TELEPAD CORP, 424B3, 1996-08-29

TELEPAD CORP
424B3, 1996-08-29
ELECTRONIC COMPUTERS

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Rule 424(b)(3)
Registration No. 333-00112
PROSPECTUS

TELEPAD CORPORATION

2,000,000 REDEEMABLE CLASS D WARRANTS AND
2,000,000 SHARES OF CLASS A COMMON STOCK
ISSUABLE UPON EXERCISE OF THE
REDEEMABLE CLASS D WARRANTS

This Prospectus relates to 2,000,000 Redeemable Class D Warrants (the
"Selling Securityholder Warrants" or the "Warrants") of TelePad Corporation, a
Delaware corporation (the "Company"), held by holders (the "Selling
Securityholders") and the 2,000,000 shares of Class A Common Stock, $.01 par
value ("Class A Common Stock") issuable upon the exercise of the Selling
Securityholder Warrants. The shares of Class A Common Stock issuable upon
exercise of the Selling Securityholder Warrants, together with the Selling
Securityholder Warrants, are sometimes collectively referred to herein as the
"Selling Securityholder Securities." The Selling Securityholder Warrants were
issued to the Selling Securityholders in exchange for warrants they received in
a private placement by the Company in July, August and September 1995 (the
"Bridge Financing"). See "Selling Securityholders" and "Plan of Distribution."
Each Selling Securityholder Warrant entitles the holder to purchase, at an
exercise price of $3.50, subject to adjustment, one share of Class A Common
Stock at any time through the fifth anniversary of the date of this Prospectus,
provided that the Selling Securityholders have agreed not to exercise the
Selling Securityholder Warrants for a period of one year from the date of this
Prospectus and not to sell the Selling Securityholder Warrants until after
expiration of the restrictive periods described under "Plan of Distribution."
Commencing March 29, 1997, the Warrants are subject to redemption by the Company
for $.05 per Warrant, upon 30 days' written notice, if the average closing bid
price of the Common Stock exceeds $7.00 (subject to adjustment) for 30
consecutive business days ending within 15 days of the date of the notice of
redemption. See "Description of Securities."

The securities offered by the Selling Securityholders by this Prospectus may
be sold from time to time by the Selling Securityholders or by their
transferees. The distribution of the Warrants and Common Stock offered hereby by
the Selling Securityholders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or more
dealers for resale of such securities as principals, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders.

The Selling Securityholders, and intermediaries through whom such securities
are sold, may be deemed underwriters within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered,
and any profits realized or commissions received may be deemed underwriting
compensation. The Company has agreed to indemnify the Selling Securityholders
against certain liabilities, including liabilities under the Securities Act.

The Company will not receive any of the proceeds from the sale of securities
by the Selling Securityholders. In the event all of the Selling Securityholder
Warrants are exercised, the Company will receive gross proceeds of $6,650,000.
See "Selling Securityholders" and "Plan of Distribution."

On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company
(the "Offering") of 20,000 Units, each Unit consisting of 285 shares of Common
Stock and 1,000 Class D Warrants, through D. H. Blair Investment Banking Corp.
(the "Underwriter"), was declared effective by the Securities and Exchange
Commission (the "Commission"). The Company will receive approximately
$17,742,000 in net proceeds from the Offering (assuming no exercise of the
Underwriter's over-allotment option) after payment of underwriting discounts and
commissions and estimated expenses of the Offering.

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. See "Risk
Factors" immediately following the "Prospectus Summary" section.

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.

THE DATE OF THIS PROSPECTUS IS MARCH 29, 1996

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ADDITIONAL INFORMATION

The Company has filed with the Commission a registration statement under the
Securities Act with respect to the securities offered by this Prospectus. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits thereto. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits thereto, which may be examined without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 7 World Trade
Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the Public Reference Section of the Commission upon payment
of the prescribed fees. Statements contained in this Prospectus as to the
contents of any contract or other documents referred to herein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can be
obtained at prescribed rates from the Commission at such address.

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION ASSUMES NO EXERCISE OF THE
UNDERWRITER'S OVER-ALLOTMENT OPTION.

THE COMPANY

TelePad Corporation (the "Company") is engaged in the design, development
and marketing of pen-based computing and mobile communications systems and, to a
lesser extent, applications software. The only product currently being marketed
by the Company is the TelePad 3 -- a highly portable, tablet-sized computing
device which offers voice recognition and a pen interface as well as a
detachable keyboard. Its unique modular architecture includes a base platform
currently available with a 66 MHZ processor, a dual scan color display and up to
36 MB of internal memory. It also features three docking bays that can hold a
variety of hardware accessories. The platform is designed to facilitate the
Company's planned development of upgrades to more powerful processors, different
types of displays and additional memory. Subject to completion of the Offering
and receipt of the proceeds therefrom, the Company plans to develop additional
modules capable of accommodating various communications, computing and special
purpose accessories.

Production of the TelePad 3 commenced at the end of June 1995 and 361 units
(60 of which are being used by the Company for sales, marketing, and engineering
purposes and 18 of which are held in inventory) had been produced as of February
29, 1996, of which 283 had been sold. An additional 39 units have been
manufactured by International Business Machines Corporations ("IBM") but had not
been delivered as of February 29, 1996. The Company has experienced substantial
technical and financial difficulties that have led to significant delays in the
commencement of product commercialization, including the identification of a
design defect (the "Power Management Defect") that causes TelePad 3s to "lock
up" in certain circumstances leading to a loss of recently entered data. While
management believes that the problem is caused by a faulty code in a component
of the advanced power management system supplied by IBM, the Company's sole
source manufacturer, and should be relatively easy to correct at an estimated
cost of approximately $140 per unit, there can be no assurance as to the actual
time or expense involved in identifying the precise source of the problem or
designing a correction. Under the Company's agreement with IBM dated January 25,
1996, (the "IBM Resolution Agreement"), the costs of the analysis, correction
and any recall will be borne by the party deemed responsible for the original
design under the Company's design contract with IBM. The Company has received
from IBM a written cursory review of the Power Management Defect issue stating
it is not IBM's responsibility. The Company does not wish to delay the
resolution of this issue and has notified IBM that it has elected to initiate
arbitration proceedings under the terms of the IBM Resolution Agreement. The
Company anticipates that all TelePad 3s heretofore sold will be recalled at such
time as a correction is available.

In light of the foregoing, as well as credit issues described below,
production of the TelePad 3 has been halted since November 30, 1995. The Company
currently expects that it will require at least three months following the
resolution of the design and credit issues with IBM, which is dependent in large
part upon the completion of the Offering, before production of additional
TelePad 3 units can resume.

In addition, IBM informed the Company that it ceased production of the Blue
Lightning 486 microprocessor used in the TelePad 3. Management currently
estimates that redesign of the TelePad 3 using another microprocessor will
require four to six months, although there can be no assurance that the time
required will not be substantially longer. Therefore, the Company may experience
an interruption in supply pending completion of the redesign, which is dependent
upon completion of the Offering and receipt of the proceeds therefrom. On
January 26, 1996, IBM had an inventory of TelePad 3 parts worth in the aggregate
amount of approximately $1,318,000 for which the Company is liable. This
includes Blue Lightning processors for approximately 5,000 units and other parts
in

3
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various quantities. Under the IBM Resolution Agreement, as amended, IBM will
keep such parts on hand until April 1, 1996, after which date IBM may sell such
parts to mitigate the Company's indebtedness to IBM if the Company has not
provided a letter of credit to secure the value of those parts. Further, IBM is
required to produce additional TelePad 3 computers or Blue Lightning
microprocessor cards only upon receipt of reasonably acceptable credit
guarantees for the value of its parts inventory. While the Company currently is
seeking such guarantees, it is not expected that the Company will be able to
provide such guarantees prior to completion of the Offering.

The Company is continuing to service existing customers and is developing
new business in anticipation of its receipt of additional financial resources.
Since production of the TelePad 3 has stopped pending resolution of the Power
Management Defect and receipt of additional funding, the Company is marketing
its remaining inventory of TelePad 3s. In addition, the Company has received the
bulk of the remaining TelePad SL parts from IBM pursuant to the IBM Resolution
Agreement and has initiated the process of converting such parts to finished
units. As these TelePad SL's are built, the Company will actively seek customers
to purchase such units. Assuming successful completion of the Offering, the
Company intends to obtain a letter of credit and deliver it to either IBM or a
new manufacturer to initiate the ordering of parts and work required to start
TelePad 3 production. During the period in which it will take to resume
production, the Company intends to actively market the Telepad 3 to new and
existing customers who have expressed interest but have withheld orders pending
the Company's ability to deliver the product. A principal objective of the
Company is to reduce the manufactured cost of the TelePad 3 by establishing a
relationship with a new manufacturer. The Company is currently engaged in
negotiations with two qualified manufacturers. In addition to sales of TelePads,
the Company is also engaged in the sale and delivery of services related to
field force computing. The Company is undertaking efforts to expand this
business and identify customers requiring integrated solutions for deployment of
field force computing solutions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."

The Company's Class A Common Stock, Class A Warrants, Class B Warrants and
IPO Units (consisting of Class A Common Stock, Class A Warrants and Class B
Warrants) are traded separately on the OTC Bulletin Board maintained by the NASD
and are quoted in the "pink sheets" published by the National Quotation Bureau,
Inc. Until June 7, 1995, these securities traded on The Nasdaq SmallCap Market.
Effective June 8, 1995, the securities were delisted from Nasdaq due to the
Company's failure to meet the maintenance standards required for continued
listing. The Company has applied to relist the Class A Common Stock, Class A
Warrants, Class B Warrants and IPO Units and to list the Class D Warrants
offered hereby (and its outstanding Class C Warrants) upon the effective date of
the Offering or at such later time as the Company meets the Nasdaq listing
standards.

The Company was incorporated in Delaware on April 11, 1990. Its executive
offices are located at 380 Herndon Parkway, Suite 1900, Herndon, Virginia 22070.
The Company's telephone number is (703) 834-9000.

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THE OFFERING

<TABLE>
<S> <C>
Securities Offered by Selling
Securityholders............................. 2,000,000 Selling Securityholder Warrants, and 2,000,000
shares of Class A Common Stock issuable upon exercise of
the Selling Securityholder Warrants. The Selling
Securityholder Warrants are identical to the Class D
Warrants, except that the holders thereof have agreed to
certain restrictions on transferability and
exercisability.

Securities Offered Concurrently by the
Company..................................... 20,000 Units, each Unit consisting of 285 shares of
Class A Common Stock and 1,000 Class D Warrants. Each
Class D Warrant is exercisable at $3.50 (subject to
adjustment) to purchase one share of Class A Common
Stock through the fifth anniversary of the date of this
Prospectus, subject to earlier redemption by the
Company. See "Capitalization" and "Description of
Securities." See "Concurrent Public Offering."

Class A Common Stock Outstanding Before the
Offering (1)................................ 4,436,175 shares

Class A Common Stock Outstanding After the
Offering.................................... 10,136,175 shares

Class B Common Stock Outstanding Before and
After the Offering (1)...................... 555,563 shares

Nasdaq Symbols............................... Class A Common Stock-TPADA
Class A Warrants-TPADW
Class B Warrants-TPADZ
IPO Units-TPADU
Class D Warrants-TPADL

Risk Factors................................. The securities offered hereby involve a high degree of
risk and immediate and substantial dilution to public
investors. Investors should purchase the securities
offered hereby only if they can afford the loss of their
entire investment. See "Risk Factors" and "Dilution."
</TABLE>

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(1) The Class A and the Class B Common Stock are identical in all respects,
except that holders of the Class B Common Stock have five votes per share
and the holders of Class A Common Stock have one vote per share on all
matters on which stockholders may vote. Subject to certain limitations, each
share of Class B Common Stock is convertible into one share of Class A
Common Stock automatically upon sale or transfer thereof or at any time at
the option of the holder. The Class A Common Stock and Class B Common Stock
are collectively referred to herein as "Common Stock." See "Description of
Securities."

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SUMMARY OF FINANCIAL DATA

THE SUMMARY FINANCIAL DATA SET FORTH BELOW SHOULD BE READ IN CONJUNCTION
WITH, AND ARE QUALIFIED BY REFERENCE TO, THE FINANCIAL STATEMENTS OF THE COMPANY
AND THE NOTES THERETO, AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," INCLUDED ELSEWHERE IN THIS PROSPECTUS.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product sales revenues..................... $ 5,181,000(1) $ 2,034,000
Service contract revenues.................. 619,000 560,000
Net loss................................... (8,643,000) (5,970,000)
Net loss per share (2)..................... $ (2.43) $ (1.24)
Weighted average shares outstanding (2).... 3,556,855 4,814,782
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-------------------------------------------------
ACTUAL PRO FORMA (3) AS ADJUSTED (4)
--------------- --------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................... $ (4,491,000) $ (4,633,000) $ 12,832,000
Total assets................................................ 2,609,000 2,802,000 15,471,000
Total liabilities........................................... 6,721,000 7,057,000 2,260,000
Accumulated deficit......................................... (22,819,000) (22,961,000) (23,238,000)
Stockholders' equity (deficit).............................. $ (4,112,000) $ (4,254,000) $ 13,211,000
</TABLE>

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(1) Product sales revenues for the period ended December 31, 1994 include
$1,878,000 from sales of the Company's products and $3,303,000 from sales of
competing products manufactured by IBM. See Note 1 of Notes to the Financial
Statements.

(2) Share information is based upon the number of shares of Class A Common Stock
and Class B Common Stock, treated as a single class.

(3) Gives pro forma effect to the issuance in February 1996 of a 20% promissory
note in the principal amount of $750,000 (the "Promissory Note"), and the
related charges against operations of $67,500, representing the loan
origination fee, and $75,000 of prepaid interest and the use of a portion of
the proceeds therefrom to repay approximately $414,000 of accounts payable
to IBM. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation."

(4) Adjusted to give effect to the sale of the 20,000 Units offered in the
Offering, the receipt of the net proceeds therefrom by the Company and the
use of a portion of such net proceeds to repay the $4,000,000 principal
amount of 10% promissory notes issued in the Bridge Financing (the "Bridge
Notes") together with accrued interest and the related charges against
operations through the date of repayment of approximately $118,000
representing the unamortized portion of the debt discount. Also adjusted to
give effect to the repayment of the Promissory Note and the related charge
against operations through the date of repayment of an additional $75,000
representing the interest on such loan. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

6
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RISK FACTORS

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS HIGHLY SPECULATIVE IN
NATURE, INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE MADE ONLY BY INVESTORS WHO
CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. IN ADDITION TO THE FACTORS SET
FORTH ELSEWHERE IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD GIVE CAREFUL
CONSIDERATION TO THE FOLLOWING RISK FACTORS IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING ANY SECURITIES OFFERED HEREBY.

NEED FOR ADDITIONAL FINANCING; GOING CONCERN CONSIDERATIONS. The Company's
management believes that the Company has sufficient financial resources to
remain in operation through March 31, 1996, pending completion of the Offering
without material change in its present business condition or structure. In the
event that the Offering has not been completed by that date, the Company would
be required to curtail significantly its operating activities and could be
required to cease operation pending receipt of the proceeds of the Offering.
There can be no assurance that the Company will be successful in concluding the
Offering by March 31, 1996 or on any subsequent date. Under the IBM Resolution
Agreement, as amended, IBM will keep its inventory of parts for the manufacture
of TelePad 3s only until April 1, 1996, after which date IBM may sell such parts
to mitigate the Company's liability to IBM if the Company has not provided
adequate security to IBM securing the Company's payment for such parts. IBM is
required to resume manufacturing for the Company only if the Company provides
such security. If the Company is unable to provide adequate credit guarantees or
other security by April 1, 1996, there can be no assurance as to when, if ever,
IBM would resume manufacture and when, if ever, and at what price, the necessary
components again would be available. In any event, IBM has informed the Company
that a lag of up to 12 weeks can be expected from the date on which IBM
initiates procurement to the date of completion of manufacture of any completed
units. Therefore, the Company could experience a significant interruption in
supply, during which time it would be required to substantially curtail or
suspend its operations. Such an interruption in supply would severely adversely
affect the Company's ability to remain in business. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Financial
Statements included elsewhere in this Prospectus.

Based on the Company's plan of operations, management anticipates that the
net proceeds of the Offering, together with cash expected to be generated from
operations, will be sufficient to support the Company's planned level of
operations for at least the 12-month period following completion of the
Offering. However, the plan of operations assumes, among other things,
completion of the Offering and, establishment of a consistent manufacturing
process and source of product. The Company has no established banking
relationships and there can be no assurance that the Company will be able to
obtain any financing necessary to sustain its operations on commercially
reasonable terms or at all. In the event that the Offering is not completed, or
the plan of operations is not successfully implemented for any other reason,
however, the Company will be required to radically restructure and may be
required to seek protection under the United States Bankruptcy Code. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Result of Operations -- Liquidity and Capital Resources" and " -- Plan of
Operations."

The Company is currently seeking to enter into an arrangement with a new
manufacturer to establish a consistent manufacturing process and source of
product. The inability to do so will have a material adverse effect on the
Company's business and financial condition. See "-- Transition to a New
Manufacturer" and "Business."

The Report of the Company's Independent Auditors accompanying the audited
Financial Statements included elsewhere in this Prospectus contains an
explanatory paragraph as to the uncertainty of the Company's ability to continue
as a going concern. Among the factors cited in that Report as raising
substantial doubt as to the Company's ability to continue as a going concern is
that the Company has not generated sufficient revenues from the sale of its
principal products to cover its operating expenses.

7
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DELAYS IN PRODUCT COMMERCIALIZATION. The Company has experienced
substantial technical and financial difficulties that have led to significant
delays in the commencement of product commercialization, including the
identification of a the Power Management Defect that causes TelePad 3s
occasionally to "lock up" in certain circumstances leading to a loss of recently
entered data. While a "lock-up" can occur infrequently when power is applied and
removed under certain circumstances, and the Company knows of no orders which
were canceled because of the Power Management Defect, the Company believes that
this problem is unacceptable in terms of product quality and Company standards
and must be corrected. Production of the TelePad 3 has been halted since
November 30, 1995, and is not expected to resume for at least three months after
the Power Management Defect and certain credit issues have been resolved, which
in turn will depend, in large part, upon the successful completion of the
Offering. The Company's inability to meet customers' required delivery dates has
led to the cancellation of orders for approximately 45 units and the termination
of negotiations for orders of additional units. In addition, while the Company
has orders for all the 39 completed but undelivered units still held at IBM
there can be no assurance that the Company will obtain delivery of such units.
The Company also expects to incur additional delays in product commercialization
as a result of the need to redesign the TelePad 3 processor card to accommodate
a different microprocessor since it has been advised that the Blue Lightning
microprocessor, a principal component of the TelePad 3, is no longer being
produced by IBM, the sole source supplier of such product. The Company may also
experience delays arising from its anticipated engagement in 1996 of a new
manufacturer of the TelePad 3. The Company anticipates that the delays in
commencing commercial production of the TelePad 3 it has experienced, and will
continue to experience, have and may continue to adversely affect the demand for
TelePad 3s as potential customers elect to purchase competing products. There
can be no assurance that the Company ever will overcome its financial and
technical difficulties or successfully commercialize the TelePad 3 or any other
product. See "Risk Factors -- Dependence on Manufacturer and Suppliers," "--
Power Management Defect," "-- Reliance on Proprietary Component; Need to
Redesign the TelePad 3," and "-- Unproven Products; Reliance on a Single
Product; Need for Market Acceptance."

SUBSTANTIAL OPERATING LOSSES; NO ASSURANCE OF SUCCESS. The Company has
incurred substantial operating losses since its inception. At December 31, 1995,
the Company had an accumulated deficit since inception of $22,819,000 and a
deficit in stockholders' equity of $4,112,000. The Company's losses have
continued since that date. Such deficits reflect the cost of developmental and
other start-up activities, including the industrial design, development and
marketing of TelePad prototypes and management's efforts to obtain financing for
the Company, without significant offsetting revenues. The Company expects to
continue to incur significant losses in the future. However, management believes
that it has developed a plan of operations which, if successfully implemented,
should permit the Company to achieve and sustain profitable operations. The
Company's proposed operations are subject to numerous risks associated with
establishing any new business, including unforeseeable expenses, delays and
complications, as well as specific risks of the computer industry. There can be
no assurance that the Company's plan of operations will be successful, that it
will be able to market any product on a commercial scale, that it will achieve
or sustain profitable operations or that it will be able to remain in business.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Plan of Operations" and "Business."

CHARGES ARISING FROM DEBT ISSUANCE. Upon completion of the Offering and
repayment of the Bridge Notes, the Company will incur a non-cash charge of
approximately $118,000, representing the unamortized portion of the debt
discount associated with the Bridge Financing. The Company will also incur cash
charges relating to the repayment of interest on the Bridge Notes of
approximately $248,000 of which approximately $165,000 has accrued as of
December 31, 1995 and on the Promissory Note of $75,000 (representing the
balance of interest owed). See "Capitalization -- Bridge Financing,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Notes 1, 3 and 8 of Notes to Financial Statements.

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DEPENDENCE ON MANUFACTURER AND SUPPLIERS. The Company has no manufacturing
capability and, therefore, contracts with third parties to perform its
manufacturing and out-sources production of components. In particular, IBM has
produced all TelePad 3s and TelePad SLs to date. See "Business -- Manufacturing
and Supply." Under its sales and manufacturing agreement with IBM, as amended
through the date hereof (the "IBM Agreement"), IBM has manufactured 400 TelePad
3 computers at a fixed price per unit, subject to increase for certain
expediting and other extraordinary charges. As of February 28, 1996, the Company
had received 361 of these units with the remaining 39 units to be delivered on a
"cash on delivery" basis upon resolution of the design and diagnostic issues
described below at "-- Power Management Defect." IBM is obligated to continue
manufacturing for the Company only so long as the Company provides a letter of
credit or other reasonably acceptable credit guarantees, which have not yet been
obtained, to secure IBM's cost of parts and meets its other obligations under
the IBM Agreement. As a result of the IBM Resolution Agreement, the Company
currently owes IBM $11,000. An additional $300,000 is due no sooner than April
15, 1996 for the purchase of TelePad SL parts and $139,000 is due after
resolution of the Power Management Defect. In addition, IBM is holding 39
completed TelePad 3 units for which the Company must pay $151,000 upon delivery.
The Company and IBM are also in arbitration to settle a dispute over $137,000 of
TelePad SL units which the Company does not believe it received from IBM.

On January 26, 1996, IBM had an inventory of TelePad 3 parts worth an
aggregate amount of approximately $1,318,000. Under the IBM Resolution
Agreement, as amended, IBM will keep these parts on hand until April 1, 1996,
after which date IBM may sell such parts to mitigate the Company's outstanding
indebtedness to IBM if the Company has not provided a letter of credit to secure
the value of those parts. The Company may use a portion of the proceeds of the
Offering to secure such guarantees. If the Company is unable to provide a letter
of credit and IBM sells such parts, the Company will be liable for any
difference between the book value of parts on hand and the proceeds from the
sale of such parts. Furthermore, the Company has agreed to purchase any parts
(excluding parts for electronic and card assemblies) which IBM may have on hand
at the time IBM's responsibilities for continued manufacturing of complete
TelePad 3 units is terminated. The Company has the right to use manufacturers
other than IBM under the IBM Agreement, subject to IBM's right to receive a
royalty of $15 per TelePad 3 unit utilizing the IBM Blue Lightning
microprocessor or any other microprocessor using an IBM-produced main processing
card.

The Company currently anticipates that it will move manufacture and assembly
of the TelePad 3 from IBM to another manufacturer in a two-stage process during
the first half of 1996. While the Company believes that acceptable alternative
manufacturers are available and is currently engaged in negotiations with three
potential manufacturers, there can be no assurance as to when, if ever, the
Company will enter into acceptable contractual arrangements with any alternative
manufacturer or when such manufacturer will be able to commence production of
TelePad 3 units. See "-- Transition to New Manufacturer" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Plan
of Operations."

The TelePad 3 currently employs the IBM Blue Lightning microprocessor and,
until such time, if any, as the Company completes a redesign permitting the use
of another microprocessor, it will be required to purchase the processor cards
for the TelePad 3 from IBM. Therefore, until such time, if any, as the redesign
is completed, the Company will be required to maintain credit arrangements
satisfactory to IBM. IBM is the only source of Blue Lightning microprocessors.
However, IBM has agreed to supply the processor cards to a manufacturer as long
as the Company continues to be in compliance with the IBM Resolution Agreement.
Accordingly, the migration to another manufacturer will not require the redesign
of the TelePad 3. The Company's management believes that the receipt of the net
proceeds of the Offering will enhance the Company's ability to obtain a letter
of credit or other credit arrangements. There can be no assurance, however, that
the Company will be successful in arranging either credit guarantees or
alternative manufacturing sources on acceptable terms, in a timely manner, or at
all. See "-- Transition to New Manufacturer" and "-- Reliance on Proprietary
Component; Need to Redesign the TelePad 3."

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The components of the TelePads are supplied by various sources. Certain of
the components are highly technical in nature and, with respect to such
components, there can be no assurance that the Company would be able to locate,
on a timely basis or at all, alternative sources of supply.

RELIANCE ON PROPRIETARY COMPONENT; NEED TO REDESIGN THE TELEPAD 3. The
TelePad 3 currently employs the IBM Blue Lightning microprocessor. See "Business
- -- Products." IBM has informed the Company that it no longer produces the Blue
Lightning microprocessor. On January 26, 1996, IBM had an inventory of TelePad 3
parts which included Blue Lightning processors for approximately 5,000 units.
Under the IBM Resolution Agreement, as amended, IBM will keep these parts on
hand until April 1, 1996, after which respective dates IBM may sell such parts
to mitigate the Company's outstanding indebtedness to IBM if the Company has not
provided a letter of credit to secure the value of those parts. See "--
Dependence on Manufacturer and Suppliers." The Company's engineering staff has
begun redesigning the TelePad 3 processor card to use a microprocessor not
manufactured by IBM. The Company expects to have the new design ready for
production during the first half of 1996, although there can be no assurance
that the time required will not be substantially longer. Continuation of the
redesign is dependent upon completion of the Offering. See "-- Need for
Additional Financing; Going Concern Considerations" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." In the event that IBM should not reserve Blue Lightning
microprocessors after April 1, 1996, or should the redesign not be completed
prior to the exhaustion of the available supply of such microprocessors, the
Company would be forced to suspend any ongoing production pending completion of
the redesign. Such a suspension would result in a break in supply of TelePad 3s,
and may adversely affect the Company's business.

POWER MANAGEMENT DEFECT. The Company has determined that TelePad 3
computers occasionally "lock up." In certain circumstances the user must turn
off and restart the computer in order to unlock it, which, in turn, may lead to
a loss of recently entered data. The Company believes, based on its own
examination, that this condition is caused by faulty code in a component of the
advanced power management system of the TelePad 3, which is a component designed
and provided by IBM and as to which IBM has retained all proprietary rights. The
Company has received a written cursory review of the Power Management Defect
issue from IBM stating that the Power Management Defect is not IBM's
responsibility. The Company does not wish to prolong the resolution of this
issue and has notified IBM that it has elected to initiate arbitration
proceedings under the terms of the IBM Resolution Agreement. IBM and the Company
will now submit the matter to an independent third party for final and binding
arbitration. The determination of responsibility shall be the only issue on
which the arbitrator shall pass judgment. Based on such determination, the
parties shall bear their pro rata share of (a) the analysis, corrections and
recall/repair costs, and (b) any costs and expenses associated with the
arbitrator's services. Until such time, if any, as the source of the defect is
identified and a correction designed, it will not be possible to determine the
actual cost of the correction and the Company will not be in a position to
implement the correction. In the event that the Company is determined to be
financially responsible for some or all of the costs of the Diagnostic Analysis,
correction and recall, the Company will not have sufficient funds to address
such issues unless and until the Offering is completed. In addition, even at
such time, if any, as a correction is designed, the Company has decided to
recall all TelePad 3 computers which theretofore have been distributed in order
to implement the correction. Failure to correct the defect could severely
adversely affect its marketing efforts, sales and revenues and reputation. See
"-- Unproven Products; Need for Market Acceptance."

RELEASE OF CLAIMS AGAINST IBM; POTENTIAL CONFESSED JUDGMENT. In connection
with the amendments to the IBM Agreement entered into in February 1995, the
Company has entered into an agreement releasing IBM, its agents, directors,
officers, employees, representatives, successors and assigns from all rights,
claims demands, actions and liabilities (collectively, "Claims") the Company
ever had, has or may have against IBM arising out of or resulting from the IBM
Agreement. Such Claims could include those resulting from the failure of IBM to
produce TelePad 3s or otherwise honor its contractual commitments, as well as
third party claims arising from the actions or failure to act of IBM. As a

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consequence of this agreement, the Company may not have the ability to obtain
relief against IBM in the event of a breach of contract by, or other Claims
arising out of the action or inaction of, IBM in connection with the IBM
Agreement, which in turn could severely adversely affect the Company's business
and prospects. In addition, the Company has agreed that, in the event that it
fails to honor its obligations under the IBM Agreement, the agreement with IBM
would remain in place and the Company could be subject to a confessed judgment
in favor of IBM for all amounts then due in connection with the IBM Agreement.
Notwithstanding the fact that the Company has contractually agreed not to sue
IBM, thus relinquishing the right to seek reimbursement through the courts, the
IBM Resolution Agreement provides that IBM will bear the costs of correcting the
Power Management Defect if independent arbitration concludes that the correction
of such defect is IBM's responsibility. See "Business -- Manufacturing and
Supply -- IBM Agreement."

TRANSITION TO NEW MANUFACTURER. Subject to completion of the Offering, the
Company currently anticipates that it will move manufacture and assembly of the
TelePad 3 from IBM to another manufacturer in a two-phase process during the
first half of 1996. While the Company is currently engaged in negotiations with
three potential manufacturers, there can be no assurance as to when, if ever,
the Company will be able to enter into acceptable alternative manufacturing
arrangements, and there can be no assurance that the Company will not experience
substantial production delays in connection with any such transition in
manufacturing. In addition, until such time, if any, as the Company completes
the redesign of the TelePad 3 permitting the use of a microprocessor other than
IBM's Blue Lightning, it will be required to purchase the microprocessor cards
for the TelePad 3 from IBM, even if other manufacturing and assembly operations
are moved to another manufacturer. While the Company believes the transition to
a new manufacturer will be facilitated by the IBM Resolution Agreement which
provides (1) that IBM will continue building finished TelePad 3 units until the
earlier of sixty days after the Company contracts with a new manufacturer or
December 31, 1996; and, (2) that IBM will continue building electronic card
assemblies (utilizing the Blue Lightning processor) for the Company until (i)
the supply of Blue Lightning processors reserved for the Company (approximately
5,000 Blue Lightnings on January 26, 1996) is consumed, (ii) TelePad orders fall
below a minimum order quantity of 100 cards per month, or (iii) June 30, 1997,
whichever is earlier, there can be no assurance that the Company will receive
the necessary cooperation from IBM. See "-- Dependence on Manufacturer and
Suppliers," "-- Reliance on Proprietary Component; Need to Redesign the TelePad
3" and "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Plan of Operations."

RISK OF PRODUCT LIABILITY. The Company is subject to the inherent business
risk of product liability claims in the event that any of its products are
alleged to have resulted in adverse effects to a user of such products. The
Company does not presently carry product liability insurance but the Company
expects that it will obtain such insurance following the closing of the
Offering. However, there can be no assurance that adequate product liability
insurance can be obtained at acceptable costs. In the event of an uninsured or
inadequately insured product liability claim, the Company's business and
financial condition could be materially adversely affected. See "Business."

RESTRICTIONS ON COMPANY'S ABILITY TO BORROW ADDITIONAL FUNDS. On February
15, 1996, the Company and an individual investor (the "Lender"), who had
previously provided his personal guaranty of the Company's obligations to IBM
for the production of 400 TelePad 3 computers, entered into an agreement whereby
the Lender loaned the Company $750,000 under the Promissory Note due February
13, 1997, or earlier upon demand at any time after completion of the Offering.
The terms of the security agreement executed by the Company and the Lender,
which grant the Lender a security interest in all the Company's assets, require
that any other debts undertaken by the Company, other than trade debts in the
ordinary course, be subordinated in payment to the rights of the Lender. Such
security agreement and subordination requirement may have a material adverse
effect on the Company's ability to obtain additional financing prior to
repayment of such loan. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

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<PAGE>
DELISTING OF SECURITIES BY NASDAQ; MARKET ILLIQUIDITY. Effective June 8,
1995, the Company's Class A Common Stock, together with its Class A Warrants,
Class B Warrants and IPO Units, was delisted from The Nasdaq SmallCap Market,
due to the Company's failure to meet the maintenance requirements for capital
and surplus ($1,000,000). The Company intends to apply to relist these
securities on Nasdaq and initially to list the Class D Warrants (and its
outstanding Class C Warrants) upon completion of the Offering, or such later
time, if any, as the Company meets the initial listing standards (which include
total assets of $4,000,000, stockholders' equity of $2,000,000 and a minimum
market price of $3.00 per share).

The Company's Class A Common Stock is currently traded on the NASD OTC
Bulletin Board and is listed in the "pink sheets" published by the National
Quotation Bureau, Inc. Trading in these markets impairs the liquidity of the
Company's securities due to limitations on the number of securities bought and
sold, delays in the timing of transactions and reduced coverage of the Company
by securities analysts and the news media generally and, consequently, can be
expected to result in lower prices for the Company's securities than otherwise
might be obtained. Consequently, a purchaser of securities in the Offering may
face difficulties in finding a purchaser for his or her securities and may
expect to receive a lower price for such securities than otherwise may be the
case. However, the Company has applied to relist the Class A Common Stock, Class
A Warrants, Class B Warrants and IPO Units and to list the Class D Warrants
offered hereby (and its outstanding Class C Warrants) on Nasdaq upon the
effective date of the Offering. The Company has also applied to list the Class C
Warrants upon the effective date of this Prospectus or shortly thereafter. The
Units offered hereby will not be listed on Nasdaq, therefore there is not
expected to be a trading market in such Units.

There currently are six market makers for the Company's securities. There
can be no assurance, however, that these market makers will continue to make a
market in the Company's securities. In the event that all or a substantial
number should cease to make a market, the liquidity of the Company's securities
would be substantially impaired.

RISK OF LOW-PRICED STOCKS. Regulations promulgated under the Exchange Act
(Rules 15g-1 through 15g-9) impose sales practice and disclosure requirements on
certain brokers and dealers who engage in certain transactions involving "a
penny stock." Generally, a "penny stock" is an equity security that (i) has a
price, or an exercise price, of less than $5.00 per share; (ii) is not quoted on
Nasdaq or traded on a national securities exchange and may be traded on the NASD
OTC Bulletin Board or listed in the "pink sheets;" or (iii) is issued by a
company that has less than $5,000,000 in net tangible assets and has been in
business less than three years, by a company that has less than $2,000,000 in
net tangible assets and has been in business at least three years, or by a
company that has average revenues of less than $6,000,000 for the last three
years.

Under the penny stock regulations, a broker or dealer selling penny stock to
anyone other than an established customer or "accredited investor" (generally,
an individual with net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with his or her spouse) must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction prior to sale, unless the broker or dealer or
the transaction is otherwise exempt. In addition, the penny stock regulations
require the broker or dealer to deliver, prior to any transaction involving a
penny stock, a disclosure schedule prepared by the Commission relating to the
penny stock market, unless the broker or dealer or the transaction is otherwise
exempt. A broker or dealer is also required to disclose commissions payable to
the broker or dealer and the registered representative and current quotations
for the securities. In addition, a broker or dealer is required to send monthly
statements disclosing recent price information with respect to the penny stock
held in a customer's account and information with respect to the limited market
in penny stocks.

Currently, the Company's Class A Common Stock is considered penny stock for
purposes of the Exchange Act and the Company fails to meet the minimum net
tangible asset or average revenue criterion established by the regulations
governing penny stocks. See "-- Delisting of Securities by Nasdaq; Market
Illiquidity," and the Financial Statements included elsewhere in this
Prospectus. The

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<PAGE>
additional sales practice and disclosure requirements imposed on certain brokers
and dealers impede the sale of the Company's Class A Common Stock in the
secondary market. In addition, the market liquidity for the Company's Class A
Common Stock has been severely adversely affected, with concomitant adverse
affects on the price thereof.

The foregoing regulations would not apply to the Company's securities if
they are relisted (or listed in the case of the Class D Warrants) on Nasdaq or
if the Company meets the minimum net tangible asset or average revenue criterion
established thereby. See "Capitalization."

RAPID TECHNOLOGICAL CHANGE; POSSIBLE OBSOLESCENCE. The Company's products
and marketing strategy are subject to rapid technological changes, short product
life cycles, product obsolescence, and rapid price erosion, particularly with
respect to the hardware components which represent the most significant portion
of the Company's business. The Company believes that its future success will
depend in significant part upon its ability to establish full-scale production
and sale of the TelePad 3 and to develop new products and services incorporating
technological changes and meeting changing customer demands. To the extent
products developed by the Company are based upon evolving new technology, sales
of such products may be adversely affected if such technology ultimately is not
widely accepted. If the Company does not successfully develop and introduce new
or enhanced products in a timely manner, any competitive position the Company
may develop could be lost and the Company's sales, if any, would be reduced. In
this regard, IBM has announced that it no longer produces the Blue Lightning
microprocessor used in the TelePad 3. While IBM has informed management that it
has reserved approximately 5,000 Blue Lightning microprocessors for use in the
manufacture of TelePad 3s, and management believes that this supply would be
sufficient to meet the Company's needs pending design modification to permit the
use of another microprocessor, should the Company not modify the design of the
TelePad 3 to permit use of another microprocessor in a timely fashion, the
Company's ability to produce and market its products, and its business and
financial results, would be adversely affected. See "-- Reliance on Proprietary
Component; Need to Redesign TelePad 3." There can be no assurance that the
Company will have sufficient funds to sustain its development activities, that
any such activities will be successful or that any such activities will enable
the Company to obtain or maintain any competitive advantage. See "-- Need for
Additional Financing; Going Concern Considerations," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."

UNPROVEN PRODUCTS; RELIANCE ON SINGLE PRODUCT; NEED FOR MARKET
ACCEPTANCE. The only product currently being marketed by the Company is the
TelePad 3. The Company is purchasing IBM's remaining stock of parts for the
TelePad SL (the Company's original product) for $300,000 and intends to build
finished TelePad SL units using these parts. These parts are expected to yield
between 200 and 400 finished units, but there is no assurance as to the number
which can ultimately be built. The Company's plans for future production of both
the TelePad 3 and TelePad SL are dependent on successful completion of the
Offering. There is no assurance that the TelePad 3 or any other product the
Company may develop will achieve market acceptance. It is anticipated that many
potential purchasers of the TelePad 3 will require that it pass elaborate tests
performed both by the Company and, in many instances, by the user itself, prior
to completion of their purchases. No assurance can be given that the TelePad 3
will satisfactorily pass such tests or, if it does, that the product will
function during actual operating use at levels acceptable to users or will
operate free of maintenance, product control or other performance problems for
sustained periods of time. The Company has determined that the Power Management
Defect occasionally causes TelePad 3 computers to "lock up" which, in certain
circumstances, may lead to a loss of recently entered data. See "-- Delays in
Product Commercialization" and "-- Power Management Defect." There can be no
assurance when, if ever, this defect will be corrected. Failure to correct the
defect may adversely affect the Company's financial results and the reputation
of the Company's products. See "Business -- Products." In addition, users may be
reluctant to purchase any products from the Company unless they are satisfied as
to the Company's

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<PAGE>
ability to provide an adequate supply of its products, as well as its continued
viability, as to neither of which assurance can be given. See "-- Need for
Additional Financing; Going Concern Considerations" and "-- Substantial
Operating Losses; No Assurance of Success."

LIMITED MARKETING CAPABILITIES. Because of the sophisticated nature of its
products and the early stage of development of the field force computing
industry, the Company must expend substantial resources to identify prospective
customers and educate them as to the merits of the Company's products and
strategy. There can be no assurance the Company will have sufficient funds to
market its products effectively. Further, the Company reduced its sales force in
January 1995, and, therefore, there can be no assurance that remaining personnel
can be retained, that new, qualified personnel will be attracted by the Company
or that any marketing efforts by such personnel will be successful. In addition,
the Company's marketing efforts have been and will continue to be adversely
affected to the extent that its supply of products is disrupted and design
defects are not corrected. See "-- Delays in Product Commercialization," "--
Power Management Defect" and "-- Reliance on Proprietary Component; Need to
Redesign the TelePad 3." Failure to market the Company's products effectively
would impair the Company's ability to generate revenues from product sales. See
"Business -- Sales and Marketing."

COMPETITION. The Company currently is subject to substantial competition
and management expects competition in the field force computing industry to
intensify in the future. There can be no assurance that competing products will
not be introduced that achieve greater market acceptance than, or are
technologically superior to, the TelePad 3. Most of the Company's competitors
and future competitors are, or can be expected to be, larger than the Company
and to have more extensive experience and records of successful operations than
the Company. Such competitors also have, or can be expected to have, greater
financial, marketing and other resources, more employees and larger facilities
than the Company now has or can be expected to have in the foreseeable future.
In particular, certain of the Company's present and future competitors are, or
can be expected to be, the most prominent and well-respected computer
manufacturers in the world, including IBM (the Company's sole source supplier of
Blue Lightning microprocessors and the manufacturer of the TelePad 3), Fujitsu
Limited, Toshiba Corp., NEC Technologies, Inc., Zenith Data Systems Corp.,
Symbol, Telxon, Motorola, Samsung and others. The Company believes that such
companies have the resources and technological capability to produce and market
products competitive with, if not superior to, the TelePads. In addition, the
Company expects that other competitors will emerge and competing products will
be introduced in the near future. No assurance can be given that the Company
will be able to compete successfully or that competitive pressures will not
adversely affect its financial performance. See "Business -- Competition."

LIMITED PATENT PROTECTION. Other than the four patents on the multi-purpose
handle and adjustable locking handle mechanism used on the TelePads, the Company
currently does not have patents relating to its products, although its patent
application for the industrial and mechanical design of the portable electronic
platform which is the basis of the TelePad 3 has been allowed. In addition, the
Company intends to file patent applications for the electrical design of the
TelePad 3. There can be no assurance patents will be issued on the basis of the
Company's applications. Further, the Company otherwise does not intend to pursue
patents, because it does not believe that the technology it employs is
patentable. While the Company views the patents relating to the multi-purpose
handle used on the TelePads as important to the value of the TelePads as a
whole, there can be no assurance that any issued patent will provide the Company
with a meaningful competitive advantage, that competitors will not design
alternatives to reduce or eliminate the benefits of any issued patent or that
challenges will not be instituted against the validity or enforceability of
these patents. Other companies may obtain patents claiming products or processes
that are necessary for, or useful to, the development of the Company's products,
in which event the Company may be required to obtain licenses for patents or for
proprietary technology in order to develop, manufacture or market its products.
There can be no assurance that the Company would be able to obtain such licenses
on commercially reasonable terms, if at all.

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<PAGE>
It is the Company's practice to protect its proprietary materials and
processes by relying on trade secret laws and non-disclosure and confidentiality
agreements. There can be no assurance that confidentiality or trade secrets will
be maintained or that others will not independently develop or obtain access to
such materials or processes. See "Business -- Patents and Proprietary Rights."

DEPENDENCE ON KEY PERSONNEL; NEED TO RETAIN TECHNICAL PERSONNEL. The
Company's success will depend to a large extent upon the continued contributions
of Ronald C. Oklewicz, currently President and Chief Executive Officer, and
Joseph J. Elkins, currently Vice President and Chief Operating Officer. Scott J.
Dankman resigned as Chairman and a member of the Board of Directors on July 7,
1995 and as Chief Technology Officer of the Company effective July 22, 1995. In
addition to the resignation of two other officers during 1994, Glenn J. Baird
resigned from the Board of Directors in August 1994, Joseph J. Elkins resigned
from the Board of Directors in July 1995 and George P. Groff elected to not
stand for re-election to the Company's Board of Directors at its Annual Meeting
in June 1995. While these resignations are not expected to have an adverse
effect on the Company, the loss of the services of any or all of the remaining
executive personnel could materially adversely affect the Company. In order to
position the Company for future growth, on October 26, 1995, the Board of
Directors voted to seek a new Chief Executive Officer and to retain an executive
search firm to identify candidates for this position. In connection therewith,
and in light of the importance of Mr. Oklewicz's continued management role to
the growth and success of the Company, the Company has entered into a new
employment agreement with Mr. Oklewicz to secure his services through at least
December 31, 1996. See "Management." There can be no assurance as to when, if
ever, an acceptable candidate for Chief Executive Officer will be identified.
The Company also has entered into an employment agreement with Mr. Elkins. See
"Management." The Company has obtained term key-person life insurance coverage
in the amount of $2,000,000 on the life of Mr. Oklewicz.

The success of the Company also will depend, in part, upon its ability to
retain qualified engineering and other technical and marketing personnel. There
is significant competition for technologically qualified personnel in the
geographical area of the Company's business and there can be no assurance that
the Company will be successful in recruiting or retaining qualified personnel.
See "Business."

GOVERNMENT REGULATION. The TelePad 3 and the TelePad SL are subject to
government regulation of electromagnetic emissions that are conducted from the
devices over power lines, when the devices are operated from AC wiring, and
radiated through the air. In particular, the regulations of the Federal
Communications Commission ("FCC") require products of this kind to have been
approved by the FCC as meeting the Class B digital device requirements under
Parts 2 and 15 of the FCC rules before the products may be marketed (I.E.
imported, sold or leased or advertised for sale or lease). These regulations are
designed to minimize interference with certain other electronic products and
communications services. The approvals (a form of equipment authorization known
as "certification") are granted only after the products have passed various
electromagnetic compatibility tests and an application submitted to the FCC has
been granted. The FCC approves equipment of the kind produced by the Company
only on the condition that operation of the equipment not cause interference to
licensed radio communications and that the equipment accept interference from
licensed radio facilities, even if the interference results in undesirable
operation of the equipment. Modems that the Company sells for the connection of
the TelePad SL and the TelePad 3 to the public switched telephone line are
subject to certification under the FCC Rules in the same manner and subject to
an additional approval requirement of "registration" under Part 68 of the FCC
Rules governing certain telephone equipment.

Although the TelePad 3 and TelePad SL have received FCC certification, the
devices must continue to comply with federal regulations. Changes in the design
of the products generally will require the Company to have the products
reexamined as to continued compliance. Depending on the nature of the change,
the products may be subject to the receipt of new or modified approvals before
the changed products may be marketed.

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<PAGE>
The Company also must ensure that the TelePad 3 and TelePad SL comply with
the Occupational Safety and Health Act ("OSHA") regulations requiring electrical
equipment to have been approved for safety by a nationally recognized testing
laboratory. Safety approvals for the TelePad SL and the TelePad 3 have been
obtained. Changes in either device may require retesting and further approvals,
which could result in delay that could have an adverse material effect on the
Company.

To the extent that the Company desires to sell its products internationally,
it also will be required to comply with the regulations of other nations as to
electrical emissions and safety, some of which may be expected to be more
stringent than those imposed by the FCC or under regulations adopted by OSHA. In
particular, the TelePad 3 currently is certified for sale within the European
Union (the "EU"), whose standards are more stringent, in order to permit export
to members of the EU, including the United Kingdom.

To the extent that the Company sells products, directly or indirectly, to
the United States Government, the Company's contracts and subcontracts will be
subject to termination, reduction or modification at the Government's
convenience.

Failure to comply with FCC, OSHA and other governmental regulations would
have a material adverse effect on the Company. The delay associated with
obtaining any future approvals may also have a material adverse effect on the
Company.

POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK; ANTI-TAKEOVER
EFFECTS. The Company's Second Restated Certificate of Incorporation, as amended
(the "Charter"), authorizes the issuance of a maximum of 5,000,000 shares of
Preferred Stock on terms which may be fixed by the Company's Board of Directors
without further stockholder action. The terms of any series of Preferred Stock,
which may include priority claims to assets and dividends, and special voting
rights, could adversely affect the rights of holders of the Class A Common
Stock. The issuance of Preferred Stock could make the possible takeover of the
Company or the removal of management of the Company more difficult, discourage
hostile bids for control of the Company in which stockholders may receive
premiums for their shares of Class A Common Stock, or otherwise dilute the
rights of holders of Class A Common Stock and the market price of the Class A
Common Stock. See "Description of Securities -- Preferred Stock."

CONTROL BY PRESENT STOCKHOLDERS AND MANAGEMENT. Upon completion of the
Offering, the Company's former Chairman of the Board of Directors, Scott J.
Dankman, will own 555,563 shares of Class B Common Stock, (excluding options)
representing approximately 21.51% of the total voting power of the Company. Mr.
Dankman has granted an irrevocable voting proxy covering all such shares to the
Company's non-employee directors. Including such shares, upon completion of the
Offering, the Company's officers and directors will have 26.57% of the voting
power of the Company's Common Stock. As a result, they may be able to influence
the election of the Company's directors and otherwise influence control over the
Company's operations. Furthermore, the disproportionate vote afforded the Class
B Common Stock could also serve to impede or prevent a change of control of the
Company. As a result, potential acquirers may be discouraged from seeking to
acquire control of the Company through the purchase of Class A Common Stock,
which could depress the price of the Company's securities. See "Principal
Stockholders" and "Description of Securities."

BROAD DISCRETIONARY USE OF PROCEEDS BY MANAGEMENT. The Company will have
broad discretion with respect to the specific application of approximately
$5,369,000, or 30.3%, of the net proceeds of the Offering. Such amounts are
intended to be applied toward working capital in accordance with the Company's
strategy. Thus, purchasers of the Units will be entrusting their funds to the
Company's management, upon whose judgment the investors must depend, with only
limited information concerning management's specific intentions. See "Use of
Proceeds."

DILUTION. A purchaser in the Offering who exercises Class D Warrants will
experience immediate and substantial dilution of $1.94 per share, or
approximately 55% of the exercise price. See "Dilution" and "Shares Eligible for
Future Sale."

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NO DIVIDENDS. The Company has not paid any cash dividends and does not
presently intend to pay cash dividends. It is not likely that any cash dividends
will be paid in the foreseeable future. See "Dividend Policy."

POSSIBLE ADVERSE EFFECT OF INVESTIGATION BY SECURITIES AND EXCHANGE
COMMISSION OF D.H. BLAIR INVESTMENT BANKING CORP. AND D.H. BLAIR AND CO., INC.
AND ISSUERS WHOSE SECURITIES WERE UNDERWRITTEN THEREBY. The Commission is
conducting an investigation concerning various business activities of the
Underwriter and D.H. Blair & Co., Inc. ("Blair & Co."). The investigation
appears to be broad in scope, involving numerous aspects of the Underwriter's
and Blair & Co.'s compliance with the Federal securities laws and compliance
with the Federal securities laws by issuers whose securities were underwritten
by the Underwriter or Blair & Co., or in which Blair & Co. made over-the-counter
markets, persons associated with such entities, such issuers and other persons.
The Company has been advised by the Underwriter that the investigation has been
ongoing since at least 1989 and that the Underwriter is cooperating with the
investigation. The Underwriter cannot predict whether this investigation will
ever result in any type of formal enforcement action against the Underwriter or
Blair & Co. or, if so, whether any such action might have an adverse effect on
the Underwriter or the securities offered hereby. Blair & Co. makes a market in
the Company's securities. An unfavorable resolution of the Commission's
investigation could have the effect of limiting Blair & Co.'s ability to make a
market in the Company's securities, which could adversely affect the liquidity
or price of such securities. See "-- Delisting of Securities by Nasdaq; Market
Illiquidity" and "Underwriting."

POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN COMPANY'S
SECURITIES. Blair & Co. currently makes a market in the Company's securities
and has informed the Company that it intends to make a market in the Company's
Class C Warrants and Class D Warrants at such time, if any, as such securities
are listed or traded in a market. See "-- Delisting of Securities by Nasdaq;
Market Illiquidity." Rule 10b-6 under the Exchange Act may prohibit Blair & Co.
from engaging in any market making activities with regard to the Company's
securities for the period from nine business days (or such other applicable
period as Rule 10b-6 may provide) prior to any solicitation by Blair & Co. of
the exercise of Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right that Blair &
Co. may have to receive a fee for the exercise of Warrants following such
solicitation. As a result, Blair & Co. may be unable to provide a market for the
Company's securities during the period while Warrants are exercisable. In
addition, under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Selling Securityholder Warrants may
not simultaneously engage in market-making activities with respect to any
securities of the Company for the applicable "cooling off" period (at least two
and possibly nine business days) prior to the commencement of such distribution.
Accordingly, in the event the Underwriter or Blair & Co. is engaged in a
distribution of the Selling Securityholder Warrants, neither of such firms will
be able to make a market in the Company's securities during the applicable
restrictive period. Any temporary cessation of such market-making activities
could have an adverse effect on the market price of the Company's securities.
See "-- Delisting of Securities by Nasdaq; Market Illiquidity" and
"Underwriting."

ARBITRARY DETERMINATION OF WARRANT EXERCISE PRICES AND TERMS. The exercise
prices and other terms of the Class D Warrants were determined by negotiation
between the Company and the Underwriter and are not necessarily related to the
Company's asset value, net worth or other criteria of value. See "Underwriting."

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. Commencing one year
from the date of this Prospectus, the Company may redeem the Class D Warrants at
a redemption price of $.05 per Warrant upon 30 days' prior written notice if the
average bid price per share of the Class A Common Stock exceeds $7.00 (subject
to adjustment) for 30 consecutive trading days ending within 15 days of the
notice of redemption. Redemption of the Class D Warrants could force the holders
to exercise the Warrants and pay the exercise price for such Warrants at a time
when it may be disadvantageous for them to do so, to sell the Warrants at the
then-current market price when they might otherwise wish to hold the Warrants,
or to accept the redemption price, which, at the time the Warrants are called
for

17
<PAGE>
redemption, is likely to be substantially less than the market value of the
Warrants. The Company will not call the Warrants for redemption except pursuant
to a currently effective prospectus and registration statement. See "Description
of Securities -- Redeemable Warrants."

CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS. A
holder only will be able to exercise Class D Warrants if (i) a current
prospectus under the Securities Act, relating to the securities underlying such
Warrants, is then in effect and (ii) such securities are qualified or registered
for sale or exempt from qualification or registration under the applicable
securities laws of the jurisdiction in which the holder resides. Although the
Company has undertaken to use its best efforts to maintain the effectiveness of
a current prospectus relating to the securities underlying the Class D Warrants
and currently intends to use its best efforts to keep this Prospectus current
following completion of the Offering, there can be no assurance, due to
financial and other resource constraints, that the Company will be able to do
so. The value of the Class D Warrants may be significantly adversely affected if
a current prospectus relating to the securities issuable upon exercise thereof
is not kept effective. Similarly, the value of the Class D Warrants may be
significantly adversely affected if such securities are not qualified or
registered, or exempt from qualification or registration, in the jurisdiction of
residence of a holder wishing to exercise such Class D Warrants. The Company has
registered or qualified the Units and components thereof for sale in Colorado,
Connecticut, Delaware, Florida, Georgia, Illinois, Kansas, Louisiana, Maryland,
Nevada, New Jersey, New York, Rhode Island, Utah and West Virginia. Although the
Company is not aware of any states that prohibit the registration or
qualification of securities of the type offered hereby, there can be no
assurance that the holder of Class D Warrants will be permitted to exercise his
or her Class D Warrants in any jurisdiction other than those listed above. At
such time, if any, as the Class D Warrants become redeemable by the Company by
their terms, the Company may exercise its redemption rights even if it is unable
to qualify the underlying Class A Common under the applicable blue sky laws of
all relevant jurisdictions. See "Description of Securities -- Redeemable
Warrants -- Class D Warrants."

POSSIBLE ADVERSE EFFECT OF CONCURRENT OFFERING. The Selling Securityholder
Warrants and the Class A Common Stock underlying such Warrants have been
registered for resale concurrently with the Offering (the "Concurrent
Offering"), subject to a contractual restriction that prohibits the Selling
Securityholders from selling any of the Selling Securityholder Warrants for at
least 90 days from the date of this Prospectus and, during the period from 91 to
270 days after the date of this Prospectus, may sell only specified percentages
of such Selling Securityholder Warrants. Sales of Common Stock, or the
possibility of such sales, in the public market pursuant to the Concurrent
Offering or otherwise, may adversely effect the market price of the securities
offered hereby. See "Concurrent Offering," "Description of Securities" and
"Shares Eligible for Future Sale."

18
<PAGE>
THE COMPANY

The Company is engaged in the design, development and marketing of pen-based
computing and mobile communications systems and, to a lesser extent,
applications software. The Company's hardware and software products and overall
solutions are designed to facilitate the management, communication and
processing of information by businesses and governmental organizations whose
work forces include substantial numbers of mobile, remote field workers ("field
force workers"). Pursuant to its field force computing strategy, the Company
provides hardware and software products and solutions that SUPPORT an
enterprise's field force workers, CONNECT the field force workers and their home
office and DIRECT information, both to the home office staff who need such
information and back to workers in the field. For example, the Company's
products would permit customers such as insurance companies and their claims
adjusters or manufacturers and their sales people to enter data directly from
the field into home office information systems for immediate processing. Through
this approach, the Company believes that it can significantly reduce or
eliminate the time and personnel resources currently required for data entry,
distribution and assimilation and thereby enhance the productivity and
efficiency of its customers. See "Business -- Field Force Computing Strategy."

The only product currently being marketed by the Company is the TelePad 3 --
a highly portable, tablet-sized computing device which offers voice recognition
and a pen interface as well as a detachable keyboard. Its unique modular
architecture includes a base platform currently available with a 66 MHZ
processor, a dual scan color display and up to 36 MB of internal memory. It also
features three docking bays that can hold a variety of hardware accessories. The
platform is designed to facilitate the Company's planned development of upgrades
to more powerful processors, different types of displays and additional memory.
Subject to completion of the Offering and receipt of the proceeds therefrom, the
Company plans to develop additional modules capable of accommodating various
communications, computing and special purpose accessories. See "Business --
Products."

Production of the TelePad 3 commenced at the end of June 1995 and 361 units
(60 of which are being used by the Company for sales, marketing, and engineering
purposes and 18 of which are held in inventory) had been produced as of February
29, 1996, of which 283 had been sold. An additional 39 units have been
manufactured by IBM but had not been delivered as of February 29, 1996. The
Company has experienced substantial technical and financial difficulties that
have led to significant delays in the commencement of product commercialization,
including the identification of the Power Management Defect which causes TelePad
3s to "lock up," in certain circumstances leading to a loss of recently entered
data. While management believes that the problem is caused by a faulty code in a
component of the advanced power management system supplied by IBM, the Company's
sole source manufacturer, and should be relatively easy to correct, at an
estimated cost of approximately $140 per unit, there can be no assurance as to
the actual time or expense involved in identifying the precise source of the
problem or designing a correction. Under the IBM Resolution Agreement, the costs
of the analysis, correction and any recall will be borne by the party deemed
responsible for the original design under the Company's design contract with
IBM. The Company has received a written cursory review of the Power Management
Defect issue from IBM stating that it is not IBM's responsibility. The Company
does not wish to prolong the resolution of this issue and has notified IBM that
it has elected to initiate arbitration proceedings under the terms of the IBM
Resolution Agreement. The Company anticipates that all TelePad 3s heretofore
sold will be recalled at such time as a correction is available.

In light of the foregoing as well as credit issues described below,
production of the TelePad 3 has been halted since November 30, 1995, pending
resolution of design and credit issues with IBM. The Company currently expects
that it will require at least three months following the resolution of the
design and credit issues with IBM which is dependent in large part upon the
completion of the Offering before production of additional TelePad 3 units can
resume. See "Risk Factors -- Dependence on Manufacturer and Suppliers" and "--
Power Management Defect."

19
<PAGE>
In addition, IBM informed the Company that it ceased production of the Blue
Lightning 486 microprocessor used in the TelePad 3. The TelePad 3 is designed
with its processor on a "daughter card" which installs on the "mother board".
This technique is expected to minimize the design work necessary to upgrade from
the current IBM Blue Lightning 486 processor to other compatible 32-bit
processors from Intel, Cyrix, AMD and others. The Intel Pentium is a 64-bit
processor which is implemented with a 32-bit data bus in many battery powered
notebook computers. Subject to completion of the Offering and receipt of the
proceeds therefrom, the Company intends to upgrade its 32-bit TelePad 3 in 1996
and is currently evaluating both 586-class 32-bit processors and the 64-bit data
bus Pentium alternative. Management currently estimates that redesign of the
TelePad 3 to replace the Blue Lightning will require four to six months,
although there can be no assurance that the time required will not be
substantially longer. Therefore, the Company could experience a significant
interruption in supply pending completion of the redesign, commencement of which
is dependent upon completion of the Offering and receipt of the proceeds
therefrom. On January 26, 1996, IBM had an inventory of TelePad 3 parts worth an
aggregate amount of $1,318,000, for which the Company is liable, which comprises
Blue Lightning processors for approximately 5,000 units; color display modules
for approximately 686 units; SRAM memory for approximately 340 units; DRAM
memory for approximately 245 units; batteries for approximately 225 units; and
other parts in various quantities. Under the IBM Resolution Agreement, as
amended, IBM will keep these parts on hand until April 1, 1996, after which date
IBM may sell such parts to mitigate outstanding indebtedness to IBM if the
Company has not provided a letter of credit to secure the value of those parts.
Further, IBM is required to produce additional TelePad 3 computers or Blue
Lightning microprocessor cards only upon receipt of reasonably acceptable credit
guarantees for the value of its parts inventory. While the Company currently is
seeking such guarantees, it is not expected that the Company will be able to
provide such guarantees prior to completion of the Offering. See "Risk Factors
- -- Dependence on Manufacturer and Suppliers," "-- Reliance on Proprietary
Component; Need to Redesign the TelePad 3," "Business -- Products" and "--
Manufacturing and Supply."

In order to resolve production difficulties related to the TelePad 3,
substantially reduce production costs, and provide for better control and
accountability, subject to completion of the Offering and receipt of the
proceeds of the Offering, and to the Company's ability to enter into
satisfactory contractual arrangements, the Company intends to move manufacture
of the TelePads 3 to another manufacturer in a two-stage process during the
first half of 1996. While the Company believes that acceptable alternative
manufacturers are available and is currently engaged in negotiations with a
number of potential manufacturers, there can be no assurance as to when, if
ever, the Company will be able to enter into acceptable alternative
manufacturing arrangements. In addition, there can be no assurance that the
Company will not experience substantial production delays in connection with any
such transition in manufacturing. The Company currently expects that it will
require at least three months following the resolution of the design and credit
issues with IBM before any additional TelePad 3 units will be produced. Further,
until such time, if any, as the Company completes redesign of the TelePad 3
permitting the use of a microprocessor other than IBM's Blue Lightning, it will
be required to purchase microprocessor cards for the TelePad 3 from IBM. In the
event that the Company arranges for the manufacture of TelePad 3s using the Blue
Lightning microprocessor, it will be required to pay IBM a royalty of $15 per
unit for each unit that contains an IBM-produced microprocessor card. See "Risk
Factors -- Dependence on Manufacturer and Suppliers," "-- Reliance on
Proprietary Component; Need to Redesign the TelePad 3," "-- Transition to New
Manufacturer" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Plan of Operations."

20
<PAGE>
The first generation TelePad, the TelePad SL, employs a 386 SL
microprocessor and offers pen and keyboard interfaces, but has no voice
recognition capability. The Company began full-scale production of the TelePad
SL in the fall of 1993 and produced TelePad SLs and accessories for its
customers during the remainder of 1993 and all of 1994. Demand for the Intel 386
SL microprocessor used in the TelePad SL declined during 1994 and the Company
produced no TelePad SLs during 1995. Although the Company currently maintains no
inventory of TelePad SL units, it maintains an inventory of components for use
in crafting solutions for its existing customers and is in the process of
receiving the remaining TelePad SL inventory held by IBM with which the Company
intends to produce and sell between 200 to 400 TelePad SL units.

While the 386 SL microprocessor employed in the TelePad SL has been
superseded by faster, more powerful microprocessors, the Company believes, based
on customer inquiries, the Company's sales of refurbished demonstration units,
and current orders, that a significant market remains for the TelePad SL among
customers who may not require the fastest and most powerful computing capacity
available, but who can benefit from the design and capabilities of the TelePad
SL as a mobile terminal mounted in a vehicle or as an out-door data collection
device. In order to exploit this market, subject to completion of the Offering,
the Company is seeking alternative manufacturing arrangements for the production
of TelePad SLs at a cost that would permit the profitable sale of such units. In
addition, the Company intends to use a portion of the Offering proceeds to
upgrade the TelePad SL to a 486 microprocessor. In the event that the Offering
is not completed, the Company will not have sufficient funds to produce
additional TelePad SL computers in their current configuration, upgrade to a 486
microprocessor or produce upgraded units. See "Risk Factors -- Need for
Additional Financing; Going Concern Considerations" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "-- Plan of Operations."

The Company currently is suffering a severe loss of liquidity and may not
have sufficient funds to continue its operations at their current level through
completion of the Offering. In the event that the Offering is not completed, the
Company will be required to radically restructure and may be required to seek
protection under the United States Bankruptcy Code. See "Risk Factors -- Need
for Additional Financing; Going Concern Considerations," "-- Substantial
Operating Losses; No Assurance of Success" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

21
<PAGE>
DILUTION

THE FOLLOWING DISCUSSION AND TABLES TREAT THE CLASS A COMMON STOCK AND THE
CLASS B COMMON STOCK AS A SINGLE CLASS.

As of December 31, 1995, the Company had a negative net tangible book value
of $4,112,000 or approximately $(.82) per share based on 4,991,738 shares of
Common Stock outstanding. Net tangible book value per share represents the
amount of the Company's total tangible assets (total assets less intangible
assets) less its total liabilities, divided by the weighted average number of
shares of Common Stock outstanding.

After giving effect to the exercise of the 2,000,000 outstanding Class D
Warrants, the pro forma net tangible book value of the shares of Class A Common
Stock at December 31, 1995 would have been $1.56 per share, representing an
immediate dilution per share of $1.94 to individuals exercising Class D
Warrants.

The following table illustrates the per share dilution to be incurred by
individuals exercising the Warrants, assuming all such Warrants are exercised:

<TABLE>
<S> <C> <C>
Exercise price............. $ 3.50
Net tangible book value per
share before the exercise
of Warrants (1)........... $ 1.24
Increase attributable to
the exercise of
Warrants.................. 0.32
Pro forma net tangible book
value after exercise...... 1.56
Dilution of net tangible
book value................ 1.94
</TABLE>

- ------------------------
(1) Gives pro forma effect to the issuance in February 1996 of the Promissory
Note, and the related charges against operations of $67,500, representing
the loan origination fee, and $75,000 of prepaid interest and the use of a
portion of the proceeds therefrom to repay approximately $414,000 of
accounts payable to IBM. Adjusted to give effect to the sale of the 20,000
Units offered in the Unit Offering assuming that each Unit contains 285
shares of Class A Common Stock at a public offering price of $1,000 per
Unit, the receipt of the net proceeds therefrom by the Company and the use
of a portion of such net proceeds to repay the Bridge Notes together with
accrued interest and the related charges against operations through the date
of repayment of approximately $118,000 representing the unamortized portion
of the debt discount. Also adjusted to give effect to the repayment of the
Promissory Note and the related charge against operations through the date
of repayment of an additional $75,000 representing the interest on such
loan. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

22
<PAGE>
PRICE RANGE OF SECURITIES

The Company's IPO Units, Class A Common Stock, Class A Warrants, and Class B
Warrants currently trade under the symbols TPADU, TPADA, TPADW and TPADZ,
respectively, in the NASD OTC Bulletin Board and are quoted in the "pink sheets"
published by the National Quotation Bureau, Inc. From July 16, 1993, the date of
the Company's IPO, until June 7, 1995, such securities were traded, under the
same symbols, on The Nasdaq SmallCap Market. The high, ask and low bid prices
for the IPO Units, Class A Common Stock, Class A Warrants and Class B Warrants
as reported by the National Quotation Bureau, Inc. for the period since June 7,
1995 and by Nasdaq for the period from July 16, 1993 to that date, are indicated
below. Such prices are interdealer prices without markups, markdowns or
commissions, and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B
IPO UNITS COMMON STOCK WARRANTS WARRANTS
-------------------- -------------------- -------------------- --------------------
LOW HIGH LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993
- ------------------------------
Third Quarter
(since July 16).............. $ 6.375 $ 8.500 $ 4.750 $ 6.000 $ 0.875 $ 1.750 $ 0.625 $ 1.125
Fourth Quarter................ 7.750 9.750 5.250 6.500 1.375 2.250 0.750 1.125
1994
- ------------------------------
First Quarter................. 8.750 14.000 5.625 8.875 1.875 3.875 0.750 1.875
Second Quarter................ 9.500 12.500 6.500 8.000 2.125 3.125 0.875 1.250
Third Quarter................. 9.000 12.750 5.375 7.750 2.125 3.625 0.939 1.439
Fourth Quarter................ 9.500 12.500 5.375 7.500 2.750 3.750 1.000 1.500
1995
- ------------------------------
First Quarter................. 7.500 12.000 4.750 7.000 1.939 3.125 1.000 1.375
Second Quarter................ 2.500 9.500 1.750 5.875 0.375 2.564 0.375 1.125
Third Quarter................. 3.000 8.000 2.000 5.000 0.500 2.500 0.375 1.125
Fourth Quarter................ 2.625 8.250 1.500 3.500 1.189 2.500 0.250 0.814
1996
- ------------------------------
First Quarter
(to March 28, 1996).......... 2.250 6.500 0.750 4.000 0.875 2.500 0.125 1.000
</TABLE>

The closing bid price as reported by the National Quotation Bureau, Inc. on
the dates indicated below for the IPO Units, the Class A Common Stock, the Class
A Warrants and the Class B Warrants was $5.375 (March 27, 1996), $3.25 (March
28, 1996), $1.50 (March 27, 1996)and $.625 (March 27, 1996), respectively. As of
March 27, 1996, there were 221 record owners of the Company's Class A Common
Stock. The majority of the outstanding shares of Class A Common Stock are held
of record by nominee holders on behalf of approximately 924 beneficial owners.
Trading on the NASD OTC Bulletin Board impairs the liquidity of the Company's
securities due to limitations on the number of securities bought and sold,
delays in the timing of transactions and reduced coverage of the Company by
securities analysts and the news media generally and, consequently, can be
expected to result in lower prices for the Company's securities than otherwise
might be obtained. See "Risk Factors -- Delisting of Securities by Nasdaq;
Market Illiquidity."

23
<PAGE>
CAPITALIZATION

The following table sets forth the actual capitalization of the Company at
December 31, 1995, pro forma to give effect to the issuance of the Promissory
Note and as adjusted to give effect to the sale of the Units offered hereby, and
application of the proceeds of the Offering as set forth at "Use of Proceeds."
This table should be read in conjunction with the Financial Statements and the
notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
--------------- --------------- ---------------
<S> <C> <C> <C>
Bridge Notes, net of discount (1)............................. $ 3,882,000 $ 3,882,000 --
Promissory Note (2)........................................... 750,000 --
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares authorized,
none issued.................................................. -- -- --
Class A Common Stock, $.01 par value; 94,406,937 shares
authorized, 4,436,175 shares issued and outstanding, actual;
10,136,175 outstanding as adjusted (3);...................... 44,000 44,000 $ 101,000
Class B Common Stock, $.01 par value; 593,063 shares
authorized; 555,563 shares issued and outstanding............ 6,000 6,000 6,000
Additional paid-in capital.................................... 18,657,000 18,657,000 36,342,000
Accumulated deficit........................................... (22,819,000) (22,961,000) (23,238,000)
--------------- --------------- ---------------
Total stockholders' equity (deficit).......................... $ (4,112,000) $ (4,254,000) $ 13,211,000
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>

- ------------------------
(1) The Bridge Notes are payable on the earlier of July 26, 1996 or the
completion of the Offering. See "Use of Proceeds."

(2) The Promissory Note is payable on February 15, 1997 or after the closing of
the Offering at the option of the Lender. See "Use of Proceeds."

(3) Does not give effect to (i) the exercise of 2,507,500 outstanding Class A
Warrants, which currently are exercisable into 3,620,170 shares of Class A
Common Stock at an exercise price of $4.71 per share; (ii) the exercise of
4,290,000 Class B Warrants outstanding and issuable upon the exercise of the
outstanding Class A Warrants, which currently are exercisable into 6,205,066
shares of Class A Common Stock at an exercise price of $6.81 per share; and
(iii) the exercise of 1,074,139.9 outstanding Class C Warrants, which
currently are exercisable into 1,074,139.9 shares of Class A Common Stock at
an exercise price of $3.65 per share. Also does not include shares of Class
A Common Stock underlying (i) the Company's various stock option plans; (ii)
options issued other than under the Company's various stock option plans;
(iii) the Class D Warrants (including the Selling Securityholder Warrants)
(iv) the IPO Unit Purchase Option (pursuant to which 155,000 IPO Units (each
consisting of one share of Class A Common Stock, one Class A Warrant and one
Class B Warrant) may be purchased at a current exercise price of $4.90 per
Unit (as a result of anti-dilution adjustments); (v) the 1994 PPO Unit
Purchase Option (pursuant to which 31.425 1994 PPO Units (each consisting of
12,500 shares of Class A Common Stock and 6,250 Class C Warrants) may be
purchased by the Underwriter at a current exercise price of $3.63 per share
(as a result of anti-dilution adjustments); (vi) the 1995 PPO Unit Purchase
Option, pursuant to which 15.45 1995 PPO Units (each consisting of 12,500
shares of Class A Common Stock and 6,738.5 Class C Warrants) may be
purchased by the Underwriter at a current exercise price of $3.65 per share
(as a result of anti-dilution adjustments); and (vii) the Unit Purchase
Option, pursuant to which 2,000 Units may be purchased by the Underwriter at
140% of the public offering price of the Units (subject to adjustment).

24
<PAGE>
(4) Gives pro forma effect to the issuance of the Promissory Note, and the
related charges against operations of $67,500, representing the loan
origination fee, and $75,000 of interest paid, and the use of a portion of
the proceeds therefrom to repay approximately $414,000 of accounts payable
to IBM.

(5) Adjusted to give effect to the sale of the 20,000 Units offered in the
Offering, the receipt of the net proceeds therefrom by the Company and the
use of a portion of such net proceeds to repay the Bridge Notes together
with accrued interest and the related charges against operations through the
date of repayment of approximately $118,000 representing the unamortized
portion of the debt discount. Also adjusted to give effect to the repayment
of the Promissory Note and the related charge against operations through the
date of repayment of an additional $75,000 representing the interest on such
loan. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

BRIDGE FINANCING

In September 1995, the Company completed the Bridge Financing, consisting of
an aggregate of $4,000,000 in principal amount of Bridge Notes and 1995 Bridge
Warrants to purchase 2,000,000 shares of Class A Common Stock. The Company paid
the placement agent a commission of $400,000 and a non-accountable expense
allowance of $120,000 and paid other expenses of $54,000 in connection with the
Bridge Financing. See "Underwriting." The Bridge Notes are payable, together
with interest thereon at the rate of 10% per annum, on the earlier of July 26,
1996 or the completion of the Offering. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
1995 Bridge Warrants entitle the holders thereof to purchase one share of Class
A Common Stock commencing in July 1996, but will be exchanged automatically on
the closing of the Offering for Selling Securityholder Warrants, which will be
identical to the Class D Warrants included in the Units offered hereby. See
"Description of Securities -- Warrants." The Selling Securityholder Securities
(including both the Selling Securityholder Warrants and the Class A Common Stock
underlying such Warrants) have been registered for resale pursuant to the
Registration Statement of which this Prospectus forms a part, subject to the
contractual restriction that the Selling Securityholders have agreed not to
exercise the Selling Securityholder Warrants for a period of one year following
completion of the Offering and not to sell the Securityholder Warrants except
after specified periods commencing 90 days after completion of the Offering. See
"Concurrent Offering."

DIVIDEND POLICY

The Company has not paid any cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company intends
to retain any earnings to finance the growth of the Company. The Board of
Directors of the Company will review its dividend policy from time to time to
determine the feasibility and desirability of paying dividends, after giving
consideration to the Company's earnings, financial condition, capital
requirements and such other factors as the Board of Directors deems relevant.

25
<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data as of December 31, 1995, and for each
of the two years in the period ended December 31, 1995, have been derived from
the Company's Financial Statements which have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report (which report contains an
explanatory paragraph indicating substantial doubt about the ability of the
Company to continue as a going concern as mentioned in Note 2 to the Financial
Statements) contained elsewhere in this Prospectus. All of the financial data
set forth below is qualified by reference to, and should be read in conjunction
with, the Company's Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product sales revenues..................... $ 5,181,000(1) $ 2,034,000
Service contract revenues.................. 619,000 560,000
Costs and expenses:
Cost of products........................... 5,789,000(2) 1,988,000
Cost of services contracts................. 418,000 320,000
Loss on inventory purchase commitment...... -- 177,000
Research and development................... 3,466,000 1,417,000
Selling, general and administrative........ 4,465,000 3,673,000
Loss from operations....................... (8,338,000) (4,981,000)
Interest income............................ 39,000 33,000
Interest expense........................... (304,000) (447,000)
Amortization of debt issue costs........... -- (574,000)
Other expenses............................. (40,000) --
Net loss................................... $(8,643,000) $(5,970,000)
Net loss per share (3)..................... $ (2.43) $ (1.24)
Weighted average shares outstanding.......... 3,556,855 4,814,782
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------------------------------
AT DECEMBER AS ADJUSTED
31, 1994 ACTUAL PRO FORMA (4) (5)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)...................... $ (1,306,000) $ (4,491,000) $ (4,633,000) $ 12,832,000
Total assets................................... 6,041,000 2,609,000 2,802,000 15,471,000
Total liabilities.............................. 7,044,000 6,721,000 7,057,000 2,260,000
Accumulated deficit............................ (16,849,000) (22,819,000) (22,961,000) (23,238,000)
Stockholders' equity (deficit)................. $ (1,003,000) $ (4,112,000) $ (4,254,000) $ 13,211,000
</TABLE>

- --------------------------
(1) For the year ended December 31, 1994, includes $1,878,000 of sales of the
Company's products and $3,303,000 of sales of competing products
manufactured by IBM.

(2) For the year ended December 31, 1994, includes $2,496,000 of costs of the
Company's products and service contracts and $3,293,000 of costs
attributable to the sale of IBM products described in note (1) above.

(3) See Notes 1 and 9 of Notes to Financial Statements.

(4) Gives pro forma effect to the issuance of the Promissory Note on February
15, 1996 and the related charges against operations of $67,500, representing
the loan origination fee, and $75,000 of prepaid interest, and the use of a
portion of the proceeds therefrom to repay approximately $414,000 of
accounts payable to IBM.

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH, AND IS
QUALIFIED IN ITS ENTIRETY BY, THE FINANCIAL STATEMENTS AND RELATED NOTES
THERETO, AND THE OTHER MORE DETAILED FINANCIAL INFORMATION APPEARING ELSEWHERE
IN THIS PROSPECTUS.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred cumulative losses to date of approximately
$22,819,000, including $5,970,000 for the year ended December 31, 1995.
Additionally, the Company's current liabilities of $6,721,000 exceed current
assets of $2,231,000 at December 31, 1995. The Company's losses have continued
since such date. The continued existence of the Company is dependent on
obtaining additional financing and the ability of the Company to generate
revenues sufficient to cover operating expenses, the outcome of which cannot be
determined at this time. Effective June 8, 1995, the Company's Class A common
stock, together with its Class A warrants, Class B warrants, and IPO units, were
delisted from the NASDAQ SmallCap Market, due to the Company's failure to meet
the maintenance requirements for capital and surplus. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.

The Company estimates that the proceeds from the sale of the securities
being registered hereby, together with the cash expected to be generated from
operations, will be sufficient to support the Company's current level of
operations (assuming no unanticipated demands for working capital) for at least
the 12-month period following the completion of the Offering.

In the event that the Offering is not completed, the Company would be unable
to satisfy most of the current liabilities and would be unable to sustain its
operations at the current level thereafter. The Company would then be required
to radically reduce its operations and may be required to seek protection under
the United States Bankruptcy Code.

To date, the Company has funded its working capital requirements
substantially from the net cash proceeds from its IPO in July 1993 and from
private placement offerings of equity securities. The 1993 IPO produced net
proceeds of approximately $7.5 million. In 1994, the Company obtained net
proceeds of approximately $4.4 million through a private placement of units
consisting of 12,500 shares of Class A common stock and 6,250 Class C warrants.
In 1995, the Company obtained net proceeds of approximately $2.1 million through
a second private placement of units consisting of Class A common stock and Class
C warrants. The unit price reflected the Company's judgment, in consultation
with its placement agent, of the highest price that could successfully be
obtained, which price reflected a discount from market value because the units
sold were unregistered securities.

The Company concluded engineering development on the TelePad 3 and commenced
production in June 1995. Prior to the start of production, the Company and IBM
renegotiated their manufacturing agreement to resolve various issues and provide
for manufacturing the TelePad 3, with payment for finished products guaranteed
by a $1.5 million letter of credit obtained on behalf of the Company by a
private investor. The Company entered into an agreement with an individual
investor under which the investor guaranteed IBM's security interest in the
production of 400 completed TelePad 3 computers. The guarantee, which is no
longer in effect, was backed by a $1.5 million irrevocable letter of credit
provided by a commercial bank. As part of the consideration for the investor's
guarantee, the Company issued the investor 50,000 shares of the Company's Class
A common stock. The Company valued this transaction at $312,000, which
represents the market value of the shares at the date of the transaction.

In September 1995, the Company completed the sale of $4.0 million in
principal amount of Bridge Notes and 2,000,000 1995 Bridge Warrants. Net
proceeds to the Company totaled approximately $3.4 million, after payment of
commissions and an expense allowance in the total amount of $574,000 to the
placement agent and other expenses of the private placement. The Bridge Notes
are due on the earlier of July 26, 1996 or the closing of the Offering.

27
<PAGE>
In view of the stoppage of TelePad 3 production since November 30, 1995, the
Company anticipates that it will have no product revenues during the quarter
ended March 31, 1996.

On February 15, 1996, the Company issued the Promissory Note to the Lender
pursuant to which the Company received net proceeds of $607,500 of which
approximately $414,000 has been paid to IBM. The remaining net proceeds are
being used by the Company as working capital. The Company has allocated a
portion of net proceeds of the Offering to repay the Promissory Note and accrued
interest. The Promissory Note bears interest at the rate of 20%, 10% of which
was paid upon the making of the loan together with a $67,500 loan origination
fee, which amounts were deducted from the principal and retained by the Lender.
The remaining 10% is due upon repayment of the loan amount by the Company. The
conditions of the agreement require that a portion of the proceeds from the
Promissory Note be used to satisfy existing obligations to IBM and that IBM
release the guaranty previously provided by the Lender, which release was
obtained, and for the transfer of approximately $414,000 to IBM by the Lender to
reduce the Company's outstanding obligations to IBM.

At February 28, 1996, the Company was not current with respect to
approximately $569,000 of trade payables. The Company has allocated a portion of
the proceeds of the Offering to repay a portion of such amounts owed to certain
vendors, including but not limited to professional firms and consultants. The
Company is seeking to negotiate a reduction of the amounts due with respect to
accounts payable owed to certain of such vendors. Those creditors who are
necessary to the Company's business continue to supply the Company.

The report of the Company's independent auditors on its financial statements
as of December 31, 1995 contains an explanatory paragraph regarding an
uncertainty with respect to the ability of the Company to continue as a going
concern. The Company believes that the net proceeds of the Offering, together
with cash expected to be generated from operations, will be sufficient to
support the Company's planned level of operations for at least the 12-month
period following completion of the Offering. In the event that the Company's
internal estimates relating to its anticipated expenditures prove materially
inaccurate, the Company may be required to reallocate funds among its planned
activities and curtail or eliminate certain expenditures. In any event, the
Company anticipates that it may require substantial additional financing after
such time. The Company has no established banking relationships and no available
line of credit or other source of liquidity. The Company may seek to leverage
its working capital requirements through borrowings, collaborative arrangements
and strategic alliances, volume discounts for mass purchases of TelePads and
other products, and additional public offerings. There can be no assurance as to
the availability or terms of any required additional financing, when and if
needed. See "Risk Factors -- Need For Additional Financing; Going Concern
Consideration" and "Use of Proceeds."

During 1995, the Company paid approximately $228,000 in salaries of its
executive officers under contract with the Company. In the future, the Company
may increase the number of executive officers as the need arises.

From time to time, the Company issues equity securities in lieu of cash
compensation for services rendered.

At December 31, 1995, the Company had approximately $19,890,000 in tax net
operating loss carryforwards which expire at varying dates through 2010. These
carryforwards will be limited significantly under the Internal Revenue Code as a
result of ownership changes experienced by the Company over the last three
years.

RESULTS OF OPERATIONS

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

Revenue is generated by sales of computer products (TelePad SLs and TelePad
3s) and professional services contracts. During the fiscal year ended December
31, 1994 ("1994"), but not in the fiscal year ended December 31, 1995 ("1995"),
the Company also sold products of another manufacturer.

28
<PAGE>
For 1995, the Company recognized revenues totaling $2,594,000 compared to
revenues totaling $5,800,000 in 1994. This decrease of $3,206,000 (55%) is
primarily the result of the inclusion in 1994 revenue of $3,303,000 of sales of
non-TelePad products. Sales of TelePad products in 1995 were $2,034,000 compared
to $1,878,000 in 1994, an increase of $156,000 (8%) attributable to deliveries
of the TelePad 3 beginning in July 1995. Sales of professional services
contracts, which primarily involve custom software solutions, were $560,000 in
1995 compared to $619,000 in 1994. This decrease of $59,000 (10%) resulted from
multiple small contracts in 1995 replacing one large contract in 1994.

Costs of goods sold totaled $2,308,000 (89% of revenue) for 1995, compared
to $6,207,000 (107% of revenue) for 1994. This decrease of $3,899,000 (60%) is
primarily the result of inclusion in 1994 of $3,293,000 for the cost of sales of
non-TelePad products. Costs of TelePad products sold were $1,988,000 (98% of
associated revenue) for 1995, compared to $2,496,000 (133% of associated
revenue) for 1994. The 1995 figure is comprised of $1,760,000 (87% of associated
revenue) representing the book value of units shipped to customers; $80,000 (4%
of associated revenue) for the write-down of inventory to estimated market
value; $148,000 for the estimated future warranty cost (comprised of $70,000 for
the TelePad SL and $78,000 for the TelePad 3; the latter representing a
larger-than-normal reserve because the TelePad 3 was a new product in 1995 and
the Company intends to offer upgrades to conform early units to its latest
engineering changes) of units shipped in 1995.

The Company also recorded an expense of $177,000 (9% of associated revenue)
for an anticipated loss on a commitment for the purchase in 1996 of TelePad SL
parts from IBM. This commitment to purchase $300,000 in parts is part of an
overall agreement settling various disputes with IBM and facilitating the
Company's transition to a new manufacturer.

Costs of service contracts sold were $320,000 (57% of associated revenue)
for 1995, compared to $418,000 (68% of associated revenue) for 1994. This
improvement in the gross margin percentage resulted primarily from the Company
decreasing its reliance on subcontractors in 1995 and performing more of the
work using its own employees.

Research and development ("R&D") expenses for 1995 were $1,417,000 compared
to $3,466,000 in the same period for 1994. This 59% decrease in R&D spending was
due primarily to the completion of design and development of the TelePad 3 in
1995 as compared with expenditures for the initial design of the TelePad 3
incurred in 1994.

Selling, general and administrative expenses for 1995 were $3,673,000
compared to $4,465,000 in the same period for 1994. This decrease of $792,000
(18%) was primarily the result of a cost reduction program implemented early in
1995. In January 1995, the Company took several steps to reduce its operating
costs; including reducing the number of employees, reducing expenditures for
certain marketing activities, and reducing expenditures for outside
professionals and consultants.

Interest expense for 1995, increased $143,000 (47%). During 1995, the
Company was provided with bridge financing of $4,000,000 less direct expenses of
$574,000, through the sale of 80 bridge units. The Company allocated $400,000 of
the total Bridge Notes proceeds to the warrants issued. For 1995, $282,000 of
the resulting debt discount had been charged to interest expense.

PLAN OF OPERATIONS

Assuming that the Underwriter's Over-Allotment Option is not exercised, the
Company anticipates that it will receive net offering proceeds in the amount of
approximately $17,742,000. At the completion of the Offering, the Company
intends to repay the $4,000,000 principal amount of the Bridge Notes and accrued
interest thereon totaling approximately $4,248,000 and to pay outstanding
accounts payable in the estimated amount of $1.3 million, including $602,000 due
or to become due to IBM. Additionally, the Company expects to use approximately
$825,000 of the proceeds to repay the Promissory Note, including interest owed
thereon. Remaining net offering proceeds of approximately $11,369,000 will be
used for product enhancements and working capital, including sales and marketing
activities. See "Use of Proceeds."

29
<PAGE>
The Company intends to use a portion of working capital from the Offering to
secure letters of credit or other credit guarantees for future manufacturing.
The Company estimates that the remaining proceeds, together with cash expected
to be generated from operations, will be sufficient to support the Company's
planned level of operations for at least the 12-month period following
completion of the Offering.

Upon the completion of the Offering, the Company's plan of operations for
1996 has four principal priorities: (1) achieving a significant reduction in
manufacturing cost; (2) focusing marketing efforts on combining systems design,
software and TelePad hardware for specific markets; (3) refreshing and enhancing
the Company's products without incurring significant expenditures for new
research and development; and (4) strengthening the Company's senior management
organization. Other aspects of the Company's operations are expected to continue
in accordance with the operating cost reductions achieved in 1995. See "--
Results of Operations."

At the Company's current manufacturing cost level with IBM, the Company has
sold the TelePad 3 at a positive gross margin but has not been able to achieve a
sufficient unit volume to be profitable. Accordingly, the first element of the
Company's plan of operations is to reduce its manufacturing costs by moving
manufacturing of the TelePad 3 to a new manufacturer more closely aligned with
the Company's requirements and goals. This move is planned as a two-stage
process. The first stage anticipates IBM continuing to build TelePad 3
electronic cards for the Company while a new manufacturer performs final
assembly and testing of complete TelePad 3 units. The second stage may replace
IBM as the electronic card manufacturer or add an additional electronic card
manufacturer in addition to IBM. IBM, as part of the IBM Resolution Agreement,
has agreed to support this strategy. The Company has the right to use
manufacturers other than IBM under the IBM Agreement, subject to IBM's right to
receive a royalty of $15 per TelePad 3 unit that contains an IBM-produced
microprocessor card.

In the second half of 1995, and the early part of 1996, the Company
interviewed a number of potential new manufacturers and entered negotiations
with three that indicated that they could build completed TelePad 3 units at a
cost significantly below the cost the Company currently pays IBM. Completion of
the Offering is expected to allow the Company to pursue these negotiations to a
conclusion in the first half of 1996. Management anticipates that, by moving
manufacturing in this fashion, the Company will be able to realize significant
cost savings, which in turn should result in improved margins and mitigate
possible product price erosion.

During the last six months, the Company has made a number of incremental
improvements in the TelePad 3 design and corrected a number of problems reported
by customers and discovered by the Company's engineers. These include improving
performance of the hard drive, refining details of the plastic case, and
improving support for PCMCIA cards. The Company has received a written cursory
review of the Power Management Defect issue from IBM stating that the Power
Management Defect is not IBM's responsibility. The Company does not wish to
prolong the resolution of this issue and has notified IBM that it has elected to
initiate arbitration proceedings under the terms of the IBM Resolution
Agreement. The Company's engineers have commenced work on the upgrade to a
processor not manufactured by IBM and other enhancements which will be completed
from the proceeds of the Offering. Although responsibility for the Power
Management Defect has not ultimately been determined, the Company has
nevertheless accrued the estimated cost in its financial statements.

With respect to commercialization, the second element of the Company's plan
of operations is to focus its marketing and sales efforts on the delivery of a
software-based product using multiple software and hardware tools designed to
address a specific business requirement or to provide access to certain
information ("Bundled Solutions"). In order to achieve the creation of the
product, the integration or "bundling" of functions in the areas of wireless
connectivity, remote access, middleware, Global Positioning Systems, docking
stations, scanning and data base access takes place. The Company has the
technical personnel to develop such Bundled Solutions but expects to add more
field sales personnel in 1996 to pursue its market penetration. The Bundled
Solutions strategy, which

30
<PAGE>
evolved from the Company's past experience with systems integration service
contracts, combines off-the-shelf software products and third-party hardware
peripherals with TelePad products. The Company believes that the resulting
Bundled Solutions can be sold at higher margins than hardware alone, and that
the availability of such Bundled Solutions will enable the Company to more
successfully penetrate its targeted markets. Based on the Company's experience
with past and prospective customers, the Company will focus its effort in 1996
on delivering Bundled Solutions for two markets: (1) field inspection and
maintenance; and (2) public safety and the military. See "Business -- Field
Force Computing Strategy" and "-- Sales and Marketing."

While the Company believes that the TelePad 3 continues to be uniquely
attractive to potential customers because of its modular design, and further
believes that a significant market exists for the TelePad SL as a low-cost data
collection device, it recognizes that remaining competitive in the microcomputer
industry requires continuing innovation. Accordingly, the third element of the
Company's plan of operations is to use a portion of the Offering proceeds for
enhancement of its products, including the upgrade of the TelePad 3 to a
Pentium-class microprocessor and the upgrade of the TelePad SL to a 486
microprocessor. Both upgrades were anticipated in the Company's design of the
TelePad 3 which has its processor on a "daughter card" separate from its "mother
board." The Company plans to accomplish the TelePad 3 Pentium-class upgrade
through development of a new "daughter card," and further plans to upgrade the
TelePad SL to a 486 machine through an adaptation of the same board set. Other
enhancements are planned in the areas of pen support, expanded hard drives, more
efficient batteries, ergonomic housing designs, the capacity to utilize wireless
communication technology, and the completion of product certification for Europe
as well as North America. As the majority of these plans are the enhancement of
current products (as opposed to new research and development), the Company
anticipates that it can be accomplished at or below the 1995 level of research
and development expenditures. See "-- Results of Operations," "Risk Factors --
Government Regulation," "Business -- Products" and "-- Government Regulation."

The fourth element of the Company's plan of operations is to continue to
strengthen its management group and supporting systems. The Company began this
process in the second half of 1995, with the addition of experienced senior
managers in production, industrial design, finance, and customer service and the
implementation of new automated systems for financial accounting and customer
support. In 1996, the Company plans to hire a new Chief Executive Officer (after
which time Mr. Ronald C. Oklewicz will remain the President of the Company), a
Chief Technology Officer and a senior sales and marketing executive. Additional
personnel may be added in the areas of field sales, customer support, and
systems integration if justified by increased gross margins. The Company has
begun to attract more senior and successful business persons to its Board of
Directors and expects to continue to do so through 1996. See "Risk Factors --
Reliance on Key Personnel" and "Business -- Sales and Marketing."

31
<PAGE>
BUSINESS

GENERAL

The Company has experienced substantial technical and financial difficulties
that have led to significant delays in the commencement of product
commercialization. On November 30, 1995, TelePad 3 production was halted pending
resolution of design and credit issues. The Company currently is suffering a
severe loss of liquidity and may not have sufficient funds to continue its
operations at their current level through completion of the Offering. In the
event that the Offering is not completed, the Company will be required to
radically restructure and may be required to seek protection under the United
States Bankruptcy Code. See "Risk Factors -- Need for Additional Financing;
Going Concern Considerations," "-- Substantial Operating Losses; No Assurance of
Success" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

PRODUCTS

TELEPAD 3

The Company's principal product is the TelePad 3, which currently is powered
by IBM's Blue Lightning microprocessor (based on Intel's 486 microprocessor
technology) and offers voice recognition and a pen interface as well as a
detachable keyboard. Its unique modular architecture includes a base platform
currently available with a 66 MHZ processor, a dual scan color display and up to
36 MB of internal memory. The TelePad 3 works with most major operating systems,
including IBM's OS/2 and Microsoft's DOS, Windows 95, Windows, Windows for Pen,
and SCO Unix systems. The TelePad 3 features three docking bays that can hold a
variety of hardware accessories, which may include a 500 megabyte hard disk
drive, slots for PCMCIA (Personal Computer Manufacturers Card Interface
Association) cards which incorporate memory and communications capabilities in a
standard format linking peripheral devices such as facsimile modems, local area
networks ("LANs"), or memory storage to the pen computer, and a floppy disk
drive. The TelePad 3 platform is designed to facilitate the Company's planned
development of additional modules to accommodate a digital camera, a full-size
CD-ROM unit, a wireless LAN and various other communications, computing and
special purpose accessories. There can be no assurance that the Company will
have sufficient funds to commence or complete the development of any of these
modules. See "Risk Factors -- Need for Additional Financing; Going Concern
Considerations" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."

32
<PAGE>
the commencement of product commercialization, including the identification of
the Power Management Defect that causes TelePad 3s to "lock up" in certain
circumstances leading to a loss of recently entered data. These circumstances
include quickly and repeatedly pressing the "on/off" switch, plugging in the
external power adapter while the unit is running, and releasing the module lock
switch while the unit is running. Such a lock-up can be alleviated by removing
all power (both external and batteries) and then reconnecting power and
rebooting the unit. The IBM Resolution Agreement provides for a procedure for
determining operational and financial responsibility for this defect. While
management believes that the problem is caused by a faulty code in a component
of the advanced power management system supplied by IBM, the Company's sole
source manufacturer, and should be relatively easy to correct at an estimated
cost of approximately $140 per unit, there can be no assurance as to the actual
time or expense involved in identifying the precise source of the problem or
designing a correction. The Company anticipates that all TelePad 3s heretofore
sold will be recalled at such time as a correction is available.

In light of the Power Management Defect and ongoing credit issues with IBM,
production of the TelePad 3 has been halted. The Company currently expects that
it will require at least three months following the resolution of the design and
credit issues with IBM before production of additional TelePad 3 units can
resume. See "Risk Factors -- Dependence on Manufacturer and Suppliers" and "--
Power Management Defect."

In order to establish the integrity of the manufacturing process and ensure
the quality of the finished TelePad 3 product, during the early production
period, prior to suspension of the production, the Company had imposed
extraordinary manufacturing and product quality assurance testing and
procedures. Consequently, the rate of production of TelePad 3s had been less
than is necessary to fill customer orders on a timely basis. There can be no
assurance as to the rate at which production can be increased.

During production, IBM and the Company each performs a series of quality
assurance procedures at the IBM manufacturing site. IBM's procedures include
sampling components from suppliers, subjecting 100% of the electronic assemblies
to an automated test, and performing a comprehensive functional test on each
completed system unit. The Company then performs a comprehensive systems
integration test on each unit before authorizing its shipment from the IBM
plant. As this quality assurance process spans the entire production process, it
can result in the rejection of a component, a partially built unit, or a
completely finished unit. Rejection rates during quality assurance currently
range from 10% to 20%, although both IBM and the Company expect this rate to
decline over time. Approximately half of the rejections are attributed to faulty
components, and half to faulty assembly. Either the Company or IBM can
temporarily suspend production to resolve any rejection deemed symptomatic of a
general problem. Prior to the suspension of production on November 30, 1995,
production had been suspended on one occasion to resolve a component problem, on
one occasion to resolve a design problem, and on another two occasions to
resolve assembly problems. In order to permit delivery of all units ordered by
the Company, IBM bases its ordering of components and scheduling of assembly on
its estimates of the yield that will pass the quality assurance process.

IBM has informed the Company that it no longer produces the Blue Lightning
microprocessor, which is a proprietary IBM product available only on
microprocessor cards manufactured by IBM. Although IBM has informed the Company
that is has reserved approximately 5,000 such microprocessors for use in the
production of TelePad 3s until April 1, 1996, IBM may subsequently sell such
parts to mitigate the Company's liability to IBM if the Company has not provided
a letter of credit or other credit arrangements to secure the value of those
parts . IBM is required to produce additional TelePad 3 computers or Blue
Lightning microprocessor cards only upon receipt of reasonably acceptable credit
guarantees for the value of its parts inventory. While the Company is seeking
such credit guarantees, it is not expected that the Company will be able to
provide such guarantees prior to completion of the Offering. See "Risk Factors
- -- Dependence on Manufacturer and Suppliers" and "-- Reliance on Proprietary
Component; Need to Redesign the TelePad 3."

33
<PAGE>
The TelePad 3 is designed with its processor on a "daughter card" which
installs on the "mother board". This technique is intended to minimize the
design work necessary to upgrade from the current IBM Blue Lightning 486
processor to other compatible 32-bit processors from Intel, Cyrix, AMD and
others. The Intel Pentium is a 64-bit processor which is implemented with a
32-bit data bus in many battery powered notebook computers. Subject to
completion of the Offering and receipt of the proceeds therefrom, the Company
intends to upgrade its 32-bit TelePad 3 in 1996 and is currently evaluating both
586-class 32-bit processors and the 64-bit data bus Pentium alternative.
Management currently estimates that redesign of the TelePad 3 to replace the
Blue Lightning will require four to six months, although there can be no
assurance that the time required will not be substantially longer. Therefore,
the Company also could experience a significant interruption in supply pending
completion of the redesign, completion of which is dependent upon completion of
the Offering and receipt of the proceeds therefrom, in the event that IBM sells
a significant portion of the current inventory of Blue Lightning microprocessors
or if the redesign is not completed prior to exhaustion of such supply. If the
Offering is not completed, the Company will not have sufficient funds to finance
production of its products or redesign of the TelePad 3. See "Risk Factors --
Dependence on Manufacturer and Suppliers" and "-- Reliance on Proprietary
Component; Need to Redesign the TelePad 3."

The Company anticipates that the delays in commencing commercial production
of the TelePad 3, the Power Management Defect and possible ongoing interruptions
in production supply may adversely affect the demand for the TelePad 3 as
potential customers elect to purchase competing products. The Company currently
expects that it will require at least three months following the resolution of
the design and credit issues with IBM, which is dependent in large part upon the
completion of the Offering, before production of additional TelePad 3 units can
resume.

In order to resolve production difficulties related to the TelePad 3,
substantially reduce production costs, and provide for better control and
accountability, subject to completion of the Offering and to the Company's
ability to enter into satisfactory contractual arrangements, the Company intends
to move manufacture of the TelePads 3 to another manufacturer in a two-stage
process during the first half of 1996. See "Manufacturing and Supplies --
Transition to New Manufacturer." While the Company believes that acceptable
alternative manufacturers are available and is currently engaged in negotiations
with a number of potential manufacturers, there can be no assurance as to when,
if ever, the Company will be able to enter into acceptable alternative
manufacturing arrangements. In addition, there can be no assurance that the
Company will not experience substantial production delays in connection with any
such transition in manufacturing. Further, until such time, if any, as the
Company completes redesign of the TelePad 3 permitting the use of a
microprocessor other than IBM's Blue Lightning, it will be required to purchase
microprocessor cards for the TelePad 3 from IBM. Even at such time as the
Company redesigns the TelePad 3 to use another microprocessor, it will be
obligated to pay IBM a royalty of $15 per unit for each unit that contains an
IBM-produced microprocessor card. See "Risk Factors -- Dependence on
Manufacturer and Suppliers," "-- Reliance on Proprietary Component; Need to
Redesign the TelePad 3, "-- Transition to New Manufacturer" and "Management's
Discussion and Analyses of Financial Condition and Results of Operations -- Plan
of Operations."

The Company currently has a backlog of 22 TelePad 3 units. This backlog
includes 12 units scheduled for shipment to the United Kingdom, the sale of
which is subject to certification of the TelePad 3 for sale within the European
Union. See "Risk Factors -- Government Regulation" and "-- Government
Regulation."

TELEPAD SL

The first generation TelePad, the TelePad SL, has pen and keyboard
interfaces but no voice recognition capability. It uses Intel's 386-based
microprocessing technology and is equipped with a wireless digitizer (for pen
input), a low-cost, high-capacity hard drive (170-340 megabytes), a PCMCIA card
slot, a data/facsimile modem, an optional digital camera and wireless
communications capability. The TelePad SL also comes equipped with up to eight
megabytes of random access memory ("RAM")

34
<PAGE>
and optional accessories, including a stand-alone floppy disk drive, a math
co-processor that would permit more rapid handling of mathematical functions and
calculations, network and communications upgrades and a keyboard that can be
used in addition to the pad. The TelePad SL works with most major operating
systems, including IBM's OS/2 and Microsoft's DOS, Windows and Pen for Windows
systems.

While the 386 SL microprocessor employed in the TelePad SL has been
superseded by faster, more powerful microprocessors, the Company believes (based
on customer inquiries, the Company's sales of refurbished demonstration units,
and current orders from seven customers for 43 units, that a significant market
remains for the TelePad SL among customers who may not require the fastest and
most powerful computing capacity available, but who can benefit from the design
and capabilities of the TelePad SL as a mobile terminal mounted in a vehicle or
as an out-door data collection device. As of February 28, 1996, the Company had
declined orders from approximately 11 customers for approximately 375 units
because it did not have stock available to fill those orders.

In order to exploit this market, subject to completion of the Offering, the
Company is seeking alternative manufacturing arrangements for the production of
TelePad SLs at a cost that would permit the profitable sale of such units. The
IBM Resolution Agreement provides for the purchase, by the Company, of IBM's
remaining inventory of TelePad SL subassemblies and components. Based on IBM's
inventory records, the Company believes that these components will yield between
200 and 400 finished TelePad SL units which can be manufactured. The Company
currently is obtaining proposals for the final assembly and testing of TelePad
SL units to be constructed from the components being purchased from IBM. Under
the terms of the IBM Resolution Agreement, the Company is in the process of
receiving the remaining TelePad SL inventory held by IBM. The Company has
initiated the process of converting such parts to finished Units.

In addition, following completion of the Offering, the Company expects to
upgrade the TelePad SL to a 486 microprocessor and to produce and sell
additional units of this upgraded TelePad SL so long as the market for this
product remains viable. The Company currently is developing a conceptual design
for the upgraded TelePad SL based on the mother board and processor card from
the TelePad 3. Consequently, management anticipates that the cost of this
upgrade will not be material to the Company's future research and development
expenditures. However, this upgrade is dependent upon completion of the Offering
and the receipt of the proceeds therefrom. In the event that the Offering is not
completed the Company will not have sufficient funds to produce additional
TelePad SLs in their current configuration, upgrade to a 486 microprocessor or
produce upgraded units. See "Risk Factors -- Need for Additional Financing;
Going Concern Considerations," "-- Rapid Technological Change; Possible
Obsolescence," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Plan of Operations" and "-- Products."

The Company currently has a backlog of 6 TelePad SL units.

DISTRIBUTION, WARRANTY AND SERVICE

The Company warrants that each TelePad (excluding software obtained from and
warranted by third parties) is free from defects in material and workmanship for
one year from the date of delivery and acceptance. The Company also intends to
offer extended warranties on those products for an additional charge for each
unit sold. The Company also may use the services of IBM in providing standard
and extended warranty coverage on the TelePads. Currently, the Company handles
all warranty claims of its customers.

Under the IBM Agreement, IBM will provide the Company with limited one-year
warranties for workmanship and certain components of the products manufactured
by IBM.

The Company and IBM are in disagreement over two questions of warranty
coverage. The first relates to a component on the TelePad SL which can cause
premature failure of the back-up CMOS battery. The Company identified this
problem prior to the expiration of IBM's warranty on the TelePad SL. IBM
acknowledged responsibility for the problem and replaced the component in a

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number of units under warranty. However, most units are now out of warranty and
IBM refuses to continue the replacement program. Consequently, the Company is
now replacing such components at its own expense. The second dispute relates to
the term of IBM's warranty for the TelePad 3. The Company stipulated a one-year
warranty similar to IBM's warranty on the TelePad SL. Subsequent to the start of
production, IBM informed the Company that it would only provide a 30-day
warranty until such time as it had additional history on which to base a
one-year warranty. Accordingly, the Company is now taking responsibility for the
full year of warranty coverage (and has provided appropriate reserves in the
amount of $148,000 in its financial statements for 1995). While the Company
disputes IBM's position on both warranty issues, it has agreed to not sue IBM
and is therefore attempting to resolve these disputes through normal business
negotiation. IBM has indicated that it is unlikely to change its position on
either issue. See "Manufacturing and Supply -- IBM Agreement."

It is the Company's policy to establish warranty reserves based upon sales
volume and experience to date. Warranty expense is recognized as incurred.

MANUFACTURING AND SUPPLY

GENERAL

The Company does not operate its own manufacturing facility for the TelePads
or any other products, but instead contracts with outside manufacturers. IBM is
currently the Company's sole manufacturer for its TelePad products. The Company
also out-sources certain components of the TelePads and other products. The
TelePad computers currently are manufactured for the Company by IBM. See "-- IBM
Agreement," "Risk Factors -- Dependence on Manufacturer and Suppliers" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Plan of Operations."

The components of the TelePads, such as the plastic casing, are supplied by
various outside sources. The Company believes that its relationships with its
current suppliers generally are good. While the Company believes that
alternative sources of supply generally are available at competitive prices,
certain of the components are highly technical in nature and, with respect to
such components there can be no assurance that the Company would be able to
locate, on a timely basis or at all, alternative sources of supply.

The Company's software applications packages are written specifically to
address each customer's needs and may include checklist generators and editors,
checklist managers, report generators and database managers. The Company has
postponed further development of certain proprietary software until such time as
sufficient funds are available to pursue such development.

The Company has licensed certain Microsoft Corporation ("Microsoft")
products permitting the Company to install certain of Microsoft's operating
systems in the TelePads and paid royalties for those Microsoft products covered
by such license arrangements installed on its computers. The Company purchases
DOS, Windows, Windows 95 and Windows 95 Pen Services software from an authorized
distributor. The Company also has entered into a licensing agreement with IBM to
license and install IBM's OS/2 operating system on the TelePads. There is no
minimum royalty required under the Microsoft or IBM license agreements.

IBM AGREEMENT

The IBM Agreement provided for various contractual arrangements regarding
design and production of the TelePads. The original IBM Agreement addressed
design and production of the TelePad SL. In March 1994, the Company and IBM
entered into an amendment to the IBM Agreement primarily to allow for the design
and development of the TelePad 3. The original IBM Agreement also was amended to
protect certain intellectual property rights of the Company with respect to the
TelePad 3. Specifically, the March 1994 amendment covered the collaboration
between IBM and the Company in the electrical and physical design, development
and testing of the internal circuitry and software for the TelePad 3. It also
required IBM to assemble and test prototypes of the TelePad 3 and

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to provide engineering technical support throughout the development process and
for 30 days following the first customer shipment of the new product. In June
1994, the Company entered into an amendment to the original IBM Agreement, which
amendment provided new terms and conditions regarding the manufacture of the
TelePad 3.

The IBM Agreement was further modified by the parties in February 1995. As
amended, the IBM Agreement required IBM to manufacture at least 400 TelePad 3's
at a base price of $3,500 per unit, subject to increase for expediting and other
extraordinary charges. In turn, the Company was obligated to pay IBM
approximately $1,710,000 for other obligations related to production of TelePad
SL computers and for design, testing and production of prototypes of TelePad 3
units, and for tooling and test equipment costs for production of the TelePad 3.
On January 25, 1996, IBM and the Company entered into the IBM Resolution
Agreement which ended the IBM Agreement to address certain design issues
relating to the TelePad 3, to reschedule payments due IBM and to provide for
purchase, by the Company, of IBM's remaining inventory of TelePad SL components.

IBM is required to produce TelePad 3 units beyond the first 400 units only
if the Company (i) meets its obligations under the IBM Agreement and (ii)
furnishes a guarantee, line of credit or other security sufficient to cover the
price of any such additional units. Although the Company has not secured
alternative sources of manufacturing at this time, it has the right to secure
such sources under the IBM Agreement, subject to IBM's rights to receive a
royalty of $15 per TelePad 3 unit for each unit that contains an IBM-produced
microprocessor card.

In connection with the amendments to the IBM Agreement entered into in
February 1995, the Company has entered into an agreement releasing IBM, its
agents, directors, officers, employees, representatives, successors and assigns
from all rights, claims demands, actions and liabilities (collectively,
"Claims") the Company ever had, has or may have against IBM arising out of or
resulting from the IBM Agreement. Such Claims could include those resulting from
the failure of IBM to produce TelePad 3s or otherwise honor its contractual
commitments, as well as third party claims arising from the actions or failure
to act of IBM. As a consequence of this agreement, the Company may not have the
ability to obtain relief against IBM in the event of a breach of contract by, or
other Claim arising out of the action or inaction of, IBM in connection with the
IBM Agreement, which in turn could severely adversely affect the Company's
business and prospects. In addition, the Company has agreed that, in the event
that it fails to honor its obligations under the IBM Agreement, the agreement
with IBM would remain in place and the Company could be subject to a confessed
judgment in favor of IBM for all amounts then due in connection with the IBM
Agreement. As of February 29, 1996, the Company was indebted to IBM in the
amount of $11,000, which would be subject to such a confessed judgment.

The IBM Resolution Agreement, which further modifies the IBM Agreement
provides (i) for purchase by the Company of IBM's remaining inventory of TelePad
SL components at a price of $300,000 to be paid 60 days after shipment and
invoicing; (ii) a mechanism for resolving certain accounting disputes relating
to payments for production of TelePad SLs; (iii) for the diagnostic analysis and
related matters described at "Risk Factors -- Power Management Defect"; (iv) for
immediate payment by the Company of invoices in the amount of approximately
$442,000 for production of the TelePad 3; (v) that IBM is required to keep on
hand or on order parts for production of the TelePad 3 until March 15, 1996 but
thereafter may liquidate its inventory and cancel orders or TelePad 3 parts
unless the Company has provided a credit mechanism securing the value of the
inventory by that date; (vi) that IBM will ship to TelePad 39 of the TelePad 3
computers remaining from the initial production run after resolution of the
Power Management Defect; (vii) that IBM is required to reserve approximately
5,000 Blue Lighting Processors for the Company's use so long as the Company
meets its obligations under the IBM Agreement, the Settlement Agreement and the
IBM Resolution Agreement, as amended; (viii) for payment of remaining amounts
due with respect to design and testing of the TelePad 3 in accordance with the
Settlement Agreement in a payment of approximately $139,000 immediately
following the final resolution of the Power Management Defect; (ix) that IBM
will continue building complete TelePad 3 units for the Company so long as the

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Company provides a letter of credit or other reasonably acceptable credit
guarantees to secure IBM's interests, which production will continue until sixty
days after the Company reaches an agreement with a third party manufacturer or
December 31, 1996, whichever is earlier; and (x) IBM will continue to
manufacture electronic card assemblies for the TelePad 3 (conditioned upon the
provision by the Company of the aforementioned letter of credit or other credit
guarantees, until the 5,000 Blue Lightning Processors have been utilized,
TelePad orders fall below 100 card assemblies per month, or June 30, 1997,
whichever occurs first. Subsequent to the signing of the IBM Resolution
Agreement, the Company made two payments totaling $856,000 ($442,000 of which
was paid on January 26, 1996 , and $414,000 of which was paid on February 16,
1996). The unpaid total was thus reduced to $450,000 (of which $11,000 is
currently due; $300,000 will be due no sooner than April 15, 1996; and $139,000
will be due following resolution of the Power Management Defect). In addition,
IBM is holding 39 completed TelePad 3 units for which the Company must pay
$151,000 at the time it takes delivery. Finally, the Company and IBM are in
arbitration to settle a dispute over $137,000 of TelePad SL units which the
Company does not believe it received from IBM. The Company intends to use the
proceeds of the Offering to pay some or all of these amounts as they become due.
In the event that the Company does not meet its obligations, IBM has the
contractual right to seek a confessed judgment with respect to the total amount
then due from the Company. See "-- Release of Claims Against IBM; Potential
Confessed Judgment," "Risk Factors -- Need for Additional Financing; Going
Concern Considerations," "-- Dependence on Manufacturer and Suppliers," "--
Power Management Defect," "-- Reliance on Proprietary Component; Need to
Redesign the TelePad 3," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "-- Products."

TRANSITION TO NEW MANUFACTURER

While the Company believes the transition to a new manufacturer will be
facilitated by the IBM Resolution Agreement which provides (1) that IBM will
continue building finished TelePad 3 units until the earlier of sixty days after
the Company contracts with a new manufacturer or December 31, 1996; and (2) that
IBM will continue building electronic card assemblies (utilizing the Blue
Lightning processor) for the Company until (i) the supply of Blue Lightning
processors reserved for the Company (approximately 5,000 Blue Lightnings on
January 26, 1996) is consumed, (ii) TelePad orders fall below a minimum order
quantity of 100 cards per month, or (iii) June 30, 1997, whichever is earlier,
there can be no assurance that the Company will receive the necessary
cooperation from IBM. In the event that the Company arranges for the manufacture
of TelePad 3s using the Blue Lightning microprocessor or any other
microprocessor, it will be required to pay IBM a royalty of $15 per unit for
each unit that contains an IBM-produced microprocessor card. See "Risk Factors
- -- Reliance on Proprietary Component; Need to Redesign the TelePad 3" and "--
Transition to New Manufacturer."

FIELD FORCE COMPUTING STRATEGY

The Company's strategy is to integrate total solutions, referred to as
Bundled Solutions or solutions sets, that provide readily accessible
communications and data links between field force

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workers and their home offices. The Company's solution sets, which consist of
both hardware and software components, facilitate the flow of information both
from field force workers to the office and from the office to field force
workers. In 1994, the Company announced plans to develop a mass-customized
software framework for the TelePads, which would be tailored to the needs of
each customer. With the introduction of the TelePad 3, the Company expects to
apply its resources to development of this software, at such time, if any, as
such resources become available. The Company's goal is to design information and
communications systems that allow workers away from their offices to have
available, on a real-time basis, the same universe of information that would be
available to them in their offices.

Management believes that field force workers can perform their tasks more
efficiently if they have immediate access to home office data bases. The
Company's strategy involves not only sales of TelePads, but also integration and
sale of software and software development services, wireless communications
products, and peripheral accessories and equipment. Management believes that
sale of these products and design of solution sets employing them have the
potential to generate revenues from consulting fees, software license fees,
peripheral equipment and accessories sales, maintenance fees and software
connection/activation revenues for installation of wireless communications
devices.

During 1996, the Company intends to focus its marketing and sales efforts on
combining systems design, software and TelePad hardware for two key vertical
markets. This strategy, which evolved from the Company's past experience with
systems integration service contracts, combines off-the-shelf software products
and third-party hardware peripherals with TelePad products. The Company believes
that the resulting products and solutions can be sold at higher margins than
hardware alone, and that the availability of TelePad products and solutions will
enable the Company to more successfully penetrate its targeted markets. Based on
independent market research data as well as the Company's experience with past
and prospective customers, the Company will focus its effort in 1996 on two
markets: (1) field inspection and maintenance; and (2) public safety and the
military.

The Company currently provides, or intends to provide, Bundled Solutions for
field force workers and their employers, including (i) interactive technical
manuals for detailed technical information relating to specific electronic or
mechanical parts or systems, aircraft and other complex machinery; (ii)
integrated data and geographical mapping systems, particularly for military
applications; and (iii) enhanced data capture and collection (for inspection and
other applications). The Company has contacted businesses and governmental
agencies in industries that have large numbers of field force workers who might
benefit from the Company's solution sets, and has identified several product and
service sales proposal opportunities to implement the field force computing
strategy.

To date, the Company has been actively developing and marketing a solution
set designed to meet the needs of police forces utilizing 25 or fewer patrol
vehicles, for which competing available systems currently are too costly. For
this application, the Company has designed a docking station which, when
installed in patrol vehicles, permits the police officer to maintain a link to
the station house. Through this link, the police officer is able to gain
immediate and direct access to police computer files containing such information
as driving records, arrest records or fugitive notices without the intervention
of station house personnel. The officer in the field receives the information
more rapidly and more accurately and, because the information may be accessed
without utilizing an employee at the station, more economically. The Company
believes that an additional benefit of this approach is that information may be
disseminated without the use of a police voice radio, thereby substantially
reducing the chances that the information could be intercepted by third parties.
Further, this system eliminates the requirement that officers complete, and that
other police employees enter the information contained in, paperwork into the
appropriate data base, thereby saving both time and money. To date, the Company
has sold this law enforcement solution set to eight police departments.

The Company views its field force computing strategy as integral to its
ongoing business. As such, management expects to implement that strategy in
successive markets identified by management as being compatible with field force
computing for the foreseeable future.

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RESEARCH AND DEVELOPMENT

Subject to available financial resources, it is the Company's intention to
maintain an active research and development program. With completion of the
design and commencement of production of the TelePad 3, the Company plans to
continue the design and development of additional modules for the TelePad 3, in
order to enhance the available range of field force solutions and address the
evolving needs of customers in the Company's markets. The Company has completed
conceptual designs and developed prototypes for modules that can accommodate a
digital camera, a full-size CD-ROM reader and a wireless LAN. Completion of
these designs for production is dependent upon completion of the Offering. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "-- Plan of
Operations." In the future, the Company expects to undertake design and
development of various other communications and computing accessories, as well
as such other accessories and modules as are required to meet the needs of its
customers. The Company also expects to engage in the design and development of
upgrades to the TelePad 3 on an ongoing basis. There can be no assurance that
the Company will have sufficient funds to commence or complete development of
any modules or that it will be successful in developing such modules or other
upgrades to the TelePad 3. See "Risk Factors -- Rapid Technological Change;
Possible Obsolescence."

The Company also expects to upgrade the TelePad SL to employ 486
microprocessor technology, so long as the market for this product remains
viable. There can be no assurance that the Company will be successful in this
effort or in arranging for the manufacture of any upgraded TelePad SL. See "Risk
Factors -- Rapid Technological Change; Possible Obsolescence," "-- Products" and
"-- Manufacturing and Supply."

Although the Company has a limited number of employees capable of providing
software development and consulting services, the Company intends to enter into
agreements with other software developers and consultants to assist in servicing
existing contracts. In addition, the Company expects to retain a chief
technology officer, as well as additional engineering and customer support
personnel as its financial condition permits and its business requires. See
"Risk Factors -- Dependence on Key Personnel; Need to Retain Technical
Personnel," and "Management's Discussion and Analysis of Financial Conditions
and Results of Operations -- Liquidity and Capital Resources."

SALES AND MARKETING

The Company's sales and marketing activities currently are conducted
nationally by four sales representatives, each covering a defined geographical
area, under the direction of a national marketing manager. The Company also
anticipates that it will employ commissioned sales agents to market its
products. See "Management." Although the Company reduced its workforce,
including its sales and marketing personnel, as a cost saving measure during
1995, management believes that its current sales and marketing capability is
adequate and expects to add additional sales and marketing and customer service
personnel as the Company's financial condition permits and its business
requires. See "Risk Factors -- Limited Marketing Capability," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "-- Plan of Operations."

The Company believes that the immediate market for its products lies with
large corporations and public entities that are heavily dependent on information
resources and that utilize dispersed and highly mobile workforces. The Company's
strategy is to reach the customers in this market through three channels --
keystone accounts (end users with the potential to purchase 1,000 or more
TelePads in connection with the implementation of overall solutions designed to
provide substantial cost savings from enhanced efficiency), value added
resellers ("VARs") and original equipment manufacturers ("OEMs"). In light of
its resource constraints, the Company to date has implemented its field force
computing strategy by focusing on the development and introduction of its
hardware products

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and, to a lesser extent, on marketing in conjunction with VARs and to keystone
accounts. Management believes that since the introduction of the TelePad 3 the
Company is positioned to extend implementation of its field force computing
strategy.

During 1994, two customers accounted for approximately 67% of the Company's
total revenues (a substantial portion of which revenues were derived from the
resale of non-TelePad products). One customer accounted for approximately 12% of
total revenue during 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of Notes to the
Financial Statements.

To date, the Company's focus has been on cooperative marketing with VARs,
where the Company's TelePad hardware products are employed as part of an overall
solution presented to the ultimate customer either by the Company or by the VAR.
The Company selects its VARs based on their ability to contribute to an overall
customer solution. For example, a VAR may have particular technical expertise in
an aspect of the computer industry that complements the Company's strategy. In
certain instances, VARs also may be involved in providing solutions to the
Company's keystone accounts.

The Company has entered into a number of agreements with resellers that have
established marketing and sales networks and existing relationships with
potential end-users of the Company's products. Virtually all of the Company's
prior relationships with resellers were for the resale of the TelePad SL. The
Company expects to enter into new resale arrangements for the TelePad 3 and
software products as they become available. In some cases, the resellers are
required to provide additional services and products to their customers in
conjunction with the resale of the Company's products. Resellers purchase the
Company's products at negotiated, discounted prices for resale to their
customers.

The Company also expects to develop customized solutions for its keystone
accounts. The Company anticipates that, as it provides customized solutions to
its keystone accounts, it will be able to standardize those solutions, thereby
providing it with an array of standardized or ready-to-customize products in the
future. Through this means, management anticipates that the Company also will be
able to expand its markets to smaller enterprises than those included in its
current "keystone" definition.

The Company intends to establish ongoing relationships with OEMs in order to
permit the Company to achieve greater production volume and reduced unit costs.
The OEM relationships are expected to provide an additional channel of
distribution for the Company's products and provide the Company with additional
products for its distribution.

The Company believes that profit margins for Bundled Solutions including
both hardware and software products can be significantly higher than those
generated from hardware alone. The Company's strategy, therefore, is to use its
unique hardware devices, the TelePads, to obtain higher margin software sales
opportunities. While the Company expects that hardware sales will dominate its
revenues in the near term, it anticipates that software applications development
and consulting

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services will become an increasingly important component of its revenue and
profits over time. See "-- Products" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Plan of Operations."

The Company unveiled early models of the TelePad 3 during the first half of
1994. Also in 1994 and 1995, the Company participated in a number of specialized
industry trade shows consistent with the Company's emphasis on field force
solutions. In certain instances the Company maintained its own booth and in
others TelePad products were featured in the booths of other manufacturers, such
as the Automated Mapping Facilities Management trade show, where TelePad
products were featured demonstrating Bentley Systems' Microstation Field-TM-
software (a mobile computer-aided dispatching software using geopositioning
satellite technology to dispatch vehicles) in Bentley's booth.

In conjunction with the production of the TelePad 3, and in keeping with its
current financial constraints, the Company has implemented a public relations
campaign based on discrete distribution channels. The Company is seeking
exposure through support of its value-added resellers at shows and conventions
at which such resellers exhibit. The cost of this campaign is not expected to be
material. In addition, the Company expects to engage in selective advertising of
its products and to seek additional exposure through targeted technical journals
and popular computing media.

GOVERNMENT REGULATION

The TelePad 3 and the TelePad SL are subject to government regulation of
electromagnetic emissions that are conducted from the devices over power lines,
when the devices are operated from AC wiring, and radiated through the air. In
particular, the regulations of the FCC require products of this kind to have
been approved by the FCC as meeting the Class B digital device requirements
under Parts 2 and 15 of the FCC rules before the products may be marketed (i.e.,
imported, sold or leased or advertised for sale or lease). These regulations are
designed to minimize interference with certain other electronic products and
communications services. The approvals (a form of equipment authorization known
as "certification") are granted only after the products have passed various
electromagnetic compatibility tests and an application submitted to the FCC has
been granted. The FCC approves equipment of the kind produced by the Company
only on the condition that operation of the equipment not cause interference to
licensed radio communications and that the equipment accept interference from
licensed radio facilities, even if the interference results in undesirable
operation of the equipment. Modems that the Company sells for the connection of
the TelePad SL and the TelePad 3 to the public switched telephone line are
subject to certification under the FCC Rules in the same manner and subject to
an additional approval requirement of "registration" under Part 68 of the FCC
Rules governing certain telephone equipment.

The Company also must ensure that the TelePad 3 and TelePad SL comply with
the OSHA regulations requiring electrical equipment to have been approved for
safety by a nationally recognized testing laboratory. Safety approvals for the
TelePad SL and the TelePad 3 have been obtained. Changes in either device may
require retesting and further approvals, which could result in delay that could
have an adverse material effect on the Company.

Any modification of the TelePad (including the planned microprocessor
upgrade) must be resubmitted for FCC, ETL, and CE Mark certification. Generally
speaking, such recertification focuses on the modification and is not as
time-consuming or expensive as the original certification processes.

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OSHA. In particular, the TelePad 3 currently is certified for sale within the
European Union (the "EU"), whose standards are more stringent, in order to
permit export to members of the EU, including the United Kingdom.

COMPETITION

The field force computing industry is characterized by intense competition
and rapidly changing technology and is becoming increasingly competitive. The
TelePad 3 is central to the Company's field force strategy. See "-- Field Force
Strategy." As a consequence of the TelePad 3's design, the Company believes that
the TelePad 3 will gain rapid acceptance with field force workers and their
employers. However, numerous other companies, including companies with greater
resources than the Company, also are engaged in developing products which could
be competitive with products developed by the Company. Therefore, there can be
no assurance that competing products will not be developed or designed that
achieve greater market acceptance than, or are technologically superior to, the
TelePad 3. Most of the Company's competitors or future competitors are, or can
be expected to be, larger than the Company and have, or can be expected to have,
more extensive experience and records of successful operations than the Company.
Such competitors also have, or can be expected to have, greater financial,
marketing and other resources, more employees and larger facilities than the
Company now has or can be expected to have in the foreseeable future. In
particular, certain of the Company's present and future competitors are, or can
be expected to be, the most prominent and well-respected computer manufacturers
in the world, including IBM (currently the Company's sole manufacturer and sole
source supplier for certain components), Fujitsu Limited, Toshiba Corp., NEC
Technologies, Inc., Zenith Data Systems Corp., Symbol, Telxon, Motorola, Samsung
and others. Existing and future computer products may compete directly or
indirectly with the TelePads or other current or future products of the Company.
The Company believes that such companies have the resources and technological
capability to produce and market products competitive with, if not superior to,
the TelePads.

In addition, the Company expects that other competitors will emerge and
competing products will be introduced in the near future. No assurance can be
given that the Company will be able to successfully compete against current and
future competitors or products or that competitive pressures faced by the
Company will not adversely affect its financial performance. See "Risk Factors
- -- Competition."

The Company expects to compete on the basis of the unique modular design and
related capabilities of its TelePad products as well as its ability to provide
its customers with bundled solutions, rather than just hardware, either alone or
in partnership with its VARs. See "-- Sales and Marketing." There can be no
assurance to what extent, if at all, the Company will compete successfully. See
"Risk Factors -- Competition."

PATENTS AND PROPRIETARY RIGHTS

The Company holds four patents with respect to the multi-purpose handle and
adjustable, locking handle mechanism used on the TelePads. These patents provide
expanded coverage over the handle and the four positions the computer can have,
as well as the push button release mechanism used in the TelePad SL.

The handle has been designed to complement and facilitate the use of
TelePads by field force workers. It enables the user to hold the device in a
variety of ways: for carrying the product while not in use; for gripping the
product while writing with a pen; for slanting the product for use on a desktop;

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and for propping up or elevating the screen for greater visibility when being
used on a desktop with or without a keyboard. In addition, the Company's patent
application for the industrial and mechanical design of the portable electronic
platform which is the basis of the TelePad 3 has been allowed and the patent
should be issued in the immediate future. While the Company does not have any
other patents at this time, it intends to file patent applications for the
electrical design of the TelePad 3.

The Company has received a Notice of Allowance from the U.S. Patent and
Trademark Office for its trademark application relating to the use of the name
"TelePad" with respect to certain communications and computer equipment
described in the application, and intends to file an application to register its
new logo.

Other than as described above, the Company currently does not have or intend
to seek patents relating to its products, because it does not believe that the
technology it employs is patentable. See "Risk Factors -- Limited Patent
Protection."

It is the Company's practice to protect its proprietary materials and
processes by relying on trade secret laws and non-disclosure and confidentiality
agreements. There can be no assurance that confidentiality or trade secrets will
be maintained or that others will not independently develop or obtain access to
such materials or processes.

EMPLOYEES

At February 29, 1996, the Company had a total of 27 full-time employees,
consisting of seven engineers and systems integrators, 14 finance and
administrative personnel, and six sales and marketing personnel. No employee is
currently represented by a labor union. The Company has never experienced a work
stoppage or interruption due to a labor dispute. Management believes that its
relations with its employees are good. The Company reduced its workforce in
January 1995 by a total of eight full-time employees and four part-time and
temporary employees in order to conserve available operating funds. This
reduction in workforce eliminated certain non-essential employees and
consultants, and is not expected to have an adverse impact on the Company's
performance. The Company expects to retain additional employees in the areas of
research and development and sales and marketing as permitted by its financial
condition and required by its business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "-- Research and Development" and "-- Sales and Marketing."

PROPERTIES

Since April 1, 1995, the Company's offices have been located at 380 Herndon
Parkway, Suite 1900, Herndon, Virginia 22070. Under the terms of its lease, the
Company will lease for three years and three months approximately 12,600 square
feet of office space on a single floor of an office building. The lease
arrangement provides for a monthly rental of $8,390, plus designated operating
expenses, and provides the Company with certain concessions regarding rent
abatement and tenant build-out allowances. The rent is scheduled to increase by
3% annually. The Company has installed leasehold improvements for purposes of
demonstrating its products and strategy to customers and prospective customers.
The Company believes that, in the event additional space is required and cannot
be leased on acceptable terms from its current lessor, suitable alternative
facilities exist in the local area at comparable rental rates.

44
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The executive officers and directors (and a proposed director) of the
Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ----------------- --- -----------------------------------------------------
<S> <C> <C>
Ronald C. 48 President, Chief Executive Officer and Director
Oklewicz
John P. Diesel 69 Chairman of the Board of Directors
Sydney H. Dankman 78 Director
E. Donald Shapiro 64 Proposed Director (1)
John M. Toups 70 Director
Joseph J. Elkins 51 Vice President, Secretary and Chief Operating Officer
Robert D. Russell 56 Vice-President, Treasurer and Chief Financial Officer
</TABLE>

- ------------------------
(1) Mr. Shapiro has agreed to join the Board of Directors upon completion of the
Offering.

RONALD C. OKLEWICZ has been President, Chief Executive Officer and a
director of the Company since August 1992. From November 1991 until August 1992,
Mr. Oklewicz served as a consultant to the Company. Mr. Oklewicz served in an
executive capacity at Wollongong Group, a software communications firm, from
1990 through 1991. Mr. Oklewicz served in various positions at Apple Computer
from 1986 through 1991, including serving as General Manager of the Federal
System Division. Mr. Oklewicz also spent 13 years with Xerox Corporation in
various sales and marketing positions.

JOHN P. DIESEL has been a Director of the Company since June 27, 1995. Mr.
Diesel, who has been retired since 1991, was formerly the president of Tenneco
Inc. from 1979 until 1991. Mr. Diesel currently is a director of Aluminum
Corporation of America, Brunswick Corporation and Financial Institutions
Insurance Group, Ltd.

SYDNEY H. DANKMAN has been a Director of the Company since April 1990. Mr.
Dankman, who has been retired for a period in excess of five years, is an
investor in early development technology ventures.

E. DONALD SHAPIRO has agreed to join the Board of Directors upon completion
of the Offering. Mr. Shapiro is the Joseph Solomon Distinguished Professor of
Law at New York Law School since 1983 where he served as both Dean and Professor
of Law from 1973 to 1983. He is Supernumerary Fellow of St. Cross College at
Oxford University, England and Visiting Distinguished Professor Bar-Ilan
University, Tel-Aviv, Israel. Mr. Shapiro received a J.D. degree at Harvard Law
School and has been conferred honorary degrees by both Oxford University and New
York Law School. He currently serves on the Boards of Directors for several
public companies including Loral Corporation, Eyecare Products PLC, Kranzco
Realty Trust, Group Health Incorporated, Interferon Sciences, Inc., Future
Medical Products, Inc., MacroChem Corporation, and Premier Laser Systems and
also serves on the Board of Directors of Bank Leumi NY. Mr. Shapiro is a Fellow,
Institute of Judicial Administration, NY, and American Academy of Forensic
Sciences and a life member of the American Law Institute. He is author or
co-author of more than 50 publications including books and journal articles
dealing with Medicine, Forensic Science and the Law.

JOHN M. TOUPS has been a Director of the Company since April 1995. Mr.
Toups, who has been retired since 1987, was the president and chief executive
officer of Planning Research Corporation from 1978 until 1987. Mr. Toups
currently serves on the board of NVR Inc, CACI International and Halifax
Corporation. NVR, Inc. is the successor to NVR L.P., which sought protection
under the bankruptcy laws on April 7, 1992. Mr. Toups was elected to the Board
of Directors of NVR, Inc. in 1993, after its emergence from bankruptcy as the
successor to NVR L.P.

45
<PAGE>
JOSEPH J. ELKINS has been Vice President of the Company since August 1993,
Secretary of the Company since July 1994 and Chief Operating Officer since April
1995. In addition, Mr. Elkins served as a director from September 1994 until
July 1995 and as Chief Financial Officer of the Company from August 1993 until
April 1995. Prior to joining the Company, Mr. Elkins was president of two
information management firms, Blyth Software, Inc. and Elkins and Company,
following a 23-year tenure at KPMG Peat Marwick, where he oversaw development of
that firm's financial management software products. Mr. Elkins is a certified
public accountant.

ROBERT D. RUSSELL has been Vice President, Treasurer and Chief Financial
Officer of the Company since May 1995. Prior to joining the Company, Mr. Russell
was Vice President, Finance and Administration, Secretary and Treasurer of
Falcon Microsystems, Inc. from 1986 until 1994 and an independent consultant
from 1994 until May 1995.

DIRECTORS' COMPENSATION

All directors of the Company hold office until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers serve
at the discretion of the Board of Directors.

Directors of the Company currently receive no cash compensation for their
services as such. Other than options that may be received by non-employee
directors under the Company's 1994 Non-Employee Director Stock Option Plan (the
"NESOP") and reimbursement of actual, out-of-pocket expenses incurred in
attending meetings of the Board of Directors, there currently are no other
arrangements pursuant to which any director is compensated for his service as
such. See "-- Stock Options and Warrants."

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Charter provides that no director of the Company shall be
personally liable to the Company or to any stockholder of the Company for
monetary damages for breach of fiduciary duty as a director, provided that this
provision shall not limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Company or its stockholder; (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the General Corporation Law
of Delaware (as amended, or any successor provision); or (iv) for any
transaction from which the Director derived an improper personal benefit.

If the General Corporation Law of Delaware or any other statute of the State
of Delaware hereafter is amended to authorize the further elimination or
limitation of the liability of directors of the Company, the Charter provides
that the liability of a director of the Company shall be limited to the fullest
extent permitted by the statutes of the State of Delaware, as so amended, and
such elimination or limitation of liability shall be in addition to, and not in
lieu of, the limitation on the liability of a director provided by the Charter.

EMPLOYMENT AGREEMENTS

The Company has entered into an employment agreement with Ronald C.
Oklewicz, dated as of November 15, 1995, for a term ending not earlier than
December 31, 1996. The agreement is subject to automatic renewal through
December 31, 1997 unless the Board of Directors gives written notice of
cancellation on or before June 30, 1996. Pursuant to the agreement, Mr. Oklewicz
will serve as President and, unless and until the Board of Directors
specifically hires a new chief executive officer, as Chief Executive Officer, of
the Company at a salary of $150,000. At such time, if any, as the Board of
Directors retains a new chief executive officer, Mr. Oklewicz will assume the
position of President and chief operating officer at the same salary and under
the same terms and conditions. The agreement provides that Mr. Oklewicz is
entitled to receive specified bonuses in the aggregate amount of $150,000 upon
the occurrence of specified events, including the completion of the Offering,
and achievement of specified sales and financial milestones by the Company, as
well as other supplemental benefits at the discretion of the Board of Directors.
In addition, the agreement provides for the receipt of options to purchase
200,000 shares of the Company's Class A Common Stock at the market price on
October 26, 1995 (the date of grant) pursuant to the Company's Amended and
Restated 1993 Stock

46
<PAGE>
Option Plan as amended (the "SOP"), which options vest (i) in the amounts of
50,000, 50,000 and 100,000 at such time, if any, as the "ask" price of the Class
A Common Stock reaches $5.00, $7.50 and $10.00; (ii) upon the effective
termination date if Mr. Oklewicz is terminated without cause; but (iii) in no
event later than December 31, 1996, so long as Mr. Oklewicz remains an executive
officer of the Company through the applicable vesting date. The agreement also
provides that if Mr. Oklewicz is terminated other than for "cause" (as defined
therein) or dies, the Company will pay to Mr. Oklewicz (or his spouse or estate
if he dies) his compensation and other benefits for 12 months following
termination. The agreement contains a confidentiality provision and provides
that during the term of employment and for a period of one year after such
employment has terminated, Mr. Oklewicz will not interfere with the Company's
customers or solicit the Company's employees.

In order to enhance the depth of management, on October 26, 1995, the Board
of Directors voted to consider the creation of a separate position of Chief
Executive Officer and to retain an executive search firm to identify candidates
for this position. See "Risk Factors -- Dependence on Key Personnel; Need to
Retain Technical Personnel." There can be no assurance as to when, if ever, an
acceptable candidate for Chief Executive Officer will be identified.

The Company has entered into an employment agreement with Joseph J. Elkins,
dated as of January 1, 1993, for a term of four years pursuant to which Mr.
Elkins initially served as Vice President and Chief Financial Officer of the
Company at a base salary for the first year of $85,000, which amount was
subsequently increased to $110,000 and which may be further increased by the
Board of Directors. The Board promoted Mr. Elkins from Chief Financial Officer
to Chief Operating Officer in May 1995. In addition to serving as Chief
Operating Officer, Mr. Elkins also currently serves as Vice President and each
of these positions is subject to the terms of the employment agreement. At such
time, if any, as the Board of Directors retains a new chief executive officer,
Mr. Elkins will relinquish the title of Chief Operating Officer, but will remain
as a Vice President, subject to the terms and conditions of the employment
agreement. The agreement provides that Mr. Elkins is entitled to receive bonuses
and other supplemental benefits at the discretion of the Board of Directors. The
agreement also provides that if Mr. Elkins is terminated other than for "cause"
(as defined therein) or dies, the Company will pay him (or his spouse or estate
if he dies) severance in the amount of 12 months' salary. The agreement contains
a confidentiality provision and provides that during the term of employment and
for a period of one year after such employment has terminated, Mr. Elkins will
not interfere with the Company's customers or solicit the Company's employees.

STOCK PLANS

AMENDED AND RESTATED 1993 STOCK OPTION PLAN, AS AMENDED

In April 1993, the Board of Directors adopted and the stockholders of the
Company approved the SOP, which provides for the grant of "incentive stock
options" ("ISOs") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as nonqualified stock options.

The SOP is administered by the Compensation Committee of the Board of
Directors. The members of the Compensation Committee are not eligible to receive
options under the SOP. The Compensation Committee has the authority to determine
the employees to whom options will be granted and, subject to the provisions of
the SOP, the terms of the options to be granted and whether such options will be
nonqualified stock options ("NQSOs"). (ISOs and NQSOs under the SOP are
collectively referred to herein as "Options.")

The purpose of the SOP is to attract, retain and motivate officers and key
employees of the Company and to provide a means by which such persons may be
given an opportunity to acquire a proprietary interest in the Company through
the ownership of Class A Common Stock.

The SOP provides for the granting of Options only to executive officers and
key employees of the Company that are selected by the Committee. Approximately
25 persons currently are eligible to participate under the SOP.

47
<PAGE>
The Board has reserved a total of 975,000 shares of the authorized but
unissued Class A Common Stock of the Company for issuance under the SOP. As of
December 31, 1995, the Company had authorized the grant of stock options to
purchase an aggregate of 593,500 shares of Class A Common Stock under the SOP. A
total of 401,500 shares of Class A Common Stock remain available to underlie
additional Options to be granted under the SOP in the future. Shares of Class A
Common Stock subject to Options that lapse or are canceled will become available
for issuance pursuant to other Options granted under the SOP.

The aggregate fair market value of the shares of Class A Common Stock with
respect to which ISOs may be granted under the SOP will be exercisable for the
first time by an optionee during any calendar year may not exceed $100,000.
Furthermore, no ISO may be granted under the SOP to any person who, at the time
of the grant, owns capital stock of the Company possessing more than 10% of the
total combined voting power of the Company, unless the exercise price of the ISO
is at least 110% of the fair market value on the date of grant of the shares of
Class A Common Stock subject to the ISO, and the term of the ISO does not exceed
five years from the date of grant.

The exercise price of options under the SOP may not be less than the fair
market value of the Class A Common Stock on the date of the Option grant. In
some cases, as discussed above, the exercise price of ISOs may not be less than
110% of the fair market value of the Class A Common Stock on the date of grant.
"Fair market value" is defined under the SOP generally to mean the average of
the highest bid and lowest asked prices for the Class A Common Stock on a
particular date as reported by the Nasdaq system (or such other national
securities exchange or interdealer quotation system on or in which the shares of
Class A Common Stock are listed or included).

The SOP requires that the exercise price of an Option granted thereunder be
paid (i) in cash or certified check or, if permitted by the Option agreement
entered into in connection with each Option; (ii) in shares of Class A Common
Stock already owned by the optionee, valued at their fair market value on the
date of exercise of the Option and having an aggregate fair market value on the
date of exercise equal to the Option price for all the shares of Class A Common
Stock subject to such exercise; or (iii) by a combination of (i) and (ii) above,
in the manner provided in the agreement governing the grant of such Option
agreement.

No Option granted under the SOP may be exercised after the expiration of 10
years from the date it was granted. Class A Common Stock acquired upon the
exercise of an Option may not be sold prior to the expiration of six months
after the date of grant of such Option.

Subject to the above limitations, provisions relating to the time or times
at which an Option may be exercisable will be included in an Option agreement to
be entered into by the Company and an optionee upon the granting of an Option.
Options granted under the SOP will be nontransferable by the optionee otherwise
than by will or the laws of descent and distribution and will be exercisable
during the optionee's lifetime only by him or her.

In the event a change in the Company's capitalization results from a stock
split or payment of a stock dividend or any other increase or decrease in the
number of shares of Class A Common Stock, appropriate adjustments will be made
in the exercise price of and number of shares subject to all outstanding
Options. In the event of a proposed dissolution or liquidation of the Company,
each Option will terminate unless otherwise provided by the Board of Directors.
In the event of a merger of the Company with or into another corporation or any
other capital reorganization in which more than 50% of the shares of Class A
Common Stock entitled to vote are exchanged, outstanding Options will terminate,
unless other provisions are made in the transaction.

The Board of Directors may amend the SOP at any time or from time to time or
may terminate it without the approval of stockholders; provided, however, that
the approval of the holders of a majority of the outstanding shares of the
Company entitled to vote is required for any amendment which would (i)
materially increase the benefits accruing to participants under the SOP; (ii)
increase the maximum number of shares of Class A Common Stock which may be
issued under the SOP; or (iii) modify the

48
<PAGE>
requirements as to eligibility for participation in the SOP. No such action by
the Board of Directors or stockholders may alter or impair any Option previously
granted under the SOP without the consent of the optionee.

In the future, the Company may file a Form S-8 Registration Statement with
the Securities and Exchange Commission in order to register the shares
underlying the Options under the Securities Act of 1933, as amended.

1994 EMPLOYEE STOCK PURCHASE PLAN

In May 1994, the Board of Directors adopted, and in June 1994 the
stockholders of the Company approved, the 1994 Employee Stock Purchase Plan (the
"SPP"), which provides certain employees of the Company with an opportunity to
purchase Class A Common Stock through payroll deductions, subject to certain
limitations. There are an aggregate of 250,000 shares of Class A Common Stock
reserved for issuance under the SPP. The SPP is administered by the Board of
Directors and/or a duly appointed committee of the Board. To date, no shares
have been issued under the SPP.

AMENDED 1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

In May 1994, the Board of Directors adopted, and in June 1994 the
stockholders of the Company approved, the 1994 Non-Employee Director Stock
Option Plan (the "NESOP"), which provides directors of the Company who are not
employed by the Company or any affiliate of the Company an option to purchase
6,667 shares of Class A Common Stock on an annual basis at 100% of fair market
value on the date the option is granted. Options granted under the NESOP vest in
three annual one-third investments. There are an aggregate of 175,000 shares of
Class A Common Stock reserved for issuance under the NESOP. The NESOP is
administered by the Compensation Committee and was not intended to qualify under
Section 422 of the Code. As of December 31, 1995, stock options to purchase a
total of 26,668 shares of Class A Common Stock under the NESOP were outstanding.
2,222 of these stock options are presently exercisable.

NONQUALIFIED STOCK OPTIONS AND WARRANTS

The Company formerly had in place the Non-Qualified Incentive Stock Option
Plan (the "Former Plan"), which was terminated in April 1993. In addition, from
time to time, the Company has granted options and warrants outside the Former
Plan, SOP and SPP to investors, employees and consultants, some of which were in
consideration for services performed. As of December 31, 1995, nonqualified
stock options and warrants to purchase a total of 625,470 shares of Class A
Common Stock, at prices ranging from $0.01 to $7.88 per share, were outstanding.

49
<PAGE>
EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation paid by the Company during
the three fiscal years ended December 31, 1995 to its Chief Executive and Chief
Operating Officers (the "Named Officers"). No other executive officer of the
Company received compensation in excess of $100,000 for the fiscal year ended
December 31, 1995.

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- AWARDS
OTHER ANNUAL ------------
SALARY COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#)
- ------------------------------------------ ---- -------- ------------ ------------
<S> <C> <C> <C> <C>
Ronald C. Oklewicz (1)
President & Chief Executive Officer 1995 $123,885 $ 0 200,000(2)
1994 $120,000 $5,376 30,000(3)
1993 $125,000 $ 0 60,000

Joseph J. Elkins
Vice President & Chief Operating Officer 1995 $103,750 $ 0 40,000(4)
1994 $ 85,000 $3,117 20,000
1993 $ 31,875 $ 0 20,000
</TABLE>

- ------------------------
(1) Mr. Oklewicz became the Company's Chief Executive Officer on August 5, 1992.

(2) Represents options to purchase shares of Class A Common Stock at an exercise
price of $1.75 per share (the average of the closing bid and asked prices of
the Common Stock on the date of grant), with such options becoming
exercisable as specific conditions are met.

(3) Represents options to purchase shares of Class A Common Stock at an exercise
price of $6.56 per share (the average of the closing bid and asked prices of
the Common Stock on the date of grant), with such options becoming
exercisable one-third per year from the date of grant.

(4) Represents options to purchase shares of Class A Common Stock at an exercise
price of $8.50 per share (the average of the closing bid and asked prices of
the Common Stock on the date of grant) with such options becoming
exercisable one-third per year from the date of grant.

OPTION GRANTS IN FISCAL 1995

Shown below is information concerning stock option grants of Class A Common
Stock awarded to the Named Officers during the Company's 1995 fiscal year.
INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
NUMBER OF SHARES % OF TOTAL OPTIONS EXERCISE OR
UNDERLYING OP- GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME TIONS GRANTED(1) IN FISCAL 1995 ($/SH)(2) DATE
- ------------------ ---------------- -------------------- ----------- ----------
<S> <C> <C> <C> <C>
Ronald C. Oklewicz 200,000 65.4% $1.75 11/14/02
Joseph J. Elkins 40,000 13.1% $8.50 4/20/02
</TABLE>

- ------------------------
(1) The options are nonqualified stock options.

(2) The exercise price is equal to the fair market value of the shares of Class
A Common Stock on the date of grant of the option.

50
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES

The following table sets forth, for the Named Officers of the Company,
information regarding aggregate exercises of options in 1995 and the number and
value of unexercised options at December 31, 1995.

<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT END OF OPTIONS AT END OF
NUMBER OF SHARES FISCAL YEAR FISCAL 1995
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE (1)
- ------------------ ----------------- --------- ------------------ -----------------
<S> <C> <C> <C> <C>
Ronald C. Oklewicz 0 0 173,462(2)/210,000 $71,550/$0
Joseph J. Elkins 0 0 26,667/53,333 $0/$0
</TABLE>

- ------------------------
(1) Based upon the difference between the exercise prices of the options and the
closing bid price of the Class A Common Stock, as reported on the OTC
Bulletin Board on December 29, 1995, of $1.125 per share.

(2) Includes 3,706 shares of Class A Common Stock underlying Class C Warrants
acquired by Mr. Oklewicz in the 1994 Private Placement.

CERTAIN TRANSACTIONS

In January 1993, the Company issued at face amount 10% subordinated notes
(the "January Notes") in the aggregate principal amount of $400,000 to various
accredited investors. Sydney Dankman, who then was, and remains a director of
the Company and Morris Sedaka, who was a director until September 1993, each
invested $50,000 in such offering. In connection with the Company's private
placement in March 1993, the January Notes owned by Messrs. Dankman and Sedaka,
as well as all of the other January Notes, were surrendered to the Company in
consideration for the purchase in the private placement of $400,000 principal
amount of 10% Subordinated Notes due September 1, 1994 and warrants to purchase
200,000 shares of Class A Common Stock of the Company. As a result of this
exchange, each of Messrs. Dankman and Sedaka received $50,000 principal amount
of Subordinated Notes (which were subsequently repaid, with accrued interest,
from the proceeds of the IPO in July 1993) and warrants to purchase 25,000
shares of Class A Common Stock. Such Class A Warrants were registered in
connection with the Company's IPO. The foregoing transactions were approved by
the Company's Board of Directors. The Board deemed that fair value was received
by the Company in light of the identical terms offered to all other Private
Placement investors as negotiated with the placement agent.

In May 1993, the Company borrowed $100,000 from each of three investors, two
of whom were Sydney Dankman and Morris Sedaka. The loans from Messrs. Dankman
and Sedaka bore interest at an annual rate of 12% and were repaid from a portion
of the proceeds from the Company's IPO in July 1993. In connection with these
loans, each of Mr. Dankman and Mr. Sedaka was also issued five-year warrants to
purchase 10,000 shares of Class A Common Stock at an exercise price of $7.88 per
share.

The Company believes that the transactions between the Company and its
stockholders are on terms no less favorable to the Company than the terms that
would have been available from unaffiliated parties under similar circumstances.
Actual comparisons with other transactions are not possible, however. All future
transactions between the Company and its officers, directors and principal
stockholders or affiliates thereof, will be subject to the approval of the Board
of Directors and the Company's independent directors, and a factor in their
consideration will be whether the terms of such transactions will be no less
favorable to the Company than could be obtained from independent third parties.

51
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth, as of March 28, 1996, certain information as
to the beneficial ownership of Common Stock of each of the Company's directors,
a nominee for director, all officers and directors as a group, and each person
known by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP PERCENT OF CLASS A PERCENT OF VOTING (4)
IMMEDIATELY ----------------------- PERCENT -----------------------
NAME AND ADDRESS OF BEFORE OFFERING BEFORE AFTER OF BEFORE AFTER
BENEFICIAL STOCKHOLDER (1)(2) OFFERING OFFERING (2) CLASS B OFFERING OFFERING (2)
- ------------------------------------------------ --------------- -------- ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sydney H. Dankman 147,207(3) 3.27% 1.44% 0% 2.02% 1.13%
380 Herndon Parkway Herndon, VA 22070
Ronald C. Oklewicz 381,643(4) 7.94% 3.63% 0% 5.03% 2.87%
380 Herndon Parkway Herndon, VA 22070
Joseph J. Elkins 67,267(5) 1.49% 0.66% 0% 0.92% 0.52%
380 Herndon Parkway Herndon, VA 22070
John M. Toups 6,667(6) 0.15% 0.07% 0% 0.09% 0.05%
380 Herndon Parkway Herndon, VA 22070
John P. Diesel 50,873(7) 1.14% 0.50% 0% 0.70% 0.39%
380 Herndon Parkway Herndon, VA 22070
E. Donald Shapiro 72,187(8) 1.60% 0.71% 0% 0.99% 0.56%
57 Worth Street
New York, NY 10013
Scott J. Dankman 593,063(9)(10) 0% 0% 100% 40.06% 22.63%
6040 Lands End Lane
Alexandria, VA 22315
J. Morton Davis 278,302(11) 5.90% 2.67% 0% 3.71% 2.11%
44 Wall Street
New York, NY 10005
Alan Stahler 456,965(12) 9.34% 4.31% 0% 5.96% 3.42%
44 Wall Street
New York, NY 10005
D.H. Blair Holdings, Inc. 237,813(13) 5.09% 2.29% 0% 3.19% 1.81%
44 Wall Street
New York, NY 10005
D.H. Blair Investment 237,813(14) 5.09% 2.29% 0% 3.19% 1.81%
Banking Corp.
44 Wall Street
New York, NY 10005
All current officers and directors as a group (6
persons)(15) 653,557 13.19% 6.17% 0% 8.45% 4.86%
</TABLE>

- ------------------------------
(1) Except as otherwise indicated, each of the parties listed has sole voting
and investment power with respect to all shares of Common Stock indicated.
Beneficial ownership is calculated in accordance with Rule 13-d-3(d) under
the Exchange Act. The Company has two classes of Common Stock outstanding,
being Class A and Class B Common Stock, with all outstanding shares of
Class B Common Stock being owned by Scott J. Dankman.

(2) As adjusted to reflect the exercise of all outstanding immediately
exercisable Class A, Class B and Class C Warrants and all Class B Warrants
issuable upon exercise of outstanding Class A Warrants. Does not reflect
issuance of 1,864,866 shares of Class A Common Stock issuable upon exercise
of outstanding Unit Purchase Options, except as indicated with respect to
listed holders.

(3) Includes 61,921 shares of Class A Common Stock underlying immediately
exercisable stock options and Class C Warrants.

(4) Includes (i) 163,762 shares of Class A Common Stock underlying immediately
exercisable stock options and Class C Warrants acquired in the 1994 Private
Placement; (ii) 200,000 shares underlying options which may become
exercisable within 60 days; and (iii) 6,250 shares of Class A Common Stock
jointly owned by Mr. Oklewicz and his spouse, who share power to vote and
dispose of such shares.

(5) Consists of (i) 66,667 shares of Class A Common Stock underlying
immediately exercisable options and (ii) 600 shares of Class A Common Stock
jointly owned by Mr. Elkins and his spouse, who share power to vote and
dispose of such shares.

(6) Consists of 6,667 shares of Class A Common Stock underlying immediately
exercisable options.

(7) Includes 17,123 shares of Class A Common Stock underlying immediately
exercisable Class C Warrants.

52
<PAGE>
(8) Consists of 72,187 shares of Class A Common Stock underlying currently
exercisable Class A Warrants (including the Class B Warrants contained
therein).

(9) Includes 37,500 shares of Class B Common Stock underlying immediately
exercisable stock options. Mr. Dankman has agreed to grant a voting proxy
covering all of his shares of Class B Common Stock to the directors of the
Company who are not also employees. Therefore, such directors may be deemed
to have power to vote such shares.

(10) Each share owned by Mr. Scott Dankman is Class B Common Stock, which is
identical in all respects to the Class A Common Stock of the Company, except
that on every matter for which each share of Class A Common Stock is
entitled to one vote, each share of Class B Common Stock is entitled to five
votes.

(11) Consists of (i) 40,489.5 shares of Class A Common Stock underlying an IPO
Unit Purchase Option with respect to 7,000 IPO Units (including the Class A
Warrants and Class B Warrants that are included therein) held directly by
Mr. Davis, and (ii) 237,812.5 shares of Class A Common Stock underlying an
IPO Unit Purchase Option with respect to 41,114 IPO Units (including the
Class A Warrants and Class B Warrants that are included therein) held by
D.H. Blair Investment Banking Corp. The IPO Unit Purchase Option is
currently exercisable and the underlying Class A and Class B Warrants are
exercisable immediately upon issuance. Mr. Davis is the Chairman of D.H.
Blair Investment Banking Corp. and has sole power to vote and dispose of the
securities held thereby.

(12) Consists of (i) 371,069.3 shares of Class A Common Stock underlying an IPO
Unit Purchase Option with respect to 64,152 IPO Units (including the Class A
Warrants and Class B Warrants that are included therein) held directly by
Mr. Stahler and (ii) 85,895.6 shares of Class A Common Stock underlying an
IPO Unit Purchase Option with respect to 14,850 IPO Units (including the
Class A Warrants and Class B Warrants that are included therein) held by
Blair & Co., Inc. The IPO Unit Purchase Option is currently exercisable and
the underlying Class A and Class B Warrants are exercisable immediately upon
issuance. Mr. Stahler is the Vice Chairman of D.H. Blair & Co., Inc. and has
shared power to vote and dispose of the securities held thereby.

(13) Consists of 237,812.5 shares of Class A Common Stock underlying an IPO Unit
Purchase Option with respect to 41,114 IPO Units (including the Class A
Warrants and Class B Warrants that are included therein) held directly by
D.H. Blair Investment Banking Corp. D.H. Blair Investment Banking Corp. is a
wholly owned subsidiary of D.H. Blair Holdings, Inc. The IPO Unit Purchase
Option is currently exercisable and the underlying Class A and Class B
Warrants are exercisable immediately upon issuance.

(14) Consists of 237,812.5 shares of Class A Common Stock underlying an IPO Unit
Purchase Option with respect to 41,114 IPO Units (including the Class A
Warrants and Class B Warrants that are included therein). The IPO Unit
Purchase Option is currently exercisable and the underlying Class A and
Class B Warrants are exercisable immediately upon issuance.

(15) Includes all of the shares of Class A Common Stock that have been listed as
being included in notes (4), (5), (6) and (7) above. Does not include the
voting power attributable to the 555,563 shares of Class B Common Stock
currently held by Mr. Scott Dankman, as to which Mr. Dankman has granted a
voting proxy to the directors of the Company who are not also employees.
Including such shares, upon completion of the Offering, the Company's
officers and directors will have 26.57% of the voting power of the Company's
Common Stock.

53
<PAGE>
SELLING SECURITYHOLDERS

An aggregate of up to 2,000,000 Class D Warrants and 2,000,000 shares of
Class A Common Stock issuable upon exercise of such Warrants may be offered for
resale by investors who received their Class D Warrants in exchange for warrants
received in the Bridge Financing.

The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering the Selling
Securityholder Securities for resale to the public. The Company will not receive
any of the proceeds from the sale of such securities. With the exception of E.
Donald Shapiro, who has agreed to become a member of the Board of Directors upon
completion of the Offering, to the Company's knowledge, there are no material
relationships between any of the Selling Securityholders and the Company, nor
have any such material relationships existed within the past three years.

<TABLE>
<CAPTION>
NUMBER OF
WARRANTS
BENEFICIALLY
OWNED AND MAXIMUM
SELLING SECURITYHOLDERS NUMBER TO BE SOLD(1)
- -------------------------------------------------------------------------------------------- --------------------
<S> <C>
ABE Corporation 25,000
Alan Abrams & Kelly Abrams, JTWROS 25,000
Jeffrey Abrams & Josette Abrams, JTWROS 25,000
Leonard J. Adams 18,750
Amore Perpetuo, Inc. 50,000
Mark Berger 6,250
Mordecai Bluth 12,500
David Wm. Boone PC 25,000
Jacob Borenstein 12,500
James Paul Clay 6,250
Philip A. Cramer 25,000
Stanley F. Crew & Iris M. Crew, JTWROS 6,250
Randall K. Diehl 12,500
Donald G. Drapkin 225,000
Jules H. Dreyfuss 37,500
Ike R. Dweck 37,500
Nathan Eisen & Rose Eisen, JTWROS 25,000
Art Ekstrom 12,500
William Embry & Helen M. Embry, JTWROS 12,500
Ralph Falk II 25,000
Bruce Fetzer & D'Arba Fetzer, JTWROS 6,250
Marvin A. Ginsburg 12,500
Jack Gracian & Selma Gracian, JTWROS 12,500
Jerome L. Grushkin, P.C. DBP 12,500
Daniel Gutkin 6,250
John F. Hetterick & Kathe L. Hetterick, JTWROS 25,000
Andrew A. Holder 12,500
Ali Homayuni 12,500
Thomas M. Horrigan 12,500
Steven R. Hurlburt 50,000
Arthur Inden & Sheila Inden, JTWROS 12,500
International Foam Products, Inc. 12,500
Douglas M. Jordan & Wendy A. Jordan, JTWROS 12,500
Bruce Kashkin & Marjorie Kashkin, JTWROS 25,000
Melvin L. Katten 12,500
Robert Katz 12,500
Jay Kestenbaum 12,500
Robert Klein, M.D. and Myriam Gluck, M.D., JTWROS 25,000
Nicole Kubin & Michael Kubin, JTWROS 6,250
Solomon Kurz 6,250
</TABLE>

54
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS
BENEFICIALLY
OWNED AND MAXIMUM
NUMBER TO BE
SELLING SECURITYHOLDERS SOLD (1)
- -------------------------------------------------------------------------------------------- --------------------
<S> <C>
Phil Lifschitz 25,000
George Lionikis, Sr. 12,500
Dr. Joseph Litner 12,500
Ernie Lafrosia 18,750
Gerhard R. Mache c/f Kim I. Mache 12,500
Brian McLean 25,000
Martin G. Mendelssohn & Lynn Mendelssohn, JTWROS 6,250
Albert Milstein 12,500
Eric Neibart 6,250
Richard Nelson, Elaine Nelson and Ross Nelson, TIC 25,000
Orion Research 6,250
Alan N. Parnes, M.D. 12,500
Irwin H. Parnes, M.D. 6,250
Robert M. Patton 12,500
Ruth Peyser 12,500
James Pinke 18,750
Nicholas Ponzio 12,500
Pierre F. Pype & Claire T. Pype, JTWROS 6,250
Rahn & Bodmer 137,500
The Regal Trade, S.A. 125,000
Marc Roberts 62,500
Majer Rosenfeld & Judith Rosenfeld, JTWROS 6,250
Judah Roth 12,500
Alan J. Rubin 25,000
Wayne Saker 25,000
Roy Schaeffer & Marlena Schaeffer, JTWROS 12,500
Louise Schrier 50,000
Ila H. Shah 12,500
E. Donald Shapiro 12,500
Michael Silver & Lori Silver, JTWROS 12,500
Harold H. Singer 6,250
Steven Sklow 18,750
Leonard A. Solomon 6,250
Donald J. Soults 25,000
Eugene P. Souther 12,500
Patrick J. Storm & Marie A. Storm, JTWROS 25,000
Gary J. Strauss 6,250
Ervin Tausky 125,000
F.W. Thompson 12,500
Marc G. Tisch TTEE D.B.P. 12,500
W. Ed Tyler & Vickie Sue Tyler, JTWROS 25,000
Henry G. Warner 6,250
Henry Warner Sp. #2 6,250
Terrance J. Winkler 6,250
Aaron Wolfson 12,500
Thomas Woodruff 12,500
Xanadu Associates, L.L.C. 12,500
Herman L. Zeller 6,250
</TABLE>

- ------------------------
(1) Does not include shares of Class A Common Stock issuable upon exercise of
the Class D Warrants. The Selling Securityholders have agreed not to
exercise the Warrants being offering hereby for a period of one year from
the date of this Prospectus. None of the Selling Securityholders
beneficially own in excess of 1% of the outstanding shares of Class A Common
Stock after the Offering.

55
<PAGE>
PLAN OF DISTRIBUTION

The sale of the Selling Securityholder Securities by the Selling
Securityholders may be effected from time to time in transactions (which may
include block transactions by or for the amount of the Selling Securityholders)
in the over-the-counter market or in negotiated transactions, through the
writing of options on the securities, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale or at negotiated prices.

The Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions).

Each Selling Securityholder has agreed (i) not to sell, transfer or
otherwise dispose publicly the Selling Securityholder Warrants except after the
time periods and in the percentage amounts set forth below, on a cumulative
basis, and (ii) not to exercise the Selling Securityholder Warrants for a period
of one year after the closing of the Offering. Purchasers of the Selling
Securityholder Warrants will not be subject to such restrictions.

<TABLE>
<CAPTION>
PERCENTAGE ELIGIBLE
LOCK UP PERIOD FOR RESALE
- --------------------------------------------------------------------------- ---------------------
<S> <C>
Before 90 days after Closing 0%
Between 91 and 150 days 25%
Between 151 and 210 days 50%
Between 211 and 270 days 75%
After 270 days 100%
</TABLE>

Under applicable rules and regulations under the Securities Exchange Act of
1934 ("Exchange Act"), any person engaged in the distribution of the Selling
Securityholder Warrants may not simultaneously engage in market making
activities with respect to any securities of the Company during the applicable
"cooling-off" period (at least two, and possibly nine, business days) prior to
the commencement of such distribution. Accordingly, in the event the Underwriter
of the Company's initial public offering or D. H. Blair & Co. Inc. ("Blair") is
engaged in a distribution of the Selling Securityholder Warrants, neither of
such firms will be able to make a market in the Company's securities during the
applicable restrictive period. However, neither the Underwriter nor Blair has
agreed to nor is either of them obliged to act as broker/dealer in the sale of
the Selling Securityholder Warrants and the Selling Securityholders may be
required, and in the event Blair is a market maker, will likely be required, to
sell such securities through another broker/dealer. In addition, each Selling
Securityholder desiring to sell Warrants will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of the purchases and sales of shares of the Company's securities by
such Selling Securityholders.

The Selling Securityholders and broker-dealers, if any, acting in connection
with such sale might be deemed to be underwriters within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the securities might be deemed to be underwriting discounts and
commissions under the Securities Act.

56
<PAGE>
CONCURRENT PUBLIC OFFERING

On the date of this Prospectus, a Registration Statement was declared
effective under the Securities Act with respect to an underwritten offering by
the Company of 20,000 Units by the Company and up to 3,000 additional Units to
cover over-allotments, if any.

DESCRIPTION OF SECURITIES

GENERAL

The authorized capital stock of the Company consists of an aggregate of
94,406,937 shares of Class A Common Stock, par value $.01 per share, 593,063
shares of Class B Common Stock, and 5,000,000 shares of Preferred Stock. As of
the date hereof, there were outstanding 4,436,175 shares of Class A Common Stock
and 555,563 shares of Class B Common Stock.

IPO UNITS

Each IPO Unit consists of one share of Class A Common Stock, one Class A
Warrant and one Class B Warrant. Each Class A Warrant currently entitles the
holder to purchase approximately 1.44 shares of Class A Common Stock (as
adjusted) and one Class B Warrant.

Each Class B Warrant currently entitles the holder to purchase approximately
1.44 shares of Class A Common Stock (as adjusted). The Class A Common Stock,
Class A Warrants and Class B Warrants became separately transferable upon
issuance.

COMMON STOCK

CLASS A COMMON STOCK

Holders of Class A Common Stock have one vote per share on each matter
submitted to a vote of the stockholders. Holders of the Class A Common Stock do
not have preemptive rights to purchase additional shares of Common Stock or
other subscription rights. The Class A Common Stock carries no conversion rights
and is not subject to redemption or to any sinking fund provisions. All shares
of Class A Common Stock are entitled to share equally in dividends from legally
available sources as determined by the Board of Directors, subject to any
preferential dividend rights of the Preferred Stock (described below). Upon
dissolution or liquidation of the Company, whether voluntary or involuntary,
holders of the Class A Common Stock are entitled to receive assets of the
Company available for distribution to the stockholders, subject to the
preferential rights of the Preferred Stock. As of March 27, 1996, there were 221
holders of record of the Company's shares of Class A Common Stock.

CLASS B COMMON STOCK

The Class B Common Stock is substantially identical to the Class A Common
Stock, except that (i) the holders of Class B Common Stock have five votes per
share on each matter considered by stockholders and the holders of the Class A
Common Stock have one vote per share on each matter considered by stockholders;
(ii) if stock dividends, splits, distributions, reverse splits, combinations,
reclassification of shares, or other recapitalizations (collectively,
"Recapitalizations") are declared or effected, such Recapitalizations shall be
effected in a like manner with respect to the Class A Common Stock and the Class
B Common Stock and payments in shares of capital stock shall be paid in shares
of Class A Common Stock with respect to the Class A Common Stock and the Class B
Common Stock; and (iii) shares of Class B Common Stock are convertible into
shares of Class A Common Stock at the option of the holder at any time.

In addition, the transferability of the Class B Common Stock is restricted
by the Company's Charter, unless the shares are first converted into Class A
Common Stock. There is no trading market for the Class B Common Stock and none
will develop. All shares of Class B Common Stock held by any stockholder
automatically convert to Class A Common Stock if the beneficial owner transfers
such shares of Class B Common Stock or upon the death of the holder of the Class
B Common Stock. Scott J. Dankman, former Chairman of the Board of Directors of
the Company, holds all of the outstanding

57
<PAGE>
shares and options to purchase shares of Class B Common Stock. Mr. Dankman has
granted a proxy covering these shares to the Directors of the Company who are
not also employees. Presently, there are 555,563 shares of Class B Common Stock
issued and outstanding. There are 37,500 options to purchase Class B Common
Stock outstanding.

The difference in voting rights increases the voting power of holders of
Class B Common Stock (or their proxy) and accordingly may have an anti-takeover
effect. The existence of the Class B Common Stock may make the Company a less
attractive target for a hostile takeover bid or render more difficult or
discourage a merger proposal, an unfriendly tender offer, a proxy contest, or
the removal of incumbent management, even if such transactions were favored by
the Class A stockholders of the Company. Thus, such stockholders may be deprived
of an opportunity to sell their shares at a premium over prevailing market
prices in the event of a hostile takeover bid. Those seeking to acquire the
Company through a business combination will be compelled to consult first with
the holders of Class B Common Stock (or their proxy) in order to negotiate the
terms of such business combination. Any such proposed business combination will
have to be approved by the Board of Directors, and if stockholder approval were
required, the approval of the holders of Class B Common Stock will be necessary
before any such business combination can be consummated.

PREFERRED STOCK

Preferred Stock may be issued from time to time in one or more series. The
Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions granted to, and imposed upon any series of Preferred
Stock and to fix the number of shares of any series of Preferred Stock and the
designation of any such series, subject, to the consent of the existing holders
of preferred stock, in certain instances. The issuance of Preferred Stock could
be used, under certain circumstances, as a method of preventing a takeover of
the Company and could permit the Board of Directors, without any action of the
holders of the Common Stock to issue Preferred Stock which could have a
detrimental effect on the rights of holders of the Common Stock, including loss
of voting control. Anti-takeover provisions that could be included in the
Preferred Stock when issued may depress the market price of the Company's
securities and may limit stockholders' ability to receive a premium on their
shares of Common Stock by discouraging takeover and tender offer bids. As of the
date of this Prospectus, no shares of Preferred Stock were outstanding.

WARRANTS

CLASS A WARRANTS

Each Class A Warrant currently entitles the registered holder to purchase
approximately 1.44 shares of Class A Common Stock and one Class B Warrant, at a
per share exercise price of $4.71 (as adjusted from $6.80) through the close of
business on July 15, 1998, provided that at such time a current prospectus
relating to the Class A Common Stock and the Class B Warrants is in effect and
the Class A Common Stock and the Class B Warrants are qualified for sale or
exempt from qualification under applicable state securities laws. The Class A
Warrants are transferable separately from the Class A Common Stock issued with
such Class A Warrants as part of the IPO Units.

The Class A Warrants are currently redeemable by the Company on 30 days'
prior written notice at a redemption price of $.05 per Class A Warrant, provided
the average closing bid price of the Company's Class A Common Stock for any 30
consecutive business days ending within 15 days of the notice of redemption
exceeds $9.50 per share (subject to adjustment by the Company, as described
below, in the event of any reverse stock split or similar events). The notice of
redemption will be sent to the registered address of the registered holder of
the Class A Warrant. All Class A Warrants must be redeemed if any are redeemed;
provided, however, that the Class A Warrants underlying the IPO Unit Purchase
Option may not be called for redemption.

CLASS B WARRANTS

Each Class B Warrant currently entitles the registered holder to purchase
approximately 1.44 shares of Class A Common Stock at a per share exercise price
of $6.81 (as adjusted from $9.85) per

58
<PAGE>
share at any time from the date of issuance through the close of business on
July 15, 1998, provided that at such time a current prospectus relating to the
Class A Common Stock is then in effect and the Class A Common Stock is qualified
for sale or exempt from qualification under applicable state securities laws.
The Class B Warrants included in the Units offered hereby are transferable
separately from the Class A Common Stock and the Class B Warrants underlying the
Class A Warrants will be transferred separately from the Class A Common Stock
received upon exercise of the Class A Warrants.

The Class B Warrants are currently redeemable by the Company on 30 days'
prior written notice at a redemption price of $.05 per Class B Warrant, provided
the average closing bid price of the Class A Common Stock for any 30 consecutive
business days ending within 15 days of the notice of redemption exceeds $13.80
per share (subject to adjustment by the Company, as described below, in the
event of any reverse stock split or similar events). The notice of redemption
will be sent to the registered address of the registered holder of the Class B
Warrant. All Class B Warrants must be redeemed if any are redeemed; provided,
however, that the Class B Warrants subject to the IPO Unit Purchase Option may
not be called for redemption.

CLASS C WARRANTS

Each Class C Warrant issued in the 1994 Private Placement and the 1995
Private Placement currently entitles the registered holder to purchase one share
of Class A Common Stock at an exercise price of $3.65 per share (as adjusted
from $4.00 per share) any time through the close of business on such date to be
determined by adding to June 21, 1999 that number of days equal to the number of
days between December 21, 1994 and the date on which the registration statement
relating thereto is declared effective by the Commission, provided that at such
time a current prospectus relating to the Class A Common Stock is then in effect
and the Class A Common Stock is qualified for sale or exempt from qualification
under applicable state securities laws.

The Class C Warrants are currently redeemable by the Company on 30 days'
prior written notice at a redemption price of $.05 per Class C Warrant, provided
the average closing bid price of the Class A Common Stock for any 30 consecutive
business days ending within 15 days of the notice of redemption exceeds $8.00
per share (subject to adjustment by the Company, as described below, in the
event of any reverse stock split or similar events). The notice of redemption
will be sent to the registered address of the registered holder of the Class C
Warrant. All Class C Warrants must be redeemed if any are redeemed; provided,
however, that the Class C Warrants subject to the 1994 PPO Unit Purchase Option
and 1995 PPO Unit Purchase Option may not be called for redemption.

1995 BRIDGE WARRANTS

Each 1995 Bridge Warrant (all of which were issued in the Bridge Financing)
entitles the registered holder to purchase one share of Class A Common Stock at
an exercise price of $2.50 per share (subject to adjustment) at any time
commencing July 26, 1996 through and including July 26, 2000, provided that at
such time a current prospectus relating to the underlying Class A Common Stock
is in effect and the Class A Common Stock is qualified for sale or exempt from
qualification under applicable state securities laws. Upon completion of the
Offering, the 1995 Bridge Warrants automatically will be converted to Class D
Warrants. Holders of 1995 Bridge Warrants who receive Class D Warrants in such a
conversion have agreed not to sell any such Class D Warrants for at least 90
days after the closing of the Offering and, for a period of 270 days after such
closing have agreed to certain other resale restrictions. Concurrently herewith,
the Company is registering (i) the Class D Warrants into which the 1995 Bridge
Warrants are exchangeable and (ii) the Class A Common Stock underlying such
Class D Warrants. See "Concurrent Offering."

CLASS D WARRANTS

Each Class D Warrant entitles the registered holder to purchase one share of
Class A Common Stock at a per share exercise price of $3.50 (subject to
adjustment) at any time through the close of business on the fifth anniversary
of the date of this Prospectus, provided that at such time a current prospectus
relating to the Class A Common Stock is in effect and the Class A Common Stock
is

59
<PAGE>
qualified for sale or exempt from qualification under applicable state
securities laws. See "Risk Factors -- Current Prospectus and State Registration
Required to Exercise Warrants." The Class D Warrants will be transferable
immediately separately from the Class A Common Stock issued with such Class A
Warrants as part of the Units.

The Class D Warrants are subject to redemption by the Company starting on
the first anniversary of the Effective Date at a redemption price of $.05 per
Class D Warrant, on 30 days' written notice, if the closing bid price of the
Class A Common Stock exceeds $7.00 (subject to adjustment by the Company, in the
event of any reverse stock split or similar events) for 30 consecutive business
days ending within 15 days of the date on which notice of redemption is given.
The notice of redemption will be sent to the registered address of the
registered holder of the Class D Warrant. All Class D Warrants must be redeemed
if any are redeemed; provided, however, that the Class D Warrants underlying the
Unit Purchase Option may not be called for redemption.

The exercise price and other terms of the Class D was determined by
negotiations between the Company and the Underwriter and are not necessarily
related to the Company's asset value, net worth or other criteria of value. See
"Underwriting."

GENERAL

The Class A Warrants, Class B Warrants, Class C Warrants, 1995 Bridge
Warrants, and Class D Warrants (collectively, "Warrants") were or will be issued
pursuant to warrant agreements (the "Warrant Agreements") among the Company,
Blair and American Stock Transfer & Trust Company as warrant agent (the "Warrant
Agent"), and are or will be evidenced by warrant certificates in registered
form. The exercise prices of the Warrants were determined by negotiation between
the Company and Blair and should not be construed to predict, or to imply that,
any price increases will occur in the Company's securities. The exercise prices
of the Warrants and the number and kind of shares of Class A Common Stock or
other securities and property to be obtained upon exercise of the Warrants are
subject to adjustment in certain circumstances including a stock split of, or
stock dividend on, or a subdivision, combination or recapitalization of, the
Common Stock or the issuance of shares of Common Stock at less than the market
price of the Common Stock. The exercise prices of the Class A Warrants, Class B
Warrants and Class C Warrants and the number of shares of Class A Common Stock
underlying the Warrants have been adjusted to give effect to the dilution caused
by the 1994 Private Placements, the 1995 Private Placement and the Bridge
Financing. Additionally, an adjustment would be made upon the sale of all or
substantially all of the assets of the Company for less than the market value, a
merger or other unusual events (other than share issuances pursuant to employee
benefit and stock incentive plans for directors, officers and employees of the
Company) so as to enable Warrant holders to purchase the kind and number of
shares or other securities or property (including cash) receivable in such event
by a holder of the kind and number of shares of Class A Common Stock that might
otherwise have been purchased upon exercise of such Warrant. No adjustment for
previously paid cash dividends, if any, will be made upon exercise of the
Warrants. The Company is not required to issue fractional shares of Class A
Common Stock, and in lieu thereof will make a cash payment based upon the
current market value of such fractional shares.

The Warrants may be exercised upon surrender of the certificate representing
such Warrants on or prior to the expiration date (or earlier redemption date) of
such Warrants at the offices of the Warrant Agent with the form of "Election of
Purchase" on the reverse side of the warrant certificate completed and executed
as indicated, accompanied by payment of the full exercise price (by certified or
bank check payable to the order of the Company) for the number of Company
Warrants being exercised. Shares of Class A Common Stock issued upon exercise of
Company Warrants for which payment has been received in accordance with the
terms of the Warrants, will be fully paid and non-assessable.

The Warrants do not confer upon the holder any voting or other rights of the
stockholder of the Company. Upon notice to the warrant holders, the Company has
the right to reduce the exercise price or extend the expiration date of the
Class A, Class B and Class C Warrants. Although this right is

60
<PAGE>
intended to benefit Warrant holders, to the extent the Company exercises this
right when the Warrants would otherwise be exercisable at a price higher than
the prevailing market price of the Class A Common Stock, the likelihood of
exercise, and resultant increase in the number of shares outstanding, may result
in making more costly, or impeding, a change in control in the Company.

TRANSFER AGENT AND WARRANT AGENT

The Company's transfer and warrant agent for the IPO Units, Class A Common
Stock and Warrants is American Stock Transfer & Trust Company, New York, New
York.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering covered by this Registration Statement, the
Company will have outstanding an aggregate of 10,136,175 shares of Class A
Common Stock. Of these shares, all of the shares issued in the Offering, and
4,436,175 shares outstanding immediately prior to the Offering will be freely
transferable without restriction under the Securities Act, which shares exclude
any shares purchased by any person who is or thereby becomes an "affiliate" of
the Company, and which shares will be subject to the resale limitations
contained in Rule 144 promulgated under the Securities Act. 84,823 shares of
Class A Common Stock outstanding prior to the Offering are "restricted
securities" as that term is defined under Rule 144. An additional 1,010,596
shares of Class A Common Stock underlying outstanding options and warrants will,
upon issuance, be "restricted securities."

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), who has satisfied a two-year holding period, may
sell within any three-month period a number of restricted shares which does not
exceed the greater of 1% of the then outstanding shares of such class of
securities or the average weekly trading volume during the four calendar weeks
prior to such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. Rule 144 also permits, under certain
circumstances, the sale of shares by a person who is not an affiliate of the
Company, with respect to restricted securities that satisfy a three-year holding
period, without regard to the volume or other resale limitations.

As of the date hereof, 84,823 shares of the outstanding Common Stock are
restricted securities, of which 78,448 shares are currently eligible for resale
under Rule 144 and the remaining 6,375 shares will become eligible for resale
under Rule 144 through January 30, 1997. The Company is unable to predict the
effect that sales under Rule 144 may have on the then prevailing market price of
the Class A Common Stock, but such sales may have a substantial depressing
effect on such market price. However, holders of approximately 2.3% of the
shares of Class A Common Stock outstanding immediately prior to the date of this
Prospectus and the Class B Common Stock have agreed not to sell, assign or
transfer any of their shares of Common Stock, options or warrants for at least
13 months from the effective date of the Registration Statement of which this
Prospectus forms a part (subject to a lapse of this restriction if the Company's
Class A Common Stock price rises to certain specified levels), without the prior
consent of the Underwriter. In addition, the Company has granted certain
registration rights with respect to the Underwriter's Unit Purchase Options and
the underlying securities. See "Underwriting."

Rule 701 under the Securities Act provides an exemption from the
registration requirements of the Securities Act for offers and sales of
securities issued pursuant to certain compensatory benefit plans or written
contracts of a company not subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act. Securities issued pursuant to Rule 701 are defined
as restricted securities for purposes of Rule 144. However, 90 days after the
issuer becomes subject to the reporting provisions of the Exchange Act, the Rule
144 resale restrictions, except for the broker's transaction requirement, are
inapplicable for non-affiliates. Affiliates are subject to all Rule 144
restrictions after this 90-day period, but without the Rule 144 holding period
requirement. If all the requirements of Rule 701 are met, an aggregate of
220,107 shares of Class A Common Stock issuable on exercise of stock options
which are outstanding may be issued pursuant to such rule, a substantial portion
of which are

61
<PAGE>
exercisable at prices below the current market value per share of the Class A
Common Stock. Holders of options to purchase an aggregate of approximately 83.6%
of such shares (including options subject to Rule 701) have agreed not to sell
such shares (as stated in the second to last sentence of the preceding
paragraph) without the prior consent of Blair.

LEGAL MATTERS

The validity of the securities offered hereby has been passed upon for the
Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York.

EXPERTS

The financial statements of TelePad Corporation at December 31, 1994 and
1995 and for the years then ended, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon (which report contains an explanatory paragraph
indicating substantial doubt about the ability of the Company to continue as a
going concern as mentioned in Note 2 to the financial statements) appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.

62
<PAGE>
TELEPAD CORPORATION
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets........................................................................ F-3
Statements of Operations.............................................................. F-4
Statements of Stockholders' Deficit................................................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
TelePad Corporation

We have audited the accompanying balance sheets of TelePad Corporation as of
December 31, 1994 and 1995, and the related statements of operations,
stockholders' deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TelePad Corporation at
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming that
TelePad Corporation will continue as a going concern. As more fully described in
Note 2, the Company has incurred cumulative losses since inception, including a
net loss for the year ended December 31, 1995. Additionally, the Company's
current liabilities exceed current assets at December 31, 1995. The success of
the Company is dependent on obtaining additional financing and the ability of
the Company to generate revenues which are sufficient to cover operating
expenses, the outcome of which cannot be determined at this time. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Vienna, Virginia /s/ ERNST & YOUNG LLP
February 15, 1996 Ernst & Young LLP

F-2
<PAGE>
TELEPAD CORPORATION
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
ASSETS 1994 1995
------------ ------------

<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 378,660 $ 1,257,948
Accounts receivable, less allowance of $9,000 and $100,000 at
December 31, 1994 and 1995, respectively..................... 3,703,156 472,724
Inventory, less allowance of $80,000 at December 31, 1995..... 1,553,254 403,733
Other current assets.......................................... 102,683 96,246
------------ ------------
Total current assets............................................ 5,737,753 2,230,651
Furniture and equipment:
Office furniture and equipment................................ 87,902 117,520
Computer equipment............................................ 365,524 527,908
------------ ------------
453,426 645,428
Less accumulated depreciation................................... (153,128) (287,838)
------------ ------------
Net furniture and equipment..................................... 300,298 357,590
Deposits and other assets....................................... 2,630 21,061
------------ ------------
Total assets.................................................... $ 6,040,681 $ 2,609,302
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued expenses......................... $ 7,043,670 $ 2,821,741
Notes payable (Note 3)........................................ -- 3,881,698
Deferred revenue.............................................. -- 17,718
------------ ------------
Total current liabilities....................................... 7,043,670 6,721,157

Commitments (Notes 6 and 8)

Stockholders' deficit (Note 4):
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued..................................................
Common stock, $.01 par value; 95,000,000 shares authorized:
Class A common stock, 94,406,937 shares designated,
3,706,450 and 4,436,175 shares issued and outstanding at
December 31, 1994 and 1995, respectively................... 37,064 44,361
Class B common stock, 593,063 shares designated, 555,563
shares issued and outstanding at December 31, 1994 and
1995, respectively......................................... 5,556 5,556
Additional paid-in capital.................................... 15,803,474 18,657,124
Accumulated deficit........................................... (16,849,083) (22,818,896)
------------ ------------
Total stockholders' deficit..................................... (1,002,989) (4,111,855)
------------ ------------
Total liabilities and stockholders' deficit..................... $ 6,040,681 $ 2,609,302
------------ ------------
------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES

F-3
<PAGE>
TELEPAD CORPORATION
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Revenues (Note 1):
TelePad products................................................................ $ 1,877,998 $ 2,034,066
Other products.................................................................. 3,302,604 --
Service contracts............................................................... 619,412 559,528
-------------- --------------
Total revenues.................................................................... 5,800,014 2,593,594

Costs and expenses:
Cost of goods sold -- TelePad products.......................................... 2,496,134 1,988,045
Cost of goods sold -- other products............................................ 3,292,585 --
Cost of goods sold -- service contracts......................................... 418,434 320,142
Loss on inventory purchase commitment........................................... -- 176,500
Research and development........................................................ 3,466,437 1,417,404
Selling, general and administrative............................................. 4,464,796 3,672,722
-------------- --------------
Total costs and expenses.......................................................... 14,138,386 7,574,813
-------------- --------------

Loss from operations.............................................................. (8,338,372) (4,981,219)

Interest income................................................................... 39,060 32,601
Interest expense.................................................................. (303,716) (447,200)
Amortization of debt issue costs.................................................. -- (573,995)
Other expenses.................................................................... (40,349) --
-------------- --------------

Net loss.......................................................................... $ (8,643,377) $ (5,969,813)
-------------- --------------
-------------- --------------

Net loss per share................................................................ $ (2.43) $ (1.24)
-------------- --------------
-------------- --------------
Weighted average shares outstanding............................................... 3,556,855 4,814,782
-------------- --------------
-------------- --------------
</TABLE>

SEE ACCOMPANYING NOTES

F-4
<PAGE>
TELEPAD CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1994 AND 1995
--------------------------------------------------------------------------------
CLASS A COMMON CLASS B COMMON
STOCK STOCK ADDITIONAL TOTAL
------------------ ------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- ------- --------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............ 2,340,943 $23,409 555,563 $ 5,556 $11,243,243 $ (8,205,706) $ 3,066,502
Issuance of common stock and warrants,
net.................................... 1,309,375 13,094 4,384,441 4,397,535
Exercise of stock options............... 56,132 561 160,681 161,242
Common stock options issued in lieu of
compensation........................... 15,109 15,109
Net loss................................ (8,643,377) (8,643,377)
--------- ------- --------- ------- ----------- ------------ -------------
Balance at December 31, 1994............ 3,706,450 $37,064 555,563 $ 5,556 $15,803,474 $(16,849,083) $(1,002,989)
Issuance of common stock and warrants,
net.................................... 643,750 6,437 2,113,382 2,119,819
Issuance of common stock for services... 54,000 540 331,208 331,748
Issuance of common stock warrants in
connection with notes payable.......... 400,000 400,000
Exercise of stock options............... 31,975 320 9,060 9,380
Net loss................................ (5,969,813) (5,969,813)
--------- ------- --------- ------- ----------- ------------ -------------
Balance at December 31, 1995............ 4,436,175 $44,361 555,563 $ 5,556 $18,657,124 $(22,818,896) $(4,111,855)
--------- ------- --------- ------- ----------- ------------ -------------
--------- ------- --------- ------- ----------- ------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES

F-5
<PAGE>
TELEPAD CORPORATION
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.......................................................................... $ (8,643,377) $ (5,969,813)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................... 158,906 164,128
Amortization of debt discount................................................... -- 281,698
Provision for loss on accounts receivable....................................... -- 91,000
Inventory allowance............................................................. 200,278 80,000
Loss on disposal of property and equipment...................................... 240,331 12,584
Loss on inventory purchase commitment........................................... -- 176,500
Common stock issued in lieu of cash for consulting and employment services...... 15,109 331,748
Changes in assets and liabilities:
Accounts receivable........................................................... (3,378,309) 3,139,432
Inventory..................................................................... (1,481,649) 1,069,521
Other current assets.......................................................... (21,786) 6,437
Deposits and other assets..................................................... -- (19,228)
Accounts payable and accrued expenses......................................... 6,450,931 (4,398,429)
Deferred revenue.............................................................. (3,141) 17,718
-------------- --------------
Net cash used in operating activities............................................. (6,462,707) (5,016,704)
INVESTING ACTIVITIES
Purchase of furniture and equipment............................................... (264,713) (233,207)
-------------- --------------
Net cash used in investing activities............................................. (264,713) (233,207)
FINANCING ACTIVITIES
Net cash proceeds from issuance of common stock................................... 4,558,777 2,129,199
Proceeds from warrants issued in connection with notes payable.................... -- 400,000
Proceeds from notes payable....................................................... -- 3,600,000
-------------- --------------
Net cash provided by financing activities......................................... 4,558,777 6,129,199
-------------- --------------
Net increase (decrease) in cash................................................... (2,168,643) 879,288
Cash and cash equivalents, beginning of year...................................... 2,547,303 378,660
-------------- --------------
Cash and cash equivalents, end of year............................................ $ 378,660 $ 1,257,948
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Actual cash payments for:
Interest........................................................................ $ 99,591 $ 206,985
-------------- --------------
-------------- --------------
</TABLE>

SEE ACCOMPANYING NOTES

F-6
<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

TelePad Corporation (the "Company") markets hardware and software products
and solutions to assist private businesses and governmental entities in
managing, communicating and processing information. The Company's principal
products are portable, notebook-sized, pen-based computers and related
customized software.

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

The Company purchases all of its TelePad 3 computers, currently its only
product, from a single manufacturer. Production of TelePad 3 computers ceased
during 1995 as a result of various design, payment and credit issues with the
Company's sole manufacturer. The manufacturer's requirement to resume production
of TelePad 3 computers is subject to the Company providing the manufacturer with
a letter of credit and ends upon the earlier of sixty days after the Company
executes a contract with a new manufacturer or December 31, 1996. Although
management believes that alternative sources of supply are available, a change
in manufacturers could cause further delays in production and adversely affect
demand for the TelePad product and the Company's operating results.

REVENUE RECOGNITION

Product sales are recognized when products are shipped to customers. Revenue
on service and development contracts is recognized as the services are performed
and as contract objectives are achieved.

Two customers accounted for approximately 67% of total revenue and one
customer accounted for approximately 12% of total revenue for the years ended
December 31, 1994 and 1995, respectively.

During 1994, the Company recorded revenues from the resale of a competitor's
product totaling $3,302,604, or 57% of total revenue. In connection with this
transaction, the Company has agreed to grant the customer a credit, decreasing
over a three year period, for the exchange of the competitor's product. This
credit will be applied against the future purchase of TelePad products.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.

INVENTORY

Inventory is stated at the lower of cost or market as determined on a FIFO
(first-in, first-out) basis. The Company provides for inventory reserves as
inventory is identified as being obsolete, slow-moving, or unsaleable.

FURNITURE AND EQUIPMENT

Office furniture and equipment and computer equipment, including
demonstration units, are recorded at cost and depreciated using the
straight-line method over estimated useful lives ranging from three to seven
years.

F-7
<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

WARRANTY

The Company provides, by a current charge to operations, an amount it
estimates will be required to cover future warranty obligations for products
sold during the year. The accrued liability for warranty costs is included in
the caption "Accounts payable and accrued expenses" in the accompanying balance
sheets.

NET LOSS PER SHARE

Net loss per share is calculated using the weighted average number of common
shares outstanding during the period, with shares of Class A common stock and
Class B common stock treated as a single class for purposes of the calculation.
Shares issuable upon the exercise of stock options and warrants have been
excluded from the computation because the effect of their inclusion would be
antidilutive.

DEBT ISSUE COSTS

The costs related to the issuance of notes payable are expensed during the
period of borrowing.

RECENT PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation", which is effective for the
Company's December 31, 1996 financial statements. SFAS No. 123 allows companies
to either account for stock-based compensation under the new provisions of SFAS
No. 123 or under the provisions of APB 25, but requires pro forma disclosure in
the footnotes to the financial statements as if the measurement provisions of
SFAS No. 123 had been adopted. The Company intends to continue accounting for
its stock-based compensation in accordance with the provisions of APB 25. As
such, the adoption of SFAS No. 123 will not impact the financial position or
results of operations of the Company.

2. MANAGEMENT PLANS
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern. The Company has incurred
cumulative losses to date of approximately $22,819,000, including $5,970,000 for
the year ended December 31, 1995. Additionally, the Company's current
liabilities of $6,721,000 exceed current assets of $2,231,000 at December 31,
1995. The continued existence of the Company is dependent on obtaining
additional financing and the ability of the Company to generate revenues
sufficient to cover operating expenses, the outcome of which cannot be
determined at this time. Effective June 8, 1995, the Company's Class A common
stock, together with its Class A warrants, Class B warrants, and IPO units, was
delisted from the NASDAQ SmallCap Market, due to the Company's failure to meet
the maintenance requirements for capital and surplus. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.

On January 5, 1996, the Company filed a Registration Statement with the
Securities and Exchange Commission (the "SEC") for the registration and sale of
common stock units at an anticipated offering price of $1,000 per unit (See Note
8).

In the event that the public offering is not completed, the Company would be
unable to satisfy most of the current liabilities and would be unable to sustain
its operations at the current level thereafter. The Company would then be
required to radically reduce its operations and may be required to seek
protection under the United States Bankruptcy Code. The financial statements do
not include any adjustments that might result from this uncertainty.

F-8
<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. NOTES PAYABLE
During 1995, the Company was provided with bridge financing of $4,000,000
less direct expenses of $573,995, through the sale of 80 bridge units. Each
bridge unit consisted of a $50,000 promissory note and 25,000 common stock
bridge warrants. The promissory notes bear interest at the rate of 10% per annum
and are due upon the earlier of July 26, 1996, or the closing of the Company's
public offering (see Note 8).

Each common stock bridge warrant entitles the holder to purchase one share
of the Company's Class A common stock at an exercise price of $2.50 per share,
subject to adjustment. The warrants expire on July 26, 2000. The Company
allocated $400,000 of the total notes payable proceeds to the warrants issued.
The $400,000 allocated to the warrants is being amortized to interest expense
using the effective interest method over the period the related debt is expected
to be outstanding. Upon completion of the public offering described in Note 8,
each common stock bridge warrant will automatically convert into one Class D
warrant with the same terms as those issued in the public offering.

4. STOCKHOLDERS' DEFICIT

PREFERRED STOCK

The Company's certificate of incorporation provides for 5,000,000 shares of
preferred stock, $.01 par value are authorized for future issuance, with rights
and preferences to be determined by the Board of Directors.

COMMON STOCK

During 1994, the Company completed the private placement of 104.75 units.
Each unit consisted of 12,500 Class A common shares and 6,250 Class C warrants.
The Company received proceeds of approximately $4,417,000, net of $681,000 in
expenses directly related to the offering. Each Class C warrant entitles the
holder to purchase, within five years from the closing date, one share of Class
A common stock at a price of $4.00 per share, prior to anti-dilution
adjustments. The shares and warrants sold in this private placement have demand
registration rights and the issuance of such shares and warrants had a dilutive
effect on the holders of Class A warrants and Class B warrants. The placement
agent in this offering, D.H. Blair Investment Banking Corp., received a unit
purchase option entitling it to purchase 31.425 units on the same general terms
and conditions as the participants in the private placement.

During 1995, the Company completed a private placement of 51.5 units. Each
unit consisted of 12,500 Class A common shares and 6,738.5 Class C warrants. The
Company received proceeds of approximately $2,120,000, net of $455,000 in
expenses directly related to the offering. Each Class C warrant entitles the
holder to purchase, within five years from the closing date, one share of Class
A common stock at $4.00 per share, prior to anti-dilution adjustments. The
shares and warrants sold in this private placement have demand registration
rights and the issuance of such shares and warrants had a dilutive effect on the
holders of Class A warrants and Class B warrants. The placement agent in this
offering received a unit purchase option entitling it to purchase 15.45 units on
the same general terms and conditions as the participants in the private
placement.

During 1995, the Company amended its certificate of incorporation to
increase authorized common stock to 95,000,000 shares, of which 94,406,937 are
designated as Class A common stock and the remaining 593,063 as Class B common
stock. Class B common stock is substantially identical to Class A common stock
except that holders of Class B common stock have five votes per share on each
matter considered by the stockholders. The Class B shares are each convertible
into one share of Class A common stock.

F-9
<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. STOCKHOLDERS' DEFICIT (CONTINUED)
In March 1995, the Company issued 54,000 shares of Class A common stock in
lieu of cash as compensation for services. The aggregate market value of these
shares totaled approximately $332,000 on the dates of issuance and is reflected
in these financial statements as a charge against earnings and as additions to
common stock and additional paid-in capital. Two transactions were involved. In
the first, the Company entered into an agreement with an individual investor
under which the investor guaranteed International Business Machines
Corporation's ("IBM") security interest in the production of 400 completed
TelePad 3 computers. The guarantee is backed by a $1.5 million irrevocable
letter of credit provided by a commercial bank (see Note 8.). As part of the
consideration for the investor's guarantee, the Company issued the investor
50,000 shares of the Company's Class A common stock. The Company valued this
first transaction at $311,748, which represents the market value of the shares
at the date of the transaction. In the second transaction, the Company issued
4,000 shares of the Company's Class A common stock as consideration for
financial consulting services provided by an investment banker. The Company
valued this second transaction at $20,000, which represents the market value of
the shares at the date of the transaction.

At December 31, 1995, the Company had reserved 16,918,146 shares of common
stock for issuance upon exercise of stock options and purchase warrants. Shares
of unrestricted common stock issued for other than cash have been assigned
amounts equivalent to the fair market value of the shares issued. Compensatory
stock options issued have been assigned compensation values based upon the
excess of the fair value of the common stock underlying such options at the
grant date, over the exercise price of the shares.

STOCK OPTIONS AND WARRANTS

The Non-Qualified Incentive Stock Option Plan (the "NQ Plan") was adopted by
the Board of Directors and approved by the stockholders during 1992. The purpose
of the NQ Plan is to compensate various key executives and key employees for
services rendered to or on behalf of the Company. Pursuant to the NQ Plan, at
December 31, 1995, there are 175,107 options outstanding at exercise prices of
$.33, expiring from 1998 through 2000. All of the options granted pursuant to
the NQ Plan were exercisable at December 31, 1995. No further options may be
issued under the NQ Plan.

The Company established an additional stock option plan in April 1993 (the
"1993 Plan") providing for the grant of options to purchase shares of Class A
common stock to key employees and others at terms determined by the Board of
Directors. An amendment to the 1993 Plan, approved during 1994, increased the
number of options available under this plan from 150,000 to 975,000. In February
1995, the Board of Directors canceled 600,000 of the options available for grant
under the 1993 Plan. In June 1995, stockholders of the Company approved an
amendment to the 1993 Plan which increased the number of options available under
this plan from 375,000 to 975,000. At December 31, 1995 there were 593,500
options outstanding at exercise prices ranging from $1.75 to $8.50. Of the total
options outstanding, 149,165 were vested as of December 31, 1995. The remaining
options will vest over a period of three years.

During 1994, two new plans were adopted by the Board of Directors and
approved by the stockholders. The Employee Stock Purchase Plan (the "SPP Plan")
was established to provide eligible employees a means to purchase Class A common
stock through payroll deductions, subject to certain limitations. In addition,
the 1994 Non-Employee Director Stock Option Plan (the "NESOP") was established
to maintain the Company's ability to attract and retain the services of
experienced and highly qualified directors. Pursuant to the NESOP, eligible
directors will annually be granted an option, subject to vesting over a three
year period, to purchase 6,667 shares of Class A common stock.

F-10
<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. STOCKHOLDERS' DEFICIT (CONTINUED)
A total of 250,000 shares of Class A common stock may be purchased under the
SPP and 175,000 shares may be available for purchase under the NESOP. At
December 31, 1995, no shares had been purchased under the SPP and a total of
26,668 options were outstanding under the NESOP at exercise prices ranging from
$1.563 to $7.375. Of the total options outstanding, 2,222 were vested as of
December 31, 1995. The remaining options will vest over a period of three years.

From time to time, the Company has also granted options or warrants to
purchase common stock outside the above noted plans to investors, employees and
consultants some of which were in consideration for services performed. There
are 450,363 such options vested and outstanding at December 31, 1995 exercisable
at prices ranging from $.01 to $7.88 and expiring from 1996 through 2000.

The following table summarizes all unregistered option activity for the
years ended December 31:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Outstanding at beginning of year............................................. 801,597 1,027,404
Granted...................................................................... 322,807 326,001
Canceled or expired.......................................................... (40,868) (75,792)
Exercised.................................................................... (56,132) (31,975)
----------- -----------
Outstanding at end of year................................................... 1,027,404 1,245,638
----------- -----------
----------- -----------
</TABLE>

The following table summarizes all Class A, Class B, Class C, and common
stock bridge warrant activity for the years ended December 31:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Outstanding at beginning of year............................................. 4,290,000 4,944,688
Issued....................................................................... 654,688 2,347,033
Canceled or expired.......................................................... -- --
Exercised.................................................................... -- --
----------- -----------
Outstanding at end of year................................................... 4,944,688 7,291,721
----------- -----------
----------- -----------
</TABLE>

All warrants outstanding as of December 31, 1995 are at exercise prices,
prior to anti-dilution adjustments, of $2.50 to $9.85.

5. INCOME TAXES
There was no provision for income taxes for the years ended December 31,
1994 and 1995 as a result of the Company's net loss for the years then ended.

F-11
<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAXES (CONTINUED)
Components of the net deferred tax asset at December 31, are as follows:

<TABLE>
<CAPTION>
1994 1995
-------------- --------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.......................................................... $ 33,000 $ 14,000
Deferred tax assets:
Compensation expenses related to options.............................. 569,000 518,000
Net operating loss carryforward....................................... 5,671,000 7,558,000
Other................................................................. 34,000 179,000
-------------- --------------
Total deferred tax assets............................................... 6,274,000 8,255,000
-------------- --------------
Net deferred tax assets before valuation allowance...................... 6,241,000 8,241,000
Valuation allowance..................................................... (6,241,000) (8,241,000)
-------------- --------------
-------------- --------------
Net deferred tax assets................................................. $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>

The effective income tax rate varied from the federal statutory tax rate for
the years ended December 31 as follows:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Statutory rate:.................................................................. (34.0)% (34.0)%
State income taxes -- net of federal income tax benefit........................ (4.0) (4.0)
Valuation allowance on net deferred tax benefits............................... 38.0 38.0
----------- -----------
Tax rate....................................................................... -- % -- %
----------- -----------
----------- -----------
</TABLE>

At December 31, 1995, the Company has available approximately $19,890,000 in
net operating loss and tax credit carryforwards which expire at varying dates
through 2010. These carryforwards may be significantly limited under the
Internal Revenue Code as a result of ownership changes experienced by the
Company.

6. COMMITMENTS
The Company leases office space in Herndon, Virginia under a noncancelable
operating lease which contains a renewal option. Total rent expense was $82,000
and $127,000 for the years ended December 31, 1994 and 1995, respectively.
Future minimum lease payments under the non-cancelable operating lease are as
follows:

<TABLE>
<S> <C>
1996..................................................................... 102,000
1997..................................................................... 105,000
1998..................................................................... 54,000
---------
Total.............................................................. $ 261,000
---------
---------
</TABLE>

The Company has entered into employment agreements with two of its officers
providing base salaries of $110,000 to $150,000 over an initial term of three
years. The base salaries are subject to increase upon approval by the Board of
Directors.

7. EMPLOYEE BENEFIT PLAN
During 1994, the Company established a defined contribution retirement plan
(the "Plan") covering all employees who have at least six months of service and
are 21 years of age or older. Employees may elect to contribute up to 15% of
their annual compensation subject to limits detailed in

F-12
<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. EMPLOYEE BENEFIT PLAN (CONTINUED)
the Internal Revenue Code. Each year the Company may make a discretionary
contribution to the Plan. During the years ended December 31, 1994 and 1995, the
Company did not make any contributions to the Plan.

8. SUBSEQUENT EVENTS

REGISTRATION STATEMENT

On January 5, 1996, the Company filed a Registration Statement with the SEC
for the registration and sale of common stock units at an anticipated offering
price of $1,000 per unit. Each common stock unit will consist of Class A common
stock and redeemable Class D warrants. Subject to SEC approval, the Company
expects to complete the public offering on or about March 15, 1996, although
there can be no assurance that the public offering will be completed at that
time or at all or that the full amount of the public offering will be sold.

The Company intends to utilize approximately $4,248,000 of the net proceeds
to repay the principal amount of the bridge notes and accrued interest thereon
(calculated through March 15, 1996) and $825,000 repay the principal amount of
the promissory note issued on February 15, 1996 and accrued interest thereon and
to pay approximately $1,300,000 in outstanding accounts payable, including
approximately $602,000 due or becoming due to IBM. The remaining net proceeds
will be used to fund the Company's operations, including (i) obtaining credit
guarantees for future production and inventory; (ii) redesigning, upgrading and
enhancing the TelePad 3 computer; (iii) upgrading and enhancing the TelePad SL
computer; and (iv) working capital and general corporate purposes.

IBM AGREEMENT

On January 25, 1996, the Company and International Business Machines
Corporation ("IBM") entered into an agreement wherein the Company has agreed to
purchase IBM's remaining stock of parts for the TelePad SL for $300,000 and
intends to build finished TelePad SL units using these parts. These parts are
expected to yield between 200 and 400 finished units, but there is no assurance
as to the number which can ultimately be built. The Company has recorded a loss
of approximately $177,000 related to this inventory purchase commitment. The
agreement also provides for the disposition of parts which IBM has on hand or on
order for production of the TelePad 3. At January 26, 1996, IBM had an inventory
of TelePad 3 parts aggregating $1,318,000 for which the Company is liable. No
losses are anticipated as a result of the Telepad 3 inventory purchase
commitment. IBM will keep these parts on hand until March 15, 1996, after which
date IBM may sell such parts to mitigate the Company's liability to IBM if the
Company has not provided a letter of credit to secure the value of those parts
to IBM. If the Company is unable to provide a letter of credit and IBM sells the
parts, the Company will be liable for any difference between the book value of
parts on hand and the proceeds from the sale of such parts. Furthermore, the
Company has agreed to purchase any parts (excluding parts for electronic card
assemblies) which IBM may have on hand at the end of IBM's responsibilities for
continued manufacturing of complete TelePad 3 units. IBM's responsibilities for
manufacturing complete TelePad 3 units end at the earlier of sixty days after
the Company executes a contract with a new manufacturer or December 31, 1996.
The Company's plans for future production of both the TelePad 3 and TelePad SL
are dependent on successful completion of the public offering.

PROMISSORY NOTE

On February 15, 1996, the Company and an individual investor, who had
previously provided his personal guaranty of the Company's obligations to IBM
for the production of 400 TelePad 3 computers, entered into an agreement whereby
the individual investor loaned the Company $750,000 evidenced by a promissory
note which has a term of one year, but has the right to require early

F-13
<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. SUBSEQUENT EVENTS (CONTINUED)
retirement of the obligation at the final closing of the public offering
referred to above. The promissory note bears interest at the rate of 20% and
contains a loan origination fee of approximately $68,000. The promissory note is
secured by all of the Company's assets. The conditions of the agreement require
that a portion of the proceeds from the note be used to satisfy existing
obligations to IBM and that IBM release the guaranty. The Company received net
proceeds after disbursements to IBM and prepayment of one half of the annual
interest due under the promissory note of approximately $193,000.

F-14
<PAGE>
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN CONTAINED IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Additional Information......................... 2
Prospectus Summary............................. 3
Risk Factors................................... 7
The Company.................................... 19
Dilution....................................... 22
Price Range of Securities...................... 23
Capitalization................................. 24
Dividend Policy................................ 25
Selected Financial Data........................ 26
Management's Discussion and Analysis of
Financial condition and Results of
Operations.................................... 27
Business....................................... 32
Management..................................... 45
Certain Transactions........................... 51
Principal Stockholders......................... 52
Selling Securityholders........................ 54
Plan of Distribution........................... 56
Concurrent Public Offering..................... 57
Description of Securities...................... 57
Shares Eligibility for Future Sale............. 61
Legal Matters.................................. 62
Experts........................................ 62
Index to Financial Statements.................. F-1
</TABLE>

TELEPAD
CORPORATION

2,000,000 CLASS D WARRANTS AND
2,000,000 SHARES OF CLASS A COMMON STOCK
ISSUABLE UPON EXERCISE OF THE
CLASS D WARRANTS

PROSPECTUS

March 29, 1996

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