,000 shares of Common Stock offered by the Selling Shareholders,
there will be 2,354,322 shares of Common Stock outstanding as of the date of
this Prospectus (assuming no exercise of outstanding options after June 30,
1996), which will be available for sale in the public market as follows: (i)
241,238 shares will be eligible for immediate sale on the date of this
Prospectus, (ii) an additional 5,137 shares will be eligible for sale 90 days
after the date of this Prospectus, (iii) an additional 1,957,919 shares will
be eligible for sale 180 days after the date of this Prospectus upon
expiration of lock-up agreements, and (iv) an additional 150,000 shares will
be eligible for sale at various times thereafter. In addition, the Company has
reserved an aggregate of 1,327,500 shares of Common Stock for issuance under
its various stock plans which will be eligible for sale from time to time.

Sales of a substantial number of shares of Common Stock in the public market
after this Offering could adversely affect the market price of the Common
Stock prevailing from time to time. See "Shares Eligible For Future Sale."

DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of the Company's Common Stock. Investors
purchasing shares of Common Stock in this Offering will therefore incur
immediate and substantial net tangible book value dilution. See "Dilution."

13
<PAGE>

MANAGEMENT DISCRETION OVER PROCEEDS OF THE OFFERING

The Company intends to use approximately $3.0 million of the net proceeds of
this Offering to repay outstanding indebtedness, approximately $3.0 million to
expand the Company's marketing efforts, approximately $3.0 million for product
development activities, approximately $2.0 for productivity improvements and
the balance of approximately $7.2 million, 40% of the estimated total net
proceeds of the Offering, for other general corporate purposes, including
working capital and possible acquisitions of complementary businesses and
technologies, although the Company currently has no agreements or commitments
with respect to any such transactions. Accordingly, the Company will have
broad discretion as to the application of such proceeds. An investor will not
have an opportunity to evaluate the economic, financial and other relevant
information which will be utilized by the Company in determining the
application of such proceeds. See "Use of Proceeds."

NO DIVIDENDS

The Company does not anticipate declaring or paying any cash dividends on
its Common Stock in the foreseeable future. The Company currently intends to
retain its earnings for use in the operation of the business. In addition, the
Company's current credit agreements with its domestic bank prohibit the
payment of cash dividends on its capital stock without the bank's prior
written consent.

14
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
being offered hereby, after deducting the underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$18.2 million ($21.9 million if the Underwriters' over-allotment option is
exercised in full) at an assumed offering price of $9.00 per share.

The Company intends to use approximately $3.0 million of the net proceeds of
this Offering for the repayment of short-term borrowings that as of June 30,
1996 consisted of $1.7 million under its revolving line of credit, which bears
interest at the bank's prime rate plus 1.25% and expires on October 1, 1996,
and long-term debt that as of June 30, 1996 consisted of $0.2 million under
two term loans, which bear interest at the bank's prime rate plus 1.5% or at a
fixed rate of 10%, and approximately $0.9 million under a term loan due March
1999, which bears interest at the bank's prime rate plus 1.5%, approximately
$3.0 million in connection with the expansion of the Company's marketing
efforts, approximately $3.0 million for product development activities and
approximately $2.0 million for productivity improvement including
manufacturing processes and tooling. In addition the Company expects that it
will use the balance of the net proceeds of approximately $7.2 million for
general corporate purposes including working capital, although the Company has
no specific plans for use of the balance of the net proceeds of this Offering.
A portion of the net proceeds may also be used for the acquisitions of
complementary businesses and products, or to obtain the right to use
complementary technologies, although no such acquisitions or investments are
being negotiated by the Company at the present time and there can be no
assurance that such acquisitions or investments will be made. The primary
purposes of this Offering are to create a public market for the Common Stock,
to facilitate future access to public markets and to obtain additional equity
capital for possible future acquisitions. In determining the size of the
Offering, the Company took into account the fact that a larger shareholder
base would tend to result in a more active public market. Pending the use of
the net proceeds for the above purposes, the Company intends to invest such
funds in United States government securities or other investment-grade
securities, including short-term, interest-bearing money market funds. The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Shareholders. See "Principal and Selling Shareholders."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate doing so in the foreseeable future. The Company
currently intends to retain its earnings for use in the operation of the
business. In addition, the Company's current credit agreements with its
domestic bank prohibit the payment of cash dividends on its capital stock
without the bank's prior written consent. See Note 7 of Notes to Consolidated
Financial Statements.

15
<PAGE>

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of June 30, 1996 (i) on a historical basis and (ii) as adjusted to give effect
to the receipt of the net proceeds from the sale of 2,275,000 shares of Common
Stock offered by the Company hereby at an assumed offering price of $9.00 per
share and after deducting the underwriting discount and estimated offering
expenses payable by the Company, and as adjusted to give effect to the
issuance of 87,500 shares of Common Stock issuable upon the net exercise of
all outstanding warrants.

<TABLE>
<CAPTION>
JUNE 30, 1996
------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and equivalents........................................ $ 317 $15,764
====== =======
Short-term borrowings and current portion of long-term
debt....................................................... $2,237 $ 25
====== =======
Long-term debt.............................................. $ 708 $ 125
------ -------
Shareholders' equity:
Preferred stock $.02 par value; 5,000,000 shares
authorized, none issued and outstanding, actual and as
adjusted................................................. -- --
Common stock; $.02 par value; 10,000,000 shares
authorized, 2,891,822 shares issued and outstanding,
actual; 40,000,000 shares authorized, 5,254,322 shares
issued and outstanding, as adjusted(1)................... 58 105
Additional paid-in capital................................ 3,314 21,509
Accumulated translation adjustment........................ 13 13
Retained earnings......................................... 2,562 2,562
------ -------
Total shareholders' equity.............................. 5,947 24,189
------ -------
Total capitalization.................................... $6,655 $24,314
====== =======
</TABLE>
- ----------
(1) Excludes 623,494 shares of Common Stock issuable upon the exercise of
stock options outstanding as of June 30, 1996, at a weighted average
exercise price of $2.98 per share. See "Management -- Stock and Employee
Benefit Plans" and Note 9 of Notes to Consolidated Financial Statements.

16
<PAGE>

DILUTION

At June 30, 1996, the pro forma net tangible book value of the Company was
$4,158,000, or approximately $1.40 per share of outstanding Common Stock. "Pro
forma net tangible book value per share" represents the Company's
shareholders' equity, less intangible assets of $1,789,000 for the excess of
purchase costs over net assets of Sensory Systems Limited and Teletec SARL,
acquired in March 1996, and a covenant not to compete, divided by 2,979,322
actual shares of Common Stock outstanding as of June 30, 1996, including
shares of Common Stock issued in connection with the net exercise of
outstanding warrants upon the closing of this Offering.

Net pro forma tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Offering made hereby and the pro forma net tangible book value
per share of Common Stock immediately after completion of this Offering. After
giving effect to the sale by the Company of 2,275,000 shares of Common Stock
in this Offering at an assumed initial offering price of $9.00 per share and
after deduction of underwriting discounts and commissions and estimated
offering expenses, the pro forma net tangible book value of the Company as of
June 30, 1996 would have been $22,400,000 or approximately $4.26 per share.
This represents an immediate increase in pro forma net tangible book value of
$2.86 per share to existing shareholders and an immediate dilution in pro
forma net tangible book value of $4.74 per share to purchasers of Common Stock
in the Offering, as illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $9.00
Pro forma net tangible book value per share before this
Offering.................................................... $1.40
Increase per share attributable to sale of Common Stock in
this Offering............................................... 2.86
Pro forma net tangible book value per share after this
Offering...................................................... 4.26
-----
Dilution per share to new investors............................ $4.74
=====
</TABLE>

The following table summarizes at June 30, 1996, the number of shares of
Common Stock sold by the Company, the total consideration paid to the Company
and the average price per share paid by the existing shareholders and by the
new investors purchasing shares of Common Stock in this Offering at an assumed
initial public offering price of $9.00 per share, before deducting the
estimated underwriting discount and offering expenses payable by the Company.

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED (1) CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 2,979,322 57% $ 2,612,000 11% $0.88
New investors............... 2,275,000 43 20,475,000 89 $9.00
--------- --- ----------- ---
Total................... 5,254,322 100% $23,087,000 100%
========= === =========== ===
</TABLE>
- ----------

(1) Sales by the Selling Shareholders in this Offering will reduce the number
of shares of Common Stock held by existing shareholders to 2,354,322
shares or 45% of the total number of shares of Common Stock to be
outstanding after this Offering, and will increase the number of shares
held by new investors to 2,900,000 shares, or approximately 55% of the
total number of shares of Common Stock to be outstanding after this
Offering (approximately 59% if the Underwriters' over-allotment option is
exercised in full). See "Principal and Selling Shareholders."

The foregoing tables assume no exercise of outstanding options after June
30, 1996 and include the pro forma effects of the issuance of 87,500 shares of
Common Stock pursuant to the net exercise of all outstanding warrants. As of
June 30, 1996, there were outstanding options to purchase 623,494 shares of
Common Stock. To the extent that such options are exercised, there will be
further dilution to new investors. See "Management --Director Compensation,"
"-- Stock and Employee Benefit Plans," and Note 9 of Notes to Consolidated
Financial Statements.

17
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for the Company for the
years ended December 31, 1993, 1994, and 1995 have been derived from and are
qualified by reference to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus, which have been audited by Deloitte &
Touche LLP, independent auditors. The consolidated statement of operations
data set forth below for the years ended December 31, 1991 and 1992 have been
derived from the Company's audited financial statements not included herein.
The selected consolidated financial data for the six months ended June 30,
1995 and 1996 are unaudited but have been prepared on a basis substantially
consistent with the audited consolidated financial statements and, in the
opinion of management, such unaudited consolidated financial statements
contain all adjustments (which consist only of normal recurring adjustments)
necessary to present fairly the financial position and results of operations
of the Company as of such dates and for such periods. This selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue:
Low Vision
Products(1)........... -- -- $18,184 $19,143 $21,719 $ 10,902 $ 12,013
Blindness
Products(1)........... -- -- 8,899 8,445 8,952 4,415 5,227
------- ------- ------- ------- ------- -------- --------
Net revenue........... $30,122 $29,677 27,083 27,588 30,671 15,317 17,240
Cost of revenue......... 15,664 16,250 14,697 15,332 16,670 8,455 9,795
------- ------- ------- ------- ------- -------- --------
Gross profit.......... 14,458 13,427 12,386 12,256 14,001 6,862 7,445
------- ------- ------- ------- ------- -------- --------
Operating expenses:
Product development.... 2,538 3,020 2,876 2,617 2,286 1,170 1,129
Sales, general and
administrative........ 10,272 11,016 10,303 9,020 9,374 4,634 4,885
Restructuring(2)....... -- -- 507 332 -- -- --
------- ------- ------- ------- ------- -------- --------
Total operating
expenses............ 12,810 14,036 13,686 11,969 11,660 5,804 6,014
------- ------- ------- ------- ------- -------- --------
Operating income
(loss)................. 1,648 (609) (1,300) 287 2,341 1,058 1,431
Other income (expense),
net.................... (306) 45 (8) (178) (83) (53) (67)
------- ------- ------- ------- ------- -------- --------
Income (loss) before
income taxes........... 1,342 (564) (1,308) 109 2,258 1,005 1,364
Income taxes (benefit).. 280 (84) 21 268 867 386 213(3)
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 1,062 $ (480) $(1,329) $ (159) $ 1,391 $ 619 $ 1,151(3)
======= ======= ======= ======= ======= ======== ========
Net income (loss) per
share(4)............... $ 0.27 $ (0.14) $ (0.36) $ (0.04) $ 0.42 $ 0.18 $ 0.35(3)
Shares used in per share
calculation(4)......... 3,957 3,538 3,656 3,679 3,317 3,518 3,250
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents........ $ 1,259 $ 1,413 $ 1,198 $ 423 $ 169 $ 317
Working capital............. 5,614 5,506 4,210 3,685 3,362 3,967
Total assets................ 13,843 13,055 10,881 10,921 11,044 14,713
Short-term borrowings and
long-term debt............. 74 2,231 1,618 1,787 1,896 2,945
Shareholders' equity........ 6,844 6,016 4,101 4,004 3,914 5,947
</TABLE>
- ----------
(1) Separate revenue reporting for Low Vision Products and Blindness Products
prior to 1993 is not available.
(2) Reflects the 1993 and 1994 headquarter and international subsidiary
restructuring expenses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

(3) The Company's effective tax rate for the six months ended June 30, 1996
was affected by a one-time tax valuation allowance adjustment, which
reduced income tax expense and correspondingly increased net income for
that period by $312,000 or $0.10 per share. Without that adjustment, for
the six months ended June 30, 1996, income tax expense would have been
$525,000, net income would have been $839,000 and net income per share
would have been $0.26.
(4) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of shares used in per share calculation.

18
<PAGE>

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

The following discussion of operations and financial condition of
Telesensory should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the Section entitled "Risk Factors" and
elsewhere in this Prospectus.

OVERVIEW

Telesensory Corporation develops, manufactures and markets electronic and
computer-based products to assist people with severe visual disabilities to
achieve greater independence and privacy. The Company is the leading provider
of such products in North America, and one of the two leading companies
worldwide. The Company makes video magnifiers and other electronic and
computer-based assistive devices for people who are severely visually impaired
and various braille-related and other electronic and computer-based assistive
devices for those who are totally blind or without useable light perception.

Telesensory was founded in 1970. In the early 1970s Telesensory pioneered
the application of technology to serve the needs of blind individuals. During
the same period, another company serving visually disabled people, Visualtek,
Inc. ("VTEK"), pioneered the use of video magnifiers to serve the needs of
severely visually impaired individuals. In 1989 the Company acquired VTEK.
During 1993, the Company discontinued its direct sales subsidiaries in
Germany, Austria and France, introduced a cost-reduction program and
restructured certain operating activities in the United States. In 1994, the
Company discontinued its manufacturing operations in Ireland and, following a
management change, undertook further restructuring activities in the United
States with the intention of reducing costs and increasing overall
efficiencies. These cost reduction measures resulted in restructuring charges
in 1993 and 1994. In March 1996, the Company acquired Sensory Systems Limited
("SSL") located in the United Kingdom and its wholly-owned subsidiary Teletec
SARL ("Teletec") located in France, which strengthened the Company's
international operations. All of the Company's products are now manufactured
in its Mountain View, California facility.

The Company's net revenue is derived from sales of its Low Vision Products
and Blindness Products, which include sales of OEM components, and to a lesser
extent, from service and support activities. The Company operates in one
market segment. Net revenue from product sales is generally recognized at the
time of shipment, net of allowances or discounts. In the United States, the
Company's Low Vision Products are sold to independent distributors and dealers
who resell to end-user customers, and the Company generally markets its
Blindness Products directly to the end-user. In the United Kingdom and France,
the Company sells its Low Vision and Blindness Products directly to the end-
user through its wholly-owned subsidiaries SSL and Teletec. In all other
countries, the Company generally sells its Low Vision Products and Blindness
Products through independent distributors. Sales to United States and
international distributors are made on open credit terms or letters of credit
and generally are not subject to a right of return. The Company believes that
distributors generally carry minimal inventory. Sales of the Company's
products in international markets are generally denominated in United States
dollars. International sales are subject to a variety of risks. See "Risk
Factors -- Dependence on International Sales." The Company believes that its
sales are not materially affected by seasonality.

Cost of revenue consists primarily of the cost of components and
subassemblies, completed products, royalties, assembling, packaging and
testing components and software at the Company's facility, and labor and
overhead associated therewith. Product development costs consist primarily of
costs of engineering personnel. The Company employs a staff of engineers that
is dedicated to the development of new products and the improvement of
existing products. Product development costs are expensed as incurred. Sales,
general and administrative costs consist primarily of costs of personnel,
sales commissions, travel, advertising and promotion, facilities, legal,
accounting, insurance and the company-wide profit sharing plan. Except for
facility and insurance costs, these items are not allocated to other
departments within the Company.

19
<PAGE>

Although the Company has sustained growth of net revenue and operating
income before restructuring expenses for the last eight quarters, the
Company's sales and operating results have fluctuated on a quarterly basis and
may do so in future periods. The Company's operating results are affected by a
number of factors, many of which are beyond the Company's control. Factors
contributing to these fluctuations include the timing of the introduction and
market acceptance of new products or product enhancements by the Company and
its competitors, changes in pricing by the Company and its competitors, order
cancellation or deferral by a customer, the failure to receive an anticipated
order, the relatively long sales cycle for the Company's products to
government agencies, governmental budget constraints and the level of
government funding, the cost and delays in delivery of components and
subassemblies and delays in delivery of services by suppliers, unexpected
manufacturing and other difficulties, increased product development costs and
fluctuations in general economic conditions.

The Company anticipates that both net revenue and net income for the third
quarter of 1996 are likely to be adversely affected as a consequence of
quality problems encountered by the Company in July, and a temporary
suspension of shipments of some of the Company's products for approximately
one week in August. As a result, the Company expects net income for the third
quarter of 1996 to be lower than average quarterly earnings during the first
six months of 1996. The Company believes that these specific problems have
been corrected and are not likely to affect future quarterly operating
results.

RESULTS OF OPERATIONS

The following table sets forth selected operations data of the Company
expressed as a percentage of net revenue for the periods indicated below:

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------- ------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue....................... 54.3 55.6 54.4 55.2 56.8
----- ----- ----- ----- -----
Gross profit........................ 45.7 44.4 45.6 44.8 43.2
----- ----- ----- ----- -----
Operating expenses:
Product development................. 10.6 9.5 7.4 7.6 6.6
Sales, general and administrative... 38.0 32.7 30.6 30.3 28.3
Restructuring....................... 1.9 1.2 -- -- --
----- ----- ----- ----- -----
Total operating expenses.......... 50.5 43.4 38.0 37.9 34.9
----- ----- ----- ----- -----
Operating income (loss)............... (4.8) 1.0 7.6 6.9 8.3
Other income (expense), net........... -- (0.6) (0.3) (0.3) (0.4)
----- ----- ----- ----- -----
Income (loss) before income taxes..... (4.8) 0.4 7.3 6.6 7.9
Income taxes.......................... 0.1 1.0 2.8 2.6 1.2 (1)
----- ----- ----- ----- -----
Net income (loss)..................... (4.9)% (0.6)% 4.5% 4.0% 6.7%(1)
===== ===== ===== ===== =====
</TABLE>
- --------
(1) The Company's effective tax rate for the six months ended June 30, 1996
was affected by a one-time tax valuation allowance adjustment, which
reduced income taxes and correspondingly increased net income for that
period by $312,000 or 1.8% of net revenue. Without that adjustment, for
the six months ended June 30, 1996, income taxes would have been $525,000
or 3.0% of net revenue and net income would have been $839,000 or 4.9% of
net revenue.

SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995

Net Revenue. Net revenue for the six months ended June 30, 1996 was $17.2
million, an increase of $1.9 million or 12.6% from $15.3 million for the six
months ended June 30, 1995. In April 1996, the Company began sales operations
through its newly acquired distribution subsidiaries, SSL and Teletec in
Europe. These distribution subsidiaries contributed an incremental $0.6
million in net revenue in the second quarter of 1996.

20
<PAGE>

Low Vision Products sales for the six months ended June 30, 1996 were $12.0
million, an increase of $1.1 million or 10.2% from $10.9 million for the six
months ended June 30, 1995. This increase was primarily attributable to the
18% unit volume increase in sales of video magnifiers to 6,436 units in the
first six months of 1996 from 5,467 in the first six months in 1995, offset by
a decrease in the average selling price. The average selling price decreased
due to increased sales of the Aladdin product line, which has a lower average
selling price than its predecessor, and the transition from employee sales
personnel to independent distributors for Low Vision Products, which was
completed in the first eight months of 1995. The effect of the decrease in
average selling price was offset by a decrease in selling, general and
administrative expense relating to fewer employee sales personnel. Blindness
Products sales for the six months ended June 30, 1996 were $5.2 million, a
$0.8 million or 18.4% increase from $4.4 million for the six months ended June
30, 1995. This increase in Blindness Products sales was due primarily to an
increase in international sales. The Company had international sales of $6.9
million and $5.3 million in the first six months of 1996 and 1995,
respectively, representing 40.3% and 34.9% of the Company's net revenue in the
first six months of 1996 and 1995, respectively.

Gross Profit. Gross profit for the six months ended June 30, 1996 was $7.4
million, an increase of $0.5 million or 8.5% from $6.9 million for the six
months ended June 30, 1995. Gross margin decreased to 43.2% in the first six
months of 1996 from 44.8% for the first six months of 1995 primarily due to
lower average selling prices resulting from the transition from employee sales
personnel to independent distributors for Low Vision Products discussed above.
The decrease in gross profit resulting from this transition was offset by a
decrease in sales, general and administrative expense relating to fewer
employee sales personnel.

Product Development. Product development expense for the six months ended
June 30, 1996 was $1.1 million, a decrease of $0.1 million or 3.5% from $1.2
million for the six months ended June 30, 1995, representing 6.6% and 7.6% of
net revenue, respectively. The lower product development expense for the first
six months of 1996 was due primarily to more effective utilization of
development resources.

Sales, General and Administrative. Sales, general and administrative expense
was $4.9 million for the six months ended June 30, 1996, an increase of $0.3
million or 5.4% from $4.6 million for the six months ended June 30, 1995. This
increase was due primarily to increased Low Vision Products marketing expenses
associated with the radio advertising program implemented in the first six
months of 1996, offset by the transition from employee sales personnel to
independent distributors discussed above. Sales, general and administrative
expense represented 28.3% and 30.3% of net revenue in the first six months of
1996 and 1995, respectively.

Income Taxes. Income taxes were $0.2 million for the six months ended June
30, 1996, a decrease of $0.2 million or 44.8% from $0.4 million for the six
months ended June 30, 1995. The Company's effective tax rates were 15.6% and
38.4% for the first six months of 1996 and 1995, respectively. The Company's
effective tax rate in 1996 was approximately 24.5% lower than the combined
statutory rate resulting primarily from a one-time tax valuation adjustment of
$0.3 million and the Company's foreign sales corporation.

Net Income. Net income was $1.2 million for the six months ended June 30,
1996, an increase of $0.5 million from $0.6 million for the six months ended
June 30, 1995. Net income expressed as a percentage of net revenue was 6.7%
and 4.0% in the six months ending June, 1996 and 1995, respectively. Excluding
the one-time tax valuation adjustment mentioned above, the Company would have
had net income of $0.8 million for the six months ended June 30, 1996, and net
income expressed as a percentage of net revenue would have been 4.9%.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Net Revenue. Net revenue for the year ended December 31, 1995 was $30.7
million, an increase of $3.1 million or 11.2% from $27.6 million for the year
ended December 31, 1994. Low Vision Products sales for the year ended December
31, 1995 were $21.7 million, an increase of $2.6 million or 13.5% from $19.1
million for the year ended December 31, 1994. This increase was primarily
attributable to a 53% unit volume increase in sales of video magnifiers to
11,091 units in 1995 from 7,256 in 1994 offset by a decrease in the average
selling price. The increase in units sold and decrease in average selling
price reflected the transition from employee sales personnel to independent
distributors for Low Vision Products completed in 1995 and the introduction of
the

21
<PAGE>

Aladdin product line in September 1994. The Aladdin is a highly innovative,
advanced video magnifier, which has a lower average selling price than its
predecessor. Blindness Products sales for the year ended December 31, 1995
were $9.0 million, an increase of $0.6 million or 6.0% from $8.4 million for
the year ended December 31, 1994. This increase was primarily attributable to
an increase in unit sales of refreshable braille devices and braille cells.
The Company had international sales of $10.8 million and $8.8 million in 1995
and 1994, respectively representing 35.1% and 31.8% of the Company's net
revenue in 1995 and 1994, respectively.

Gross Profit. Gross profit for the year ended December 31, 1995 was $14.0
million, an increase of $1.7 million or 14.2% from $12.3 million for the year
ended December 31, 1994. Gross margin increased to 45.6% in 1995 from 44.4% in
1994 primarily due to higher margins on the Aladdin product line and economies
of scale from higher volume manufacturing, which were offset in part by lower
average selling prices due to the transition from employee sales personnel to
independent distributors for Low Vision Products.

Product Development. Product development expense for the year ended December
31, 1995 was $2.3 million, a decrease of $0.3 million or 12.6% from $2.6
million for the year ended December 31, 1994, representing 7.4% and 9.5% of
net revenue, respectively. The decrease in product development expense from
1994 to 1995 was due primarily to the completion of the development of the
Aladdin during 1994 and more effective utilization of development resources in
1995.

Sales, General and Administrative. Sales, general and administrative expense
was $9.4 million for the year ended December 31, 1995, an increase of $0.4
million or 3.9% from $9.0 million for the year ended December 31, 1994. This
increase was due primarily to the costs associated with the implementation of
a company-wide profit sharing plan, partially offset by the transition to
independent distributors for Low Vision Products. Sales, general and
administrative expense accounted for 30.6% and 32.7% of net revenue in 1995
and 1994, respectively.

Income Taxes. Income taxes were $0.9 million for the year ended December 31,
1995, an increase of $0.6 million or 223.5% from $0.3 million for the year
ended December 31, 1994. The Company's effective tax rates were 38.4% and
245.9% in 1995 and 1994, respectively. The Company's effective tax rate in
1995 was approximately 1.7% lower than the combined statutory rate resulting
primarily from the Company's foreign sales corporation. The 1994 effective tax
rate differs from the combined statutory rate due primarily to the tax impact
resulting from the closure of its international subsidiaries and its
operations in Ireland.

Net Income. Net income was $1.4 million for the year ended December 31,
1995, an increase of $1.6 million from $(0.2) million for the year ended
December 31, 1994. Net income (loss) expressed as a percentage of net revenue
was 4.5% and (0.6)% in 1995 and 1994, respectively.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Net Revenue. Net revenue for the year ended December 31, 1994 was $27.6
million, an increase of $0.5 million or 1.9% from $27.1 million for the year
ended December 31, 1993. Low Vision Products sales for the year ended December
31, 1994 were $19.1 million, an increase of $0.9 million or 5.3% from $18.2
million for the year ended December 31, 1993. This increase was primarily
attributable to a 17% unit volume increase in sales of video magnifiers to
7,256 units in 1994 from 6,194 in 1993 offset by a decrease in the average
selling price, reflecting the introduction of the Aladdin product line in
September 1994. Blindness Products sales for the year ended December 31, 1994
were $8.4 million, a decrease of $0.5 million or 5.1% from $8.9 million for
the year ended December 31, 1993. This decrease was attributable to reduced
unit sales volumes in most Blindness Products categories due to increased
competition and the delayed release of the Company's PowerBraille product
line. The Company had international sales of $8.8 million and $8.9 million in
1994 and 1993, respectively, representing 31.8% and 33.0% of the Company's net
revenue in 1994 and 1993, respectively.

Gross Profit. Gross profit for the year ended December 31, 1994 was $12.3
million, a decrease of $0.1 million or 1.0% from $12.4 million for the year
ended December 31, 1993. Gross margin decreased to 44.4% in 1994 from 45.7% in
1993 due primarily to a decrease in average selling prices of refreshable
braille products as well as an increase in product manufacturing costs
associated with the introduction of the Aladdin in September 1994.

22
<PAGE>

Product Development. Product development expense for the year ended December
31, 1994 was $2.6 million, a decrease of $0.3 million or 9.0% from $2.9
million for the year ended December 31, 1993, representing 9.5% and 10.6% of
net revenue, respectively. The decrease in product development expense from
1993 to 1994 was due primarily to the completion of the development of the
Aladdin during 1994, coupled with cost-savings associated with the
reorganization of the product development departments.

Sales, General and Administrative. Sales, general and administrative expense
was $9.0 million for the year ended December 31, 1994, a decrease of $1.3
million or 12.5% from $10.3 million for the year ended December 31, 1993. This
decrease reflected completion of the amortization relating to the VTEK
acquisition in 1989 and efficiencies achieved as a result of the corporate
restructuring. Sales, general and administrative expense accounted for 32.7%
and 38.0% of net revenue in 1994 and 1993, respectively.

Restructuring. The Company had $0.3 million and $0.5 million of
restructuring charges in 1994 and 1993, respectively. The restructuring
charges in 1994 related to the discontinuation of the Company's manufacturing
and warehousing facility in Ireland and staff reductions at its corporate
headquarters in the United States. These charges were offset in part by a
foreign currency adjustment relating to the valuation of the assets in United
States dollars. The restructuring charges in 1993 related to discontinuing its
German, French and Austrian direct sales subsidiaries and staff reductions in
Europe and the United States.

Income Taxes. Income taxes were $0.3 million for the year ended December 31,
1994, an increase of $0.2 million from approximately $21,000 for the year
ended December 31, 1993. The Company's effective tax rates were 245.9% and
(1.6)% in 1994 and 1993, respectively. The Company's effective tax rate in
1993 differed from the combined statutory rate due to foreign withholding
taxes on royalty revenue.

Net Loss. The Company had a net loss of $0.2 million for the year ended
December 31, 1994 as compared to a net loss of $1.3 million for the year ended
December 31, 1993. Net loss expressed as a percentage of net revenue was 0.6%
and 4.9% in 1994 and 1993, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of funds are cash generated from operating
activities and borrowings under its bank line of credit and term loans.

Net cash provided from operations totaled $0.5 million and $1.7 million in
1994 and 1995, respectively. The $1.2 million increase in net cash provided by
operations was primarily due to the improved operating results in 1995 as
compared to 1994. Net cash provided from operations for the first six months
of 1996 totaled $1.0 million, versus $1.2 million for the first six months of
1995. The decrease of $0.2 million of net cash provided from operations was
primarily due to the funding of working capital in connection with the
acquisition of SSL and Teletec in March of 1996.

Net cash used in investing activities in each of 1994 and 1995 was
approximately $0.6 million, and was used primarily for the acquisition of
equipment and improvements. In the first six months of 1996, the Company used
$2.1 million for investing activities versus $0.2 million for the first six
months of 1995. For the first six months of 1996, the Company used $1.8
million of net cash for the acquisition of SSL and Teletec and $0.3 million
for the acquisition of equipment and improvements.

Net cash used in financing activities in 1994 and 1995, consisted of $0.4
million and $1.4 million, respectively, primarily for the repayment of funds
previously borrowed under the Company's bank line of credit and repurchase of
the Company's Common Stock. In the first six months of 1996, $1.2 million of
net cash provided by financing activities consisted primarily of borrowings
under the Company's bank line of credit and term loans for the purpose of
funding the Company's acquisition of SSL and Teletec and proceeds from the
issuance of the Company's Common Stock. At June 30, 1996, the Company had $2.2
million of short-term borrowings and current portion of long-term debt, and
$0.7 million of long-term debt outstanding.

23
<PAGE>

At June 30, 1996, the Company's primary sources of liquidity included cash
and equivalents of $0.3 million and available bank borrowings of $1.8 million
under its secured line of credit which bears interest at the bank's prime rate
plus 1.25% and expires on October 1, 1996. At June 30, 1996, $1.7 million was
outstanding under this line of credit. The Company has three term loans which
bear interest at the bank's prime rate plus 1.50% or at a fixed 10% rate and
are due between April 1998 and March 1999. At June 30, 1996, $1.1 million was
outstanding under the term loans. The Company's current bank borrowings are
subject to certain financial covenants including maintenance of minimum levels
of quick ratio, tangible net worth and working capital and maintenance of
maximum levels of the ratio of debt to total net worth, as well as quarterly
net income, and debt service coverage requirements. In addition, the Company
is prohibited from paying dividends without the consent of the bank under the
terms of the agreements. The Company believes that the net proceeds of this
Offering, together with its current cash balances, its credit facility, and
net cash provided by operating activities, will be sufficient to meet its
working capital and capital expenditure requirements for at least the next
twelve months. See "Use of Proceeds."

24
<PAGE>

BUSINESS

GENERAL

Telesensory, founded in 1970, develops, manufactures and markets innovative
electronic and computer-based products to assist people with severe visual
disabilities to achieve greater independence and privacy. The Company is the
leading provider of such products in North America, and one of the two leading
companies worldwide. The Company makes video magnifiers and other electronic
and computer-based assistive devices for people who are severely visually
impaired (the "Low Vision Products") and various braille-related and other
electronic and computer-based assistive devices for those who are totally
blind or without useable light perception (the "Blindness Products").

Low Vision Products accounted for 71% of Company net revenue in 1995. Low
Vision Products consist of video magnifiers and computer screen magnification
systems, which provide a range of magnification, enhanced contrast and field
of view. In 1994, the Company introduced the Aladdin, a highly innovative,
advanced video magnifier. In 1995, the Aladdin won the American Society of
Aging's Gold Award for outstanding product design for mature consumers.
Primarily as a result of the introduction of the Aladdin, unit sales of video
magnifiers increased 53% in 1995, to 11,091 units, and increased 18% in the
first half of 1996 as compared to the first half of 1995. The Company believes
that its sales of video magnifiers, in both units and dollars represented
approximately 55% of the market in the United States in 1995 and significantly
exceeded comparable figures for its competitors.

Blindness Products accounted for 29% of Company net revenue in 1995. The
principal product line consists of refreshable computer-controlled braille
displays that enable blind persons to operate personal computers. Other
products include optical character reading systems with synthesized speech or
braille output, and braille printers. The Company believes that it is one of
the top three manufacturers worldwide in the majority of its Blindness
Products.

INDUSTRY BACKGROUND

Severe visual impairment is defined by the National Center for Health
Statistics as the inability to read ordinary newspaper print even when wearing
glasses or contact lenses. People with such impairments also have difficulty
with daily activities such as reading mail and prescription bottles, balancing
checkbooks, viewing photographs and working with small objects. The number of
people in the United States who are severely visually impaired is estimated at
4.3 million. A much smaller population, estimated at 100,000 in the United
States, is either totally blind or lacks useable light perception. Populations
in other developed countries are believed to exhibit similar rates of visual
impairment. Age-related macular degeneration, which has no known cure, is the
leading cause of visual impairment and currently affects 20% of individuals
over age 65. Other leading causes of visual impairment and blindness include
diabetes and glaucoma.

Working at Stanford University, Telesensory's founders developed an optical-
to-tactile converter called the Optacon, which allowed totally blind people to
read print material. During the same period, VTEK pioneered the use of video
magnifiers for people with severe visual impairment. During a period when
there was little available to technologically assist visually disabled people,
and well before recent legislation such as the ADA, the two companies
significantly enhanced the educational and work opportunities and the private
lives of many tens of thousands of blind and visually impaired people around
the world. In 1989, the Company acquired VTEK.

Historically, a majority of electronic and computer-based assistive devices
were purchased by government agencies and large institutions, including
federal and state rehabilitation agencies as well as schools, universities and
public libraries whose purchases were primarily funded through government
grants. However, the Company believes that recent trends in the United States
are leading to the development of a consumer market that does not rely on
government funding to purchase assistive devices.

25
<PAGE>

Disabled people, including those who are visually disabled, are increasingly
seeking to participate fully in workplace, recreational and other daily
activities enjoyed by non-disabled people. In addition, there is an increasing
number of elderly people who experience visual impairment but nevertheless
wish to remain active and independent, and have the means to purchase
assistive devices. In turn, modern society has become more aware of the need
to enhance the quality of lives of disabled people. For example, the ADA
mandates that public facilities and services be accessible to disabled people,
including visually impaired people. The Company believes that these trends
have led to a growing demand for devices to assist visually disabled people.
These trends, combined with reductions in the cost of electronic and computer
technology, are spurring the growth of a consumer market of corporations and
individuals who are financially able to purchase assistive devices without
government assistance.

Despite these trends, the Company believes that only a small percentage of
visually impaired people are familiar with or own electronic access devices.
For example, the Company estimates that annual unit sales of all electronic
and computer-based magnification systems in the United States are made to less
than 0.5% of the 4.3 million people who are severely visually impaired. The
development of stronger consumer demand has been limited by a lack of public
awareness, scarcity of retail outlets offering such devices, the relatively
small proportion of ophthalmologists and optometrists who are familiar with
such devices and previous higher costs for such devices.

BUSINESS STRATEGY

The Company's goal is to be the market leader in the development,
manufacture and marketing of electronic and computer-based assistive devices
for visually impaired individuals. The Company's strategies to reach this goal
include the following:

Expand the Consumer Market for Electronic and Computer-Based Assistive
Devices. The Company's primary strategy is to promote the growth of consumer
markets for its products by increasing consumer awareness and by reducing the
cost of assistive devices. The Company has recently launched a consumer-
directed advertising and promotion campaign, including a radio campaign that
was test marketed in the first quarter of 1996. The Company is increasing the
number of independent distributors and dealers of its products, expanding
distribution through private-label merchandising, increasing the retail
channels for its products and enhancing its relationships with its referral
sources. The Company also believes that lower prices increase the number of
consumers able and willing to purchase assistive devices and increases the
willingness of optometrists and other referral sources to promote assistive
devices to consumers. In 1994, the Company introduced the first high quality,
easy-to-use video magnifier with a retail price of less than $2,000, which it
believes has contributed to a significant increase in unit shipments to
consumers. The Company will continue to seek to develop and introduce lower-
price versions of leading products.

New Product Development. The Company believes that its ability to maintain
market leadership depends upon the continued development of new products. In
1995, the Company spent approximately $2.3 million in product development
activities, which in 1996 resulted in the completion of the Aladdin family of
video magnifiers, the introduction of Super Vista, a hardware-based
magnification system compatible with Windows 95, and a variety of product
enhancements and upgrades in the Blindness Products area. The Company intends
to dedicate significant resources to develop new products.

Reduce Manufacturing Costs. The Company seeks to be the lowest cost producer
in each of its major product areas in order to increase its marketing
flexibility. Accordingly, since the Company's restructuring in 1994, the
Company has dedicated significant resources to reduce its manufacturing costs.
Cost-reduction efforts have included product tooling, product redesign and the
implementation of a continuous flow production line. The Company intends to
continue seeking new ways to reduce manufacturing costs.

Pursue Strategic Acquisitions and Alliances. The Company believes that
fragmentation in the visual assistive devices market offers strategic
opportunities to expand the Company's product lines and distribution

26
<PAGE>

channels. The Company recently acquired its distributors in the United Kingdom
and France. The Company intends to continue to pursue acquisitions and
strategic alliances that strengthen the Company's competitive position within
its markets. However, the Company is not currently negotiating any potential
acquisition or strategic alliance, and there is no assurance that the Company
will be able to successfully conclude any such transaction.

Develop New Applications for the Company's Products. The Company believes
that its video magnifier products have applications beyond their traditional
uses for visually impaired individuals. The Company has initiated a program to
explore the application of its video magnifiers to the industrial inspection
market for use in examining small parts for quality control, process
inspection, training and other purposes. The Company will continue to seek
similar opportunities.

PRODUCTS

The Company's innovative electronic and computer-based products help
visually impaired and blind people achieve greater independence and privacy.
The Company's product line is comprised of Low Vision Products and Blindness
Products.

LOW VISION PRODUCTS

Video Magnifiers. The Company's Aladdin family of video magnifiers uses
closed circuit television technology to magnify printed and written material
and small objects from 3x to 50x on a television monitor. Video processing
circuitry enhances viewability of the enlarged image by providing a variety of
contrasts and an improved field of view. The Company introduced the first
Aladdin in September 1994 to replace one of the Company's existing video
magnifier products. The Aladdin family is now comprised of six models:
Aladdin, Aladdin Pro, Aladdin Pro Plus, Aladdin Rainbow, Aladdin Genie and
Aladdin XL. All of the models provide magnification, image enhancement, image
selection and a movable viewing table to facilitate reading large or heavy
materials. The products are available in both monochrome or color, a variety
of magnification ranges and adjustments and other image enhancement features.
Some models can be used in combination with personal computers. The suggested
U.S. retail prices for the Aladdin products range from $1,795 to $3,800. In
1995, the Company sold 11,091 video magnifiers, including both Aladdin and its
predecessor products, representing a 53% increase in units compared with 1994
and followed by an 18% increase in unit sales in the first six months of 1996
over unit sales in the first six months of 1995. The Company estimates that in
1995 it had approximately 55% of the domestic market for video magnifiers.

Computer Display Magnification. Super Vista is a proprietary, hardware-based
PC display magnification system, which works with a variety of computers,
networks and software applications, including Windows 95. Super Vista provides
up to 16x magnification of text and graphics on the monitor without
significantly impairing the performance of the underlying application, or
interfering with normal keyboard or operating platform functions. The
suggested U.S. retail price is $2,495.

BLINDNESS PRODUCTS

Refreshable Braille Display. The Company's PowerBraille (PB) family of
products convert character information from a PC into electronic braille,
which can then be read by the user on a braille display device attached to the
computer as a peripheral. PowerBraille displays operate in virtually any PC-
compatible computer environment, instantly transforming screen information
into 8-dot refreshable braille, using braille cells. The PowerBraille products
are available in 40, 65 or 80 cell linear displays. The PB40 is battery-
powered for portability and is designed to work with laptop personal
computers. The PB65 and PB80 are designed primarily for desktop PCs and
terminals. Suggested U.S. retail prices range from $6,000 to $11,000.

Braille Cells. Braille cells are small arrays of eight pins that can be
electronically raised and lowered by a computer allowing a blind person to
read the character information. The Company utilizes arrays of such cells in
its PowerBraille family of refreshable braille devices and also sells
significant quantities of such cells to other manufacturers who incorporate
the cells into their own products.

27
<PAGE>

Optical Character Recognition (OCR) Systems. The Company's OsCaR product is
a specialized screen navigation software product that permits a blind user to
access printed documents. Once a document has been scanned into a computer
using a commercial flatbed scanner, OsCaR enables a blind user to read, edit,
print or retransmit that information using one of the Company's braille output
or speech output products, including a braille embosser. The suggested U.S.
retail price exclusive of the scanner is $995.

Software Programs. ScreenPower for Windows is a software program that
provides tactile and audio access to Microsoft Windows and most commercial
applications running under Windows. This integrated software package operates
in conjunction with a numeric keypad and braille display to allow users to
navigate through graphically-oriented screens. The suggested U.S. retail price
is $995.

Braille Embossers. Braille embossers are mechanical peripheral devices that
produce raised dots on paper using a feed mechanism much like many ordinary
computer printers. The Company offers two versions of braille embossers: a
single-sided version and a double-sided version that embosses simultaneously
at speeds up to 60 characters per second on both sides of the paper. The
suggested U.S. retail prices for the Company's embossers range from $3,000 to
$4,000.

Library Access Products. Variations of the Company's screen enlarger and
speech output products, named VView and VVoice, are sold to library equipment
suppliers of electronic catalog access systems. Those suppliers incorporate
these products into their public-access catalog systems so that visually
impaired and totally blind library patrons can have effective and equal access
to the library's catalog system.

PRODUCT DEVELOPMENT

The Company's engineering and product development activities are performed
by its 22 person product development staff. There are separate product
development groups for the Company's Low Vision Products and Blindness
Products, each of which is comprised of one department manager, one or more
section managers, engineering professionals, and technical and administrative
support staff. In addition, the Company's product development efforts are
supplemented by consultants, designers and engineering firms with specialized
expertise.

The Company's expenditures in 1995 for engineering and product development
totaled approximately $2.3 million, which represented 7.4% of revenues. The
Company has a history of successful product innovation, including the Aladdin
family of video magnifiers and the Super Vista and PowerBraille product lines.
The Company intends to dedicate significant resources to product development
for the foreseeable future. However, there can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of new or enhanced products
or that such products will achieve market acceptance.

CUSTOMERS

Currently, more than 90% of the Company's net revenue is derived from sales
to the Company's worldwide distributors and dealers. No single customer,
distributor or dealer accounts for more than 10% of the Company's net revenue.

In the United States, a growing percentage of the Company's Low Vision
Products sales, estimated at approximately 55%, are made directly and through
its distributors and dealers to employers and individuals who purchase the
Company's products with their own funds or whose family members purchase the
Company's products for them. The balance of the Company's Low Vision Products
sales in the United States are made primarily to traditional purchasers of
products for visually impaired individuals, including various government
agencies and institutions, schools and universities, libraries and screening
clinics. Because of the growing importance of the consumer market segment, the
Company has devoted increasing attention to consumer-oriented marketing
initiatives, including radio advertising. There is no assurance that these
marketing activities will be successful. See "Risk Factors -- Failure to
Expand Consumer Market."

28
<PAGE>

Blindness Products sales both in the United States and internationally are
made primarily to the same traditional purchasers who purchase Low Vision
Products, including various government agencies and institutions, schools and
universities, libraries and screening clinics.

In 1995, international sales represented approximately 35% of net revenue.
The division between government and private sector purchases of both LowVision
Products and Blindness Products varies from country to country.

Approximately 8% of the Company's net revenue is derived from sales of its
products to OEMs, which purchase the Company's products for use in finished
goods of their own design and manufacture or who purchase the Company's
finished products under private-label arrangements. In certain cases, the
Company's OEM customers manufacture products that compete with the Company's
products.

SALES, DISTRIBUTION AND MARKETING

The Company believes that it has the largest worldwide distributor and
dealer network of any company marketing assistive devices to severely visually
impaired people.

For distribution of its Low Vision Products, the Company utilizes a network
of approximately 110 United States and 30 international distributors and
dealers, of which two are owned by the Company (in the U.K. and France) and
the rest are independent. This distributor network is managed by seven
employee sales managers who assist the independent distributors and dealers in
their sales and marketing activities. The Company's distributors and dealers
are generally assigned exclusive territorial rights or exclusive market
rights, subject to various contractual limitations.

For distribution of its Blindness Products in the United States, the Company
utilizes a combination of six employee salespeople and approximately 37
independent non-exclusive dealers. The employee salespeople sell the Company's
products to customers directly and also offer sales and marketing assistance
to the Company's independent dealers. Internationally, the Company generally
distributes its Blindness Products through the same exclusive distributors who
handle the Company's Low Vision Products.

The Company's distribution agreements are generally terminable by either
party on three to 12 months notice. A majority of the Company's distributors
and dealers have distributed the Company's products for more than five years.
The Company believes that its long-standing relationships with its
distributors, together with the marketing experience gained by these
distributors over the years, have significantly contributed to the Company's
success.

As part of its mix of marketing strategies, the Company and its dealers and
distributors maintain close working relationships with many low vision
clinics, blindness service agencies, rehabilitation organizations,
ophthalmologists, optometrists and others who are service providers,
rehabilitation counselors or similar advisors to people with visual problems.
A significant amount of the Company's business is derived from referrals from
such people, organizations and agencies. A loss of a significant number of
these collaborative relationships or the loss of one or more distributors or
dealers could adversely affect sales of the Company's products, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.

Many of the Company's marketing activities are aimed at stimulating end-user
demand. These include active trade-show participation on a national level and
support to local distributors for regional and local exhibitions. The Company
publishes a variety of periodical publications that provide information about
products, prices and other matters for consumers, rehabilitation professionals
and the Company's field sales representatives. Toll-free numbers provide
visually impaired clients as well as rehabilitation professionals with free
access to Company staff for product information, order information and
technical support. Print advertising is very limited, because many of the
Company's prospective customers are unable to read print media, but the
Company has a major program in place for local-market radio advertising for
its Low Vision Products. Much of

29
<PAGE>

the Company's product literature, periodical publications and user manuals for
Blindness Products are available on computer disk, in braille, on audio
cassette, and in print.

CUSTOMER SERVICE AND SUPPORT

The Company believes that because of its size and status as one of the
world's two largest manufacturers of electronic and computer-based assistive
devices for visually impaired people, the Company is able to provide a level
of marketing and service that cannot be matched by its smaller competitors.

In the United States, the Company conducts training programs at the
Company's facilities for new distributors supplemented by follow-up meetings
with the Company's regional sales managers. The Company also maintains a
customer support department to handle inquiries and questions regarding its
products, and a technical service department that either directs a customer to
a nearby field service center or repairs or replaces defective products. There
are approximately 35 field service centers across the country for Low Vision
Products. Most equipment service for Blindness Products is conducted at the
Company's headquarters. In the United States, all of the Company's products
are covered by limited warranties ranging from one to five years and a 30-day
unconditional money-back guarantee. International distributors are required to
develop and maintain an appropriately stocked equipment service and repair
facility. Products are usually shipped to these distributors with an "out-of-
box" warranty only, which covers costs of repair required immediately upon
delivery. Thereafter, warranty obligations to the distributors' customers are
solely the functional and economic responsibility of the international
distributors.

COMPETITION

The Company competes on the basis of several factors, including product
features, price, customer service and support and the strength of its
relationships with its referral sources.

Most of these companies compete with the Company on a worldwide basis, and
some of these companies have substantially greater financial and operating
resources than the Company. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products that offer superior price or features than the Company's
products. Furthermore, there is no assurance that other companies will not
develop and market alternative technological approaches for meeting the needs
of severely visually impaired and blind people. Some of the Company's markets
have low cost barriers to entry, and there can be no assurance that other
companies that are not currently competitors of the Company will not enter the
Company's markets. In addition, the Company's competitors outside the United
States have cost structures and product prices based on foreign currencies.
Accordingly, currency fluctuations could cause the Company's dollar-priced
products to be less competitive than competitors' products priced in other
currencies. Currency fluctuations could also increase the Company's costs
relative to those of its competitors, which could make it more difficult for
the Company to maintain its competitiveness in such foreign markets.
Additionally, certain foreign countries that offer reimbursement for assistive
devices favor local manufacturers, which could limit the Company's ability to
compete successfully in those countries. Furthermore, the Company believes
that a number of companies may be currently researching and testing various
medical treatments and procedures to reduce the incidence of severe visual
impairment or arrest vision deterioration. In the event such treatments or
procedures prove to be effective, demand for the Company's products could be
reduced, which would have a material adverse effect on the Company's business,
financial condition and results of operations.

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<PAGE>

MANUFACTURING

All of the Company's manufacturing operations are located in its facilities
in Mountain View, California. Manufacturing consists of assembly of components
and subcomponents, and final product testing. The components that the Company
purchases include electronic, mechanical, plastic and optical parts, the great
majority of which have been designed exclusively for the Company. Where
feasible, subassemblies such as circuit boards are assembled by contract
manufacturers. In certain instances the Company is dependent upon a sole
supplier or a limited number of suppliers, or has qualified only a single or
limited number of suppliers, for certain key components or sub-assemblies
utilized in its products. This involves certain risks to the Company. See
"Risk Factors -- Dependence on Limited Sources of Supply; Manufacturing
Risks." In addition, some of the Company's manufacturing facilities, equipment
and operations are subject to periodic inspection by various regulatory
authorities, including inspections for good manufacturing practices ("GMP")
compliance by the Food and Drug Administration ("FDA") and comparable state
agencies. Failure to comply with GMP or any other manufacturing requirement
could result in the issuance of warning letters, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production and criminal prosecution.

In 1995 the Company implemented a continuous flow manufacturing process for
its video magnifiers, which significantly increased the Company's
manufacturing capacity, reduced cycle time and lowered manufacturing costs.
Consequently, the Company believes that its existing manufacturing facilities
are adequate to handle at least three times current production volumes.

PATENTS AND PROPRIETARY RIGHTS

The Company has two issued patents, neither of which is believed to provide
significant protection against competition. There can be no assurance that
competitors, some of which have substantial resources and have made
substantial investments in competing technologies, will not seek to apply for
and obtain patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or in
international markets. Furthermore, the laws of certain foreign countries do
not protect the Company's intellectual property rights to the same extent as
do the laws of the United States. Litigation or regulatory proceedings, which
could result in substantial cost and uncertainty to the Company, may also be
necessary to enforce intellectual property rights of the Company or to
determine the scope and validity of other parties' proprietary rights. One
competitor of the Company has claimed that the Company and several of the
Company's competitors are violating both a United States and a European patent
with respect to a function of the Company's PowerBraille product. The patent
holder has been making these claims for more than three years, but has not yet
filed any legal action against either the Company or, to the Company's
knowledge, against any other company with respect to their allegations of
patent infringement. The Company believes the claims are without merit and
intends to vigorously contest the allegations that it is infringing the
subject patent. However, there can be no assurance that the Company will be
able to successfully defend itself from this or any other allegation of
infringement or claims of invalidity. It is also possible that the Company may
need to acquire licenses to, or contest the validity of, issued or pending
patents of third parties relating to the Company's technology. There can be no
assurance that any of such licenses would be made available to the Company on
acceptable terms, if at all, or that the Company, if it were to contest the
validity of any issued or pending patents, would prevail. In addition, the
Company could incur substantial costs in defending itself in suits brought
against the Company on its patents or in bringing suits against third parties.
The Company primarily relies on trade secret or proprietary process
protection, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements with its employees and
consultants. There can be no assurance that the proprietary information or
confidentiality agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets and
proprietary know-how will not otherwise become known to or be independently
developed by others. Furthermore, there can be no assurance that other
companies with significantly greater financial resources will not enter the
Company's markets.

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<PAGE>

GOVERNMENT REGULATION AND SAFETY REQUIREMENTS

In the United States, many of the Company's products are regulated as
medical devices by the FDA under the Federal Food, Drug, and Cosmetic Act. The
Company's products, are exempt from the 510(k) premarket notification process.
However, the Company is required to register as a medical device manufacturer
with the FDA and state agencies such as the California Department of Health
Services, to list its products with the FDA and to adhere to applicable FDA
regulations regarding GMPs, which include testing, control and documentation
requirements. The Company is also regulated by the FDA under the Radiation
Control for Health and Safety Act, which requires companies who produce
electronic products to comply with certain standards, including design and
operation requirements, and to certify product labeling and submit reports to
FDA that their products comply with such standards. A failure of the Company
to comply with GMP or any other applicable requirement, could result in the
issuance of warning letters, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production and criminal
prosecution, any one of which would have a material adverse effect on the
Company's business, financial condition and results of operations. On August
16, 1996, the Company was notified by the FDA that its testing program for
certifying some of its video magnifier products was not in compliance with the
U.S. Federal Performance Standard for Television Receivers, 21 CFR 1020.10,
and was therefore disapproved which required a suspension of shipment of
certain products. Upon presentation of additional information to the FDA, the
disapproval was rescinded on August 23, 1996. The FDA also advised the Company
that certain video magnifier units shipped prior to August 1995 did not have
the required certification labels affixed to them and, therefore, that
purchaser notification and corrective action might be required. The Company
submitted an application for exemption from notification requirements. The FDA
has advised the Company that it will not act on this application until the
Company has tested a representative sample of such previously-shipped units to
determine if they are in compliance with the applicable performance standards.
The Company is obligated to complete such testing and to provide the requested
information to the FDA by November 10, 1996. The Company believes that all of
its previously-shipped video magnifier products are in compliance with
applicable performance standards, and therefore it is very unlikely that any
further action will be required. However, if the FDA denies the Company's
application and requires notification to consumers, it could have a material
adverse effect on the Company's business, financial condition and results of
operations. Regulations regarding the manufacture and sale of the Company's
products are subject to change, and there can be no assurance that the
Company's current or future products will continue to be exempt from the
510(k) premarket notification process. If the Company's products were to
become subject to the 510(k) premarket notification process or the more
rigorous premarket approval (PMA) process, the Company could experience
substantial cost increases, including product development costs, as well as
substantial delays in new product introductions, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain clearance or approval for sale internationally may be
longer than that required for FDA clearance or approval, and the requirements
may differ. The Company has obtained the certifications necessary to enable
the "CE" mark to be affixed to the Company's products that are sold in Europe,
effective January 1996. The CE mark is a symbol indicating that the product
complies with applicable European electronic device directives. All Company
products sold in Europe will also conform with the Low Voltage Directive
requirement, which is effective January 1997.

REIMBURSEMENT AND THIRD-PARTY PAYMENT

In the United States, the purchase of the Company's products is typically
not covered by private health insurance or reimbursable under Medicare or
other publicly-funded insurance programs. However, federal block grants,
augmented by state funding, are generally available to state rehabilitation
and education agencies to purchase the Company's products and there is also
some support from corporate employers, who purchase assistive devices for
employees. European insurance programs are generally much more comprehensive
than United States programs and will often provide reimbursement for the
procurement of the Company's products for rehabilitation, education and
personal use.

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<PAGE>

A significant portion of the Company's net revenue is derived from sales to
institutions and agencies that are dependent on government funding. In recent
years, primarily as a result of budget constraints, the level of government
funding has been subject to wide fluctuations, which has had an adverse effect
on the Company's business, financial condition and results of operations. If
government funding were to be reduced in the future, it would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Government Funding and Reimbursement."

EMPLOYEES

As of June 30, 1996, the Company and its subsidiaries had 179 full-time
employees, including 69 in manufacturing operations, 63 in sales and
marketing, 22 in product development and 25 in finance and administration. Six
of the Company's employees are blind or severely visually impaired. Of the
Company's employees, 20 are located in Europe. The Company also employs from
time to time a number of temporary and part-time employees as well as
consultants on a contract basis. The Company's future success will depend in
part on its ability to attract, train, retain and motivate highly qualified
employees, who are in great demand. There can be no assurance that the Company
will be successful in attracting and retaining such personnel. The Company's
employees are not represented by any collective bargaining organization and
the Company has not experienced a work stoppage or strike. The Company
considers its employee relations to be good. See "Risk Factors -- Dependence
on Key Personnel" and "-- Management of Growth."

FACILITIES

The Company leases approximately 68,000 square feet in two adjacent
buildings in Mountain View, California under a five-year lease, which expires
in December 1997. These facilities serve as the Company's headquarters and
include all Company functions except international distribution.

Sensory Systems, Ltd, the Company's wholly-owned United Kingdom subsidiary,
leases approximately 3,100 square feet in London, England, under a ten-year
lease, which expires in June 2003. SSL's obligations under the lease are
guaranteed by the Company.

Teletec SARL, the Company's wholly-owned French subsidiary, leases
approximately 1,500 square feet in Paris, France under a nine-year lease,
which expires in April 2002.

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<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the directors
and executive officers of the Company as of June 30, 1996.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Larry Israel............... 57 President, Chief Executive Officer and Chairman
of the Board
Robert W. Kamenski......... 42 Chief Financial Officer, Vice President, Finance
and Administration, Treasurer and Secretary
Yakov Soloveychik.......... 49 Vice President and General Manager, Blindness
Products Division, and Assistant Secretary
Marc J. Stenzel............ 45 Vice President and General Manager, Low Vision
Products Division
John F. Tillisch........... 44 Vice President, European Operations
Timothy S. Couture......... 40 Vice President, Engineering, Low Vision Products
Division
Ronald C. Odell............ 38 Vice President, Operations, Low Vision Products
Division
Mitchell Gooze (2)......... 44 Director
John F. Harper (1)......... 46 Director
Seymour Liebman (2)........ 46 Director
John M. Lillie (1)......... 59 Director
John G. Linvill............ 76 Director
Peter D. Stent (2)......... 53 Director
</TABLE>
- ----------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee.

Larry Israel has been President and Chief Executive Officer of the Company
since July 1995. In June 1996, he was elected Chairman of the Board of
Directors. Prior to holding these positions, he served as the Company's Vice
President, Sales and Marketing from January 1994 to July 1995 and Vice
President, Sales from July 1993 to January 1994. Mr. Israel founded VTEK in
1971. VTEK was acquired by the Company in January 1989, at which time he
became a member of the Company's Board of Directors. Between July 1989 and
July 1993 Mr. Israel did not maintain full-time employment. Mr. Israel holds a
B.S. in Electrical Engineering from Worcester Polytechnic Institute and a J.D.
from Golden West University, and is an active member of the California Bar.

Robert W. Kamenski has been the Company's Chief Financial Officer and Vice
President, Finance and Administration since December 1995. From February 1995
to December 1995, he served as the Company's Vice President, Finance and
Accounting. From July 1992 until February 1995, he served as the Company's
Controller. From October 1990 to February 1992, he held various positions at
Tandem Computers, a computer manufacturer, most recently as Manager of
Financial Planning and Analysis. Mr. Kamenski holds a B.A. in Accounting from
the University of Wisconsin-Milwaukee and is a member of the American
Institute of Certified Public Accountants.

Yakov Soloveychik returned to the Company in September 1994 as Vice
President and General Manager, Blindness Products Division. He was Vice
President Operations of VTEK at the time of the merger in 1989, and continued
with the Company for approximately one year thereafter as Vice President
Engineering and New Product Development. From 1990 to September 1994, Mr.
Soloveychik served as President and Chief Executive Officer of AccessAbility
Technologies, Inc., the U.S. distributor for Baum Products GmbH, a German
manufacturer of electronic and computer-based assistive products for blind
people. Mr. Soloveychik holds an M.S.E.E. in Electrical Engineering from Riga
Polytechnic Institute, Latvia.

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<PAGE>

Marc J. Stenzel has been with the Company since 1985 in a variety of
positions, most recently as Vice President and General Manager, Low Vision
Products Division. From July 1994 to March 1996, he served as the Company's
Vice President, Sales and Marketing. From October 1993 to July 1994 he served
as a National Sales Manager, and from August 1991 to October 1993 he served as
a National Account Manager for the Company. Mr. Stenzel holds a B.A. in
Psychology and a B.A. in Management and Accounting from the State University
of New York at Buffalo.

John F. Tillisch became Vice President, European Operations in April 1996.
From July 1983 to March 1996, Mr. Tillisch was the sole shareholder and
Managing Director of Sensory Systems, Ltd., a European distributor of the
Company's products that was acquired by the Company in March 1995. Mr.
Tillisch holds a B.A. in French and Russian from Keele University, England.

Timothy S. Couture joined the Company in September 1991 and has been Vice
President, Engineering, Low Vision Products Division since August 1994. Prior
to his most recent appointment, Mr. Couture held various positions with the
Company, most recently as Director of Engineering from February 1993 to August
1994. Mr. Couture holds an A.S. Degree in Electronics from Foothill College.

Ronald C. Odell has been the Company's Vice President, Operations, Low
Vision Products Division, since July 1994. Mr. Odell has held a variety of
positions within the Company including Director of Manufacturing for both Low
Vision Products and Blindness Products from February 1993 to July 1994 and
Director of Production Control from 1991 to 1993. From 1985 through the merger
of VTEK with the Company in 1989, Mr. Odell held various positions with VTEK.

Mitchell Gooze has been a director of the Company since 1995. Since 1991, he
has served as President of The OMT Group, a marketing and sales consulting
firm based in Santa Clara, California. Mr. Gooze holds a B.S. in Engineering
from the University of California at Los Angeles.

John F. Harper has been a director of the Company since 1995. Since November
1995 he has served as President and Chief Executive Officer of Indigo Medical,
a medical device company in Palo Alto, California. From June 1995 to November
1995 he was an independent business consultant. From February 1994 to June
1995 he was the President and Chief Executive Officer of Menlo Care, Inc., a
medical device company. From June 1991 to February 1994 he served as Vice
President, Sales and Marketing of Menlo Care, Inc. Mr. Harper holds a B.A. in
Economics from Davidson College.

Seymour Liebman has been a director of the Company since 1993. Since 1974,
he has held a variety of positions with Canon U.S.A., Inc., a distributor of
consumer electronics and a subsidiary of Canon Inc., most recently as
Executive Vice President and General Counsel. He is also a director of Zygo
Corporation, a public company. Mr. Liebman holds a B.A. in Mathematics from
Hofstra University, an M.S. in Mathematics from Rutgers University, an M.A. in
Accounting from C.W. Post and a J.D. from Touro Law School.

John M. Lillie became a director of the Company in 1996. Since October 1995,
he has served as Chairman of the Advisory Board of and a consultant to
Specialized Bicycle Components in Morgan Hill, California, a designer and
distributor of bicycles and accessories. From August 1990 to October 1995, he
held various positions with American President Companies, a containerized
freight transporter, most recently as its Chairman of the Board and Chief
Executive Officer. Mr. Lillie is also on the Board of Directors for The GAP
Inc., Walker Interactive, and Von's Inc., all of which are public companies.
Mr. Lillie also serves on Stanford University's Board of Trustees. Mr. Lillie
holds a B.S. and an M.S. in Industrial Engineering and an M.B.A. from Stanford
University.

John G. Linvill is a co-founder of the Company and has served as a director
of the Company since its inception. He was Chairman of the Board from 1984 to
June 1996, at which time he became Chairman Emeritus. Since 1991, he has
served as a director on the Board of Read-Rite Corporation, a public company.
Since 1955, he has been a member of the Stanford University faculty, currently
as Professor of Engineering, Emeritus. He has also served as Chairman of the
Electrical Engineering Department and Director of the Center for Integrated

35
<PAGE>

Systems at Stanford University. Dr. Linvill received a B.S. in Mathematics and
Physics from William Jewell College and an S.c.D in Electrical Engineering
from the Massachusetts Institute of Technology.

Peter D. Stent has been a director of the Company since 1993. Since 1983, he
has managed investments as a general partner at Rubicon Ventures, a venture
capital firm. Mr. Stent holds an M.A. in Agricultural Economics and Business
Administration from the University of California at Berkeley and a B.A. in
Range Management from the University of California at Davis.

DIRECTOR COMPENSATION

Until June 1996, each non-employee member of the Company's Board of
Directors was granted an annual non-qualified stock option pursuant to the
Company's 1985 Stock Plan, or more recently the Company's 1995 Stock Plan, to
purchase 5,000 shares of the Company's Common Stock as partial consideration
for services as a director, with periodic vesting over a five year period.

Pursuant to a policy of the Board of Directors adopted in June 1996, each
non-employee director will automatically be granted a nonstatutory stock
option under the Company's 1995 Stock Plan to purchase 12,500 shares of Common
Stock on the date which such person first becomes a non-employee director and
an option to purchase 3,750 shares of the Company's Common Stock on the date
such non-employee director is re-elected to the Board, provided that such non-
employee director became a member of the Board prior to January 1 of the year
in which such director is reelected. See "--Stock and Employee Benefit Plans."

Each non-employee director also receives cash compensation at the rate of
$800 for each Board meeting attended in person, $400 for each committee
meeting attended in person, and half of these rates for Board or committee
meetings attended telephonically.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of Messrs. Gooze, Liebman
and Stent. Mr. Stent serves as Chairman of the Compensation Committee. There
are no interlocking relationships, as described by the Securities and Exchange
Commission, among any of the Compensation Committee members.

36
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth for the fiscal year ended December 31, 1995
compensation awarded to, paid to or earned by (i) the Company's Chief
Executive Officer and (ii) the Company's four most highly compensated
executive officers whose salary and bonus exceeded $100,000 during the fiscal
year ended December 31, 1995 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- -------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(1)(#) (2)($)
--------------------------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Larry Israel
Chairman, President and Chief
Executive Officer............ 198,810 231,601 125,000 5,160

Yakov Soloveychik
Vice President and General
Manager, Blindness Products
Division..................... 131,728 39,890 18,750 250

Marc J. Stenzel
Vice President and General
Manager, Low Vision Products
Division..................... 116,731 43,426 12,500 5,447

Ronald C. Odell
Vice President, Operations,
Low Vision Products
Division..................... 96,990 38,220 12,500 5,535

Timothy S. Couture
Vice President, Engineering,
Low Vision Products
Division..................... 101,888 39,241 12,500 6,700
</TABLE>
- --------
(1) Represents options granted pursuant to the 1985 Incentive Stock Option
Plan and the 1993 Stock Option Plan. See description under "Stock and
Employee Benefit Plans."
(2) The amounts described hereunder were paid by the Company for premiums on
group term life insurance and medical and dental insurance.

37
<PAGE>

STOCK OPTION GRANTS

The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended December
31, 1995. All such options were awarded under the Company's 1985 Incentive
Stock Option Plan, except for the options granted to Mr. Israel, which were
awarded under the 1993 Stock Option Plan.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN PER EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2)(%) SHARE(3)($) DATE 5%($) 10%($)
- ---- ------------- ----------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Larry Israel............ 125,000(5) 30.84 2.64 3/22/00 52,884 153,153
Yakov Soloveychik....... 18,750 4.63 2.40 3/10/05 28,300 71,718
Marc J. Stenzel......... 12,500 3.08 2.40 3/10/05 18,867 47,812
Ronald C. Odell......... 12,500 3.08 2.40 3/10/05 18,867 47,812
Timothy S. Couture...... 12,500 3.08 2.40 3/10/05 18,867 47,812
</TABLE>
- --------
(1) The stock options granted in the fiscal year ended December 31, 1995
pursuant to the 1985 Incentive Stock Option Plan are exercisable at a rate
of 3% per month, with full vesting occurring thirty-three months after the
date of grant. Under the 1985 Incentive Stock Option Plan, the Board
retains the discretion to modify the terms, including the price, of
outstanding options.

(2) Based on an aggregate of 405,369 options granted by the Company during the
year ended December 31, 1995 to non-employee directors, employees of and
consultants to the Company, including the Named Executive Officers.

(3) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board of Directors on
the date of grant, except options granted to Larry Israel, which were
granted at an exercise price of 110% of the fair market value on the date
of grant.

(4) Potential realizable value is based on the assumption that the fair market
value of the Common Stock of the Company appreciates at the annual rate
shown (compounded annually) from the date of grant until the expiration of
the option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission and do not reflect
the Company's estimate of future stock price growth.

(5) The stock options granted to Mr. Israel are exercisable at the following
rate: In 1995, 3,473 shares become exercisable each month until such time
as 31,253 shares have vested; in 1996, 3,473 shares become exercisable
each month until such time as 36,473 shares have vested; in 1997, 3,473
shares become exercisable each month until such time as 37,878 shares have
vested and in 1998, 3,473 shares become exercisable each month until all
shares under the option grant have become exercisable.

38
<PAGE>

OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

The following table sets forth certain information regarding the exercise of
stock options by the Named Executive Officers during the fiscal year ended
December 31, 1995 and stock options held as of December 31, 1995 by the Named
Executive Officers.

OPTION EXERCISES IN FISCAL 1995 AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(2)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry Israel............ 2,750 0 37,553 95,323 238,837 606,254
Yakov Soloveychik....... -- -- 11,363 22,388 74,996 147,761
Marc J. Stenzel......... -- -- 10,550 13,825 69,630 91,245
Ronald C. Odell......... -- -- 7,425 13,825 49,005 91,245
Timothy S. Couture...... 5,000 0 9,625 9,125 63,525 60,225
</TABLE>
- --------
(1) Market value of underlying securities at date of exercise less the
exercise price.

(2) Based on a value of $9.00 per share, the assumed initial public offering
price, less the per share aggregate option price shown in the option grant
table, multiplied by the number of shares underlying the option.

EMPLOYMENT AGREEMENT

SSL entered into an employment agreement with John F. Tillisch in March 1996
in connection with the Company's acquisition of SSL. Mr. Tillisch's agreement
extends through March 1999 and provides that he will initially serve as SSL's
Managing Director. The agreement establishes his salary at (Pounds)70,000 for
the first year after the effective date of the agreement, (Pounds)73,000 for
the second year and (Pounds)77,000 for the third year, subject to an annual
adjustment upward at the discretion of SSL. The agreement also provides that
SSL will pay Mr. Tillisch a bonus equal to one-third of the excess of pre-tax
income of SSL over (Pounds)322,500 in each of the fiscal years ending December
31, 1996, December 31, 1997 and December 31, 1998, up to an aggregate total
bonus of (Pounds)225,800. At March 29, 1996 the exchange rate was $1.53 per
pound sterling.

STOCK AND EMPLOYEE BENEFIT PLANS

1985 Incentive Stock Option Plan. The Company's 1985 Incentive Stock Option
Plan (the "1985 Plan") was adopted by the Board of Directors and approved by
the shareholders in 1985. The 1985 Plan expired in March 1995, and no further
options have been or will be granted under the 1985 Plan. The 1985 Plan
provides for the grant to employees (including officers and employee
directors) of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and the grant of nonstatutory stock
options to employees (including officers), directors and consultants. As of
June 30, 1996, options to purchase 202,500 shares of Common Stock at a
weighted average exercise price of $2.41 per share were outstanding. The
exercise price of all incentive stock options granted under the 1985 Plan must
be at least equal to the fair market value of the shares on the date of grant.
Generally, options granted to employees and consultants under the 1985 Plan
vest and become exercisable at a rate of 3% of the shares subject to the
option per month subject to modification by the Board of Directors. The
maximum term for options granted under the 1985 Plan is ten years.

1993 Stock Option Plan. The Company's 1993 Stock Option Plan (the "1993
Plan") was adopted by the Board of Directors in June 1993 and approved by the
shareholders in August 1993. The purposes of the 1993 Plan are to attract and
retain the best available senior executive officers and to promote the success
of the Company's business. Options granted under the 1993 Plan may be either
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, or non-statutory stock options, at the discretion of the
Board. Options may be granted only to the Chief Executive Officer, President
and any Vice President

39
<PAGE>

reporting directly to the Chief Executive Officer or the President and
Secretary of the Company. A total of 250,000 shares of Common Stock have been
reserved for issuance under the 1993 Plan.

The 1993 Plan is currently administered by the Board of Directors, which
determines the terms of the options granted under the 1993 Plan, including the
exercise price, number of shares subject to the option and the exercisability
thereof, as well as the fair market value of the Common Stock. The term of
each option is ten years from the date of grant unless a shorter term is
provided in the stock option agreement. However, the terms of all incentive
stock options and nonstatutory stock options granted to an optionee who, at
the time of grant, owns stock representing more than 10% of the voting rights
of the Company's outstanding capital stock, may not exceed five years. No
option granted under the 1993 Plan may be transferred by the optionee other
than by will or the laws of descent or distribution and each option may be
exercised, during the lifetime of the optionee, only by such optionee. In the
event of a merger of the Company with or into another corporation, each option
shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation.
In the event that such successor corporation does not agree to assume such
options or to substitute equivalent options, the optionee shall have the right
to exercise the option as to all of the shares of Common Stock, including
shares as to which the option would not otherwise be exercisable.

The per share exercise price of non-statutory options granted under the 1993
Plan shall be no less than 85% of the fair market value per share on the date
of grant. In the case of an option granted on or after the effective date of
registration of any class of equity security of the Company pursuant to
Section 12 of the Exchange Act and prior to six months after the termination
of such registration, the per share exercise price shall be no less than 100%
of the fair market value per share on the date of grant.

For incentive stock options, with respect to any senior executive officer
who, at the time of the grant of such incentive stock option, owns stock
representing more than 10% of the voting power of all classes of stock of the
Company or any parent or subsidiary, the per share exercise price shall be no
less than 110% of the fair market value per share on the date of grant. With
respect to any other senior executive officer, the per share exercise price
shall be no less than 100% of the fair market value per share on the date of
grant. No incentive stock option may be granted to a senior executive officer
which, when aggregated with all other incentive stock options granted to such
senior executive officer by the Company or any parent or subsidiary, would
result in shares having an aggregate fair market value (determined for each
share as of the date of grant of the option covering such share) in excess of
$100,000 becoming first available for purchase upon exercise of one or more
incentive stock options during any calendar year.

As of June 30, 1996, options to purchase 180,000 shares of Common Stock at a
weighted average exercise price of $3.61 were outstanding under the 1993 Plan.
The Plan expires in 2003, unless sooner terminated by action of the Board of
Directors.

1995 Stock Plan. The Company's 1995 Stock Plan (the "1995 Plan") was adopted
by the Board of Directors and approved by the shareholders in May 1995. In
June 1996, the Board and the shareholders approved an amendment to the 1995
Plan to increase the number of shares reserved for issuance thereunder from
250,000 to 500,000. In July 1996, the Board and the shareholders approved a
further amendment to the 1995 Plan to increase the number of shares of Common
Stock reserved for issuance thereunder from 500,000 to 750,000, and to make
certain other changes to comply with Section 16 of the Exchange Act and
current tax law. The purposes of the 1995 Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to
provide additional incentive to employees and consultants of the Company and
its subsidiaries and to promote the success of the Company's business.
Incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, may be granted to employees (including
employee directors) under this Plan. Non-statutory stock options and stock
purchase rights may be granted to employees, directors and consultants.

The 1995 Plan is administered by the Compensation Committee of the Board of
Directors which has the authority to determine the terms of the options and
stock purchase rights granted. In the event of option grants or

40
<PAGE>

stock purchase rights awarded to directors of the Company, the administration
of such grants or awards must comply with Rule 16 promulgated under the
Exchange Act. Terms include, but are not limited to the exercise price, the
number of shares subject to an option and the exercisability thereof. Each
option has a term specified in its option agreement, however, no term can
exceed ten years from the date of grant. In the case of an incentive stock
option granted to an optionee who, at the time the option is granted, owns
stock representing more than ten percent of the voting power of all classes of
stock of the Company or any parent or subsidiary, the term of the option is
five years from the grant date or the term provided in the option agreement,
whichever is less. No option granted under the 1995 Plan may be transferred by
the optionee other than by will or the laws of descent or distribution and
each option may be exercised, during the lifetime of the optionee, only by
such optionee. In the event of a merger of the Company with or into another
corporation, each outstanding option or stock purchase right shall be assumed
or an equivalent option or right shall be substituted by the successor
corporation. In the event that such successor corporation does not agree to
assume such options or to substitute equivalent options, the optionee shall
have the right to exercise the option as to all of the shares of Common Stock,
including shares as to which the option would not otherwise be exercisable.

The exercise price of all incentive stock options granted under the 1995
Plan must be no less than 100% of the fair market value per share on the date
of grant. In the case of non-statutory stock options, the per share exercise
price may be no less than 85% of the fair market value per share on the date
of grant. With respect to employees who own stock representing more than ten
percent of the voting rights of the Company's outstanding stock, the exercise
price of any option granted must be no less than 110% of the fair market value
per share on the date of grant. Each option shall be designated in the written
option agreement as either an incentive stock option or a non-statutory stock
option. However, to the extent that the aggregate fair market value of shares
subject to an optionee's incentive stock options, which become exercisable for
the first time during any year exceeds $100,000, such excess options shall be
treated as non-statutory stock options.

As of June 30, 1996, 240,994 shares were subject to outstanding options at a
weighted average exercise price of $2.99 per share. The 1995 Plan will expire
in 2005 unless terminated at an earlier date by action of the Board of
Directors.

Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Board of Directors and approved by
the Company's shareholders in July 1996. The Purchase Plan is intended to
qualify under Section 423 of the Internal Revenue Code of 1986, as amended. A
total of 125,000 shares of Common Stock has been reserved for issuance under
the Purchase Plan. The Purchase Plan has offering periods of approximately
twelve months, commencing on or after each December 1. The Purchase Plan is
administered by the Compensation Committee of the Board of Directors. The
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 10% of an employee's compensation. No
employee may purchase more than $25,000 worth of Common Stock in any calendar
year. Employees are eligible to participate if they are employed by the
Company or a subsidiary of the Company designated by the Board of Directors
for at least 20 hours per week and have been so employed for more than five
months in a calendar year. The price of stock purchased under the Purchase
Plan is 85% of the lower of (i) the fair market value of the Common Stock at
the beginning of the offering period or (ii) the fair market value of the
Common Stock at the end of the offering period. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company.

401(k) Plan. Effective January 1984, the Company adopted the Telesensory
401(k) Retirement Savings Plan (the "401(k) Plan") that covers all eligible
employees of the Company who complete six months of service and attain age 21.
An eligible employee may elect to defer, in the form of elective deferral
contributions to the 401(k) Plan made on his or her behalf, up to 18% of his
or her eligible compensation provided such amount does not exceed the maximum
amount allowed by the Internal Revenue Service. Elective deferral
contributions are invested in accordance with the directions of the
participants. The elective deferral contributions are fully vested and
nonforfeitable at all times. The 401(k) Plan provides that the Company will
make matching

41
<PAGE>

contributions on behalf of each employee equal to 25% of such employee's
elective deferral contribution. The amount contributed by the Company may not
exceed 1.25% of such employee's eligible annual compensation. Matching
contributions are fully vested and nonforfeitable at all times.

1996 Employee Profit Sharing Plan. In 1996, the Company adopted the 1996
Employee Profit Sharing Plan. This Plan applies to every employee in grades 1
through 9 hired on or before the first working day of a fiscal quarter and who
remains an employee through the last working day of that quarter. Each quarter
is treated separately. Each full-time participant is entitled to a profit-
sharing bonus equivalent to 10 hours of pay if the Company achieves its profit
plan for the quarter. The employee's profit-sharing bonus is adjusted up or
down depending on whether the Company's profits are above or below plan for
that quarter.

1996 Management/Professional Profit Sharing Plan. In 1996, the Company
adopted the 1996 Management/ Professional Profit Sharing Plan. This Plan
applies to every employee grade 10 or above hired on or before September 30,
1996 and who remains an employee through December 31, 1996. Each participant
is entitled to a profit-sharing bonus which is dependent on both the Company's
overall profits as well as profits within the participant's division.
Participants in finance and administration receive a bonus based only on the
Company's overall profits. The participant's bonus is calculated as a
percentage of salary. If both divisions and the Company meet established goals
for 1996, the bonus will be ten percent of the participant's annual
compensation and may be increased if the Company exceeds its profit plan.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Amended and Restated Articles of
Incorporation that eliminate to the fullest extent permissible under
California law the liability of its directors to the Company for monetary
damages. Such limitation of liability does not affect the availability of
equitable remedies such as injunctive relief or rescission nor does it affect
the right of a party to sue (or to recover monetary damages) under federal
securities laws for violations thereof. The Company's Bylaws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by California law, including in circumstances in which
indemnification is otherwise discretionary under California law. The Company
has entered into indemnification agreements with its officers and directors
containing provisions which may require the Company, among other things, to
indemnify the officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.

There is no currently pending litigation or proceeding involving a director,
officer, employee or other agent of the Company in which indemnification would
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.

42
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Canon Inc. ("Canon"), a Japanese company owning greater than ten percent of
the Company's Common Stock outstanding immediately prior to this Offering, is
the Company's exclusive distributor in Japan. In addition, Canon is a supplier
of certain components used in the Company's products. Seymour Liebman, Senior
Vice President and General Counsel of Canon USA, Inc., a subsidiary of Canon,
has served on the Company's Board of Directors since 1993 and is expected to
continue to serve on the Board of Directors after the closing of this
Offering. During the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1996, Canon purchased more than $550,000, $848,000,
$1,029,000 and $488,000, respectively, of the Company's products for resale in
Japan, under an arm's length distribution agreement similar to those in effect
with other international distributors. During the years ended December 31,
1993, 1994 and 1995 and the six months ended June 30, 1996, the Company
purchased approximately $162,000, $148,000, $112,000 and $10,000,
respectively, of Canon's products. Canon is also a Selling Shareholder in the
Offering and will be selling all of its shares, which sale is not expected to
affect the Company's distributor relationship.

In March 1996, the Company acquired substantially all of the assets of SSL.
John F. Tillisch was the Managing Director and sole shareholder of SSL. In
connection with the transaction, the Company and Mr. Tillisch entered into a
noncompetition agreement pursuant to which Mr. Tillisch agreed that for a
period of six years after the closing date of the transaction, he would not
directly or indirectly compete with the business of the Company or its
subsidiaries. In consideration for this agreement, the Company agreed to pay
Mr. Tillisch six annual payments of (Pounds)32,300 for an aggregate amount of
(Pounds)193,800. However, should Mr. Tillisch terminate his employment with
the Company before such six year period expires, the annual remaining payments
will be reduced to (Pounds)16,150. Also in connection with this transaction,
Mr. Tillisch entered into an employment contract with SSL, and was appointed
Vice President, European Operations of the Company. See "Management--
Employment Agreement."

During 1995, the Company repurchased shares of Common Stock at a repurchase
price of $2.40 per share from a number of the Company's shareholders,
including the following holder of more than five percent of the Company's
voting securities.

<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- -------
<S> <C>
James C. Bliss and Carolyn Joan Bliss,
Trustees of the James C. Bliss and Carolyn Joan Bliss Trust
u/t/d dated October 11, 1979................................... 431,606
</TABLE>

In April 1996, the Company issued and sold 25,000 shares of Common Stock at
a purchase price of $6.00 per share to John M. Lillie and Daryl L. Lillie,
Trustees, Lillie Family Trust. John M. Lillie joined the Company as a director
in 1996.

43
<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of June 30, 1996 and as adjusted
to reflect the sale by the Company and the Selling Shareholders of the shares
of Common Stock offered hereby (assuming no exercise of the Underwriters over-
allotment option) by: (i) each person (or group of affiliated persons) known
by the Company to be the beneficial owner of 5% or more of the Company's
outstanding shares of Common Stock; (ii) each director; (iii) each of the
Named Executive Officers; (iv) all directors and executive officers as a
group; and (v) the Selling Shareholders. Except as otherwise noted, the
shareholders named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to applicable community property laws.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP
COMMON STOCK BEFORE THE OF COMMON STOCK AFTER
OFFERING THE OFFERING
----------------------- ---------------------
PERCENTAGE OF NUMBER OF PERCENTAGE OF
NAME AND ADDRESS OF OUTSTANDING SHARES BEING OUTSTANDING
BENEFICIAL OWNER NUMBER SHARES OFFERED (1) NUMBER SHARES
------------------- --------- ------------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Larry Israel(2)...................... 676,617 22.23% -- 676,617 12.72%
Telesensory Corporation
455 North Bernardo Avenue
Mountain View, CA 94039

Seymour Liebman(3)................... 425,712 14.25% 416,662 9,050 *
Canon USA, Inc.
One Canon Plaza
Lake Success, NY 11042

Canon Inc............................ 416,662 13.99% 416,662 -- --
30-2 Shimomaruko 3-chome,
Ohta-ku, Tokyo 146
Japan

H. William Jesse(4).................. 175,000 5.87% 5,715 169,285 3.22%
H.W. Jesse & Co.
222 Sutter Street, 8th Floor
San Francisco, CA 94108

John G. Linvill(5)................... 161,560 5.41% 75,000 86,560 1.64%
30 Holden Court
Portola Valley, CA 94028

Yakov Soloveychik(6)................. 56,733 1.89% -- 56,733 1.08%
Peter D. Stent(7).................... 36,091 1.21% -- 36,091 *
John M. Lillie(8).................... 25,000 * -- 25,000 *
Marc J. Stenzel(9)................... 21,900 * -- 21,900 *
Ronald C. Odell(10).................. 12,900 * -- 12,900 *
Timothy S. Couture(11)............... 17,625 * -- 17,625 *
Mitchell Gooze....................... 6,250 * -- 6,250 *
John F. Harper....................... -- -- -- -- --
All current directors
and executive officers
as a group (13 persons)(12)......... 1,474,650 48.93% 491,662 982,988 18.54%

Other Selling Shareholders
Hal O. Anger........................ 5,837 * 5,837 -- --
Paul A. Araquistain and
Melba J. Araquistain,
Trustees of the Paul
A. Araquistain and
Melba J. Araquistain
Trusts U/D/T dated
July 17, 1980...................... 12,500 * 2,500 10,000 *
John G. Beard....................... 11,625 * 2,325 9,300 *
John G. Beard and Mary E. Beard,
JJ TEN WROS........................ 6,250 * 1,250 5,000 *
Christopher B. Berg................. 16,665 * 3,332 13,333 *
Candace L. Berg..................... 16,665 * 3,332 13,333 *
Arthur Carmichael................... 35,875 1.20% 7,175 28,700 *
Arthur Ciocca....................... 125,000 4.20% 25,000 100,000 1.90%
Guy C. Clum......................... 11,900 * 1,000 10,900 *
Diane W. Dalton..................... 32,070 1.08% 5,000 27,070 *
James F. Dalton..................... 48,080 1.61% 4,375 43,705 *
Diane D. Ellis...................... 15,625 * 3,125 12,500 *
Michael Felber...................... 12,500 * 2,500 10,000 *
</TABLE>

44
<PAGE>

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP
COMMON STOCK BEFORE THE OF COMMON STOCK AFTER
OFFERING THE OFFERING
----------------------- ---------------------
PERCENTAGE OF NUMBER OF PERCENTAGE OF
NAME AND ADDRESS OF OUTSTANDING SHARES BEING OUTSTANDING
BENEFICIAL OWNER NUMBER SHARES OFFERED (1) NUMBER SHARES
------------------- --------- ------------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Dr. Lee O. Ferguson.... 9,337 * 1,867 7,470 *
Ilana B. Israel........ 22,221 * 4,444 17,777 *
Richard L. Israel...... 22,221 * 4,444 17,777 *
Richard P. Karnan...... 8,975 * 1,795 7,180 *
Irwin G. Kasle, Trustee
of the
Kasle Tax Deferral
Trust................. 14,587 * 2,900 11,687 *
Paul J. Lewis and San-
dra Lewis
1992 Revocable Trust
dated July 21, 1992... 27,916 * 5,000 22,916 *
Gregory T. Linvill as
Custodian for
Alyssa K. Linvill,
under the California
Uniform Transfers to
Minors Act............ 16,665 * 3,332 13,333 *
Christianna O.
Linvill............... 16,665 * 3,332 13,333 *
Gregory T. Linvill..... 16,665 * 3,332 13,333 *
John G. Montgomery..... 22,500 * 4,500 18,000 *
Moore Family Trust..... 14,587 * 2,900 11,687 *
Nelson Investment Com-
pany.................. 20,000 * 4,000 16,000 *
Quad J. Ltd. .......... 80,775 2.71% 7,500 73,275 1.39%
Robyn Romanucci........ 22,221 * 4,444 17,777 *
Chester L. and Jean F.
Sandberg, JT.......... 6,250 * 1,250 5,000 *
Lawrence J. Stupski
Revocable Trust....... 16,666 * 3,332 13,334 *
Carolyn A. Weihl....... 12,500 * 2,500 10,000 *
All Selling Shareholders
as a group (33 per-
sons).................. 1,454,565 48.81% 625,000 829,565 15.79%
</TABLE>
- --------
* Less than one percent.
(1) Applicable percentage of ownership is based on 2,891,822 shares of Common
Stock outstanding as of June 30, 1996 together with applicable options
for such shareholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, and includes
voting and investment power with respect to shares. Shares of Common
Stock subject to options or warrants currently exercisable or exercisable
within 60 days after June 30, 1996 are deemed outstanding for computing
the percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for computing the percentage of any other
person.
(2) Consists of 528,851 shares of Common Stock held by Larry Israel, Trustee,
Larry Israel Family Trust u/t/d 5/6/83, over which Mr. Israel holds
voting and dispositive power, and 83,333 shares of Common Stock held by
Pensco Pension Services, Inc., Custodian FBO Larry Israel, of which Mr.
Israel is the beneficial owner. Also includes 64,433 shares of Common
Stock issuable pursuant to stock options exercisable within 60 days after
June 30, 1996.
(3) Consists of 9,050 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1996 and 416,662 shares
held by Canon, Inc. Mr. Liebman is Executive Vice President and General
Counsel of Canon USA, Inc. and disclaims beneficial ownership of the
shares held by Canon Inc.

(4) Consists of 62,500 shares held by H. William Jesse, 25,000 shares held by
H. W. Jesse & Co., of which Mr. Jesse is President, Chief Executive
Officer and controlling shareholder, and a warrant to purchase 187,500
shares of Common Stock, all of which will be net exercised prior to the
Offering and will result in the issuance of 87,500 shares assuming an
initial public offering price of $9.00 per share.
(5) Consists of 152,510 shares of Common Stock held by John Grimes Linvill
and Marjorie Webber Linvill, Trustees of the John Grimes Linvill and
Marjorie Webber Linvill Trusts dated 9/27/87, over which Mr. Linvill
holds voting and dispositive power, and 9,050 shares of Common Stock
issuable pursuant to stock options exercisable within 60 days after June
30, 1996.
(6) Consists of 20,745 of Common Stock held by The Soloveychik Family
Revocable Trust dated March 15, 1988, over which Mr. Soloveychik holds
voting and dispositive power, and 16,525 shares of Common Stock held by
Pensco Pension Services, Inc. Custodian FBO Yakov Soloveychik, IRA, of
which Mr. Soloveychik is the beneficial owner. Also includes 19,463
shares of Common Stock issuable pursuant to stock options exercisable
within 60 days after June 30, 1996.
(7) Includes 9,050 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(8) Consists of 25,000 shares of Common Stock held by John M. Lillie and
Daryl L. Lillie, Trustees, Lillie Family Trust, over which Mr. Lillie
holds voting and dispositive power.
(9) Includes 15,650 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(10) Includes 12,525 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(11) Includes 12,625 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.

(12) Includes 169,470 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1996. See footnotes (2)
through (11).

45
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's Amended and Restated Articles of Incorporation provide that
the authorized capital stock of the Company is 40,000,000 shares of Common
Stock, $0.02 par value, and 5,000,000 shares of undesignated Preferred Stock,
$0.02 par value. As of June 30, 1996, 2,891,822 shares of Common Stock, held
by approximately 225 holders of record, were outstanding and no shares of
Preferred Stock were outstanding.

COMMON STOCK

The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered by the Company hereby will be upon payment
therefor, validly issued, fully paid and nonassessable. The holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the
Board of Directors may from time to time determine. The shares of Common Stock
are neither redeemable nor convertible and the holders thereof have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata the assets of the Company which
are legally available for distribution, after payment of all debts and other
liabilities and subject to the rights of any holders of Preferred Stock then
outstanding. Each outstanding share of Common Stock is entitled to one vote on
all matters submitted to a vote of shareholders, and each shareholder has
cumulative voting rights with respect to the election of directors.

WARRANTS

As of June 30, 1996, there were outstanding warrants to purchase an
aggregate of 187,500 shares of Common Stock at an exercise price of $4.80 per
share, all of which will be net exercised prior to the Offering and will
result in the issuance of 87,500 shares assuming an initial public offering
price of $9.00 per share.

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by the Company's shareholders. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
shareholders and may adversely affect the market price of, and the voting and
other rights of, the holders of Common Stock. The Company has no current plans
to issue any shares of Preferred Stock.

REGISTRATION RIGHTS

John Tillisch is entitled to certain rights with respect to the registration
of his shares ("Registrable Securities") pursuant to the asset purchase
agreement between Mr. Tillisch, the Company and SSL relating to the Company's
acquisition of SSL. If the Company determines to register any of its
securities for the account of its Chief Executive Officer, except for a
registration relating to employee benefit plans, a Commission Rule 145
transaction or an initial public offering, the holders of Registrable
Securities are entitled to include their shares of Common Stock therein.

46
<PAGE>

TRANSFER AGENT

The transfer agent for the Common Stock is Norwest Bank Minnesota, N.A. Its
telephone number is (800) 468-9716.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of such shares for sale will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock
and the ability of the Company to raise capital through a sale of its
securities.

Upon completion of this Offering, the Company will have approximately
5,254,322 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option.) Of these shares, the 2,900,000 shares
sold in this Offering will be freely transferable without restriction or
registration under the Securities Act, except for any shares purchased by an
existing "affiliate" of the Company, as that term is defined by the Securities
Act (an "Affiliate"), which shares will be subject to the resale limitations
of Rule 144 promulgated under the Securities Act. The remaining 2,354,322
shares outstanding on the date of this Prospectus will be "restricted
securities" as defined in Rule 144. All officers, directors and certain other
shareholders of the Company have agreed not to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, for a period
of 180 days after the date of this Prospectus, without the prior written
consent of Jefferies & Company, Inc. As a result of these contractual
restrictions and the provisions of Rules 144(k), 144 and 701, the restricted
shares will be available for sale in the public market as follows: (i) 241,238
shares will be eligible for immediate sale on the date of this Prospectus,
(assuming no exercise of outstanding options after June 30, 1996), (ii) an
additional 86,895 shares, of which 81,758 shares are issuable upon exercise of
currently outstanding vested options, will be eligible for sale 90 days after
the date this Prospectus, (iii) an additional 1,959,731 shares, of which 1,812
shares are issuable upon exercise of currently outstanding vested options,
will be eligible for sale 180 days after the date of this Prospectus upon
expiration of lock-up agreements, and (iv) an additional 150,000 shares will
be eligible for sale at various times thereafter.

In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated) who has beneficially owned
restricted securities within the meaning of Rule 144 (the "Restricted
Securities") for at least two years, and including the holding period of any
prior owner except an Affiliate, would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock or the average weekly
trading volume of the Common Stock on the Nasdaq National Market during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an Affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least three years (including any period of
ownership of preceding non-affiliated holders), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, employees, directors, officers, consultants
or advisors may rely on Rule 701 with respect to the resale of securities
originally purchased from the Company prior to the date the issuer becomes
subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons. In
addition, the Securities and Exchange Commission has indicated that Rule 701
will apply to typical stock options granted by an issuer before it becomes
subject to the reporting requirements of the Exchange Act, along with the
Securities

47
<PAGE>

issued in reliance on Rule 701 are restricted securities and, subject to the
contractual restrictions described above, beginning 90 days after the date of
this Prospectus, may be sold by persons other than Affiliates subject only to
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144
without compliance with its two-year minimum holding period requirements.

At June 30, 1996, options to purchase 623,494 shares of Common Stock were
outstanding. Shortly after this offering, the Company intends to file a
registration statement on Form S-8 under the Securities Act covering shares of
Common Stock reserved for issuance under the Company's stock plans. See
"Management--Stock and Employee Benefit Plans." As a result of that
registration statement, approximately 215,249 shares issuable upon the
exercise of vested stock options will be eligible for sale in the public
market, subject to Rule 144 volume limitations applicable to Affiliates, upon
the date the Form S-8 is filed with the Securities and Exchange Commission,
assuming all of such options are exercised.

The Company intends to file registration statements under the Securities Act
registering the shares of Common Stock reserved for issuance under the 1985
Incentive Stock Option Plan, the 1993 Stock Plan, the 1995 Stock Plan and the
Employee Stock Purchase Plan. See "Management--Stock and Employee Benefit
Plans." Accordingly, shares registered under such registration statements will
be available for sale in the open market, unless such shares are subject to
vesting restrictions with the Company.

48
<PAGE>

UNDERWRITING

Subject to the terms and conditions contained in the Underwriting Agreement,
the Company and the Selling Shareholders have agreed to sell an aggregate of
2,275,000 and 625,000 shares, respectively, of Common Stock to the
underwriters named below (the "Underwriters"), for whom Jefferies & Company,
Inc. and Van Kasper & Company are acting as representatives (the
"Representatives"), and the Underwriters have severally agreed to purchase
from the Company and the Selling Shareholders the number of shares of Common
Stock set forth opposite their respective names in the table below at the
price set forth on the cover page of the Prospectus.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Jefferies & Company, Inc...................................
Van Kasper & Company.......................................
---------
Total.................................................. 2,900,000
=========
</TABLE>

The Underwriting Agreement provides that the obligation of the Underwriters
is subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below), if any such shares are
purchased.

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

The Company has granted to the Underwriters an option, exercisable at any
time during the 30-day period from the date of this Prospectus, to purchase up
to an additional 435,000 shares of Common Stock at the public offering price
set forth on the cover page of this Prospectus, less the underwriting
discount. The Underwriters may exercise such option solely for the purpose of
covering over allotments, if any, in connection with the Offering. To the
extent such option is exercised, each Underwriter will be obligated, subject
to certain conditions, to purchase additional shares of Common Stock
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.

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

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection
with the Offering, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in
respect thereof.

The Company, executive officers, directors and certain other shareholders of
the Company have agreed that they will not, without the prior written consent
of Jefferies & Company, Inc., offer, sell or otherwise dispose of any shares
of Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned
by them for a period of 180 days after the date of this Prospectus.

49
<PAGE>

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined
by negotiations among the Company, the Selling Shareholders and the
Representatives. The factors considered in making such determination were the
prevailing market conditions and general economic conditions, the market
prices of securities and certain financial and operating information of
publicly traded companies which the Company, the Selling Shareholders and the
Representatives believe to be comparable to the Company, the earnings and
certain other financial and operating information of the Company in recent
periods, and the history and future prospects of the Company and its industry
in general. See "Risk Factors -- No Prior Trading Market for Common Stock;
Potential Volatility of Stock Price."

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto,
California. Certain legal matters in connection with this Offering will be
passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. As of the date of this Prospectus, certain members and
investment partnerships of Wilson Sonsini Goodrich & Rosati, P.C.,
beneficially own 29,668 shares of the Common Stock.

EXPERTS

The consolidated financial statements of Telesensory Corporation and
Subsidiaries as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995 included in this prospectus and the
related financial statement schedule included elsewhere in the Registration
Statement, have been audited by Deloitte & Touche LLP, independent auditors as
stated in their reports appearing herein and elsewhere in the Registration
Statement and have been included in reliance on the reports of such firm, upon
their authority as experts in accounting and auditing.

The consolidated financial statements of Sensory Systems, Limited and
Subsidiary as of December 31, 1994 and 1995 and for each of the two years in
the period ended December 31, 1995 included in this prospectus have been
audited by Keith Jones FCA, Chartered Accountant, independent auditors as
stated in their report appearing herein and have been included in reliance on
the report of such firm, upon their authority as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement under the
Securities Act and the rules and regulations promulgated thereunder, covering
the Common Stock offered hereby. This Prospectus omits certain information
contained in the Registration Statement and the exhibits and schedules
thereto, and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to the Company and
the Common Stock offered hereby. Statements contained in this Prospectus as to
the contents of any contract, agreement or other document are necessarily
summaries of such contracts or documents. Although all material elements of
such contracts or documents required to be disclosed in this Prospectus are so
disclosed, each such statement is qualified in its entirety by reference to
the copy of such contract or document filed as an exhibit to the Registration
Statement. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a Web site that contains reports, proxy and
information statements and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis, and Retrieval system. This
Web site can be accessed at http://www.sec.gov.

50
<PAGE>

TELESENSORY CORPORATION
AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TELESENSORY CORPORATION AND SUBSIDIARIES

Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996.................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 and Six Months Ended June 30, 1995 and 1996......... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995 and Six Months Ended June 30, 1996..... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and Six Months Ended June 30, 1995 and 1996......... F-6
Notes to Consolidated Financial Statements for the Years Ended December
31, 1993, 1994 and 1995 and Six Months Ended June 30, 1995 and 1996..... F-7

TELESENSORY CORPORATION AND SUBSIDIARIES AND SENSORY SYSTEMS LIMITED AND
SUBSIDIARY

Pro Forma Condensed Combining Financial Information...................... F-16
Pro Forma Condensed Combining Statement of Operations for the Year Ended
December 31, 1995....................................................... F-17
Pro Forma Condensed Combining Statement of Operations for the Six Months
Ended June 30, 1996..................................................... F-18
Notes to Pro Forma Condensed Combining Financial Information............. F-19

SENSORY SYSTEMS LIMITED AND SUBSIDIARY

Independent Auditors' Report............................................. F-20
Consolidated Balance Sheet at December 31, 1995.......................... F-21
Balance Sheet at December 31, 1995....................................... F-22
Consolidated Profit and Loss Account for the Year Ended December 31,
1995.................................................................... F-23
Consolidated Statement of Cash Flows for the Year Ended December 31,
1995.................................................................... F-24
Notes to the Financial Statements for the Year Ended December 31, 1995... F-25
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
of Telesensory Corporation:

We have audited the accompanying consolidated balance sheets of Telesensory
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Telesensory Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
San Jose, California
February 23, 1996
(August 14, 1996
as to the second and third
sentences of Note 1 to the Consolidated Financial Statements)

F-2
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................. $ 423 $ 169 $ 317
Accounts receivable, net of allowance: 1994--$50;
1995--$102; 1996--$130.......................... 4,728 5,527 6,537
Inventories...................................... 3,909 3,488 3,479
Prepaid expenses and other....................... 262 236 226
Deferred income taxes............................ 604 433 895
------- ------- -------
Total current assets........................... 9,926 9,853 11,454
Equipment and improvements, net.................... 995 1,191 1,470
Other assets....................................... -- -- 1,789
------- ------- -------
Total.............................................. $10,921 $11,044 $14,713
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................ $ 1,787 $ 1,100 $ 1,700
Current portion of long-term debt................ -- 770 537
Accounts payable................................. 1,633 1,107 1,769
Accrued expenses................................. 2,379 2,997 3,040
Deposits and deferred revenue.................... 442 517 441
------- ------- -------
Total current liabilities...................... 6,241 6,491 7,487
Deferred income taxes.............................. 676 613 571
Long-term debt..................................... -- 26 708
Shareholders' equity:
Preferred stock, $.02 par value, 5,000,000 shares
authorized; none outstanding.................... -- -- --
Common stock, $.02 par value; 10,000,000 shares
authorized; shares outstanding: 1994--3,356,878;
1995--2,734,572; 1996--2,891,822................ 67 55 58
Additional paid-in capital....................... 2,932 2,448 3,314
Accumulated translation adjustment............... -- -- 13
Retained earnings................................ 1,005 1,411 2,562
------- ------- -------
Total shareholders' equity..................... 4,004 3,914 5,947
------- ------- -------
Total.............................................. $10,921 $11,044 $14,713
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue.................... $ 27,083 $ 27,588 $ 30,671 $15,317 $17,240
Cost of revenue................ 14,697 15,332 16,670 8,455 9,795
-------- -------- -------- ------- -------
Gross profit................... 12,386 12,256 14,001 6,862 7,445
-------- -------- -------- ------- -------
Operating expenses:
Product development.......... 2,876 2,617 2,286 1,170 1,129
Sales, general and
administrative.............. 10,303 9,020 9,374 4,634 4,885
Restructuring................ 507 332 -- -- --
-------- -------- -------- ------- -------
Total operating expenses... 13,686 11,969 11,660 5,804 6,014
-------- -------- -------- ------- -------
Operating income (loss)........ (1,300) 287 2,341 1,058 1,431
-------- -------- -------- ------- -------
Other income (expense):
Interest expense............. (117) (161) (123) (66) (111)
Interest income.............. 19 17 36 11 54
Foreign currency exchange
gain (loss)................. 90 (34) 4 2 (10)
-------- -------- -------- ------- -------
Total other expense........ (8) (178) (83) (53) (67)
-------- -------- -------- ------- -------
Income (loss) before income
taxes......................... (1,308) 109 2,258 1,005 1,364
Income taxes................... 21 268 867 386 213
-------- -------- -------- ------- -------
Net income (loss).............. $ (1,329) $ (159) $ 1,391 $ 619 $ 1,151
======== ======== ======== ======= =======
Net income (loss) per share.... $ (0.36) $ (0.04) $ 0.42 $ 0.18 $ 0.35
Shares used in per share
calculation................... 3,656 3,679 3,317 3,518 3,250
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND SIX MONTHS ENDED JUNE 30,
1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED SHARE-
----------------- PAID-IN TRANSLATION RETAINED HOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS EQUITY
--------- ------ ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1993................... 3,257,502 $ 65 $2,797 $ 661 $ 2,493 $ 6,016
Exercise of employee
stock options.......... 96,863 2 129 -- -- 131
Translation adjustment.. -- -- -- (717) -- (717)
Net loss................ -- -- -- -- (1,329) (1,329)
--------- ---- ------ ----- ------- -------
Balances, December 31,
1993................... 3,354,365 67 2,926 (56) 1,164 4,101
Exercise of employee
stock options.......... 2,513 -- 6 -- -- 6
Amounts related to
closure of
subsidiaries........... -- -- -- 280 -- 280
Translation adjustment.. -- (224) (224)
Net loss................ -- -- -- -- (159) (159)
--------- ---- ------ ----- ------- -------
Balances, December 31,
1994................... 3,356,878 67 2,932 -- 1,005 4,004
Exercise of employee
stock options.......... 20,875 1 50 -- -- 51
Issuance of common stock
for services rendered.. 25,000 1 59 -- -- 60
Repurchase of common
stock.................. (668,181) (14) (593) -- (985) (1,592)
Net income.............. -- -- -- -- 1,391 1,391
--------- ---- ------ ----- ------- -------
Balances, December 31,
1995................... 2,734,572 55 2,448 -- 1,411 3,914
Exercise of employee
stock options
(unaudited)............ 7,250 -- 19 -- -- 19
Issuance of common stock
for acquisition
(unaudited)............ 125,000 3 697 -- -- 700
Issuance of common stock
(unaudited)............ 25,000 -- 150 -- -- 150
Translation adjustment
(unaudited)............ -- -- -- 13 -- 13
Net income (unaudited).. -- -- -- -- 1,151 1,151
--------- ---- ------ ----- ------- -------
Balances, June 30, 1996
(unaudited)............ 2,891,822 $ 58 $3,314 $ 13 $ 2,562 $ 5,947
========= ==== ====== ===== ======= =======
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $ (1,329) $ (159) $ 1,391 $ 619 $ 1,151
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization................ 1,272 372 360 174 281
Non-cash compensation
expense..................... -- -- 60 -- --
Loss from disposal of
equipment and improvements.. 11 26 10 -- --
Amounts related to closure of
subsidiaries................ -- 280 -- -- --
Deferred income taxes........ -- 109 108 -- (504)
Changes in assets and
liabilities that provided
(used) cash:
Accounts receivable......... 147 (1,105) (799) (472) (796)
Inventories................. 653 457 421 239 629
Prepaid expenses and other.. 95 86 26 (84) 74
Accounts payable............ (92) 196 (526) (174) 611
Accrued expenses............ (663) 278 618 763 (245)
Deposits and deferred
revenue.................... (18) (46) 75 124 (188)
-------- -------- -------- ------- -------
Net cash provided by
operating activities...... 76 494 1,744 1,189 1,013
-------- -------- -------- ------- -------
Cash flows used in investing
activities:
Acquisition of equipment and
improvements................. (318) (607) (566) (156) (344)
Payment for purchase of SSL,
net of cash acquired......... -- -- -- -- (1,752)
-------- -------- -------- ------- -------
Net cash used in investing
activities................ (318) (607) (566) (156) (2,096)
-------- -------- -------- ------- -------
Cash flows from financing
activities:
Short-term borrowings, net.... 700 (213) (687) (1,387) 600
Long-term debt borrowings..... -- -- 1,000 1,000 1,000
Repayments of long-term debt.. (87) (231) (204) (51) (551)
Proceeds from issuance of
common stock................. 131 6 51 88 169
Repurchase of common stock.... -- -- (1,592) (1,035) --
-------- -------- -------- ------- -------
Net cash (used in) provided
by financing activities... 744 (438) (1,432) (1,385) 1,218
-------- -------- -------- ------- -------
Effect of exchange rate changes
on cash....................... (717) (224) -- -- 13
-------- -------- -------- ------- -------
Net (decrease) increase in cash
and equivalents............... (215) (775) (254) (352) 148
Cash and equivalents, beginning
of period..................... 1,413 1,198 423 423 169
-------- -------- -------- ------- -------
Cash and equivalents, end of
period........................ $ 1,198 $ 423 $ 169 $ 71 $ 317
======== ======== ======== ======= =======
Cash paid during the period
for:
Interest...................... $ 237 $ 195 $ 124 $ 68 $ 111
======== ======== ======== ======= =======
Income taxes.................. $ 8 $ 3 $ 929 $ 267 $ 729
======== ======== ======== ======= =======
Supplemental disclosures of
financing activities--
Common stock issued for
services rendered........... $ -- $ -- $ 60 $ 60 $ --
======== ======== ======== ======= =======
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization--Telesensory Corporation and subsidiaries (the Company) are in
the business of developing, manufacturing and marketing a broad array of
products for visually impaired people. In July 1996, the Company's Board of
Directors approved a five-for-four forward split of the common stock to be
effected on August 14, 1996. All common stock data in the accompanying
financial statements have been retroactively adjusted to reflect the split.

Principles of Consolidation--The consolidated financial statements include
the accounts of Telesensory Corporation and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
During 1993, the Company closed certain of its European subsidiaries. During
1994, the Company closed its remaining wholly-owned foreign subsidiaries and
transferred the related operations to its U.S. manufacturing facility. The
Company recognized restructuring expenses of $507,000 and $332,000 during 1993
and 1994, respectively. As of December 31, 1994, $102,000 of restructuring
expenses had not been paid and is included in accrued expenses. There were no
accrued restructuring expenses at December 31, 1993 and 1995. The Company has
implemented a plan to complete liquidation of those subsidiaries during 1996.
During 1996, the Company acquired two European distributors. See Note 3.

Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, net
revenue and expenses as of the dates and for the periods presented.
Significant estimates include the allowance for doubtful accounts receivable,
the net realizable value of inventory, estimated useful life of goodwill,
warranty reserves and the valuation allowance on net deferred tax assets.
Actual results could differ from those estimates.

Cash Equivalents--The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.

Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentration of credit risk consist principally of cash and
equivalents and accounts receivable. Risks associated with cash and
equivalents are mitigated by banking with creditworthy institutions. The
Company sells its products to distributors and end users. To reduce credit
risk, management performs periodic credit evaluations of its customers'
financial condition and requires deposits from new customers. The Company
maintains reserves for potential credit losses, but historically has not
experienced any significant losses related to end users or distributors.
International sales accounted for approximately 33.0%, 31.8% and 35.1% of net
revenue for 1993, 1994 and 1995, respectively and 40.3% of net revenue for the
six months ended June 30, 1996.

Inventories--Inventories are stated at the lower of cost (first-in, first-
out) or market.

Equipment and Improvements--Equipment and improvements are stated at cost.
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the respective assets ranging from three to five
years. Leasehold improvements are amortized over the shorter of the asset life
or lease term.

Other Assets--Other assets include goodwill which was generated in
acquisitions and is amortized using the straight-line method over an estimated
useful life of fifteen years. The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed Of" effective January 1,
1995. The adoption of this statement had no effect on the Company's financial
condition or results of operations. The Company evaluates the recoverability
of goodwill on a quarterly basis based on estimated undiscounted future cash
flows.

Revenue Recognition--Revenue from product sales is recognized upon shipment.
Estimated costs for returns and warranty are accrued at the time of shipment.

F-7
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Deferred Revenue--Service revenue is deferred and recognized ratably over
the term of the service contract, generally one to four years, on a straight-
line basis. Costs for work performed under the service contracts are charged
to operations as incurred.

Income Taxes--The Company uses an asset and liability approach to account
for income taxes which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the financial statement carrying amount and the tax bases of assets
and liabilities and net operating loss and tax credit carryforwards.

Foreign Currency Translation--The functional currency of the Company's
United Kingdom subsidiary is the British pound. The functional currency of the
Company's former subsidiary in Ireland, which the Company decided to close in
1994, was the Irish pound. Accordingly, the assets and liabilities of the
subsidiaries have been translated at exchange rates at the balance sheet date
and the related revenues and expenses at the average exchange rates in effect
during the year. The resulting accumulated translation adjustments are
recorded as a separate component of shareholders' equity. Gains and losses
resulting from foreign currency transactions (transactions denominated in
currencies other than the functional currency) are included in the income
(loss) for the period. The Company monitors its foreign currency exchange
risks and has not entered into future contracts to manage foreign currency
exchange risk or the interest rate risk inherent in variable rate foreign
debt.

Effective January 1, 1995 the Company changed the functional currency of the
Irish subsidiary to the U.S. dollar. The accumulated translation adjustment of
$280,000 at December 31, 1994 was recognized as a reduction of the
restructuring expense in 1994.

Net Income (Loss) Per Share--Net income (loss) per share is computed using
the weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares include stock options and warrants
(using the treasury stock method). Common equivalent shares are excluded for
the computation if their effect is anti-dilutive except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares
issued within the 12 months preceding the filing date as if they were
outstanding for all periods presented (using an assumed initial public
offering price of $9 per share).

Fair Value of Financial Instruments--SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Company to disclose the fair
value of financial instruments for which it is practicable to estimate fair
value. Financial instruments included in the Company's balance sheet at
December 31, 1995 consist of cash and equivalents, borrowings under the line
of credit and long-term debt. For cash and equivalents, the carrying amount is
a reasonable estimate of the fair value. The carrying amount of the line of
credit and long-term debt is also considered a reasonable estimate of fair
value as the borrowings are at adjustable interest rates and reprice based on
fluctuations in market conditions.

2. UNAUDITED INTERIM INFORMATION

The financial information as of June 30, 1996 and with respect to the six
months ended June 30, 1995 and 1996 is unaudited. The information disclosed in
the notes to the consolidated financial statements for these periods is
unaudited. In the opinion of management, such information contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of such periods. The results of operations
for the six months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.

F-8
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. ACQUISITION (UNAUDITED)

On March 29, 1996, the Company acquired substantially all assets and assumed
certain liabilities of Sensory Systems Limited (SSL), a United Kingdom
corporation, and 100% of the stock of Teletec SARL (Teletec), a French
corporation and SSL's wholly-owned subsidiary. SSL and Teletec were in the
business of distributing and selling products of the Company and other
manufacturers for visually impaired people in Europe. As consideration for the
purchase, the Company paid $1,631,000 in cash and issued 125,000 shares of its
common stock to the former shareholder of SSL. The Company has recorded the
value of the common stock issued at an aggregate amount of $700,000. The
Company incurred a total of $132,000 of expenses in connection with the
acquisition, resulting in a total recorded purchase price of $2,463,000. The
business combination has been accounted for by the purchase method.

Fair value of assets acquired and liabilities assumed (in thousands):

<TABLE>
<S> <C>
Cash................................................................ $ 11
Excess of purchase price over net assets acquired................... 1,688
Other assets acquired............................................... 1,064
Liabilities assumed................................................. (300)
------
Total purchase price............................................. $2,463
======
</TABLE>

The excess of purchase price over net assets acquired is included in other
assets and is being amortized over its estimated useful life of fifteen years.
Amortization of $42,000 was recorded during the six months ended June 30,
1996.

In addition, the Company entered into a covenant not to compete which is
being amortized over six years, which is the term of the agreement.

The operating results of SSL and Teletec are included in the Company's
consolidated results of operations from the date of acquisition. The following
pro forma summary presents the consolidated results of operations as if the
acquisition had occurred at the beginning of 1994. These pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisition been made as of
those dates or of results which may occur in the future.

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
---------------- JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1995 1996
------------------------------------- ------- ------- ----------
<S> <C> <C> <C>
Net revenue...................................... $31,339 $33,989 $18,054
Net income (loss)................................ $ (264) $ 1,550 $ 1,125
Net income (loss) per share...................... $ (0.07) $ 0.47 $ 0.35
</TABLE>

4. INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Finished goods........................................ $1,604 $1,068 $1,397
Work in process....................................... 387 436 658
Raw materials......................................... 1,918 1,984 1,424
------ ------ ------
Total inventories..................................... $3,909 $3,488 $3,479
====== ====== ======
</TABLE>

F-9
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. EQUIPMENT AND IMPROVEMENTS

Equipment and improvements consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Machinery and tooling............................... $2,486 $2,871 $2,791
Furniture, fixtures and improvements................ 481 496 1,066
------ ------ ------
2,967 3,367 3,857
Accumulated depreciation and amortization........... (1,972) (2,176) (2,387)
------ ------ ------
Total equipment and improvements, net............... $ 995 $1,191 $1,470
====== ====== ======
</TABLE>

6. ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Accrued compensation and related expenses............. $ 858 $1,461 $1,101
Accrued product warranty.............................. 284 422 531
Income taxes.......................................... 584 412 412
Royalties and commissions............................. 180 153 197
Other................................................. 473 549 799
------ ------ ------
Total accrued expenses................................ $2,379 $2,997 $3,040
====== ====== ======
</TABLE>

7. BORROWING ARRANGEMENTS

Short-Term Borrowings--The Company had a revolving line of credit with a bank
which provides for borrowings of up to $3,500,000, limited to outstanding
accounts receivable and inventory, as defined, which expires October 1996. The
line of credit is collateralized by substantially all of the Company's assets.
At December 31, 1995, the Company had $1,100,000 outstanding under this line.
Advances bore interest at the bank's reference rate (8.50% at December 31,
1995) plus 0.75%. The Company had $1,700,000 outstanding under the revolving
line of credit at June 30, 1996, bearing interest at the bank's reference rate
(8.5% at June 30, 1996) plus 1.25%.

Long-Term Debt--The Company had two term notes with the same bank with
outstanding balances of $601,000 and $195,000 at December 31, 1995, which bear
interest at 10% and the bank's reference rate (8.50% at December 31, 1995)
plus 1.5%, respectively, and are due in monthly installments. The Company is
also required to make an additional payment against the outstanding loan
balance in the amount of 50% of net income in excess of $500,000 for 1995.
Accordingly, subsequent to year end, the Company made a payment of $445,000 to
the bank. The long-term portion of $26,000 is due in 1997. The notes are
collateralized by substantially all of the Company's assets.

All of the bank borrowings are subject to certain financial covenants
including maintenance of minimum levels of quick ratio, tangible net worth and
working capital and maintenance of maximum levels of the ratio of debt to
total net worth, as well as quarterly net income, and debt service coverage
requirements. In addition, the Company is prohibited from paying dividends
without the consent of the bank under the terms of the agreements. At December
31, 1995, the Company was in compliance with these covenants.

F-10
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On March 22, 1996 the Company obtained a term loan from the same bank for
$1,000,000 which bears interest at the bank's reference rate (8.5% at June 30,
1996) plus 1.5% and is due in monthly installments of $27,800 plus interest.
The Company is also required to make an additional payment against the
outstanding loan balance in the amount of 50% of net income in excess of
$625,000 for each fiscal year starting in 1996.

The Company's subsidiary in United Kingdom has a line of credit with a bank
that provides for borrowings of up to (Pounds)100,000 bearing interest at the
bank's reference rate (5.75% at June 30, 1996) plus 2%, which has been
guaranteed by the Company. At June 30, 1996, there were no borrowings
outstanding under this line.

8. INCOME TAXES

Income taxes consist of (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1993 1994 1995 1996
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Current:
Federal.............................. $ -- $ 149 $ 614 $ 557
State................................ -- 10 145 135
Foreign.............................. 21 -- -- 25
-------- -------- -------- -------
Total................................ 21 159 759 717
-------- -------- -------- -------
Deferred:
Federal.............................. -- 45 17 (467)
State................................ -- 64 91 (37)
-------- -------- -------- -------
Total................................ -- 109 108 (504)
-------- -------- -------- -------
$ 21 $ 268 $ 867 $ 213
======== ======== ======== =======
</TABLE>

Income tax expense differs from the amount computed by applying the
federal statutory income tax rate to income before income taxes as follows:

<TABLE>
<CAPTION>
SIX
MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------- JUNE 30,
1994 1995 1996
------------- ------------ --------
<S> <C> <C> <C>
Tax computed at federal statutory
rate................................. 35.0% 35.0% 35.0%
Dividends from foreign subsidiaries... 466.9 -- --
Foreign tax credits................... (217.0) -- (1.0)
State income taxes, net of federal
effect............................... -- 6.3 6.2
Change in valuation allowance......... -- -- (21.5)
Other................................. (39.0) (2.9) (3.1)
------------- ----------- -----
Total................................. 245.9% 38.4% 15.6%
============= =========== =====
</TABLE>

Income tax expense in 1993 relates to foreign withholding taxes on royalty
revenue. Otherwise, the Company was not required to provide for income taxes
due to its operating loss.

F-11
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Net deferred tax asset (liability) consists of (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31
------------ JUNE 30,
1994 1995 1996
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Accruals and reserves recognized in different
periods....................................... $ 632 $ 656 $810
Tax basis depreciation......................... 94 89 85
Net operating loss carryforward................ 108 -- --
Tax credit carryforward........................ 82 -- --
----- ----- ----
Total........................................ 916 745 895
Deferred tax liability--nontaxed foreign
subsidiary income............................... (676) (613) (571)
Valuation allowance.............................. (312) (312) --
----- ----- ----
Net deferred tax asset (liability)........... $ (72) $(180) $324
===== ===== ====
</TABLE>

The Company recorded a valuation allowance of $312,000 with respect to the
realization of deferred tax assets as of December 31, 1994 and 1995 because,
in management's judgment, the weight of evidence available at the time
indicated that it was more likely than not that such portion of deferred tax
assets would not be realized. The principal evidence considered for 1995
include operating losses in prior years, the relatively short duration of the
Company's profitability, and unfavorable budget variances in the first two
months of 1996. Based on operating results for March 1996 and the outlook for
the remainder of 1996, management revised its assessment and concluded that it
was more likely than not that all deferred tax assets as of March 31, 1996
would be realized. Accordingly, the valuation allowance was eliminated as of
that date.

9. SHAREHOLDERS' EQUITY

PREFERRED STOCK

During 1995, the Board of Directors authorized 5,000,000 shares of preferred
stock. No shares were outstanding as of December 31, 1995. The rights and
terms are determinable at the discretion of the Board of Directors.

STOCK OPTION PLANS

The Company has three stock option plans which provide for the granting of
stock options to officers and employees at prices not less than fair market
value of the Company's common stock as determined by the Board of Directors on
the grant date. Options not fully exercisable at December 31, 1995 are
exercisable in 2.7% and 3% monthly or 20% annual increments from the date of
grant. The options expire between four and ten years from the date of grant.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The new standard defines a fair value method of accounting for
stock options and other equity instruments, such as stock purchase plans.
Under this method, compensation cost is measured based on the fair value of
the stock award when granted and is recognized as an expense over the service
period, which is usually the vesting period. This standard will be effective
for the Company beginning in 1996 and requires measurement of awards made
beginning in 1995.

The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma effect of
net income and earnings per share as if the company had applied the new method
of accounting. The Company intends to implement these disclosure requirements
for its stock option plans. As a result, for options issued to employees
adoption of the new standard will not impact reported earnings or earnings per
share, and will have no effect on the Company's cash flows.

F-12
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A summary of option activity follows:

<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
----------------------------
NUMBER PRICE PER
OF SHARES SHARE
------------ --------------
<S> <C> <C>
Balances, January 1, 1993....................... 505,875 $ .96-$3.96
Granted......................................... 336,250 3.60
Exercised....................................... (100,750) .96- 3.60
Canceled........................................ (120,875) .96- 3.96
-----------
Balances, December 31, 1993..................... 620,500 .96- 3.96
Granted......................................... 79,375 2.40
Exercised....................................... (2,512) .96- 3.60
Canceled........................................ (430,050) .96- 3.60
-----------
Balances, December 31, 1994..................... 267,313 2.40- 2.64
Granted......................................... 405,369 2.40- 2.64
Exercised....................................... (20,875) 2.40- 2.64
Canceled........................................ (103,563) 2.40
-----------
Balances, December 31, 1995..................... 548,244 2.40- 2.64
Granted (unaudited)............................. 98,750 4.80- 6.40
Exercised (unaudited)........................... (7,250) 2.40- 2.64
Canceled (unaudited)............................ (16,250) 2.40
-----------
Balances, June 30, 1996 (unaudited)............. 623,494 $2.40-$6.40
===========
</TABLE>

On October 26, 1994, the Company repriced all outstanding options with
exercise prices of $2.60 to $3.96 to exercise prices of $2.40 to $2.64.

At December 31, 1995, options to purchase 154,715 shares of common stock
were exercisable, options to purchase 163,382 shares were available for future
grants and 711,626 shares were reserved for issuance under the stock option
plans.

In June, 1996, the shareholders approved an amendment to the 1995 Plan to
increase the number of shares reserved for issuance from 250,000 to 500,000.

At June 30, 1996, options to purchase 267,175 shares of common stock were
exercisable, options to purchase 329,006 shares were available for future
grants and 952,500 shares were reserved for issuance under the stock option
plans.

WARRANTS

At December 31, 1995, warrants to purchase 187,500 shares of common stock at
an exercise price of $4.80 per share were outstanding. All warrants issued in
February, 1994, are exercisable and expire on either December 31, 1998, upon a
public offering of the Company's securities, a merger, or upon a sale of
substantially all of the assets of the Company.

F-13
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. LEASES

The Company leases manufacturing and office facilities under operating lease
agreements expiring through 1997. The provisions of certain of these leases
require the Company to pay maintenance, property taxes and insurance. Future
minimum payments under noncancelable operating lease agreements as of December
31, 1995 are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996.................................................................. $ 543
1997.................................................................. 498
------
$1,041
======
</TABLE>

Rent expense for 1993, 1994 and 1995 was $481,000, $513,000 and $518,000,
respectively.

In connection with the acquisition of SSL and Teletec in March 1996 (see
Note 3), the Company assumed certain lease obligations which require future
payments of approximately $67,000 per year through 2002.

11. EMPLOYEE BENEFIT PLANS

The Company has a 401(k) plan (the Plan) covering substantially all
employees. The Plan provides for voluntary tax deferred contributions of 1% to
18% of gross compensation, subject to certain Internal Revenue Service
limitations. Based on approval by the Board of Directors the Company may make
matching contributions to the Plan. The Company contributed $72,000, $69,000,
and $63,000 for 1993, 1994 and 1995, respectively, and $42,000 for the six
months ended June 30, 1996.

The Company also has two profit-sharing plans which provide distributions to
all eligible employees. The Company's contributions to the plans are
determined in accordance with the terms of the plans and are approved by the
compensation committee of the Board of Directors. The Company contributed
$43,000, $58,000, and $948,000 for 1993, 1994 and 1995, respectively, and
$285,000 (unaudited) for the six months ended June 30, 1996.

12. FOREIGN OPERATIONS

On March 29, 1996, the Company commenced operations in the United Kingdom
and France (see Note 3). During 1994, the Company decided to close its
subsidiary in Ireland. Foreign operations and asset and liability balances,
net of intercompany transactions, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Assets............................................. $240 $ 65 $1,724
Liabilities........................................ $ 40 $ 36 $ 561
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
----------------------------- JUNE 30,
1993 1994 1995 1996
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Net revenue...................... $ 3,523 $ 2,235 $ -- $1,091
Net income (loss)................ $ (120) $ (1,231) $ (143) $ 2
</TABLE>

F-14
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. RELATED PARTY TRANSACTIONS

The Company entered into certain transactions with a shareholder which owns
more than 10% of the outstanding Common Stock of the Company. Purchases from
the shareholder were $162,000 $148,000 and $112,000 for the years ended
December 31, 1993, 1994 and 1995, respectively and $10,000 for the six months
ended June 30, 1996. Sales to the shareholder were $550,000 $848,000 and
$1,029,000 for the years ended December 31, 1993, 1994 and 1995, respectively,
and $488,000 for the six months ended June 30, 1996.

Amounts due from this shareholder at December 31, 1995 and June 30, 1996
were $264,000 and $204,000, respectively.

*****

F-15
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES
AND SENSORY SYSTEMS LIMITED AND SUBSIDIARY

PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION (UNAUDITED)

On March 29, 1996, Telesensory Corporation and subsidiaries (the Company)
acquired certain assets of Sensory Systems Limited (SSL) including the
outstanding capital stock of its wholly-owned subsidiary in France, Teletec
SARL (Teletec). The following unaudited pro forma condensed combining
financial information reflects this business combination which has been
accounted for under the purchase method of accounting.

The unaudited pro forma condensed combining financial information should be
read in conjunction with the accompanying notes to the pro forma condensed
combining financial information and in conjunction with the historical
consolidated financial statements and the related notes thereto of the Company
and the historical financial statements and related notes thereto of SSL
included herein.

The unaudited pro forma condensed combining statement of operations combines
the Company's results of operations for the six months ended June 30, 1996 and
the year ended December 31, 1995 with the operating results of SSL including
its wholly-owned subsidiary Teletec for the comparable periods and have been
prepared as if the merger was completed as of January 1, 1995, the beginning
of the earliest period presented. The unaudited pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results that would have occurred had the merger been consummated
at the beginning of the periods presented, nor is it necessarily indicative of
future operating results.

F-16
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES
AND SENSORY SYSTEMS LIMITED AND SUBSIDIARY

PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
SENSORY
TELESENSORY SYSTEMS
CORPORATION LIMITED
AND AND PRO FORMA PRO FORMA
SUBSIDIARIES SUBSIDIARY ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
(1) (2)
<S> <C> <C> <C> <C>
Net revenue................. $30,671 $4,963 $(1,645)(b) $33,989
Cost of revenue............. 16,670 2,770 (1,617)(b) 17,823
------- ------ ------- -------
Gross profit................ 14,001 2,193 (28) 16,166
------- ------ ------- -------
Operating expenses:
Product development....... 2,286 -- -- 2,286
Sales, general and
administrative........... 9,374 1,639 162 (c) 11,175
------- ------ ------- -------
Total operating
expenses............... 11,660 1,639 162 13,461
------- ------ ------- -------
Operating income............ 2,341 554 (190) 2,705
Total other expense......... (83) -- (176)(d) (259)
------- ------ ------- -------
Income before income taxes.. 2,258 554 (366) 2,446
Income taxes................ 867 169 (140) (e) 896
------- ------ ------- -------
Net income.................. $ 1,391 $ 385 $ (226) $ 1,550
======= ====== ======= =======
Net income per share........ $ 0.42 $ 0.47
Shares used in per share
calculation................ 3,317 3,317(3)
</TABLE>

See notes to pro forma condensed combining financial statements.

F-17
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES
AND SENSORY SYSTEMS LIMITED AND SUBSIDIARY

PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
SENSORY
TELESENSORY SYSTEMS
CORPORATION LIMITED
AND AND PRO FORMA PRO FORMA
SUBSIDIARIES SUBSIDIARY ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
(1) (2)
<S> <C> <C> <C> <C>
Net revenue.................. $17,240 $1,334 $(520)(b) $18,054
Cost of revenue.............. 9,795 878 (522)(b) 10,151
------- ------ ----- -------
Gross profit................. 7,445 456 2 7,903
------- ------ ----- -------
Operating expenses:
Product development........ 1,129 -- -- 1,129
Sales, general and
administrative............ 4,885 436 40 (c) 5,361
------- ------ ----- -------
Total operating
expenses................ 6,014 436 40 6,490
------- ------ ----- -------
Operating income............. 1,431 20 (38) 1,413
Total other income
(expense)................... (67) 21 (44)(d) (90)
------- ------ ----- -------
Income before income taxes... 1,364 41 (82) 1,323
Income taxes................. 213 16 (31)(e) 198
------- ------ ----- -------
Net income................... $ 1,151 $ 25 $ (51) $ 1,125
======= ====== ===== =======
Net income per share......... $ 0.35 $ 0.35
Shares used in per share
calculation................. 3,250 3,250(3)
</TABLE>

See notes to pro forma condensed combining financial statements.

F-18
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES
AND SENSORY SYSTEMS LIMITED

NOTES TO PRO FORMA CONDENSED
COMBINING FINANCIAL INFORMATION (UNAUDITED)

(1) The weighted average exchange rate of $1.58 for the year ended December
31, 1995 and $1.52 for the six-month period ended June 30, 1996 was used
to translate revenues and expenses of SSL from pounds sterling to U.S.
dollars in the unaudited pro forma condensed combining statements of
operations. The unaudited pro forma condensed combining statements of
operations of the Company have been prepared in accordance with generally
accepted accounting principles in the U.S.

(2) The following significant assumptions were applied to the historical
statements of operations of the Company and SSL to arrive at the unaudited
pro forma condensed combining statements of operations:

(a) The unaudited pro forma condensed combining statements of operations
have been prepared as if the merger was completed as of January 1,
1995, the beginning of the earliest period presented. The unaudited pro
forma combined net income per share gives effect to the number of
shares issued had the merger taken place as of January 1, 1995.

(b) To eliminate intercompany revenues and associated profit.

(c) For purposes of the unaudited pro forma condensed combining statement
of operations, goodwill acquired is amortized over a period of fifteen
years and the covenant not to compete is amortized over six years.
Amortization is $40,000 for the six months ended June 30, 1996 and
$162,000 for the twelve months ended December 31, 1995.

(d) For purposes of the unaudited pro forma condensed combining statement
of operations, interest expense has been adjusted at the average
borrowing rate for fiscal 1995 and six months ended June 30, 1996,
under the assumption that the Company would have to borrow the amount
of cash paid and acquisition costs incurred. The average rate used was
10% for the six months ended June 30, 1996 and for the year ended
December 31, 1995. Interest expense has been adjusted by $44,000 and
$176,000 for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively.

(e) To record estimated tax benefit of the above entries.

(3) The 125,000 shares of common stock issued in connection with the
acquisition of Sensory Systems Limited and Subsidiary have already been
reflected in shares for Telesensory Corporation and Subsidiaries.

* * * * *

F-19
<PAGE>

INDEPENDENT AUDITORS' REPORT

We have audited the consolidated balance sheets of Sensory Systems Limited
and subsidiary as of December 31, 1994 and 1995, and the related consolidated
profit and loss accounts and statement of cash flows for the years then ended,
expressed in pounds sterling. 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 in the United Kingdom and the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements, referred to above,
present fairly, in all material respects, the financial position of Sensory
Systems Limited and subsidiary as of December 31, 1994 and 1995, and the
results of their operations for the years then ended in conformity with
generally accepted accounting principles in the United Kingdom.

/s/ Keith Jones

Keith Jones
Chartered Accountant
Registered Auditor

3 Tudor Grove
Church Crescent
London N20 0JW

27 March 1996

F-20
<PAGE>

SENSORY SYSTEMS LIMITED

CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 1995

<TABLE>
<CAPTION>
NOTES 1995 1994
----- ------------------ ------------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible Assets................. 2 126,632 129,370
CURRENT ASSETS
Stock........................... 4 413,253 277,897
Debtors......................... 5 513,250 513,718
Cash Balances................... 381,066 398,964
--------- ---------
1,307,569 1,190,579
LESS CREDITORS--AMOUNTS FALLING
DUE WITHIN 1 YEAR................ 6 591,753 690,275
--------- ---------
NET CURRENT ASSETS................ 715,816 500,304
------- -------
842,448 629,674
======= =======
FINANCED BY CAPITAL AND RESERVES
Called up Share Capital......... 7 100 100
Profit and Loss Account......... 8 842,348 629,574
------- -------
842,448 629,674
======= =======
</TABLE>

Approved by the Board on 27 March 1996

/s/ J. F. Tillisch
- -------------------------------------
(J. F. Tillisch)

/s/ S. Forde
- -------------------------------------
(S. Forde)

F-21
<PAGE>

SENSORY SYSTEMS LIMITED

BALANCE SHEET AT 31 DECEMBER 1995

<TABLE>
<CAPTION>
NOTES 1995 1994
----- ------------------ ------------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible Assets................. 2 86,526 82,173
Investments..................... 3 6,024 6,024
CURRENT ASSETS
Stock........................... 4 277,686 213,102
Debtors......................... 5 805,390 576,032
Cash Balances................... 341,229 386,800
--------- ---------
1,424,305 1,175,934
LESS CREDITORS--AMOUNTS FALLING
DUE WITHIN 1 YEAR................ 6 532,684 573,462
--------- ---------
NET CURRENT ASSETS................ 891,621 602,472
------- -------
984,171 690,669
======= =======
FINANCED BY CAPITAL AND RESERVES
Called up Share Capital......... 7 100 100
Profit and Loss Account......... 8 984,071 690,569
------- -------
984,171 690,669
======= =======
</TABLE>

Approved by the Board on 27 March 1996

/s/ J. F. Tillisch
- -------------------------------------
(J. F. Tillisch)

/s/ S. Forde
- -------------------------------------
(S. Forde)

F-22
<PAGE>

SENSORY SYSTEMS LIMITED

CONSOLIDATED PROFIT AND LOSS ACCOUNT

YEAR ENDED 31 DECEMBER 1995

<TABLE>
<CAPTION>
NOTES 1995 1994
----- --------- ---------
(Pounds) (Pounds)
<S> <C> <C> <C>
Turnover............................................ 1 3,138,533 2,854,272
Cost of Sales....................................... 1,751,681 1,825,898
--------- ---------
Gross Profit........................................ 1,386,852 1,028,374
Administrative Expenses............................. 1,037,115 886,576
--------- ---------
Profit from continuing operations on ordinary
activities before taxation......................... 8 349,737 141,798
Taxation............................................ 10 106,963 38,000
--------- ---------
Profit for the financial year....................... 242,774 103,798
Dividends........................................... 11 30,000 23,000
--------- ---------
Retained profit for the year........................ 212,774 80,798
Retained profit brought forward..................... 9 629,574 548,776
--------- ---------
Retained profit carried forward..................... 842,348 629,574
========= =========
</TABLE>

Other than the profit for the years, the group has made no other recognised
gains or losses.

F-23
<PAGE>

SENSORY SYSTEMS LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Cash flows from operating activities:
Profit for the financial year............................. 242,774 103,798
Adjustments to reconcile profit for the financial year to
net cash provided by operating activities:
Depreciation and amortization............................ 61,906 61,446
Loss on disposal of assets............................... 14,116 15,490
Changes in assets and liabilities that provided (used)
cash:
Stock................................................... (135,356) (149,087)
Debtors................................................. 468 32,775
Trade creditors......................................... 64,842 109,611
Corporation tax......................................... 75,013 (14,510)
Other creditors......................................... 21,978 (16,642)
Accruals................................................ (23,043) 41,212
-------- --------
Net cash provided by operating activities............... 322,698 184,093
-------- --------
Cash flows from investing activities:
Acquisition of fixed assets............................... (77,637) (144,023)
Sale of fixed assets...................................... 4,353 9,945
Sale of investment property............................... -- 141,103
-------- --------
Net cash (used in) provided by investing activities..... (73,284) 7,025
-------- --------
Cash flows from financing activities:
Bank overdrafts........................................... (237,312) 97,018
Dividends................................................. (30,000) (23,000)
-------- --------
Net cash (used in) provided by financing activities..... (267,312) 74,018
-------- --------
Net (decrease) increase in cash............................ (17,898) 265,136
Cash balances, beginning of year........................... 398,964 133,828
-------- --------
Cash balances, end of year................................. 381,066 398,964
======== ========
</TABLE>

F-24
<PAGE>

SENSORY SYSTEMS LIMITED

NOTES TO THE FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 1995

1. ACCOUNTING POLICIES

a) The financial statements are based on the historical cost convention.
b) Depreciation is calculated to write down the assets to their residual
values at varying rates between 10% and 25% on the reducing balance.
c) Provision is made for deferred taxation arising from the excess of
capital allowances over depreciation charged and other timing
differences to the extent that it is considered the liability will
crystallise in the foreseeable future.
d) Turnover represents invoiced sales to customers excluding VAT. Income
from maintenance contracts is included in the profit and loss account
in the period in which such income is invoiced.
e) The consolidated financial statements incorporate the financial
statements of Sensory Systems Limited and its subsidiary company
Teletec Sarl all of which are made up to 31 December 1995.

2. TANGIBLE ASSETS

<TABLE>
<CAPTION>
GROUP COMPANY
FIXTURES FIXTURES
& VEHICLES & VEHICLES
---------- ----------
(Pounds) (Pounds)
<S> <C> <C>
COST--1 January 1995...................................... 267,031 209,208
Disposals................................................. (13,955) (13,955)
Additions................................................. 42,395 35,242
------- -------
At 31 December 1995....................................... 295,471 230,495
------- -------
DEPRECIATION--1 January 1995.............................. 137,661 127,035
Eliminated on Disposal.................................... (6,897) (6,897)
Charge for year........................................... 38,075 23,831
------- -------
At 31 December 1995....................................... 168,839 143,969
------- -------
Net book value of 31 December 1995........................ 126,632 86,526
======= =======
</TABLE>

3. INVESTMENTS

Investments represent the cost of 100% of the issued share capital of
Teletec Sarl, a company incorporated in France, which is engaged in similar
activities to that of Sensory Systems Limited.

4. STOCK

Stock represents goods for resale.

5. DEBTORS

<TABLE>
<CAPTION>
GROUP COMPANY
----------------- -----------------
1995 1994 1995 1994
-------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Trade Debtors............................... 411,370 439,801 323,026 332,613
Prepayments................................. 58,411 73,917 36,992 68,917
Amount owed by group undertakings........... -- -- 401,903 174,502
Other Debtors............................... 43,469 -- 43,469 --
------- ------- ------- -------
513,250 513,718 805,390 576,032
======= ======= ======= =======
</TABLE>

F-25
<PAGE>

SENSORY SYSTEMS LIMITED

NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

YEAR ENDED 31 DECEMBER 1995

6. CREDITORS

Amounts falling due within one year.

<TABLE>
<CAPTION>
GROUP COMPANY
----------------- -----------------
1995 1994 1995 1994
-------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Trade Creditors............................. 376,809 311,967 368,849 271,335
Bank Overdrafts............................. -- 237,312 -- 237,312
Corporation Tax............................. 107,263 32,250 107,263 32,250
Other Creditors............................. 49,094 27,116 -- 2,565
Accruals.................................... 58,587 81,630 56,572 30,000
------- ------- ------- -------
591,753 690,275 532,684 573,462
======= ======= ======= =======
</TABLE>

The bank overdrafts are secured by a debenture in favour of the bank.

7. SHARE CAPITAL

<TABLE>
<CAPTION>
GROUP & GROUP &
COMPANY COMPANY
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Ordinary shares (Pounds)1 each authorised, issued and fully
paid....................................................... 100 100
=== ===
</TABLE>

8. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION IS AFTER CHARGING

<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Bank Interest.......................................... 13,197 13,416
Depreciation........................................... 38,075 36,036
Directors' remuneration (see below).................... 142,952 112,625
And after crediting audit fee.......................... 1,500 1,500
Interest receivable.................................... 13,548 10,864
The remuneration of the Chairman was................... 26,004 25,337
The remuneration of the highest paid director was...... 37,555 32,755
</TABLE>

The remuneration of the Directors, and the highest paid director including
the Chairman, were within the following ranges:

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
(Pounds)25,001-(Pounds)30,000................................... 1 2
(Pounds)30,001-(Pounds)35,000................................... 1 1
(Pounds)35,001-(Pounds)40,000................................... 1 --
</TABLE>

F-26
<PAGE>

SENSORY SYSTEMS LIMITED

NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

YEAR ENDED 31 DECEMBER 1995

9. STAFF COSTS AND NUMBERS

<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Wages and Salaries...................................... 457,022 409,857
Social Security Costs................................... 67,664 63,456
Pension Costs........................................... 63,577 33,855
------- -------
588,263 507,168
======= =======
</TABLE>

The above figures exclude redundancy costs of (Pounds)3,500 (1994-
(Pounds)3,000) which have been charged to the profit and loss account.

<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
Office and Management...................................... 20 20
--- ---
</TABLE>

10. TAXATION

<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
U.K. Corporation Tax on the profit for the year......... 106,963 38,000
======= ======
</TABLE>

The Company is a "close company" as defined by The Taxes Act.
11. DIVIDENDS

<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Interim dividend paid 1 July 1994....................... -- 23,000
First interim dividend paid 6 April 1995................ 10,000 --
Second interim dividend paid 17 July 1995............... 10,000 --
Third interim dividend paid 31 December 1995............ 10,000 --
------ ------
30,000 23,000
====== ======
</TABLE>

12. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS

There are no contingent liabilities or capital commitments at 31 December
1995 or at 31 December 1994.

13. PENSIONS

The group operates a defined contribution pension scheme for invited
employees. The assets of the scheme are held separately from those of the
company in an independently administered fund. The pension cost charge
represents contributions payable by the company to the fund and amounted to
(Pounds)63,577 (1994-(Pounds)33,855).

F-27
<PAGE>

SENSORY SYSTEMS LIMITED

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEAR ENDED 31 DECEMBER 1995

14. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS

<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Retained profit for the financial year.................. 212,774 80,798
Opening Shareholders' funds............................. 629,674 548,876
------- -------
Closing Shareholders' funds............................. 842,448 629,674
======= =======
</TABLE>

The difference between the values of shareholders funds shown on the
Consolidated and Company Balance Sheets represents the deficiency of
shareholders funds of Teletec Sarl of (Pounds)141,723 which from the company's
point of view is deemed to be fully recoverable.

15. COMPANY PROFIT AND LOSS ACCOUNT

Sensory Systems Limited has not presented its own profit and loss account as
permitted by Section 230(1) of the Companies Act 1985. The amount of the
consolidated profit for the year before tax dealt with in the financial
statements of the company is a profit of (Pounds)430,465 (1994-
(Pounds)202,793).

16. DIFFERENCES IN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

There are no material differences in the accounting principles used in
preparing the financial statements from generally accepted accounting
principles in the United States and in Regulation S-X.

F-28
<PAGE>

Blindness Products

BRAILLE CELLS

This electronically
refreshable braille cell
provides tactile informa-
tion by means of a 2x4
array of plastic pins
which are raised or low-
ered individually by
electrically energized
bimorphic piezo electric
reeds. The raised pins
form a pattern of dots
corresponding to a single
braille character which a
blind person can read
with his fingertips.

REFRESHABLE BRAILLE
DISPLAYS

In refreshable braille
devices, braille cells
are arranged in linear
arrays, representing a
line of characters. Adja-
cent controls permit the
blind user to select
which part of a specific
line from a personal com-
puter screen is to be
displayed so that she can
read it, make editing
changes or insert new in-
formation using a stan-
dard PC keyboard.
<PAGE>

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING DE-
SCRIBED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. 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 OR THAT THE INFORMATION CONTAINED HEREIN IS COR-
RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 25
Management............................................................... 34
Certain Relationships and Related Transactions........................... 43
Principal and Selling Shareholders....................................... 44
Description of Capital Stock............................................. 46
Shares Eligible for Future Sale.......................................... 47
Underwriting............................................................. 49
Legal Matters............................................................ 50
Experts.................................................................. 50
Additional Information................................................... 50
Index to Consolidated Financial Statements............................... F-1
</TABLE>

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

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.

2,900,000 SHARES

[LOGO OF TELESENSORY APPEARS HERE]

COMMON STOCK

PROSPECTUS

JEFFERIES & COMPANY, INC.

VAN KASPER & COMPANY

, 1996
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale
of the Common Shares being registered. All of the amounts shown are estimates
except for the SEC registration fee and the NASD filing fee.

<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 15,000
NASD Filing Fee.................................................... 5,000
Nasdaq National Market Listing Fee................................. 50,000
Blue Sky Qualification Fees and Expenses........................... 4,000
Printing and Engraving Expenses.................................... 200,000
Legal Fees and Expenses............................................ 280,000
Accounting Fees and Expenses....................................... 210,000
Transfer Agent and Registrar Fees.................................. 30,000
Miscellaneous...................................................... 6,000
--------
TOTAL............................................................ $800,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Articles of Incorporation eliminate a director's personal
liability for monetary damages to the Registrant and its shareholders arising
form a breach or alleged breach of the director's fiduciary duty, except for
liability arising under Sections 310 and 316 of the California General
Corporation Law or liability for (i) acts or omissions that involve
intentional misconduct or knowing and culpable violation of law, (ii) acts or
omissions that a director believes to be contrary to the best interests of the
Registrant or its shareholders or that involve the absence of good faith on
the part of the director, (iii) any transaction from which a director derived
an improper personal benefit, (iv) acts or omissions that show a reckless
disregard for the director's duty to the Registrant or its shareholders in
circumstances in which the director was aware, or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to the Registrant or its shareholders, (v) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication
of the director's duty to the Registrant or its shareholders, (vi) interested
transactions between the corporation and a director in which a director has a
material financial interest, and (vii) liability for improper distributions,
loans or guarantees. This provision does not eliminate the directors' duty of
care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
California law.

Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation and Bylaws contain provisions covering
indemnification to the maximum extent permitted by the California General
Corporation Law of corporate directors, officers and other agents against
certain liabilities and expenses incurred as a result of proceedings involving
such persons in their capacities as directors, officers employees or agents,
including proceedings under the Securities Act or the Securities Exchange Act
of 1934, as amended. The Company has entered into Indemnification Agreements
with its directors and executive officers.

In addition to the foregoing, the Underwriting Agreement provides for
indemnification by the Underwriters of the Registrant, its directors and
officers, and by the Registrant of the several Underwriters, against certain
liabilities, including liabilities arising under the Securities Act.

II-1
<PAGE>

At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since June 30, 1993, the Registrant has issued and sold (without payment of
any selling commission to any person) 44,700 shares of Common Stock to 16
employees and consultants at prices ranging from $0.96--$3.60 per share, upon
exercise of stock options and stock purchase rights, pursuant to the
Registrant's 1977 Stock Option Plan and the 1985 Plan.

In October 1994, the Registrant issued and sold (without payment of any
selling commission to any person) 25,000 shares of Common Stock to H.W. Jesse
& Co. at a price of $2.40 per share.

In March 1996, the Registrant issued and sold (without payment of any
selling commission to any person) 125,000 shares of Common Stock to John
Tillisch Limited, formerly Sensory Systems Limited, at a price of $5.60 per
share.

In April 1996, the Registrant issued and sold (without payment of any
selling commission to any person) 25,000 shares of Common Stock to John M.
Lillie and Daryl L. Lillie, Trustees, Lillie Family Trust at a price of $6.00
per share.

The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section
3(b) of the Securities Act, as transactions by an issuer not involving a
public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients of securities in each such transaction represented their intention
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates and instruments issued in such transactions.
All recipients had adequate access, through their relationship with the
Company, to information about the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

(a) Exhibits

<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.

3.1* Restated Articles of Incorporation of Registrant currently in
effect.

3.3* Bylaws of Registrant, as currently in effect.

4.1* Form of Common Stock Certificate.

5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.

10.1* 1985 Incentive Stock Option Plan.

10.2* 1993 Stock Option Plan and forms of agreements thereunder.

10.3* 1995 Stock Plan and forms of agreements thereunder.

10.4* Employee Stock Purchase Plan and forms of agreements thereunder.

10.5* Forms of Indemnification Agreements between Registrant and its
officers and directors.

10.6* 1996 Management/Professional Profit Sharing Plan

10.7* 1996 Employee Profit Sharing Plan

10.8* Subordination, Nondisturbance, and Attornment Agreement among
William E. Jarvis, Duane E. Dunwoodie and Marlene J. Dunwoodie,
Peter D. Lacy and Registrant, dated June 26, 1992, regarding
Registrant's facility located at 455 North Bernardo Road, Mountain
View, California.
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
10.9* Industrial Lease Agreement between Joint Land Development Company
Number Two and Registrant, dated June 26, 1992, and amendments
thereto, for the Registrant's facility located at 455 North
Bernardo Road, Mountain View, California.

10.10* Loan and Security Agreement between Registrant and Comerica Bank-
California, dated November 30, 1993, and six modifications
thereof.

10.11* Lease Agreement between Waterglade Developments (Edgware Road)
Limited, dated June 2, 1993, and Sensory Systems Limited for
Sensory Systems Limited's facility located at 303 Edgware Road,
London NW9, England.

10.12* Stock Purchase Agreement among Registrant, James C. Bliss and
Carolyn Joan Bliss, Trustees of the James C. Bliss and Carolyn
Joan Bliss Trust u/d/t dated October 11, 1979, Judith Bliss and
John Bliss, and certain shareholders of Registrant, dated April 9,
1995.

10.13* Variable Rate Installment Note issued by Registrant to Comerica
Bank-California in the amount of $250,000.00, dated April 12,
1995.

10.14* Variable Rate Installment Note issued by Registrant to Comerica
Bank-California in the amount of $750,000.00, dated April 12,
1995.

10.15* Variable Rate Installment Note issued by Registrant to Comerica
Bank-California in the amount of $1,000,000, dated March 22, 1996.

10.16* Asset Purchase Agreement among VTEK, Registrant, Sensory Systems
Limited and John F. Tillisch, dated March 29, 1996.

10.17* Employment Agreement between Sensory Systems Limited and John F.
Tillisch, dated March 29, 1996.

10.18* Noncompetition Agreement among VTEK, Inc., Registrant, Sensory
Systems Limited and John F. Tillisch, dated March 29, 1996.

11.1 Statement of computation of per share earnings.

21.1* Subsidiaries of Registrant

23.1(a) Consent of Deloitte & Touche LLP, Independent Auditors (see page
II-7).

23.1(b) Consent of Keith Jones FCA, Independent Auditors (see page II-8).

23.2* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in
Exhibit 5.1).

24.1* Power of Attorney (See page II-5).

27.1 Financial Data Schedule
</TABLE>

- ----------------
* Previously filed.

(b) Financial Statement Schedule:

II--Valuation and Qualifying Accounts

All other Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.

ITEM 17. UNDERTAKINGS

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

II-3
<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer of controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
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.

The Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933 (the "Act"), the information omitted from the form of Prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained
in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide Offering thereof.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mountain View, State of California, on the 7th day
of October, 1996.

TELESENSORY CORPORATION

By Larry Israel*
-------------------------------
(LARRY ISRAEL)
CHAIRMAN, PRESIDENT,
CHIEF EXECUTIVE OFFICER
AND DIRECTOR

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman, President, October 7, 1996
Larry Israel* Chief Executive
- ------------------------------------- Officer and
(LARRY ISRAEL) Director (Principal
Executive Officer)

Vice President, October 7, 1996
/s/ Robert W. Kamenski Finance and Chief
- ------------------------------------- Financial Officer
(ROBERT W. KAMENSKI) (Principal
Financial and
Accounting Officer)

Mitchell Gooze* Director October 7, 1996
- -------------------------------------
(MITCHELL GOOZE)

John F. Harper* Director October 7, 1996
- -------------------------------------
(JOHN F. HARPER)

Seymour Liebman* Director October 7, 1996
- -------------------------------------
(SEYMOUR LIEBMAN)

John M. Lillie* Director October 7, 1996
- -------------------------------------
(JOHN M. LILLIE)
</TABLE>

II-5
<PAGE>

SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
John G. Linvill* Director October 7, 1996
- -------------------------------------
(JOHN G. LINVILL)

Peter D. Stent* Director October 7, 1996
- -------------------------------------
(PETER D. STENT)

*By /s/ Robert W. Kamenski
- -------------------------------------
ROBERT W. KAMENSKI
Attorney-in-Fact
</TABLE>

II-6
<PAGE>

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 3 to Registration Statement No.
333-09295 of Telesensory Corporation and subsidiaries on Form S-1 of our
report dated February 23, 1996 (August 14, 1996 as to the second and third
sentences of Note 1 to the Consolidated Financial Statements), appearing in
the Prospectus, which is part of this Registration Statement, and of our
report dated February 23, 1996 (August 14, 1996 as to the second and third
sentences of Note 1 to the Consolidated Financial Statements) relating to the
consolidated financial statement schedule appearing elsewhere in this
Registration Statement.

We also consent to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
San Jose, California

October 7, 1996

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

II-7
<PAGE>

EXHIBIT 23.1(b)

[LETTERHEAD OF KEITH JONES FCA]

Our Ref: KJ/lam
Your Ref: BK/JFT

Mr. Kamenski
Telesensory Corporation
455 North Bernardo Avenue
Mountain View, California 94039

Dear Mr. Kamenski,

INDEPENDENT AUDITORS' CONSENT--SENSORY SYSTEMS LIMITED

We consent to the use in this Registration Statement of Telesensory
Corporation on Form S-1 of our report on Sensory Systems Limited and Subsidiary
dated 27 March 1996, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.

Yours sincerely,

/s/ Keith Jones
-------------------------------------
Keith Jones

London, England

7 October 1996

II-8
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Telesensory Corporation:

We have audited the consolidated financial statements of Telesensory
Corporation and subsidiaries as of December 31, 1995 and 1994, and for each of
the three years in the period ended December 31, 1995, and have issued our
report thereon dated February 23, 1996 (August 14, 1996 as to the second and
third sentences of Note 1 to the Consolidated Financial Statements) included
elsewhere in this Registration Statement. Our audits also included the
financial statement schedule listed in Item 16(b)II of this Registration
Statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
San Jose, California
February 23, 1996 (August 14, 1996
as to the second and third sentences
of Note 1 to the Consolidated Financial Statements)

S-1
<PAGE>

TELESENSORY CORPORATION AND SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGE TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ----------- ---------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
Year ended December
31,
1993................ $ 73 $ 23 -- $ 31 $ 65
1994................ $ 65 $ 20 -- $ 35 $ 50
1995................ $ 50 $ 63 -- $ 11 $102
Warranty reserves
Year ended December
31,
1993................ $824 $ 822 -- $1,300 $346
1994................ $346 $1,066 -- $1,128 $284
1995................ $284 $ 340 -- $ 202 $422
</TABLE>
- --------
(1) Represents costs charged to the respective reserve account.

S-2
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.

3.1* Restated Articles of Incorporation of Registrant currently in effect.

3.3* Bylaws of Registrant, as currently in effect.

4.1* Form of Common Stock Certificate.

5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.

10.1* 1985 Incentive Stock Option Plan and forms of agreements thereunder.

10.2* 1993 Stock Option Plan and forms of agreements thereunder.

10.3* 1995 Stock Plan and forms of agreements thereunder.

10.4* Employee Stock Purchase Plan and forms of agreements thereunder.

10.5* Forms of Indemnification Agreements between Registrant and its
officers and directors.

10.6* 1996 Management/Professional Profit Sharing Plan

10.7* 1996 Employee Profit Sharing Plan

10.8* Subordination, Nondisturbance, and Attornment Agreement among William
E. Jarvis, Duane E. Dunwoodie and Marlene J. Dunwoodie, Peter D. Lacy
and Registrant, dated June 26, 1992, regarding Registrant's facility
located at 455 North Bernardo Road, Mountain View, California.

10.9* Industrial Lease Agreement between Joint Land Development Company
Number Two and Registrant, dated June 26, 1992, and amendments
thereto, for the Registrant's facility located at 455 North Bernardo
Road, Mountain View, California.

10.10* Loan and Security Agreement between Registrant and Comerica Bank-
California, dated November 30, 1993, and six modifications thereof.

10.11* Lease Agreement between Waterglade Developments (Edgware Road)
Limited, dated June 2, 1993, and Sensory Systems Limited for Sensory
Systems Limited's facility located at 303 Edgware Road, London NW9,
England.

10.12* Stock Purchase Agreement among Registrant, James C. Bliss and Carolyn
Joan Bliss, Trustees of the James C. Bliss and Carolyn Joan Bliss
Trust u/d/t dated October 11, 1979, Judith Bliss and John Bliss, and
certain shareholders of Registrant, dated April 9, 1995.

10.13* Variable Rate Installment Note issued by Registrant to Comerica Bank-
California in the amount of $250,000.00, dated April 12, 1995.

10.14* Variable Rate Installment Note issued by Registrant to Comerica Bank-
California in the amount of $750,000.00, dated April 12, 1995.

10.15* Variable Rate Installment Note issued by Registrant to Comerica Bank-
California in the amount of $1,000,000, dated March 22, 1996.

10.16* Asset Purchase Agreement among VTEK, Registrant, Sensory Systems
Limited and John F. Tillisch, dated March 29, 1996.

10.17* Employment Agreement between Sensory Systems Limited and John F.
Tillisch, dated March 29, 1996.

10.18* Noncompetition Agreement among VTEK, Inc., Registrant, Sensory Systems
Limited and John F. Tillisch, dated March 29, 1996.

11.1 Statement of computation of per share earnings.

21.1* Subsidiaries of Registrant

23.1(a) Consent of Deloitte & Touche LLP, Independent Auditors (see page II-7).

23.1(b) Consent of Keith Jones FCA, Independent Auditors (see page II-8).

23.2* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
5.1).

24.1* Power of Attorney (See page II-5).

27.1 Financial Data Schedule
</TABLE>
- ----------------

* Previously filed.

<PAGE>

Exhibit 11.1

TELESENSORY CORPORATION
AND SUBSIDIARIES

COMPUTATION OF WEIGHTED AVERAGE
COMMON AND COMMON EQUIVALENT SHARES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>

Six Months Ended
----------------------
Year Ended June 30, June 30,
December 31, 1995 1995 1996
----------------- -------- --------
<S> <C> <C> <C>
PRIMARY
Net income.......................................................... $1,391 $ 619 $1,151
====== ====== ======
Weighted average common shares outstanding.......................... 3,243 3,518 2,766
Weighted average common equivalent shares:
Weighted average common stock warrants outstanding................ -- -- 19
Common stock option grants........................................ -- -- 175
Adjustments to reflect requirements of the Securities and Exchange
Commission's Staff Accounting Bulletin No. 83:
Common stock issuances.......................................... 3 -- 126
Common stock option grants...................................... 71 -- 164
------ ------ ------
Pro forma total weighted average common shares and equivalents...... 3,317 3,518 3,250
====== ====== ======
Pro forma net income per share...................................... $ 0.42 $ 0.18 $ 0.35
====== ====== ======
</TABLE>
The calculation of fully diluted weighted average common stock shares and
equivalents was not materially different from the primary calculation.

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 169 317
<SECURITIES> 0 0
<RECEIVABLES> 5,629 6,667
<ALLOWANCES> (102) (130)
<INVENTORY> 3,488 3,479
<CURRENT-ASSETS> 9,853 11,454
<PP&E> 3,367 3,857
<DEPRECIATION> (2,176) (2,387)
<TOTAL-ASSETS> 11,044 14,713
<CURRENT-LIABILITIES> 6,491 7,487
<BONDS> 0 0
0 0
0 0
<COMMON> 55 58
<OTHER-SE> 3,859 5,889
<TOTAL-LIABILITY-AND-EQUITY> 11,044 14,713
<SALES> 30,671 17,240
<TOTAL-REVENUES> 30,671 17,240
<CGS> 16,670 9,795
<TOTAL-COSTS> 11,660 6,014
<OTHER-EXPENSES> (40) (44)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 123 111
<INCOME-PRETAX> 2,258 1,364
<INCOME-TAX> 867 213
<INCOME-CONTINUING> 1,391 1,151
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,391 1,151
<EPS-PRIMARY> 0.42 0.35
<EPS-DILUTED> 0 0

</TABLE>