ENTERACTIVE INC /DE/, SB-2/A, 1996-05-13

ENTERACTIVE INC /DE/
SB-2/A, 1996-05-13
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1996

REGISTRATION NO. 333-2244

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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ENTERACTIVE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

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DELAWARE 7372 22-3272662
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)

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<TABLE>
<S> <C> <C>
110 WEST 40TH STREET, SUITE 2100 4590 MACARTHUR BOULEVARD, N.W. MR. ANDREW GYENES
NEW YORK, NEW YORK 10018 WASHINGTON, D.C. 20007 ENTERACTIVE, INC.
(212) 221-6559 (PHONE) (ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR 110 WEST 40TH STREET, SUITE 2100
(212) 730-6045 (TELECOPY) INTENDED PRINCIPAL PLACE OF BUSINESS) NEW YORK, NEW YORK 10018
(ADDRESS AND TELEPHONE NUMBER OF (212) 221-6559 (PHONE)
PRINCIPAL EXECUTIVE OFFICES) (212) 730-6045 (TELECOPY)
(NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
</TABLE>

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COPIES TO:
STEVEN WOLOSKY, ESQ. DAVID ALAN MILLER, ESQ.
KENNETH A. SCHLESINGER, ESQ. GRAUBARD MOLLEN & MILLER
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP 600 THIRD AVENUE
505 PARK AVENUE NEW YORK, NEW YORK 10016-1903
NEW YORK, NEW YORK 10022 (212) 818-8800 (PHONE)
(212) 753-7200 (PHONE) (212) 818-8881 (TELECOPY)
(212) 755-1467 (TELECOPY)

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

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

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

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

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

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<PAGE>

EXPLANATORY NOTE

This Registration Statement contains a prospectus ("Company Prospectus"),
which will be used in connection with an underwritten offering of the
Company's Common Stock. Following the Company Prospectus, there are alternate
pages to be included in a second prospectus ("Selling Securityholder
Prospectus"), which will be used by selling stockholders in connection with an
offering by them for their accounts of (i) Common Stock issuable in connection
with the conversion of certain unsecured convertible promissory notes
("Convertible Notes") which were delivered in connection with a private
placement consummated in January 1996 ("January 1996 Bridge Financing"), (ii)
Common Stock Purchase Warrants issued in exchange for warrants issued to them
in the January 1996 Bridge Financing, and (iii) Common Stock Purchase Warrants
issued to them in connection with the conversion of the Convertible Notes,
from time to time in open market transactions. The Selling Securityholder
Prospectus will be identical to the Company Prospectus, except for the changes
indicated by the alternate pages, including an alternate cover page (to be
substituted for the cover page of the Company Prospectus) and an insert to
page 51, containing a section entitled "Selling Securityholders; Plan of
Distribution" (to be inserted in lieu of the section entitled "Underwriting"
in the Company Prospectus).
<PAGE>

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

PRELIMINARY PROSPECTUS DATED MAY 14, 1996

PROSPECTUS

ENTERACTIVE, INC.

2,000,000 SHARES OF COMMON STOCK
[LOGO]

All of the 2,000,000 shares of Common Stock ("Common Stock") offered hereby are
being sold by Enteractive, Inc. ("Enteractive" or "Company"). The Common Stock
is currently traded on the Nasdaq SmallCap Market under the symbol "ENTR." On
May 9, 1996, the last reported sales price of the Common Stock as reported by
the Nasdaq SmallCap Market was $3.625

The Registration Statement of which this Prospectus forms a part also relates
to the offer and sale by certain persons ("Selling Securityholders") of 625,000
shares of Common Stock ("Conversion Shares") and 1,790,000 warrants of the
Company. Without the prior consent of the Underwriter, such Selling
Securityholders may not sell such securities or the Common Stock underlying
such warrants for a period of one year from the date of this Prospectus. The
securities offered by the Selling Securityholders are not part of this
underwritten Offering and the Company will not receive any of the proceeds from
the sale of these securities. See "Prospectus Summary--Recent Developments."

Immediately prior to this Offering, there were 5,500,701 shares of Common Stock
outstanding. In connection with this Offering, the Company is issuing 2,000,000
shares of Common Stock and 625,000 Conversion Shares (assuming a $4.00 per
share offering price) and will repurchase 1,000,000 shares of Common Stock from
executive officers of the Company. See "Recent Developments," "Certain
Transactions" and "Description of Securities."
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THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE, INVOLVE A HIGH DEGREE
OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AT PAGE 8 HEREOF AND
"DILUTION" AT PAGE 16 HEREOF.
----------
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.

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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share of Common Stock...................... $ $ $
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Total(3)....................................... $ $ $
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</TABLE>
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(1) Does not include a 3% nonaccountable expense allowance which the Company
has agreed to pay to the Underwriter. The Company has also agreed to sell
to the Underwriter an option ("Underwriter's Purchase Option") to purchase
200,000 shares of Common Stock and to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of
1933, as amended ("Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance in the amount of $ ($ if the
Underwriter's over-allotment option is exercised in full), estimated at
$ .
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock on the same terms set forth above, solely for the
purpose of covering overallotments, if any. If such over-allotment option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."

The shares of Common Stock are being offered by the Underwriter subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to the approval of certain legal matters by counsel and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the securities comprising the shares of
Common Stock will be made against payment therefor at the offices of the
Underwriter in New York City on or about , 1996.

GKN SECURITIES
, 1996
<PAGE>

[INSERT PHOTO]

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

This prospectus includes references to trademarks of entities other than the
Company, which have reserved all rights with respect to their respective
trademarks.

2
<PAGE>

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 the
financial statements (including the notes thereto) appearing elsewhere in this
Prospectus. Each prospective investor is urged to read this Prospectus in its
entirety.

THE COMPANY

The Company designs, develops, publishes and markets interactive multimedia
titles to the home and school markets. The Company believes that it has been a
pioneer in the development and production of interactive new media titles
having entertainment and educational content, based upon its introduction in
1991 of one of the industry's first titles for the CD-I format. Prior to 1995,
the Company's focus was on the development of titles on a work-for-hire basis.
From 1991 to 1994, the Company developed 11 CD-I titles for Philips Interactive
of America, a division of N.V. Philips ("Philips"). Toward the end of 1994, the
Company shifted its focus to being a developer and publisher of titles in which
the Company maintains significant ownership interests and distribution rights.
Since adopting this strategy, the Company has published four titles: Cities
Under the Sea: Coral Reefs, the first of up to four titles to be developed in
collaboration with Jean-Michel Cousteau, a noted sea explorer and the son of
Jacques Cousteau; The Alchemist, a fortune-telling game, the first in the
Mystic Messenger series; Ask Isaac Asimov . . . About Space, the first title of
a multimedia series based on the respected series of children's science books
written by scientist and author Isaac Asimov, and PIGS, the first in a
collection of animated interactive stories for children. The Company has
established its own marketing and distribution capability and a presence on the
Internet to market its titles. Recently, in order to expand its library of
titles and broaden its product line, the Company acquired Lyriq International
Corporation ("Lyriq"), a developer and publisher of interactive multimedia
products for the education, game and recreation markets. Lyriq has developed
and published, among other things, the Picture Perfect Golf series of
interactive media titles and several Crosswords puzzle titles. It is the
Company's belief that the Lyriq acquisition will provide the Company with
rights to valuable multimedia titles, access to significant creative and
technical talent and expanded research and development abilities. The Company
also believes that the combined product lines and development and marketing
expertise will facilitate greater access to sales channels and a more widely
available offering of software titles for the home and educational markets. See
"Business--Titles" and "Title Development."

The Company has in-house multimedia development facilities with computer
graphics, animation, video and audio capabilities, including professional video
production equipment, lighting and fully digital audio studios. The Company's
strategy is to develop high quality interactive new media titles on all popular
platforms, with a current emphasis on CD-ROM, the Internet and commercial on-
line services. The Company will continue to focus on strategic acquisitions in
order to increase its product offerings and market penetration. It anticipates
that future product development will center on building a catalog of titles
with strong educational content and entertainment value. See "Business--Company
Strategy."

Since shifting its strategy, the Company has incurred significant losses and
expects that losses will increase and continue until such time, if ever, as the
Company can successfully and profitably develop and distribute a broad line of
interactive multimedia titles. The Company's experience has been that it takes
between nine months to one year to develop each multimedia title and
anticipates that a broad line of products could take two or more years to
develop, depending upon market acceptance, if any, of the Company's products.
There can be no assurance that the Company's strategy will be successful or
that it will become profitable in the future. See "Risk Factors--History of
Losses; Change in Strategy; Continuing Net Losses" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

3
<PAGE>

RECENT DEVELOPMENTS

In its initial public offering consummated in October 1994 ("IPO"), the
Company received $7,579,900 in net proceeds by selling 2,300,000 units, each
unit consisting of one share of Common Stock and one warrant to purchase one
share of Common Stock ("IPO Warrant"). The IPO Warrants are currently
exercisable at any time until October 20, 1997 at an exercise price of $4.00
per share. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

In January 1996, the Company consummated a $2,700,000 bridge financing
("January 1996 Bridge Financing") of 54 Units ("Bridge Units") at a purchase
price of $50,000 per Bridge Unit, each Bridge Unit consisting of a $50,000
principal amount unsecured convertible promissory note ("Convertible Note") of
the Company and 10,000 warrants ("January 1996 Warrants"), each to purchase one
share of Common Stock at a purchase price of $4.00 per share. Upon the
consummation of this Offering, the January 1996 Warrants will be exchanged for
540,000 IPO Warrants. The Convertible Notes bear interest at the rate of ten
percent (10%) per annum through June 30, 1996, and thereafter until the
Convertible Notes are paid in full at a rate equal to fifteen percent (15%) per
annum with principal and interest due on the earlier of July 23, 1997 or the
closing of this Offering. Investors in the January 1996 Bridge Financing were
given the option to receive, in lieu of the repayment of the principal of their
Convertible Notes, the following: (a) a number of Conversion Shares equal to
the principal amount of the Convertible Notes divided by ninety percent (90%)
of the per share offering price of the Common Stock in this Offering and (b) a
number of IPO Warrants ("Conversion Warrants") equal to two times the number of
Conversion Shares. Investors holding an aggregate of $2,250,000 of Convertible
Notes have elected to convert their Convertible Notes which, based on an
assumed offering price of $4.00 per share, would convert at the closing of this
Offering into 625,000 Conversion Shares and 1,250,000 Conversion Warrants. See
"Use of Proceeds." The Conversion Shares and Conversion Warrants issuable upon
conversion of certain Convertible Notes and the IPO Warrants, are being
registered for resale by the Selling Securityholders under a second prospectus
which forms a part of this Registration Statement. Without the prior consent of
the Underwriter, the Selling Securityholders may not sell the Conversion
Shares, the Conversion Warrants or the IPO Warrants issued in exchange for the
January 1996 Warrants or the Common Stock underlying the Conversion Warrants or
the IPO Warrants for a period of one year from the date of this Prospectus. The
Company has been advised by the Underwriter that in determining whether to give
or withhold its consent to any sale within the applicable lock-up periods, it
will consider whether such sale would have an adverse effect on the market for
the Common Stock. No shareholder subject to any lock-up agreement has requested
to be released from such shareholder's lock-up. See "Description of
Securities--IPO Warrants and Conversion Warrants" and "Shares Eligible for
Future Sale."

In connection with the January 1996 Bridge Financing, the Company entered
into an agreement with certain executive officers of the Company pursuant to
which the Company will repurchase, simultaneously with the closing of this
Offering, an aggregate of 1,000,000 shares of Common Stock ("Contribution
Shares") at a purchase price of $1 per share, or an aggregate of $1,000,000, of
which $333,334 will be payable on the closing of this Offering, with the
balance payable in two equal installments of $333,333 each on the first and
second anniversaries of the date of this Prospectus. Interest will accrue at
the prime rate and is payable quarterly. The Company entered into the agreement
to purchase the Contribution Shares in connection with its negotiations with
the Underwriter regarding the terms of the January 1996 Bridge Financing and
this Offering. In the quarter in which the Offering occurs, the Company will
incur one-time charges for the write-off of debt acquisition costs and the
discount on the Convertible Notes totalling $736,700, based on the balances at
February 29, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions."

On February 29, 1996, Lyriq merged into a wholly-owned subsidiary of the
Company pursuant to an Agreement and Plan of Merger ("Lyriq Acquisition"). As
consideration for this transaction, the Company issued an aggregate of 725,212
shares of Common Stock, including 303,651 and 310,867 shares of Common Stock,

4
<PAGE>

respectively, to Messrs. Randal Hujar and Gary Skiba, former principals of
Lyriq, both of whom entered into employment contracts with the Company. The
Company has agreed to register the Common Stock issued to Messrs. Hujar and
Skiba in connection with the Lyriq Acquisition after February 28, 1997, with
certain exceptions. The transfer of such shares is subject to lock-up
restrictions. See "Shares Eligible for Future Sale."

THE OFFERING

<TABLE>
<S> <C>
Securities Offered.................................. 2,000,000 shares of Common
Stock. See "Description of
Securities."
Common Stock Outstanding Prior to the Offering...... 5,500,701 shares(1)
Common Stock to be Outstanding After the Offering... 7,125,701 shares(2)
Nasdaq SmallCap Market Symbol....................... ENTR
The Boston Stock Exchange Symbol.................... ENT
</TABLE>
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(1) Excludes 625,000 Conversion Shares (assuming an offering price of $4.00 per
share) which will be issued simultaneously with the closing of this
Offering. Includes 725,212 shares of Common Stock issued in connection with
the Lyriq Acquisition. See "Principal Securityholders."

(2) Reflects the issuance of 625,000 Conversion Shares and the repurchase of
1,000,000 Contribution Shares.

USE OF PROCEEDS

The Company intends to apply the net proceeds of this Offering to research
and product development; payment for Contribution Shares; the repayment of
certain of the Convertible Notes and the payment of interest due and owing on
all of the Convertible Notes; and for working capital and general corporate
purposes. See "Use of Proceeds."

RISK FACTORS

The securities offered hereby involve a high degree of risk, including
without limitation: history of losses and expected continuing net losses;
possible need for additional financing; absence of credit facilities; change in
business strategy; dependence on new titles; rapid technological changes;
intense competition and control by management. See "Risk Factors" immediately
following this Prospectus Summary.

5
<PAGE>

SUMMARY FINANCIAL INFORMATION

The summary financial information set forth below is derived from the
financial statements of Enteractive and Lyriq appearing elsewhere in this
Prospectus. This information should be read in conjunction with such financial
statements, including the notes thereto. Enteractive's historical information
presented for the fiscal years ended May 31, 1995 and 1994 and the nine months
ended February 29, 1996 and February 28, 1995 include the historical results of
Sonic (as defined herein) through May 10, 1994, the date of the Merger (as
defined herein), and the combined results of Enteractive and Sonic thereafter.
The Balance Sheet Data at February 29, 1996 includes the consolidated accounts
of Enteractive and Lyriq. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."

The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the Lyriq Acquisition had been consummated
as of such date nor is it necessarily indicative of future operating results or
financial position. The Lyriq Acquisition has been accounted for under the
purchase method of accounting.

ENTERACTIVE SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA NINE MONTHS
YEAR ENDED NINE MONTHS ENDED ENDED
YEAR ENDED MAY 31, ------------------------- FEBRUARY 29,
MAY 31, 1995(1) 1996(1)
--------------------- ---------- ------------
FEBRUARY 29, FEBRUARY 28,
1995 1994 1996 1995
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<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product sales........... $ -- $ -- $ 617,500 $ 324,800 $ -- $ 842,200
Product development
revenue................ 365,600 2,371,500 527,700 257,700 292,600 378,700
Royalty and other
revenue................ 3,500 10,700 468,400 103,300 2,400 327,300
Operating loss.......... (3,969,800) (382,100) (4,617,900) (6,435,500) (2,409,300) (5,086,400)
Net loss................ (3,997,400) (373,200) (4,656,900) (6,378,800) (2,512,600) (5,060,600)
Net loss per common
share.................. $ (0.93) $ (0.11) $ (0.93) $ (1.34) $ (0.62) $ (0.92)
Weighted average
shares................. 4,275,908 3,419,409 5,001,120 4,775,489 4,057,812 5,500,701
</TABLE>

<TABLE>
<CAPTION>
FEBRUARY 29, 1996
--------------------------
ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
BALANCE SHEET DATA:
Total assets......................................... $4,558,200 $10,228,200
Working capital (deficit)............................ (537,900) 7,018,700
Total liabilities.................................... 3,632,200 2,078,900
Stockholders' equity................................. $ 926,000 $ 8,149,300
</TABLE>
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(1) The pro forma Statement of Operations Data for May 31, 1995 and February
29, 1996 reflects the effect of the Lyriq Acquisition, including the
amortization of capitalized software acquired in connection therewith and
excluding the non-recurring in-process research and development charge of
$1,915,100.
(2) Reflects (i) the sale by the Company of the Common Stock offered hereby (at
an assumed price of $4.00 per share) and the application of the estimated
net proceeds therefrom, (ii) the conversion of $2,250,000 principal amount
of Convertible Notes into Conversion Shares and Conversion Warrants
(assuming an Offering price of $4.00 per share) and (iii) the repurchase of
the Contribution Shares. See "Use of Proceeds."

6
<PAGE>

LYRIQ SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-------------------
NINE MONTHS ENDED
-------------------------
FEBRUARY 29, FEBRUARY 28,
1995 1994 1996 1995
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product sales................... $ 617,536 $206,339 $ 517,444 $607,760
Product development revenue..... 162,132 171,262 121,000 125,487
Royalty and other revenue....... 464,906 47,031 223,961 303,053
Operating income (loss)......... (219,998) (8,661) (352,011) 49,539
Net income (loss)............... $(231,457) $(15,013) $(382,902) $ 46,592
</TABLE>

Unless otherwise indicated, the information in this Prospectus does not give
effect to the exercise of the Underwriter's over-allotment option or the
Underwriter's Purchase Option, and does not include (i) 1,500,000 shares of
Common Stock reserved for issuance upon exercise of stock options which may be
granted under the Company's 1994 Incentive and Non-Qualified Stock Option Plan
("1994 Plan"), of which options to purchase 597,770 shares of Common Stock have
been granted; (ii) 1,000,000 shares of Common Stock reserved for issuance upon
exercise of stock options which may be granted under the Company's 1994
Consultant Stock Option Plan ("Consultant Plan"), of which options to purchase
250,000 shares of Common Stock have been granted; (iii) 150,000 shares of
Common Stock reserved for issuance under the Company's 1995 Directors Stock
Option Plan ("Directors Plan"), of which options to purchase 30,000 shares of
Common Stock have been granted; (iv) 282,000 shares of Common Stock reserved
for issuance upon exercise of certain other outstanding non-qualified stock
options; (v) 340,000 shares of Common Stock reserved for issuance upon exercise
of warrants ("January 1994 Warrants") issued in connection with a private
placement in January 1994 ("January 1994 Private Placement"); (vi) 4,890,000
shares of Common Stock reserved for issuance upon the exercise of IPO Warrants,
including (a) 800,000 IPO Warrants issued in exchange for warrants to purchase
800,000 shares of Common Stock ("May 1994 Warrants") issued in connection with
a bridge financing in May 1994 ("May 1994 Bridge Financing"), (b) 540,000 IPO
Warrants issued upon exchange of 540,000 January 1996 Warrants and (c) the
conversion of the Convertible Notes into 1,250,000 Conversion Warrants
(assuming an offering price of $4.00 per share); and (vii) 400,000 shares of
Common Stock reserved for issuance upon the exercise of the underwriter's unit
purchase option granted to the underwriters of the IPO ("Underwriter's UPO").
See "Management -- Executive Compensation," and " -- Stock Option Plans and
Other Options," "Certain Transactions," "Principal Securityholders" and
"Description of Securities -- IPO Warrants and Conversion Warrants" and " --
Other Warrants."

7
<PAGE>

THE COMPANY

The Company, a Delaware corporation incorporated in December 1993, is the
successor to Sonic Images Productions, Inc. ("Sonic"), a District of Columbia
corporation incorporated in 1979 which was merged with and into the Company in
May 1994 ("Merger"). The Company, as the surviving entity of the Merger,
continued its existence following the Merger as a Delaware corporation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" for a description of the accounting treatment of the
Merger. In February 1996, Lyriq merged into a wholly-owned subsidiary of the
Company. Unless otherwise indicated, references to the Company also includes
its wholly-owned subsidiaries. The Company's executive offices are located at
110 West 40th Street, Suite 2100, New York, New York 10018, its Worldwide Web
site address is http://www.enteractive.com, and its telephone number is (212)
221-6559.

RISK FACTORS

The securities offered hereby are speculative in nature and involve a high
degree of risk. Accordingly, in analyzing an investment in these securities,
prospective investors should carefully consider, along with the other matters
referred to herein, the following risk factors.

History of Losses; Change in Strategy; Continuing Net Losses. The Company
has incurred significant losses since the Merger. At the end of 1994, the
Company shifted its focus from being primarily a provider of product
development services for others to being a developer and publisher of titles
in which the Company maintains a significant ownership interest and, in many
cases, distribution rights. However, the Company continues to incur
significant losses. For the fiscal year ended May 31, 1995 and the nine months
ended February 29, 1996, the Company had net losses of $3,997,400 and
$6,378,800, respectively. The net loss for the nine months ended February 29,
1996 includes a non-recurring charge of $1,915,100 for acquired in-process
research and development in connection with the Lyriq Acquisition. The Company
expects that losses will increase and continue until such time, if ever, as
the Company can successfully and profitably develop, produce and distribute a
broad line of interactive multimedia titles. The Company's experience has been
that it takes between nine months to one year to develop each multimedia title
and anticipates that a broad line of products could take two or more years to
develop, depending upon market acceptance, if any, of the Company's products.
The operating results of the Company will continue to be adversely affected
since the Company will incur additional expenses to implement its strategy,
particularly expenses in research and development and distribution and
marketing operations, which are expected to be in excess of anticipated
product sales. Accordingly, the Company anticipates that should its products
not meet with, or be delayed in obtaining, market acceptance, the Company will
explore various alternatives to achieve profitability including, but not
limited to, reducing personnel, performing product development services for
third parties, acquiring existing titles from third parties or seeking
partners to participate in development and marketing. The Company does not
believe it will generate taxable income during the period ending May 31, 1997.
Beyond such time, using the standards set forth in Financial Accounting
Standard No. 109, management cannot currently determine whether the Company
will generate taxable income during the period that the Company's net
operating loss carry forward period may be applied toward the Company's
taxable income, if any. There can be no assurance that the Company's strategy
will be successful or that the Company will become profitable in the future.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

Possible Need for Additional Financing; Absence of Credit
Facility. Management believes that the net proceeds of this Offering, together
with the Company's existing resources and cash generated from future revenues,
if any, will be adequate for the Company's cash requirements for at least 12
months from the date of this Prospectus. However, these funds may not be
sufficient to meet the Company's longer term cash requirements for operations.
If necessary, the Company may return to performing product development for
third parties in order to help meet its cash requirements or if the Company
otherwise deems it appropriate while continuing to develop and market several
of its own production titles. The Company may also be required to obtain
additional financing to continue to operate its business. The Company does not
currently have a line of credit. There can be no assurance that any additional
financing, if required, will be available to the Company on acceptable terms,
if at all. Any inability by the Company to obtain additional financing, if
required, will have a

8
<PAGE>

material adverse effect on the operations of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Use of Proceeds."

Uncertain Sources of Revenue. Prior to fiscal 1996, the Company's revenues
were primarily derived from development projects provided for other entities
and grants received for development work. For the fiscal years ended May 31,
1994 and May 31, 1995, the Company had product development revenue of
$2,371,500 and $365,600, respectively, representing a substantial portion of
the Company's total revenue for such fiscal years. As a result of the
Company's new strategy, the Company has shifted away from externally-funded
development work and anticipates that a majority of its revenues in the future
will be generated from sales of its titles. The Company is actively marketing
four of its own interactive multimedia titles and, as a result of the Lyriq
Acquisition, seven additional Company-owned titles. While the Company
generated revenues of $324,800, or 47% of total revenues, from title sales
during the nine months ended February 29, 1996, there can be no assurance that
revenues from titles sales will continue, increase or exceed operating
expenses in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."

Dependence on New Titles; Short Title Life Cycles; Market Acceptance;
Families of Titles. The nature of the interactive multimedia publishing
industry is such that a significant number of titles will be unsuccessful and
that the revenues derived from the successful titles will be used to cover the
costs of the failures. The Company's success depends on the timely
introduction of successful new titles and sequels or updates to existing
titles to replace declining revenues from older titles. The life cycle of a
successful title is difficult to predict and may be as short as three months.
In addition, each title is an individual artistic work and its commercial
success is primarily determined by consumer taste, which is unpredictable and
constantly changing. Few consumer software products achieve sustained market
acceptance. The Company believes that a title achieves market acceptance if it
is widely purchased by consumers. There can be no assurance that any of the
Company's new titles will achieve market acceptance or that, if accepted, such
acceptance will be sustained for a period long enough to recoup costs or
realize profits. If market acceptance is not sustained, the Company may be
required to write-down unsold excess inventory and/or accept substantial
product returns to maintain its access to distribution channels and
accordingly, the Company's results of operations could be materially adversely
affected. In addition, part of the Company's business strategy is to create
families of titles through the use of similar characters, themes, titles and
educational approaches throughout a product line. When the Company chooses to
develop a family of titles, it may make a substantial development investment
before the Company can assess whether a family of titles will be successful.
Accordingly, if a family of titles is unsuccessful, it could have a material
adverse effect on the results of operations of the Company. See "Use of
Proceeds" and "Business -- Company Strategy," "-- Title Development," "--
Marketing and Distribution" and "-- Competition."

Rapid Technological Change; Competing Computer Platforms; Emphasis on CD-
ROM. The market for educational and entertainment multimedia titles is subject
to frequent and rapid changes in technology resulting in short title life
cycles and rapid price declines. The Company's success is dependent upon,
among other things, the ability of the Company to achieve and maintain
technological expertise and to continue to introduce quality titles by
anticipating and reacting to new technologies. There are multiple platforms
and technologies on which interactive multimedia titles can be based. Each of
these platforms and technologies have been developed and produced by third
party hardware manufacturers. These platforms are not compatible with each
other and, consequently, interactive multimedia titles developed for one
platform cannot be used on other platforms. The titles released by the Company
in 1995 were for CD-ROM. Titles currently being developed by the Company are
for the CD-ROM, the Internet or commercial on-line platforms, which the
Company believes are currently the dominant platforms in the industry. There
can be no assurance, however, that such platforms will continue to be the
dominant industry platforms or that the Company will successfully integrate
its products into the Internet or commercial on-line platforms. While the
Company anticipates developing titles for other platforms that achieve market
acceptance, because the development of titles for a new platform, as well as
the migration of a title from one platform to another, is time consuming and
expensive, a leveling off or decline in CD-ROM, the Internet or commercial on-
line services or any subsequent change in the dominant industry platforms
could have a material adverse effect on the Company. In addition, uncertainty
over which platforms will become dominant may impede product sales, and the
emergence of a dominant platform other than CD-ROM, the Internet or

9
<PAGE>

commercial on-line services could severely reduce sales of the Company's
titles. The Company's success in marketing its titles will depend upon its
ability to anticipate and respond to trends in the emergence of these
platforms. See "Business -- Company Strategy" and "-- Title Development."

Marketing and Distribution Arrangements; Competition for Shelf Space. The
Company has only recently begun to distribute its own titles. The Company
generally sells its titles to distributors who then distribute such titles to
retailers or sell its titles directly to retailers. These distributors
typically can return the Company's product at any time for credit without an
offsetting order. Accordingly, the Company may experience substantial product
returns which could have a material adverse affect on its revenues. Since
retailers typically have a limited amount of shelf space and promotional
resources and there is intense competition among multimedia software
producers, there can be no assurance that the Company will gain adequate
levels of shelf space and promotional support for its titles to generate sales
volume. Due to increased competition for limited shelf space, retailers and
distributors are increasingly in a better position to negotiate favorable
terms of sale, including price discounts and product return policies. The
Company may be competing in distribution against much larger organizations
with more influence over retailers and distributors and greater marketing and
distribution resources. In addition, other types of retail outlets and methods
of product distribution, such as Internet or on-line services, will become
increasingly important and accordingly, the success of the Company will depend
on its ability to gain access to these channels of distribution. There can be
no assurance that the Company will be successful in the development of its
distribution networks or gain such access, and if the Company is unsuccessful
in such development it will have a material adverse effect on the results of
operations of the Company. See "Business -- Marketing and Distribution" and
"-- Competition."

Intense Competition. The home education and entertainment software industry
is intensely competitive, and market acceptance for the Company's titles may
be adversely affected by the introduction of similar titles by competitors.
The Company competes, in both the home education and entertainment and the
school markets, against a large number of other companies of varying sizes and
resources. Many of these competitors have substantially greater financial,
technical and marketing resources than the Company and may be more successful
in securing shelf space for their titles. Existing competitors may continue to
broaden their product lines and new competitors, including large computer or
software manufacturers, entertainment companies and educational publishers,
are entering or increasing their focus on the home education and entertainment
and the school markets, resulting in increased competition for the Company.
Increased competition may result in loss of shelf space for the Company's
titles at retail stores, loss of or difficulty in recruiting key employees and
significant price competition, any of which could adversely affect the
Company's operating results. The Company also faces intense competition for a
finite amount of discretionary consumer spending for other forms of
entertainment offered by film companies, record companies, video companies and
others. See "Business -- Competition."

Seasonal Business; Quarterly Fluctuations. The home education and
entertainment software business is highly seasonal. Typically, net revenues
are highest during the last calendar quarter, decline in the first calendar
quarter and are lowest in the second and third calendar quarters. This
seasonal pattern is due primarily to the increased demand for home education
and entertainment software products during the year-end holiday buying season.
With respect to the school market, sales are highest during June (the end of
the budget period for most schools) and from August through October (the
beginning of the school year). Accordingly, the Company's revenues will
reflect these seasonal patterns and will vary within a particular year
depending on whether its sales mix is more heavily weighted toward the home
education and entertainment or the school markets. In addition, quarterly
fluctuations in operating results will be exacerbated by delays in new product
introductions, the introduction of competitive products, the popularity of
particular multimedia platforms and a variety of other factors relating to the
distribution and development process for the products involved, including
software malfunctions in title offerings. A significant portion of the
Company's operating expenses are relatively fixed, and certain expenditures
are based on sales forecasts. If net sales do not meet the Company's
expectations in a given quarter, the Company's operating results or financial
condition could be adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Lyriq's Dependence on a Significant Customer. The Princeton Review accounted
for $262,000, or 21%, and $182,700, or 21%, of Lyriq's total revenues for the
fiscal year ended June 30, 1995 and the nine months

10
<PAGE>

ended February 29, 1996, respectively. On a pro forma basis reflecting the
Lyriq Acquisition, such customer would have accounted for 16% and 12%,
respectively, of the Company's total revenues for the fiscal year ended May
31, 1995 and the nine months ended February 29, 1996. Accordingly, the loss of
such customer or a significant decrease in the royalties the Company receives
from The Princeton Review could have a material adverse effect on the
financial condition and results of operations of the Company. See "Business --
Dependence on a Significant Customer."

Dependence on Third Party Manufacturers. The Company's titles are
manufactured by third-party manufacturers and therefore the Company does not
have direct control over the quality of manufacturing. Additionally, some of
the third party manufacturers may publish competitive titles of their own, to
which preferential treatment may be given. Any of the foregoing would
adversely affect the Company's revenues from the sale of its titles.
Management believes that current arrangements for the manufacture of the
Company's titles are satisfactory for the Company's anticipated requirements.
Nevertheless, there can be no assurance that in the future these third
parties' manufacturing capacities will be sufficient to satisfy the Company's
requirements, that interruptions or delays in manufacturing will not adversely
affect the Company's operations, or that alternative manufacturing sources
will be available to the Company on commercially reasonable terms or at all.
In particular, the Company frequently packages and sells titles in its Picture
Perfect Golf series together with an infrared golf club, which is currently
available from only one independent third party manufacturer. Occasionally,
the Company has postponed delivery of titles in its Picture Perfect Golf
series as a result of the manufacturer's inability to timely deliver the
infrared golf club. While the Company is seeking to establish alternative
sources which can produce the infrared golf club or acquire the rights to
manufacture the infrared golf club currently utilized in the Picture Perfect
Golf series, there can be no assurance that such efforts will be successful.
If the Company does not receive infrared golf clubs on a timely basis, it
could have a material adverse effect on the Company's results of operations.
See "Business -- Manufacturing."

Availability and Restrictive Nature of Licenses. The Company currently
licenses a wide variety of intellectual property from others for use in its
titles. There can be no assurance that the terms of these licenses will
survive the marketing lives of the titles to which they relate or that the
Company will be able to renew such licenses on commercially reasonable terms,
if at all. The Company expects to continue to incorporate the intellectual
property of others into the titles it develops in the future. As such it will
need to obtain licenses to use such intellectual property. The Company will
attempt to obtain future licenses on commercially reasonable terms and with
terms of duration which will survive the lives of the titles to which they
relate. However, there can be no assurance that the Company will be able to
obtain licenses of sufficient duration on commercially reasonable terms or
will be able to renew existing licenses on commercially reasonable terms. The
inability to obtain or renew such licenses, as the case may be, could have an
adverse effect on the business of the Company. See "Business -- Company
Strategy" and " -- Title Development."

Software Technology; Lack of Patent Protection. The Company's future success
will be heavily dependent upon its software technology; and the Company will
rely on a combination of contractual rights, trade secrets and copyright laws
to establish or protect its technology in the countries where it will conduct
business. The Company currently does not possess any patent or other
registered intellectual property rights with respect to its software
technology, other than copyrights with respect to the overall content of
completed titles developed by the Company. There can be no assurance that the
steps taken by the Company to protect its rights will be adequate to deter
misappropriation, especially since the Company operates in an industry in
which revenues are adversely affected by the unauthorized reproduction of
products for commercial sale, commonly referred to as "piracy." Moreover,
although the Company does not believe that it is infringing on the
intellectual property rights of others, there can be no assurance that such
infringement claims will not be asserted against the Company in the future and
if an infringement claim is successful, it could have a material adverse
effect on the Company. Copyright and other proprietary rights to material
licensed for use on CD-ROM and other multimedia platforms is a relatively new
area of the law. Although the Company is not a party to any such claim, there
is the possibility of legal challenges in respect of all such rights. See
"Business -- Protection of Proprietary Rights."

Control by Officers and Directors and Principal Stockholder; Stockholders
Agreement. The Company's officers and directors and their affiliates will own
approximately 30% of the outstanding Common Stock

11
<PAGE>

immediately after this Offering (after giving effect to the repurchase by the
Company of 1,000,000 Contribution Shares) and will have significant influence
over the outcome of all matters submitted to the stockholders for approval,
including the election of directors of the Company. Moreover, a stockholder of
the Company will individually and through related entities beneficially own
28.2% of the Company's Common Stock (consisting of (i) 667,500 shares of
Common Stock, including 500,000 Conversion Shares, and (ii) 1,605,000 shares
of Common Stock underlying presently exercisable options and warrants) and
accordingly if such presently exercisable options and warrants are exercised,
will also have significant influence over the outcome of all matters submitted
to the stockholders for approval, including the election of Directors. In
addition, the Company, John Ramo, Jolie Barbiere, Michael Alford, Zenon
Slawinski and Andrew Gyenes have entered into a Stockholders Agreement which
terminates in August 1997 with respect to the election of directors and
provides for a seven-member Board of Directors consisting of three nominees
designated by Andrew Gyenes and three nominees designated by John Ramo
(provided that such nominees are reasonably acceptable to each of Mr. Gyenes
and Mr. Ramo) and one person mutually agreed upon by Mr. Ramo and Mr. Gyenes.
Each of John Ramo, Jolie Barbiere, Michael Alford and Zenon Slawinski have
agreed to vote all of their shares in favor of the election of such seven
persons. The Company has also agreed to use its best efforts to elect one
designee selected jointly by Randal Hujar and Gary Skiba to be a member of the
Board of Directors until the earlier of February 28, 1998 or the termination
of the lock-up agreement between the Company and Messrs. Hujar and Skiba. See
"Principal Securityholders" and "Description of Securities -- Stockholders
Agreement."

Dependence on Management; Need to Attract Additional Personnel. The Company
is dependent upon the business and technical expertise of its executive and
creative personnel. In particular, the loss of the services of Andrew Gyenes,
the Chairman of the Board and Chief Executive Officer, could have a material
adverse effect upon the Company. There can be no assurance that an adequate
replacement could be found if the Company were to lose the services of Mr.
Gyenes. The Company has an employment agreement with Mr. Gyenes which expires
in October 1997. The Company has obtained a "key person" insurance policy on
the life of Mr. Gyenes in the amount of $1,000,000 under which the Company is
the beneficiary. In addition, the Company's ability to develop its business
will depend upon its ability to recruit and retain additional personnel,
including engineering, marketing and management personnel. Competition for
qualified personnel is intense and accordingly, there can be no assurance that
the Company will be able to retain or hire all of the necessary personnel or
that the Company may not otherwise need to change its personnel to compete in
its rapidly changing market. See "Management -- Executive Officers and
Directors" and "-- Employment Agreements."

Dilution. This Offering involves immediate dilution to investors of $3.02
per share, or 76% (assuming an Offering price of $4.00 per share),
representing the difference between the pro forma net tangible book value per
share of the Common Stock immediately after the completion of this Offering
and the offering price per share of Common Stock. See "Dilution."

Portion of Proceeds Used to Satisfy Indebtedness, Including Indebtedness
Owed to 5% Stockholders and Pay for Contribution Shares Owned by Officers
and/or Directors of the Company. Approximately 24% of the net proceeds
received by the Company from this Offering (assuming an Offering price of
$4.00 per share) will be used to (i) repay $520,000 of the Convertible Notes
and accrued interest, including approximately $308,000 which will be repaid to
entities affiliated with 5% stockholders of the Company and (ii) pay
$1,075,000, including interest, to certain executive officers of the Company
to repurchase the Contribution Shares owned by them.

Broad Discretion in Application of Proceeds by Management, Including Payment
of Salaries. Approximately $2,145,000 or 32%, of the estimated net proceeds of
the Offering (assuming an Offering price of $4.00 per share) have been
allocated to working capital and general corporate purposes. The Company will
have broad discretion as to the application of such proceeds and will use a
portion of such proceeds to pay salaries, including salaries of its executive
officers. See "Use of Proceeds."

No Dividends. The Company has never paid cash dividends on the Common Stock.
The Company intends to retain any future earnings to finance its growth.
Accordingly, any potential investor who anticipates the need for current
dividends from an investment in the Common Stock should not purchase any of
the shares of Common Stock offered hereby. See "Dividend Policy."

12
<PAGE>

Effect of Outstanding Options and Warrants. Immediately after this Offering,
not including the Underwriter's UPO and the Underwriter's Purchase Option,
there will be outstanding options and warrants to purchase, in the aggregate,
6,389,770 shares of Common Stock at per share exercise prices ranging from
$1.71 to $4.00. In addition to the Underwriter's Purchase Option and the
Underwriter's UPO, there are outstanding options to purchase an aggregate of
1,159,770 shares of Common Stock consisting of (i) options to purchase 597,770
shares of Common Stock at exercise prices ranging from $1.71 to $3.75 per
share granted under the 1994 Plan, of which options to purchase 319,925 shares
of Common Stock are currently exercisable; (ii) options to purchase 250,000
shares of Common Stock at exercise prices ranging from $2.35 to $3.00 per
share granted under the Consultant Plan, all of which are currently
exercisable; (iii) options to purchase 30,000 shares of Common Stock at
exercise prices of $3.00 and $3.75 per share granted under the Directors Plan,
all of which are currently exercisable; and (iv) options to purchase 282,000
shares of Common Stock at exercise prices of $2.35 and $3.00, all of which are
currently exercisable. In addition to the Underwriter's UPO, upon the
consummation of this Offering there will be outstanding warrants to purchase
an aggregate of 5,230,000 shares of Common Stock consisting of (i) IPO
Warrants to purchase 4,890,000 shares of Common Stock including (a) 800,000
IPO Warrants issued in exchange for 800,000 May 1994 Warrants, (b) 540,000 IPO
Warrants issued in exchange for 540,000 January 1996 Warrants and (c)
1,250,000 Conversion Warrants (assuming an offering price of $4.00 per share),
all of which will be currently exercisable at a price of $4.00 per share until
October 20, 1997; and (ii) 340,000 January 1994 Warrants which are currently
exercisable at a price of $2.35 per share until January 24, 1999. The exercise
of the foregoing options and warrants and the Underwriter's UPO (and the
warrants included therein) and the Underwriter's Purchase Option will dilute
the percentage ownership of the Company's stockholders and any sales in the
public market of shares of Common Stock underlying such securities may
adversely effect prevailing market prices for the Common Stock. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of the outstanding securities
will, to the extent they are able, likely exercise them at a time when the
Company could, in all likelihood, obtain any needed capital on terms more
favorable to the Company than those provided in the options and the warrants.

Registration Rights. The sale of 625,000 Conversion Shares (assuming an
offering price of $4.00 per share), 1,250,000 Conversion Warrants (assuming an
offering price of $4.00 per share), 540,000 IPO Warrants issuable in exchange
for the January 1996 Warrants and the issuance of the shares of Common Stock
underlying such warrants is being registered under the Registration Statement
of which this Prospectus forms a part. The Selling Securityholders have agreed
not to sell any of such securities for a period of one year from the date of
this Prospectus without the Underwriter's consent. In addition, the Company
has entered into a registration rights agreement under which the Company
provides each of certain shareholders ("Sonic Group") with (i) "demand"
registration rights whereby each can, with certain exceptions, on two
occasions require the Company to register under the Securities Act the Common
Stock held by the Sonic Group and (ii) "piggyback" registration rights whereby
each can, with certain exceptions, require the Company to include the Common
Stock it holds in any registration statement filed by the Company. All of such
rights have been waived with respect to this Offering. In addition, the
Company has entered into a registration rights agreement with Randal Hujar and
Gary Skiba providing for (i) "demand" registration rights whereby Messrs.
Hujar and Skiba can after February 28, 1997, with certain exceptions, require
the Company to register under the Securities Act the Common Stock they hold
and (ii) "piggyback" registration rights whereby Messrs. Hujar and Skiba can
after February 28, 1997, with certain exceptions, require the Company to
include the Common Stock they hold in any registration statement filed by the
Company. The Company has also entered into a registration rights agreement
with other former shareholders of Lyriq (holding in aggregate 110,694 shares
of Common Stock) providing for "piggyback" rights whereby such individuals,
with certain exceptions, can require the Company to include the Common Stock
they hold in any registration statement filed by the Company pursuant to the
"demand" registration rights of Messrs. Hujar and Skiba. The registration
rights of any of the holders could result in substantial future expense to the
Company and could adversely affect any future equity or debt financings by the
Company. Furthermore, the sale of the Common Stock or other securities held by
or issuable to the holders, or merely the potential of such sales, could have
an adverse effect on the market prices of the Company's securities. In
addition, the Company has granted certain demand and piggy-back registration
rights to the Underwriter with respect to the securities

13
<PAGE>

issuable upon exercise of the Underwriter's UPO and the Underwriter's Purchase
Option. See "Management -- Stock Option Plans and Other Options," "Certain
Transactions," "Description of Securities" and "Underwriting."

Future Sales of Common Stock. Of the 7,125,701 shares of Common Stock
outstanding upon consummation of the Offering, 4,300,000 have been registered
(2,000,000 of which have been registered in this Offering) and therefore are
"freely tradeable." In addition, 625,000 Conversion Shares, which have been
registered by means of the Registration Statement of which this Prospectus
forms a part, may be sold by the Selling Securityholders if at the time of
such sale there is a current prospectus relating to the Conversion Shares
(subject to the lock-up period described below). The remaining 2,200,701
shares of Common Stock are "restricted securities" as that term is defined in
Rule 144 under the Securities Act, and under certain circumstances may be sold
without registration pursuant to such rule. Of such outstanding shares,
1,400,489 (of which 1,353,512 shares are subject to the lock-up period
described below) will be available for sale pursuant to Rule 144 commencing
May 1996, 75,000 shares will be available for sale pursuant to Rule 144
commencing August 1996 and 725,212 shares (614,618 of which shares are subject
to the lock-up period described below) will be available for sale pursuant to
Rule 144 commencing February 1998. All officers and directors of the Company
as of the date of this Prospectus (who hold in the aggregate 1,976,130 shares)
have agreed that until the earlier of two years from the date of this
Prospectus or the 20th day after the end of the second consecutive whole
fiscal quarter after the date of this Prospectus during which the Company had
positive net income on a consolidated basis (each of such quarters being
referred to as a "Positive Quarter"), they will not sell any of their shares
without the prior consent of the Underwriter, provided, however, that each
officer and director of the Company who was a stockholder of record as of
December 29, 1995 and Randal Hujar and Gary Skiba shall be permitted to sell
at the earlier of one year after the date of this Prospectus or any time after
the 20th day after the end of the first Positive Quarter, up to 15% of the
shares owned by such holder on the date hereof. In addition, prior to February
28, 1997, Mr. Hujar may pledge up to fifty percent of his Common Stock to
cover personal expenses. The Selling Securityholders have agreed that they
will not sell the Conversion Shares, the Conversion Warrants and the IPO
Warrants they received in exchange for the January 1996 Warrants until twelve
months after the date of this Prospectus without the Underwriter's consent.
The Company is unable to predict the effect that sales made under Rule 144 or
otherwise may have on the market price of the Common Stock prevailing at the
time of any such sales. See "Description of Securities" and "Shares Eligible
for Future Sale."

Possible Volatility of Securities Prices. The market price of Common Stock
has in the past been, and may in the future continue to be, volatile. A
variety of events, including quarter to quarter variations in operating
results, news announcements or the introduction of new products by the Company
or its competitors, as well as market conditions in the interactive multimedia
industry or changes in earnings estimates by securities analysts may cause the
market price of the Common Stock to fluctuate significantly. In addition, the
stock market in recent years has experienced significant price and volume
fluctuations which have particularly affected the market prices of equity
securities of many companies that service the software industry and which
often have been unrelated to the operating performance of such companies.
These market fluctuations may adversely affect the price of the Common Stock.
See "Price Range of the Common Stock" and "Dividend Policy."

Issuance of Preferred Stock; Anti-Takeover Provisions. Pursuant to its
Certificate of Incorporation, as amended, the Company has an authorized class
of 2,000,000 shares of Preferred Stock which may be issued by the Board of
Directors on such terms and with such rights, preferences and designations as
the Board may determine without any vote of the stockholders. Issuance of such
preferred stock, depending upon the rights, preferences and designations
thereof, may have the effect of delaying, deterring or preventing a change in
control of the Company. Issuance of additional shares of Common Stock could
result in the dilution of the voting power of the Common Stock purchased in
this Offering. In addition, certain "anti-takeover" provisions of the Delaware
General Corporation Law, among other things, may restrict the ability of the
stockholders to approve a merger or business combination or obtain control of
the Company. See "Description of Securities--Preferred Stock" and "-- Delaware
Law."

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<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $6,740,000 (approximately $7,796,000
if the Underwriter's over-allotment option is exercised in full). The Company
intends to apply the net proceeds approximately as follows:

<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
----------------------- ---------- -------
<S> <C> <C>
Research and product development(1)................. $3,000,000 44%
Repurchase of Common Stock(2)....................... 1,075,000 16
Repay certain Convertible Notes and related accrued
interest(3)........................................ 520,000 8
Working capital and general corporate purposes(4)... 2,145,000 32
---------- ---
Total............................................. $6,740,000 100%
========== ===
</TABLE>
- --------
(1) Research and product development includes internal development of new
titles and expansion of existing product lines. Costs included are
salaries of design, development and end-user testing personnel as well as
other costs associated with (i) market analysis and product concept, (ii)
product design, storyboarding and technical analysis and (iii) product
creation and may include the acquisition of additional content licenses
and the employment of technical and creative personnel. See "Business--
Titles."

(2) Of the $1,000,000 to be paid to repurchase the Contribution Shares,
$333,334 will be payable simultaneously with the closing of this Offering,
$333,333 of the principal will be payable on the first anniversary of the
date of this Prospectus and $333,333 of the principal will be payable on
the second anniversary of the date of this Prospectus. Interest will
accrue at the prime rate and is payable quarterly. All of the Contribution
Shares are held by directors, executive officers, and/or 5% stockholders
of the Company. The interest payments will aggregate approximately $75,000
based on the prime rate as of April 18, 1996.

(3) In connection with the January 1996 Bridge Financing, the Company issued
the Convertible Notes, and the January 1996 Warrants to purchase up to
540,000 shares of Common Stock. The Convertible Notes are in the aggregate
principal amount of $2,700,000, bear interest at the rate of 10% per annum
and are payable upon the consummation of this Offering. Holders of an
aggregate of $2,250,000 Convertible Notes have elected to convert their
Convertible Notes; which, based on an assumed offering price of $4.00 per
share, would convert the principal of such Convertible Notes at the
closing of this Offering into 625,000 Conversion Shares and 1,250,000
Conversion Warrants. The remaining principal of such Convertible Notes
($450,000), together with accrued interest thereon and the interest on the
$2,250,000 Convertible Notes, will be repaid with a portion of the
proceeds of this Offering. If the Offering is consummated on or about May
1, 1996, the interest to be paid on the Convertible Notes will be
approximately $70,000. Approximately $308,000 of the principal and
interest to be repaid on the Convertible Notes are held by entities
affiliated with 5% stockholders of the Company. The net proceeds from the
sale of the Convertible Notes have been or will be used primarily for
working capital purposes and for research and product development; and

(4) Working capital and general corporate purposes may include, among other
things, salaries of additional financial and management personnel,
salaries of executive officers (which are anticipated to aggregate
approximately $765,000 over the 12-month period following this Offering),
marketing, sales and advertising activities, including the salaries of
additional marketing and sales personnel and the costs of possible
acquisitions of fully-developed products or businesses complementary to
the Company's operations. The Company is not currently negotiating to
acquire any other product or business and has no commitments,
understandings or arrangements with respect to any such acquisition. If
the Underwriter exercises the over-allotment option in full, the Company
will realize additional net proceeds of $1,056,000, which will also be
added to the Company's working capital.

The Company anticipates, based on current plans and assumptions relating to
its operations, that the proceeds of the Offering, together with existing
resources and cash generated from future revenues, if any, will be sufficient
to satisfy the Company's contemplated cash requirements for at least the next
12 months. There can be no assurance, however, that the Company's cash
requirements during this period will not exceed its available resources. In
addition, these funds may not be sufficient to meet the Company's longer term
cash requirements for operations. In the event the Company's plans or
assumptions change or prove to be inaccurate, or the proceeds of the Offering
together with cash generated from future revenues, if any, prove to be
insufficient to fund operations (due to unanticipated expenses, problems or
otherwise), the Company may find it necessary and/or advisable to reallocate
some of the proceeds within the above-described categories or to use portions
thereof for other purposes and therefore management will have significant
discretion regarding how and when such proceeds will be applied.

Proceeds not immediately required for the purposes described above will be
invested in United States government securities, short-term certificates of
deposit, money market funds or other investment grade, short-term interest-
bearing investments.

15
<PAGE>

DILUTION

The difference between the public offering price per share of Common Stock
and the pro forma net tangible book value per share of Common Stock after this
Offering constitutes the dilution per share of Common Stock to investors in
this Offering. Net tangible book value per share is determined by dividing the
net tangible book value (total tangible assets less total liabilities) by the
number of outstanding shares of Common Stock.

As of February 29, 1996, the Company had a pro forma net tangible book value
of $231,500, or approximately $.05 per share of Common Stock (based on
5,125,701 shares of Common Stock outstanding) and after giving effect to (i)
the conversion of $2,250,000 of Convertible Notes into 625,000 Conversion
Shares (assuming an offering price of $4.00 per share) and (ii) the repurchase
of the Contribution Shares. After giving effect to the sale of the Common
Stock offered hereby at an assumed offering price of $4.00 per share (less
underwriting discounts and estimated expenses of this Offering) and the
application of the net proceeds therefrom, the pro forma net tangible book
value at that date would have been $6,971,500, or approximately $.98 per
share. This represents an immediate increase in net tangible book value of
approximately $.93 per share to existing stockholders and an immediate
dilution of approximately $3.02 per share to new investors or 76%.

The following table illustrates the per share dilution without giving effect
to results of operations of the Company subsequent to February 29, 1996:

<TABLE>
<S> <C> <C>
Public offering price............................................ $4.00
Pro forma net tangible book value before Offering.............. $.05
Increase attributable to new investors......................... $.93
----
Adjusted pro forma net tangible book value after Offering........ .98
-----
Dilution to new investors........................................ $3.02
=====
</TABLE>

16
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) at
February 29, 1996, and (ii) as adjusted to give effect to (a) the sale of the
2,000,000 shares of Common Stock offered hereby at an assumed offering price
of $4.00 per share and the application of the estimated net proceeds
therefrom, (b) the repurchase of the Contribution Shares and (c) the
conversion of the Convertible Notes into Conversion Shares assuming an
Offering price of $4.00 per share. See "Use of Proceeds."

<TABLE>
<CAPTION>
FEBRUARY 29, 1996
------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Short-term debt...................................... $ 2,315,000 $ 458,300
Long-term obligations................................ -- 333,300
Stockholders' equity:
Preferred Stock, $.01 par value; 2,000,000 shares
authorized; no shares issued or outstanding....... -- --
Common Stock, $.01 par value; 30,000,000 shares
authorized(/1/); 5,500,701 shares issued and
outstanding, actual; 7,125,701 shares issued and
outstanding as adjusted........................... 55,000 71,200
Additional paid-in capital......................... 11,563,900 19,537,700
Accumulated deficit................................ (10,692,900) (11,459,600)
----------- -----------
Total stockholders' equity....................... 926,000 8,149,300
----------- -----------
Total capitalization............................. $ 3,241,000 $ 8,940,900
=========== ===========
</TABLE>
- --------

(/1/Such)amount reflects the filing of an amendment to the Company's
Certificate of Incorporation increasing the authorized Common Stock to
30,000,000.

DIVIDEND POLICY

The Company has never paid any cash dividends on the Common Stock and it is
currently the intention of the Company not to pay cash dividends on its Common
Stock in the foreseeable future. Management intends to reinvest earnings, if
any, in the development and expansion of the Company's business. Any future
declaration of cash dividends will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements and
financial position of the Company, general economic conditions and other
pertinent factors.

17
<PAGE>

PRICE RANGE OF THE COMMON STOCK

The Common Stock has been quoted on the Nasdaq SmallCap Market and The
Boston Stock Exchange since October 20, 1994 under the symbols "ENTR" and
"ENT," respectively. The Nasdaq SmallCap Market is the principal trading
market for the Company's securities. The following table sets forth the ranges
of the high and low closing bid prices for the Common Stock since October 20,
1994, the effective date of the IPO, as reported on the Nasdaq SmallCap
Market. The quotations are interdealer prices without adjustment for retail
markups, markdowns or commissions, and do not necessarily represent actual
transactions.

<TABLE>
<CAPTION>
COMMON STOCK
-------------
PERIOD HIGH LOW
- ------ ------ ------
<S> <C> <C>
FISCAL YEAR ENDED MAY 31, 1995
First Quarter................................................ N/A N/A
Second Quarter (commencing October 20, 1994 through November
30, 1994)................................................... 4 1/4 3 3/4
Third Quarter (December 1, 1994 through February 28, 1995)... 3 3/4 3 1/8
Fourth Quarter (March 1, 1995 through May 31, 1995).......... 3 3/4 3
FISCAL YEAR ENDING MAY 31, 1996
First Quarter (June 1, 1995 through August 31, 1995)......... 4 3
Second Quarter (September 1, 1995 through November 30,
1995)....................................................... 3 7/8 3 3/4
Third Quarter (December 1, 1995 through February 29, 1996)... 4 1/8 3 5/8
Fourth Quarter (March 1, 1996 through May 8, 1996)........... 4 3 5/8
</TABLE>

On May 9, 1996, the last sale price for the Common Stock as reported on the
Nasdaq SmallCap Market was $3.625.

As of May 9, 1996, there were 27 record holders of the Common Stock. The
Company believes that at such date, there were more than 300 beneficial
holders of the Common Stock.

The IPO Warrants are also traded on the Nasdaq SmallCap Market and The
Boston Stock Exchange.

18
<PAGE>

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

ENTERACTIVE

The discussion and analysis below should be read in conjunction with the
Financial Statements of Enteractive and the Notes to Financial Statements
included elsewhere in this Prospectus.

OVERVIEW

Enteractive was formed in December 1993 to develop, publish and market
interactive multimedia software products, and consummated the Merger with
Sonic, an established multimedia software developer, in May 1994. The Merger
was accounted for under the purchase method of accounting with Sonic as the
acquiring entity, since the former shareholders of Sonic received
approximately 80% of the then-outstanding common stock of Enteractive.
Accordingly, the financial statements of the Company, as the surviving entity,
include the historical results of Sonic through the date of the Merger and the
results of Enteractive and Sonic thereafter. Prior to the Merger, Enteractive
had no operations and had only expenses related to administrative costs
associated with formation, raising equity and debt financing and certain other
merger activities and Sonic was engaged in the development of multimedia
software products.

Prior to fiscal 1996, the Company derived the majority of its revenues from
grants or contracts to develop specific titles. The most significant grant was
from the National Science Foundation ("NSF") for $2.9 million over the period
December 1991 through May 1994. In the fiscal year ended May 31, 1995, the
Company undertook a transition from such externally-funded development
projects to developing, either by itself or with a co-publisher, its own
titles and, accordingly, will derive its future revenues principally from
product sales and royalties. The Company first generated revenues from title
sales in fiscal 1996. For the first three quarters of fiscal 1996, the Company
had title sales of $25,500, $204,100 and $95,200, respectively.

As is typical in the interactive multimedia software industry, the Company
depends on the introduction of new titles or sequels to existing titles to
replace declining revenues from older titles. In order to generate revenues in
the future, the Company believes it will be necessary to develop, or obtain
rights to, new titles that are developed for the appropriate platforms, are
introduced in a timely manner and are able to achieve market acceptance for a
significant period of time. As a result of this new strategy, the Company will
incur additional costs in connection with developing and marketing its own
titles. Through February 29, 1996, approximately 55% of the expenses
(exclusive of the $1,915,000 non-recurring expense related to the acquisition
of in-process research and development incurred in connection with the Lyriq
Acquisition) consisted principally of employee salaries and related costs as
well as occupancy costs. The majority of the balance was incurred in
connection with the development and/or marketing of specific titles. The
Company's costs vary significantly based on the number of titles being
developed for and marketed by the Company. Accordingly, adjustments in the
level of expenditures can be readily implemented.

The Company's quarterly operating results have in the past and are likely in
the future to vary significantly depending on factors such as the timing of
new hardware and software title introductions, the degree of market acceptance
of such titles and the introduction of titles competitive with those of the
Company. In addition, the home education and entertainment software business
is highly seasonal. Typically, revenues are highest during the last calendar
quarter (which includes the holiday buying season), decline in the first
calendar quarter and are lowest in the second and third calendar quarters.
This seasonal pattern is due primarily to the increased demand for home
education and entertainment software titles during the year-end holiday buying
season. With respect to the school market, sales are highest during June (the
end of the budget period for most schools) and from August through October
(the beginning of the school year). The Company expects its future revenues
and operating results will reflect these seasonal factors.

On February 29, 1996, the Company completed the Lyriq Acquisition, whereby
Lyriq was merged into a wholly-owned subsidiary of the Company. The Lyriq
Acquisition was accounted for under the purchase method of accounting with the
Company as the acquiring entity.

19
<PAGE>

RESULTS OF OPERATIONS

Nine months Ended February 29, 1996 Compared to Nine Months Ended February
28, 1995.

The Company recognized $324,800 from sales of its published titles through
independent distributors, net of estimated returns and exchanges, for the nine
months ended February 29, 1996. Such amounts represent sales of new titles
published by the Company and the Company had no similar titles for sale in any
previous period. The most significant reason for the increase in the days'
costs of products sales in inventories and days' revenues outstanding in
accounts receivable relates to the Lyriq Acquisition. The Company's balance
sheet at February 29, 1996 includes the accounts of Lyriq and Enteractive,
while the statement of operations only includes the results of Enteractive.

Product development revenue in the nine months ended February 29, 1996 was
$257,700 compared to $292,600 in the nine months ended February 28, 1995. As
discussed previously, the Company changed its focus from being a developer to
a publisher, and development work will most likely decline in the future
unless the Company finds it necessary or appropriate to perform such work to
generate operating funds.

Royalty revenue in the nine months ended February 29, 1996 was $103,300
compared to $2,400 for the nine months ended February 28, 1995. The increase
is primarily due to $100,000 of royalty revenue earned from a license from one
customer in the nine months ended February 29, 1995. The Company will not
receive additional royalties from this license since the underlying licensing
agreement has been terminated.

Cost of product sales was $77,600 in the nine months ended February 29,
1996. There were no corresponding sales in the prior year. Gross margin was
76% for the nine months ended February 29, 1996.

Cost of development revenue in the nine months ended February 29, 1996 was
$225,500, or 88% of product development revenue compared to $237,600 in the
nine months ended February 28, 1995, or 81% of product development revenue.
The increase in the percentage of cost of product development revenue was the
result of higher overhead costs.

Research and development expense in the nine months ended February 29, 1996
was $2,301,500 compared to $1,592,900 in the same period ended February 28,
1995. The increase of $708,600, or 44%, is primarily related to the change in
strategy from performing externally-funded development work to publishing its
own titles. The fiscal 1996 amounts include a greater number of internal
development staff than in the same period of the prior fiscal year, and the
increased use of independent developers to supplement the internal staff.

Marketing and selling expenses were $1,354,700 and $117,600, for the nine
months ended February 29, 1996 and February 28, 1995, respectively. The
significant increase relates to the change in the Company's strategy to market
and sell its own titles.

General and administrative expense increased by $490,700, or 65%, to
$1,246,900 for the nine months ended February 29, 1996, from $756,200 for the
nine months ended February 28, 1995. This increase reflects the costs
associated with additional financial management, consulting and other related
costs added in the third quarter of fiscal 1995 to implement the strategy
previously discussed.

The Company recorded a nonrecurring expense of $1,915,100 on February 29,
1996 for the acquired in-process research and development that will be used in
the development of additional titles in the future. Pursuant to SFAS No. 86
and consistent with management's definition of internally developed software
and its belief that the technologies have no alternative future use, the
$1,915,100 charge equaled the estimated current fair value of the future
related cash flows (discontinued at a risk-adjusted rate of 30%) to be derived
from specifically identified technologies for which technological feasibility
had not yet been established. The Company believes that it will need to invest
approximately $2,000,000 over the next three years for the development and
integration of content, and incremental marketing, to derive potentially
commercially viable products from the acquired in-process research and
development.

20
<PAGE>

Interest expense decreased to $58,200 from $252,000 for the nine months
ended February 29, 1996 and February 28, 1995, respectively. The interest
expense in fiscal 1996 includes interest and other borrowing costs incurred on
the Convertible Notes. The majority of the interest expense of $252,000
incurred in the nine months ended February 28, 1995 was due to interest and
other borrowing costs incurred on the Company's convertible notes payable
issued in May 1994 and repaid in October 1994.

Interest income decreased to $110,000 for the nine months ended February 29,
1996, from $138,400 for the same period ended February 28, 1995, due to
interest earned on the lower remaining cash proceeds from the IPO.

The Company does not believe it will generate taxable income during the
period ending May 31, 1997. Beyond such time, using the standards set forth in
Financial Accounting Standard No. 109, management cannot currently determine
whether the Company will generate taxable income during the period that the
Company's net operating loss carry forward period may be applied toward the
Company's taxable income, if any.

The Company reported a net loss of $6,378,800, or a per-share loss of $1.34,
for the nine months ended February 29, 1996. This compares to a net loss of
$2,512,600, or a per share loss of $0.62 for the period ended February 28,
1995. The increase in net loss of $3,866,200 from 1995 to 1996 is principally
a result of the shift of the Company's strategy from performing externally-
funded development work to publishing its own titles and the one time charge
to operations of $1,915,100 on February 29, 1996, for the acquired in-process
research and development as part of the Lyriq Acquisition.

Fiscal Years Ended May 31, 1995 and May 31, 1994

Product development revenue for fiscal 1995 was $365,600 compared to
$2,371,500 for the year ended May 31, 1994, a decrease of $2,005,900 or 85%.
Revenue for fiscal 1995 does not include any product development revenues from
Philips or the NSF, which accounts for the decline in product development
revenue.

Cost of development revenue as a percentage of product development revenue
decreased to 78% for fiscal 1995, compared to 82% for fiscal 1994. Total cost
of development revenue decreased $1,661,000 for fiscal 1995, compared to
fiscal 1994, as a result of the change in the Company's strategy to produce
its own titles rather than to perform development work for outside companies.

Research and development expense increased by $2,314,400 from $173,200 for
fiscal 1994 to $2,487,600 for fiscal 1995, due to the Company's business
transition to developing its own titles. This increase in internal product
development coupled with reduced product development contracts, resulted in
the shift of the Company's product development expenditures from cost of
revenues to research and development expense.

In the second half of fiscal 1995, the Company developed a marketing and
sales capability for selling and marketing its own titles. Such marketing and
selling costs include salaries and marketing and advertising costs. There were
no such costs in fiscal 1994.

General and administrative expense increased by $399,700, or 62% to
$1,044,200, for fiscal 1995 from $644,500 for fiscal 1994. This increase is
primarily due to the inclusion of the Company's administrative costs for a
full year, salaries for additional management personnel to implement the
Company's strategy and increased professional fees as a result of the IPO.

Interest income increased from $15,600 for fiscal 1994 to $214,300 for
fiscal 1995, an increase of $198,700, due to interest earned on the proceeds
from the January 1994 Private Placement, the May 1994 Bridge Financing and the
IPO.

Interest expense increased by $222,300 from $30,600 for fiscal 1994 to
$252,900 for fiscal 1995, primarily due to interest and other borrowing costs
incurred on the Company's notes issued in the May 1994 Bridge Financing and
repaid in October 1994.

The Company reported a net loss of $3,997,400 in fiscal 1995 and $373,200 in
fiscal 1994, or a per share loss of $0.93 and $0.11, in fiscal 1995 and 1994,
respectively.

21
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Enteractive was formed in December 1993 and raised $1,531,100 from the sale
of 600,000 shares of Common Stock in the January 1994 Private Placement. In
the May 1994 Bridge Financing, the Company raised $2 million from the sale of
notes and the May 1994 Warrants. Such notes were repaid with the proceeds of
the IPO. In October 1994, the Company sold 2,300,000 units in the IPO, each
unit consisting of one share of Common Stock and an IPO Warrant to purchase
one share of Common Stock. The net proceeds from the IPO were $7,579,900.

In the January 1996 Bridge Financing, the Company received approximately
$2,460,000 in net proceeds from the sale of the Convertible Notes and the
January 1996 Warrants. The Convertible Notes will be repaid from the proceeds
of this Offering, unless the Convertible Notes are converted into Conversion
Shares and Conversion Warrants. Investors holding an aggregate principal
amount of $450,000 of Convertible Notes have elected to have the Company repay
such Convertible Notes, together with accrued interest thereon, with a portion
of the proceeds of this Offering. In the quarter in which the Offering occurs,
the Company will incur one-time charges for the write-off of debt acquisition
costs and the discount on the Convertible Notes totalling $736,700, based on
the balances at February 29, 1996. See "Prospectus Summary -- Recent
Developments" and "Use of Proceeds."

At May 31, 1995, the Company had cash and equivalents of $2,932,400 and
investments of $1,116,100. The increase of $1,256,000 in cash and equivalents
and investments from May 31, 1994 is primarily a result of the net proceeds
from the IPO of $7,579,900, offset by the $2,000,000 repayment of the notes
issued in May 1994 and $3,433,000 used to fund operating activities. At
February 29, 1996, the Company had cash and equivalents of $1,842,000 and
investments of $30,400. The decrease of $1,090,400 in cash and equivalents and
$1,085,700 in investments from May 31, 1995, is primarily a result of funding
the $4,307,800 cash used in operating activities partially offset by
$2,460,000 in proceeds from the issuance of Convertible Notes.

The Company had negative working capital of ($537,900) at February 29, 1996
primarily as a result of utilizing $4,307,800 of cash to fund its operating
activities for the nine months ended February 29, 1996. Investors holding an
aggregate of $2,250,000 of Convertible Notes, which are included in current
liabilities, have elected to convert their Convertible Notes into Conversion
Shares and Conversion Warrants at the closing of this Offering.

Capital expenditures for purchases of property and equipment were $223,200
for fiscal 1995 as compared to $80,000 for fiscal 1994. The Company expects
capital expenditures in the fiscal year ending May 31, 1996 to be consistent
with fiscal 1995 and may increase depending on product development needs and
changes in technology.

In December 1995, the Company entered into an agreement with certain of its
officers pursuant to which the Company will repurchase 1,000,000 Contribution
Shares at $1.00 per share as of the closing of this Offering. Under the
purchase agreement, one third of the purchase price is required to be paid at
the closing of this Offering and at each of the first two anniversaries of the
closing of the Offering. Interest will accrue at the prime rate and is payable
quarterly. See "Prospectus Summary--Recent Developments."

The Company believes that proceeds of this Offering, together with its
existing cash and equivalents, investments and anticipated revenues will be
sufficient to meet its liquidity and cash requirements for at least the next
12 months. However, these funds may not be sufficient to meet the Company's
longer term cash requirements for operations. Since the Company's costs vary
significantly based on the number of titles being developed and marketed by
the Company, adjustments in the level of expenditures can be readily
implemented. Based on management's assessment of the future marketability of
its titles, the Company may significantly alter the level of expenses both
within the next 12 months and thereafter. If necessary, the Company may return
to performing product development for third party companies in order to
maintain its infrastructure while continuing with several of its own titles.

INFLATION

The past and expected future impact of inflation on the financial statements
is not significant.

22
<PAGE>

LYRIQ

The discussion and analysis below should be read in conjunction with the
Financial Statements of Lyriq and the Notes to Financial Statements included
elsewhere in this Prospectus.

OVERVIEW

Lyriq was formed in December 1991 to develop, publish and market interactive
multimedia software products. Lyriq's revenues have primarily been generated
from the sale of Picture Perfect Golf, Lyriq Crosswords and Discover
Endangered Wildlife. Lyriq has developed these series of titles for the home
recreation and education markets. In order to increase revenues, Lyriq
believes it must introduce new titles within the existing series in a timely
and cost effective manner as well as introduce new titles or series. Lyriq has
made substantial investments in the proprietary software engines underlying
the existing Picture Perfect Golf and Crosswords titles, which should enable
it to develop and release new products, based upon these engines, faster and
at lower costs than developing new titles. Lyriq's products are currently
distributed in the United States through major software distributors and
licensed for sale in many European and Asian markets.

As is typical of the multimedia publishing industry, Lyriq's expenses are
based, in part, on expected future revenues. Many of Lyriq's expenses are
fixed and certain overhead and product development expenses do not vary
directly in relation to revenues. Consequently, if net revenues are below
expectations, Lyriq's operating results are likely to be materially and
adversely affected. Lyriq expects that its revenues and operating results will
continue to fluctuate significantly in the future.

RESULTS OF OPERATIONS

Nine Months Ended February 29, 1996 Compared to Nine Months Ended February
28, 1995

Product sales, net of estimated returns and exchanges, for the nine months
ended February 29, 1996 were $517,444 compared to $607,760 for the nine months
ended February 28, 1995, a decrease of $90,316 or 15%. During the nine months
ended February 28, 1995, the Company released Picture Perfect Golf, which
resulted in significant introductory orders. A heavily promoted upgrade to the
product line was not complete until February 1996, resulting in lower unit
shipments for the nine months ended February 29, 1996 as compared to the same
period in the prior year.

Product development revenue for the nine months ended February 29, 1996 was
$121,000, compared to $125,487 for the nine months ended February 28, 1995, a
decrease of $4,487 or 4%.

Royalty and other revenue for the nine months ended February 29, 1996 was
$223,961, compared to $303,053 for the nine months ended February 28, 1995, a
decrease of $79,092 or 26%. The decrease primarily relates to lower
international royalties due to a delay in the completion of the Windows 95
version of Picture Perfect Golf.

For the nine months ended February 29, 1996 and February 28, 1995
approximately 21% and 15% of total revenue was derived from one customer,
respectively. This revenue comprises all of the product development revenue in
both years ($121,000 in 1996 and $125,487 in 1995) as well as approximately
$62,000 and $26,000 of the royalty and other revenue in the 1996 and 1995
periods, respectively. Although the Company expects to continue performing
development work for this customer and earning royalties from sales of the
related product, there can be no assurance that this will occur or if it does,
at what level.

Cost of product revenues for the nine months ended February 29, 1996 was
$182,104 compared to $232,488 for the nine months ended February 28, 1995, a
decrease of $50,384 as a result of lower unit sales in the period. The gross
margin percentage was essentially unchanged.

Cost of product development revenue was $131,020 for the nine months ended
February 29, 1996 compared to $119,571 for the nine months ended February 28,
1995, an increase of $11,449. The increase relates to the

23
<PAGE>

higher volume of development work during the nine months ended February 29,
1996 as compared to the same period in the prior year.

Research and development expense for the nine months ended February 29, 1996
was $386,887 as compared to $234,260 for the nine months ended February 28,
1995, an increase of $152,627. The increase was a result of the Company's
investments in developing new software, particularly for the Windows and
Windows 95 version of Picture Perfect Golf.

Marketing and selling expenses were $360,114 for the nine months ended
February 29, 1996 as compared to $285,775 for the nine months ended February
28, 1995, an increase of $74,339. The increase is the result of the hiring of
a marketing professional and the related salary costs, and the promotional
activities to launch the Windows and Windows 95 versions of Picture Perfect
Golf.

General and administrative expense were $154,291 for the nine months ended
February 29, 1996 as compared to $114,667 for the nine months ended February
28, 1995, an increase of $39,624. This increase is primarily due to the
management and support costs of the actual and planned growth in sales and
product development.

Other income and expense included interest expense of $32,632 on borrowings
made in the nine months ended February 29, 1996. Borrowings or any other
expenses in the nine months ended February 28, 1995 were insignificant.

Fiscal Years Ended June 30, 1995 and 1994

Product revenues, net of estimated returns and exchanges, for the year ended
June 30, 1995 were $617,536 compared to $206,339 for the year ended June 30,
1994, an increase of $411,197 or 199%. The increase results from the release
of the initial two titles in the Picture Perfect Golf series and Discovering
Endangered Wildlife during the year ended June 30, 1995. At June 30, 1994,
Lyriq had $20,500 of accounts receivable for which subsequent credits were
issued for product returns. At June 30, 1995, Lyriq had a reserve of $68,000
for product returns and price adjustments, and also had an $85,000 reserve for
specific bad debts, which was primarily related to a dispute between Lyriq and
an international distributor.

Product development revenue for the year ended June 30, 1995 was $162,132,
or 13% of total revenue, compared to $171,262, or 40% of total revenue, for
the year ended June 30, 1994.

Royalty and other revenue for the year ended June 30, 1995 was $464,906
compared to $47,031 for the year ended June 30, 1994, an increase of $417,875.
During 1995 Lyriq generated international royalties of approximately $350,000
related primarily to Picture Perfect Golf, which was released in the fiscal
year ending June 30, 1995. The balance of the increase relates to higher
royalties from sales of other products developed by Lyriq.

In the years ended June 30, 1995 and June 30, 1994, approximately 21% and
49% of total revenue was derived from one customer. This revenue comprises all
of the product development revenue in both years ($162,100 in 1995 and
$171,262 in 1994) as well as approximately $100,000 and $38,000 of royalty and
other revenues in the 1995 and 1994 periods, respectively. Although Lyriq
expects to continue performing development work for this customer and earning
royalties from sales of the related product, there is no assurance that this
will occur or if it does at what level. Lyriq's strategy is currently focused
on generating revenues from sales of titles it develops and markets and as a
result it expects that these revenues as a percentage of total revenues will
increase.

Cost of product revenues for the year ended June 30, 1995 was $250,932
compared to $51,098 for the year ended June 30, 1994, an increase of $199,834.
Cost of product sales as a percentage of product sales increased to 41% from
25%. This is primarily attributable to higher unit costs associated with the
package design and related packaging of Picture Perfect Golf and Discovering
Endangered Wildlife.

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Cost of development revenue was $185,225 for the year ended June 30, 1995
compared to $65,806 for the year ended June 30, 1994, an increase of $119,419.
The increase in costs relates to the higher level of work-for-hire activity
during the 1995 period and a significant reduction in gross margin relating to
certain unusually profitable projects in fiscal 1994.

Research and development expense for the year ended June 30, 1995 was
$342,444 as compared to $175,103 for the year ended June 30, 1994, an increase
of $167,341. The increase was a result of Lyriq's development of Discovering
Endangered Wildlife and Picture Perfect Golf.

Marketing and selling expenses were $431,077 for the year ended June 30,
1995 as compared to $52,858 for the year ended June 30, 1994, an increase of
$378,219. In fiscal year 1995 Lyriq had a total of three products in the
market as compared to one the prior year. To support its additional titles and
future releases, the Company expanded its marketing and sales capabilities.

General and administrative expenses were $254,894 for the year ended June
30, 1995 as compared to $88,428 for the year ended June 30,1994, an increase
of $166,466. This increase is primarily due to the management and support
costs related to the actual and planned growth in sales and product
development.

Other income and expense was insignificant in fiscal 1995 and 1994.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1995, Lyriq had deficits in working capital and stockholders'
equity of $155,882 and $131,492, respectively. Subsequent to June 30, 1995,
Lyriq's short-term borrowings increased $410,605, including $250,000 borrowed
from Enteractive. The Enteractive loan was made concurrently with the signing
of a letter of intent to merge Enteractive and Lyriq. Effective, February 29,
1996, Lyriq merged with and into a wholly-owned subsidiary of Enteractive. The
majority of the remaining increase in short-term borrowings was provided by an
independent company and is repayable in monthly installments through November
1996, bearing interest at 9% and secured by future royalties, if any, from
products developed by Lyriq for the lender, as well as the assets of the
principals of Lyriq. Lyriq does not have any material commitments for capital
expenditures. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Enteractive."

INFLATION

The past and expected future impact of inflation on the financial statements
is not significant.

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BUSINESS

GENERAL

The Company designs, develops, publishes and markets interactive multimedia
titles to the home and school markets. The Company believes that it has been a
pioneer in the development and production of interactive new media titles
having entertainment and educational content, based upon its introduction in
1991 of one of the industry's first titles for the CD-I format. Prior to 1995,
the Company's focus was on the development of titles on a work-for-hire basis.
From 1991 to 1994, the Company developed 11 CD-I titles for Philips. Toward
the end of 1994, the Company shifted its focus to being a developer and
publisher of titles in which the Company maintains significant ownership
interests and distribution rights. Since adopting this strategy, the Company
has published four titles: Cities Under the Sea: Coral Reefs, the first of up
to four titles to be developed in collaboration with Jean-Michel Cousteau, a
noted sea explorer and the son of Jacques Cousteau; The Alchemist, a fortune-
telling game, the first in the Mystic Messenger series; Ask Isaac
Asimov . . . About Space, the first title of a multimedia series based on the
respected series of children's science books written by scientist and author
Isaac Asimov, and PIGS, the first in a collection of animated interactive
stories for children. The Company has established its own marketing and
distribution capability and a presence on the Internet to market its titles.
Recently, in order to expand its library of titles and broaden its product
line, the Company acquired Lyriq, a developer and publisher of interactive
multimedia products for the education, games and recreation markets. Lyriq has
developed and published, among other things, the Picture Perfect Golf series
of interactive media titles and several Crosswords puzzle titles. It is the
Company's belief that the Lyriq Acquisition will provide the Company with
rights to valuable multimedia titles, access to significant creative and
technical talent and expanded research and development abilities. The Company
also believes that the combined product lines and development and marketing
expertise will facilitate greater access to sales channels and a more widely
available offering of software titles for the home and educational markets.

The Company has in-house multimedia development facilities with computer
graphics, animation, video and audio capabilities, including professional
video production equipment, lighting and fully digital audio studios. The
Company's strategy is to develop high quality interactive new media titles on
all popular platforms, with a current emphasis on CD-ROM, the Internet and
commercial on-line services. The Company will continue to focus on strategic
acquisitions in order to increase its product offerings and market
penetration. It anticipates that future product development will center on
building a catalog of titles with strong educational content and entertainment
value.

INDUSTRY BACKGROUND

The market for the Company's titles and the technology on which they are
based have their genesis in the evolution of home-based electronic interactive
entertainment and the development of the personal computer. Traditionally,
mass market entertainment has been predominantly produced for and delivered
through television, motion pictures, radio and records, as well as more
recently through videocassette tapes, audio compact discs and cassettes. All
of these entertainment media may be thought of as "linear," in that they are
designed generally to communicate content to a viewer or listener in a
sequential fashion. One result of linear forms of entertainment is that the
same content is delivered to each recipient in the same form. Recent
improvements in computer technology have presented an opportunity to
fundamentally change the user's entertainment and educational experience by
introducing an interactive element to audio and visual entertainment. The
enormous popularity of interactive hardware platforms developed by Atari,
Nintendo and Sega in the 1980s and the introduction and rapid acceptance of
CD-ROMs in the early 1990s demonstrate the appeal of interactive
entertainment, which allows the participant to influence the entertainment
experience.

The Company believes that rapidly declining prices of microprocessors and
CD-ROM drives have made multimedia personal computers more affordable and will
positively impact the growth in sales of interactive multimedia titles. These
computers, generally configured with enhanced memory, high speed processors,
high resolution color monitors, sound boards, stereo speakers and high
capacity CD-ROM drives, are able to deliver

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an engaging entertainment experience that combines text, realistic sound,
advanced graphics and animation. At average retail selling prices currently
below $1,900 and expected to decrease slightly over the next several years,
multimedia personal computers are gaining widespread acceptance by consumers
for use in homes and businesses. A report published in June 1995 by Link
Resources Corporation, a leading industry source, states that the domestic
installed base of multimedia personal computers has grown from being almost
nonexistent five years ago to over eight million units as of the end of 1994
and was projected to more than double to approximately 17 million units by the
end of 1995. Moreover, by 1997, approximately 95% of all personal computers
shipped are projected to be multimedia personal computers. The Company
believes that the information in the Link Resources Corporation report remains
accurate as of the date of this Prospectus. This significant growth in the
installed base is expected to drive equally significant growth in multimedia
software revenues. In 1994, the multimedia entertainment and education
software market generated approximately $700 million in revenue and was
projected to double to over $1.5 billion in 1995. By the turn of the century,
such industry sources project the installed base of multimedia personal
computers will exceed 60 million units with corresponding multimedia
entertainment and education software revenues of approximately $5 billion.
With this large and growing base of multimedia personal computers, a
significant market opportunity has been created for companies that can provide
entertainment to the consumer in the form of high quality interactive software
titles.

The market for educational software in schools and homes has also grown
rapidly in recent years. According to the Software Publishers Association, the
market for educational software for the home exceeded $500 million at retail
in 1994. The factors driving the growth in the market include increasing
numbers of young children, increasing penetration of personal computers into
homes, expanding distribution channels for educational software, growth in
consumer and educational publications featuring educational software,
increasing interest from parents in supplementing children's education and
increasing awareness of the potential of multimedia as an effective
educational tool. Link Resources Corporation estimates that in 1994, 42% of
households with children owned personal computers and that by 1998 the
penetration of personal computers into households with children will rise to
55%.

CD-ROM has been the dominant industry platform for multimedia titles.
However, the various multimedia platforms are not compatible with each other
(i.e., the Macintosh-based CD-ROM is not compatible with the Windows-based CD-
ROM). In addition, delivery systems have evolved so that new media platforms
such as the Internet and commercial on-line services are becoming increasingly
more important platforms. Once there is an adequate installed base of a
platform, interactive multimedia titles need to be developed so that they can
be delivered through these platforms.

TITLES

In order to establish itself as a leading publisher of interactive
multimedia titles for the home education, entertainment and recreation
markets, Enteractive intends to increase the number of its internally
developed titles; acquire companies that expand the scope of its product line
and extend its distribution in traditional, mass market and educational
channels; develop strategic partnerships; and develop titles that exploit
emerging digital distribution channels, including the Internet and on-line
services. The Company has released four titles since May 1995 for which it
retains significant ownership rights that consist of the right to directly
exhibit or license to others the product and with respect to the content,
typically to control the electronic distribution. In addition, through the
Lyriq Acquisition, the Company has acquired ownership rights to seven titles
in the popular areas of educational games and recreation and the underlying
content. The Company believes that acquiring ownership rights, as opposed to
being primarily a provider of product development services for others, should
enable the Company to increase its potential revenues. However, the ownership
of rights to titles increases the Company's financial exposure since the
Company, as opposed to a third party, is primarily responsible for development
costs. In addition, with respect to the titles for which the Company licenses
content or the name and likeness of a celebrity, the Company typically pays
the licensor royalties, which range from 7% to 25% of revenues. The Company
believes it has established a reputation for developing titles which have high
quality content and design.

The titles released by the Company since May 1995 are as follows:

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Cities Under the Sea: Coral Reefs, the first of up to four titles in the
Company's Jean-Michel Cousteau's World series, was developed in collaboration
with Jean-Michel Cousteau, who provides content and acts as the host of the
title. The agreement with Mr. Cousteau also provides that he is involved in
creative decisions relating to the titles. Titles in the Jean-Michel Cousteau
World series involve educational adventures relating to natural wonders of the
earth and ocean. Cities Under the Sea: Coral Reefs is designed to appeal to
all interest levels and transports users to a "city" of coral reefs and
demonstrates how this ecosystem works. Users travel via 3-D animated virtual
submarine to seven underwater laboratories. Cities Under the Sea includes all
original full color photos, video and graphics, and two "Hot Topics" thinking
games--farming giant clams and ecotourism--in which people of a fictional
Pacific Island prepare for the 21st Century. Cities Under the Sea: Coral Reefs
is available for Windows/Windows 95.

The Alchemist, the first title in the Company's Mystic Messenger series, is
designed to bring the ancient arts of divination into the 21st Century through
a series of interactive titles embodying text and art created by Monte Farber
and Amy Zerner. The Alchemist, in an interactive multimedia format, provides
teens and adults with answers to personal questions relating to relationships,
careers, finances and other personal issues. Original text, music and animated
graphics based on original art by Amy Zerner are designed to create a
memorable sensory experience. Mr. Farber and Ms. Zerner are available for
creative consultations and to furnish creative services. The Alchemist is
available for Windows/Windows 95 and Macintosh.

Ask Isaac Asimov. . . About Space is the first title in the Company's Ask
Isaac Asimov series, which is based on the 25 children's science book series
written by scientist and author Isaac Asimov and licensed from Gareth Stevens.
In the title, Ask Isaac Asimov. . . About Space, the user explores
astronomical events and basic science concepts through a game-like interface.
Children delve into Asimov's world of discovery, filled with replayable
interactive simulations. Asimov's name and holographic image (which are
licensed from the Estate of Isaac Asimov) on the disc distinguish this product
from other science titles. Ask Isaac Asimov. . . About Space is available for
Windows/Windows 95 and Macintosh.

PIGS is the first title in the Company's children's musical adventure
Stomped-On Fairy Tales series. In PIGS, the classic Three Little Pigs is
retold by contemporary storytellers and musicians. Children interactively
guide the plot in this animated storybook, creating new stories from nearly
200 variations on the classic tale. A computerized jukebox includes a ball
bouncing over lyrics, helping kids sing in time to memorable, original music.
PIGS is available for Windows/Windows 95.

Titles currently released by Lyriq are as follows:

The Picture Perfect Golf series uses both CD-ROM and virtual reality
technology for a computer golf experience. Golfers play on well-known courses
using real course photography. The software can be purchased bundled with a
specially designed infrared golf club, scaled to the confines of indoor space,
that accurately mirrors the head weight, speed and feel of a full-sized club.
This product takes the results of swinging the club and instantly projects
golf shots flying three-dimensionally through color photographs simulating the
experience of actually playing a full eighteen-hole round of golf. Titles
released under this series include Picture Perfect Golf: Coeur D'Alene and
Picture Perfect Golf: Harbour Town and are available for Windows/Windows 95.

The Players' Choice, Washington Post and Crosswords For Kids make up the
Lyriq Crosswords series. The Players' Choice contains more than 250 puzzles
from THE WASHINGTON POST, CROSSWORD MAGAZINE and PENNY PRESS. This title
allows players to time and score their games, receive hints from a built-in
directory, enlarge puzzles for easier viewing, and see the current clue
enlarged. Washington Post provides one hundred puzzles edited by William
Lutwiniak and William B. MacKaye and created by such top crossword puzzle
constructors as Alfio Micci, S.E. Booker, Louis Sabin and Louis Baron.
Crosswords For Kids provides state-of-the-art crossword puzzle technology and
50 age-appropriate puzzles, 30 with double clues and includes: hints to solve
letters, words or even the whole puzzle; on-line help; and the ability to
print a new or started puzzle. The software engine underlying these titles has
been licensed by The New York Times to enable it to offer the daily crossword
puzzles for down-loading from the Internet.

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Crossword America, a site accessible through America Online, features, on a
daily basis, different high quality puzzles and offers users the ability to
chat with puzzle constructors and fellow puzzle enthusiasts. Through the site,
users can purchase additional crosswords, for use in the proprietary software
engine, directly from the Company.

Discovering Endangered Wildlife is designed for children ages 9 and up and
takes the user on a mission to help save endangered animals. Discovering
Endangered Wildlife has been endorsed by the National Wildlife Federation and
allows children to experience nature photography, wildlife sounds, film clips
and narrated text as they absorb information about the habits, diets, daily
routines and threats to endangered species.

Future titles and titles currently being developed are as follows:

The Company is currently developing titles with prominent personalities such
as Terry Gilliam and Richie Sambora. The Company also intends to continue to
add to its current series or families of titles as well as families of titles
which were started by Lyriq.

Animations of Mortality. The Company expects to release Animations of
Mortality in collaboration with Terry Gilliam, the Monty Python animator, who
is the director of the title and will be involved in all key creative
decisions. Mr. Gilliam is the director of feature films including 12 Monkeys,
Brazil, and The Fisher King. Animations of Mortality is intended to be an
interactive game for general audiences in which the player uses the 1,000-plus
images to create collages and animations from Mr. Gilliam's library, and
solves quirky, humorous puzzles and games. The Company licenses all electronic
rights to the book Animations of Mortality for use in interactive programs.

Interactive Rock Guitar. The Company intends to release Interactive Rock
Guitar in collaboration with Richie Sambora, lead guitarist of Bon Jovi. This
title will provide guitar lessons from Mr. Sambora and explore his musical
style. The disc will include a "musician's toolbox" of reference material and
rhythmic accompaniment and a "portfolio" of personality information including
video, photos and interviews with Mr. Sambora. Mr. Sambora has approval rights
over the significant creative elements of this title and Mr. Sambora and the
Company mutually select compositions for the title. Mr. Sambora cannot be
involved in any other educational/instructional program for three years.

Picture Perfect Golf. The Company intends to release titles for several
other prominent golf courses and is also evaluating several on-line extensions
of this product.

Mystic Messenger. The Company intends to release The Enchanted Tarot in the
CD-ROM format as the second title in its Mystic Messenger series. The
Enchanted Tarot is designed to provide insight into the user's future based on
Tarot readings.

Jean-Michel Cousteau's World. The Company intends to release additional
titles relating to natural wonders of the earth and ocean.

Crosswords Plus. The Company expects to release Lyriq's Crosswords Plus, an
upgrade of the Players Choice featuring new puzzles, the ability to construct
puzzles and a direct interface to Lyriq's Internet site--Wordgames.com, which
will provide automated daily download of a crossword Crossword America puzzle
and access to other word game activities.

Titles released or developed by the Company prior to May 1995 include the
following:

The Earth Explorer, released in February 1995, is an original, interactive
multimedia encyclopedia developed by the Company for classroom use by children
ages 10 through 15, as well as general home use for the entire family. The
Earth Explorer was the first product in which the Company maintained a
significant ownership interest. The Earth Explorer's content is specific to
the environment and environmental matters and covers those matters in much
more significant depth than a traditional encyclopedia. The user initially
chooses

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an available topic, and as that topic is being described textually, is able to
"click" onto significant words and explore different aspects of that topic and
related topics in greater depth supported by graphics, photographs, slide
shows and full motion videos. Users also interact in a multimedia game which
emphasizes analysis and critical thinking. The Earth Explorer provides lesson
plans and teacher guides for classroom use. Enteractive owns the content and
controls the rights to Earth Explorer and has licensed the content to HOMEWORK
HELPER, an on-line service. Enteractive is also considering other
opportunities for on-line distribution. The CD-ROM distribution rights are
currently licensed to Claris Corp., a wholly-owned subsidiary of Apple
Computer Corp. The Company is negotiating the return of such distribution
rights.

The Company also developed 11 titles for the CD-1 format through an
arrangement with Philips. Philips retained full ownership of these titles and
distributed such titles through its distribution channels. The Company
receives royalties based on product sales. The titles developed by the Company
for Philips include (i) Children's Musical Theater, in which children become
composers, producers, arrangers and performers of musical compositions; (ii)
Private Lesson Series, in which users are provided with instruction in
beginning intermediate level classical, jazz and rock guitar playing and music
theory; (iii) The Rhythm Maker which allows the user to create and store
originally crafted rhythms from a palette of percussion instruments; and (iv)
The Gershwin Connection which is an adaptation of the Grammy Award winning
musical CD featuring Dave Grusin, Chic Corea, Gary Burton, John Patatuci and
other well-known jazz artists.

ON-LINE ACTIVITIES

The Company recognizes the potential of on-line activity in marketing and
distribution. It also recognizes that the development of on-line access
features may enhance the marketability of the Company's interactive multimedia
titles. The Company has begun to market its titles on-line. Its Worldwide Web
site, http://www.enteractive.com, is designed to attract and encourage
Internet users to visit and allows interactive trials of the Company's titles.
Several methods of purchase are being developed, both off-line (traditional
toll-free calling and a printout of an automatically-generated order form that
may be faxed or mailed) and, eventually, on-line ordering.

On-line delivery of interactive multimedia titles may become a significant
source of revenue in the future. The Internet and commercial on-line services
could provide revenue to the Company through access to the Company's titles on
a pay-for-play basis, for delivery of content updates, and could also support
multiple participant and team play opportunities. Concurrent with on-line
marketing of its titles, the Company intends to build-on-line access features
into its future CD-ROM based titles, where appropriate, to enhance the
marketability of these titles.

COMPANY STRATEGY

The Company's goal is to become a leading developer and publisher of a broad
range of interactive multimedia titles for the home education and
entertainment and school markets. The Company believes that this diversified
approach to its product line will enable it to achieve a broad market
penetration, and minimize risk of reduced sales in any one particular segment.
The Company believes that its experience in the development of interactive
multimedia software gained over the past ten years, combined with the rapid
evolution and high growth rate of the multimedia software industry, creates an
opportunity for the Company to enhance its brand name and expand its catalog
of titles and its library of digital content in which it maintains a
significant ownership interest. The Company believes that the elements
required to achieve this goal are titles with significant educational and/or
entertainment value based on credible intellectual property, either original
or licensed, as well as high quality creative talent to successfully develop
titles and the capability to distribute and market those titles both in the
United States and abroad to the home and school markets. The Company believes
that there will continue to be consolidation opportunities among the producers
and developers of interactive multimedia products. Accordingly, in addition to
the Lyriq Acquisition, the Company intends to accelerate its growth and
increase its market penetration by acquiring other developers and publishers
of interactive multimedia titles. The Company also intends to take advantage
of opportunities in new interactive electronic

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media by participating in publishing and marketing opportunities on commercial
on-line services and on the Internet. Key elements of the Company's strategy
are:

. Continue to Develop High Quality Titles. The Company intends to develop
additional titles through internal development and in collaboration with
recognized content providers. The Company has sought to enter into
agreements which provide it with either access to marketable content or
a credible name to add stature to its products. The Company believes
that its relationships with Jean-Michel Cousteau, Richie Sambora and
Terry Gilliam will enhance the marketability of its titles. The Company
intends to continue the process of entering into agreements to obtain
intellectual property from entities recognized in particular areas and
to collaborate with recognized artists and personalities. In addition,
the Company's product development strategy may include joint ventures
with strategic partners to minimize up-front development costs or to
expand its distribution capabilities.

. Expand Distribution. The Company sells its titles to distributors who
redistribute such titles to retailers, and also sells its titles
directly to retailers. The Company intends to direct significant
marketing resources toward establishing greater market penetration in
the mass market channel. Such efforts will include the use of in store
merchandising, in-store promotion and consumer advertising. The Company
will also seek to expand its sales directly to end users through the use
of the Internet and other new media. In addition, the Company intends to
continue to pursue international opportunities with English language or
localized versions of its titles. The Company also intends to sell its
educational titles directly to the school market and to allocate
marketing resources toward penetrating this market.

. Expand Title Line by Acquisition or External Development. The Company
believes that there will be many potential product acquisition
opportunities, particularly since there are many independent developers
and producers of interactive multimedia who lack financing and/or access
to retail shelf space. Currently, however, the Company has no
commitments or agreements with respect to acquisitions of specific
products, publishing arrangements or the acquisition of related
businesses. The Company may also publish titles developed by other
multimedia developers. The Company may also contract with independent
software developers to create titles that the Company will publish.

. Create Families of Titles. The Company seeks to develop families of
titles to help achieve brand name recognition, enhance customer loyalty
and extend product life cycle. The Company creates families of titles
through the use of similar characters, themes, titles and marketing
approaches throughout a product line. To date, the Company is developing
or has developed several families of titles including the Mystic
Messenger series and Jean-Michel Cousteau's World.

. Exploit Digital Network Delivery Systems. The Company believes that the
increasing ease and decreasing cost of accessing the Internet and
commercial on-line services may create opportunities for on-line access
to the Company's software titles in the future. The Internet and
commercial on-line services could provide revenue to the Company through
access to the Company's games and other titles on a pay-for-play basis,
delivery of content updates, and could also support multiple player and
team play opportunities. In addition, the Company believes that
broadband and interactive television may emerge as a significant factor
in the multimedia industry. In order to ensure that the Company will
benefit from the potential future growth of these delivery systems, the
Company acquires, whenever possible, all electronic rights to existing
and future delivery systems such as digital video disk ("DVD") and
interactive television in its licensing agreements. The Company intends
to make its titles available for all delivery systems if and when
justified by consumer demand.

. Develop and Market Proprietary Characters. The Company seeks to develop
internally-created characters who will achieve market recognition. One
of the Company's objectives is to exploit the potential for its
internally-generated characters to be marketed through other
entertainment channels, such as home video, motion pictures and
television, and to merchandise these characters through toys, apparel
and other products. Certain characters created for interactive software
have already crossed over to such platforms, and the Company expects
this trend to continue as the market for multimedia titles expands.

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TITLE DEVELOPMENT

The Company develops titles through internal and external resources. The
Company may also acquire titles through co-publishing arrangements and/or the
acquisition of other software companies and content licenses.

Internal Development

The Company has in-house multimedia development facilities to create all
original material, with computer graphics, animation, video and audio
capabilities, including professional video production equipment, lighting and
fully digital audio studios. The Company owns a wide range of computers,
software tools, video and sound equipment, computer peripherals and test
equipment, all selected to enable the efficient development and production of
interactive multimedia titles and services. The Company upgrades and enhances
this equipment on a regular basis.

The Company believes that on-going investment in title development is
required to remain competitive in the home and school interactive multimedia
marketplace, and it has invested continuously in the necessary development
tools, library and techniques that allow for technical innovation, increased
efficiency and product quality in its finished titles. The titles that have
been developed and published are designed either for immediate or eventual
release on both Macintosh-and Windows-based CD-ROM platforms.

The Company is currently developing its software for the CD-ROM platform, as
well as the Internet and commercial on-line services. These platforms are
currently the dominant platforms in the industry and the Company believes that
they will remain so for the near term. If there is a shift in the industry's
dominant platform away from CD-ROM, the Internet or commercial on-line
services to DVD or interactive television, or if the Company perceives market
demand for an alternative platform, the Company believes it will be in a
position to "migrate" its existing titles to other platforms or to develop new
titles for such other platform. Such migration or new development, however, is
a time-consuming and costly process.

As of February 29, 1996, the Company employed 40 persons dedicated to
product development, testing and technical support activities. This staff
includes multimedia project management personnel with extensive creative
backgrounds and expertise in educational product design. The Company also
employs specialists in product research, graphic arts, animation, software
engineering, music and video production, CD-ROM engineering, game design,
programming, local area network engineering, digitized voice technology,
quality assurance and technical writing.

The Company's title development process involves multi-disciplinary product
teams. Each product team has responsibility for designing, planning and
creating the product. Products evolve through four phases of development: (i)
market analysis and product concept, (ii) product design, storyboarding and
technical analysis, (iii) product creation and (iv) end-user testing and
release. Where appropriate, the Company solicits input from consumers and/or
experts regarding the product's desirability and effectiveness in achieving
stated objectives. The Company's testing team tests each title for technical
quality, adherence to user-interface standards and operability on a wide
variety of hardware configurations within the same platform. The Company's
products require varying periods of development time depending upon the
technical complexity of the title. The development period for titles that are
designed for multiple platforms for both the school and the home markets
generally ranges from 10 to 14 months. The Company expects to invest
substantial resources in its product development efforts, and there can be no
assurance that marketable titles will result from its efforts.

Using its multimedia studio, the Company has developed interactive titles
incorporating graphics, animation, speech, sound and music. The Company's
proprietary software development library of tools and content includes
animation, sophisticated imaging and networking capability. The Company
believes that the use of these tools streamlines the development process,
allowing members of the development team to focus their efforts on the play
and simulation aspects of the product under development. To supplement its
internal research and development effort, the Company also has entered into
collaborative arrangements with such entities as Microsoft to create
development tools and content for animation.

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External Development

To supplement its internal development teams, the Company may continue to
contract with independent software developers. The Company's strategy in
hiring third-party developers is to attract the broadest base of available
talent for creating new products and supplementing its production
capabilities. The Company may continue to engage in consulting or development
agreements with independent software developers, and manage the development
process by establishing budget schedules and milestones. In addition, the
Company may continue to provide its third-party developers with access to its
library of tools and content as well as audio visual displays, artwork,
musical work, sound recordings and other components for the developer's use in
creating the product. The Company has less control over the scheduling and the
quality of work of independent contractors, than it has over its own
employees, and its success in its external development efforts depends in part
on its continued ability to effectively manage the third-party development
effort to ensure adherence to its quality standards, schedules and budgets.
Compensation of outside developers includes payment of development costs and
possibly royalties.

Additional Sources of New Titles

Publishing and Acquisitions. The Company also may extend its title offerings
through relationships with outside developers from whom it may acquire the
rights to finished titles or with whom it may enter into publishing
agreements. The Company may enter into publishing agreements which would
provide the Company with the rights to publish, market and sell a title for
certain identified platforms, over a specific length of time in a specific
territory, in exchange for royalties based on sales of the title. In addition,
the Company may increase its product line by acquiring other developers of
multimedia titles. The Company from time to time evaluates potential
acquisition opportunities of related businesses. Currently, the Company has no
commitments or agreements with respect to any acquisition of products,
publishing agreements or acquisition of related businesses.

Licenses. In the normal course of its business, the Company acquires various
licenses to content created and owned by others for use in the Company's own
products. The Company has sought and obtained licenses from publishers,
popular authors, artists and film and television companies as part of its
strategy to create titles containing high quality and recognizable content.
Such licenses have been necessary to permit the Company to use various songs,
characters, content and references in its products. For instance, with respect
to Earth Explorer, the Company has licensed a wide variety of photographs,
film and video clips from many sources. Due to the multimedia nature of the
Company's titles, licenses are required for audio, video, and written
materials to supplement original content provided by the Company. For each
particular title being developed, the Company seeks to obtain content licenses
from various authors and other rights holders as the development of the title
progresses. Licenses typically run for the life of the Company's title, cover
world rights, and may provide for an up-front payment to the rights holder
and/or royalties based on sales of the Company's title containing the licensed
material. Licensing expenses are expected to rise significantly as the Company
develops more titles, and as competition increases in interactive software
publishing.

MARKETING AND DISTRIBUTION

The Company's sales and marketing efforts are designed to broaden product
distribution, increase the number of first time and repeat purchasers, promote
brand-name recognition, assist retailers and properly position, package and
merchandise the Company's products. The Company utilizes various marketing
techniques designed to promote brand awareness and recognition and to maximize
the acquisition of shelf space in retail outlets, including in-store
promotions, publicity campaigns and press tours, advertising, direct mail,
trade shows and selective "bundling arrangements."

Interactive multimedia software is sold primarily by large computer and
software specialty retailers, as well as by mass merchants and warehouse club
stores. All of the Company's titles are or will be sold through some or all of
the following retail channels, some of which are not currently significant
distributors of interactive multimedia software products: (i) computer and
software retail stores; (ii) traditional and discount department

33
<PAGE>

and consumer electronics stores; (iii) book stores, video stores and music
stores; (iv) on-line services; and (v) mail order and catalog. The Company
believes that book stores, video stores and music stores may become strong
sales channels in the future as the market for multimedia software broadens to
a wider group of consumers. The Company may also sell certain of its titles
such as the Picture Perfect Golf series in specialty retail outlets. It has
already secured distribution of Cities Under the Sea in dive shops, zoos,
aquariums and museum gift shops.

The Company sells its titles both to distributors who then distribute such
titles to retailers and directly to retailers. The Company's titles are
distributed through the interactive multimedia industry's primary wholesale
distributors including Ingram Micro, ABCO, Tech Data, American Hardware and
Software, Micro Central, Navarre and Baker & Taylor. These distributors
typically can return the Company's product at any time for credit without an
offsetting order. In order to expand sales, the Company has hired distribution
and marketing personnel to enable the Company to assess the most effective
means of distributing its titles and develop and manage strong relationships
with distributors, thereby ensuring more exposure of its products. The Company
has also hired an independent sales representation organization, Channel
Sources, to take advantage of retail channels of distribution by using its
contacts and experience with major retail buyers.

The Company may distribute its titles from time to time through OEM
(Original Equipment Manufacturers) bundling arrangements. These arrangements
may be made with companies who wish to bundle a particular software title with
other titles, multimedia computers, CD-ROM drives, sound cards and other
peripherals. Under such arrangements, the Company would receive a royalty for
the incorporation of its titles into these bundles. These arrangements would
generally involve a prepaid royalty, guaranteed minimum purchase or a minimum
royalty to be paid to the Company over a specified term. The Company
distributes the English language version of its titles in certain western
European countries and intends to increase such distribution and to distribute
its titles internationally through agreements providing for the production of
localized versions of its titles.

The Company's marketing strategy and activities support market recognition
and sales in the distribution channels described above. The Company intends to
continue its corporate and product advertising in trade and general consumer
media. The Company also intends to continue its corporate and product
publicity efforts, resulting in articles and title reviews in trade and
general consumer media. The Company or its titles have been profiled in such
magazines and newspapers as People Magazine, USA Today and The Wall Street
Journal. In the past year, reviews have been an important method of
establishing the Company's credibility in the retail channel and among
consumers. The Company intends to continue participating in in-store
promotional opportunities and programs in selected retail outlets. The Company
intends to continue its direct marketing through third-party catalog resellers
including Tiger Direct, PC Zone and Mac Zone, as well as enhancing its own
efforts to market titles directly to its customer base, in addition to direct
marketing through the use of direct mail lists. Electronic direct marketing is
a strategy the Company intends to pursue via promotion and publicity on the
Internet and commercial on-line services. The Company also exhibits its titles
at recognized industry trade shows. Through these exhibits, the Company
enhances its exposure to the retail markets and gains information about the
technology, needs, and desires of the marketplace.

MANUFACTURING AND SHIPPING

The production of the Company's software includes CD-ROM pressing, assembly
of purchased product components, printing of product packaging and user
manuals and shipping of finished goods, which is performed by third-party
vendors in accordance with the Company's specifications and forecasts. Except
as provided herein the Company believes that there are alternate sources for
these services that could be implemented without delay and to date, the
Company has not experienced any material difficulties or delays in the
production of its titles, or any material returns due to title defects.
Delivery times are typically six weeks, allowing the Company to maintain
reasonable inventory levels.

The Company frequently packages and sells titles in its Picture Perfect Golf
series together with an infrared golf club, which is currently available from
only one independent third party manufacturer. Occasionally, the Company has
postponed delivery of titles in its Picture Perfect Golf series as a result of
the manufacturer's

34
<PAGE>

inability to timely deliver the infrared golf club. While the Company is
seeking to establish alternative sources which can produce the infrared golf
club or acquire the rights to manufacture the infrared golf club currently
utilized in the Picture Perfect Golf series, there can be no assurance that
such efforts will be successful. If the Company does not receive infrared golf
clubs on a timely basis, it could have a material adverse effect on the
Company's results of operations.

The Company warrants its titles to consumers for full functionality, in
accordance with industry practice. The Company accepts returns of defective
titles, if any, to maintain its credibility and build goodwill with customers.
Although the Company provides reserves for returns that it believes are
adequate, the Company could be forced to accept substantial product returns to
maintain its access to distribution channels. Any significant amount of
returns will have a material adverse effect on the Company's business,
operating results and financial condition.

PROTECTION OF PROPRIETARY RIGHTS

The Company's future success will be heavily dependent upon its software
technology and the Company will rely on a combination of contractual rights,
trade secrets and copyright laws to establish or protect its technology in the
countries where it will conduct business. The Company currently does not
possess any patent or other registered intellectual property rights with
respect to its software technology other than copyrights with respect to the
overall content of its completed titles.

The Company believes that its titles and other properties do not infringe
upon the proprietary rights of third parties. The Company seeks whenever
possible to obtain warranties and indemnifications from intellectual property
licensors and third-party software developers to protect the Company from
claims of infringement by third parties of their property rights. There can be
no assurance that such warranties and indemnifications will protect the
Company from liability arising from such claims or from a resultant material
adverse effect to its business.

DEPENDENCE ON A SIGNIFICANT CUSTOMER

The Princeton Review accounted for $262,000, or 21%, and $182,700, or 21%,
of Lyriq's total revenues for the fiscal year ended June 30, 1995 and the nine
months ended February 29, 1996, respectively. On a pro forma basis reflecting
the Lyriq Acquisition, such customer would have accounted for 16% and 12%,
respectively of the Company's total for the fiscal year ended May 31, 1995 and
the nine months ended February 29, 1996. Accordingly, the loss of such
customer or a significant decrease in the revenues from The Princeton Review
could have a material adverse effect on the financial condition and results of
operations of the Company.

COMPETITION

Competition in the home education and entertainment market is based on brand
name recognition, breadth of product line, title content, distribution
strength and price. In the school market, brand name recognition and title
content are the primary factors.

The consumer entertainment software and educational software industries are
intensely competitive. The Company's competitors range from small companies
with limited resources to large companies with greater financial, technical
and marketing resources than those of the Company. The Company considers the
competitors in the interactive software markets to include Broderbund
Software, Inc., Knowledge Adventure, Davidson & Associates, Inc., SoftKey
International, Inc., Edmark Corporation and Microsoft Corporation, among
others. Because the markets for interactive software titles are still emerging
and the cost barriers to entry into these markets are relatively low, the
Company expects the number of competitors to increase. Companies with greater
financial resources than the Company may be able to make greater investments
in research and development, carry larger inventories, undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and make
higher offers or guarantees to licensors for commercially desirable characters
and motion picture and

35
<PAGE>

television properties than the Company. In addition, the Company believes that
potential new competitors, including large software companies, media companies
and film studios, are increasing their focus on the interactive entertainment
and educational software markets. Competition for the Company's products is
influenced by the timing of competitive product releases and the similarity of
such titles to those of the Company, which may result in significant price
competition, reduced profit margins, loss of shelf space or a reduction in
sell-through of the Company's titles at retail stores, loss of or difficulty
in recruiting new key employees and/or acquiring licenses, and significant
price competition, any of which would adversely affect the Company's operating
results. In addition, since the Company has begun to distribute products
through its own third-party distribution channels, it will be competing for
the attention of and service from these third-party distributors, who usually
represent one or more of the Company's competitors. The Company's competitors,
who may have more, or more highly recognized, products may find it easier to
receive the necessary attention and service from these third-party
distributors.

The Company will attempt to differentiate itself from its competitors by the
relationships it has fostered with prominent personalities, its focus on
titles providing high-quality content with entertainment features, and the
skill and creativity of its management and creative personnel. There can be no
assurance that the Company will be able to successfully compete in the home,
education and entertainment software industry or the school market in the
future.

EMPLOYEES

As of May 1, 1996, the Company had 58 employees, 10 of whom are computer
software engineers, 11 of whom are computer graphics artists, 14 of whom are
production related personnel, five of whom are media developers and 18 of whom
perform general and administrative and marketing and sales functions. The
Company has never experienced a work stoppage and its employees are not
covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good.

PROPERTIES

The Company owns no real property. The Company conducts its operations
through two facilities. The Company leases approximately 2,000 square feet of
office space in New York City at a current rental of $32,000 per year plus
utilities. This lease is for a 35-month term and will expire April 30, 1997.
The Company also leases approximately 8,700 square feet of space in
Washington, D.C. at a rental of $93,000 per year plus utilities and taxes.
This lease is for a five-year term expiring on March 31, 1997.

Lyriq has leased approximately 4,900 square feet of office space in
Cheshire, Connecticut on a month-to-month basis at an annualized rate of
$27,000. The Company has not determined whether it will maintain such
arrangement for the foreseeable future.

LEGAL PROCEEDINGS

The Company is not currently a party to any material legal proceedings.

36
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Andrew Gyenes..... 60 Chairman of the Board and Chief Executive Officer
John Ramo......... 46 President, Chief Operating Officer and Director
Jolie Barbiere.... 42 Vice President Creative Development and Director
Michael Alford.... 50 Vice President Development and Director
Rino Bergonzi..... 50 Director
Peter Gyenes...... 51 Director
Harrison Weaver... 62 Director
Kenneth Gruber.... 44 Vice President, Chief Financial Officer and Secretary
Zenon Slawinski... 40 Vice President Design/Production
Randal Hujar...... 36 Vice President Marketing and Sales
Gary Skiba........ 34 Vice President
</TABLE>

Andrew Gyenes has been Chairman of the Board and Chief Executive Officer of
the Company since May 1994. He was Chief Executive Officer, President and a
director of Enteractive from January 1994 through May 1994. For more than five
years before joining Enteractive, Mr. Gyenes was Vice President of Gyenes &
Co., a computer software consulting company, and Marketing Manager of Ann-Mar
Manufacturing, Inc. ("Ann-Mar"), a family owned textile company. Mr. Gyenes
continued in such position on a part-time basis through January 1995, and
since January 1995, has been a consultant to Ann-Mar (approximately 5% of his
time). Mr. Gyenes can continue to serve in such capacity so long as it does
not prevent him from performing his duties on behalf of the Company. Most of
Mr. Gyenes' career has been in the computer industry, including positions with
Warner Communications (most recently as an Assistant Vice President
responsible for Worldwide Information Systems), with IBM Corporation (most
recently as Eastern Regional Manager for Scientific Systems at Service Bureau
Corporation, a former wholly-owned IBM subsidiary), and with Western Union
(most recently as Assistant Vice President of Data Processing).

John P. Ramo has been the President and Chief Operating Officer and a
director of the Company since May 1994. Mr. Ramo was President and Chief
Executive Officer of Sonic from its founding with Ms. Barbiere and Mr.
Slawinski in 1979 until Sonic was merged into the Company in 1994. Mr. Ramo is
the husband of Jolie Barbiere.

Jolie Barbiere has been the Vice President Creative Development and a
director of the Company since May 1994. From 1979 until the merger of Sonic
into the Company in May 1994, Ms. Barbiere was Vice President Creative
Development of Sonic, which she co-founded with Mr. Ramo and Mr. Slawinski.
Ms. Barbiere is the wife of John Ramo.

Michael Alford has been the Vice President Development and a director of the
Company since May 1994. From 1992 through May 1994, he was the Vice President
Development and a director of Sonic. Prior to 1992, Mr. Alford was department
head of Versar Incorporated, an environmental consulting firm, for more than
five years.

Rino Bergonzi has served as a director of the Company since January 1995.
Since November 1993, Mr. Bergonzi has served as Vice President and Division
Executive of Corporate Information Technology Services at AT&T, and has 25
years of experience in the information services field that includes working
for such companies as Western Union, United Parcel Service Information
Services and EDS Corp.

Peter Gyenes has served as a director of the Company since January 1995. Mr.
Peter Gyenes has served as President and Chief Executive Officer of Racal
InterLan, Inc., a leading supplier of local area networking products, since
May 1995. Since January 1986 he also served as a director of Axis Computer
Systems, Inc. From January 1994 to April 1994 he was President of the Americas
Division of Fibronic International, Inc. and from

37
<PAGE>

August 1990 to December 1993 Vice President and General Manager of Data
General Corporation's international operations and mini-computer business
unit. Mr. Peter Gyenes has also held management, marketing, sales and
technical positions with Encore Computer, Prime Computer, Xerox and IBM. Mr.
Peter Gyenes is the brother of Andrew Gyenes, Chairman of the Board and Chief
Executive Officer of the Company.

Harrison Weaver has been a director of the Company since December 1993. He
was a Vice President of the Company from December 1993 through May 1994. He
has been a director of The Continuum Group, Inc. ("Continuum") since 1987, the
Chairman of the Board and Chief Executive Officer of Continuum since December
1991 and the President of Continuum since August 1994. In September 1995
Continuum applied for protection under Chapter 11 of the United States
Bankruptcy Code. Mr. Weaver is the founder and President of Weaver Associates,
a diversified printing concern located in Cranford, New Jersey, which has been
in business for over 25 years. He served for thirteen years as President of
the New Jersey State Opera, becoming President Emeritus in 1987. Mr. Weaver
has received many distinguished achievement awards, including the Governor's
Award Medal for outstanding contributions to the Arts for the State of New
Jersey in 1978.

Kenneth Gruber has been Vice President, Chief Financial Officer and
Secretary of the Company since November 7, 1994. Prior to joining the Company,
Mr. Gruber was employed by Children's Television Workshop ("CTW") since 1984,
and served as CTW's Vice President and Chief Financial Officer from 1993 to
November 1994, as CTW's Vice-President of Finance and Administration (1989-
1993) and as Vice-President of Finance (1988-1989).

Zenon Slawinski has been Vice President Design/Production of the Company
since May 1994 and prior thereto held a similar position with Sonic since its
founding. Prior to founding Sonic, Mr. Slawinski was an animation camera-man
and graphics artist.

Randal Hujar has been a Vice President of the Company since February 29,
1996 and Vice President of Marketing and Sales since April 1996. Prior to
joining the Company, Mr. Hujar was President and Chief Executive Officer of
Lyriq since its founding in December 1991. From February 1991 to March 1991,
Mr. Hujar was the Managing Director of the Lyriq Group, a marketing consulting
firm. From January 1989 to January 1990 he was director of 1-2-3 Product Line
Marketing at Lotus Development Corporation.

Gary Skiba has been a Vice President of the Company since February 29, 1996.
Prior to joining the Company, Mr. Skiba was Chairman and Chief Technical
Officer of Lyriq since its founding in December 1991. From 1989 to 1991, he
was manager of Advanced Word Processing Products at IBM Corporation.

The Board of Directors has a Compensation and Stock Option Committee which
administers the 1994 Plan and makes recommendations concerning salaries and
incentive compensation for employees of and consultants to the Company and an
Audit Committee which reviews the results and scope of the audit and other
services provided by the Company's independent accountants. The Compensation
and Stock Option Committee is composed of Messrs. Bergonzi and Weaver and the
Audit Committee is composed of Messrs. Bergonzi and Weaver. See "Description
of Securities -- Stockholders Agreement."

See "Description of Securities -- Stockholders Agreement" for further
information regarding the composition and election of the Board of Directors.

EXECUTIVE COMPENSATION

The following table sets forth, for fiscal 1995 and 1994, all compensation
awarded to, earned by or paid to Andrew Gyenes, the Chairman of the Board and
Chief Executive Officer of the Company and John Ramo, the only executive
officer of the Company and its predecessor whose salary and bonus exceeded
$100,000 with respect to the fiscal years ended May 31, 1995 and May 31, 1994
and, together with Mr. Gyenes, "Named Executive Officers."

38
<PAGE>

SUMMARY COMPENSATION TABLE

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
- ---------------------------------------------------------------------------------
BONUS OTHER ANNUAL NUMBER OF
NAME AND PRINCIPAL POSITIONS YEAR SALARY ($) COMPENSATION(1) OPTIONS
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Andrew Gyenes............... 1995 $100,000 -- -- --
Chairman of the Board and 1994 40,705 -- -- 225,000(2)
Chief Executive Officer
John Ramo................... 1995 $105,000 -- -- --
President and Chief 1994 104,331 -- -- --
Operating Officer(3)
</TABLE>
(1) Certain of the officers of the Company routinely receive other benefits
from the Company, including travel reimbursement, the amounts of which are
customary in the industry. The Company has concluded, after reasonable
inquiry, that the aggregate amounts of such benefits during fiscal 1995
and 1994, did not exceed the lesser of $50,000 and 10% of the compensation
set forth above as to any named individual.
(2) Represents 125,000 options granted on January 3, 1994 under the 1994 Plan,
which became exercisable January 3, 1995 and 100,000 options granted on
February 1, 1994 under the 1994 Plan, which became exercisable February 1,
1995. None of such options have been exercised.
(3) Prior to the Merger, Mr. Ramo served as President and Chief Executive
Officer of Sonic.

STOCK OPTION PLANS AND OTHER OPTIONS

1994 Incentive and Non-Qualified Stock Option Plan

The Company adopted the 1994 Plan to attract and retain employees. Under the
1994 Plan, options to purchase an aggregate of 1,500,000 shares of Common
Stock may be granted from time to time to key employees of the Company or of
any subsidiary.

To date, options to purchase an aggregate of 597,770 shares of Common Stock
(of which options to purchase 319,925 shares of Common Stock are currently
exercisable) have been granted under the 1994 Plan as follows: (i) 125,000
shares exercisable at $2.35 per share and 200,000 shares exercisable at $3.00
per share to Andrew Gyenes, the Company's Chairman of the Board and Chief
Executive Officer; (ii) 24,510 shares exercisable at $1.71 per share and 4,000
shares exercisable at $3.25 per share to an employee of the Company; (iii) an
aggregate of 104,960 shares exercisable at $3.25 per share to employees of the
Company; (iv) an aggregate of 75,000 shares exercisable at $3.75 per share to
employees of the Company; (v) an aggregate of 40,000 shares at $3.00 per share
to employees of the Company; and (vi) an aggregate of 24,300 shares at $3.50
per share to employees of the Company.

The 1994 Plan is administered by the Compensation and Stock Option
Committee. The Compensation and Stock Option Committee is generally empowered
to interpret the 1994 Plan, prescribe rules and regulations relating thereto,
determine the terms of the option agreements, amend them with the consent of
the optionee, determine the employees to whom options are to be granted, and
determine the number of shares subject to each option and the exercise price
thereof. Under the 1994 Plan, the per-share exercise price for incentive stock
options ("ISOs") will not be less than 100% of the fair market value of a
share of Common Stock on the date the option is granted (110% of fair market
value on the date of grant of an ISO if the optionee owns more than 10% of the
Common Stock of the Company) and for non-qualified stock options ("NQSOs")
will not be less than 55% of the fair market value of the Common Stock on the
date of grant. Upon exercise of an option, the optionee may pay the purchase
price with previously acquired securities of the Company, provided that with
respect to incentive stock options applicable holding requirements under the
Internal Revenue Code of 1986 ("Code") are satisfied.

39
<PAGE>

Options will be exercisable for a term determined by the Compensation and
Stock Option Committee, which will not be greater than ten years from the date
of grant. Options may be exercised only while the original grantee has a
relationship with the Company which confers eligibility to be granted options
or within three months after termination of such relationship with the
Company, or up to one year after death or total permanent disability. In the
event of the termination of such relationship between the original grantee and
the Company for cause (as defined in the 1994 Plan), all options granted to
that original optionee terminate immediately. In the event of certain basic
changes in the Company, including a merger or consolidation of the Company,
the Compensation and Stock Option Committee shall make an appropriate and
equitable adjustment in the number and kind of shares reserved for issuance
under the 1994 Plan. ISOs are not transferable other than by will or the laws
of descent and distribution. NQSOs may be transferred to the optionee's spouse
or lineal descendants, subject to certain restrictions. Options may be
exercised during the holder's lifetime only by the holder, his or her guardian
or legal representative.

Options granted pursuant to the 1994 Plan may be designated as ISOs, with
the attendant tax benefits provided under Section 421 and 422 of the Code.
Accordingly, the 1994 Plan provides that the aggregate fair market value
(determined at the time an ISO is granted) of the Common Stock subject to ISOs
exercisable for the first time by an employee during any calendar year (under
all plans of the Company and its subsidiaries) may not exceed $100,000. The
Compensation and Stock Option Committee may modify, suspend or terminate the
1994 Plan; provided, however, that certain material modifications affecting
the 1994 Plan must be approved by the stockholders, and any change in the 1994
Plan that may adversely affect an optionee's rights under an option previously
granted under the 1994 Plan requires the consent of the optionee.

No stock options were granted to the Named Executive Officers during fiscal
1995.

Fiscal Year End Option Values

No options were exercised by the Named Executive Officers during fiscal
1995. The following table shows the number of shares covered by both
exercisable and unexercisable employee stock options, as of May 31, 1995, and
the values for "in-the-money" options, which represent the positive spread
between the exercise price of any outstanding stock option and the price of
the Common Stock as of May 31, 1995, which was $3.125.

FISCAL YEAR END OPTION VALUES

- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Andrew Gyenes........... 225,000/0 $109,375/0
</TABLE>

Directors' Compensation and 1995 Directors' Stock Option Plan

Directors serve until the next annual meeting of stockholders and until
their successors are duly elected and shall have qualified. Except as
otherwise set forth herein, executive officers serve at the discretion of the
Board of Directors.

Harrison Weaver, a director of the Company, has been granted options to
purchase 20,000 shares of Common Stock at an exercise price of $2.35 per
share, which are currently exercisable and expire in January 2004. See "1994
Consultant Stock Option Plan and Other Options."

The Board of Directors has a Compensation and Stock Option Committee and
there are no Board of Directors interlocks. For information concerning
transactions with Harrison Weaver, who is a member of the Compensation and
Stock Option Committee. See "Certain Transactions."

In January 1995, the Board of Directors adopted, and in October 1995 the
Company's Shareholders approved, the Directors Plan, which has subsequently
been amended to provide for the issuance of options to

40
<PAGE>

purchase up to 150,000 shares of Common Stock to non-employee directors
("Outside Directors") of the Company as follows:

(a) Each Outside Director who was serving in such capacity on January 1,
1995 was granted on January 1, 1995 non-qualified stock options to
purchase 5,000 shares of Common Stock at its fair market value on the
date of grant.

(b) Each person who is an Outside Director on January 1 of each calendar
year subsequent to 1995 shall be granted on each such January 1
nonqualified stock options to purchase 5,000 shares of Common Stock.
All options are exercisable on the date of grant.

As of the date of this Prospectus, options to purchase an aggregate of
30,000 shares of Common Stock have been granted under the Directors Plan at
exercise prices of $3.00 and $3.75 per share to Messrs. Bergonzi, Peter Gyenes
and Weaver (being all of the Outside Directors).

1994 Consultant Stock Option Plan and Other Options

In January 1994, in connection with services which had been or will be
provided to the Company, various persons were granted non-qualified stock
options to purchase an aggregate of 252,000 shares of Common Stock at an
exercise price of $2.35 per share. Included in such grants were options to
purchase 52,000 shares to various officers and/or employees of Continuum,
including options to purchase 20,000 shares granted to Harrison Weaver, a
director of the Company. The balance of such options were granted in
connection with consulting or other services performed on behalf of the
Company. All of such options are currently exercisable and expire in January
2004.

In February 1994, an employee of Continuum was granted non-qualified stock
options to purchase 30,000 shares of Common Stock at an exercise price of
$3.00 per share. All of such options are exercisable commencing in February
1995 and expire in February 2004. The Company has been advised by Continuum
that such options were acquired by Continuum. See "Certain Transactions."

In August 1994, the Company adopted the Consultant Plan, which has
subsequently been amended to provide for the issuance of options to purchase
up to 1,000,000 shares of Common Stock to persons who perform consulting
services for the Company. As of the date of this Prospectus, options to
purchase 250,000 shares of Common Stock have been granted under the Consultant
Plan, including options to purchase 125,000 shares of Common Stock granted to
Barry Rubenstein. See "Certain Transactions."

EMPLOYMENT CONTRACTS WITH NAMED EXECUTIVE OFFICERS

The Company has entered into employment agreements with Mr. Gyenes and Mr.
Ramo, each of which will expire on October 20, 1997. Mr. Gyenes has agreed to
devote such of his working time and attention to the business of the Company
as the Board of Directors deems necessary for him to effectively perform his
duties under his agreement. Mr. Gyenes currently serves as a consultant to
Ann-Mar Manufacturing Inc., a family-owned textile company, and is permitted
by the terms of his agreement to continue to serve in such capacity so long as
such activities will not prevent him from performing his duties on behalf of
the Company. Mr. Ramo has agreed to devote his full time to the business of
the Company during the term of his agreement. Mr. Gyenes and Mr. Ramo have
also agreed not to compete with the business of the Company for a period of
one year and eighteen months, respectively, following termination of their
respective employment agreements. Pursuant to his employment agreement, Mr.
Gyenes receives a salary of $100,000 per year. In addition, Mr. Gyenes
received options to purchase 125,000 shares of Common Stock at an exercise
price of $2.35 per share. Pursuant to his employment agreement, Mr. Ramo
receives a salary of $105,000 per year. In addition, if Mr. Ramo's employment
is terminated for any reason other than "cause," he is entitled to receive a
severance payment equal to a minimum of six months salary. Additional
severance payments, if any, will be determined by the Board of Directors.

41
<PAGE>

PRINCIPAL SECURITYHOLDERS

The information in the "After Offering" column has been adjusted to reflect
(i) the sale of the Common Stock offered hereby, (ii) the conversion of the
Convertible Notes into Conversion Shares and Conversion Warrants (based on an
assumed offering price of $4.00 per share), (iii) the exchange of January 1996
Warrants into IPO Warrants, and (iv) the repurchase of the Contribution
Shares, and sets forth information regarding beneficial ownership of the
Common Stock as of May 1, 1996, by (a) each stockholder known by the Company
to be the beneficial owner of five percent or more of the outstanding Common
Stock, (b) each director and Named Executive Officer of the Company
individually, and (c) all directors and executive officers as a group. Except
as otherwise indicated in the footnotes below, (x) the Company believes that
each of the beneficial owners of the Common Stock listed in the table, based
on information furnished by such owner, has sole investment and voting power
with respect to such shares, and (y) the address of the beneficial owner is
the address of the principal executive offices of the Company.

<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
-------------------------- --------------------------
NUMBER OF NUMBER OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) PERCENTAGE OWNED(1) PERCENTAGE
- ---- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
John Ramo............... 1,558,986(2) 28.3% 896,577(2) 12.6%
Jolie Barbiere.......... 1,558,986(3) 28.3% 896,577(3) 12.6%
Zenon Slawinski......... 510,621 9.3% 293,660(4) 4.1%
Barry Rubinstein........ 352,500(5) 6.2% 2,272,500(6) 28.2%
68 Wheatley Road
Brookville, New York
11545
Seneca Ventures......... 352,500(5) 6.2% 980,834(7) 12.9%
68 Wheatley Road
Brookville, New York
11545
Woodland Venture Fund... 352,500(5) 6.2% 980,834(7) 12.9%
c/o Barry Rubenstein
68 Wheatley Road
Brookville, New York
11545
Woodland Services 352,500(5) 6.2% 980,834(7) 12.9%
Corp...................
c/o Barry Rubenstein
68 Wheatley Road
Brookville, New York
11545
21st Century -- -- 1,291,666(8) 15.3%
Communications Foreign
Partners, L.P..........
c/o Fiduciary Trust
(Cayman) Limited
P.O. Box 1062
Grand Cayman, B.W.I.
21st Century -- -- 1,291,666(8) 15.3%
Communications
Partners, L.P..........
767 Fifth Avenue--45th
Floor
New York, New York
10053
21st Century -- -- 1,291,666(8) 15.3%
Communications T-E
Partners, L.P..........
767 Fifth Avenue--45th
Floor
New York, New York
10053
Randal Hujar............ 303,651 5.5% 303,651 4.3%
Gary Skiba.............. 310,867 5.7% 310,867 4.4%
Michael Alford.......... 283,905 5.2% 163,275(4) 2.3%
Andrew Gyenes........... 258,333(9) 3.9% 258,333(9) 3.1%
Harrison Weaver......... 30,000(10) * 30,000(10) *
Rino Bergonzi........... 20,000(11) * 20,000(11) *
Peter Gyenes............ 16,000(12) * 16,000(12) *
All directors and
executive officers as a
group (10 persons)..... 3,325,696(13) 57.0% 2,325,696(14) 30.0%
</TABLE>

42
<PAGE>

- --------
* less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("Commission") and generally includes
voting or investment power with respect to securities. Shares of Common
Stock issuable upon the exercise of options, warrants and convertible notes
currently exercisable or convertible, or exercisable or convertible within
60 days, are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants or convertible notes but are
not deemed outstanding for computing the percentage ownership of any other
person.
(2) Includes 741,993 shares of Common Stock owned by John Ramo and 816,993
shares of Common Stock owned by his wife, Jolie Barbiere. Upon consummation
of this Offering, the Company will repurchase 315,271 and 347,138
Contribution Shares from Mr. Ramo and Ms. Barbiere, respectively. Mr. Ramo
disclaims beneficial ownership of all shares held by Ms. Barbiere.
(3) Includes 816,993 shares of Common Stock owned by Jolie Barbiere and 741,993
shares of Common Stock owned by John Ramo, husband of Jolie Barbiere. Upon
consummation of this Offering, the Company will repurchase 315,271 and
347,138 Contribution Shares from Mr. Ramo and Ms. Barbiere, respectively.
Ms. Barbiere disclaims beneficial ownership of all shares held by Mr. Ramo.
(4) The Company is repurchasing 216,961 and 120,630 Contribution Shares from
Messrs. Slawinski and Alford, respectively.
(5) Based upon a Joint Schedule 13D filed on September 21, 1995 by Seneca
Ventures ("Seneca"), Woodland Venture Fund ("Woodland Fund"), Woodland
Services Corp. ("Woodland Corp.") and Barry Rubenstein with the Commission
on September 21, 1995, such entities collectively beneficially hold 352,500
shares of Common Stock, of which Seneca and Woodland Fund have sole voting
and dispositive power over 50,000 shares and 70,000 shares of Common Stock,
respectively. Woodland Corp. and Barry Rubenstein are the general partners
of Seneca and the Woodland Fund. Barry Rubenstein is also the President and
sole director of Woodland Corp. and based upon the Schedule 13D, has sole
power to vote and dispose of 47,500 shares of Common Stock, 10,000 shares
of Common Stock issuable upon the exercise of IPO Warrants, which are
presently exercisable, and 175,000 shares of Common Stock issuable upon the
exercise of presently exercisable options.

(6) The stock ownership for Barry Rubenstein includes Common Stock beneficially
owned by Seneca, Woodland Fund, Woodland Corp., Applewood, the Foundation
(as defined herein), Dalewood (as defined herein), 21st Foreign (as defined
herein), 21st Partners (as defined herein) and 21st T-E (as defined
herein).

(7) In the January 1996 Bridge Financing, Applewood Associates, L.P.
("Applewood"), Seneca and the Woodland Fund purchased Convertible Notes
which, upon the consummation of this Offering, will be converted into (a)
69,444; 27,778 and 55,556 Conversion Shares, respectively, and (b) 138,889;
55,556 and 111,111 Conversion Warrants, respectively. In addition, in the
January 1996 Bridge Financing, Applewood, The Marilyn and Barry Rubenstein
Family Foundation ("Foundation"), Seneca, the Woodland Fund and Dalewood
Associates LP ("Dalewood") purchased 50,000; 20,000; 20,000; 40,000; and
40,000 January 1996 Warrants, respectively, all of which will be exchanged
into a like number of IPO Warrants. Such IPO Warrants and the Conversion
Warrants will be presently exercisable upon the consummation of this
Offering and along with the Conversion Shares are being offered for resale
for their own accounts pursuant to the Registration Statement of which this
prospectus forms a part; however, the holders of such securities, the
Common Stock underlying such securities and the Conversion Shares may not
sell any of such securities until one year from the date of this Prospectus
without the prior consent of the Underwriter. Barry Rubenstein is a trustee
of the Foundation, a general partner of Applewood and is a 50% stockholder
and an executive officer of the general partner of Dalewood. The
information included herein does not include Common Stock beneficially held
by 21st Foreign (as defined herein), 21st Partners (as defined herein) and
21st T-E (as defined herein). If the beneficial ownership of such entities
is combined with the beneficial ownership of Seneca, Woodland Fund,
Woodland Corp., the Foundation and Dalewood, then all of such entities
would upon consummation of this Offering, collectively beneficially hold
2,272,500 shares of Common Stock (or 28.2%), including Common Stock
underlying presently exercisable options and warrants.

43
<PAGE>

(8) In the January 1996 Bridge Financing, 21st Century Communications Foreign
Partners, L.P. ("21st Foreign"), 21st Century Communications Partners,
L.P. ("21st Partners") and 21st Century Communications T-E Partners, L.P.
("21st T-E") purchased Convertible Notes which, upon the consummation of
this Offering, will be converted into (a) 27,778; 236,111; and 83,333
Conversion Shares, respectively, and (b) 55,556; 472,222 and 166,666
Conversion Warrants, respectively. In addition, in the January 1996
Bridge Financing, 21st Foreign, 21st Partners and 21st T-E purchased
20,000; 170,000 and 60,000 January 1996 Warrants, respectively, all of
which will be exchanged into a like number of IPO Warrants. Such IPO
Warrants and the Conversion Warrants will be presently exercisable upon
the consummation of this Offering and along with the Conversion Shares
are being offered for resale for their own accounts pursuant to the
Registration Statement of which this prospectus forms a part; however,
the holders of such securities, the Common Stock underlying such
securities and the Conversion Shares may not sell any of such securities
until one year from the date of this Prospectus without the prior consent
of the Underwriter. The general partners of each of 21st Foreign, 21st
Partners and 21st T-E are Sandler Investment Partners, Ltd. and InfoMedia
Associates Ltd. Barry Rubenstein is a principal shareholder and officer
of InfoMedia Associates, Ltd. The information included herein does not
include Common Stock beneficially held by Seneca, Woodland Fund, Woodland
Corp., Barry Rubenstein, the Foundation and Dalewood. If the beneficial
ownership of such entities is combined with 21st Foreign, 21st Partners
and 21st T-E, then all of such entities would upon the consummation of
this Offering, collectively beneficially hold 2,272,500 shares of Common
Stock (or 28.2%), including Common Stock underlying presently exercisable
options and warrants.

(9) Consists of 258,333 shares of Common Stock issuable upon exercise of
presently exercisable options. Excludes 66,667 shares of Common Stock
issuable upon the exercise of presently non-exercisable options which
become exercisable in 50% increments commencing June 12, 1997.

(10) Consists of 20,000 shares of Common Stock issuable upon exercise of
presently exercisable options and 10,000 shares of Common Stock issuable
upon exercise of presently exercisable options granted pursuant to the
Directors Plan. Excludes 50,000 presently exercisable options held by
Continuum, which options Mr. Weaver disclaims beneficial ownership.

(11) Consists of 5,000 shares of Common Stock owned by Mr. Bergonzi, 5,000
shares of Common Stock issuable upon exercise of presently exercisable
warrants and 10,000 shares of Common Stock issuable upon exercise of
presently exercisable options granted pursuant to the Directors Plan.

(12) Consists of 3,000 shares of Common Stock owned by Mr. Peter Gyenes, 3,000
shares of Common Stock issuable upon exercise of presently exercisable
warrants and 10,000 shares of Common Stock issuable upon exercise of
presently exercisable options granted pursuant to the Directors Plan.

(13) Also, includes presently exercisable options to purchase 25,000 shares of
Common Stock held by certain executive officers of the Company who are
not Named Executive Officers.

(14) Also, includes presently exercisable options to purchase 25,000 shares of
Common Stock held by certain executive officers who are not Named
Executive Officers and reflects the repurchase of an aggregate of
1,000,000 Contribution Shares from directors and executive officers.

44
<PAGE>

CERTAIN TRANSACTIONS

The Company was formed in December 1993 as a wholly-owned subsidiary of
Continuum. In January 1994, the Company issued 600,000 shares of Common Stock
to Continuum for an aggregate consideration of $1,531,000, including $781,000
contributed in the January 1994 Private Placement. In January 1994, the
Company and Continuum consummated the January 1994 Private Placement of
200,000 units, each unit consisting of one share of common stock of Continuum
and a January 1994 Warrant to purchase 1.7 shares of Common Stock of the
Company (or an aggregate of 340,000 shares of Common Stock), at an exercise
price of $2.35 per share. The January 1994 Warrants are currently exercisable
and expire on January 24, 1999. The shares of Common Stock underlying the
January 1994 Warrants were registered in connection with the IPO. Continuum
contributed the net proceeds of the January 1994 Private Placement and
additional funds totalling $1,531,100 to the Company in exchange for 600,000
shares of Common Stock of the Company. At the time the Company consummated the
merger with Sonic, Continuum, the Company and the original shareholders of
Sonic entered into a shareholder agreement pursuant to which Continuum was
entitled to designate three seats on the Company's Board of Directors and had
certain rights of first refusal. On August 31, 1994, the Company repurchased
the 600,000 shares of Common Stock held by Continuum for $1,000,000. Harrison
Weaver, a director of the Company, is the Chairman of the Board, President and
Chief Executive Officer of Continuum.

In November 1994, the Company issued to Barry Rubenstein, who the Company
has been informed beneficially owns more than 5% of the outstanding Common
Stock, options to purchase 125,000 shares of Common Stock pursuant to the
Consultant Plan, which are currently exercisable at a price for $3.75 per
share and expire on November 10, 2004.

In January 1994, in connection with services which were provided to the
Company, various persons were granted nonqualified stock options to purchase
an aggregate of 252,000 shares of Common Stock at an exercise price of $2.35
per share. Included in such grants were options to purchase 52,000 shares
granted to various officers and/or employees of Continuum, including options
to purchase 20,000 shares granted to Harrison Weaver, a director of the
Company. The balance of such options were granted in connection with
consulting or other services performed on behalf of the Company, including
options to purchase 100,000 shares of Common Stock granted to Rev-Wood
Merchant Partners ("Rev-Wood"), a general partnership of which Mr. Rubenstein
is a general partner. The Company has been informed that of the 100,000
options granted to Rev-Wood, options to purchase 50,000 shares of Common Stock
were transferred to Mr. Rubenstein in June 1995. All of such options became
exercisable commencing in January 1995 and expire in January 2004.

In February 1994, Simon T. Brack, Continuum's former president, was granted
nonqualified stock options for services performed on behalf of the Company, to
purchase 30,000 shares of Common Stock at an exercise price of $3.00 per
share. All of such options are exercisable commencing in February 1995 and
expire in February 2004. The Company has been advised by Continuum that such
options to purchase 30,000 shares as well as options to purchase 20,000 shares
at an exercise price of $2.35 per share, described above, were acquired by
Continuum.

In the May 1994 Bridge Financing, the Company issued the May 1994 Warrants
to purchase an aggregate of 800,000 shares of Common Stock at an exercise
price of $2.35 per share. The May 1994 Warrants became exercisable on October
20, 1995. One of the investors in this financing transaction was Rev-Wood.
Pursuant to the terms of the financing, Rev-Wood loaned $650,000 to the
Company and Rev-Wood was issued May 1994 Warrants to purchase 260,000 shares
of Common Stock. Upon consummation of the IPO, the May 1994 Warrants were
exchanged for IPO Warrants entitling the holder to purchase a like number of
shares of Common Stock for $4.00 a share commencing October 20, 1995. Rev-Wood
has advised the Company that it sold the IPO Warrants in July 1995. The
Company repaid the $650,000 loan with a portion of the net proceeds from the
IPO.

In August 1994, Rev-Wood purchased 75,000 shares of Common Stock from John
Ramo, a director and President of the Company, for $124,500. The Company has
been informed that, in December 1994, Rev-Wood transferred to Mr. Rubenstein
37,500 shares of Common Stock.

45
<PAGE>

In the January 1996 Bridge Financing, Seneca and the Woodland Fund, entities
that the Company has been informed beneficially own more than 5% of the
outstanding Common Stock, and a general partner of which is Barry Rubenstein,
who the Company has also been informed beneficially owns more than 5% of the
outstanding Common Stock, purchased $100,000 and $200,000 principal amount of
the Convertible Notes, respectively and 20,000 and 40,000 January 1996
Warrants, respectively. In addition, in the January 1996 Bridge Financing, the
Foundation and Applewood purchased $100,000 and $250,000 principal amount of
the Convertible Notes, respectively, and 20,000 and 50,000 January 1996
Warrants, respectively. Barry Rubenstein is a trustee of the Foundation and a
general partner of Applewood. See "Principal Securityholders."

In December 1995, the Company entered into an agreement with John Ramo,
Zenon Slawinski, Michael Alford and Jolie Barbiere, each of whom is a director
and/or executive officer of the Company, pursuant to which the Company will
repurchase, simultaneously with the closing of this Offering, an aggregate of
1,000,000 Contribution Shares. Under the purchase agreement one third of the
purchase price is required to be paid at the closing of this Offering and at
each of the first two anniversaries of the closing. Interest will accrue
interest at the prime rate and is payable quarterly.

All of the above transactions resulted from arms-length negotiations and
were approved by the independent members of the Company's Board of Directors
who did not have an interest in the transaction. The Company believes that the
terms of such transaction were on terms that were no less favorable than were
available from unaffiliated third parties. Future and ongoing transactions
with affiliates of the Company, if any, will be on terms believed by the
Company to be no less favorable than are available from unaffiliated third
parties and will be approved by a majority of the independent members of the
Company's Board of Directors who do not have an interest in the transaction.

46
<PAGE>

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company is 32,000,000 shares, consisting
of 30,000,000 shares of Common Stock, $.01 par value per share and 2,000,000
shares of preferred stock, $.01 par value per share ("Preferred Stock"). As of
February 29, 1996, there were 5,500,701 shares of Common Stock outstanding.
After the completion of this Offering and after giving effect to repurchase of
the Company of 1,000,000 Contribution Shares and the conversion of the
Convertible Notes into 625,000 Conversion Shares, there will be 7,125,701
shares of Common Stock outstanding. No shares of Preferred Stock are currently
outstanding.

COMMON STOCK

The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There is
no cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voted can elect all of
the directors then being elected. A Stockholders Agreement dated as of August
31, 1994, among Andrew Gyenes, the Company, John Ramo, Jolie Barbiere, Zenon
Slawinski, and Michael Alford ("Stockholders Agreement") governs how the
current stockholders will vote for directors. The holders of Common Stock are
entitled to receive dividends when, as and if declared by the Board of
Directors out of funds legally available therefor. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, if any, having preference over the Common Stock.
Holders of shares of Common Stock, as such, have no redemption, preemptive or
other subscription rights, and there are no conversion provisions applicable
to the Common Stock. All of the outstanding shares of Common Stock are, and
the shares of Common Stock offered hereby, when issued and paid for as set
forth in this Prospectus, will be, fully paid and nonassessable. See "--
Stockholders Agreement."

PREFERRED STOCK

The Company's authorized shares of Preferred Stock may be issued in one or
more series, and the Board of Directors is authorized, without further action
by the stockholders, to designate the rights, preferences, limitations and
restrictions of and upon shares of each series, including dividend, voting,
redemption and conversion rights. The Board of Directors also may designate
par value, preferences in liquidation and the number of shares constituting
any series. The Company believes that the availability of Preferred Stock
issuable in series will provide increased flexibility for structuring possible
future financings and acquisitions, if any, and in meeting other corporate
needs. It is not possible to state the actual effect of the authorization and
issuance of any series of Preferred Stock upon the rights of holders of Common
Stock until the Board of Directors determines the specific terms, rights and
preferences of a series of Preferred Stock. However, such effects might
include, among other things, restricting dividends on the Common Stock,
diluting the voting power of the Common Stock, or impairing liquidation rights
of such shares without further action by holders of the Common Stock. In
addition, under various circumstances, the issuance of Preferred Stock may
have the effect of facilitating, as well as impeding or discouraging, a
merger, tender offer, proxy contest, the assumption of control by a holder of
a large block of the Company's securities or the removal of incumbent
management. Issuance of Preferred Stock could also adversely effect the market
price of the Common Stock. The Company has no present plan to issue any shares
of Preferred Stock.

IPO WARRANTS AND CONVERSION WARRANTS

In connection with the IPO and pursuant to a Warrant Agreement between the
Company and Continental Stock Transfer & Trust Company as warrant agent, the
Company issued 3,100,000 IPO Warrants, including 800,000 IPO Warrants which
were issued in exchange for 800,000 May 1994 Warrants.

In January 1996, in connection with the January 1996 Bridge Financing, the
Company issued 540,000 January 1996 Warrants which have an exercise price of
$4.00 per warrant and are exercisable between July 13,

47
<PAGE>

1996 and July 13, 1997. Upon consummation of this Offering, the Company will
issue an additional 1,790,000 IPO Warrants which consist of (a) 540,000
January Warrants which will be exchanged for a like number of IPO Warrants and
(b) 1,250,000 Conversion Warrants based on an assumed offering price of $4.00
per share. The terms of such IPO Warrants and the Conversion Warrants are
provided below; however, without the Underwriter's consent, such IPO Warrants
and Conversion Warrants may not be sold by the holders thereof until twelve
months after the date of this Prospectus.

Until October 20, 1997, each IPO Warrant will entitle the registered holder
to purchase one share of Common Stock at an exercise price of $4.00 per share.
The IPO Warrants are not redeemable by the Company. No fractional shares of
Common Stock will be issued in connection with the exercise of IPO Warrants.
Upon exercise, the Company will pay the holder the value of any such
fractional shares in cash, based upon the market value of the Common Stock at
such time.

Unless extended by the Company at its discretion, the IPO Warrants will
expire at 5:00 p.m., New York time, on October 20, 1997. In the event a holder
of IPO Warrants fails to exercise the IPO Warrants prior to their expiration,
the IPO Warrants will expire and the holder thereof will have no further
rights with respect to the IPO Warrants.

A holder of IPO Warrants does not have any rights, privileges or liabilities
as a stockholder of the Company prior to exercise of the IPO Warrants. The
Company is required to keep available a sufficient number of authorized shares
of Common Stock to permit exercise of the IPO Warrants.

The exercise price of the IPO Warrants and the number of shares issuable
upon exercise of the IPO Warrants is subject to adjustment to protect against
dilution in the event of stock dividends, stock splits, combinations,
subdivisions and reclassifications. No assurance can be given that the market
price of the Common Stock will exceed the exercise price of the IPO Warrants
at any time during the exercise period.

OTHER WARRANTS

In January 1994, in connection with the January 1994 Private Placement, the
Company issued the January 1994 Warrants to purchase an aggregate of 340,000
shares of Common Stock, at an exercise price of $2.35 per share. The January
1994 Warrants are currently exercisable and expire on January 24, 1999.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

As permitted by the Delaware General Corporation Law ("DGCL"), the Company's
Certificate of Incorporation, as amended, limits the personal liability of a
director or officer to the Company for monetary damages for breach of
fiduciary duty of care as a director. Liability is not eliminated for (i) any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) unlawful payment of dividends
or stock purchases or redemptions pursuant to Section 174 of the DGCL, or (iv)
any transaction from which the director derived an improper personal benefit.

The Company has also entered into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of their services as a director or
officer of the Company or of any subsidiary of the Company or of any other
company or enterprise in which they are serving at the request of the Company.
No indemnification will be provided under the indemnification agreements,
however, to any director or executive officer in certain limited
circumstances, including on account of knowingly fraudulent, deliberately
dishonest or willful misconduct. To the extent the provisions of the
indemnification agreements exceed the indemnification permitted by applicable
law, such provisions may be unenforceable or may be limited to the extent they
are found by a court of competent jurisdiction to be contrary to public
policy.

48
<PAGE>

DELAWARE LAW

The Company is subject to Section 203 of the DGCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person
owning 15% or more of a corporation's outstanding voting stock) from engaging
in a "business combination" with a publicly-held Delaware corporation for
three years following the date such person became an interested stockholder,
unless: (i) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (subject to certain
exceptions); or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders by
the affirmative vote of the holders of 66% of the outstanding voting stock of
the corporation not owned by the interested stockholder. A "business
combination" includes mergers, stock or asset sales and other transactions
resulting in a financial benefit to the interested stockholder.

The provisions of Section 203 of the DGCL could have the effect of delaying,
deferring or preventing a change in control of the Company.

STOCKHOLDERS AGREEMENT

The Stockholders Agreement terminates in August 1997 with respect to the
provisions to elect directors and/or by written agreement of Jolie Barbiere
and John Ramo (and Mr. Gyenes with respect to the election of directors). The
Stockholders Agreement provides for a seven-member Board of Directors
consisting of three nominees designated by Mr. Gyenes and three nominees
designated by Mr. Ramo (provided that such nominees are reasonably acceptable
to each of Mr. Gyenes and Mr. Ramo), and one person mutually agreed upon by
Mr. Ramo and Mr. Gyenes. John Ramo, Jolie Barbiere, Zenon Slawinski and
Michael Alford have agreed to vote all of their shares in favor of the
election of such seven persons. Upon consummation of this Offering, the
stockholders who are parties to the Stockholders Agreement will hold
approximately 18.9% of the outstanding shares of Common Stock and,
accordingly, the Stockholders Agreement could significantly influence the
election of directors. In addition, the Stockholders Agreement provides a
right of refusal with respect to the sale of Company securities (as defined in
the Stockholders Agreement) by any of Mr. Ramo, Ms. Barbiere, Mr. Slawinski or
Mr. Alford except in a public offering or to a controlled affiliate (as
defined in the Stockholders Agreement).

The Company has also agreed to use its best efforts to elect one designee
selected jointly by Randal Hujar and Gary Skiba to be a member of the Board of
Directors until the earlier of February 28, 1998 or the termination of the
lock-up agreements between the Company and Messrs. Hujar and Skiba.

TRANSFER AGENT, WARRANT AGENT AND REGISTRAR

The transfer agent, warrant agent and registrar for the Common Stock and the
Company's warrants is Continental Stock Transfer & Trust Company, New York,
New York.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the conversion of the Convertible Notes
into Conversion Shares and the repurchase of Contribution Shares, the Company
will have outstanding 7,125,701 shares of Common Stock, not including shares
of Common Stock issuable upon exercise of outstanding options, warrants or the
Underwriter's UPO and Underwriter's Purchase Option and assuming no exercise
of the over-allotment option granted to the Underwriter. Of these outstanding
shares, the 2,000,000 shares of Common Stock sold to the public in this
Offering may be freely traded without restriction or further registration
under the Securities Act, except that any shares that may be held by an
"affiliate" of the Company (as that term is defined in the rules and
regulations

49
<PAGE>

under the Securities Act) may be sold only pursuant to a registration under
the Securities Act or pursuant to an exemption from registration under the
Securities Act, including the exemption provided by Rule 144 adopted under the
Securities Act. In addition, 625,000 Conversion Shares, which have been
registered in the Registration Statement of which this Prospectus forms a
part, may be sold by the Selling Securityholders if at the time of such sale
there is a current prospectus relating the Conversion Shares (subject to the
lock-up period described below). 2,200,701 shares of Common Stock are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares") and may not be sold unless such sale is
registered under the Securities Act, or is made pursuant to an exemption from
registration under the Securities Act, including the exemption provided by
Rule 144. Of such shares, 1,400,489 (of which 1,353,512 shares are subject to
the lock-up periods described below) will be available for sale pursuant to
Rule 144 commencing May 1996, 75,000 shares will be available for sale
pursuant to Rule 144 commencing August 1996, 725,212 shares (614,618 of which
shares are subject to the lock-up period described below) will be available
for sale pursuant to Rule 144 commencing February 1998. All officers or
directors of the Company as of the date of this Prospectus (who hold in the
aggregate 1,976,130 of the outstanding shares) have agreed that until the
earlier of two years from the date of this Prospectus or any time after the
20th day after the end of the second consecutive whole fiscal quarter after
the date of this Prospectus during which the Company had positive net income
on a consolidated basis (each of such quarters being referred to as a
"Positive Quarter"), they will not sell any of their shares without the prior
consent of the Underwriter, provided, however, that each officer and director
who was a stockholder of record as of December 29, 1995 and Randal Hujar and
Gary Skiba shall be permitted to sell at the earlier of one year from the date
of this Prospectus or any time after the 20th day after the end of the first
Positive Quarter, up to 15% of the shares owned by such holder on the date
hereof. In addition, prior to February 28, 1997, Mr. Hujar may pledge up to
50% of his Common Stock to cover personal expenses. The Selling
Securityholders have agreed that they will not sell their Conversion Shares,
the Conversion Warrants and the IPO Warrants they received in exchange for the
January 1996 Warrants until twelve months after the date of this Prospectus
without the Underwriter's consent. The Company is unable to predict the effect
that sales made under Rule 144 or otherwise may have on the market price of
the Common Stock prevailing at the time of any such sales. See "Description of
Securities" and "Future Sales of Common Stock."

In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned any
Restricted Shares for at least two years (including a stockholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within
any three-month period, that number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is given to the Securities and
Exchange Commission ("Commission"), provided certain public information,
manner of sale and notice requirements are satisfied. A stockholder who is
deemed to be an affiliate of the Company, including members of the Board of
Directors and senior management of the Company, will still need to comply with
the restrictions and requirements of Rule 144, other than the two-year holding
period requirement, in order to sell shares of Common Stock that are not
Restricted Securities, unless such sale is registered under the Securities
Act. A stockholder (or stockholders whose shares are aggregated) who is deemed
not to have been an affiliate of the Company at any time during the 90 days
preceding a sale by such stockholder, and who has beneficially owned
Restricted Shares for at least three years, will be entitled to sell such
shares under Rule 144 without regard to the volume limitations described
above. The Commission is currently considering a reduction in the required
holding periods under Rule 144.

No predictions can be made of the effect, if any, that future sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
the Common Stock in the public market could adversely affect the then-
prevailing market price.

REGISTRATION RIGHTS

The Company has entered into a registration rights agreement with John Ramo,
Jolie Barbiere, Zenon Slawinski, Michael Alford and Ernest B. Kelly III
(collectively, "Sonic Group"). Under this registration rights

50
<PAGE>

agreement, the Company has provided the Sonic Group (as a group) with (i)
"demand" registration rights whereby it can, with certain exceptions, on two
occasions require the Company to register under the Securities Act the
Company's equity securities it holds and (ii) "piggyback" registration rights
whereby it can, with certain exceptions, require the Company to include the
Company's equity securities it holds in any registration statement filed by
the Company. The Company will pay all registration expenses related to the
first demand registration of the Sonic Group. The expenses incurred in
connection with the second demand registration for the Sonic Group will be
divided pro rata among the Sonic Group based on the number of securities each
is registering in such offering. In piggyback registrations, the Company will
pay certain of the expenses of such piggyback registration, with the remainder
of such expenses to be divided pro rata among the Sonic Group based on the
number of securities it is registering in the offering. In connection with
this Offering, the Sonic Group has waived its registration rights.

In addition, the Company has entered into a registration rights agreement
with Randal Hujar and Gary Skiba providing for (i) "demand" registration
rights whereby Messrs. Hujar and Skiba can after February 28, 1997, with
certain exceptions, require the Company to register under the Securities Act
the Company's equity securities they hold and (ii) "piggyback" registration
rights whereby Messrs. Hujar and Skiba can after February 28, 1997, with
certain exceptions, require the Company to include the Company's equity
securities they hold in any registration statement filed by the Company. The
Company will pay all registration expenses related to the demand registration.
In piggyback registrations, the Company will pay certain of the expenses of
such piggyback registration. The Company has also entered into a registration
rights agreement with other former shareholders of Lyriq (holding an aggregate
of 110,694 shares of Common Stock) providing for "piggyback" registration
rights whereby such individuals, with certain exceptions, can require the
Company to include the Company's Common Stock they hold in any registration
statement filed by the Company pursuant to the "demand" registration rights of
Messrs. Hujar and Skiba.

The holders of 800,000 IPO Warrants issued in exchange for the May 1994
Warrants had "demand" registration rights whereby they could, with certain
exceptions, require the Company to register under the Securities Act, the
resale of the IPO Warrants they received in exchange for the May 1994 Warrants
and the shares of Common Stock underlying all such IPO Warrants. To date,
560,000 of such IPO Warrants have been resold pursuant to a Registration
Statement. The Company has filed a post-effective amendment to such
Registration Statement with respect to the resale of the remaining 240,000 of
such IPO Warrants and the shares of Common Stock underlying such IPO Warrants.
The Company has also registered the 340,000 shares of Common Stock underlying
the January 1994 Warrants in a separate Registration Statement. The Company
has registered the Conversion Shares, the IPO Warrants issued in exchange for
the January 1996 Warrants, the Conversion Warrants and the Common Stock
underlying such IPO Warrants in the Registration Statement of which this
Prospectus is a part. The Selling Securityholders have agreed not to sell any
such warrants or shares of Common Stock until twelve months after the date of
this Prospectus without the Underwriter's consent.

UNDERWRITING

GKN Securities Corp. ("Underwriter"), has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a total
of 2,000,000 shares of Common Stock. The obligations of the Underwriter under
the Underwriting Agreement are subject to approval of certain legal matters by
counsel and various other conditions precedent, and the Underwriter is
obligated to purchase all of the shares of Common Stock offered by this
Prospectus (other than the shares of Common Stock covered by the over-
allotment option described below), if any are purchased.

The Underwriter has advised the Company that it proposes to offer the shares
of Common Stock to the public at the initial offering price set forth on the
cover page of this Prospectus and to certain dealers at that price less a
concession not in excess of $ per share of Common Stock. The Underwriter may
allow, and such dealers may reallow, a concession not in excess of $ per
share of Common Stock to certain other dealers. After this Offering, the
offering price and other selling terms may be changed by the Underwriter.

51
<PAGE>

The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter an expense allowance on a nonaccountable
basis equal to 3% of the gross proceeds derived from the sale of the shares of
Common Stock underwritten (including the sale of any shares of Common Stock
subject to the Underwriter's over-allotment option), $50,000 of which has been
paid to date. The Company also has agreed to pay all expenses in connection
with qualifying the shares of Common Stock offered hereby for sale under the
laws of such states as the Underwriter may designate and registering this
Offering with the National Association of Securities Dealers, Inc., including
fees and expenses of counsel retained for such purposes by the Underwriter.

The Company has granted to the Underwriter an option, exercisable during the
45-day period after the date of this Prospectus, to purchase from the Company
at the offering price, less underwriting discounts and the non-accountable
expense allowance, up to an aggregate of 300,000 additional shares of Common
Stock for the sole purpose of covering over-allotments, if any.

In connection with this Offering, the Company has agreed to sell to the
Underwriter for an aggregate of $100, the Underwriter's Purchase Option,
consisting of the right to purchase up to an aggregate of 200,000 shares of
Common Stock. The Underwriter's Purchase Option is immediately exercisable
initially at a price of $ per share of Common Stock ( % of the per share
offering price) for a period of five years from the date hereof. The
Underwriter's Purchase Option may not be transferred, sold, assigned or
hypothecated during the one-year period following the date of this Prospectus
except to officers of the Underwriter and the selected dealers and their
officers or partners. The Underwriter's Purchase Option grants to the holders
thereof certain "piggyback" and demand rights for periods of seven and five
years, respectively, from the date of this Prospectus with respect to the
registration under the Securities Act of the securities directly and
indirectly issuable upon exercise of the Underwriter's Purchase Option.

Pursuant to the Underwriting Agreement, all of the officers and directors of
the Company as of the date of this Prospectus have agreed not to sell any of
their shares of Common Stock (who hold in the aggregate 1,976,130 outstanding
shares of Common Stock) have agreed that until the earlier of two years from
the date of this Prospectus or the 20th day after the end of the second
consecutive whole fiscal quarter from the date of this Prospectus during which
the Company had positive net income on a consolidated basis (each of such
quarters being referred to as a "Positive Quarter"), they will not sell any of
their shares without the prior consent of the Underwriter, provided, however,
that each officer and director who was a stockholder of record as of December
29 , 1995 and Randal Hujar and Gary Skiba shall be permitted to sell at the
earlier of one year from the date of this Prospectus or any time after the
20th day after the end of the first Positive Quarter, up to 15% of the shares
owned by such holder on the date hereof.

The Underwriting Agreement provides that, for a period of five years from
the date of this Prospectus, the Company will recommend and use its best
efforts to elect a designee as a voting member of the Company's Board of
Directors. Alternatively, if the Underwriter chooses, it may send a non-voting
representative to observe each meeting of the Board of Directors. To the
extent permitted by Delaware law, the Company has agreed to indemnify the
Underwriter and its designee for the actions of such designee as a director of
the Company. The Underwriter has not yet selected a designee.

During the three year period following the date of this Prospectus, the
Underwriter shall have the right to purchase for the Underwriter's account or
to sell for the account of the officers and directors of the Company (and any
family member or affiliate of any of the foregoing persons), any securities
sold by any of such persons in the open market.

In January 1996, the Underwriter acted as placement agent in the January
1996 Bridge Financing and was paid commissions of $135,000 and a
nonaccountable expense allowance of $50,000. The Underwriter also served as
the underwriter of the Company's IPO in October 1994.

52
<PAGE>

LEGAL MATTERS

Certain legal matters in connection with the securities offered hereby are
being passed upon for the Company by Olshan Grundman Frome & Rosenzweig LLP,
New York, New York. Graubard Mollen & Miller, New York, New York, has served
as counsel to the Underwriter in connection with this Offering.

EXPERTS

The financial statements of Enteractive, Inc. as of May 31, 1995 and 1994
and for each of the years in the two-year period ended May 31, 1995 and the
financial statements of Lyriq International Corporation as of June 30, 1995
and 1994 and for each of the years in the two-year period ended June 30, 1995
have been included herein and in the Registration Statement of which this
Prospectus is a part, in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The report
of KPMG Peat Marwick LLP covering the May 31, 1995 and 1994 financial
statements of Enteractive, Inc. refers to a change in the method of accounting
for income taxes.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain portions having been
omitted from this Prospectus in accordance with the rules and regulations of
the Commission. For further information with respect to the Company, the
securities offered by this Prospectus and such omitted information, reference
is made to the Registration Statement, including any and all exhibits and
amendments thereto. Statements contained in this Prospectus concerning the
provisions of any document filed as an exhibit are of necessity brief
descriptions thereof and are not necessarily complete, and in each instance
reference is made to the copy of the document filed as an exhibit to the
Registration Statement, each such statement being qualified in its entirety by
this reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith the Company
files reports, proxy statements and other information with the Commission.
Such reports, proxy statements and other information may be inspected and
copied at public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549; Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, New
York, New York 10048. Copies of such material, including the Registration
Statement, can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Common Stock is traded on the Nasdaq SmallCap Market and The Boston
Stock Exchange. The foregoing material also should be available for inspection
at the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C., 20006 and The Boston Stock Exchange, One Boston Place,
Boston, Massachusetts 02108.

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

53
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ENTERACTIVE, INC.
Independent Auditors' Report............................................. F-3
Balance Sheets at May 31, 1995 and May 31, 1994.......................... F-4
Statements of Operations for the years ended May 31, 1995 and 1994....... F-5
Statements of Stockholders' Equity for the years ended May 31, 1995 and
1994.................................................................... F-6
Statements of Cash Flows for the years ended May 31, 1995 and 1994....... F-7
Notes to Financial Statements............................................ F-8
Consolidated Balance Sheets at February 29, 1996 (unaudited) and May 31,
1995.................................................................... F-16
Consolidated Statements of Operations for the nine months ended February
29, 1996 and February 28, 1995 (unaudited).............................. F-17
Consolidated Statements of Cash Flows for the nine months ended February
29, 1996 and February 28, 1995 (unaudited).............................. F-18
Notes to Condensed Financial Statements.................................. F-19
LYRIQ INTERNATIONAL CORPORATION
Independent Auditors' Report............................................. F-22
Balance Sheets at June 30, 1995 and June 30, 1994........................ F-23
Statements of Operations for the years ended June 30, 1995 and 1994...... F-24
Statements of Stockholders' Deficit for the years ended June 30, 1995 and
1994.................................................................... F-25
Statements of Cash Flows for the years ended June 30, 1995 and 1994...... F-26
Notes to Financial Statements............................................ F-27
Statements of Operations for the nine months ended February 29, 1996 and
February 28, 1995 (unaudited)........................................... F-31
Statements of Stockholders' Deficit for the nine months ended February
29, 1996 (unaudited).................................................... F-32
Statements of Cash Flows for the nine months ended February 29, 1996 and
February 28, 1995 (unaudited)........................................... F-33
Notes to Financial Statements............................................ F-34
</TABLE>

F-1
<PAGE>

<TABLE>
<S> <C>
PRO FORMA FINANCIAL INFORMATION ENTERACTIVE, INC. AND LYRIQ INTERNATIONAL
CORPORATION*
Pro Forma Combined Statement of Operations for the nine months ended
February 29, 1996 (unaudited)........................................... F-36
Pro Forma Combined Statement of Operations for the year ended May 31,
1995 (unaudited)........................................................ F-38
Notes to Pro Forma Combined Financial Statements (unaudited)............. F-40
</TABLE>
- --------
* Lyriq International Corporation was acquired by Enteractive on February 29,
1996. The transaction was accounted for as a purchase and the balances of
Lyriq International Corporation are included in Enteractive, Inc.'s
consolidated balance sheet at February 29, 1996.

F-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Enteractive, Inc.:

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

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

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

As discussed in Note 3 to the financial statements, the Company adopted a new
method of accounting for income taxes in fiscal 1994.

KPMG PEAT MARWICK LLP

New York, New York
July 27, 1995

F-3
<PAGE>

ENTERACTIVE, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
MAY 31
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents................................ $ 2,932,400 $2,343,000
Investments......................................... 1,116,100 449,500
Accounts receivable................................. 126,700 73,900
Income taxes receivable............................. 30,100 39,400
Inventories......................................... 44,000 --
Prepaid expenses and other.......................... 45,900 5,400
Debt issue costs.................................... -- 44,000
----------- ----------
Total current assets.............................. 4,295,200 2,955,200
Investments........................................... -- 491,800
Property and equipment, net........................... 319,300 215,000
Other................................................. 15,700 21,100
----------- ----------
$ 4,630,200 $3,683,100
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.................................... $ 439,100 $ 241,500
Accrued expenses.................................... 307,600 122,300
Short-term borrowings............................... -- 75,000
Current maturities of long-term debt................ 15,200 86,500
Current maturities of obligations under capital
leases............................................. 4,300 5,400
Convertible notes payable, net of $150,000
discount........................................... -- 1,850,000
----------- ----------
Total current liabilities......................... 766,200 2,380,700
Long-term debt, excluding current maturities.......... -- 16,200
Obligations under capital leases, excluding current
maturities........................................... -- 4,700
----------- ----------
Total liabilities................................. 766,200 2,401,600
Commitments and contingencies
Stockholders' Equity
Preferred Stock $.01 par value, 2,000,000 shares
authorized and none issued......................... -- --
Common Stock $.01 par value, 15,000,000 shares
authorized; 4,775,489 and 3,075,489 shares issued
and outstanding for 1995 and 1994, respectively.... 47,800 30,800
Additional paid-in capital.......................... 8,130,300 1,567,400
Accumulated deficit................................. (4,314,100) (316,700)
----------- ----------
Total stockholders' equity........................ 3,864,000 1,281,500
----------- ----------
$ 4,630,200 $3,683,100
=========== ==========
</TABLE>

See notes to financial statements.

F-4
<PAGE>

ENTERACTIVE, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
Product development revenue.......................... $ 365,600 $2,371,500
Royalty revenue...................................... 3,500 10,700
----------- ----------
Total revenues................................... 369,100 2,382,200
Cost of development revenue.......................... 285,600 1,946,600
Research and development expenses.................... 2,487,600 173,200
Marketing and selling expenses....................... 521,500 --
General and administrative expenses.................. 1,044,200 644,500
----------- ----------
Total costs and expenses......................... 4,338,900 2,764,300
Operating loss....................................... (3,969,800) (382,100)
----------- ----------
Other income (expense):
Interest expense................................... (252,900) (30,600)
Interest income.................................... 214,300 15,600
Other.............................................. 11,000 (2,600)
----------- ----------
Loss before income taxes............................. (3,997,400) (399,700)
Income tax benefit................................... -- (26,500)
----------- ----------
Net loss............................................. $(3,997,400) $ (373,200)
=========== ==========
Loss per common and common equivalent share.......... $ (0.93) $ (0.11)
=========== ==========
Weighted average shares of common stock and common
stock equivalents................................... 4,275,908 3,419,409
=========== ==========
</TABLE>

See notes to financial statements.

F-5
<PAGE>

ENTERACTIVE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED MAY 31, 1995 AND 1994

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
----------------- ------------------ PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------- -------- --------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance May 31, 1993.... -- $ -- 1,212 $ 2,400 $ 58,300 $ 56,500 $ 117,200
Conversion of 1,212
shares of Sonic common
stock pursuant to
business combination... -- -- 2,474,277 22,400 (22,400) -- --
Issuance of common stock
at incorporation....... -- -- 600,000 6,000 1,525,100 -- 1,531,100
Issuance of common stock
warrant................ -- -- -- -- 150,000 -- 150,000
Adjustment for business
combination............ -- -- -- -- (143,600) -- (143,600)
Net loss................ -- -- -- -- -- (373,200) (373,200)
------- -------- --------- ------- ---------- ----------- -----------
Balance May 31, 1994.... -- -- 3,075,489 30,800 1,567,400 (316,700) 1,281,500
Repurchase and
retirement of common
stock.................. -- -- (600,000) (6,000) (994,000) -- (1,000,000)
Sale of common stock,
net.................... -- -- 2,300,000 23,000 7,556,900 -- 7,579,900
Net loss................ -- -- -- -- -- (3,997,400) (3,997,400)
------- -------- --------- ------- ---------- ----------- -----------
Balance May 31, 1995.... -- $ -- 4,775,489 $47,800 $8,130,300 $(4,314,100) $ 3,864,000
======= ======== ========= ======= ========== =========== ===========
</TABLE>

See notes to financial statements.

F-6
<PAGE>

ENTERACTIVE, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities
Net loss............................................ $(3,997,400) $ (373,200)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 314,000 100,600
Gain on sale of investments....................... (8,800) --
(Gain) loss on disposal of assets................. (1,100) 1,200
Changes in assets and liabilities:
Accounts receivable............................... (52,800) (22,000)
Income taxes receivable........................... 9,300 (39,500)
Inventories....................................... (44,000) --
Prepaid expenses and other........................ (40,500) (2,700)
Other assets...................................... 5,400 900
Accounts payable.................................. 197,600 202,700
Accrued expenses.................................. 185,300 89,000
Deferred revenues................................. -- (287,600)
----------- ----------
Net cash used in operating activities........... (3,433,000) (330,600)
----------- ----------
Cash flows from investing activities
Purchases of investments............................ (1,831,700) --
Proceeds from sale of investments................... 1,665,700 --
Cash acquired in merger............................. -- 2,325,800
Purchases of property and equipment................. (223,200) (80,000)
----------- ----------
Net cash (used in) provided by investing
activities..................................... (389,200) 2,245,800
----------- ----------
Cash flows from financing activities
Proceeds from sale of common stock, net............. 7,579,900 --
Proceeds from short-term borrowings................. -- 75,000
Proceeds from borrowings under long-term debt....... -- 35,000
Repurchase and retirement of common stock........... (1,000,000) --
Repayment of short-term borrowings.................. (75,000) --
Repayment of convertible notes payable.............. (2,000,000) --
Principal payments under long-term debt............. (87,500) (166,000)
Principal payments under capital lease obligations.. (5,800) (10,900)
----------- ----------
Net cash provided by (used in) financing
activities..................................... 4,411,600 (66,900)
Net increase in cash and equivalents.................. 589,400 1,848,300
Cash and equivalents
Beginning of year................................... 2,343,000 494,700
----------- ----------
End of year......................................... $ 2,932,400 $2,343,000
=========== ==========
</TABLE>

See notes to financial statements.

F-7
<PAGE>

ENTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS

MAY 31, 1995

(1) BASIS OF PRESENTATION AND BUSINESS COMBINATION

Enteractive, Inc. (Enteractive) was formed in December 1993 as a wholly
owned subsidiary of The Continuum Group through an initial cash investment of
$1,531,097, net of associated costs of $18,903, in return for 600,000 shares
of Enteractive's common stock. In May 1994, as a condition to the merger
agreement described below, Enteractive raised an additional $2,000,000 through
the sale of convertible notes and the issuance of warrants to purchase 800,000
shares of the Company's common stock (see note 8).

On May 10, 1994, Enteractive consummated a merger with Sonic Images
Productions, Inc. (Sonic) whereby 2,475,489 shares of Enteractive's common
stock was exchanged for 100% of the outstanding common stock of Sonic. The
merger was accounted for under the purchase method of accounting with Sonic as
the acquiring entity, as its former shareholders received 80% of the voting
common stock of the surviving entity (the Company). Sonic was a privately-held
multimedia software development company without a readily determinable market
value. Accordingly, the consideration for the purchase was determined to be
the fair value of the net assets acquired from Enteractive. The accompanying
financial statements include the historical results of Sonic and reflect the
results of operations of the Company from the date of the merger. The capital
stock accounts of the former Sonic have been adjusted to reflect the capital
stock of the surviving entity, Enteractive. Prior to the Merger, Enteractive
had no operations and had only expenses related to administrative costs
associated with formation, raising equity and debt financing, and certain
other merger activities. Total costs incurred for these activities from
Enteractive's inception date until the effective date of the merger amounted
to $143,600. This amount has been reflected as a reduction of additional paid-
in capital in the accompanying financial statements.

(2) INITIAL PUBLIC OFFERING

On October 20, 1994, 2,300,000 units of interest in the Company were sold in
an initial public offering filed with the Securities and Exchange Commission
("SEC") on Form SB-2. Each unit, which was sold for $4.00, consisted of one
share of the Company's common stock and one common stock purchase warrant,
which entitles the warrant holder to purchase one share of the Company's
common stock for $4.00 at any time during the period from October 20, 1995 to
October 20, 1997. Proceeds of approximately $7,600,000, net of related
expenses of approximately $1.6 million, were received in exchange for the
units issued. In connection with this sale of units, the Company sold to the
underwriter, for an aggregate of $50, the right to purchase 200,000 units with
identical terms to those sold in the initial public offering, except that the
exercise price of the warrants is $5.20. Such units are exercisable at $6.60
per unit from October 20, 1995 through October 20, 1999, and have certain
"piggy back" and demand registration rights.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Cash and Equivalents

All highly liquid debt instruments with maturities of three months or less
at the time of purchase are considered to be cash equivalents. Cash
equivalents of $2,662,600 and $2,307,300 at May 31, 1995 and 1994,
respectively, consist of cash held in interest-bearing money market accounts.

(b) Investments

Investments at May 31, 1995, consist of certificates of deposit and are
carried at cost, which approximates market. Investments at May 31, 1994,
consists of certain debt securities of the U.S. Government and, in accordance
with provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain

F-8
<PAGE>

ENTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Investments in Debt and Equity Securities, have been classified as "available
for sale" and are carried at fair value.

Revenues under fixed price product development contracts are recognized
using the percentage of completion method based on progress to date, which is
measured by comparing costs to date to total estimated costs. Losses on
contracts, if any, are recognized in the period they become estimable. Royalty
revenue is recognized when earned.

(d) Inventories

Inventories of multimedia software are recorded at the lower of cost (on a
first-in, first-out basis) or market.

(e) Property and Equipment

Property and equipment are stated at cost and are depreciated over their
estimated useful lives using the straight-line depreciation method, except for
the leasehold improvements which are amortized over the lesser of the lease
term or the life of the related asset.

(f) Income Taxes

Effective as of June 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. The cumulative
effect of the change in the method of accounting for income taxes was not
material. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be realized or settled.

The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.

(g) Software Development Costs

Capitalization of costs associated with internally developed software begins
upon the determination by the Company of a product's technological
feasibility, as evidenced by a working model. Capitalized software development
costs are amortized over related sales on a per-unit basis based on estimated
total sales, with a minimum amortization based on a straight-line method over
three years. There were no capitalized software development costs at May 31,
1995 or 1994 due to the short period of time and insignificance of costs
incurred from the time the Company's products were determined to be
technologically feasible and the time they were available for general release
to the public.

F-9
<PAGE>

ENTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(h) Earnings Per Share

Pursuant to SEC Staff Accounting Bulletin Topic 4:D, stock issued and stock
options and warrants granted during the twelve month period preceding the date
of the Company's initial public offering (the "IPO") have been included in the
calculation of weighted average shares of common stock outstanding weighted
average shares of common stock and common equivalents outstanding for the
years ended May 31, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Weighted average shares of common stock outstanding,
exclusive of issuance's within twelve months prior to
the IPO............................................... 4,031,928 2,475,489
Shares issued within twelve months prior to the IPO
assumed to be outstanding for the entire period....... -- 600,000
Incremental shares assumed to be outstanding related to
common stock options and warrants granted within
twelve months prior to the IPO........................ 243,980 343,920
--------- ---------
4,275,908 3,419,409
========= =========
</TABLE>

(4) INVESTMENTS

Investments at May 31, 1995, consist of certificates of deposit maturing at
various dates through November 1995. Investments at May 31, 1994, consisted of
U.S. Treasury Notes and Federal agency securities having a fair value of
$941,300, which approximated the amortized cost.

(5) PROPERTY AND EQUIPMENT

Property and equipment, at May 31, 1995 and 1994, consists of the following:

<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Computer and production equipment..................... $ 791,100 $ 585,500
Furniture and other equipment......................... 54,100 41,000
Leasehold improvements................................ 200,300 193,700
---------- ---------
1,045,500 820,200
Accumulated depreciation and amortization............. (726,200) (605,200)
---------- ---------
Property and equipment, net........................... $ 319,300 $ 215,000
========== =========
</TABLE>

(6) ACCRUED EXPENSES

At May 31, 1995, accrued expenses totaled $307,600 and included $163,100 of
accrued compensation.

(7) SHORT-TERM BORROWINGS

At May 31, 1994, the Company had an outstanding line of credit agreement
which provided for borrowings up to $75,000. The line of credit agreement
expired in June 1994 at which time the Company repaid all outstanding amounts.

(8) CONVERTIBLE NOTES PAYABLE

On May 9, 1994, the Company entered into a series of debt financing
agreements. Under the terms of these agreements, the Company received
$2,000,000 in cash in exchange for the issuance of $2,000,000 in 10%

F-10
<PAGE>

ENTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
convertible notes payable and common stock purchase warrants (note 10) for the
purchase of 800,000 shares of the Company's common stock. The estimated value
of the warrants at the time of issuance was $150,000, which was reflected as a
component of equity and unamortized discount on the convertible notes payable.
In accordance with its planned use of the proceeds received from the initial
public offering, the Company, in November 1994, repaid all principal and
interest amounts outstanding under its convertible notes payable.

(9) LONG-TERM DEBT

Long-term debt at May 31, 1995 and 1994, consists of the following:

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Note payable in monthly installments of $1,173, including
interest at the lending institution's prime rate (7.5% at
May 31, 1995) plus 2%, (note is collateralized by certain
property and equipment).................................. $12,600 $24,200
Various notes payable with interest approximating prime,
repaid in fiscal 1995.................................... -- 68,400
Other notes payable....................................... 2,600 10,100
------- -------
Total long term debt.................................. 15,200 102,700
Less current maturities................................. 15,200 86,500
------- -------
Long term debt, excluding current maturities.......... $ -- $16,200
======= =======
</TABLE>

Interest costs of approximately $102,900 (principally relating to a bridge
loan repaid in October 1994) and $19,100 were paid in fiscal 1995 and 1994,
respectively.

F-11
<PAGE>

ENTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(10) STOCK OPTIONS AND WARRANTS

The Company has reserved 750,000 shares of unissued common stock under its
1994 Incentive and Non-qualified Stock Option Plan (the "1994 Plan") for
employees. At May 31, 1995, 469,770 options have been granted under the 1994
Plan, of which 427,217 represent non-qualified stock options and 42,553
represent incentive stock options. Additionally, the Company periodically
grants stock options outside the 1994 Plan to other parties. All stock
options, which have been granted by the Company, with the exception of those
options granted to persons holding more than ten percent of the voting common
stock in the Company on the date of grant, expire ten years after grant and
are issued at exercise prices which are not less than the fair value of the
stock on the date of grant. Options granted to persons holding more than ten
percent of the voting common stock of the Company on the date of grant expire
five years after grant and are issued at exercise prices which are not less
than 110 percent of the fair value of the stock on the date of grant. Stock
options generally vest one-third in each of the first three years after the
date of grant. Payment for the exercise price of an option may be made with
previously acquired common stock of the Company with certain limitations. A
summary of all stock option transactions of the Company is as follows:

<TABLE>
<CAPTION>
NUMBER OF OPTIONS PRICE PER SHARE
----------------- ---------------
<S> <C> <C>
Outstanding May 31, 1993
Granted.................................. 531,510 $1.71-3.00
Exercised................................ -- --
Canceled................................. -- --
--------- ----------
Outstanding May 31, 1994................... 531,510 $1.71-3.00
Granted.................................. 470,260 $1.71-4.00
Exercised................................ -- --
Canceled................................. -- --
--------- ----------
Outstanding May 31, 1995................... 1,001,770 $1.71-4.00
========= ==========
Exercisable at May 31, 1995................ 523,340 $1.71-3.00
========= ==========
</TABLE>

On August 12, 1994, the Company's Board of Directors increased the number of
shares reserved under the 1994 Plan from 500,000 to 750,000 shares. In
addition, the Board approved a new stock option plan for consultants under
which 250,000 shares of common stock have been reserved for issuance. In
November 1994, a total of 250,000 options were granted to two consultants (one
of which was a former director of the Company) under the stock option plan for
consultants for advisory services. The options are exercisable for 10 years
from date of grant at an exercise price of $3.75. The expense related to the
services will be recognized over the period the services are provided

Under a separate Stock Option Plan for Outside Directors, each person who is
an outside director on January 1 of each calendar year, commencing January 1,
1996, shall be granted 5,000 options to purchase shares of common stock of the
Company. Approval of this option plan is subject to approval by the Company's
shareholders.

In December 1994, the Company registered with the SEC 800,000 common stock
warrants which were issued in May 1994 in connection with the issuance of
convertible notes payable, which were repaid in October 1994. The warrants
entitle the holder to purchase one share of common stock for $4.00 during the
two-year period commencing October 20, 1995.

In connection with the initial capitalization of the Company, the Company
issued warrants to purchase 340,000 shares of common stock at $2.35 per share.
The warrants are currently exercisable and expire in January 1999. No value
was ascribed to these warrants.

F-12
<PAGE>

ENTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

All of the warrants issued by the Company carry certain limited "piggyback"
registration rights which provide the warrant holders with the right to have
the shares into which the warrants have been or will be converted included in
any registration statement filed by the Company with the Securities and
Exchange Commission, other than a registration statement filed in connection
with an IPO or on Forms S-4 or S-8. Additionally, certain stockholders have
entered into demand registration rights agreements with the Company whereby
they can require the Company, with certain exceptions, to register shares
under the Securities Act of 1933.

(11) PREFERRED STOCK

On August 12, 1994, the Company's Board of Directors authorized the Company
to issue up to 2,000,000 shares of preferred stock, with a par value of $.01,
none of which has been issued.

(12) INCOME TAXES

Income tax benefit consists of the following for the years ended May 31,
1995 and 1994:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current:
Federal................................................. $ -- $(13,700)
State................................................... -- (12,800)
-------- --------
-- (26,500)
======== ========
Deferred:
Federal................................................. -- --
State................................................... -- --
-------- --------
$ -- $(26,500)
======== ========
</TABLE>

Income tax benefit amounted to $26,500 for 1994, an effective rate of 7
percent. The actual benefit differs from the "expected" tax benefit for 1995
and 1994, computed by applying the U.S. Federal corporate tax rate of 34
percent to loss before income taxes, as follows:

<TABLE>
<CAPTION>
1994 1994
----------- ---------
<S> <C> <C>
Computed "expected" tax benefit.................... $(1,359,100) $(135,900)
Increase (reduction) in income taxes resulting
from:
State income taxes, net of Federal benefit....... (185,700) (8,400)
Increase in valuation allowance, primarily due to
Federal net operating loss carry forwards....... 1,537,800 105,300
Other............................................ 7,000 12,500
----------- ---------
$ -- $ (26,500)
=========== =========
</TABLE>

F-13
<PAGE>

ENTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at May 31,
1995 and 1994, are as follows:

<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forwards................. $ 1,582,600 $ 108,900
Accrued expenses.................................. 64,000 --
Valuation allowance............................... (1,643,100) (105,400)
----------- ---------
Net deferred tax asset.......................... 3,500 3,500
----------- ---------
Deferred tax liability--property and equipment,
principally due to differences in depreciation
methods............................................ 3,500 3,500
----------- ---------
Net deferred tax asset/liability................ $ -- $ --
=========== =========
</TABLE>

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax asset will be realized. The ultimate realization of the deferred tax asset
is dependent upon the generation of future taxable income during the periods
in which temporary differences become deductible. Management considers
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies which can be implemented by the Company in
making this assessment. The Company believes that it is more likely than not
that it will not be able to realize its deferred tax asset and has established
a valuation allowance of $1,643,000 at May 31,1995, based upon the provisions
of Statement of Financial Accounting Standard No. 109, the Company's
historical taxable losses and the lack of offsetting objective evidence, the
Company's projected taxable loss through May 31, 1997 and the fact that the
Company cannot produce reasonably reliable projections during the remainder of
the net operating loss carry forward period.

Approximately $ 30,100 was paid in income taxes for the year ended May 31,
1994 and for which a refund is expected in fiscal 1996. At May 31, 1995, the
Company had available approximately $4,100,000 of tax loss carry forwards
which expire in years 2009 through 2010.

(13) EMPLOYEE BENEFIT PLAN

The Company sponsors an employee savings plan under Section 401(k) of the
Internal Revenue Code (IRC) that covers substantially all employees of the
Company who elect to participate on a voluntary basis.

Participants may authorize salary deferral amounts under the plan up to 15
percent of their compensation limited to a maximum amount stipulated in the
IRC. The plan also provides for a discretionary Company contribution which is
determined by the Board of Directors. No discretionary Company contributions
were made during the years ended May 31, 1995 and 1994.

(14) COMMITMENTS

(a) Leases

The Company leases its office facilities under several non-cancelable
operating leases which expire at various times through May 31, 1997. The
following is a schedule by years of future minimum lease commitments required
under the Company's non-cancelable operating leases:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31
-----------------
<S> <C>
1996.............................................................. $175,700
1997.............................................................. 182,400
--------
$358,100
========
</TABLE>

F-14
<PAGE>

ENTERACTIVE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Rent expense for operating leases for 1995 and 1994 approximated $129,700
and $136,500, respectively.

(b) Employment Agreements

The Company has entered into employment agreements with certain key
executives and employees. Minimum salary commitments under these agreements
are approximately $585,000, $485,000, and $185,400 for the years ending May
31, 1996, 1997, and 1998, respectively.

(15) BUSINESS AND CREDIT CONCENTRATIONS

During 1994 approximately $1,450,000 of the Company's total revenues were
received under a grant from the National Science Foundation (NSF). The grant
was used for the development of a specific educational multimedia product.
Under the terms of the grant, the Company owns all rights to the completed
product; however, the Company must provide the NSF with a royalty-free license
to use the material for government purposes and a percentage of the Company's
royalties earned on sales of the initial version of the product to the
American Academy for the Advancement of Sciences. The product was
substantially completed as of May 31, 1994, and no additional funds were
received under this grant in fiscal 1995.

In addition there was one customer that comprised 25% of total revenue in
1995 and 1994 and two other customers that comprised 51% and 20% of total
revenue in 1995.

(16) REPURCHASE AND RETIREMENT OF COMMON STOCK

On August 31, 1994, the Company repurchased and retired 600,000 shares of
its outstanding common stock from a stockholder at a price of $1,000,000.

F-15
<PAGE>

ENTERACTIVE, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
FEBRUARY 29, MAY 31,
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents.......................... $ 1,842,000 $ 2,932,400
Investments................................... 30,400 1,116,100
Accounts receivable, net...................... 649,200 126,700
Income taxes receivable....................... 16,400 30,100
Inventories................................... 303,700 44,000
Debt issuance costs........................... 226,700 --
Prepaid expenses and other.................... 25,900 45,900
------------ -----------
Total current assets........................ 3,094,300 4,295,200
Property and equipment, net..................... 261,900 319,300
Capitalized software, net....................... 1,177,800 --
Other........................................... 24,200 15,700
------------ -----------
$ 4,558,200 $ 4,630,200
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.............................. $ 962,400 $ 439,100
Accrued expenses.............................. 354,800 307,600
Notes payable................................. 123,600 15,200
Convertible promissory notes.................. 2,190,000 --
Obligations under capital leases.............. 1,400 4,300
------------ -----------
Total current liabilities................... 3,632,200 766,200
Commitments and contingencies
Stockholders' Equity
Preferred Stock $.01 par value, 2,000,000
shares authorized, none issued............... -- --
Common Stock $.01 par value, 15,000,000 shares
authorized; 5,500,701 and 4,775,489 shares
issued and outstanding February 29, 1996 and
May 31, 1995, respectively................... 55,000 47,800
Additional paid-in capital...................... 11,563,900 8,130,300
Accumulated deficit............................. (10,692,900) (4,314,100)
------------ -----------
Total stockholders' equity.................. 926,000 3,864,000
------------ -----------
$ 4,558,200 $ 4,630,200
============ ===========
</TABLE>

See notes to financial statements.

F-16
<PAGE>

ENTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Product sales...................................... $ 324,800 $ --
Product development revenue........................ 257,700 292,600
Royalty revenue.................................... 103,300 2,400
----------- -----------
Total revenues................................. 685,800 295,000
Cost of product sales.............................. 77,600 --
Cost of development revenue........................ 225,500 237,600
Research and development expenses.................. 2,301,500 1,592,900
Marketing and selling expenses..................... 1,354,700 117,600
General and administrative expenses................ 1,246,900 756,200
Acquired in-process research and development....... 1,915,100 --
----------- -----------
Total costs and expenses....................... 7,121,300 2,704,300
Operating loss..................................... (6,435,500) (2,409,300)
Other income (expense):
Interest expense................................. (58,200) (252,000)
Interest income.................................. 110,000 138,400
Other............................................ 4,900 10,300
----------- -----------
Net loss........................................... $(6,378,800) $(2,512,600)
=========== ===========
Loss per common and common equivalent share........ $ (1.34) $ (0.62)
=========== ===========
Weighted average shares of common stock and common
stock equivalent.................................. 4,775,489 4,057,812
=========== ===========
</TABLE>

See notes to financial statements.

F-17
<PAGE>

ENTERACTIVE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
FEB. 29, FEB. 28,
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................... $(6,378,800) $(2,512,600)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 287,400 268,900
Acquired in-process research and development...... 1,915,100 --
Gain on sale of investments....................... -- (8,800)
Gain on disposal of assets........................ (9,000) --
Changes in assets and liabilities net of acquisi-
tion of Lyriq:
Accounts receivable............................... (101,000) (87,200)
Income taxes receivable........................... 13,700 9,300
Inventories....................................... (140,200) --
Prepaid expenses and other........................ 30,400 (53,100)
Other assets...................................... (2,800) (1,800)
Accounts payable.................................. 271,400 22,800
Accrued expenses.................................. (194,000) 125,500
----------- -----------
Net cash used in operating activities............ (4,307,800) (2,237,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investments................. 1,085,700 950,100
Notes receivable.................................. (285,800) --
Cash acquired from Lyriq acquisition.............. 11,300 --
Purchases of property and equipment............... (35,700) (165,800)
----------- -----------
Net cash provided by investing activities........ 775,500 784,300
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments under capital lease obliga-
tions............................................ (2,900) (4,400)
Repayment of short-term borrowings................ (15,200) (75,000)
Principal payments under long-term debt........... -- (82,400)
Principal payments under convertible notes pay-
able............................................. -- (2,000,000)
Repurchase and retirement of common stock......... -- (1,000,000)
Proceeds from issuance of convertible notes, net.. 2,460,000 --
Proceeds from sale of common stock, net........... -- 7,579,800
----------- -----------
Net cash provided by financing activities........ 2,441,900 4,418,000
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS.. (1,090,400) 2,965,300
CASH AND EQUIVALENTS
Beginning of period................................ 2,932,400 2,343,000
----------- -----------
End of period...................................... $ 1,842,000 $ 5,308,300
=========== ===========
</TABLE>

See notes to financial statements.

F-18
<PAGE>

ENTERACTIVE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1. GENERAL

The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and in the opinion of
management contain all adjustments (consisting of only normal recurring
entries) necessary to present fairly the Company's interim financial
statements. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The interim financial statements
should be read in conjunction with the Company's financial statements and
related notes in the May 31, 1995 Annual Report on Form 10-KSB. The results
for the three and nine month period ended February 29, 1996 are not
necessarily indicative of the results to be obtained for the full year.

2. BUSINESS

The Company's primary business is the development and publication of
proprietary entertainment and educational interactive multimedia software for
distribution on personal computers utilizing the CD-ROM platform. Initial
shipment of these products commenced in June 1995 and represent the first
sales of titles published by the Company. To a limited extent, the Company
continues to develop interactive titles for others.

3. REVENUE RECOGNITION

Revenue from product sales is recognized upon shipment, provided no
significant vendor obligations remain and collection of the resulting
receivable is deemed probable. Revenue under fixed price product development
contracts is recognized using the percentage of completion method based on
progress to date, which is measured by comparing costs to date to total
estimated costs. Royalty revenue is recognized when earned.

The Company's agreements with certain product distributors and retailers
permit them to exchange or return products for which the Company provides an
allowance.

4. CONVERTIBLE PROMISSORY NOTES

On January 23, 1996, the Company consummated a $2,700,000 bridge financing
through the issuance of 54 units, each consisting of a $50,000 unsecured
convertible promissory note and 10,000 warrants. Each warrant will enable the
holder to purchase one share of common stock at $4.00 per share. The
promissory notes are convertible into a number of common shares equal to the
principal of the notes divided by 90% of the per share offering price of the
Company's common stock in its proposed public offering (Note 7) plus twice
that number of warrants to purchase common stock at $4.00 per share. Debt
acquisition costs totaled $240,000.

The fair market value of the warrants was $540,000 at time of issuance. Such
amount was reflected as an increase in additional paid in capital and as a
discount on the convertible promissory notes to be amortized over the term of
the notes.

The convertible notes bear interest at 10% per annum through June 30, 1996,
and thereafter until paid at 15% per annum, with principal and interest due
the earlier of July 23, 1997 or the closing of a public offering of shares of
the Company's common stock. Investors holding an aggregate of $2,250,000 of
convertible promissory notes have elected to convert their convertible
promissory notes into shares of the Company's stock at the closing of the
planned public offering (Note 7).

5. MERGER

On February 29, 1996, the Company completed its merger with Lyriq
International Corporation, a developer and publisher of interactive multimedia
software, pursuant to an Agreement and Plan of Merger, whereby Lyriq

F-19
<PAGE>

ENTERACTIVE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
was merged into a wholly-owned subsidiary of the Company. The merger was
accounted for under the purchase method of accounting and, accordingly, the
net assets and operations of Lyriq are included in the Company's consolidated
financial statements beginning on February 29, 1996.

The purchase price was determined as follows:

<TABLE>
<S> <C>
725,212 shares of Enteractive common stock at $4.00 per
share........................................................ $2,900,848
Excess of fair value of liabilities assumed over assets ac-
quired of Lyriq.............................................. 247,050
Acquisition costs............................................. 52,102
----------
Total....................................................... $3,200,000
==========

The acquisition price was allocated as follows:

In-process research and development expense................... $1,915,156
Capitalized software.......................................... 1,284,844
----------
Total....................................................... $3,200,000
==========
</TABLE>

The Company recorded an expense of $1,915,100 on February 29, 1996 for the
acquired in-process research and development, including certain core
technology, that will be used in the development of additional titles in the
future. The statement of operations charge equaled the estimated current fair
value of the future related cash flows to be derived from specifically
identified technologies (discounted at a risk-adjusted rate of 30%) for which
technological feasibility had not yet been established pursuant to SFAS No. 86
(consistent with management's definition of internally developed software) and
the technologies have no alternative future use.

Capitalized software will be amortized over a three year period.

6. UNAUDITED PRO FORMA INFORMATION

The following unaudited combined pro forma information shows the results of
the Company's operations for the nine month periods presented had the merger
with Lyriq occurred at the beginning of each period.

<TABLE>
<CAPTION>
NINE MONTHS ENDING
------------------------
FEBRUARY FEBRUARY
29, 28,
1996 1995
----------- -----------
<S> <C> <C>
Total revenues.................................... $ 1,548,200 $ 1,331,300
Net loss.......................................... $(5,060,600) $(2,787,000)
Net loss per share................................ $ (.92) $ (0.58)
</TABLE>

The information does not necessarily indicate what would have occurred had
the acquisition been consummated at the beginning of the respective periods,
or of the results that may occur in the future. Pro-forma adjustments included
amortization of acquired capitalized software over three years.

F-20
<PAGE>

ENTERACTIVE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)

7. SUBSEQUENT EVENTS

On March 29, 1996 the Company amended its charter to increase the number of
authorized common shares from 15,000,000 to 30,000,000. In addition the
Company increased the number of shares authorized for issuance under its stock
option plans as follows:

<TABLE>
<CAPTION>
PLAN FROM TO
---- ------- ---------
<S> <C> <C>
1994 Incentive and Non-qualified Stock Option Plan...... 750,000 1,500,000
1994 Stock option plan for consultants.................. 350,000 1,000,000
1995 Stock Option Plan for Outside Directors............ 75,000 150,000
</TABLE>

The Company anticipates filing the amendment to its charter on or about
April 25, 1996. The amendments to the above plans will not become effective
until the charter amendment is filed.

On March 12, 1996, the Company filed a registration statement on Form SB-2
with the Securities and Exchange Commission regarding a proposed sale by the
Company of 2,000,000 shares of the Company's common stock to the public. In
the quarter in which the Offering occurs, the Company will incur one-time
charges for the write-off of debt acquisition costs and the discount on the
Convertible Notes totalling $736,700, based on the balances at February 29,
1996.

In December 1995, the Company entered into an agreement with certain of its
officers pursuant to which the Company will repurchase, simultaneously with
the closing of the proposed public offering of common stock, an aggregate of
1,000,000 shares of common stock at $1.00 per share. Under the purchase
agreement one third of the purchase price is required to be paid at the
closing of the proposed public offering and at each of the first two
anniversaries of the closing. The outstanding balance will accrue interest at
the prime rate and is payable quarterly.

F-21
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Lyriq International Corporation:

We have audited the accompanying balance sheets of Lyriq International
Corporation as of June 30, 1995 and 1994, 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lyriq International
Corporation as of June 30, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.

KPMG PEAT MARWICK LLP

New York, New York
March 1, 1996

F-22
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
YEARS ENDED JUNE
30,
-------------------
1995 1994
--------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash................................................... $ 8,638 $ 24,200
Accounts receivable, net............................... 233,030 115,346
Inventories............................................ 103,418 34,125
Prepaid expenses and other............................. 19,807 1,646
--------- --------
Total current assets................................. 364,893 175,317
Property and equipment, net.............................. 18,595 38,888
Other.................................................... 5,795 5,795
--------- --------
$ 389,283 $220,000
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable....................................... $ 285,459 $ 57,865
Accrued expenses....................................... 163,983 12,700
Notes payable.......................................... 54,590 0
Convertible debt....................................... 0 100,000
16,743 49,470
--------- --------
Total current liabilities............................ 520,775 220,035
Commitments and contingencies
Stockholders' Deficit
Common Stock, no par value, 1,250,000 shares authorized,
895,525 and 845,500 shares issued and outstanding at
June 30, 1995 and 1994, respectively.................... 101,000 1,000
Accumulated deficit...................................... (232,492) (1,035)
--------- --------
Total stockholders' deficit.......................... (131,492) (35)
--------- --------
$ 389,283 $220,000
========= ========
</TABLE>

See accompanying notes to financial statements.

F-23
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED JUNE
30,
--------------------
1995 1994
---------- --------
<S> <C> <C>
Product revenues......................................... $ 617,536 $206,339
Product development revenue.............................. 162,132 171,262
Royalty and other revenue................................ 464,906 47,031
---------- --------
Total revenues....................................... 1,244,574 424,632
Cost of product revenues................................. 250,932 51,098
Cost of product development revenue...................... 185,225 65,806
Research and development expenses........................ 342,444 175,103
Marketing and selling expenses........................... 431,077 52,858
General and administrative expenses...................... 254,894 88,428
---------- --------
Total operating expenses............................. 1,464,572 433,293
Operating loss........................................... (219,998) (8,661)
Other income (expense):
Interest expense....................................... (10,023) (1,963)
Other.................................................. (821) (2,558)
---------- --------
Loss before income taxes................................. (230,842) (13,182)
Provision for income taxes............................... 615 1,831
---------- --------
Net loss................................................. $ (231,457) $(15,013)
========== ========
</TABLE>

See accompanying notes to financial statements.

F-24
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

STATEMENTS OF STOCKHOLDER'S DEFICIT

YEARS ENDED JUNE 30, 1995 AND 1994

<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
---------------- (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Balance, June 30, 1993............... 845,500 $ 1,000 $ 13,978 $ 14,978
Net Loss............................. -- -- (15,013) (15,013)
------- -------- --------- ---------
Balance, June 30, 1994............... 845,500 1,000 (1,035) (35)
Shares issued upon conversion of
debt................................ 50,025 100,000 -- 100,000
Net loss............................. -- -- (231,457) (231,457)
------- -------- --------- ---------
Balance, June 30, 1995............... 895,525 $101,000 $(232,492) $(131,492)
======= ======== ========= =========
</TABLE>

See accompanying notes to financial statements.

F-25
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JUNE
30,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss............................................... $(231,457) $(15,013)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 19,177 17,345
Loss on disposal of assets............................. 1,802 --
Changes in assets and liabilities:
Accounts receivable.................................. (117,684) (111,739)
Inventories.......................................... (69,293) (15,188)
Prepaid expenses and other........................... (18,161) 354
Other assets......................................... -- 1,255
Accounts payable..................................... 227,594 34,073
Accrued expenses..................................... 151,283 11,250
--------- ---------
Net cash used in operating activities.............. (36,739) (77,663)
--------- ---------
Cash flows from investing activities
Purchases of property and equipment.................... (686) (9,758)
--------- ---------
Net cash used in investing activities.............. (686) (9,758)
--------- ---------
Cash flows from financing activities
Short-term borrowings.................................. 54,590 --
Proceeds from issuance of convertible debt............. -- 100,000
(Repayment of) proceeds from shareholder loans......... (32,727) 8,206
--------- ---------
Net cash provided by financing activities.......... 21,863 108,206
Net (decrease) increase in cash and equivalents.... (15,562) 20,785
Cash
Beginning of period.................................... 24,200 3,415
--------- ---------
End of period.......................................... $ 8,638 $ 24,200
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................. $ 11,266 $ 4,877
Cash paid during the year for income taxes............. $ 615 $ 1,831
</TABLE>

See accompanying notes to financial statements.

F-26
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1995 AND 1994

(1) BUSINESS

Lyriq International Corporation (the Company) was founded in December 1991
and is primarily engaged in the development of interactive multimedia titles
for the home education and recreation markets. The Company is currently
developing software for the CD-ROM platform as well as the Internet and
commercial on-line services.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Cash

Cash of $8,638 and $24,200 at June 30, 1995 and 1994, respectively, consists
of cash held in interest-bearing commercial bank accounts.

(b) Revenue Recognition

Sales and related costs are recorded by the Company upon shipment of
products provided no significant vendor obligations remain and collection of
the resulting receivable is deemed probable. The Companys agreements with
certain product distributors and retailers permit them to exchange or return
products for which the Company provides an allowance. Royalty revenue is
recognized when earned. Product development revenue is recognized as the
services are provided.

Inventories of multimedia software and related components are recorded at
the lower of cost (on a first-in, first-out basis) or market.

(d) Property and Equipment

Property and equipment are stated at cost and are depreciated over their
estimated useful lives of 3 to 5 years using the straight-line depreciation
method, except for the leasehold improvements which are amortized over the
lesser of the lease term or the life of the related asset.

(e) Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be realized or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

(f) Software Development Costs

Capitalization of costs associated with internally developed software begins
upon the determination by the Company of a product's technological feasibility
as evidenced by a working model. Capitalized software development costs are
amortized over related sales on a per-unit basis based on estimated total
sales, with a minimum amortization based on a straight-line method over three
years. There were no capitalized software development costs at June 30, 1995
or 1994 due to the short period of time and insignificance of costs incurred
from the time the Company's products were determined to be technologically
feasible and the time they were available for general release to the public.

F-27
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1995 AND 1994

(g) Use of Estimates

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

(3) ACCOUNTS RECEIVABLE

At June 30, 1995 and 1994 accounts receivable totaled $233,030 and $115,346
net of allowance for doubtful accounts and product returns of $154,049 and
$20,500 in 1995 and 1994, respectively.

(4) PROPERTY AND EQUIPMENT

Property and equipment, at June 30, 1995 and 1994, consists of the
following:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Property and equipment................................... $ 68,922 $ 72,740
Accumulated depreciation and amortization................ (50,327) (33,852)
-------- --------
Property and equipment, net.............................. $ 18,595 $ 38,888
======== ========
</TABLE>

(5) ACCRUED EXPENSES

Accrued expenses at June 30, 1995 consists of accrued payroll and related
payroll costs totaling $86,643, and $77,340 for amounts owed a vendor for
marketing and sales services. The amount owed to the vendor was paid by the
issuance of 50,000 shares of the Company's common stock in September 1995
(Note 13).

(6) NOTES PAYABLE

The notes payable at June 30, 1995 consists of the following: $9,152 charged
to a company credit card bearing interest at 14%; a $10,000 loan payable to an
individual bearing interest at a rate of 10% which was subsequently satisfied
by the issuance of 5,000 shares of the Company's common stock in September
1995 (Note 13); and, $35,438 advanced from a factoring company. The factoring
agreement, dated November 1994, allows the Company to borrow against eligible
accounts receivable at an interest rate of 3% of the outstanding amount per
month with the amounts outstanding secured by the assets of the Company.

(7) CONVERTIBLE DEBT

On April 27, 1994, the Company borrowed $100,000 from an individual which,
at the culmination of certain events per the loan and stock purchase
agreement, would be converted into shares of the Company's common stock. The
terms of the loan provided for interest at a rate of 10% per annum. On
September 30, 1994, the debt was converted into 50,025 shares of common stock
(after giving effect to the stock split--Note 13). Total interest paid on the
loan until conversion was $6,722.

(8) DUE TO STOCKHOLDERS

At June 30, 1995 and 1994, the Company owed the stockholders of the Company
a total of $16,743 and $49,470, respectively. These amounts advanced to the
Company are payable upon demand and bear interest at 20% per year after
outstanding for 30 days.

F-28
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1995 AND 1994

(9) INCOME TAXES

The provision for income taxes in fiscal 1995 and 1994 were comprised of
state minimum taxes.

The actual income tax benefit differs from the "expected" tax benefit for
1995 and 1994, computed by applying the U.S. Federal corporate tax rate of 34
percent to loss before income taxes, as follows:

<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Computed "expected" Federal income tax benefit........ $ (78,700) $ (5,100)
Increase in income taxes resulting from:
State income taxes, net of Federal benefit.......... 615 1,831
Increase in valuation allowance, primarily due to
reserves........................................... 78,700 5,100
--------- --------
$ 615 $ 1,831
========= ========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1995 and 1994, are as follows:

<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserve........................... $ 64,700 $ --
Net operating loss carryforward....................... 20,100 --
Accrued vacation...................................... 4,100 4,100
-------- -------
88,900 4,100
Valuation allowance..................................... (82,800) (4,100)
-------- -------
Deferred tax asset.................................... 6,100 --
-------- -------
Deferred tax liability--property and equipment,
principally due to differences in depreciation
methods................................................ 6,100 --
-------- -------
Net deferred income taxes............................... $ -- $ --
======== =======
</TABLE>

(10) COMMITMENTS

The Company leases approximately 4,875 square feet of office space under a
non-cancelable operating lease which expired September 30, 1994. Since the
expiration of the current lease the Company has been paying the landlord
$2,250 per month. Rent expense for the operating lease for fiscal 1995 and
1994 approximated $27,000 per year.

F-29
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1995 AND 1994

(11) SIGNIFICANT CUSTOMER

The Company received 21% and 49% of its total revenues from one customer in
1995 and 1994, respectively. These revenues represent royalty payments earned
from sales of educational titles developed by the Company and product
development fees

(12) STOCK OPTIONS

In October 1994 and September 1995, the Company granted options to purchase
8,455 and 5,000 shares of the Company's common stock at an exercise price of
$.01 and $2.50 per share, respectively. Such options were converted to options
of Enteractive on February 29, 1996 (Note 13).

(13) SUBSEQUENT EVENTS

In September 1995, the Companys Board of Directors authorized an increase in
the number of authorized shares of common stock, without par value, from 3,000
to 1,250,000. On September 1, 1995, the Board of Directors authorized a 422.75
to 1 stock split, which resulted in the issuance of 893,407 shares of common
stock of the Company. All references to the number of shares of common stock
of the Company and to stock option data reflect the stock split.

Additionally, in September 1995 the following transactions occurred:

The Company satisfied $10,000 of notes payable to an individual by issuing
5,000 shares of the Company's common stock.

The Companys Board of Directors authorized the issuance of 50,000 shares of
common stock to a vendor of the Company as payment for sales and marketing
services. The Company recorded an expense of $77,340 in fiscal 1995 for the
portion of the services provided in that year.

The Companys Board of Directors authorized the issuance of 2,000 shares of
common stock to a consultant of the Company as payment for marketing services.

The Companys Board of Directors authorized the issuance of a total of 36,375
shares of common stock of the Company to employees of the Company.

On September 28, 1995, the Company entered into an agreement with
Enteractive, Inc., an interactive multimedia software publisher, to merge the
Company into a wholly owned subsidiary of Enteractive. Per the agreement to
merge the companies, the Company borrowed $250,000 from Enteractive at an
interest rate of prime plus 2% to be used for working capital. On February 29,
1996, the merger was consummated with the Companys shareholders receiving
725,212 shares of common stock of Enteractive representing 13% of the combined
companys outstanding shares. Of the shares received, 10%, or 72,521 shares
will be held in escrow to be released subject to certain conditions. Upon
consummation of the merger, the $250,000 loan became an inter-company payable.

F-30
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Product revenues.................................. $ 517,444 $ 607,760
Product development revenue....................... 121,000 125,487
Royalty and other revenue......................... 223,961 303,053
---------- ---------
Total revenues.................................. 862,405 1,036,300
Cost of product revenues.......................... 182,104 232,488
Cost of product development revenue............... 131,020 119,571
Research and development expenses................. 386,887 234,260
Marketing and selling expenses.................... 360,114 285,775
General and administrative expenses............... 154,291 114,667
---------- ---------
Total costs and expenses........................ 1,214,416 986,761
Operating (loss) income........................... (352,011) 49,539
---------- ---------
Other income (expense):
Interest expense................................ (32,632) (1,950)
Other........................................... 1,741 (997)
---------- ---------
Net (loss) income................................. $ (382,902) $ 46,592
========== =========
</TABLE>

See accompanying notes to financial statements.

F-31
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

STATEMENTS OF STOCKHOLDERS' DEFICIT

NINE MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK
-----------------
SHARES AMOUNT ACCUMULATED DEFICIT TOTAL
------- --------- ------------------- ---------
<S> <C> <C> <C> <C>
Balance, June 30, 1995....... 895,525 $ 101,000 $ (232,492) $(131,492)
Shares issued upon conversion
of debt..................... 5,000 10,000 -- 10,000
Stock issued as payment for
services.................... 52,000 105,000 -- 105,000
Stock issued to employees.... 36,375 72,750 -- 72,750
Net loss..................... -- -- (382,902) (382,902)
------- --------- ---------- ---------
Balance, February 29, 1996... 988,900 $ 288,750 $ (615,394) $(326,644)
======= ========= ========== =========
</TABLE>

See accompanying notes to financial statements.

F-32
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net (loss) income.................................. $(382,902) $ 46,592
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.................... 10,223 14,656
Loss on disposal of assets....................... -- 1,802
Common stock issued for services................. 105,000 --
Stock compensation expense....................... 72,750 --
Changes in assets and liabilities:
Accounts receivable.............................. (188,398) (171,007)
Inventories...................................... (16,110) (70,903)
Prepaid expenses and other....................... 9,323 (17,737)
Accounts payable................................. (6,026) 129,689
Accrued expenses................................. (12,472) 45,048
--------- ---------
Net cash used in operating activities.......... (408,612) (21,860)
--------- ---------
Cash flows from investing activities
Purchases of property and equipment.............. (16,301) --
--------- ---------
Net cash used in investing activities.......... (16,301) --
--------- ---------
Cash flows from financing activities
Short-term borrowings.............................. 422,025 56,193
Proceeds from (repayment of) shareholder loans..... 5,757 (27,726)
--------- ---------
Net cash provided by financing activities...... 427,782 28,467
Net increase (decrease) in cash and
equivalents................................... 2,869 6,607
Cash
Beginning of period................................ 8,638 24,200
--------- ---------
End of period...................................... $ 11,507 $ 30,807
========= =========
</TABLE>

See accompanying notes to financial statements.

F-33
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
(UNAUDITED)

1. GENERAL

In the opinion of management the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring entries)
necessary to present fairly the Company's financial position as of February
29, 1996 and the results of its operations and its cash flows for the nine
months ended February 29, 1996 and February 28, 1995. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted. The interim financial statements should be read in conjunction
with the Company's June 30, 1995 audited financial statements and related
notes. The results for the nine month period ended February 29, 1996 are not
necessarily indicative of the results to be obtained for the full year.

2. BUSINESS

3. REVENUE RECOGNITION

Revenue from product sales is recognized upon shipment, provided no
significant vendor obligations remain and collection of the resulting
receivable is deemed probable. Royalty revenue is recognized when earned.

The Company's agreements with certain product distributors and retailers
permit them to exchange or return products for which the Company provides an
allowance.

4. STOCKHOLDERS DEFICIT

In September 1995, the Company's Board of Directors authorized an increase
in the number of authorized shares of common stock, without par value, from
3,000 to 1,250,000. On September 1, 1995, the Board of Directors authorized a
422.75 to 1 stock split which resulted in the issuance of 893,407 shares of
common stock of the Company. All references to the number of shares of common
stock of the Company and to stock option data reflect the stock split.

Additionally, in September 1995 the following transactions occurred:

The Company satisfied $10,000 of notes payable to an individual by issuing
5,000 shares of the Company's common stock.

The Company's Board of Directors authorized the issuance of 50,000 shares of
common stock to a vendor of the Company as payment for sales and marketing
services. The Company recorded an expense of $77,340 in fiscal 1995 for the
portion of the services provided in that year.

The Company's Board of Directors authorized the issuance of 2,000 shares of
common stock to a consultant of the Company as payment for marketing services.

The Company's Board of Directors authorized the issuance of a total of
36,375 shares of common stock of the Company to employees of the Company.

F-34
<PAGE>

LYRIQ INTERNATIONAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. MERGER

On February 29, 1996, the Company completed its merger with Enteractive,
Inc., a developer and publisher of interactive multimedia software, pursuant
to an Agreement and Plan of Merger, whereby the Company was merged into a
wholly-owned subsidiary of Enteractive. The merger was accounted for under the
purchase method of accounting and, accordingly, the net assets and operations
of the Company are included in Enteractive's consolidated financial statements
beginning on February 29, 1996. As consideration for this transaction, the
shareholders of the Company were issued a total of 725,212 shares of common
stock of Enteractive.

F-35
<PAGE>

PRO FORMA FINANCIAL INFORMATION ENTERACTIVE, INC. AND LYRIQ INTERNATIONAL
CORPORATION

PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)

The following pro forma combined statement of operations (unaudited)
combines, on a purchase basis of accounting, the statement of operations of
Enteractive for the nine months ended February 29, 1996 (unaudited) with the
statement of operations of Lyriq for the nine months ended February 29, 1996
(unaudited).

The pro forma combined statement of operations gives effect to the
acquisition of Lyriq as if it had occurred on June 1, 1995. The pro forma
combined statement of operations is not necessarily indicative of future
operating results and should not be used as a forecast of future operations of
Enteractive and Lyriq as an Enteractive subsidiary. This pro forma statement
should be read in conjunction with the notes to the pro forma combined
financial statements and the historical financial statements of both companies
included elsewhere herein.

F-36
<PAGE>

ENTERACTIVE, INC. AND LYRIQ INTERNATIONAL CORPORATION

PROFORMA STATEMENT OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FEBRUARY 29, 1996 PRO FORMA
NINE MONTHS ENDED LYRIQ ADJUSTMENTS
FEBRUARY 29, 1996 INTERNATIONAL ---------------------- PRO FORMA
ENTERACTIVE, INC. CORPORATION DEBIT CREDIT COMBINED
----------------- ----------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Product sales........... $ 324,800 $ 517,400 $ 842,200
Product development
revenue................ 257,700 121,000 378,700
Royalty and other
revenue................ 103,300 224,000 327,300
----------- ---------- -----------
Total revenues........ 685,800 862,400 1,548,200
Cost of product
revenues............... 77,600 182,100 214,000(b) 473,700
Cost of development
revenue................ 225,500 131,000 356,500
Research and development
expenses............... 2,301,500 386,900 2,688,400
Marketing and selling
expenses............... 1,354,700 360,100 1,714,800
General and
administrative
expenses............... 1,246,900 154,300 1,401,200
Acquired in-process
technology............. 1,915,100 -- 1,915,100(a) --
----------- ---------- -------- ---------- -----------
Total costs and
expenses............. 7,121,300 1,214,400 214,000 1,915,100 6,634,600
Operating loss.......... (6,435,500) (352,000) 214,000 1,915,100 (5,086,400)
----------- ---------- -------- ---------- -----------
Other income (expense):
Interest expense...... (58,200) (32,600) (90,800)
Interest income....... 110,000 -- 110,000
Other................. 4,900 1,700 6,600
----------- ---------- -----------
Loss before income
taxes.................. (6,378,800) (382,900) 214,000 1,915,100 (5,060,600)
----------- ---------- -------- ---------- -----------
Net loss................ $(6,378,800) $ (382,900) $214,000 $1,915,100 $(5,060,600)
=========== ========== ======== ========== ===========
Loss per common share... $ (0.92)
===========
Weighted average shares
of common stock........ (c) 5,500,701
===========
</TABLE>

See notes to pro forma combined financial statements.

F-37
<PAGE>

PRO FORMA FINANCIAL INFORMATION ENTERACTIVE, INC. AND LYRIQ INTERNATIONAL
CORPORATION

PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED)

The following pro forma combined statement of operations (unaudited)
combines, on a purchase basis of accounting, the statement of operations of
Enteractive for the year ended May 31, 1995 with the statement of operations
of Lyriq for the year ended June 30, 1995.

The pro forma combined statement of operations gives effect to the
acquisition of Lyriq as if it had occurred at the beginning of the year. The
pro forma combined statement of operations is not necessarily indicative of
future operating results and should not be used as a forecast of future
operations of Enteractive and Lyriq as an Enteractive subsidiary. This pro
forma statement should be read in conjunction with the notes to the pro forma
combined financial statements and the historical financial statements of both
companies included elsewhere herein.

F-38
<PAGE>

ENTERACTIVE, INC. AND LYRIQ INTERNATIONAL CORPORATION

PROFORMA STATEMENT OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1995 PRO FORMA
YEAR ENDED LYRIQ ADJUSTMENTS
MAY 31, 1995 INTERNATIONAL ----------------- PRO FORMA
ENTERACTIVE, INC. CORPORATION DEBIT CREDIT COMBINED
----------------- ------------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
Product sales........... $ -- $ 617,500 $ 617,500
Product development
revenue................ 365,600 162,100 527,700
Royalty and other
revenue................ 3,500 464,900 468,400
----------- ---------- ------- --- -----------
Total revenues........ 369,100 1,244,500 1,613,600
Cost of product
revenues............... -- 250,900 428,000(b) 678,900
Cost of development
revenue................ 285,600 185,200 470,800
Research and development
expenses............... 2,487,600 342,500 2,830,100
Marketing and selling
expenses............... 521,500 431,100 952,600
General and
administrative
expenses............... 1,044,200 254,900 1,299,100
----------- ---------- ------- --- -----------
Total costs and
expenses............. 4,338,900 1,464,600 428,000 6,231,500
Operating loss.......... (3,969,800) (220,100) 428,000 (4,617,900)
----------- ---------- ------- --- -----------
Other income (expense):
Interest expense...... (252,900) (10,000) (262,900)
Interest income....... 214,300 -- 214,300
Other................. 11,000 (800) 10,200
----------- ---------- ------- --- -----------
Loss before income
taxes.................. (3,997,400) (230,900) 428,000 (4,656,300)
----------- ---------- ------- --- -----------
Provision for income
taxes.................. -- 600 600
Net loss................ $(3,997,400) $ (231,500) 428,000 $(4,656,900)
=========== ========== ======= === ===========
Loss per common share... $ (0.93)
===========
Weighted average shares
of common stock........ (c) 5,001,120
===========
</TABLE>

See notes to pro forma combined financial statements.

F-39
<PAGE>

ENTERACTIVE, INC. AND LYRIQ INTERNATIONAL CORPORATION

NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The acquisition of Lyriq is accounted for as a purchase and, in accordance
with generally accepted accounting principles, Enteractive's purchase price is
allocated to the assets and liabilities of Lyriq based on their fair values at
the date of the acquisition.

2. PRO FORMA ADJUSTMENTS AND ASSUMPTIONS

The pro forma combined financial statements of Enteractive and Lyriq give
effect to the following pro forma adjustments and assumptions:

a. This adjustment records the acquisition of Lyriq as described
elsewhere herein with the purchase price determined as follows:

<TABLE>
<S> <C>
725,212 shares of Enteractive common stock @ $4.00 per share.. $2,900,848
Excess of fair value of liabilities assumed over assets
acquired of Lyriq............................................ 247,050
Acquisition costs............................................. 52,102
----------
Total..................................................... $3,200,000
==========
The acquisition price was allocated as follows:
In-process research and development expense................. $1,915,156
Capitalized software........................................ 1,284,844
----------
Total..................................................... $3,200,000
==========
</TABLE>

The Company recorded an expense of $1,915,100 on February 29, 1996 for the
acquired in-process research and development that will be used in the
development of additional titles in the future. As this charge will not
have a continuing impact, it has been eliminated from the pro forma
statements of operations. The statement of operations charge equaled the
estimated current fair value of the future related cash flows to be derived
from specifically identified technologies (discounted at a risk-adjusted
rate of 30%) for which technological feasibility had not yet been
established pursuant to SFAS No. 86 (consistent with management's
definition of internally developed software) and the technologies have no
alternative future use.

b. Records amortization of acquired capitalized software over three
years, as if the acquisition had taken place at the beginning of the
period.

c. Reflects weighted average shares of Enteractive for the period
(4,775,489 for the nine months ended February 29, 1996 and 4,275,908 for
the year ended May 31, 1995, plus 725,212 shares of Enteractive common
stock issued to Lyriq.)

F-40
<PAGE>

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION 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 SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
The Company.............................................................. 8
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 15
Dilution................................................................. 16
Capitalization........................................................... 17
Dividend Policy.......................................................... 17
Price Range of the Common Stock.......................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
LYRIQ.................................................................... 23
Business................................................................. 26
Management............................................................... 37
Principal Securityholders................................................ 42
Certain Transactions..................................................... 45
Description of Securities................................................ 47
Shares Eligible For Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 53
Experts.................................................................. 53
Available Information.................................................... 53
Index to Financial Statements............................................ F-1
</TABLE>

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

2,000,000 SHARES

[LOGO]

ENTERACTIVE, INC.

COMMON STOCK

-----------

PROSPECTUS

-----------

GKN SECURITIES

, 1996

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

[Alternate Cover Page]

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED MAY 14, 1996

PROSPECTUS

1,790,000 COMMON STOCK PURCHASE WARRANTS
625,000 SHARES OF COMMON STOCK
LOGO

ENTERACTIVE, INC.

This Prospectus relates to the possible sale for the accounts of 28 selling
securityholders ("Selling Securityholders") of up to 1,790,000 Common Stock
Purchase Warrants ("IPO Warrants") and 625,000 shares of the Company's Common
Stock ("Common Stock") consisting of Conversion Shares (as defined herein)
issued to them by Enteractive, Inc. ("Company") upon the closing of the
Company's public offering for which the registration statement was declared
effective on , 1996 ("Public Offering"), whereby the Company registered in
part: (i) 625,000 Conversion Shares (as defined herein); (ii) 1,250,000
Conversion Warrants (as defined herein); and (iii) 540,000 IPO Warrants which
were issued in exchange for January 1996 Warrants (as defined herein). The
shares of Common Stock underlying the IPO Warrants received by the Selling
Securityholders are registered under the Registration Statement of which this
Prospectus forms a part. Each IPO Warrant, including the Conversion Warrants,
entitles the holder to purchase one share of Common Stock for $4.00 until
October 20, 1997. The IPO Warrants are not redeemable by the Company. See
"Description of Securities." The IPO Warrants, the Conversion Warrants and the
Conversion Shares which are subject to this Prospectus are sometimes
collectively referred to herein as the "Securities." Without the consent of
the GKN Securities Corp. ("Underwriter"), the Securities may not be sold by
the Selling Securityholders for a period of one year from the date of the
Public Offering. Immediately after the Public Offering, there were 7,125,701
shares of Common Stock outstanding, assuming that the over-allotment option in
the Public Offering was not exercised. In the Public Offering, the Company
also registered 2,000,000 shares of Common Stock, exclusive of 300,000 shares
of Common Stock subject to an over-allotment option.

The Common Stock and the IPO Warrants are currently traded on the Nasdaq
SmallCap Market under the symbols "ENTR" and "ENTRW," respectively. On May 9,
1996, the closing sales price of the Common Stock and the IPO Warrants was
[$3.75] and $3.625, respectively. See "Selling Securityholders; Plan of
Distribution" for information relating to the factors considered in
determining the exercise price of the IPO Warrants.

----------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" AT PAGE 8 HEREOF.
----------------
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.
----------------
Neither the Company nor the Selling Securityholders have employed an
underwriter for the sale of the Securities. The Company will bear all expenses
of the offering other than discounts, concessions or commissions on the sale
of the Securities.

The Securities may be offered by or for the account of the Selling
Securityholders from time to time on the Nasdaq SmallCap Market or The Boston
Stock Exchange or in negotiated transactions, or a combination of such methods
of sale, at fixed prices which may be changed or at negotiated prices. The
Selling Securityholders may effect such transactions by selling the Securities
to or through broker-dealers who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Securities for whom such broker-dealer may act as agent
or to whom they sell as principal, or both which compensation as to a
particular broker-dealer may be in excess of customary commissions). Any
broker-dealer acquiring the Securities from the Selling Securityholders may
sell such securities in its normal market making activities, through other
brokers on a principal or agency basis, in negotiated transactions, to its
customers or through a combination of such methods. See "Selling
Securityholders; Plan of Distribution."

, 1996.
<PAGE>

SELLING SECURITYHOLDERS; PLAN OF DISTRIBUTION

Up to 625,000 Conversion Shares and 1,250,000 Conversion Warrants may be
offered by 22 Selling Securityholders, who acquired the Conversion Shares and
the Conversion Warrants upon the conversion of Convertible Notes at the
closing of the Public Offering. The Selling Securityholders received the
Convertible Notes in the January 1996 Bridge Financing. Up to 540,000 IPO
Warrants may be offered by 28 Selling Securityholders, who acquired the IPO
Warrants in exchange for January 1996 Warrants on the closing of the Public
Offering. The Company has agreed to bear all expenses (other than underwriting
or selling commissions or any fees and disbursements of counsel to such
Selling Securityholders) in connection with the registration of the Conversion
Shares, the Conversion Warrants and the IPO Warrants.

The following table sets forth certain information with respect to holders
for whom the Company is registering these IPO Warrants or Conversion Warrants
for resale to the public. None of the Selling Securityholders has held any
position or office or has had a material relationship with the Company or any
of its affiliates within the past three years except that the Woodland Venture
Fund and Seneca Ventures were 5% stockholders of the Company prior to the
Public Offering. The Company will not receive any of the proceeds from the
sale of IPO Warrants or the Conversion Warrants by the Selling
Securityholders.

<TABLE>
<CAPTION>
NUMBER/% OF NUMBER/% OF
IPO WARRANTS IPO WARRANTS
BENEFICIALLY OWNED IPO BENEFICIALLY OWNED
PRIOR TO OFFERING WARRANTS AFTER OFFERING
--------------------------- TO BE SOLD -----------------------
NAME NUMBER PERCENT IN OFFERING NUMBER PERCENT
---- ----------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Applewood Associates, 485,556(1)(2) 9.9% 188,889(3) 10,000(5) *
L.P....................
c/o Barry Rubenstein
68 Wheatley Road
Brookville, New York
11545
ALSA, INC............... 18,889 * 18,889 -- --
Neil Bellet............. 18,889 * 18,889 -- --
Robert Bender........... 37,778 * 37,778 -- --
Stanley H. Blum......... 18,889 * 18,889 -- --
Dalewood Associates, 40,000 * 40,000 -- --
L.P....................
Craig Effron............ 18,889 * 18,889 -- --
Gordon M. Freeman....... 10,000 * 10,000 -- --
Paula Graff............. 18,889 * 18,889 -- --
James Jannello.......... 5,000 * 5,000 -- --
Frank Lambiase.......... 18,889 * 18,889 -- --
Clifford Lane........... 5,000 * 5,000 -- --
Mariwood Investments.... 18,889 * 18,889 -- --
Alan S. Michalowski..... 18,889 * 18,889 -- --
James J. Pinto.......... 37,778 * 37,778 -- --
The Marilyn and Barry
Rubenstein Family 485,556(1)(2) 9.9 20,000(4) 10,000(5) --
Foundation.............
c/o Barry Rubenstein
68 Wheatley Road
Brookville, New York
11545
Alan J. Rubin........... 18,889 * 18,889 -- --

</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
NUMBER/% OF NUMBER/% OF
IPO WARRANTS IPO WARRANTS
BENEFICIALLY OWNED IPO BENEFICIALLY OWNED
PRIOR TO OFFERING WARRANTS AFTER OFFERING
-------------------------- TO BE SOLD -----------------------
NAME NUMBER PERCENT IN OFFERING NUMBER PERCENT
---- ----------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Mark Rubino............. 18,889 * 18,889 -- --
Curtis Schenker......... 18,889 * 18,889 -- --
Seneca Ventures......... 485,556(1)(2) 9.9 75,556(4) 10,000(5) --
c/o Barry Rubenstein
68 Wheatley Road
Brookville, New York
11545
Carl E. Siegel.......... 18,889 * 18,889 -- --
David Thalheim.......... 50,000 * 10,000 40,000 *
21st Century
Communications Foreign 944,444(3) 18.0 75,556(4) -- --
Partners, L.P..........
c/o Fiduciary Trust
(Cayman) Limited
P.O. Box 1062
Grand Cayman, B.W.I.
21st Century
Communications 944,444(3) 18.0 642,222(4) -- --
Partners, L.P..........
767 Fifth Avenue --
45th Floor
New York, New York
10053
21st Century
Communications T-E 944,444(3) 18.0 166,667(4) -- --
Partners, L.P..........
767 Fifth Avenue --
45th Floor
New York, New York
10053
Lance Wolfson........... 18,889 * 18,889 -- --
William Wolfson......... 18,889 * 18,889 -- --
Woodland Venture Fund... 485,556(1)(2) 9.9 151,111(4) 10,000(5) *
c/o Barry Rubenstein
68 Wheatley Road
Brookville, New York
11545
Barry Rubenstein........ 1,430,000(6) 27.9 1,420,000 10,000 *
68 Wheatley Road
Brookville, New York
11545
</TABLE>
- --------
* Less than one percent.

The following table sets forth certain information with respect to the
holders of the Conversion Shares. None of the Selling Securityholders has held
any position or office or has had a material relationship with the Company or
any of its affiliates within the past three years except that the Woodland
Venture Fund and Seneca Ventures were 5% stockholders of the Company prior to
the Public Offering. The Company will not receive any of the proceeds from the
sale of such Conversion Shares by the Selling Securityholders.

3
<PAGE>

<TABLE>
<CAPTION>
NUMBER/% OF SHARES NUMBER/% OF SHARES
OF COMMON STOCK SHARES OF OF COMMON STOCK
BENEFICIALLY OWNED COMMON BENEFICIALLY OWNED
PRIOR TO OFFERING STOCK AFTER OFFERING
--------------------------- TO BE SOLD ------------------------
NAME NUMBER PERCENT IN OFFERING NUMBER PERCENT
---- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Robert Bender........... 13,889 * 13,889 -- --
Stanley H. Blum......... 6,944 * 6,944 -- --
Craig Effron............ 6,944 * 6,944 -- --
Paula Graff............. 6,944 * 6,944 -- --
Frank Lambiase.......... 13,944 * 6,944 2,000 *
Mariwood Investments.... 6,944 * 6,944 -- --
Alan S. Michalowski..... 9,444(7) * 6,944 2,500(6) *
James J. Pinto.......... 13,889 * 13,889 -- --
Alan J. Rubin........... 6,944 * 6,944 -- --
Curtis Schenker......... 6,944 * 6,944 -- --
Seneca Ventures......... 980,834(1)(2) 12.6% 27,778(4) 352,500(5) 4.8%
68 Wheatley Road
Brookville, New York
11545
Carl E. Siegel.......... 6,944 * 6,944 -- --
21st Century
Communications Foreign 1,291,666(3) 15.3% 27,778(4) -- --
Partners, L.P..........
c/o Fiduciary Trust
(Cayman) Limited
P.O. Box 1062
Grand Cayman, B.W.I.
21st Century
Communications 1,291,666(3) 15.3% 236,111(4) -- --
Partners, L.P..........
767 Fifth Avenue--45th
Floor
New York, New York
10053
21st Century
Communications T-E 1,291,666(3) 15.3% 83,333(4) -- --
Partners, L.P..........
767 Fifth Avenue--45th
Floor
New York, New York
10053
Lance Wolfson........... 6,944 * 6,944 -- --
William Wolfson......... 6,944 * 6,944 -- --
Woodland Venture Fund... 980,834(1)(2) 12.6% 55,556(4) 352,500(5) 4.8%
68 Wheatley Road
Brookville, New York
11545
Barry Rubenstein........ 2,272,500(6) 28.2% 1,000(4) 352,500(6) 4.8%
68 Wheatley Road
Brookville, New York
11545
</TABLE>
- --------
* Less than one percent.
(1) Based upon a Joint Schedule 13D filed on September 21, 1995 by Seneca
Ventures ("Seneca"), Woodland Venture Fund ("Woodland Fund"), Woodland
Services Corp. ("Woodland Corp.") and Barry Rubenstein with the Commission
on September 21, 1995, prior to the Public Offering such entities
collectively beneficially held 352,500 shares of Common Stock, of which
Seneca and Woodland Fund have sole voting and dispositive power over 50,000
shares and 70,000 shares of Common Stock, respectively. Woodland Corp. and
Barry Rubenstein are the general partners of Seneca and the Woodland Fund.
Barry Rubenstein is also the President and sole director of Woodland Corp.
and based upon the Schedule 13D, has sole power to vote and dispose of
47,500 shares of Common Stock, 10,000 shares of Common Stock issuable upon
the exercise of IPO Warrants, which are presently exercisable, and 175,000
shares of Common Stock issuable upon the exercise of presently exercisable
options.

4
<PAGE>

(2) In the January 1996 Bridge Financing, Applewood Associates, L.P.
("Applewood"), Seneca and the Woodland Fund purchased Convertible Notes
which, upon the consummation of the Public Offering, were converted into
(a) 69,444; 27,778 and 55,556 Conversion Shares, respectively, and (b)
138,889; 55,556 and 111,111 Conversion Warrants, respectively. In
addition, in the January 1996 Bridge Financing, Applewood, The Marilyn and
Barry Rubenstein Foundation ("Foundation"), Seneca, the Woodland Fund and
Dalewood Associates LP ("Dalewood") purchased 50,000; 20,000; 20,000;
40,000 and 40,000 January 1996 Warrants, respectively, all of which were
exchanged into a like number of IPO Warrants. Such IPO Warrants and the
Conversion Warrants are presently exercisable and along with the
Conversion Shares are being offered for resale for their own accounts;
however, the holders of such Securities and the Common Stock underlying
such Securities may not sell any of such Securities until one year from
the date of the Public Offering without the prior consent of the
Underwriter. Barry Rubenstein is a trustee of the Foundation, a general
partner of Applewood and is a 50% stockholder and an executive officer of
the general partner of Dalewood. The information included herein does not
include Common Stock beneficially held by 21st Foreign (as defined
herein), 21st Partners (as defined herein) and 21st T-E (as defined
herein). If the beneficial ownership of such entities is combined with the
beneficial ownership of Seneca, Woodland Fund, Woodland Corp., the
Foundation and Dalewood, then all of such entities upon consummation of
the Public Offering collectively beneficially held 2,272,500 shares of
Common Stock, including presently exercisable options and warrants.
(3) In the January 1996 Bridge Financing, 21st Century Communications Foreign
Partners, L.P. ("21st Foreign"), 21st Century Communications Partners,
L.P. ("21st Partners") and 21st Century Communications T-E Partners, L.P.
("21st T-E") purchased Convertible Notes which, upon the consummation of
the Public Offering, were converted into (a) 27,778; 236,111; and 83,333
Conversion Shares, respectively, and (b) 55,556; 472,222 and 166,666
Conversion Warrants, respectively. In addition, in the January 1996 Bridge
Financing, 21st Foreign, 21st Partners and 21st T-E purchased 20,000;
170,000 and 60,000 January 1996 Warrants, respectively, all of which were
exchanged into a like number of IPO Warrants. Such IPO Warrants and the
Conversion Warrants are presently exercisable and along with the
Conversion Shares are being offered for resale for their own accounts;
however, the holders of such securities, the Common Stock underlying such
securities and the Conversion Shares may not sell any of such securities
until one year from the date of the Offering without the prior consent of
the Underwriter. The general partners of each of 21st Century, 21st
Partners and 21st T-E are Sandler Investment Partners Ltd. and InfoMedia
Associates, Ltd. Barry Rubenstein is a principal shareholder of InfoMedia
Associates Ltd. The information included herein does not include Common
Stock beneficially held by Seneca, Woodland Fund, Woodland Corp., Barry
Rubenstein, the Foundation and Dalewood. If the beneficial ownership of
such entities is combined with 21st Foreign, 21st Partners and 21st T-E,
then all of such entities upon the consummation of the Public Offering,
collectively beneficially held 2,272,500 shares of Common Stock, including
presently exercisable options and warrants.
(4) Reflects the number of IPO Warrants (including Conversion Warrants) and
Conversion Shares which are being sold individually by such entity.
(5) Reflects sales of IPO Warrants (including Conversion Warrants) and
Conversion Shares were are being sold by all members of such entity's
group.

(6) Includes Common Stock, Conversion Shares, Conversion Warrants and IPO
Warrants held by Applewood, Seneca, Woodland Fund, the Foundation,
Dalewood, 21st Partners, 21st Foreign and 21st T-E.

(7) Consists of 300 shares held by Mr. Michalowski's son, 100 shares held by
Mr. Michalowski's IRA and 2,100 shares held jointly by Mr. Michalowski and
his wife.

5
<PAGE>

PLAN OF DISTRIBUTION

The Selling Securityholders have advised the Company that sales of the
Securities may be effected from time to time in transactions (which may
include block transactions) on the Nasdaq SmallCap Market or The Boston Stock
Exchange, in negotiated transactions, or a combination of such methods of
sale, 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 the Securities directly to purchasers or to or
through broker-dealers which may act as agents or principals. Such broker-
dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers of the
Securities for whom such broker-dealers may act as agents or to whom they sell
as principal, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). The Selling Securityholders and
any broker-dealers that act in connection with the sale of the Securities
might be deemed to be "underwriters" within the meaning of Section 2(11) of
the Securities Act. Each of the Selling Securityholders is obligated to comply
with certain rules promulgated by the Commission designed to prevent
manipulative and deceptive practices, including Rules 10b-2, 10b-6 and 10b-7
promulgated under the Exchange Act.

The Selling Securityholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of their
securities against certain liabilities, including liabilities arising under
the Securities Act.

All costs, expenses and fees in connection with the registration of
securities offered by the Selling Securityholders will be borne by the
Company. Brokerage commissions, if any, attributable to the sale of the
securities offered by the Selling Securityholders will be borne by the Selling
Securityholders. The Company has agreed to indemnify the Selling
Securityholders, and the Selling Securityholder shave agreed to indemnify the
Company, against certain liabilities, including liabilities under the
Securities Act.

The Selling Securityholders have agreed that they will not sell any of the
Securities registered herein until one year after the consummation of the
Public Offering without the prior consent of the Underwriter.

6
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Except as hereinafter set forth, there is no statute, charter provision, by-
law, contract or other arrangement under which any controlling person,
director or officer of Enteractive, Inc. ("Company") is insured or indemnified
in any manner against liability which he may incur in his capacity as such.

The Certificate of Incorporation, as amended ("Certificate of
Incorporation"), of the Company provides that the Company shall indemnify to
the fullest extent permitted by Delaware law any person whom it may indemnify
thereunder, including directors, officers, employees and agents of the
Company. The pertinent section of Delaware law is set forth below in full.
Such indemnification (other than as ordered by a court) shall be made by the
Company only upon a determination that indemnification is proper in the
circumstances because the individual met the applicable standard of conduct.
Advances for such indemnification may be made pending such determination. Such
determination shall be made by a majority vote of a quorum consisting of
disinterested directors, or by independent legal counsel or by the
stockholders. In addition, the Certificate of Incorporation provides for the
elimination, to the extent permitted by Delaware law, of personal liability of
directors to the Company and its stockholders for monetary damages for breach
of fiduciary duty as directors.

The Company obtained a directors and officers insurance and company
reimbursement policy in the amount of $1,000,000. The policy insures directors
and officers against unindemnified loss arising from certain wrongful acts in
their capacities and would reimburse the Company for such loss for which the
Company has lawfully indemnified the directors and officers.

See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission with respect
to the effect of any indemnification for liabilities arising under the
Securities Act of 1933, as amended ("Securities Act").

Section 145 of the General Corporation Law provides as follows:

(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless

II-1
<PAGE>

and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court shall deem
proper.

(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2)
if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.

(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors
deems appropriate.

(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.

(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under this section.

(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.

(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to any employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the

II-2
<PAGE>

interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this section.

(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.

The Company has also agreed to indemnify each director and executive officer
pursuant to an Indemnification Agreement with each such director and executive
officer from and against any and all expenses, losses, claims, damages and
liability incurred by such director or executive officer for or as a result of
action taken or not taken while such director or executive officer was acting
in his capacity as a director, officer, employee or agent of the Company.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated costs and expenses to be borne
by the Company in connection with the offering described in the Registration
Statement, other than underwriting commissions and discounts.

<TABLE>
<S> <C>
Registration Fee.............................................. $ 8,927.44
National Association of Securities Dealers, Inc. Fee.......... 3,102.00
Nasdaq SmallCap Market and The Boston Stock Exchange Filing
Fee.......................................................... 27,500.00
Legal Fees and Expenses....................................... 100,000.00
Accounting Fees and Expenses.................................. 50,000.00
Printing and Engraving Expenses............................... 60,000.00
Blue Sky Fees and Expenses.................................... 25,000.00
Transfer Agent's and Registrar's Fees......................... 5,000.00
Miscellaneous Expenses........................................ 20,470.56
----------
Total....................................................... 300,000
==========
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

During the past three years, the following securities were sold by the
Company without registration under the Securities Act. Except as otherwise
indicted, the securities were sold by the Company in reliance upon the
exemption provided by Section 4(2) of the Securities Act.

In January 1994, the Company issued 600,000 shares of its Common Stock, $.01
par value ("Common Stock") to The Continuum Group, Inc. ("Continuum") for an
aggregate consideration from Continuum of approximately $1,531,100, including
$781,000 contributed by Continuum in connection with the private placement
described below. In August 1994, the Company repurchased such shares for
$1,000,000.

In January 1994, in connection with a private placement of 200,000 units,
each unit consisting of one share of common stock of Continuum and warrants to
purchase 1.7 shares of the Company, the Company issued warrants to purchase an
aggregate of 340,000 shares of the Company at an exercise price of $2.35 per
share to 23 accredited investors. The units had a purchase price of $4.00 per
unit and the net proceeds of the private placement were contributed by
Continuum to the Company.

In May 1994, in connection with a bridge financing, the Company issued the
following promissory notes and warrants to the following persons:

II-3
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NUMBER OF
PROMISSORY NOTES WARRANTS
---------------- ---------
<S> <C> <C>
Dalewood Associates, L.P............................. $ 300,000 120,000
Barry Fingerhut...................................... 50,000 20,000
Gordon Freeman....................................... 200,000 80,000
Gaymark Assoc........................................ 50,000 20,000
Gerald Josephson..................................... 200,000 80,000
Irwin Lieber......................................... 50,000 20,000
Rev-Wood Merchant Partners........................... 650,000 260,000
Alan Silverman....................................... 50,000 20,000
Mark Silverman....................................... 50,000 20,000
Michael Sofia........................................ 100,000 40,000
David Thalheim....................................... 100,000 40,000
The Northern Union Club.............................. 200,000 80,000
---------- -------
Total.............................................. $2,000,000 800,000
========== =======
</TABLE>

At the time of the Company's initial public offering, the warrants issued in
connection with the May 1994 Bridge Financing ("May 1994 Warrants") were
exchanged for warrants with the same terms as the warrants offered in the
Company's initial public offering ("IPO Warrants"). This exchange was pursuant
to a contractual right contained in the May 1994 Warrants. The Company issued
the IPO Warrants to the holders of the May 1994 Warrants in reliance upon the
exemption provided by Section 3(a)(9) of the Securities Act.

In May 1994, Sonic Image Productions, Inc. merged into and with the Company.
In connection with such merger the following persons received the following
shares.

<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
John Ramo...................................................... 816,993
Jolie Barbiere................................................. 816,993
Zenon Slawinski................................................ 510,621
Michael Alford................................................. 283,905
Ernest B. Kelly, III........................................... 46,977
---------
Total........................................................ 2,475,489
=========
</TABLE>

In August 1994, Rev-Wood Merchant Partners purchased 75,000 shares from John
Ramo, an affiliate of the Company, for $125,000.

In January 1996, in connection with a bridge financing, the Company issued
the following convertible notes and bridge warrants to the following persons:

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF NUMBER OF
NAME PROMISSORY NOTES WARRANTS
---- ------------------- ---------
<S> <C> <C>
Applewood Associates, L.P...................... $ 250,000 50,000
ALSA, INC...................................... 25,000 5,000
Neil Bellet.................................... 25,000 5,000
Robert Bender.................................. 50,000 10,000
Stanley H. Blum................................ 25,000 5,000
Dalewood Associates, L.P....................... 200,000 40,000
Craig Effron................................... 25,000 5,000
Gordon M. Freeman.............................. 50,000 10,000
Paula Graff.................................... 25,000 5,000
James Jannello................................. 25,000 5,000
</TABLE>

II-4
<PAGE>

<TABLE>
<S> <C> <C>
Frank Lambiase............................................... 25,000 5,000
Clifford Lane................................................ 25,000 5,000
Mariwood Investments......................................... 25,000 5,000
Alan S. Michalowski.......................................... 25,000 5,000
James J. Pinto............................................... 50,000 10,000
The Marilyn and Barry Rubenstein Family Foundation........... 100,000 20,000
Alan J. Rubin................................................ 25,000 5,000
Mark Rubino.................................................. 25,000 5,000
Curtis Schenker.............................................. 25,000 5,000
Seneca Ventures.............................................. 100,000 20,000
Carl E. Siegel............................................... 25,000 5,000
David Thalheim............................................... 50,000 10,000
21st Century Communications Foreign Partners, L.P............ 100,000 20,000
21st Century Communications Partners, L.P.................... 850,000 170,000
21st Century Communications T-E Partners, L.P................ 300,000 60,000
Lance Wolfson................................................ 25,000 5,000
William Wolfson.............................................. 25,000 5,000
Woodland Venture Fund........................................ 200,000 40,000
---------- -------
Total...................................................... $2,700,000 540,000
========== =======
</TABLE>

In February 1996, Lyriq International Corp. merged into and with the
Company. In connection with such merger, Randal Hujar and Gary Skiba received
303,651 and 310,867 shares of Common Stock, respectively.

ITEM 27. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*1 Form of Underwriting Agreement.
*1.2 Form of Selected Dealers Agreement.
***2.1 Merger Agreement dated as of April 11, 1994 by and among the Company
and Sonic Images Productions, Inc.
*2.2 Agreement and Plan of Merger dated as of February 29, 1996, by and
among the Company, Lyriq International Corp., Enteractive
Acquisition Corp., Randal Hujar and Gary Skiba.
***3.1 Certificate of Incorporation of the Company, as amended.
**3.2 Amendment to Certificate of Incorporation.
***3.3 By-laws of the Company, as amended.
***4.1 Form of Common Stock Certificate.
***4.2 Form of warrant, as amended, issued in connection with January 1994
Private Placement.
***4.3 Form of warrant issued in connection with May 1994 Private
Placement.
***4.5 Shareholders Agreement dated as of August 31, 1994, by and among the
Company, Andrew Gyenes, John Ramo, Jolie Barbiere, Zenon Slawinski
and Michael Alford.
***4.6 Form of IPO Warrant Certificate.
***4.7 Form of Unit Purchase Option granted to GKN Securities Corp. (the
"Underwriter").
***4.8 Warrant Agreement between Continental Stock Transfer and Trust
Company and the Company.
*4.9 Form of Common Stock Purchase Option granted to the Underwriter.
*4.10 Form of Warrant issued in connection with January 1996 Private
Placement.
**5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
***10.1 Employment Agreement dated as of January 3, 1994, by and between the
Company and Andrew Gyenes.
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
***10.2 Employment Agreement dated as of July 15, 1992, as amended January
3, 1994 and May 10, 1994, by and between the Company and John Ramo.
***10.3 Registration Rights Agreement dated May 10, 1994, by and among the
Company and John Ramo, Jolie Barbiere, Zenon Slawinski, Ernest B.
Kelly, III, and Michael Alford.
***10.4 Form of Indemnification Agreement between each of the Officers and
Directors of the Company and the Company.
***10.5 Stock Purchase Agreement dated as of August 31, 1994, by and
between the Company and Continuum.
***10.6 Agreement of Lease dated February 17, 1994, by and between the
Company and 110 W. 40 Joint Venture.
***10.7 Agreement of Lease dated March 30, 1992, May 1, 1992 and March 1,
1993, by and between the Company and William K. Montouri/ZAR
Limited.
***10.8 1994 Incentive and Non-Qualified Stock Option Plan.
***10.9 1994 Consultant Stock Option Plan.
***10.10 Form of option letter to employees of Continuum and consultants.
*10.12 Repurchase Agreement dated December 28, 1995, by and among the
Company and John Ramo, Jolie Barbiere, Zenon Slawinski and Michael
Alford.
*10.13 Form of Unsecured Convertible Promissory Note issued in connection
with January 1996 Private Placement.
****10.14 1995 Stock Option Plan for Outside Directors.
*10.16 Registration Rights Agreement dated February 29, 1996, by and among
the Company, Randal Hujar and Gary Skiba.
*10.17 Employment Agreement dated as of February 29, 1996 between the
Company and Randal Hujar.
*10.18 Employment Agreement dated as of February 29, 1996 between the
Company and Gary Skiba.
**23.1 Consent of KPMG Peat Marwick LLP.
**23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP, included in
Exhibit 5.
*24 Power of Attorney (included in Part II, page II-9).
</TABLE>
- --------
* Previously filed
** Filed herewith
*** Incorporated herein by reference to such Exhibit to the Registration
Statement on Form SB-2 of the Company (Registration No. 33-83694)
**** Incorporated herein by reference to such Exhibit to the Company's Annual
Report on Form 10-KSB (Commission File No. 1-13360)

ITEM 28. UNDERTAKINGS.

The undersigned Registrant hereby undertakes:

(1) File, during any period in which it offers or sales securities, a
post-effective amendment to this registration statement to;

(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

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

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

II-6
<PAGE>

(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the
securities offered, and in the offering of such securities at that time to
be the initial bona fide offering.

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

The undersigned small business issuer will provide to the Representative at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

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

In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

The undersigned small business issuer will:

(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this registration statement as
of the time the Commission declared it effective.

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

II-7
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Amendment
No. 3 to the Registration Statement, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 9th day of May, 1996.

Enteractive, Inc.

/s/ Andrew Gyenes
By: _________________________________
NAME: ANDREW GYENES
TITLE: CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

In accordance with the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.

NAME TITLE DATE
---- ----- ----

/s/ Andrew Gyenes Chairman of the
- ------------------------------------- Board and Chief May 9, 1996
ANDREW GYENES Executive Officer
(Principal
Executive Officer)

* President, Chief
- ------------------------------------- Operating Officer May 9, 1996
JOHN RAMO and Director

* Vice President for
- ------------------------------------- Creative May 9, 1996
JOLIE BARBIERE Development and
Director

* Vice President for
- ------------------------------------- Development and May 9, 1996
MICHAEL ALFORD Director

* Director
- ------------------------------------- May 9, 1996
PETER GYENES

II-8
<PAGE>

NAME TITLE DATE

* Director
- ------------------------------------- May 9, 1996
HARRISON WEAVER

* Director
- ------------------------------------- May 9, 1996
RINO BERGONZI

* Vice President,
- ------------------------------------- Chief Financial May 9, 1996
KENNETH GRUBER Officer (Principal
Financial Officer
and Principal
Accounting Officer)
and Secretary

* /s/ Andrew Gyenes
- -------------------------------------
BY: ANDREW GYENES, ATTORNEY-IN-FACT

II-9
<PAGE>

The picture on the inside front cover depicts current interactive multimedia
titles of the Company.
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX NO. 1
------- ------------- -----
<C> <S> <C>
*1 Form of Underwriting Agreement.
*1.2 Form of Selected Dealers Agreement.
***2.1 Merger Agreement dated as of April 11, 1994 by and among the
Company and Sonic Images Productions, Inc.
*2.2 Agreement and Plan of Merger dated as of February 29, 1996,
by and among the Company, Lyriq International Corp.,
Enteractive Acquisition Corp., Randal Hujar and Gary Skiba.
***3.1 Certificate of Incorporation of the Company, as amended.
**3.2 Amendment to Certificate of Incorporation.
***3.3 By-laws of the Company, as amended.
***4.1 Form of Common Stock Certificate.
***4.2 Form of warrant, as amended, issued in connection with
January 1994 Private Placement.
***4.3 Form of warrant issued in connection with May 1994 Private
Placement.
***4.5 Shareholders Agreement dated as of August 31, 1994, by and
among the Company, Andrew Gyenes, John Ramo, Jolie Barbiere,
Zenon Slawinski and Michael Alford.
***4.6 Form of IPO Warrant Certificate.
***4.7 Form of Unit Purchase Option granted to GKN Securities Corp.
(the "Underwriter").
***4.8 Warrant Agreement between Continental Stock Transfer and
Trust Company and the Company.
*4.9 Form of Common Stock Purchase Option granted to the
Underwriter.
*4.10 Form of Warrant issued in connection with January 1996
Private Placement.
**5 Opinion of Olshan Grundman Frome & Rosenzweig LLP.
***10.1 Employment Agreement dated as of January 3, 1994, by and
between the Company and Andrew Gyenes.
***10.2 Employment Agreement dated as of July 15, 1992, as amended
January 3, 1994 and May 10, 1994, by and between the Company
and John Ramo.
***10.3 Registration Rights Agreement dated May 10, 1994, by and
among the Company and John Ramo, Jolie Barbiere, Zenon
Slawinski, Ernest B. Kelly, III, and Michael Alford.
***10.4 Form of Indemnification Agreement between each of the
Officers and Directors of the Company and the Company.
***10.5 Stock Purchase Agreement dated as of August 31, 1994, by and
between the Company and Continuum.
***10.6 Agreement of Lease dated February 17, 1994, by and between
the Company and 110 W. 40 Joint Venture.
***10.7 Agreement of Lease dated March 30, 1992, May 1, 1992 and
March 1, 1993, by and between the Company and William K.
Montouri/ZAR Limited.
***10.8 1994 Incentive and Non-Qualified Stock Option Plan.
***10.9 1994 Consultant Stock Option Plan.
***10.10 Form of option letter to employees of Continuum and
consultants.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT INDEX NO. 1
------- ------------- -----
<C> <S> <C>
*10.12 Repurchase Agreement dated December 28, 1995, by and among
the Company and John Ramo, Jolie Barbiere, Zenon Slawinski
and Michael Alford.
*10.13 Form of Unsecured Convertible Promissory Note issued in
connection with January 1996 Private Placement.
****10.14 1995 Stock Option Plan for Outside Directors.
*10.16 Registration Rights Agreement dated February 29, 1996, by
and among the Company, Randal Hujar and Gary Skiba.
*10.17 Employment Agreement dated as of February 29, 1996 between
the Company and Randal Hujar.
*10.18 Employment Agreement dated as of February 29, 1996 between
the Company and Gary Skiba.
**23.1 Consent of KPMG Peat Marwick LLP.
**23.2 Consent of Olshan Grundman Frome & Rosenzweig LLP, included
in Exhibit 5.
*24 Power of Attorney (included in Part II, page II-9).
</TABLE>
- --------
* Previously filed
** Filed herewith
*** Incorporated herein by reference to such Exhibit to the Registration
Statement on Form SB-2 of the Company (Registration No. 33-83694)
**** Incorporated herein by reference to such Exhibit to the Company's Annual
Report on Form 10-KSB (Commission File No. 1-13360)

<PAGE>

CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
ENTERACTIVE, INC.

_________________________________________

Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
_________________________________________

ENTERACTIVE, INC., a Delaware corporation (the "Corporation"), does
hereby certify as follows:

FIRST: The first paragraph of Article FOURTH of the Corporation's
Certificate of Incorporation is hereby amended to read in its entirety as set
forth below:

The total number of shares of capital stock which the corporation
shall have authority to issue is thirty-two million (32,000,000)
shares, of which thirty million (30,000,000) shares are to be shares
of Common Stock, par value $.01 per share, and two million (2,000,000)
shares are to be shares of Preferred Stock, par value $.01 per share.

SECOND: The foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, ENTERACTIVE, INC. has caused this Certificate to
be duly executed in its corporate name this 25th day of April, 1996.

ENTERACTIVE, INC.

By: /s/ Kenneth J. Gruber
------------------------
Name: Kenneth J. Gruber
Title: Secretary

<PAGE>

[LETTERHEAD OF OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP]

May 9, 1996

Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549

Re: Enteractive, Inc.
Commission File No. 333-2244
Registration Statement on Form SB-2
-----------------------------------

Gentlemen:

Reference is made to the Registration Statement on Form SB-2 dated March
12, 1996, as amended, (the "Registration Statement"), filed with the Securities
and Exchange Commission by Enteractive, Inc., a Delaware corporation (the
"Company"). The Registration Statement relates to (i) 2,300,000 shares (the
"Public Offering Shares") of Common Stock, par value $.01 per share ("Common
Stock"), (ii) the Underwriter's Common Stock Purchase Option (the "CPO")
consisting of 200,000 shares of Common Stock ("CPO Shares", (iii) 625,000 shares
(the "Conversion Shares") of Common Stock to be issued in connection with the
conversion of convertible promissory notes ("Convertible Notes") delivered in
connection with a private placement consummated in January 1996 ("January 1996
Bridge Financing"), into Common Stock, (iv) 540,000 Common Stock Purchase
Warrants ("Bridge Warrants") granted in the January 1996 Bridge Financing, (v)
1,250,000 Common Stock Purchase Warrants ("Conversion Warrants") to be granted
in connection with the conversion of Convertible Notes and (vi) 1,790,000 shares
of Common Stock underlying the Bridge Warrants and the Conversion Warrants (the
"January 1996 Bridge Financing Warrant Shares").
<PAGE>

May 9, 1996
Page -2-

We advise you that we have examined original or copies certified or
otherwise identified to our satisfaction of the Certificate of Incorporation and
By-laws of the Company, minutes of meetings of the Board of Directors and
shareholders of the Company, the Registration Statement and the underwriting
agreement, each as described in the Registration Statement and such other
documents, instruments and certificates of officers and representatives of the
Company and public officials, and we have made such examination of the law as we
have deemed appropriate as the basis for the opinion hereinafter expressed. In
making such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to original documents of documents submitted to us as certified or photostatic
copies. We further advise you that with respect to the number of Conversion
Shares, Conversion Warrants and January 1996 Bridge Financing Warrant Shares to
be registered, we have assumed an Offering Price for the Public Offering Shares
of $4.00 per share.

Based upon the foregoing, we are of the opinion that:

(a) The Public Offering Shares have been duly authorized and, when issued
and sold pursuant to the Registration Statement, will be legally issued, fully
paid and non-assessable;

(b) The CPO has been duly authorized and, when issued and sold, will be
legally issued, fully paid and non-assessable;

(c) The CPO Shares have been duly authorized and, when issued and sold as
part of the CPO, will be legally issued, fully paid and non-assessable;

(d) The Conversion Shares have been duly authorized and, when issued and
sold pursuant to the Registration Statement, will be legally issued, fully paid
and non-assessable;

(e) The Bridge Warrants have been duly authorized and granted;

(f) The Conversion Warrants have been duly authorized upon the conversion
of the Conversion Notes; and

(g) The January 1996 Bridge Financing Shares have been duly authorized and
reserved for and, when issued upon the exercise of the Bridge Warrants and the
Conversion Warrants, will be legally issued, fully paid and non-assessable.
<PAGE>

May 9, 1996
Page -3-

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and we further consent to the reference to this firm
under the caption "Legal Matters" in the Registration Statement and the
Prospectus forming a part thereof.

Very truly yours,

OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Enteractive, Inc.:

We consent to the use of our reports included herein (Amendment No. 3 to Form
SB-2) and to the reference to our firm under the heading "Experts" in the
prospectus.

Our report, related to the financial statements for Enteractive, Inc., refers
to a change in the method of accounting for income taxes.

KPMG PEAT MARWICK LLP

New York, New York
May 9, 1996