OBJECTIVE COMMUNICATIONS INC, 424B1, 1997-04-04

OBJECTIVE COMMUNICATIONS INC
424B1, 1997-04-04
TELEGRAPH & OTHER MESSAGE COMMUNICATIONS

Previous: QUEEN SAND RESOURCES INC, PRE 14C, 1997-04-04

Next: FUN TYME CONCEPTS INC, DEF 14A, 1997-04-04

<PAGE> 1
Filed Pursuant to 424(b)(1)
Registration No. 333-20625

PROSPECTUS

OBJECTIVE COMMUNICATIONS, INC.
1,800,000 SHARES
COMMON STOCK
------------------

Objective Communications, Inc. (the "Company") hereby offers (the
"Offering") 1,800,000 shares of common stock, par value $.01 per share (the
"Common Stock"). Prior to the Offering, there has been no public market for the
Common Stock. The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market (the "Nasdaq SmallCap Market"), subject to notice of issuance,
under the symbol OCOM. The initial public offering price of the Common Stock has
been determined by negotiations between the Company and the Underwriter. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price.

The Company has also registered on the registration statement of which this
Prospectus constitutes a part the offering by certain selling stockholders (the
"Selling Stockholders") from time to time of up to 1,130,000 shares of Common
Stock. Concurrently with the Offering, and subject to certain lock-up
arrangements, such Selling Stockholders may offer and sell such shares of Common
Stock on the Nasdaq SmallCap Market in negotiated transactions or otherwise. No
underwriting arrangements have been entered into by the Selling Stockholders.
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders. See "Shares Eligible for Future Sale."
------------------

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

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD
TO SUSTAIN A TOTAL LOSS OF THEIR INVESTMENT. PROSPECTIVE PURCHASERS SHOULD
CONSIDER CAREFULLY THE MATTERS SET FORTH UNDER "RISK FACTORS" BEGINNING
ON PAGE 8 OF THIS PROSPECTUS.

<TABLE>
<CAPTION>
=================================================================================================================

UNDERWRITING
PRICE TO PUBLIC DISCOUNTS AND COMMISSIONS (1) PROCEEDS TO COMPANY (2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Per Share........................... $5.50 $0.53 $4.97
- -----------------------------------------------------------------------------------------------------------------
Total (3)........................... $9,900,000 $954,000 $8,946,000
=================================================================================================================
</TABLE>

(1) Does not reflect additional compensation to be received by the Underwriter
including (i) a non-accountable expense allowance equal to 3% of the gross
proceeds of the Offering (of which $40,000 has been paid), (ii) options
entitling the Underwriter to purchase from the Company, for a period of five
years from the date of this Prospectus, up to 180,000 shares of Common Stock
at an exercise price equal to 165% of the initial public offering price (the
"Underwriter's Options") and (iii) an $80,000 consulting fee (exclusive of
any accountable out-of-pocket expenses), payable to the Underwriter on the
consummation of the Offering, representing payment under a two-year
consulting agreement pursuant to which the Underwriter will render
non-exclusive advisory services to the Company. The Company has also agreed
to indemnify the Underwriter against certain liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."

(2) Before deducting expenses payable by the Company (including the
Underwriter's non-accountable expense allowance) estimated at $1,797,350
($1,985,203 if the Underwriter's Over-Allotment Option, as defined below, is
exercised in full). See "Use of Proceeds."

(3) The Company has granted to the Underwriter an option exercisable within 45
days after the closing date of the Offering to purchase up to 270,000
additional shares of Common Stock on the same terms and conditions as set
forth above solely to cover over-allotments (the "Over-Allotment Option").
If the Over-Allotment Option is exercised in full, the total Price to
Public, total Underwriting Discounts and Commissions and total Proceeds to
Company will be $11,385,000, $1,097,100 and $10,287,900, respectively. See
"Underwriting."

The Common Stock offered hereby is offered subject to prior sale, when, as if
delivered to and accepted by the Underwriter, and subject to approval of certain
legal matters by their counsel and to certain other conditions. The Underwriter
reserves the right to withdraw, cancel or modify such offer and to reject any
order, in whole or part. It is expected that delivery of the certificates
representing the shares of Common Stock will be made at the offices of Barington
Capital Group, L.P., 888 Seventh Avenue, New York, New York 10019, on or about
April 8, 1997.

BARINGTON CAPITAL GROUP, L.P.

The date of this Prospectus is April 3, 1997.
<PAGE> 2

[Color photographs of the EVS-50, a
VidPhone(R) terminal and the VidModem(TM).]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING TRANSACTIONS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."

The Company intends to furnish to its stockholders annual reports
containing financial statements audited by independent accountants and such
other periodic reports as the Company may deem appropriate or as may be required
by law.

Objective Communications(R) and VidPhone(R) are registered trademarks of
the Company. This Prospectus also contains trademarks and trade names of other
companies.

2
<PAGE> 3

Unless otherwise indicated, the information contained in this Prospectus
assumes that the Over-Allotment Option is not exercised. Except as otherwise
indicated, all share information and per share amounts set forth in this
Prospectus have been adjusted to reflect a one-for-two reverse stock split (the
"Recapitalization"), effective on December 5, 1996. A glossary of certain terms
used in this Prospectus is provided on page 38. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in such
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed under the heading "Risk Factors." The
shares offered hereby involve a high degree of risk.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Financial Statements, including the notes thereto, appearing
elsewhere in this Prospectus and should be read in conjunction with that
information and those Financial Statements and notes. Prospective investors are
urged to read this Prospectus in its entirety.

THE COMPANY

Objective Communications, Inc. (the "Company") has developed a proprietary
video communications system, the VidPhone(R) system, which is an integrated
hardware and software system that provides high-quality, low-cost video
distribution and stereo audio transmission using the existing unshielded
telephone wiring. The VidPhone(R) enables video conferencing, data and file
sharing, full-motion broadcasting and retrieval of stored data directly to or
from a desktop personal computer (the "desktop") or conference room system. The
Company believes that the VidPhone(R) system offers greater functionality and
compatibility with existing infrastructure at a lower price than most
high-quality video conferencing equipment on the market today. The Company
believes that it offers the only video distribution system that combines all
three major video applications, video conferencing, video broadcast and video
retrieval, in a single cost-effective, turn-key solution.

INDUSTRY BACKGROUND

The Company's VidPhone(R) system targets, in particular, the video
conferencing market. According to a 1996 report by Frost and Sullivan, the U.S.
video conferencing market generated revenues of $2.94 billion in 1995 and
revenues are projected to grow to over $34.76 billion by the year 2002, which
would represent a compound annual growth rate of 42.3% over such period. The
video conferencing market currently consists of two segments: services and
systems. Video conferencing services include transport services, which provide
Integrated Services Digital Network ("ISDN") line service for teleconference
parties; multi-point bridging services, which coordinate calls among various
parties at multiple locations; and public room services, which provide video
conferencing services equipment to the public for a per-hour or per-day charge.
The video conferencing systems currently available include permanently-installed
and portable boardroom systems and desktop systems. According to a November 1996
article in PCWeek, the desktop segment of the video conferencing market, which
the Company services, is expected to grow from 300,000 units shipped in 1996 to
6,200,000 shipped by 2000. Additionally, the Company intends to market the
VidPhone(R) system to potential users of video broadcast and retrieval at the
desktop and in the boardroom.

PRODUCTS

The VidPhone(R) system enables an existing Private Branch Exchange ("PBX")
or Centrex system to transmit live television broadcasts, conduct two-way or
multi-party video conferences and distribute stored video material to the
desktop. The Company believes that these applications can be used for meetings,
training programs and retrieval of real-time financial market information and
other news.

3
<PAGE> 4

The Company's VidPhone(R) system uses a core technology developed by the
Company called the VidModem(TM) (patent pending). The VidModem(TM) enables the
VidPhone(R) to transmit and receive full-motion laser disc-quality video,
compact disc-quality stereo audio and high-speed data to and from each user.
VidModem(TM) requires only a single, unshielded twisted pair ("UTP").
VidModem(TM) technology utilizes the same single UTP wire that serves existing
telephone systems and, as a result, does not require a customer to install new
wiring or infrastructure. The VidModem(TM) is compatible with most digital and
analog telephony systems sold by the leading PBX and telephone vendors and also
functions on the newest ISDN telephone systems. The Company's proprietary
VidPhone(R) system provides the user with a client/server architecture that can
create a video network using an existing PBX or Centrex system. VidPhone(R) is
also compatible with a customer's existing standard telephone system, and all
VidPhone(R) system functions, video retrieval, broadcast and conferencing, can
be performed while a user simultaneously engages in a telephone conversation
over the same UTP wire. This minimizes a customer's need for new communications
or transport infrastructure. The Company believes that these features of the
Company's VidPhone(R) system will make it attractive to potential customers
because it is cost-effective, functional and easily installed.

The VidPhone(R) system is composed of four basic components: the
VidPhone(R) terminal, which is a user's desktop configured to provide one- and
two-way video communications within an office building using VidModem(TM)
technology, the Enterprise Video Switch ("EVS"), VidPhone(R) remote terminals,
which provide communications with remote locations, and proprietary software.
The EVS can accommodate a variety of interfaces, including multiple VidModem(TM)
cards, Asynchronous Transfer Mode ("ATM") switches, ISDN lines and multi-point
conference bridges. The VidPhone(R) system supports one-way and two-way
multimedia communications. The VidPhone(R) provides its own internal data
communications network and does not rely on a Local Area Network ("LAN") to
operate. The VidPhone(R) is completely compatible with LAN installations,
however, and also can provide complementary services to corporate or enterprise
networks ("intranets").

The Company has completed the development of the EVS-10 demonstration
VidPhone(R) system, a fully functional product with up to ten user ports
available designed for beta testing of the VidPhone(R) technology. Currently,
six such systems have been installed at beta sites at no cost to the end-user,
and additional units are in production and scheduled for installation at the
sites of potential resellers and customers early in the second quarter of 1997.
EVS-50, the commercial version of the VidPhone(R) system, is currently under
development and is expected to be completed in late 1997. The Company currently
expects to begin commercial production and installation of the first units in
late 1997. The EVS-50 system, when completed, is expected to accommodate up to
50 simultaneous conferees, and is designed by the Company to be highly reliable
and easily maintained. The Company intends to use a portion of the net proceeds
of the Offering to complete the initial production of the EVS-50 and to provide
technical support for its initial deployment. There can be no assurance that the
Company will complete development or manufacture of such systems or begin
installation of such systems on its current time schedule. See "Risk
Factors -- Development of New Products; Industry Acceptance," "Use of Proceeds"
and "Business -- Product Research and Development."

The Company also has developed three software applications for use with the
VidPhone(R). Objective View(TM) is the Company's primary software platform that
provides a graphical user interface for the VidPhone(R). TeleDraw(TM) is a
full-featured software package that permits collaborative drawing, annotation
and editing of drawings or pictures from remote locations. TeleShare(TM) allows
participants in different locations to share spreadsheet or word processing
applications.

The Company believes that the VidPhone(R) system eliminates the
cost/quality trade-off faced by potential users of video applications. The
Company currently expects that the VidPhone(R) system will cost under $5,000. In
the current market, video applications systems with high-resolution and
realistic video images can cost a purchaser in excess of $15,000 for a
fully-equipped unit that operates at only one location within a facility.
Although such systems can operate on low-capacity ISDN lines, Bell
Communications Research ("Bellcore") studies show that, without adding costly,
high-capacity lines to its existing infrastructure, the user cannot receive the
best video quality for business applications from a boardroom system. As an
alternative, desktop systems generally cost under $10,000 per unit, but provide
video images that are low resolution and unrealistic. Thus, the Company believes
that the affordable video application products currently

4
<PAGE> 5

available fail to provide the primary objective of video conferencing, which is
to see and hear the other conferees clearly and easily. Additionally, many video
conferencing units available today are incompatible with units at other
locations because they use proprietary protocols rather than the international
standard. The VidPhone(R) system is compatible with the international protocol
for use with existing ISDN and other lines and will function on a proprietary
protocol for ATM switches until an international protocol for ATM is developed.

STRATEGY

The Company believes that the VidPhone(R) system offers users a
cost-effective video conferencing product without sacrificing image resolution.
The high cost of high-resolution video conferencing equipment with which the
VidPhone(R) system will compete, the capital costs and wiring requirements
associated with the installation of such systems, and the lack of video
broadcast and retrieval applications in the workplace, are expected to present
the Company with a competitive advantage as it markets the VidPhone(R) system
and its related software applications to customers in the desktop and boardroom
video market.

The Company's objective is to gain a leading position in the desktop video
applications industry by marketing the VidPhone(R) system through large business
telephone system providers which sell, install and support PBX systems, such as
the Regional Bell Operating Companies ("RBOCs"), long distance exchange
companies ("LEXCs"), PBX manufacturers and PBX resellers. These providers have
direct access to end-users to which the VidPhone(R) system can be easily
introduced. The Company anticipates that such PBX system manufacturers will be
interested in establishing marketing relationships with the Company because of
the ease with which the VidPhone(R) system can be marketed and sold to existing
customers as an upgrade to an existing telephony system. The Company currently
is discussing a test marketing arrangement for the VidPhone(R) with leading PBX
manufacturers and resellers and also is discussing the establishment of joint
marketing relationships. As a part of these test marketing arrangements, the
Company has installed, at no cost to the user, EVS-10 switch VidPhone(R)
equipment in the facilities of one the three largest PBX manufacturers, two of
the five largest LEXCs, one of the four largest RBOCs and a potential end-user.
In addition, the Company has sold 13 VidPhone(R) remote terminals to Bell
Atlantic for use by the U.S. Navy. See "Business -- General." The Company has
not yet established any joint venture relationships and there can be no
assurance that it will be successful in its efforts to develop such
relationships or that, if established, such arrangements will be profitable. See
"Risk Factors -- Limited Marketing Experience; Need for Additional Personnel."

HISTORY

The Company was incorporated in Delaware on October 5, 1993 by Steven A.
Rogers, its founder, President and Chief Executive Officer. Prior to founding
the Company, Mr. Rogers had founded two other telecommunications companies, and
members of the Company's technical and marketing teams have extensive
backgrounds in the telecommunications industry. The Company's ten-member board
of directors is comprised of seven senior executives in the telecommunications
industry, two investor representatives and Mr. Rogers. The Company's executive
offices and engineering lab are located at 14100 Park Meadow Drive, Chantilly,
Virginia 20151. Its telephone number is (703) 227-3000.

5
<PAGE> 6

THE OFFERING

Common Stock Offered by the
Company....................... 1,800,000 shares of Common Stock

Common Stock Outstanding
Immediately Prior to the
Offering (1).................. 2,561,844 shares of Common Stock

Common Stock to be Outstanding
Following the Offering
(1)(2)........................ 4,361,844 shares of Common Stock

Risk Factors.................... The shares of Common Stock offered hereby
involve a high degree of risk and should be
purchased only by persons who can afford to
sustain a total loss of their investment.
See "Risk Factors" and "Dilution."

Use of Proceeds................. The net proceeds of the Offering will be used
by the Company: (i) to fund product
development efforts; (ii) to repay debt;
(iii) to fund sales and marketing efforts;
(iv) for capital expenditures; (v) for
facilities expansion and (vi) for working
capital and general corporate purposes. See
"Use of Proceeds."

Nasdaq SmallCap Market Trading
Symbol (3).................... OCOM
- ---------------
(1) Includes 500,000 shares of Common Stock issuable upon the automatic
conversion of the 500,000 outstanding shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), at the time of the closing of the Offering. Does not
include (i) 350,000 shares of Common Stock issuable upon exercise of
warrants (the "Bridge Warrants") issued by the Company to purchasers of its
10% Senior Secured Promissory Notes (the "Bridge Notes") in connection with
a debt financing consummated prior to the Offering (the "Bridge Financing");
(ii) 495,382 shares issuable upon exercise of other outstanding warrants to
purchase shares of Common Stock; (iii) 343,000 shares of Common Stock
reserved for issuance upon exercise of outstanding options granted to
executive officers, key employees and consultants under the Company's 1994
Stock Option Plan (the "1994 Plan") and 190,000 shares of Common Stock
reserved for issuance upon exercise of non-qualified options granted to
certain directors of the Company; and (iv) 450,000 shares reserved for
issuance under the Company's 1996 Stock Incentive Plan (the "1996 Plan").
See "Management -- Directors' Non-Qualified Options," "-- 1994 Stock Option
Plan," "-- 1996 Stock Incentive Plan," "Certain Transactions" and
"Description of Securities."

(2) Does not include (i) up to 270,000 shares of Common Stock issuable upon
exercise of the Over-Allotment Option, and (ii) 180,000 shares of Common
Stock issuable upon exercise of the Underwriter's Options. See
"Underwriting."

(3) There is currently no market for the Common Stock and there can be no
assurance that a market for the Common Stock will develop after the
Offering. The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market, subject to notice of issuance. There can be no assurance,
however, that such quotation will be maintained. See "Risk
Factors -- Absence of Public Market; Negotiated Offering Price."

6
<PAGE> 7

SUMMARY FINANCIAL INFORMATION

The summary financial data set forth below under the caption "Selected
Statements of Operations Data" for the years ended December 31, 1995 and 1996,
and under the caption "Selected Balance Sheet Data" at December 31, 1996, are
derived from the financial statements of the Company, included elsewhere in this
Prospectus, audited by Coopers & Lybrand L.L.P., independent accountants. The
data set forth below should be read in conjunction with the Financial Statements
and notes thereto included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------
1995 1996
--------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE
DATA AND SHARE AMOUNTS)
<S> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA:
Revenues................................................................... $ 225 $ 81
Operating expenses:
Research and development............................................... 1,232 1,107
General and administrative............................................. 814 1,041
Depreciation........................................................... 60 159
Other.................................................................. 152 64
--------- ---------
Total operating expenses.......................................... 2,258 2,371
Interest expense (1)....................................................... 13 404
Net loss (1)............................................................... $ (2,046) $ (2,694)
Net loss per common share.................................................. $(0.59) $(0.75)
Weighted average common shares and common share equivalents outstanding
(2)...................................................................... 3,461,659 3,607,634
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------
PRO PRO FORMA,
ACTUAL FORMA (3) AS ADJUSTED (4)
------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash................................................................ $ 623 $ 1,553 $ 7,092
Working capital (deficit)........................................... (1,330) (400) 7,117
Total assets........................................................ 1,681 2,611 7,936
Total current liabilities, net of unamortized debt discounts of
$586,000, actual and pro forma.................................... 2,582 2,582 604
Total long-term liabilities......................................... 26 26 26
Series A Convertible Preferred Stock (5)............................ 848 1,778 --
Deficit accumulated during development stage........................ (5,165) (5,826) (6,626)
Stockholders' equity (deficit)...................................... (1,775) (1,775) 7,306
</TABLE>

- ---------------
(1) Includes in 1996 a non-recurring, non-cash interest expense of $321,789
incurred in connection with the issuance of certain warrants. See Note 6 of
Notes to Financial Statements.

(2) See Notes 2 and 7 of Notes to Financial Statements.

(3) Pro forma to give effect to (i) the issuance and sale in January 1997 by the
Company of 250,000 shares of Series A Preferred Stock and Series A Warrants
to purchase 50,000 shares of Common Stock at an exercise price of $4.00 per
share and the receipt of $930,000 in net proceeds therefrom and (ii) the
consummation of the warrant exchange transaction with certain existing
investors in the Company, which was completed in January 1997. See "Certain
Transactions," "Description of Securities" and Note 7 of Notes to Financial
Statements.

(4) Pro forma, as adjusted to give effect to (i) the issuance of 500,000 shares
of Common Stock upon the automatic conversion, at the time of the closing of
the Offering, of the Series A Preferred Stock; (ii) the sale by the Company
of the 1,800,000 shares of Common Stock offered hereby at the initial public
offering price of $5.50 per share and receipt of the net proceeds therefrom;
and (iii) the application of a portion of the net proceeds of the Offering
to repay certain outstanding indebtedness, as set forth under "Use of
Proceeds," the write-off of the debt issuance costs associated with the
indebtedness to be repaid and the write-off of the unamortized debt
discounts related to the estimated fair value of the Bridge Warrants. See
"Use of Proceeds."

(5) The Company issued and sold to an investor 250,000 shares of Series A
Preferred Stock in December 1996. Pursuant to an irrevocable subscription
made in December 1996, the Company issued and sold to another investor an
additional 250,000 shares of Series A Preferred Stock in January 1997. See
Note 7 of Notes to Financial Statements.

7
<PAGE> 8

RISK FACTORS

The shares of Common Stock offered hereby involve substantial risks and
should be purchased only by persons who can afford to sustain the loss of their
entire investment. The following risk factors, in addition to the other
information and financial data set forth elsewhere in this Prospectus, should be
considered carefully in evaluating the Company and its business before making an
investment in the Common Stock. The risks described below and elsewhere in this
Prospectus are not intended to be an exhaustive list of the general or specific
risks involved, but merely identify certain risks that are now foreseen by the
Company. It must be recognized that other risks, not now foreseen, might become
significant in the future and that the risks which are now foreseen might affect
the Company to a greater extent than is now foreseen or in a manner not now
contemplated. Each prospective investor should carefully consider all
information contained in this Prospectus and should give particular
consideration to the following risk factors before deciding to purchase the
Common Stock offered hereby.

DEVELOPMENT STAGE ENTERPRISE

The Company is a development stage company incorporated in October 1993 and
has a limited operating history. The Company's operations to date have related
primarily to technical development activities and the introduction of its
proprietary video conferencing, broadcast and retrieval system, the VidPhone(R)
system and related products in the video applications field. The Company is
currently conducting product and market testing relating to the Company's
principal product, the VidPhone(R) system. See "Business -- Products and
Technology." The VidPhone(R) system has not been marketed actively to any
customers, and technical information regarding the VidPhone(R) is distributed
only upon execution of a confidentiality agreement. However, as a result of
product testing and technology demonstrations conducted by the Company, the
Company has received and is currently working on a limited number of customer
orders. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview." Accordingly, the Company's business and its
growth may be subject to expenses, delays and risks inherent in the
establishment of a new business enterprise, including limited capital, delays in
product development, cost overruns and uncertain market acceptance. There can be
no assurance that the Company will succeed in addressing any or all of these
risks and the failure to do so would have a material adverse effect on the
Company's business, financial condition and operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business -- Products and Technology" and Note 1 of Notes to Financial
Statements.

LOSSES SINCE INCEPTION; ACCUMULATED DEFICIT; EXPECTATION OF CONTINUING LOSSES

To date, the Company has incurred substantial losses from operations, had a
working capital deficit of $1,329,786 at December 31, 1996, and an accumulated
deficit of $5,164,910 through December 31, 1996. As a result, the Financial
Statements of the Company are qualified by a going concern opinion. The Company
believes that the net proceeds from the Offering will be sufficient to permit
the Company to continue as a going concern. See Note 1 of Notes to Financial
Statements.

The Company expects to continue to incur losses for the foreseeable future.
A significant portion of the $495,660 in revenues earned by the Company from its
inception through December 31, 1996 was generated by consulting services
provided by the Company. The remainder of the Company's revenues were generated
by sales of VidPhone(R) remote terminals, which are ISDN enabled VidPhone(R)
units used for beta testing purposes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business -- Products and
Technology" and Note 1 of Notes to Financial Statements.

DEPENDENCE ON EMERGING MARKET FOR VIDEO APPLICATIONS TECHNOLOGY

The market for the Company's products is at an early stage of development,
is rapidly evolving and is characterized by an increasing number of market
entrants who have introduced or are developing competing products and services.
As is typical for a new and rapidly evolving industry, demand for and market
acceptance of recently introduced products and services are subject to a high
level of uncertainty. While the number of businesses utilizing video
applications has grown, it is not known whether this market will continue to
develop

8
<PAGE> 9

such that sufficient demand for the Company's products and services will emerge
and become sustainable. The Company expects that substantially all of its future
revenues will be derived from sales of the VidPhone(R) system and related
software sales and customer service to businesses or governmental organizations;
however, to date, the Company has not derived any revenue from sales of the
VidPhone(R) system. Further, corporations or government agencies that have
already invested substantial resources in other video conferencing systems may
be resistant to or slow to adopt a new suite of products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." If
the market for video applications fails to develop or develops more slowly than
expected, or if the Company's products do not achieve acceptance by a
significant number of businesses and government organizations, the Company's
business, financial condition and operating results will be materially and
adversely affected. See "Business -- Video Applications Technology."

DEVELOPMENT OF NEW PRODUCTS; INDUSTRY ACCEPTANCE

The Company's ability to design, develop, test, introduce and support new
products on a timely basis that meet changing customer needs and that respond to
technological developments and emerging industry standards is crucial to the
Company's success. The Company's products incorporate certain technical
standards, and current and future sales of the Company's products will be
dependent on industry acceptance of such standards. While the Company has
developed the VidPhone(R) system to be compatible with the standards currently
promulgated by leading industry participants and groups, widespread adoption of
a proprietary or closed standard could preclude market acceptance of the
Company's products. There can be no assurance that the Company will be
successful in developing and introducing its proposed products or new products
that meet changing customer needs and in responding to technological changes or
evolving industry standards in a timely manner, or at all. Furthermore, there
can be no assurance that the standards upon which the Company's products are or
will be based will be accepted by the industry or that products or technologies
developed by others will not render the Company's services noncompetitive or
obsolete. Because of the technological complexity of its products, the Company
may also experience delays from time to time in completing the development of
new products. The inability of the Company to respond to changing market
conditions, technological developments, evolving industry standards or changing
customer requirements, or the development of competing technology or products
that render the Company's services less desirable or obsolete would have a
material adverse effect on the Company's business, financial condition and
operating results. The Company is currently beta testing certain of its hardware
and software products, including the EVS-10 and the VidPhone(R) remote terminal,
and there can be no assurance that the results of such tests will be positive.
Adverse results from beta testing would have a material adverse effect on the
Company's business, financial condition and operating results. See
"Business -- Products and Technology."

UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY

The Company's future success and ability to compete will depend, in part,
on its proprietary technology. The patents of high-technology firms, including
those of the Company, are uncertain and involve complex legal and factual
questions for which important legal principles are largely unresolved. Part of
the Company's proprietary VidPhone(R) technology is covered by a pending U.S.
patent application, for which the Company has received a notice of allowance
from the U.S. Patent and Trademark Office, which relates to a method and
apparatus for transmitting video information over telephone wires. The Company
has received notification from the U.S. Patent and Trademark Office that the
issue date for this patent will be April 15, 1997. An international patent
application covering this invention also has been filed under the Patent
Cooperation Treaty ("PCT"), and the Company has filed an application in Taiwan,
which is not a party to the PCT. The Company has received a favorable written
opinion from the International Preliminary Examining Authority for the
international patent application, suggesting that patent protection in many
foreign countries may be available for the invention. The application in Taiwan
is still pending.

The Company has also filed a patent application covering the VidPhone(R)
system's networking and switching technology. The Company does not expect to
receive any notice from the U.S. Patent and Trademark Office concerning this
second patent application for at least one year or more.

9
<PAGE> 10

The Company's success will depend in part on its ability to protect the
hardware and software products that it develops with patents, licenses and other
intellectual property rights. Toward that end, the Company intends to seek
patents and copyrights on certain of its inventions and proprietary processes.
The Company also has registered certain of its trademarks, such as Objective
Communications(R) and VidPhone(R). The process of seeking patent and trademark
protection can be long and expensive, and there can be no assurance that patents
and trademarks will issue from currently pending or future applications or that
any patents or trademarks that are issued will be of sufficient scope to provide
meaningful protection or any commercial advantage to the Company. The Company
may be subject to or may become involved in interference proceedings in the U.S.
Patent and Trademark Office to determine priority of invention, which could
result in significant cost to the Company, whether or not the results of such
proceedings are favorable to the Company. In the future, the Company may receive
communications alleging possible infringement of patents or other intellectual
property rights of others, although it is not presently aware of any basis for
such claims. Litigation, which could result in substantial cost to and diversion
of effort by the Company, might be necessary to enforce patents or other
intellectual property rights owned by the Company or to determine the scope and
validity of other parties' proprietary rights. The failure to obtain necessary
patents, licenses or other rights or litigation arising from infringement claims
could have a material adverse effect on the Company.

A number of companies have developed technologies, filed patent
applications or received patents on various technologies that may be related to,
or competitive with, the Company's technologies. Many of these entities are
larger and have significantly greater resources than the Company. Some of the
technologies, applications or patents of these entities may conflict with the
Company's technologies, patents or patent applications. Such conflict could
limit the scope of the patents that the Company has obtained or may be able to
obtain, or result in denial of the Company's patent applications. In addition,
if patents that cover the technologies used by the Company are issued to other
companies, there can be no assurance that the Company would be able to license
these patents at a reasonable cost or be able to develop or obtain alternative,
non-infringing technology. Given the rapid development of technology in the
telecommunications industry, there also can be no assurance that the Company's
existing or future products do not or will not infringe upon the existing or
future proprietary rights of others. Any such infringement could have a material
adverse effect on the Company. See "Business -- Intellectual Property" and
"Business -- Competition."

LIMITED MARKETING EXPERIENCE; NEED FOR ADDITIONAL PERSONNEL

The Company currently has only three full-time sales and marketing
employees and will have to develop its marketing and sales force to establish
distribution channels to resellers, collaborators, licensees and others. The
Company's ability to build its customer base and achieve market acceptance will
depend on its ability to establish an effective internal sales organization and
establish strategic marketing relationships with third-party distributors. There
can be no assurance, however, that the Company will be able to create awareness
of, and demand for, its products through its marketing efforts. The failure by
the Company to develop its marketing capabilities, internally or through
distributors and value-added resellers, would have a material adverse effect on
the Company's business. Further, there can be no assurance that the development
of such marketing capabilities will lead to increased sales of the Company's
products and services or proposed products and services. In the event that the
Company is able to enter into satisfactory distribution arrangements with third
parties, it is anticipated that the Company will be largely dependent upon such
third party's marketing efforts for the foreseeable future. While the Company
believes that such third-party distribution arrangements will enable it to lower
its marketing costs and expenses, the Company's revenues under such arrangements
will be lower than they would be if the Company directly marketed the
VidPhone(R) system. See "Business -- Marketing and Sales."

The success of the Company also will be dependent upon its ability to hire,
train and retain additional qualified marketing and sales personnel. The Company
will compete with other companies with greater financial and other resources for
such qualified personnel. There can be no assurance that the Company will be
able to hire additional personnel to support the Company's marketing and sales
efforts. See "Management."

10
<PAGE> 11

RISKS ASSOCIATED WITH RAPID GROWTH AND WITH THE COMPANY'S BUSINESS PLAN AND
STRATEGY

The Company has limited experience, financial resources and personnel.
Accordingly, execution of the Company's business plan and strategy could place
significant strain on its management, administrative, operational, financial and
other resources. There can be no assurance that the Company will be able to
implement its strategy or manage its operations successfully. The inability of
the Company to manage its growth would have a material adverse effect on the
Company. See "Business -- Strategy."

The Company has formulated its business plan and strategy based upon
certain assumptions regarding the size of the video communications market, the
Company's anticipated share of this market and the estimated price and
acceptance of the Company's products. These assumptions are based on estimates
of the Company's management. There can be no assurance that the Company's
assumptions regarding market size, potential market share attainable by the
Company, the price at which the Company will be able to sell its products or
market acceptance of the Company's products will prove to be correct. Any future
success of the Company will depend upon many factors, including technological
advances and product obsolescence; levels of competition, including the entry
into the market of additional competitors and increased success by existing
competitors; changes in general economic conditions; increases in operating
costs including costs of production, supplies, personnel or equipment; changes
in requirements and regulations promulgated by the Federal Communications
Commission (the "FCC") or other applicable United States Federal and state
regulatory authorities; and reduced margins caused by competitive pressures and
other factors. See "Business -- Strategy" and "Business -- Government
Regulation."

FLUCTUATIONS IN OPERATING RESULTS

The Company's operating results may vary significantly from quarter to
quarter or year to year, depending on factors such as the timing of product
development, the timing of increased research and development, the timing of
sales and marketing expenses, the timing and size of orders and the introduction
of new products by the Company. Consequently, revenues or profits may vary
significantly from quarter to quarter or year to year, and revenues or profits
in any period will not necessarily be predictive of results in subsequent
periods. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

LIMITED OPERATING HISTORY; DEPENDENCE ON MARKET FOR NEW PRODUCTS

To date, the Company has not generated substantial revenues from the sale
of its products and services. The Company's business strategy is to increase
revenues through sales of its products, particularly the VidPhone(R) system.
Accordingly, in the future, the Company plans to devote substantially all of its
efforts to production, sales and support of the VidPhone(R) system. The
Company's inability to obtain orders for its products, particularly the
VidPhone(R) system, would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company currently
is working on a limited number of customer orders. There can be no assurance
that the Company will be successful in its efforts to market and sell its
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

GOVERNMENT REGULATION

The EVS component of the Company's VidPhone(R) system and the VidModem(TM)
are required to comply with certain regulations promulgated by the FCC under
Parts 2, 15 and 68 of the FCC's regulations, which relate to radio frequency
devices and to terminal equipment that is connected to the public switched
telephone network ("PSTN"). Pursuant to Part 15 of the FCC's regulations, the
Company has determined that the VidModem(TM) is an unintentional radiator that
constitutes a Class A digital device that may be operated without an individual
license. Under Parts 2 and 15 of the FCC's regulations, the Company will be
required to follow a verification procedure consisting of a self-certification
by the Company that the radio frequency device complies with applicable Part 15.
The Company has already had the VidModem(TM) formally tested by a qualified,
independent testing facility, and such equipment was found to comply with such
regulatory requirements. Under Part 2 of the FCC's regulations, the Company has
the option of ensuring compliance

11
<PAGE> 12

with the applicable technical specifications at the location of a business
end-user after installation. Pursuant to Part 68 of the FCC's regulations, the
Company will need to obtain equipment registration from the FCC for certain
VidPhone(R) system components that are connected to the PSTN. The majority of
the Company's products will not involve connection to the PSTN. For those
applications requiring connection to the PSTN, the Company will be required to
register the EVS as terminal equipment under Part 68 of the FCC's regulations.
To date, the Company has not filed an application under Part 68 for equipment
registration. Although the Company has designed its initial line of products to
conform with all applicable guidelines and regulations, there can be no
assurance that the Company's products will actually meet such requirements, nor
that the Company will be able to obtain and maintain in effect all necessary FCC
or other governmental approvals required to permit the Company to market its
products. Additionally, there can be no assurance that future governmental
regulations would not adversely affect the Company's products or technology. See
"Business -- Government Regulation."

DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING

The Company intends to outsource the manufacture of the components used in
the assembly of the VidPhone(R) system. The Company has no current arrangements
with such manufacturers or suppliers that fix the costs of production or parts.
There can be no assurance that the Company will be able to negotiate acceptable
arrangements with such manufacturers, or, if negotiated, that such arrangements
will be on terms and conditions favorable to the Company. Any difficulties
encountered by third-party manufacturers which result in product defects,
production delays, cost overruns, or the inability to fulfill orders on a timely
basis could have a material adverse effect on the Company. See
"Business -- Manufacturing."

COMPETITION

The Company's principal competition to date has been from video
conferencing systems companies, particularly PictureTel Corporation
("PictureTel"), Compression Labs, Inc. ("CLI") and VTEL Corp. ("VTEL," formerly,
Video Telecom Corp.). According to a June 1995 article in U.S. News & World
Report, PictureTel and CLI had approximately 71% market share in the video
conferencing systems market. Virtually all of the Company's competitors have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than the
Company. The Company also expects substantial additional competition from new
market entrants, such as Intel Corp. There can be no assurance that the Company
will have the financial resources, technical expertise or manufacturing,
marketing, distribution and support capabilities to compete successfully against
such competitors. See "Business -- Competition."

Furthermore, there can be no assurance that other companies will not
develop technologies such as those offered by the Company, technologies superior
to the Company's or alternative capabilities which meet the same needs of
customers. The Company expects that it will encounter substantial competition
from companies with significantly greater financial and other resources than the
Company. There can be no assurance that the Company will be able to respond to
competitive pressures, or that the effect of competitive pressures will not
change the demand for, or pricing of, the Company's products and services. To
the extent that competitors achieve performance, price or other selling
advantages, the Company's business, operations and financial condition could be
adversely affected. There can be no assurance that the Company will have the
resources required to respond effectively to market or technological changes or
to otherwise compete successfully in the video conferencing market. See
"Business -- Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's performance is substantially dependent upon the continued
efforts and abilities of its executive officers, key employees and consultants,
particularly those of Steven A. Rogers, the Company's founder, President and
Chief Executive Officer. The loss of the services of Mr. Rogers or any of the
Company's other key management or technical personnel would have a material
adverse effect on the Company. The Company currently has an employment and
non-competition agreement with and is in the process of obtaining a key person
life insurance policy on Mr. Rogers. However, the Company does not

12
<PAGE> 13

currently have any employment agreements with, or key person insurance policies
on, any of its other executive officers, key employees or consultants. In order
to support its anticipated growth, the Company will be required to recruit
effectively, hire, train and retain additional qualified personnel. The
competition for qualified technical and management personnel is intense and
there can be no assurance that the Company will be able to attract or retain
qualified personnel in the future. The Company is dependent upon its ability to
retain and motivate high quality personnel, especially its existing senior
management and technical personnel. The inability of the Company to retain its
existing, or attract and retain additional, personnel could have a material
adverse effect on the Company. See "Management -- Employment and Confidentiality
Agreements."

CONTROL BY EXISTING STOCKHOLDERS

Following completion of the Offering, Mr. Rogers will beneficially own, and
the directors and executive officers of the Company will beneficially own in the
aggregate, 22.8% and 43.2%, respectively, of the outstanding shares of Common
Stock (approximately 21.4% and 40.9%, respectively, if the Underwriter's
Over-Allotment Option is exercised in full). As a result of such ownership, Mr.
Rogers, acting individually, and such holders, if they act in concert, will be
able to exert significant influence in the election of the Company's Board of
Directors and the determination of all other matters requiring approval by the
stockholders of the Company. See "Principal Stockholders."

POTENTIAL INFLUENCE BY CERTAIN STOCKHOLDERS

After the Offering, pursuant to agreements with the Company or Mr. Steven
A. Rogers, three parties have the right to designate one nominee each for
election as a member of the Board of Directors. To the extent that such
contractual rights are exercised, such stockholders may be able to exercise
substantial influence over decisions of the Company's Board of Directors and the
Company's business. See "Management -- Executive Officers and Directors" and
"Underwriting."

BROAD DISCRETION AS TO USE OF PROCEEDS; REPAYMENT OF DEBT

An estimated $1,388,650, or 17.3%, of the net proceeds of the Offering has
been allocated to working capital and general corporate purposes, and will be
used for such specific purposes as management of the Company may determine.
Management will have broad discretion with respect to the expenditure of that
portion of the net proceeds of the Offering. An estimated $2,564,000 or 31.6% of
the net proceeds of the Offering will be used to repay in full certain
outstanding indebtedness of the Company, including accrued and unpaid interest
thereon. Of this amount, an estimated $215,000 will be used to repay promissory
notes to certain directors, officers and affiliates of the Company. In addition,
the Company's estimated allocations of the uses of the remaining net proceeds of
the Offering are subject to reapportionment among the purposes set forth under
"Use of Proceeds" or to other general corporate purposes, including working
capital. The amount and timing of expenditures will vary depending upon a number
of factors, including the progress of the Company's product development and
marketing efforts, changing competitive conditions and general economic
conditions. See "Use of Proceeds."

NEED FOR ADDITIONAL FINANCING

The Company anticipates that the net proceeds of the Offering, together
with its existing capital resources, will be adequate to satisfy its operating
and capital requirements through the next 15 months, assuming that the Company
performs substantially in accordance with its current business plan. Thereafter,
the Company will need to raise additional funds. Changes in the market in which
the Company operates, in the Company's business, or in its business plan could
affect the Company's capital requirements, which would cause the Company to need
to raise additional funds earlier than expected in order to fund its operations,
to fund expansion, to develop new or enhanced products, to respond to
competitive pressures or to acquire complementary business. The Company's future
capital requirements will depend on many factors, including the cost of
manufacturing and marketing activities, its ability to market its products
successfully, the size of its research and development programs, the length of
time required to collect accounts receivable, and competing

13
<PAGE> 14

technological and market developments. If the Company were to raise additional
funds through the issuance of equity or convertible debt securities,
stockholders could experience substantial additional dilution and such
securities could have rights, preferences and privileges senior to those of the
holders of the Company's Common Stock. There can be no assurance that the
Company will be able to raise any additional required funds, or that any such
funds will be available on terms favorable to, or acceptable to, the Company.
The lack of availability of adequate funds, or the lack of availability of funds
on terms acceptable to the Company, would have a material adverse effect on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

ABSENCE OF PUBLIC MARKET; NEGOTIATED OFFERING PRICE

Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that a trading market will develop or, if
any such market develops, that it will be maintained. Accordingly, purchasers of
shares of Common Stock may experience difficulty selling or otherwise disposing
of their Common Stock. The initial public offering price of the Common Stock has
been established by negotiation between the Company and the Underwriter, and
does not bear any relationship to the Company's book value, assets, past
operating results, financial condition or other established criteria of value.
See "Underwriting."

POSSIBILITY OF NASDAQ SMALLCAP MARKET DELISTING; LOW STOCK PRICE

The quotation of the Company's Common Stock on the Nasdaq SmallCap Market
will be conditioned upon the Company meeting certain asset, capital and surplus
earnings and stock price tests set forth by such exchanges. To maintain
eligibility for quotation on the Nasdaq SmallCap Market, the Company will be
required to maintain total assets in excess of $2,000,000, capital and surplus
in excess of $1,000,000, and (subject to certain exceptions) a bid price of
$1.00 per share. Upon completion of the Offering and the receipt of the net
proceeds therefrom, the Company believes that it will meet the respective asset,
capital and surplus earnings tests set forth by such quotation system. If the
Company fails any of the tests, the Common Stock may be delisted from quotation
on such system. The effects of delisting include the limited release of the
market prices of the Company's securities and limited news coverage of the
Company. Delisting may restrict investors' interest in the Company's Common
Stock and materially adversely affect the trading market and prices for the
Common Stock and the Company's ability to issue additional securities or to
secure additional financing. In addition to the risk of volatile stock prices
and possible delisting, low price stocks are subject to the additional risks of
Federal and state regulatory requirements and the potential loss of effective
trading markets. In particular, if the Common Stock were delisted from trading
on the Nasdaq SmallCap Market and the trading price of the Common Stock was less
than $5.00 per share, the Common Stock could be subject to Rule 15g-9 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which requires
that broker-dealers satisfy special sales practice requirements, including
making individualized written suitability determinations and receiving any
purchaser's written consent, prior to any transaction. In addition, the
Company's Common Stock could be deemed "penny stock" under the Securities
Enforcement and Penny Stock Reform Act of 1990. If this were to occur,
additional disclosure would be required in connection with trades in the
Company's Common Stock, including the delivery of a disclosure schedule
explaining the nature and risks of the penny stock market. Such requirements
could severely limit the liquidity of the Company's Common Stock and the ability
of purchasers in the Offering to sell their Common Stock in the secondary
market. See "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Upon the completion of the Offering, the Company will have 4,361,844 shares
of Common Stock outstanding (4,631,844 shares if the Underwriter's
Over-Allotment Option is exercised in full). Of such shares, all of the
1,800,000 shares sold in the Offering (2,070,000 if the Underwriter's
Over-Allotment Option is exercised in full) will be freely transferable (other
than those purchased by affiliates of the Company) without restriction or
further registration under the Securities Act. In addition, the 180,000 shares
of Common Stock issuable upon exercise of the Underwriter's Options, all of
which also are being registered under the

14
<PAGE> 15

Securities Act pursuant to the registration statement of which this Prospectus
constitutes a part, will be freely transferable under the Securities Act,
subject to a one year restriction on transferability. Subject to a lock-up
arrangement with the Underwriter, (i) the 350,000 shares of Common Stock
issuable upon exercise of the Bridge Warrants, (ii) the 500,000 shares of Common
Stock issuable upon conversion of the Series A Preferred Stock, and (iii) the
100,000 shares of Common Stock issuable upon exercise of the warrants to
purchase up to 100,000 shares of Common Stock at an exercise price of $4.00 per
share, issued by the Company in connection with the private placement of the
Series A Preferred Stock (the "Series A Warrants"), all of which also are being
registered under the Securities Act on a shelf-registration pursuant to the
registration statement of which this Prospectus constitutes a part, will be
freely transferable under the Securities Act without restriction or further
registration, other than those shares held by affiliates of the Company.
Concurrent sales of securities by both the Company and the Selling Stockholders
would likely have an adverse effect on the market price of the Common Stock. The
remaining 2,061,844 shares of Common Stock are, and the 395,382 shares of Common
Stock issuable upon exercise of outstanding warrants (other than the Bridge
Warrants and the Series A Warrants) will be, "restricted securities" under Rule
144 under the Securities Act and may not be sold other than in accordance with
Rule 144, or pursuant to an effective registration statement under the
Securities Act or an exemption from such registration requirement.

Additionally, the Company has granted certain demand and/or "piggyback"
registration rights to the holders of 1,600,718 shares of Common Stock, 500,000
shares of Series A Preferred Stock and warrants to purchase an aggregate of
845,382 shares of Common Stock, to require the Company to register under the
Securities Act those shares of Common Stock and the shares issuable upon
conversion of the Series A Preferred Stock or exercise of the warrants. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock.

The sale of a substantial number of shares of Common Stock or the
availability of Common Stock for sale could adversely affect the market price of
the Common Stock prevailing from time to time. The number of shares of Common
Stock available for sale in the public market is limited by restrictions under
the Securities Act, and lock-up agreements under which the current holders of
shares of Common Stock, Series A Preferred Stock, and warrants to purchase
Common Stock have agreed not to sell or otherwise dispose of any of their shares
of Common Stock for certain specified periods after the date on which the
Offering closes, except in certain limited circumstances, without the prior
written consent of the Underwriter. In addition, the Underwriter has entered
into an agreement with the Nasdaq Stock Market, Inc. pursuant to which the
Underwriter has agreed that it will not release any warrantholder who received
warrants between October and January 1996 from such lock-up agreements for a
period of six months from the effective date of this Prospectus. See "Principal
Stockholders," "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting."

EFFECT OF OPTIONS, WARRANTS AND UNDERWRITER'S OPTIONS ON STOCK PRICE

The Company has reserved 343,000 shares of Common Stock for issuance to key
employees, officers and consultants upon the exercise of options granted under
the 1994 Plan, and 450,000 shares of Common Stock authorized for issuance under
the 1996 Plan. Additionally, the Company has reserved an aggregate of 190,000
shares of Common Stock for issuance upon the exercise of options granted to
certain directors of the Company. The Company also has reserved 350,000 shares
of Common Stock for issuance upon exercise of the Bridge Warrants, 500,000
shares of Common Stock for issuance upon conversion of the Series A Preferred
Stock, 100,000 shares of Common Stock for issuance upon exercise of the Series A
Warrants, and 395,382 shares of Common Stock for issuance upon exercise of other
outstanding warrants. The Company also will sell to the Underwriter, in
connection with the Offering, the Underwriter's Options to purchase an aggregate
of 180,000 shares, subject to adjustment as provided therein. The Bridge
Warrants, the Series A Warrants, the other outstanding warrants, the
Underwriter's Options, outstanding options issued under the 1994 Plan, options
that may be issued in the future under the 1996 Plan, and options granted to
directors could hinder future financings. In addition, certain holders of such
securities have certain registration rights, and the

15
<PAGE> 16

sale of shares of Common Stock upon exercise of such rights or the availability
of such shares for sale could adversely affect the market price of the Common
Stock. See "Description of Securities" and "Underwriting."

VOLATILITY OF STOCK PRICES

The market prices of equity securities of technology companies have
experienced substantial price volatility in recent years for reasons both
related and unrelated to the individual performance of specific companies.
Accordingly, the market price of the Common Stock following the Offering may be
highly volatile. Factors such as announcements by the Company or its competitors
concerning products, patents and technology, governmental regulatory actions,
events affecting technology companies generally and general market conditions,
may have a significant impact on the market price of the Common Stock and could
cause it to fluctuate substantially. In addition, it is expected that there will
be a relatively small number of shares of Common Stock trading publicly
following the Offering. Accordingly, stockholders may experience difficulty
selling or otherwise disposing of shares of Common Stock at favorable prices, or
at all. See "Shares Eligible for Future Sale" and "Underwriting."

DILUTION

The initial public offering price per share of Common Stock exceeds the
book value per share of the Common Stock. Investors in the Offering will,
therefore, incur immediate and substantial dilution of $3.83 per share of Common
Stock, representing 69.6% of the initial public offering price per share. See
"Dilution."

NO DIVIDENDS

The Company currently anticipates that it will retain all of its future
earnings, if any, for use in the expansion and operation of its business, and
does not anticipate paying any cash dividends on the Common Stock in the
foreseeable future. See "Dividend Policy" and "Description of Securities."

LIMITATION ON UTILIZATION OF INCOME TAX LOSS CARRYFORWARDS

Upon the consummation of the sale of the 500,000 shares of Series A
Preferred Stock, the Company may have undergone an "ownership change" within the
meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"). Under Section 382 of the Code, upon undergoing an ownership change, the
Company's right to use its then existing income tax loss carryforwards as of the
date of the ownership change is limited during each future year to a percentage
of the fair market value of the Company's outstanding capital stock immediately
before the ownership change. The Company expects that its ability to utilize its
net operating loss carryforwards to offset future taxable income will be limited
annually in the future.

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION
AND THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to certain anti-takeover provisions of the General
Corporation Law of the State of Delaware, which could have the effect of
discouraging, delaying or preventing a change in control of the Company. In
addition, the Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") contains provisions that may have the effect of
discouraging certain transactions involving an actual or threatened change in
control of the Company. Such provisions include a provision in the Certificate
of Incorporation which grants to the Board of Directors the authority to issue
up to 2,500,000 shares of preferred stock in one or more series and to fix the
powers, preferences and rights of each such series without further stockholder
action. The issuance in the future of any such preferred stock could have the
effect of diluting the purchasers of the Common Stock offered hereby,
discouraging unsolicited acquisition proposals or making it more difficult for a
third party to commence such an acquisition. See "Description of Securities."

16
<PAGE> 17

LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation provides for the indemnification
of the Company's directors and officers to the fullest extent permitted under
the General Corporation Law of the State of Delaware (the "GCL"). As permitted
by the GCL, the Company's Certificate of Incorporation provides that directors
of the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except (i) for
any breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or violation of law; (iii) for acts or omissions relating to
prohibited dividends or distributions or the purchase of redemption of stock; or
(iv) for any transaction from which the director derives an improper personal
benefit. However, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. See "Description of Securities -- Directors'
Limitation of Liability and Indemnification."

17
<PAGE> 18

USE OF PROCEEDS

The net proceeds from the sale of the shares of Common Stock offered
hereby, at the initial public offering price of $5.50 per share, and after
deducting underwriting discounts and commissions and other expenses of the
Offering estimated to be $1,797,350, will be approximately $8,102,650
($9,399,797 if the Underwriter's Over-Allotment Option is exercised in full).

The Company intends to use the net proceeds of the Offering as follows:

<TABLE>
<CAPTION>
APPROXIMATE PERCENT OF
AMOUNT NET PROCEEDS
----------- ------------
<S> <C> <C>
Product development.......................................... $ 2,750,000 33.9%
Repayment of debt............................................ 2,564,000 31.6
Sales and marketing.......................................... 700,000 8.6
Capital expenditures......................................... 400,000 4.9
Facilities expansion......................................... 300,000 3.7
Working capital and general corporate purposes............... 1,388,650 17.3
----------- -----
$ 8,102,650 100.0%
=========== =====
</TABLE>

The Company intends to use an estimated $2,750,000 of the net proceeds of
the Offering to complete the development of its VidPhone(R) system, which
includes the VidModem(TM) and EVS, and to continue software development through
hardware and software engineering efforts. See "Business -- Products and
Technology."

The Company intends to use approximately $2,564,000 of the net proceeds of
the Offering to repay in full certain outstanding indebtedness, including
accrued and unpaid interest thereon. The indebtedness to be repaid consists of
(i) approximately $304,000 to repay a promissory note outstanding to the Adelson
Investment Company in the principal amount of $300,000, which matures on the
initial public offering date and bears interest at a varying floating rate equal
to 1.5% over the prime rate of interest announced from time to time by
NationsBank, N.A. (averaging 10.50% over the term of the loan), (ii)
approximately $215,000 to repay promissory notes to certain directors, officers
and affiliates of the Company in the principal amounts of $100,000, $60,000,
$19,500 and $19,500, respectively, each of which matures on March 31, 1997 and
bears interest at a fixed rate of 7% per annum, and (iii) approximately
$2,044,000 to repay the Bridge Notes, which have an outstanding principal amount
of $2,000,000, mature upon the consummation of the Offering, and bear interest
at a fixed rate of 10% per annum.

An estimated $700,000 of the net proceeds will be used to develop the sales
channels for the Company's products, including establishing customer and
technical service teams, creating sales and technology training programs for
resellers and marketing partners, and establishing end-use customer support.

The Company intends to use an estimated $400,000 of the net proceeds to
purchase capital equipment required to support product development and sales and
marketing expansion described above, and an estimated $300,000 for expansion and
improvement of its facilities. In anticipation of increased production of the
VidPhone(R) system, the Company plans to enter into a longer term leasing
arrangement that will include space to maintain a more comprehensive inventory
and to accomplish system integration, testing and quality control on a more
significant scale. Additionally, the Company plans to increase its engineering
efforts and support staff, each of which will require additional space.

The remaining net proceeds of approximately $1,388,650, and any additional
net proceeds resulting from the exercise of the Over-Allotment Option, will be
employed for working capital and general corporate purposes.

The table above represents the Company's best estimate of its allocation of
the uses of the net proceeds of the Offering, based upon the current state of
its business operations, its current business plan and strategy, and current
economic and industry conditions. The amount and timing of expenditures will
vary depending upon a number of factors, including, among others, the progress
of the Company's product development and marketing efforts, changing competitive
conditions, and general economic conditions. The allocations of the

18
<PAGE> 19

uses of the net proceeds of the Offering are subject to reapportionment among
the purposes listed above, and to other general corporate purposes, including
working capital. The actual amount of the uses of proceeds cannot be predicted
with any degree of certainty.

Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing,
investment-grade debt securities, money market accounts, certificates of
deposit, or direct or guaranteed obligations of the United States government.

DIVIDEND POLICY

The Company expects that it will retain all earnings, if any, generated by
its operations for the development and growth of its business and does not
anticipate paying any cash dividends to its stockholders in the foreseeable
future. The payment of future dividends on the Common Stock and the rate of such
dividends, if any, will be determined in light of any applicable contractual
restrictions limiting the Company's ability to pay dividends, the Company's
earnings, financial condition, capital requirements and other factors deemed
relevant by the Board of Directors.

19
<PAGE> 20

DILUTION

As of December 31, 1996, after giving pro forma effect to (i) the issuance
and sale in January 1997 by the Company of 250,000 shares of Series A Preferred
Stock and Series A Warrants to purchase 50,000 shares of Common Stock at an
exercise price of $4.00 per share and the receipt of $930,000 in net proceeds
therefrom and (ii) the consummation of the warrant exchange transaction with
certain existing investors in the Company, which was completed in January 1997,
the Company had a pro forma net tangible book value (deficit) of approximately
$(1,807,698) or $(0.88) per share of Common Stock. Giving effect to the issuance
of 500,000 shares of Common Stock upon the automatic conversion, at the time of
the closing of the Offering, of the Series A Preferred Stock, the pro forma net
tangible book value would increase by $0.87 per share. The pro forma net
tangible book value of the Company at December 31, 1996, giving as adjusted
effect to (and without taking into account any other changes in the pro forma
net tangible book value after December 31, 1996) (i) the issuance of 500,000
shares of Common Stock upon the automatic conversion, at the time of the closing
of the Offering, of the Series A Preferred Stock, (ii) the sale by the Company
of the 1,800,000 shares of Common Stock offered hereby at the initial offering
price of $5.50 per share and receipt of the net proceeds therefrom and (iii) the
application of a portion of the net proceeds of the Offering to repay certain
outstanding indebtedness as set forth under "Use of Proceeds," the write-off of
debt issuance costs associated with the indebtedness to be repaid and the
write-off of unamortized debt discounts related to the estimated fair value of
the Bridge Warrants, would have been approximately $7,273,326 or $1.67 per share
of Common Stock. See "Certain Transactions," "Description of Securities" and
Note 7 of Notes to Financial Statements. This represents an immediate increase
in the pro forma net tangible book value of $1.68 per share to present
stockholders and an immediate dilution of $3.83 or 69.6% per share to new
investors. The following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share of Common Stock (1).......... $5.50
Pro forma net tangible book value (deficit) per share of Common
Stock before the Offering...................................... $(0.88)
Increase per share attributable to conversion of Series A
Preferred Stock to Common Stock................................ 0.87
Increase per share attributable to purchase of shares of Common
Stock by new investors......................................... 1.68
------
Pro forma net tangible book value per share of Common Stock as of
December 31, 1996, as adjusted..................................... 1.67
-----
Dilution per share of Common Stock to investors in the Offering...... $3.83
=====
</TABLE>

- ---------------
(1) Represents the initial public offering price per share of Common Stock,
before deducting underwriting discounts and offering expenses payable by the
Company.

The following table summarizes, immediately prior to the Offering, the
differences between existing stockholders and investors in the Offering with
respect to the number and percentage of shares of Common Stock purchased from
the Company, the amount and percentage of consideration paid and the average
price paid per share of Common Stock, before deduction of offering expenses and
underwriting discounts:

<TABLE>
<CAPTION>
SHARES OWNED CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
--------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 2,561,844 58.7% $ 4,762,048 32.5% $1.86
New investors........................... 1,800,000 41.3 9,900,000 67.5 $5.50
--------- ----- ----------- -----
Total.............................. 4,361,844 100.0% $14,662,048 100.0%
========= ===== =========== =====
</TABLE>

The foregoing table assumes (i) the issuance and sale in January 1997 by
the Company of 250,000 shares of Series A Preferred Stock and Series A Warrants
to purchase 50,000 shares of Common Stock at an exercise price of $4.00 per
share, and the receipt of $930,000 in net proceeds therefrom; (ii) the issuance
of the 500,000 shares of Common Stock upon the automatic conversion, at the time
of the closing of the Offering, of

20
<PAGE> 21

the outstanding shares of Series A Preferred Stock; and (iii) the consummation
of the warrant exchange transaction with certain existing investors in the
Company, which was completed in January 1997. The table does not include (i)
350,000 shares of Common Stock issuable upon exercise of the Bridge Warrants;
(ii) 495,382 shares issuable upon the exercise of other outstanding warrants to
purchase shares of Common Stock; (iii) 343,000 shares of Common Stock reserved
for issuance upon exercise of outstanding options granted to executive officers,
key employees and consultants under the 1994 Plan and 190,000 shares of Common
Stock reserved for issuance upon exercise of non-qualified stock options granted
to certain directors of the Company; and (iv) 450,000 shares of Common Stock
reserved for issuance under the 1996 Plan. The exercise of any such options and
warrants will have a dilutive effect upon investors in the Offering. See
"Management -- Directors' Non-Qualified Options," "-- 1994 Stock Option Plan,"
"-- 1996 Stock Incentive Plan," "Certain Transactions," "Description of
Securities" and Note 7 of Notes to Financial Statements.

21
<PAGE> 22

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
December 31, 1996; (ii) as of December 31, 1996, on a pro forma basis, to
reflect (a) the issuance and sale in January 1997 by the Company of 250,000
shares of Series A Preferred Stock and Series A Warrants to purchase 50,000
shares of Common Stock at an exercise price of $4.00 per share and the receipt
of $930,000 in net proceeds therefrom and (b) the consummation of the warrant
exchange transaction with certain existing investors in the Company, which was
completed in January 1997; and (iii) as of December 31, 1996, on a pro forma, as
adjusted basis to reflect (a) the issuance of 500,000 shares of Common Stock
upon the automatic conversion, at the time of the closing of the Offering, of
the Series A Preferred Stock; (b) the sale by the Company of the 1,800,000
shares of Common Stock offered hereby at the initial public offering price of
$5.50 per share and the receipt of the net proceeds therefrom; and (c) the
application of a portion of the net proceeds of the Offering to repay certain
outstanding indebtedness, as set forth under "Use of Proceeds," the write-off of
the debt issuance costs associated with the indebtedness to be repaid and the
write-off of the unamortized discounts related to the estimated fair value of
the Bridge Warrants. See "Use of Proceeds," "Certain Transactions," "Description
of Securities" and Note 7 of Notes to Financial Statements. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and the notes
thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------
PRO PRO FORMA,
ACTUAL FORMA (1) AS ADJUSTED (2)
------- --------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Notes payable, current portion (including current portion
of capital lease obligations), net of unamortized debt
discounts of $586,000, actual and pro forma.............. $ 1,929 $ 1,929 $ 16
======= ======= =======
Long-term obligation under capital lease................... 26 26 26
Preferred Stock, $.01 par value, 2,500,000 shares
authorized; 250,000 shares Series A Convertible Preferred
Stock issued and outstanding, actual; 500,000 shares
issued and outstanding, pro forma; none issued and
outstanding, pro forma, as adjusted...................... 848 1,778 --
Common Stock, $.01 par value, 10,000,000 shares authorized;
1,896,577 shares issued and outstanding, actual;
2,061,844 shares issued and outstanding, pro forma;
4,361,844 shares issued and outstanding, pro forma, as
adjusted (3)............................................. 19 21 44
Additional paid-in capital................................. 3,371 4,030 13,888
Accumulated deficit........................................ (5,165) (5,826) (6,626)
------- ------- -------
Total stockholders' equity (deficit).................. (1,775) (1,775) 7,306
------- ------- -------
Total capitalization............................. $ (901) $ 29 $ 7,332
======= ======= =======
</TABLE>

- ---------------
(1) Pro forma to give effect to (i) the issuance and sale in January 1997 by the
Company of 250,000 shares of Series A Preferred Stock and Series A Warrants
to purchase 50,000 shares of Common Stock at an exercise price of $4.00 per
share, and the receipt of $930,000 in net proceeds therefrom and (ii) the
consummation of the warrant exchange transaction with certain existing
investors in the Company, which was completed in January 1997. See "Certain
Transactions," "Description of Securities" and Note 7 of Notes to Financial
Statements.

(2) Pro forma, as adjusted to give effect to (i) the issuance of 500,000 shares
of Common Stock upon the automatic conversion, at the time of the closing of
the Offering, of the Series A Preferred Stock; (ii) the sale by the Company
of the 1,800,000 shares of Common Stock offered hereby at the initial public
offering price of $5.50 per share and receipt of the net proceeds therefrom;
and (iii) the application of a portion of the net proceeds of the Offering
to repay certain outstanding indebtedness, as set forth under "Use of
Proceeds," the write-off of the debt issuance costs associated with the
indebtedness to be repaid and the write-off of the unamortized discounts
related to the estimated fair value of the Bridge Warrants. See "Use of
Proceeds."

(3) Does not include (i) 350,000 shares of Common Stock issuable upon exercise
of the Bridge Warrants; (ii) 495,382 shares of Common Stock issuable upon
exercise of other outstanding warrants to purchase shares of Common Stock;
(iii) 343,000 shares of Common Stock reserved for issuance upon exercise of
outstanding options granted to executive officers, key employees and
consultants under the Company's 1994 Plan and 190,000 shares of Common Stock
reserved for issuance upon exercise of outstanding non-qualified stock
options granted to certain directors of the Company; and (iv) 450,000 shares
of Common Stock reserved for issuance under the 1996 Plan. See
"Management -- Directors' Non-Qualified Options," "-- 1994 Stock Option
Plan," "-- 1996 Stock Incentive Plan" and "Description of Securities."

22
<PAGE> 23

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

The following discussion should be read in conjunction with the Company's
audited Financial Statements and notes thereto appearing elsewhere in this
Prospectus.

OVERVIEW

The Company was incorporated in October 1993 to develop and produce
products and systems to support new communications devices that make extensive
use of broadband networks, and transmit high-quality video and audio and high
speed data. The Company's operations to date have related primarily to
organizational activities, including research and development and organizational
efforts involving the development of its initial products, including the
VidPhone(R) system, recruiting management and technical personnel and raising
capital.

The Company's business plan for the year following the consummation of the
Offering focuses on refining its product development and commencing sales and
marketing of its products, particularly the VidPhone(R) system. In order to
achieve its objectives, the Company's strategy currently includes: (i)
completing engineering modifications required to transition from production of
beta test units to commercially available VidPhone(R) systems, (ii) hiring
additional personnel in engineering, sales and marketing, manufacturing and
testing, and administration, (iii) establishing direct sales relationships with
reference accounts, (iv) negotiating reseller relationships with providers of
PBX and Centrex systems relating to the introduction of the VidPhone(R) system
and related products and services into their product line, (v) continuing
research and development to enhance current products and develop complementary
products, and (vi) securing further intellectual property protection, including
additional patent, trademark and copyright protections. The Company plans to
subcontract all major manufacturing and production activities for the
foreseeable future, but to retain test and quality assurance functions until all
subcontractors can be certified with respect to quality.

To date, the Company has not generated substantial revenues from the sale
of its products and services. Historically, a significant portion of the
Company's revenues have been derived from fees for consulting services. During
1996 and 1995, consulting services accounted for 44.2% and 42.2% of the
Company's revenues, respectively. The Company's business strategy is to increase
revenues through sales of its products, particularly the VidPhone(R) system.
Accordingly, in the future, the Company plans to devote substantially all of its
efforts to production and sales and support of the VidPhone(R) system. The
VidPhone(R) system has not been marketed actively to any customers, and
technical information regarding the VidPhone(R) is distributed only upon
execution of a confidentiality agreement. However, as a result of product
testing and technology demonstrations conducted by the Company, the Company has
received and is currently working on a limited number of customer orders. There
can be no assurance that the Company will be successful in its efforts to market
and sell its products. The Company's inability to establish marketing channels
for its products and to obtain orders for its products, particularly the
VidPhone(R) system, would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Fluctuations in

23
<PAGE> 24

Operating Results," "-- Limited Operating History; Dependence on Market for New
Products," and "Business -- Strategy."

The Company expects to incur additional operating losses for the
foreseeable future. The Company's operations to date have been funded primarily
through private sales of debt and equity securities. See "Risk
Factors -- Development Stage Enterprise" and "Risk Factors -- Losses Since
Inception; Accumulated Deficit; Expectation of Continuing Losses."

The Company expects to incur substantial operating expenses in the future
to support its product development efforts, expand and enhance significantly its
sales and marketing capabilities and organization, expand its technical and
management personnel and for the other general and administrative expenses. The
Company is currently in discussions with several engineers from an engineering
concern regarding hiring such engineers. There can be no assurance, however,
that the Company will hire such engineering employees or that such employees
would accept an offer of employment from the Company, if such an offer is made.
The Company's results of operations may vary significantly from quarter to
quarter during this period of development.

RESULTS OF OPERATIONS

COMPARISON OF YEAR ENDED DECEMBER 31, 1996 AND YEAR ENDED DECEMBER 31, 1995.

Revenues. Revenues for 1996 decreased by $143,303, or 63.8%, to $81,375,
from $224,678 for 1995. Of the Company's revenues in 1996 and 1995, 55.8% and
57.8%, respectively, were derived from sales of VidPhone(R) remote terminals,
which are VidPhone(R) units with ISDN capabilities. The remainder of the
Company's revenues in both periods were derived from consulting services
provided by the Company. Revenues declined in 1996 as a result of the completion
in 1995 of a single consulting contract which accounted for 89.5% of total
revenues in 1995. See "Business -- Products and Technology."

Gross Margin. The Company's gross margin for 1996 was 23.3% of total
revenues, as compared with 38.8% of total revenues for 1995. The Company does
not believe that gross margins in past periods, including 1996 and 1995, are
necessarily indicative of gross margin in future periods because such margins do
not relate to the revenues and costs of producing and selling the VidPhone(R)
system. In the future, the Company intends to focus on sales of its products
and, accordingly, may experience significant changes in gross margin in future
periods.

Research and Development. Research and development expenses for 1996
decreased by $125,145, or 10.2%, to $1,106,901, from $1,232,046 for 1995.
Research and development expenses include the costs associated with all
personnel, materials and contract personnel engaged in research and development
for the Company. In addition, research and development expenses include an
allocated portion of the Company's general and administrative expenses, such as
rent, telephone and office supplies. The decrease in research and development
expenses in 1996 was primarily attributable to the redeployment by the Company
of limited engineering resources to support beta units, which is classified as a
general and administrative expense rather than a research and development
expense.

The Company expects to continue to incur substantial research and
development expenses as it further enhances existing products and develops new
products and services, and expects research and development expenses to
increase. The Company is developing a number of new inventions and associated
products to complement and expand the Company's VidPhone(R) technology. The
Company's research and development program includes mechanical design, circuit
card development, transmission technology, embedded software, control software
for multiple platforms and some applications software. See "Risk
Factors -- Risks Associated

24
<PAGE> 25

with Rapid Growth and with the Company's Business Plan and Strategy," "Use of
Proceeds" and "Business -- Strategy."

General and Administrative Expenses. General and administrative expenses
for 1996 increased by $227,987, or 28.0%, to $1,041,840, from $813,853 for 1995.
General and administrative expenses consist of marketing and sales expenses,
such as advertising, expenses associated with customer support, legal,
accounting and consulting fees, and an allocated portion of rent, telephone,
mail, office supplies and other costs incurred that are associated with the
Company's business. The increase in 1996 of general and administrative expenses
was primarily due to significantly increased legal fees to support increasingly
complex financial operations at the Company, increased consulting fees,
including higher expenses related to accounting and technical consultants, and
the inclusion in 1996 of expenses related to the employment of key
administrative personnel by the Company for a full year compared with partial
year employment in 1995.

Upon completion of the Offering, the Company intends to hire additional
personnel to expand the Company's engineering staff, its marketing and sales
personnel, including customer support and, to a lesser extent, administrative
staff personnel to support accounting and personnel management. See "Risk
Factors -- Limited Marketing Experience; Need for Additional Personnel" and
"Business -- Strategy" and "-- Marketing and Sales." Additionally, the Company
expects general and administrative expenses to increase in future periods as the
Company incurs additional costs related to being a public company and expands
its facilities, including its production facilities.

Depreciation. Depreciation for 1996 increased by $98,416, or 163.2%, to
$158,714, from $60,298 for 1995. This increase was primarily due to the
depreciation associated with the acquisition of substantial new capital assets
in 1996, primarily computer equipment, and, to a lesser extent, the accelerated
write-down of leasehold improvements as a result of the Company's move to new
office space. See Note 3 of Notes to Financial Statements.

Other Operating Expenses. Other operating expenses for 1996 decreased by
$12,318, or 87.8% to $1,713, from $14,031 for 1995. Operating expenses in 1995
primarily consisted of late fees and interest costs on trade credit which were
classified as an operating expense. The Company did not incur comparable costs
in 1996 because of the availability of additional cash as a result of
indebtedness incurred by the Company, interest on which is classified as
interest expense.

Interest Expense. Interest expense, net, for 1996 increased by $391,138 to
$404,290 from $13,152 in 1995. The increase in interest expense is primarily due
to warrant issuance costs associated with Bridge Notes issued by the Company in
October and November 1996, $321,789 of which is a non-cash expense. See Note 6
of Notes to Financial Statements.

Net Loss. As a result of the foregoing factors, the Company's net loss for
1996 increased by $648,320, or 31.7%, to $2,694,436 from $2,046,116 for 1995.

COMPARISON OF YEAR ENDED DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1994.

Revenues. Revenues for 1995 increased by $35,071, or 18.5%, to $224,678,
from $189,607 for 1994. Of the Company's revenues in 1995, 57.8% were derived
from sales of VidPhone(R) remote terminals, which are VidPhone(R) units with
ISDN capabilities that are used for testing purposes, and the remainder were
derived from consulting services. All of the Company's revenues in 1994 were
generated by consulting services provided by the Company. See
"Business -- Products and Technology."

Gross Margin. The Company's gross margin for 1995 was 38.8% of total
revenues, as compared with 73.8% of total revenues for 1994. The Company does
not believe that gross margins in past periods, including 1995 and 1994, are
necessarily indicative of gross margin in future periods because such margins do
not relate to the revenues and costs of producing the VidPhone(R) system. In the
future, the Company intends to focus on sales of its products and, accordingly,
may experience significant changes in gross margin in future periods.

Research and Development. Research and development expenses for 1995
increased significantly by $1,066,773, or 645.5%, to $1,232,046, from $165,273
for 1994. This significant increase was primarily due to

25
<PAGE> 26

the retention of additional technical personnel and research and
development-related materials as the Company shifted its focus to product
development from organizational activities.

General and Administrative Expenses. General and administrative expenses
increased significantly by $432,815, or 113.6%, for 1995 to $813,853, from
$381,038 for 1994. The increase in general and administrative expenses was
primarily due to significantly increased legal, consulting and accounting fees
to support increasingly complex operations at the Company, and higher personnel
costs in 1995 compared to 1994, as a result of increased staffing during 1995.

Depreciation. Depreciation for 1995 increased by $56,536, or 1,502.8%, to
$60,298, from $3,762 in 1994. This increase was primarily due to the
depreciation associated with the acquisition of substantial new capital assets
in 1995, primarily computer technology.

Other Operating Expenses. Other operating expenses for 1995 increased by
$13,778, or 5,445.8% to $14,031, from $253 for 1994. This increase was primarily
due to the late fees and interest costs on trade credit incurred during 1995,
which were classified as an operating expense. The Company did not incur
significant comparable costs in 1994 as the Company focused on organizational
activities during that year.

Interest (Income) Expense. The Company recorded interest income of $3,485
in 1994 related to interest earned on a note receivable from an investor. The
Company recorded interest expense of $13,152 in 1995.

Net Loss. As a result of the foregoing factors, the Company's net loss for
1995 increased by $1,639,274, or 402.9%, to $2,046,116 from $406,842 for 1994.

LIQUIDITY AND CAPITAL RESOURCES

From its inception through December 31, 1996, the Company incurred
cumulative losses aggregating $5,151,915, and has not experienced any quarter of
profitable operations. The Company expects to continue to incur operating losses
for the foreseeable future until the Company achieves significant commercial
sales of its products, principally as a result of expenses associated with the
Company's product development efforts and anticipated sales, marketing and
general and administrative expenses. During the past three years, the Company
has satisfied its cash requirements principally from private sales of equity and
debt securities and, to a limited extent, from cash flows from operations. Cash
from operations from the inception of the Company through December 31, 1996,
totaled $450,220, funding approximately 10% of the Company's cash requirements
during the period. The primary uses of cash have been to fund research and
development and for general and administrative expenses.

At December 31, 1996, the Company had cash and cash equivalents of
approximately $623,241, and a working capital deficit of $1,329,786. As of the
date hereof, the Company's total debt obligations (exclusive of trade credit)
consist primarily of the $2,000,000 principal amount payable to the holders of
the Bridge Notes and the $300,000 principal amount payable to Adelson Investment
Company. See "Certain Transactions" and "Description of Securities." The Company
intends to use a portion of the net proceeds of the Offering to repay in full
the Bridge Notes and the Adelson Note. See "Use of Proceeds."

Net cash used in operating activities for 1996, 1995 and 1994 totaled
approximately $2,916,709, $1,445,087 and $203,731, respectively. Net cash
provided by financing activities for 1996, 1995 and 1994 totaled approximately
$3,750,351, $1,354,834 and $564,582, respectively, reflecting the proceeds from
the issuance of equity securities and debt securities and borrowings from
related parties, offset by principal repayments of $385,000 and $30,000 in 1996
and 1995, respectively. No principal repayments were made in 1994.

In October and November of 1996, the Company issued $2,000,000 aggregate
principal amount of Bridge Notes. Of the approximately $1,735,000 in net
proceeds from the sale of the Bridge Notes, the Company used an estimated
$990,000 for continued product development, an estimated $375,000 to pay general
and administrative expenses, an estimated $208,000 to purchase capital assets
used in product development and an estimated $162,000 for marketing and sales.
The Bridge Notes have an effective interest rate of 43.3% per annum based on the
10% stated interest rate of the Bridge Notes and the fair value of the 500,000
warrants that were originally issued in connection with the Bridge Notes. The
Company intends to use a portion of the

26
<PAGE> 27

net proceeds from the Offering to repay in full the outstanding Bridge Notes. In
December of 1996 and January of 1997, the Company issued 500,000 shares of
Series A Preferred Stock and 100,000 Series A Warrants for aggregate gross
proceeds to the Company of $2,000,000. Of the approximately $1,790,000 in net
proceeds from the sale of the Series A Preferred Stock and the Series A
Warrants, the Company has used an estimated $619,000 for continued product
development, an estimated $372,000 to pay general and administrative expenses,
an estimated $204,000 to purchase capital assets used in product development and
an estimated $157,000 for marketing and sales. The Company intends to use the
remaining $438,000 in estimated net proceeds for continued product development,
general and administrative expenses, to purchase capital assets and for sales
and marketing, in approximately the same proportion as set forth above. The
500,000 outstanding shares of Series A Preferred Stock will automatically
convert to 500,000 shares of Common Stock at the time of the closing of the
Offering. See Notes 5 and 6 of Notes to Financial Statements.

The Bridge Notes, the Adelson Note and certain other related party notes
were recorded in the financial statements, net of approximately $782,000
representing a debt discount for the fair value of the warrants issued in
connection with such notes. As of December 31, 1996, the unamortized debt
discount related to these notes was $586,000. The amount of the amortized debt
discount related to such notes recorded during the first quarter of 1997 will be
approximately $175,000.

The Company intends to use approximately $400,000 of the net proceeds of
the Offering for capital expenditures. The Company currently anticipates that
such capital expenditures will include acquisition of computer hardware and
software to support new engineering staff, test equipment to support research
and development, integration, testing and quality assurance for manufacturing,
demonstration units and trade show material to support marketing and sales, and
acquisitions of furniture, fixtures and other personal property to support
expanded staff in new facilities.

Based on the Company's operating plan, the Company believes that the net
proceeds of this Offering, together with its existing resources and revenues
from continuing operations, will be sufficient to satisfy its capital
requirements and finance its operations for 15 months following the consummation
of the Offering. In the first quarter of 1997, the Company will reflect a
non-cash compensation expense of $340,166 and a charge to equity of $320,902 in
connection with the warrant exchange transaction consummated in January 1997.
See Note 6 of Notes to Financial Statements. Such estimate is based upon certain
assumptions, and there can be no assurance that such assumptions are correct. In
the event that the Company's plans change, or the proceeds of the Offering are
insufficient to fund operations due to unanticipated delays, problems, expenses
or otherwise, the Company would be required to seek additional funding sooner
than anticipated. Further, depending upon the Company's progress in
commercializing its VidPhone(R) technology, marketing its product line, gaining
acceptance of the VidPhone(R) technology and its other products and services
among the business community, the Company may determine that it is advisable to
raise additional capital sooner than anticipated. The Company has no current
arrangements with respect to, or specific sources of, any such capital, and
there can be no assurance that such additional capital will be available to the
Company when needed on commercially reasonable terms, or at all. The Company
anticipates that any additional financing required to meet its current plans for
growth and expansion may take the form of the issuance of common or preferred
stock or debt securities, or may involve other secured or unsecured debt
financing. To the extent that the Company elects to obtain debt financing, the
lender may impose certain restrictive covenants on the Company and upon any
default by the Company on such debt financing, and a liquidation of the Company,
the rights of such lender would be superior to the rights of the holders of
Common Stock, including investors in the Offering. Additional equity financing
may involve substantial dilution to the interests of the Company's then existing
stockholders. There can be no assurance that the Company will be able to obtain
such additional capital on a timely basis, on favorable terms, or at all. In any
of such events, the Company may be unable to implement its business plan. See
"Risk Factors -- Need for Additional Financing" and "-- Dilution."

INFLATION

The impact of inflation on the Company's business has been insignificant to
date and the Company believes that it will continue to be insignificant for the
foreseeable future.

27
<PAGE> 28

BUSINESS

GENERAL

The Company has developed a proprietary video communications system, the
VidPhone(R) system, which is an integrated hardware and software system that
provides high-quality, low-cost video distribution and stereo audio transmission
capabilities using the existing unshielded telephone wiring. The VidPhone(R)
enables video conferencing, data and file sharing, full-motion broadcasting and
retrieval of stored data directly to or from the desktop or conference room
system. The Company believes that the VidPhone(R) system offers greater
functionality and compatibility with existing infrastructure at a lower price
than most high-quality video conferencing equipment on the market today. The
Company believes that it offers the only video distribution system that combines
all three major video applications, video conferencing, video broadcast and
video retrieval, in a single cost-effective, turn-key solution.

The VidPhone(R) system enables an existing PBX or Centrex system to
transmit live television broadcasts, conduct two-way or multi-party video
conferences and distribute stored video material to the desktop. The Company
believes that these applications can be used for meetings, training programs and
retrieval of real-time financial market information and other news.

The Company's objective is to gain a leading position in the desktop video
applications industry by marketing the VidPhone(R) system through large business
telephone system providers which sell, install and support PBX systems, such as
the RBOCs, LEXCs, PBX manufacturers and PBX resellers. These providers have
direct access to end-users to which the VidPhone(R) system can be easily
introduced. The Company anticipates that such PBX system manufacturers will be
interested in establishing marketing relationships with the Company, because of
the ease with which the VidPhone(R) can be marketed and sold to existing
customers as an upgrade to an existing telephony system. The Company currently
is discussing a test marketing arrangement for the VidPhone(R) with leading PBX
manufacturers and resellers and also is discussing the establishment of joint
marketing relationships. As part of these test marketing arrangements, the
Company has installed, at no cost to the user, test marketing VidPhone(R)
equipment in the facilities of one of the three largest PBX manufacturers, two
of the five largest LEXCs, one of the four largest RBOCs and at one end-user
customer location. See "-- The Objective Communications Solution -- VidPhone(R)
System" and "-- Products and Technology." The Company has not yet entered into
any joint venture relationships and there can be no assurance that it will be
successful in its efforts to develop such relationships or that, if established,
such arrangements will be profitable. See "Risk Factors -- Limited Marketing
Experience; Need for Additional Personnel."

INDUSTRY BACKGROUND

The Telecommunications Industry. The telecommunications industry is
rapidly changing and expanding, and the video applications technologies within
that market are quickly developing. The industry has experienced the growth of
enhanced communication services such as multimedia applications, the Internet,
video and desktop conferencing, facsimile transmission and data communication
among computers. The Company believes that the growth in the telecommunications
industry will contribute to growth in demand for videoconferencing products
generally and for its products in particular. The Company believes that most
high-quality video conferencing equipment on the market today is expensive and
incompatible with the existing communications infrastructure of a typical
organization. The Company believes that it offers the only video applications
and distribution system that combines all three major video applications: video
conferencing, broadcast and retrieval. The VidPhone(R) system offers users an
integrated video conferencing system that provides a single, cost-effective
solution to the user's need to coordinate video conferencing among various
parties in disparate locations.

Video Conferencing. The Company's products target, in particular, the
video conferencing market. According to a 1996 report by Frost and Sullivan, the
U.S. video conferencing market generated $2.94 billion in 1995, and revenues are
projected to grow to over $34.76 billion by the year 2002, which would represent
a compound annual growth rate of 42.3% over such period. The market currently
consists of two segments: services and systems. Video conferencing services
include transport services, which provide ISDN line service for teleconference
parties; multi-point bridging services, which coordinate calls among various
parties at

28
<PAGE> 29

multiple locations; and public room services, which provide video conferencing
services and equipment to the public for a per-hour or per-day charge. The video
conferencing systems currently available include permanently-installed and
portable boardroom systems and desktop systems. According to a November 1996
article in PC Week, the desktop segment of the video conferencing market, which
the Company services, is expected to grow from 300,000 units shipped in 1996 to
6,200,000 units shipped by 2000.

Video Broadcast. Video broadcast is readily available to the consumer
market through cable services or satellite connections. These methods of
distribution of video broadcast for home use are effective, since the cable or
satellite connects to one or two television units within the home. To date,
however, the Company is unaware of any effective method to provide video
broadcast to the numerous desktop units used in most businesses or government
organizations. The Company believes that there is a growing demand for access to
video broadcasts, such as CNN, CNBC or Bloomberg, at the desktop in the
workplace.

Video Retrieval. Video retrieval systems allow on-demand retrieval of
films, training information, news excerpts or any other recordable material. A
video retrieval application could permit access to video content from a
third-party provider or from a business' own library. Video retrieval can serve
any business that requires frequent personnel training regarding new products or
procedures or that must research video materials. For example, a surgeon could
review the latest successful technique developed by a prominent medical center
or automotive technicians could review the most current repair procedure for a
particular model car. A business could keep training videos for all employees on
servers, ready for review at the individual employee's convenience.

The Company believes that video retrieval will become a necessity for
large, geographically diverse businesses that will require cost-efficient access
to training materials and other information at the desktop. The Company believes
that, to date, no reliable method of retrieval and distribution for recorded,
broadcast-quality video materials has been successfully introduced. Accordingly,
there is a lower demand for video retrieval applications than for video
conferencing or video broadcasting capabilities. However, the Company believes
that the demand for video retrieval in the workplace is growing, and will
continue to grow, as companies expand to multiple office locations worldwide.
The Company is unaware of any reliable, broadcast-quality video retrieval system
for the desktop available today.

VIDEO APPLICATIONS TECHNOLOGY

General. Video applications operate using a variety of communications
circuits. The speed of a transmission of digital data depends upon the capacity
of the communications circuit. A single twisted pair of copper wires connected
to a telephone company's central office can normally transmit up to 28 Kilobits
(28,000 bits) per second. With appropriate changes in the system's central
office switching equipment, a twisted pair can become a Basic Rate Interface ("1
BRI") or ISDN line, capable of transmitting 128 Kilobits per second. Three ISDN
circuits, each with two separate telephone numbers, can be combined by high-end
video conferencing systems to produce a "3 BRI" connection that can handle 384
Kilobits per second. A "T1" line, which uses a different cable, can handle l.5
Megabits (1,500,000 bits) per second. A fiber optic cable can transmit up to 2.5
Gigabits (2,500,000,000 bits) per second, or more, depending on the transmission
standards and methods. An increase in circuit capacity is accompanied by
increased cost. As fiber optic cables become more widely used and more companies
compete to supply communications circuits, however, the cost of the higher
capacity circuits is expected to decrease.

According to a 1996 Frost and Sullivan report, the proliferation of the
ISDN infrastructure is concentrated in the Northeast and on the West Coast of
the United States and is expanding through the Midwest. As the requirements for
greater digital capacity are increasing, however, ISDN capacity is already
proving insufficient to support the demands of developing technologies. The
Company believes that in the near future, transmissions will occur through
synchronous fiber optic networks ("SONET") and asynchronous transfer mode
("ATM") switches. Unlike ISDN, the SONET network will be "scaleable," meaning
that bandwidths for various services can be expanded as required by future needs
and the ATM switches will adapt to the size of the SONET. A report by Thomson
Financial Services concludes that the ATM protocol will provide a long-term
solution to the search for a standard for videoconferencing systems.

29
<PAGE> 30

Telephone companies, such as the RBOCs, are already replacing the T1 lines
among their central offices and the lines to their larger corporate customers
with SONET lines. According to a November 1994 article in Communications Week,
some companies, such as Citicorp, are installing their own fiber optic lines to
connect their various offices directly. These trends are expected to continue
and accelerate. According to an April 1996 report in Telecommunications, the
research firm Dataquest predicted that by the end of 1996, the revenues from
sales of ATM switches will have jumped to $508 million.

The Video Conferencing Application. Generally, a video conferencing
station includes a video camera, monitor, microphone, one or more speakers and
associated circuit boards and software, either in a stand-alone system, or
partially incorporated in a desktop computer. The video conferencing unit also
requires a coder-decoder ("CODEC") to transform the analog video and audio
signals into digital form, compressing them for transmission to the receiving
station or stations. Because of the high cost of quality hardware CODECs, some
desktop systems economize by using a software CODEC. Generally, software CODECs
produce lower-quality images than their hardware counterparts.

Currently, there are two principal types of video conferencing systems
available in the market: "boardroom" systems and desktop systems. According to
an October 1996 article in BusinessWeek, boardroom and similar "rollabout"
systems have, to date, dominated the market for video conferencing stations. In
June 1995, U.S. News & World Report reported that PictureTel and CLI produce
almost all of the boardroom systems, which are designed either for permanent
installation or for portability around an office. These systems produce the best
video quality available and can produce full-motion video, but only if connected
by expensive, high-quality data circuits. Although the image quality varies
greatly, high-end boardroom systems can operate on circuits that vary from a
low-capacity single ISDN line to a high-capacity T1 line. The newest boardroom
systems conform to H.320, the protocol standard of the International
Telecommunications Union, so that they can communicate with each other.
Currently, the price of a single high-end boardroom station ranges from $15,000
to $80,000, with an average price of approximately $45,000.

According to an industry report by Thomson Financial Services, the video
conferencing market is migrating toward desktop systems from the large boardroom
systems. Desktop systems use personal computers and produce a lower-quality and
generally smaller image than boardroom systems. According to an October 1996
article in BusinessWeek, the price of a single desktop system can range from
$1,000 to $10,000. Current models of desktop systems operate using a
low-capacity single ISDN circuit, which reduces the wiring cost to the end user,
but also substantially reduces the amount of video data that can be transmitted.
A January 1996 Special Report in Video Technology News reports that desktop
sales comprised approximately 8% of the video conferencing market in 1995. The
Company believes that disappointing sales to date in the desktop market are
attributable to the limitations of existing desktop systems, both in terms of
the inability of such systems to communicate with existing installations and the
poor quality of the video.

For customers to communicate between two video conferencing stations, calls
travel from one station through a dedicated telephone line, to a central office
and back to the other station. For customers to communicate via more than two
video conferencing stations, the calls are usually channeled through a multi-
point bridge service, generally located at the telephone company or at an
independent service provider. This service coordinates the multiple calls,
permitting several groups to conference simultaneously or one company executive
to address several offices simultaneously.

The Video Retrieval Application. The Company does not believe that
retrieval and display of broadcast quality video at the desktop throughout a
business is offered by any currently available video conferencing system. To
date, no practical means for transmitting the video information to each desktop
on demand have entered the market. Most existing solutions attempt to use the
customer's local area network ("LAN"). LANs, however, were designed to be shared
by users each using the system for only short periods of time, not to handle
large amounts of continuous data. For LAN-video, the video server must convert
the video information to digital form and then compress it for storage on a
server. When the user requests a video, the server retrieves the video data and
streams the video to the user through the LAN. The user's computer must then
decompress the video and display the result.

30
<PAGE> 31

Even highly compressed video requires large bandwidth and 1.5 megabits per
second, and a LAN typically has between one and two megabits per second of
bandwidth. Such a LAN could only carry one video stream of low-quality video, in
one direction at a time. In addition, the LAN would be rendered nearly useless
for all other users. Several companies, such as Starlight Networks, Inc., offers
server and client software to support video distribution over the LAN. Their
equipment produces multiple video transmissions by reducing the quality of the
video below broadcast quality and by "multicasting," where many users must watch
the same video program simultaneously.

INDUSTRY BARRIERS

The widespread use of video applications in the workplace has been hindered
by certain industry barriers:

- Cost/Quality Tradeoff. Video applications systems with high-resolution,
realistic video images generally cost a customer more than $15,000 for a
unit that operates only in one location within a facility. Although such
systems can operate on a low-capacity ISDN line, Bellcore studies show
that for the majority of users a 3 BRI line gives the minimum acceptable
image quality for business applications. Thus, without installing
high-capacity lines to its existing infrastructure, which will
significantly increase the cost to the purchaser, the customer cannot
receive the best video quality from a boardroom system. As an
alternative, desktop systems generally cost under $10,000 per unit, but
the video image is low-resolution and unrealistic. Thus, the customer's
affordable alternative hinders the objective of video conferencing, which
is to see and hear the other conferees clearly and easily. The Company
believes that the high cost associated with the higher quality video
applications systems is prohibitive and has hindered widespread use of
video applications in the business community.

- Closed Architecture; Incompatibility. Many of the systems currently
available use a proprietary protocol, rather than the international
standard and, as a result, cannot interface with other systems. These
systems, although useful internally, may not easily permit external video
conferencing or may permit it only with other entities using the same
protocol.

THE OBJECTIVE COMMUNICATIONS SOLUTION

VidPhone(R) System. The Company's principal product is the VidPhone(R)
system. The Company is currently marketing a VidPhone(R) remote for use as a
video conferencing station that is fully compatible for use with the VidPhone(R)
system, which the Company intends to begin marketing in late 1997. The
VidPhone(R) system is comprised of a desktop computer (configured with a
microphone, speakers, and a camera), the VidModem(TM), Objective View(TM) and
other software, all of which are linked by the EVS. The EVS connects each
VidPhone(R) terminal within a company and also connects the remote VidPhones(R)
that communicate with EVS via CODECs, ISDN lines, ATM switches or other
communication lines. The EVS also will provide a connection to the retrievable
video and audio material and sources of direct television broadcasts from
satellites or other sources.

The VidPhone(R) system is designed to provided high-quality, low-cost video
distribution and communications in any building using the existing unshielded
telephone wiring. All VidPhone(R) system functions, video retrieval,
broadcasting and conferencing, can be performed while a user simultaneously
engages in a telephone conversation over the same wires. This minimizes a
customer's need for new communications or transport infrastructure.
Additionally, the VidPhone(R) system is designed for both H.320 and ATM
conferencing, making it compatible with existing systems. See "-- Products and
Technology."

31
<PAGE> 32

Figure 1 below demonstrates how the VidPhone(R) may be used in conjunction
with a customer's existing communications system.

Typical Vidphone System Configuration

Software Applications. The Company has developed several software
applications for use with the VidPhone(R).

Objective View(TM) is the Company's primary software platform, providing an
easy-to-use graphical user interface for any VidPhone(R). Objective View(TM)
provides the user interface for establishing connections for all three video
applications, creating address books for frequently dialed broadcast signals or
conferencing parties, controlling the camera and volume levels on the desktop
unit, transferring files and launching other software programs.

The Company also provides two additional software programs, TeleDraw(TM)
and TeleShare(TM), with each VidPhone(R) system.

TeleDraw(TM) is a full-featured software package that permits collaborative
drawing, annotation and editing of drawings or pictures. Participants in
different locations can start with a blank page, a computer-generated drawing,
or a scanned image of an X-ray, photo or advertising layout. Each participant
can then make a sketch on the blank page, highlight sections of the image, or
change elements of the drawing or photograph, and the changes will appear on the
screen of every participant. The program also provides a presentation mode,
providing the ability to create (or import) and show a multi-slide presentation
to remote participants.

TeleShare(TM) allows participants in different locations to share
applications. TeleShare(TM) permits a computer program, such as a word
processing program or a spreadsheet, that is on the computer screen of one
conferee to appear on the screens of all the conferees. Each participant can
edit the screen on his or her own computer, and the edited version will appear
on the screens of all participants.

32
<PAGE> 33

The Company believes that these programs have multiple applications in a
variety of professions, including but not limited to engineering, medicine and
advertising.

STRATEGY

The Company believes that the VidPhone(R) system offers users a
cost-effective video conferencing product without sacrificing image resolution.
The relatively high cost of high-resolution video conferencing equipment with
which the VidPhone(R) will compete, the capital costs and wiring requirements
associated with such systems, and the lack of video broadcast and retrieval
applications in the workplace present the Company with a strategic opportunity
to market the VidPhone(R) and its related software applications to customers in
the desktop video market. To achieve its objective, the Company intends to
implement the following strategies.

Penetrate the Video Conferencing Market. The Company intends to gain entry
into the stand-alone video conferencing market by introducing its VidPhone(R)
remote terminals, which will provide the basis for customers to establish video
applications networks both within and among companies for use with the Company's
desktop VidPhone(R) system. See "-- Products and Technology." VidPhone(R) remote
terminals have already been selected by the United States Federal government for
use in its telecommuting work center program and are currently operating in
seven sites around the Washington, D.C. metropolitan area.

Develop and Expand VidPhone(R) as the Compatible Industry Standard. The
Company believes that the VidPhone(R) system will become a competitive product
in the market for live, full-motion video and stereo audio, scanned images and
computer-generated text, spreadsheets and graphics. The Company believes that
the VidPhone(R) system will be particularly appealing to information systems
managers in corporate and government organizations, because the system can be
easily integrated with a customer's existing system and is compatible with the
systems already installed in an organization's offices and those of other
companies with which the customer regularly communicates.

Introduce Flexible Video Broadcast and Retrieval Applications. The Company
anticipates that users of video conferencing systems also will require video
broadcast and retrieval applications, and it believes that the market for such
broadcast and retrieval capabilities is larger than the market for video
conferencing. The VidPhone(R) system provides the user with video broadcast and
retrieval capabilities that will allow desktop access to training programs,
business news services and financial market quotations, and research databases.

Expand the Market of Video Applications End Users. The Company believes
that many industries, including financial institutions and industrial
manufacturers, offer a largely untapped market for affordable video
applications. For example, using the VidPhone(R) system, each office of a bank
could offer customers the opportunity to communicate visually and verbally with
a variety of specialists. In addition, financial traders could use the
VidPhone(R) system's video broadcast capability to broadcast significant
financial news directly on computer screens. Airplane manufacturers could share
engineering sketches and databases of prior airplane designs. The Company
intends to market the VidPhone(R) system to industries that may have a need for
video conferencing capabilities, but have considered video applications
unsuitable for their business based on cost-quality considerations.

PRODUCTS AND TECHNOLOGY

The Company's principal product is the VidPhone(R) system. The VidPhone(R)
system is comprised of four components. First is the VidPhone(R) terminal, which
is a user's desktop configured to provide one- and two-way video communications
within an office building using VidModem(TM) technology. Second is the EVS,
which acts as a video network server, making connections, hosting conferences
and retrieving stored video. Third is the VidPhone(R) remote terminal, which
provides communications with remote locations. This terminal can gain remote
access to all of the VidPhone(R) network functions via ISDN or ATM lines. By
using ATM, a VidPhone(R) remote terminal can have the quality video and audio
communications of the VidPhone(R) configured with a VidModem(TM). Fourth is the
user interface, Objective View(TM), and communicating applications,
TeleDraw(TM), TeleShare(TM) and Telefile(TM). The Company currently expects to
initiate sales of the VidPhone(R) system hardware and software in late 1997.

33
<PAGE> 34

The VidPhone(R) System. The VidPhone(R) system is the centerpiece of the
Company's suite of products. It is comprised of VidPhone(R) terminals, an EVS
and Objective View(TM). VidPhone(R) terminals use a personal computer or
workstation to which is added a microphone, speakers and a camera, and
proprietary software. VidPhone(R) terminals can be connected through a
VidModem(TM) or, for remote terminals, through ISDN lines or ATM interfaces.
Terminals connect to the EVS to display broadcast television programs, conduct
two-way or multi-party conferences and to retrieve stored video for viewing.

VidPhone(R) terminals equipped with VidModems(TM) do not need a direct ISDN
or ATM interface since they are connected directly to the EVS. These VidPhone(R)
terminals connect to the EVS, which is normally located near the telephone PBX,
through a VidModem(TM) attached to the user's existing telephone line. The
VidPhone(R) system can provide high-quality, low-cost video communications
within a building using the existing, standard unshielded telephone wiring and
can extend that same quality to any other location worldwide by using
appropriate communications lines from a customer's PBX to the central office of
the local telephone company. The number of outside data lines needed is only as
large as the number of outside video conferencing calls being made at any one
time from the EVS.

An internal video conference call between two or more VidPhones(R) each of
which are within 1,250 feet of their PBX (a distance that would allow calls
within the largest high-rise buildings) would be connected using the building's
existing telephone lines via the EVS. The Company believes that the VidPhone(R)
system, unlike any other vendor's system, can transmit full-motion,
broadcast-quality, two-way video and stereo audio up to 1,250 feet to and from
the EVS. The telephone can be used for incoming or outgoing calls, even while
the line is being used for video conferencing or other video applications. No
CODECs, outside circuits, or multi-point controllers are needed if the
building's wiring is equal to or better than category 3 lines, which are
voice-grade cables typically used in residential or business telephone systems.
The VidPhone(R) system generally requires no new building wiring, provided that
the wiring is category 3 quality or better, except to connect the EVS to the
adjacent telephone PBX. Using the Company's proprietary technology, the Company
believes that every desktop computer in a high-rise building could be
inexpensively equipped to conduct full-motion, true-to-life video applications
with any other desktop computer inside and outside of the building with quality
equal to or surpassing that of existing high-end systems.

An external video conference call would connect from a VidPhone(R) terminal
to the EVS and then, through a CODEC, to a high-capacity outside circuit
connected to the telephone company's central office. The VidPhone(R) system,
like the high-end boardroom systems currently available, can use any quality
outside circuit, such as an ISDN, a T1 or a SONET. Unlike existing systems,
however, which require separate, dedicated CODECs and dedicated circuits for
each video conferencing station, a VidPhone(R) system needs only one CODEC and
one outside circuit for each participant in an outside video conference being
conducted at any one time. Just as a telephone switchboard may have numerous
inside extensions and a few outside lines, all of the VidPhone(R) systems within
the organization can share a few, high-quality CODECs coupled to a few outside
lines. Thus, the VidPhone(R) system requires substantially less equipment and
expense per video conferencing station.

The standard CODEC included with the VidPhone(R) system is compatible with
the H.320 international standard for video conferencing, used by all high-end
video conferencing systems. One or more VidPhone(R) system special CODECs could
be installed with the EVS to permit calls to systems that are not compatible
with H.320. When a user wants to conference from a VidPhone(R) system station
with a party who has a non-H.320 system, the end-user can use the VidPhone(R) to
select a CODEC that is compatible with the outside party's system. Since there
are no established standards for ATM conferencing, the Company has designed the
VidPhone(R) system for both H.320 and ATM conferencing. The Company is aware of
no system other than the VidPhone(R) system that is designed to communicate with
any system, anywhere.

The Company originally developed the VidPhone(R) remote terminals for ISDN
use as a stand-alone desktop video conferencing system that can utilize either
an ISDN line or a 3 BRI line. The VidPhone(R) remote terminals will permit video
conferencing at a lower resolution than the VidPhone(R) systems linked by
VidModem(TM) within an organization. Such VidPhone(R) systems will integrate
with a business' current communications system. The Company has approximately 74
VidPhone(R) remote terminals in operation,

34
<PAGE> 35

including those installed at the U.S. General Services Administration's new
telecommuting work centers. The Company intends to provide software upgrades to
its existing customers and will seek orders for additional systems to establish
a greater market presence during 1997. Additionally, the VidPhone(R) remote
terminals serve as a remote location VidPhone(R) that connects to an EVS via
ISDN lines.

MARKETING AND SALES

The Company intends to market the VidPhone(R) system as an easily
integrable component to an existing communications system. The Company will
focus on PBX and Centrex system vendors, such as Lucent Technologies, Inc. and
Siemens-Rolm Communications, Inc., which have established a worldwide, office
communications product distribution network. PBX and Centrex vendors currently
do not offer a video applications product that is integrable with the business
telephone systems sold by such vendors. The Company intends to leverage the
existing PBX base of products and customers and believes that the compatibility
of the VidPhone(R) system technology with the PBX and Centrex products will be
more appealing than the boardroom or current desktop systems to the PBX vendors.

While the Company is developing relationships with PBX vendors, it also
intends to sell its products through a variety of channels including systems
integrators, value-added resellers ("VARS") such as interconnector companies,
and partnership agreements with synergistic vendors, such as the ATM switching
providers, and network providers and other providers with an interest in
sponsoring applications for their transport equipment or networks.

The Company has already made direct and indirect sales of the VidPhone(R)
system. Bell Atlantic Corp. purchased for use by the U.S. Navy 13 VidPhone(R)
remote terminals and ordered four VidPhone(R) systems configured with
VidModems(TM) for use in its business. The Company currently has no other
contracts to sell its systems or provide services. The Company has demonstrated
the VidPhone(R) system only under non-disclosure agreements since it is a
proprietary product. The Company intends to expand its efforts to contact new
potential customers and will organize support services for its products. The
Company intends to establish both customer and support services for its products
as well as a sales training program and a technical training program for its
resellers and partners. The Company has set up an Internet site to give further
support to end-users of its products.

The Company has already installed, at no cost to the user, test marketing
VidPhone(R) terminals at one of the three largest PBX vendors, at two of the
five largest LEXCs, at one of the four largest RBOCs and at one end-user
customer location.

PRODUCT RESEARCH AND DEVELOPMENT

The Company is currently focusing on the development and production of the
VidPhone(R) system. This includes further improvements to its underlying
VidModem(TM) technology, the EVS-50 and the accompanying user interface and
applications software.

The Company has a manager and several engineers and technicians working
directly on hardware and software development. The Company also has 10
consulting hardware engineers under contract. These engineers are working
principally on the EVS-50 hardware and on VidModem(TM) development.

The EVS-10 development program is essentially complete. The EVS-10 is a ten
user, fully functional product that is designed for beta testing of the
VidPhone(R) technology. It has ten VidModem(TM) user ports available, a
four-party control unit to host video conference calls during which multiple
parties can all see and hear each other, and a dual channel ISDN CODEC system.
Four additional ports are available for connection to broadcast television, to
ATM CODECs or to a video server. Currently, six EVS-10 products have been
installed. Others are in production and are scheduled for installation early in
the second quarter of 1997.

EVS-50 accommodates up to 50 users. It is designed to be highly reliable
and easily maintained in the field. Installation of an EVS-50 is designed to be
straightforward and will require less than one day in a typical corporate
facility.

In addition to several new applications, software development continues on
the basic software applications: Objective View(TM), TeleDraw(TM) and
TeleShare(TM).

35
<PAGE> 36

INTELLECTUAL PROPERTY

Parts of the Company's technology are protected by both registered
trademarks and pending patents. The Company has received a notice of allowance
from the U.S. Patent and Trademark Office for a pending patent application
covering a method and apparatus for transmitting video information over
telephone wires. The Company also has received notification from the U.S. Patent
and Trademark Office that the issue date for the patent will be April 15, 1997.
An international patent application and a Taiwanese patent application covering
this invention have also been filed and are still pending. The Company has also
filed a patent application covering its video network and switching system using
telephone wires. The Company is also preparing applications for hardware and
software innovations in the VidPhone(R) system. The success of the Company's
products depends in part on its ability to obtain and protect patents, licenses
and other intellectual property rights covering its significant hardware and
software products. To that end, the Company intends to seek patents and
copyrights on certain of its inventions and proprietary processes.

The Company has acquired several trademarks, including Objective
Communications(R) and VidPhone(R), and has several other trademarks pending.

COMPETITION

The market for video conferencing systems is highly competitive, subject to
rapid technological change and emerging industry standards. The Company believes
that the principal competitive factors in the markets in which it intends to
compete are product performance, price and product support and services.

The Company's principal competition to date has been from video
conferencing systems companies, particularly PictureTel, CLI and VTEL. According
to a June 1995 article in U.S. News & World Report, PictureTel and CLI had
approximately 71% market share in the video conferencing systems market. The
Company also expects substantial additional competition from new market
entrants, such as Intel Corp., which recently entered the video conferencing
market with "ProShare(R)," a document sharing software for a desktop system with
an optional video capability that includes a camera, a communications board,
CODEC and software. However, the Company believes that this system provides low
resolution, unrealistic images. In addition, at least one competing "desktop"
system manufactured by C-Phone Corporation is designed to operate on a LAN
within a building, if the LAN uses shielded or co-axial cable. In total, there
are approximately 22 companies, including Apple Computers and Creative Labs,
offering desktop systems. To date, none of the new desktop systems has captured
any significant portion of the market.

Virtually all of the companies with which the Company expects to compete
have longer operating histories, greater name recognition, larger customer bases
and significantly greater financial, technical and marketing resources than does
the Company. The Company believes that it will be able to compete effectively
against larger companies with substantially greater resources on the basis of
its products' capabilities, including broadcast and retrieval applications, the
high quality image resolution and stereo audio in the VidPhone(R) system, and
price. However, there can be no assurance the Company will be able to compete
successfully.

MANUFACTURING

The Company will outsource the manufacture of components to be used in its
products and the assembly of those components into the finished products. The
products will be shipped to the Company for final assembly check, systems
integration and testing. The Company has initiated discussions with many
manufacturers and suppliers but has no current arrangements with manufacturers
or suppliers that fix the costs of production or parts. Any difficulties
encountered with third-party manufacturers could result in product defects,
production delays, cost overruns or the inability to fulfill orders on a timely
basis which, in turn, could have a material adverse effect on the Company.

GOVERNMENT REGULATION

The FCC regulates the operation of telecommunications equipment for use in
the United States. The EVS component of the Company's VidPhone(R) system and the
VidModem(TM) are required to comply with certain regulations promulgated by the
FCC under Parts 2, 15 and 68 of the FCC's regulations, which relate to

36
<PAGE> 37

radio frequency devices and to terminal equipment that is connected to the
public, switched telephone network. Pursuant to Part 15 of the FCC's
regulations, the Company has determined that the VidModem(TM) is an
unintentional radiator that constitutes a Class A digital device that may be
operated without an individual license. Under Parts 2 and 15 of the FCC's
regulations, the Company will be required to follow a verification procedure
consisting of a self-certification by the Company that the radio frequency
device complies with applicable Part 15. The Company has already had the
VidModem(TM) formally tested by a qualified, independent testing facility, and
such equipment was found to comply with such regulatory requirements. Under Part
2 of the FCC's regulations, the Company has the option of ensuring compliance
with the applicable technical specifications at the location of a business
end-user after installation. Pursuant to Part 68 of the FCC's regulations, the
Company will need to obtain equipment registration from the FCC for certain
VidPhone(R) system components that are connected to the PSTN. The majority of
the Company's products will not involve connection to the PSTN. For those
applications requiring connection to the PSTN, the Company will be required to
register the EVS as terminal equipment under Part 68 of the FCC's regulations.
To date, the Company has not filed an application under Part 68 for equipment
registration. The Company has designed its initial line of products to conform
to all applicable guidelines and regulations. The Company believes that such
equipment will be found to be compliant with Parts 2, 15 and 68 of the FCC
regulations and does not believe that such approval requirements will materially
delay the manufacture or marketing of the VidPhone(R) system. However, there can
be no assurance that the Company's products will actually meet such
requirements, or that the Company will be able to obtain and maintain in effect
all necessary FCC or other governmental approvals required to permit the Company
to market its products as currently contemplated.

FACILITIES

The Company's headquarters are located in Chantilly, Virginia in facilities
currently consisting of approximately 5,000 square feet for its offices,
engineering lab and demonstration room which it contracts for a monthly payment
of approximately $13,000. The contract is renewable on a month-to-month basis.
The Company is currently negotiating a new contract which it expects will
commence in April 1997 for 8,500 square feet of space for a monthly payment of
approximately $17,000. In 1997, the Company intends to enter into a lease to
accommodate the expansion of its facilities. See "Use of Proceeds."

EMPLOYEES

As of March 21, 1997, the Company had 22 employees, of whom 20 were
full-time and two were part-time. The employees include four members of
management, three senior sales and marketing personnel, seven hardware and
software engineers, two service technicians, two junior technicians, one
technical writer, two manufacturing supervisors and one administrative
assistant. The Company also uses the services of technical consultants and
subcontractors on an as-needed basis. Each employee and consultant has executed
both a confidentiality agreement and an agreement not to compete with the
Company for a period of 24 months after performing services for the Company. The
Company does not have employment agreements with its employees, except for
Steven A. Rogers. The Company's employees are not unionized, and the Company
believes that its relations with its employees and consultants are good.

In addition, the Company is currently in discussions with several engineers
from an engineering concern regarding hiring such engineers. There can be no
assurance, however, that the Company will hire such engineering employees or
that such employees would accept an offer of employment from the Company, if
such an offer is made.

LEGAL PROCEEDINGS

As of the date of this Prospectus, the Company is not a party to, and the
property of the Company is not subject to, any material legal proceedings.

37
<PAGE> 38

GLOSSARY OF TERMS

Asynchronous Transfer Mode ("ATM"). A technology which represents
digitized signals of voice, data or video in a stream of packets each of which
is 53 bytes (1 byte equals 8 bits or binary units of information) long. Each
packet identifies a source and a destination so it can be switched individually.

Basic Rate Interface ("BRI"). One interface type used to access the
Integrated Services Digital Network (ISDN). The BRI interface allows two
simultaneous calls across a single pair of copper wires.

Bell Communications Research ("Bellcore"). A telecommunications entity
which, among other functions, establishes standards and specifications for the
telecommunications industry, particularly Regional Bell Operating Companies. Any
equipment, documentation or system that complies to those published standards is
said to be "Bellcore-compliant."

CODEC. A coder-decoder transforms and compresses analog video and audio
signals into digital form.

Integrated Services Digital Network ("ISDN"). A set of standards adopted
by domestic and international carriers for termination, transmission and
switching equipment to allow digital formatted voice, data and video signals to
be processed and transported through the telephone network.

LEXC. Long Distance Exchange Company.

Local Area Network ("LAN"). A type of high-speed data communications
arrangement in which multiple computer and related products in an office or
campus environment are connected by means of a standard transmission medium.

Local Exchange Carrier ("LEC"). A local phone company such as a Regional
Bell Operating Company or an independent that provides local transmission
services.

Mbps. A million bits per second.

Private Branch Exchange ("PBX"). Equipment located at a business
customer's premises facilitating telephone calls within the building and to a
central office and offering other enhanced services such as call waiting,
conferencing, call transfer and other services.

RBOC. Regional Bell Operating Company.

SONET. Synchronous fiber optic network.

T1. A telecommunications line format adopted in North America for
transmission at speeds of 1.544 megabits per second and containing 24 voice
channels.

Telephony. The technology and manufacture of telephone equipment.

UTP. Unshielded twisted pair.

Wide Area Network ("WAN"). A network that extends beyond the distance that
can be accommodated by local cabling methods.

38
<PAGE> 39

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

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

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Mr. Steven A. Rogers (1)(4)................. 45 President, Chief Executive Officer and Director
Mr. Clifford M. Kendall (1)(2).............. 65 Chairman of the Board of Directors
Mr. Anthony M. Agnello(3)................... 47 Director
Mr. Robert L. Barnett(3).................... 56 Director
Mr. Donald W. Barrett(4).................... 50 Director
Dr. Eugene R. Cacciamani (1)(3)............. 60 Director
Lt. Gen. Lincoln D. Faurer, USAF
(Ret.)(4)................................. 69 Director
Mr. Richard T. Liebhaber (1)(4)............. 61 Director
Mr. Roy C. Nash(2).......................... 55 Director
Mr. John B. Torkelsen....................... 51 Director
Mr. Robert H. Emery......................... 52 Vice President, Administration and Finance
Mr. Frank M. Gore........................... 57 Vice President, Sales
Mr. Lewis M. Roch III....................... 41 Vice President, Marketing
Mr. Roger A. Booker......................... 42 Vice President, Operations
</TABLE>

- ---------------
(1) Member of the Executive Committee of the Board of Directors.

(2) Member of the Audit Committee of the Board of Directors.

(3) Member of the Compensation Committee of the Board of Directors.

(4) Member of the Preferred Stock Committee of the Board of Directors.

STEVEN A. ROGERS founded the Company in 1993 and has served as President and
Chief Executive Officer since the Company's inception. Mr. Rogers has
participated in other successful start-up companies as an executive officer or
founder. From July 1990 to July 1992, he served as a Senior Vice President of
General Kinetics, Inc. where he managed the Cryptek division. In January 1986,
he had founded Cryptek, Inc., a company that developed desktop facsimile
machines and, from January 1986 to July 1990, served as its President and Chief
Operating Officer until it was acquired by General Kinetics, Inc. Mr. Rogers
holds four patents and was a nominee for KPMG Peat Marwick's "1990 Entrepreneur
of the Year" award. He has a B.S.E.E. from Virginia Polytechnic Institute.

CLIFFORD M. KENDALL has been Chairman of the Board of Directors since August
1994. Mr. Kendall is one of the founders and current Chairman of the Board of
Computer Data Systems, Inc. ("CDSI"), a professional and processing services
company which provides consulting and data processing services to Federal, state
and local governments, not-for-profit institutions and commercial clients, and
has served in such capacity since July 1991. From 1971 to July 1991, Mr. Kendall
served as Chairman and Chief Executive Officer of CDSI. Mr. Kendall also serves
as a member of the Advisory Board of Atlantic Holdings, Inc. and Ferris, Baker,
Watts Incorporated.

ANTHONY M. AGNELLO has served as a director of the Company since January 1997.
Mr. Agnello co-founded Ariel Corporation in 1982 and currently serves as Chief
Executive Officer and Chairman of the Board of Ariel Corporation. Mr. Agnello
received his M.S.E.E. from City College of New York and owns several patents in
digital signal processing.

ROBERT L. BARNETT has served as a director of the Company since August 1994. Mr.
Barnett has served as Corporate Vice President of iDEN Group of Motorola, Inc.,
since 1995, where he is responsible for the development of wireless
communications products. From 1992 to 1995, he was the President of Nexteps,
Inc., an international communications consulting firm. He served in various
capacities at the Ameritech Corporation from 1987 to 1993, including President
of Ameritech Bell Group and Vice-Chairman of Ameritech

39
<PAGE> 40

Corporation. Mr. Barnett serves on the boards of Johnson Controls, Inc., USG,
the parent company of United States Gypsum and Central Vermont Public Service, a
utility company.

DONALD W. BARRETT has served as a director of the Company since August 1994. Mr.
Barrett has been Chairman of the Board and Chief Executive Officer of Telepad,
Corp., a telecommunications and information systems equipment manufacturer since
April 1996. From July 1991 to March 1996, Mr. Barrett was President and Chief
Executive Officer of Ideas, Inc., a systems integrator for the intelligence
community. From July 1987 to June 1991, he served as President of the Government
Systems Group of Contel Federal Systems where he was responsible for the design,
development and integration of information systems supporting the United States
government. Mr. Barrett has a B.S. from California State Polytechnic University
and an M.B.A. from California State University, Fullerton.

EUGENE R. CACCIAMANI has served as a director of the Company since August 1994.
Dr. Cacciamani has been a Senior Vice President of Hughes Network Systems, Inc.
a company furnishing private communications networks to business, government and
common carriers since 1987, where he is responsible for developing new
technologies, systems and businesses, including lead efforts in the Hughes DBS
DirecTV system and the system design in the ICO global satellite personal
communications system. Dr. Cacciamani is on the Engineering Advisory Boards at
Union College and The Catholic University of America and serves as an advisor to
Aloha Networks, Inc. and Quest Communications.

LINCOLN D. FAURER has served as a director of the Company since August 1994. Lt.
Gen. Faurer has served as President of LDF, Inc., a company providing consulting
services on intelligence and security matters, since 1991. From 1986 to 1991, he
also served as President of the Corporation for Open Systems, Inc., a
corporation engaged in research and development of a worldwide "open systems"
environment. Lt. Gen. Faurer retired from the United States Air Force in 1985,
serving the last four years as Director of the National Security Agency.

RICHARD T. LIEBHABER has served as a director of the Company since August 1994.
Mr. Liebhaber has been a Managing Director of Veronis, Suhler & Associates,
Inc., New York, a media merchant banking firm, since 1995. From 1985 to 1995,
Mr. Liebhaber was Chief Strategy and Technology Officer of MCI Communications
Corporation. He is the Chairman of the Board of Precision Systems, Inc., and
serves on the board of directors of Alcatel Network Systems, Inc., a subsidiary
of Alcatel Alsthom Compagnie Generale d'Electricite, Geotek Communications,
Inc., Advanced Network Services, Inc., a subsidiary of America Online, Inc., and
Scholz Master Builders, Inc. He is also a member of the Steering Committee for
the National Information Infrastructure for the Computer Science and
Telecommunications Board of the National Research Council and is a member of the
Federal Networking Commission Advisory Council.

ROY C. NASH has served as a director of the Company since August 1994. Mr. Nash
has been Vice President of Audit for MCI Communications Corporation since 1995.
From 1993 to 1995, Mr. Nash served as Chief Financial Officer for Concert
Communications Company, a joint venture between MCI and British Telecom plc.
From 1987 to 1993, Mr. Nash served as Vice President and Controller, responsible
for all internal and external financial reporting of MCI Communications
Corporation. Mr. Nash received a B.A. in Economics from Cornell University and
an M.B.A. from Columbia University.

JOHN B. TORKELSEN has served as a director of the Company since March 1996. Mr.
Torkelsen has served as President of Princeton Venture Research, Inc. since 1984
and President of its affiliate PVR Securities Inc. since 1987. Mr. Torkelsen
also is Chairman of the Board of Voice Control Systems, Inc. and a director of
Mikros Systems Corporation. He has a B.S. in engineering from Princeton
University and an M.B.A. from Harvard University.

ROBERT H. EMERY has served as Vice President, Administration and Finance since
December 1996, and previously served as Vice President, Administration from May
1995 to December 1996. From May 1986 to May 1995, he served as Vice President of
Aries Systems International, Inc., an information services company. From August
1983 to July 1986, Mr. Emery served as the ADP Security Officer for the
military's largest secure computer network. He has a B.S. from the U.S. Naval
Academy and an M.S. in information systems from the Naval Postgraduate School.
He is a CPA and a certified financial planner.

40
<PAGE> 41

FRANK M. GORE has served as Vice President, Sales since July 1994. From January
1990 to June 1994, he served as Director of Marketing for International
Financial Communications, Inc., a distributor of video conferencing equipment.
From March 1988 to January 1990, Mr. Gore served as Director of Marketing for
International Data Services, Inc., a communications company, where he was
responsible for establishing and managing a $35 million contract. From October
1987 to March 1988, Mr. Gore served as National Sales Manager for British
Telecom, plc, U.S. division, managing 120 sales people and 12 regional sales
managers. From February 1980 to October 1987, Mr. Gore served as Marketing
Program Manager for Boeing Computer Services, Inc., a division of The Boeing
Company, where he managed the development and distribution of hardware and
software products related to computer communications.

LEWIS M. ROCH III has served as Vice President, Marketing since May 1994. From
March 1991 to May 1994, Mr. Roch served as Managing Partner of RFP Associates,
Ltd., an investment partnership. From March 1984 to March 1991, Mr. Roch was the
founder and Chief Executive Officer of SM Telecorp., Inc., a diversified
telecommunications company that supplied, installed and maintained telephone
private branch exchanges, fiber optic cabling and microwave transmission
systems; built and operated cellular, paging and voicemail systems; and provided
long distance, operator and local exchange services in central Texas. From
February 1981 to February 1984, Mr. Roch also worked in the Executive Management
Development Program at Continental Telephone Company, now a division of GTE
Corporation. He received a B.S. and B.A. in Management, Economics and Political
Science from Washington University in St. Louis and an M.B.A. from the
University of Texas at Austin in telecommunications management.

ROGER A. BOOKER has served as Vice President, Operations since February 1996.
From June 1994 to February 1996, Mr. Booker served as the Vice President,
International Development and Operations at Global Partnership, Inc., where he
directed international development and operations. From February 1990 to June
1994, Mr. Booker also served as the Vice President, Manufacturing Operations at
Cryptek, Inc. and served in the same position at General Kinetics, Inc. when it
acquired Cryptek, Inc., where he was responsible for overseeing operations,
including several acquisitions and divestitures. From August 1986 to February
1990, Mr. Booker was Director of Operations for Magnavox Government and
Industrial Electronics Company where he managed the startup of a 200,000 square
foot manufacturing facility. He received a B.S. and an M.A. in manufacturing
engineering technology and management from East Tennessee State University.

Under three separate agreements, certain parties have the right to
designate nominees for members of the Board of Directors. In connection with the
private placement of equity securities of the Company by PVR Securities, Inc.,
Mr. John Torkelsen, a director of the Company, and Mr. Steven A. Rogers, a
director and the President and Chief Executive Officer of the Company, entered
into an agreement that provides that, for a five-year period beginning December
5, 1995, each of them will vote any shares that he controls for the election to
the Board of Directors of an individual nominated by the other and on a best
efforts basis will seek additional votes for the other party's nominee. Mr.
Torkelsen was elected to the Board of Directors pursuant to this agreement. In
addition, Mr. Torkelsen agreed, subject to his fiduciary obligations to the
Company, to vote for Mr. Rogers to continue his position as President and Chief
Executive Officer of the Company during the term of the voting agreement.

Mr. Anthony M. Agnello was elected to the Board of Directors on January 16,
1997 pursuant to a voting agreement dated December 19, 1996 by and among
Applewood Associates, L.P. ("Applewood"), Acorn Technology Partners, L.P.
("Acorn") and Mr. Rogers, entered into in connection with the private placement
of the Series A Preferred Stock and the Series A Warrants by the Company to
Applewood and Acorn. Subject to certain percentage ownership requirements, Mr.
Rogers agreed, pursuant to such voting agreement, to vote his shares of Common
Stock to elect as a director the nominee of Applewood and Acorn.

In connection with the Offering the Company has agreed, for a period of
five years following completion of the Offering, to use its best efforts
(including the solicitation of proxies, if necessary) to elect one designee of
the Underwriter to the Board of Directors of the Company. See "Underwriting."

41
<PAGE> 42

DIRECTOR COMPENSATION

The Company reimburses directors for expenses incurred in connection with
attending Board meetings, but does not pay director's fees or other compensation
for services rendered as a director. In lieu of fees, in August 1994, the
Company granted to each director then serving (other than Steven Rogers) options
to purchase shares of Common Stock. Each grant was negotiated with the director
at the time he was appointed. See "-- Directors' Non-Qualified Options." In
addition, directors or their affiliates may receive compensation for services
rendered to the Company in other capacities. Mr. Torkelsen, a director of the
Company, is the President of PVR Securities, Inc., which has in the past, and
may in the future, provide investment banking services to the Company. See
"Certain Transactions."

DIRECTORS' NON-QUALIFIED OPTIONS

In August 1994, the Company granted options to purchase an aggregate of
200,000 shares of Common Stock ("Directors' Non-Qualified Options"), to the
persons then serving as directors of the Company. Such options were granted in
lieu of directors' fees and pursuant to agreements ("Non-Qualified Stock Option
Agreements") with each director. The options are exercisable for a period of ten
years from the date of grant, have an exercise price of $2.00 per share and vest
20% per year on each of the first, second, third, fourth and fifth anniversaries
of the date of grant. Notwithstanding the foregoing vesting schedule, if a
director fails to attend more than one-half (50%) of the total number of
meetings of the full Board of Directors and any committees of the Board of which
he is a member, the director forfeits any percentage of the option that would
otherwise have vested in that year. Further, if a director ceases to be a
director of the Company for any reason, including removal, death or disability,
such director forfeits any portion of the option that is unvested at that time.
As of the date of this Prospectus, Directors' Non-Qualified Options to purchase
70,000 shares of Common Stock have vested, and Directors' Non-Qualified Options
to purchase 10,000 shares of Common Stock have been exercised. Directors'
Non-Qualified Options may be exercised only to the extent vested. The optionee,
or his estate in the case of death, can exercise the option to the extent vested
at the time he ceases to be a director of the Company until the expiration of
the option.

Subject to a limited exception in the event of a business combination
accounted for under the "pooling of interests" method of accounting, in the
event of any pending or threatened takeover bid or tender offer pursuant to
which 25% or more of the outstanding Common Stock of the Company is or may be
acquired, or in the event that any person makes any filing under Section 13(d)
or 14(d) of the Exchange Act, indicating an intention to commence any such
takeover bid or tender offer, all outstanding Directors' Non-Qualified Options
will become immediately exercisable, or, if exercise of the Directors'
Non-Qualified Options would not be in conformity with all applicable federal and
state securities laws, then the holders of the options will be entitled to
receive cash in an amount equal to the difference between the fair market value
of the Common Stock subject to options and the exercise price of the options.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has three standing committees: the Executive
Committee, the Audit Committee and the Compensation Committee.

Executive Committee. The Board of Directors has established an Executive
Committee comprised of four (4) directors. The Executive Committee has the
authority to exercise substantially all of the powers and authority of the full
Board of Directors in the management and affairs of the Company between meetings
of the full Board of Directors, to the fullest extent permitted by the Delaware
General Corporation Law. Messrs. Rogers, Kendall, Liebhaber and Cacciamani
currently serve as members of the Executive Committee.

Audit Committee. The Board of Directors has established an Audit Committee
comprised of two (2) directors. The Audit Committee is responsible for approving
the Company's independent auditors, reviewing the scope of their engagement,
consulting with such auditors and, reviewing the results of any audit
examination, reviewing the disposition of recommendations made by the
independent auditors during the past year, acting as a liaison between the Board
of Directors and the independent auditors and reviewing various

42
<PAGE> 43

Company policies, including those related to accounting and internal control
matters. Messrs. Kendall and Nash currently serve as members of the Audit
Committee.

Compensation Committee. The Board of Directors has established a
Compensation Committee consisting of three (3) outside, non-employee directors.
The Compensation Committee is responsible for reviewing and approving executive
compensation policies, practices, salary levels and bonus programs and for
administering the Company's 1996 Plan. Messrs. Agnello, Barnett and Cacciamani
currently serve as members of the Compensation Committee.

The Board of Directors also has appointed a Preferred Stock Committee, on
which Messrs. Barrett, Faurer, Liebhaber and Rogers currently serve. The
Preferred Stock Committee has authority to approve the issuance and sale, from
time to time, of one or more series of preferred stock for cash or other
property, including the issuance and sale from time to time of warrants for such
preferred stock, or common or preferred stock of the Company into which any
series of preferred stock may be convertible or exchangeable. The Preferred
Stock Committee also is authorized, in connection with the issuance of one or
more series of the preferred stock and any common or preferred stock into which
such preferred stock may be convertible or exchangeable, to determine the price
at which the preferred stock of each such series or class will be sold, to
declare dividends payable on the preferred stock, to reserve for issuance shares
of any common stock or preferred stock into which any series of the preferred
stock may be convertible or exchangeable, and to determine the designation,
preferences and privileges, the relative, participating, optional or other
special rights, and the qualifications, limitations, and restrictions of such
securities.

EXECUTIVE COMPENSATION

The following table lists the cash remuneration paid or accrued during the
year ended December 31, 1996 to the President and Chief Executive Officer of the
Company, Mr. Steven A. Rogers. No other executive officer of the Company
received salary and bonus in excess of $100,000 for or with respect to 1996. The
Company did not pay any bonuses or other compensation, did not have any pension
or long-term incentive plan and did not issue any restricted stock awards or
stock awards to Mr. Rogers during 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS
- ------------------------------------------------------------- ---- ------------ ------------
<S> <C> <C> <C>
Steven A. Rogers
President and Chief Executive Officer...................... 1996 $120,000 25,000
</TABLE>

The following table sets forth certain information about the stock options
granted to Mr. Rogers in 1996 under the Company's 1994 Plan.

OPTION GRANTS IN 1996

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENTAGE OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION
NAME OPTIONS GRANTED (1) EMPLOYEES IN 1996 ($/SH) DATE
- ---------------------------- ------------------- ------------------- -------------- ------------------
<S> <C> <C> <C> <C>
Steven A. Rogers............ 25,000 18.1% $ 4.00 December 16, 2006
</TABLE>

- ---------------
(1) The options granted to Mr. Rogers were non-qualified stock options that were
granted at fair market value at the time of the grant and vest over a
five-year period on the anniversary of the grant date. The options expire on
the tenth anniversary of the date of grant. See "-- 1994 Stock Option Plan"
below.

43
<PAGE> 44

The Company has an employment agreement with Mr. Rogers, but does not
currently have any employment agreements with any of its other executive
officers or employees. See "-- Employment and Confidentiality Agreements."

1994 STOCK OPTION PLAN

In October 1994, the Company adopted the 1994 Stock Option Plan. The 1994
Plan is intended to attract, retain and motivate officers, key employees and
consultants and to provide the Company with the ability to provide incentives
linked to the profitability of the Company's businesses and increases in
stockholder value. The Company has reserved for issuance 343,000 shares of
Common Stock upon the exercise of options awarded under the 1994 Plan. The 1994
Plan authorizes the issuance of incentive stock options qualifying under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") ("Incentive
Options") and non-qualified stock options ("Non-Qualified Options") to qualified
executive officers, key employees and consultants of the Company.

As of the date hereof, Non-Qualified Options to purchase 343,000 shares of
Common Stock at an exercise price of $4.00 per share, have been granted to
executive officers, other key employees and consultants. Non-Qualified Options
to purchase 41,000 of these shares have vested. The Company does not intend to
grant any additional options under the 1994 Plan. Future awards, if any, will be
made under the 1996 Plan.

1996 STOCK INCENTIVE PLAN

In January 1997, the Company adopted the 1996 Stock Incentive Plan. The
1996 Plan, which terminates in January 2007 (the tenth anniversary of the
effective date of the plan), is intended to promote the long-term growth of the
Company by rewarding its officers, key employees, directors and consultants with
a proprietary interest in the Company for outstanding long-term performance and
to attract, motivate and retain capable management employees. The Company has
reserved for issuance 450,000 shares of Common Stock upon exercise of options
awarded under the 1996 Plan. To date, no awards have been made under the 1996
Plan.

The 1996 Plan is to be administered by the Compensation Committee of the
Board, which is required to be comprised of at least two non-employee directors,
as defined under Rule 16b-3 under the Exchange Act or, if no Committee is
appointed, by the Board of Directors of the Company. The 1996 Plan authorizes
the grant of incentive stock options (as defined in Section 422 of the Code),
non-qualified stock options, restricted stock awards and stock appreciation
rights ("SARs"), or any combination thereof, at the discretion of the
Compensation Committee. Subject to adjustment in certain circumstances, the
aggregate number of shares of Common Stock which may be issued under the 1996
Plan upon the exercise of options or SARs or in the form of restricted stock, or
some combination hereof, may not exceed 100,000 shares in any one year to any
single plan participant. Common Stock acquired through the exercise of an
option, SAR or restricted stock award granted to an insider of the Company may
not be disposed of by an insider during the six-month period beginning on the
date of grant.

The option price per share of Common Stock underlying each option granted
under the 1996 Plan may not be less than 100% (110% in the case of an incentive
stock option granted to a 10% stockholder) of the fair market value per share of
Common Stock on the date of the option grant. The 1996 Plan provides that
one-fifth of each option granted to a participant vests on each of the first,
second, third, fourth and fifth anniversary of the date on which the option was
granted, unless otherwise provided in the option agreement.

Options may not be exercised after ten years from the option grant date
(five years in the case of an incentive stock option granted to a 10%
stockholder). In the case of any incentive stock option, the option shall
terminate on the date that is three months (one year, in the event that the
termination of employment is by reason of death or disability) after the date on
which the optionee terminates employment or, if earlier, the date specified in
the agreement relating to the option grant.

Awards under the 1996 Plan also may be made in the form of restricted
stock, at the discretion of the Compensation Committee. The Compensation
Committee has the authority to determine the terms and conditions of any
restricted stock awards.

44
<PAGE> 45

SARs may be granted in conjunction with all or a part of an option granted
under the 1996 Plan, either at the time of initial grant of the option or a
subsequent time prior to the expiration of the option, except that SARs may not
be granted in connection with a prior option without the consent of the option
holder. Upon the exercise of a SAR, the participant is entitled to the
difference between the fair market value of one share of Common Stock and the
exercise price per share of the related option, multiplied by the number of
shares in respect of which the SAR has been exercised. The Compensation
Committee has the discretion to determine the form in which the payment will be
made, which may be in cash, shares of Common Stock, or a combination thereof.

EMPLOYMENT AND CONFIDENTIALITY AGREEMENTS

Each employee and consultant of the Company is required to enter into an
agreement prohibiting such employee or consultant from disclosing any
confidential, proprietary information of the Company and a non-compete agreement
with the Company pursuant to which such employee or consultant may not, directly
or indirectly, compete with the Company in any geographic market in which the
Company operates or is preparing to operate during the term of his or her
employment with the Company and for a period of 24 months following the
termination of employment. The non-compete agreement also provides for an
assignment to the Company by such employees and consultants of the rights to any
invention made or discovered during the term of employment.

The Company also has entered into an employment agreement with Mr. Rogers.
The agreement is effective as of March 13, 1997 and is for an initial term of
one year with automatic one year renewals, unless terminated as provided in the
agreement. The agreement provides that the 1997 base salary for Mr. Rogers will
be $120,000. The agreement also includes a non-competition commitment during and
after the term of the agreement, confidentiality commitments, non-solicitation
of employee provisions, and assignment of work product agreements. The Company
is in the process of obtaining a key man life insurance policy on Mr. Rogers in
the amount of $1,000,000. The Company has no other employment agreements with,
nor does it maintain "key person" life insurance on, any of its other employees.

45
<PAGE> 46

CERTAIN TRANSACTIONS

FOUNDER'S TRANSACTIONS

In October 1993, the Company issued 500 shares of Common Stock to Steven A.
Rogers, President and Chief Executive Officer of the Company, in exchange for
services rendered in connection with the formation of the Company and an initial
capital contribution of $1,000. In June 1994, the Company issued a stock
dividend of 1,299,500 shares of Common Stock to Mr. Rogers, who was then the
Company's sole stockholder. In addition, in December 1996, the Company granted
to Mr. Rogers under the 1994 Plan non-qualified options to purchase 25,000
shares of Common Stock at an exercise price of $4.00 per share. See Note 6 of
Notes to Financial Statements.

The Company has notes outstanding to Mr. Rogers which are described below
under "-- Related Party Loans."

RELATED PARTY LOANS

During the three-year period ending December 31, 1996, certain officers,
stockholders and members of management extended loans to the Company totaling
$714,000 in aggregate principal amount. The following is a discussion of loans
made to the Company by directors, executive officers, and 5% stockholders of the
Company, or members of the immediate family of any of the foregoing persons,
during the three-year period ending December 31, 1996 in which the amount
involved exceeds $60,000. See Note 5 of Notes to Financial Statements.

In April 1996, Mr. Clifford M. Kendall, the Chairman of the Board of
Directors of the Company, loaned the Company $100,000 in aggregate principal
amount. Interest accrues quarterly on the loan at a fixed rate of 7% per annum,
payable at maturity. The principal amount of and accrued interest on the loan
are due and payable in full on March 31, 1997. The Company intends to use a
portion of the net proceeds of the Offering to repay the loan in full. See "Use
of Proceeds."

In May 1995, RFP Associates, Ltd., a general partnership in which Mr. Lewis
M. Roch, III, the Company's Vice President, Marketing, is the managing partner,
loaned the Company $60,000 in aggregate principal amount. The loan bore interest
at a fixed rate of 7% per annum. The note was repaid in full in November 1996.
As an inducement to extend the loan to the Company, the Company also issued to
such investor warrants to acquire 10,000 shares of Common Stock. The warrants
were issued at an original exercise price of $8.00 per share and are exercisable
for a period of five years from the date of issuance.

Princeton Venture Research, Inc. ("PVR"), a corporation of which Mr. John
B. Torkelsen, a director of the Company, serves as the President, loaned the
Company an aggregate of $320,000 during 1995. The loan accrued interest at a
fixed rate of 7% per annum. As an inducement to PVR to extend the loan to the
Company, the Company issued to Mr. Torkelsen warrants to purchase 53,333 shares
of Common Stock at an original exercise price of $8.00 per share. In June 1995,
PVR converted the outstanding principal amount of and the accrued interest on
the loan to Common Stock and warrants. In connection with the loan conversion,
Mr. Torkelsen invested an additional $160,000 in the Company. In the loan
conversion transaction, the Company issued to Mr. Torkelsen 60,361 shares of
Common Stock and warrants to purchase 60,361 shares of Common Stock, to Mrs.
Pamela R. Torkelsen 10,000 shares of Common Stock and warrants to purchase
10,000 shares of Common Stock, and to PVR 10,000 shares of Common Stock and
warrants to purchase 10,000 shares of Common Stock. All common stock was issued
at $6.00 per share, and all warrants to purchase Common Stock were issued with
an original exercise price of $8.00 per share. See "-- Equity
Issuances -- Warrant Exchange."

In July 1995, Robert H. Emery, Vice President, Administration and Finance,
loaned $35,000 to the Company. The loan accrued interest at a fixed rate of 7%
per annum. The note was repaid in full in 1996. As an inducement to extend the
loan to the Company, the Company also issued to Mr. Emery in June 1995, warrants
to acquire 5,833 shares of Common Stock. The warrants were issued at an original
exercise price of

46
<PAGE> 47

$8.00 per share and are exercisable for a period of five years from the date of
issuance. See "-- Equity Issuances -- Warrant Exchange."

Steven A. Rogers, the founder, President and Chief Executive Officer and a
director of the Company, loaned the Company an aggregate of $30,000 during 1995
and an additional $70,000 during 1996. The loans bear interest at a fixed rate
of 7% per annum. During 1996, $40,000 plus accrued interest was repaid. Interest
accrues quarterly, but is payable upon maturity. The principal amount of and
accrued interest on the loans are due and payable in full on March 31, 1997. As
an inducement to extend the loans to the Company, the Company also issued to Mr.
Rogers warrants to acquire an aggregate of 16,666 shares of Common Stock. The
warrants were issued at an original exercise price of $8.00 per share and are
exercisable for a period of five years from the date of issuance. The Company
intends to use a portion of the net proceeds of the Offering to repay the loans
outstanding to Mr. Rogers in full. See "Use of Proceeds."

EQUITY ISSUANCES

Private Placement Services Provided by Barington Capital Group,
L.P. Barington Capital Group, L.P., the underwriter of the Offering (the
"Underwriter"), acted as the placement agent of the Company in connection with
the private placement of $2,000,000 aggregate principal amount of Bridge Notes
and Bridge Warrants to purchase 500,000 shares of Common Stock at an exercise
price equal to the lesser of $3.30 or 60% of the initial public offering price
per share. The Bridge Financing was completed in November 1996. In April 1997,
in connection with the Offering of the Company's Common Stock, certain holders
of Bridge Warrants surrendered such warrants to acquire an aggregate of 150,000
shares of Common Stock. The surrender and cancellation of such warrants did not
have any other effect on the Bridge Financing, nor did the Company pay any
consideration in connection with such surrender. As partial compensation for
services provided in that offering, the Underwriter received warrants to
purchase up to 50,000 shares of Common Stock at an exercise price of $3.30 per
share, which warrants will be forfeited upon consummation of the Offering. In
addition, the Underwriter also received a fee of $200,000 for placement services
provided in connection with the Bridge Financing, which fee represented 10% of
the gross proceeds raised in the Bridge Financing, and was reimbursed for
certain other expenses. See Note 5 of Notes to Financial Statements.

The Underwriter also acted as the placement agent of the Company in
connection with the private placement of 250,000 shares of Series A Preferred
Stock and warrants to purchase up to an additional 50,000 shares of Common Stock
in December 1996 and 250,000 shares of Series A Preferred Stock and warrants to
purchase 50,000 shares of Common Stock in January 1997 for aggregate gross
proceeds to the Company of $2,000,000. As compensation for services provided in
that offering, the Company paid the Underwriter a fee of $140,000, which fee
represented 7.0% of the gross proceeds raised in the private placement. See
"Description of Securities," "Underwriting" and Note 7 of Notes to the Financial
Statements.

Private Placement Services Provided by PVR Securities, Inc. PVR
Securities, Inc., a corporation of which John B. Torkelsen is the President
("PVR Securities"), acted as the placement agent of the Company in connection
with the private placements in June 1995 and August 1996, of 50 units and 19.11
units, respectively, to accredited investors (the "PVR Investors"). Each unit
sold consisted of 5,000 shares of Common Stock and warrants to purchase an
additional 5,000 shares of Common Stock at $8.00 per share. In the private
placement conducted by PVR Securities, the Company issued 345,536 shares of
Common Stock and warrants to acquire 345,536 shares of Common Stock at an
exercise price of $8.00 per share. Aggregate gross proceeds to the Company from
the offering were $2,073,222.

As partial compensation for services provided in the private placement, the
Company issued to Mr. John B. Torkelsen, President of PVR Securities, warrants
to purchase an aggregate of 69,106 shares of Common Stock. Of such warrants, the
exercise price for warrants to acquire 34,553 shares of Common Stock was
originally $6.60 per share, and the exercise price for warrants to acquire
34,553 shares of Common Stock was originally $8.80 per share (the "PVR
Warrants"). In addition, as compensation for financial advisory and other
services rendered in connection with the private placement, the Company paid PVR
Securities a fee of approximately $150,000. See "-- Warrant Exchange,"
"Management," "Description of Securities" and Note 6 of Notes to the Financial
Statements.

47
<PAGE> 48

Each PVR Investor was also given the opportunity to purchase from Steven A.
Rogers, the Chief Executive Officer and President of the Company, 2,500 shares
of Common Stock for each unit purchased in the private placement, at a price of
$2.00 per share. In connection with such transaction, PVR Investors in the
private placement purchased an aggregate of 172,583 shares of Common Stock from
Mr. Rogers for aggregate consideration of $345,166.

As part of the private placement of securities managed by PVR Securities,
between May 1995 and May 1996, the Company also issued to certain investors (the
"Debt Inducement Investors"), in a private placement, warrants to purchase an
aggregate of 102,332 shares of Common Stock at an exercise price of $8.00 per
share, in order to induce such investors to extend loans to the Company. These
debt transactions were considered by the Company to be part of its overall
financing activities during this time period, and were necessary because the
equity financing being raised in the PVR Offering was not obtained as quickly as
originally contemplated by the Company.

Private Placement of Series A Preferred Stock. In December 1996, the
Company issued and sold to Applewood 250,000 shares of Series A Preferred Stock,
and warrants to purchase 50,000 shares of Common Stock at an exercise price of
$4.00 per share, for aggregate gross proceeds of $1,000,000. See "Description of
Securities" and Note 7 of Notes to the Financial Statements.

In January 1997, the Company issued and sold to Acorn 250,000 shares of
Series A Preferred Stock, and warrants to purchase 50,000 shares of Common Stock
at an exercise price of $4.00 per share, for aggregate gross proceeds of
$1,000,000. Acorn is a venture capital fund organized as a limited partnership.
Certain members of the general partner of Acorn are executives of PVR. Mr. John
B. Torkelsen is the President and Manager of the general partner of Acorn. PVR
serves as the investment advisor to Acorn. See "Description of Securities" and
Note 7 of Notes to the Financial Statements.

Warrant Exchange. In January 1997, the Company offered to certain
investors the opportunity to exchange existing warrants to purchase shares of
Common Stock in the Company for new warrants to purchase shares of Common Stock.
The purpose of the warrant exchange was to induce such investors to enter into
lock-up arrangements with the Underwriter and into agreements consolidating such
investors' registration rights with those granted by the Company to other
investors, and so that the investment by such investors in the Company would be
on terms and conditions that more closely reflect the terms and conditions upon
which other investors invested in the Company during a comparable time period.
See "Shares Eligible for Future Sale -- Lock-up Agreements," and "Underwriting."

For the investors who participated in the warrant exchange transaction, the
effect of the warrant exchange was to cause investors who previously had
purchased shares of Common Stock in the Company to purchase such shares at an
effective purchase price of $4.00 per share, and to cause investors who
previously had received warrants to purchase shares of Common Stock in the
Company, to exchange such warrants for warrants with an exercise price of $4.00
per share.

As a result of the warrant exchange transaction, the Company issued an
aggregate of 165,267 shares of Common Stock and new warrants to purchase an
aggregate of 336,707 shares of Common Stock at an exercise price of $4.00 per
share. As described in detail below, the new warrants to purchase 336,707 shares
of Common Stock consist of (i) warrants to purchase 165,269 shares of Common
Stock issued to PVR Investors, (ii) warrants to purchase 69,106 shares of Common
Stock issued to Mr. John B. Torkelsen, a director of the Company and President
of PVR Securities, and (iii) warrants to purchase 102,332 shares of Common Stock
issued to the Debt Inducement Investors. The Company did not receive any
additional cash proceeds or consideration other than the securities exchanged by
the investors in the warrant exchange.

In January 1997, the Company offered to each of the PVR Investors the
opportunity to exchange their existing warrants, representing the right to
purchase an aggregate of 345,536 shares of Common Stock at an exercise price of
$8.00 per share, for new warrants representing the right to purchase
approximately one-half of the number of shares of Common Stock at an exercise
price of $4.00 per share. In exchange for warrants to purchase an aggregate of
330,536 shares of Common Stock at an exercise price of $8.00 per share, the
Company issued warrants to purchase an aggregate of 165,269 shares of Common
Stock at an exercise price of

48
<PAGE> 49

$4.00 per share. One PVR Investor holding warrants to purchase 15,000 shares of
Common Stock chose not to participate in the warrant exchange transaction and to
retain such warrants with an exercise price of $8.00 per share. As part of the
warrant exchange, each PVR Investor who accepted the Company's offer also was
issued by the Company an additional 2,500 shares of Common Stock for each unit
purchased in the PVR Offering, for no additional consideration. The Company
issued an aggregate of 165,267 additional shares of Common Stock to the PVR
Investors in the warrant exchange. Each PVR Investor also agreed to sign an
agreement with the Company relating to registration rights and a lock-up
agreement with the Underwriter of the Offering. See "Shares Eligible for Future
Sale -- Lock-up Agreements" and "Underwriting."

As part of the warrant exchange, in order to restructure the transaction in
which the PVR Investors originally purchased shares of Common Stock from Steven
A. Rogers at a below-market price per share to terms and conditions more closely
reflecting market terms and conditions, each PVR Investor who had originally
purchased shares of Common Stock from Mr. Rogers at a purchase price of $2.00
per share, also was required to pay Mr. Rogers an additional $2.00 for each
share originally purchased from him. Mr. Rogers received an aggregate of
$340,166 from PVR Investors in connection with the warrant exchange.

Also as part of the warrant exchange, the Company issued to Mr. John B.
Torkelsen, a director of the Company and President of PVR Securities, new
warrants to purchase an aggregate of 69,106 shares of Common Stock at $4.00 per
share, in exchange for the warrants to purchase 34,553 shares of Common Stock at
an exercise price of $6.60 per share, and the warrants to purchase 34,553 shares
of Common Stock at an exercise price of $8.80 per share, previously issued to
Mr. Torkelsen as compensation for services in the private placement managed by
PVR Securities.

As part of the warrant exchange, the Company also exchanged warrants to
purchase an aggregate of 102,332 shares of Common Stock held by the Debt
Inducement Investors at an exercise price of $8.00 per share, for warrants to
purchase 102,332 shares at an exercise price of $4.00 per share. See
"Description of Securities" and Note 6 of Notes to Financial Statements.

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors and principal stockholders and their affiliates will be
approved by at least a majority of the Board of Directors, including a majority
of the independent and disinterested members of the Board of Directors, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

49
<PAGE> 50

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of the date of this Prospectus, and
as of such date, as adjusted to give effect to the Offering, by (i) all persons
known by the Company to beneficially own 5% or more of the outstanding shares of
Common Stock, (ii) each current director of the Company, and (iii) all current
directors and officers of the Company, as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK NUMBER OF SHARES OF
BENEFICIALLY OWNED COMMON STOCK
PRIOR TO THE OFFERING BENEFICIALLY OWNED
(1) AFTER THE OFFERING (1)
----------------------- -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Steven A. Rogers (2).......................... 996,582 38.6% 996,582 22.8%
Anthony M. Agnello (3)........................ -- -- -- --
Robert L. Barnett (4)......................... 15,000 * 15,000 *
Donald W. Barrett (5)......................... 15,000 * 15,000 *
Eugene R. Cacciamani (6)...................... 20,000 * 20,000 *
Lincoln D. Faurer (7)......................... 10,000 * 10,000 *
Clifford M. Kendall (8)....................... 82,500 3.1 82,500 1.9
Richard T. Liebhaber (9)...................... 35,000 1.4 35,000 *
Roy C. Nash (10).............................. 11,000 * 11,000 *
John B. Torkelsen (11)........................ 760,661 27.4 760,661 16.6
Applewood Associates, L.P. (12)............... 425,000 15.5 425,000 9.4
Acorn Technology Partners, L.P. (13).......... 300,000 11.5 300,000 6.8
All directors and executive officers as a
group (14 persons) (14)..................... 2,065,576 69.2% 2,065,576 43.2%
</TABLE>

- ---------------
* Less than one percent

(1) Percentage of ownership before the Offering is based on 2,561,844 shares of
Common Stock outstanding as of the date of this Prospectus, including
500,000 shares of Common Stock issuable upon conversion of the Series A
Preferred Stock. For each beneficial owner, shares of Common Stock subject
to convertible securities exercisable within 60 days of the date of this
Prospectus are deemed outstanding for purposes of computing the percentage
ownership of such beneficial owner.

(2) The address of Mr. Rogers is P.O. Box 221350, Chantilly, Virginia
20153-1350. Includes 10,000 shares of Common Stock held by Mr. Rogers' son,
as to which Mr. Rogers disclaims beneficial ownership; 30,000 shares of
Common Stock held by Mark Rogers, Steven Rogers' brother, as custodian for
Steven Rogers' three minor children, as to which Mr. Rogers disclaims
beneficial ownership; and 16,666 shares of Common Stock issuable upon
exercise of warrants exercisable within 60 days of the date of this
Prospectus.

(3) The address of Mr. Agnello is 245 Route 130, Cranbury, New Jersey, 08512.
Mr. Agnello was elected as a member of the Board of Directors, pursuant to
certain contractual rights held by Applewood and Acorn.

(4) The address of Mr. Barnett is 1445 South Ridge Road, Lake Forest, Illinois
60045. Includes 7,500 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of the date of this Prospectus.

(5) The address of Mr. Barrett is 3105 Bennett Point Road, Queenstown, Maryland
21658. Includes 10,000 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of the date of this Prospectus.

(6) The address of Dr. Cacciamani is 11409 Rolling House Road, Rockville,
Maryland 20852. Includes 10,000 shares of Common Stock issuable upon
exercise of options exercisable within 60 days of the date of this
Prospectus.

(7) The address of Lt. Gen. Faurer is 1438 Brookhaven Drive, McLean, Virginia
22102. Consists of 10,000 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of the date of this Prospectus.

(8) The address of Mr. Kendall is 2 Tobin Court, Potomac, Maryland 20854.
Includes 17,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of the date of this

50
<PAGE> 51

Prospectus and 50,000 shares of Common Stock subject to other conversion rights
exercisable within 60 days of the date of this Prospectus.

(9) The address of Mr. Liebhaber is 1100 Chain Bridge Road, P.O. Box 8210,
McLean, Virginia 22106. Includes 7,500 shares of Common Stock issuable upon
the exercise of options exercisable within 60 days of the date of this
Prospectus and 2,500 shares of Common Stock that may be acquired upon the
exercise of warrants exercisable within 60 days of the date of this
Prospectus.

(10) The address of Mr. Nash is 9800 Arnon Chapel Road, Great Falls, Virginia
22066. Includes 7,500 shares of Common Stock issuable upon the exercise of
options exercisable within 60 days of the date of this Prospectus.

(11) The address of Mr. Torkelsen is 240 Library Place, Princeton, New Jersey
08540. Includes (i) 258,041 shares of Common Stock beneficially owned by
Mr. Torkelsen and 152,620 shares of Common Stock that may be acquired by
Mr. Torkelsen upon exercise of currently exercisable warrants; (ii) 20,000
shares of Common Stock beneficially owned by PVR, of which Mr. Torkelsen is
the President and 5,000 shares of Common Stock that may be acquired upon
the exercise of currently exercisable warrants beneficially owned by PVR;
(iii) 20,000 shares of Common Stock beneficially owned by Pamela Torkelsen,
Mr. Torkelsen's wife, and 5,000 shares of Common Stock that may be acquired
upon the exercise of currently exercisable warrants beneficially owned by
Pamela Torkelsen; and (iv) 250,000 shares of Common Stock that may be
acquired by Acorn upon conversion of the Series A Preferred Stock currently
owned by Acorn, and 50,000 shares of Common Stock that may be acquired by
Acorn upon the exercise of currently exercisable Series A Warrants. Acorn
is a venture capital fund organized as a limited partnership. Certain
members of the general partner of Acorn are executives of PVR. Mr.
Torkelsen is the President and Manager of the general partner of Acorn. PVR
serves as the investment advisor to Acorn. Mr. Torkelsen disclaims
beneficial ownership of all such shares of Common Stock and warrants owned
by Mrs. Torkelsen and by Acorn.

(12) The address of Applewood, a New York limited partnership, is c/o Barry
Rubenstein, 68 Wheatley Road, Brookville, New York 11545. Consists of
250,000 shares of Common Stock issuable upon conversion of the Series A
Preferred Stock owned by Applewood, 50,000 shares of Common Stock that may
be acquired by Applewood upon the exercise of currently exercisable Series
A Warrants and 125,000 shares of Common Stock that may be acquired by
Applewood upon the exercise of other currently exercisable warrants.
Applewood is beneficially owned by its three general partners, Barry
Rubenstein, Barry Fingerhut and Irwin Lieber, and by a number of limited
partners. Applewood is not an affiliate of the Underwriter, Acorn or the
Company. Additionally, Mr. Anthony Agnello was elected as a member of the
Board of Directors of the Company pursuant to certain contractual rights
held by Acorn and Applewood.

(13) The address of Acorn, a limited partnership organized under the laws of the
State of New Jersey, is c/o Codan Services, Limited, Clarendon House, 21
Church Street, Hamilton, HM II, Bermuda. Consists of 250,000 shares of
Common Stock issuable upon conversion of the Series A Preferred Stock owned
by Acorn, and 50,000 shares of Common Stock that may be acquired by Acorn
upon the exercise of currently exercisable Series A Warrants. Acorn is
beneficially owned by Princeton Growth Investments I, L.L.C. ("PGI"), the
general partner of Acorn, and The United Bank of Kuwait, PLC, the sole
limited partner. PGI is a limited liability company organized under the
laws of the State of New Jersey. Mr. John B. Torkelsen, a director and
16.6% beneficial owner of the Company's Common Stock, is the President and
Manager of PGI. Acorn is not an affiliate of the Underwriter, Applewood or
the Company. Additionally, Mr. Anthony Agnello was elected as a member of
the Board of Directors of the Company pursuant to certain contractual
rights held by Acorn and Applewood.

(14) Includes 300,119 shares of Common Stock issuable to executive officers and
directors upon exercise of currently exercisable warrants, 124,000 shares
of Common Stock issuable to executive officers and directors upon the
exercise of options currently exercisable or exercisable within 60 days of
the date of this Prospectus and 50,000 shares of Common Stock subject to
other conversion rights exercisable within 60 days of the date of this
Prospectus.

51
<PAGE> 52

DESCRIPTION OF SECURITIES

COMMON STOCK

As of the date of this Prospectus, the Company's Certificate of
Incorporation authorizes the issuance of up to 10,000,000 shares of Common
Stock, par value $.01 per share. Of the 10,000,000 shares of Common Stock
authorized, 2,561,844 shares are issued and outstanding as of the date of this
Prospectus including 500,000 shares of Common Stock issuable upon conversion of
the Series A Preferred Stock, and the Company has approximately 53 holders of
record of Common Stock. Upon completion of the Offering, there will be 4,361,844
shares of Common Stock issued and outstanding. To date, there has been no public
market for the Common Stock. See "Principal Stockholders."

Holders of the shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors of the Company from funds
legally available for such dividends. See "Risk Factors -- No Dividends" and
"Dividend Policy." Upon liquidation, holders of shares of Common Stock are
entitled to a pro rata share in any distribution available to holders of Common
Stock. The holders of shares of Common Stock have one vote per share on each
matter to be voted on by stockholders, but are not entitled to vote
cumulatively. Holders of Common Stock have no preemptive rights. All of the
outstanding shares of Common Stock are, and all of the shares of Common Stock to
be issued in connection with the Offering will be, validly issued, fully paid
and non-assessable.

PREFERRED STOCK

The Company's Certificate of Incorporation authorizes the Board of
Directors of the Company to issue up to 2,500,000 shares of preferred stock, par
value $0.01 per share (the "Preferred Stock"), to establish one or more series
of Preferred Stock and to determine, with respect to each such series, the
preferences, rights and other terms thereof. Of the 2,500,000 shares of
Preferred Stock authorized, 500,000 shares of Series A Preferred Stock are
issued and outstanding as of the date of this Prospectus. The Series A Preferred
Stock will automatically convert to shares of Common Stock on a one-to-one basis
at the time of the closing of the Offering. Upon completion of the Offering, no
shares of Preferred Stock will be outstanding, and the Board has no present
intention to issue any such shares. See Note 7 of Notes to Financial Statements.

WARRANTS

Upon completion of the Offering, the following warrants to purchase an
aggregate of 845,382 shares of Common Stock will be outstanding: the Bridge
Warrants to purchase 350,000 shares of Common Stock at an exercise price of
$3.30 per share (at an initial public offering price of $5.50 per share);
warrants to purchase 436,707 shares of Common Stock at an exercise price of
$4.00 per share; warrants to purchase 43,675 shares of Common Stock at an
exercise price of $6.88 per share; and warrants to purchase 15,000 shares of
Common Stock at $8.00 per share. In each case, the exercise price of and the
number of shares of Common Stock subject to the warrants is subject to
adjustment based upon anti-dilution provisions. The following discussion of the
material terms and provisions of the warrants is qualified in its entirety by
reference to the detailed provisions of the agreements relating to the issuance
of the warrants and the forms of warrants, which have been filed as an exhibit
to the Registration Statement of which this Prospectus constitutes a part.

PVR Warrants. In connection with the private placement of Common Stock by
the Company in June 1995 and August 1996, the Company issued warrants to
purchase an aggregate of 447,868 shares of Common Stock, of which warrants to
purchase 345,536 shares of Common Stock were issued to investors and warrants to
purchase 102,332 shares of Common Stock were issued as inducements to make loans
to the Company. The Company also issued to Mr. John B. Torkelsen, President of
PVR Securities, as partial compensation for the services of PVR Securities as
placement agent for the offering, warrants to purchase 69,106 shares of Common
Stock. Including those warrants issued to Mr. Torkelsen as compensation, the
Company originally issued warrants to acquire 34,553 shares of Common Stock with
an exercise price of $6.60 per share, warrants to acquire 447,868 shares of
Common Stock with an exercise price of $8.00 per share, and warrants to acquire
34,553 shares of Common Stock with an exercise price of $8.80 per share.

52
<PAGE> 53

Certain of these warrants were issued to directors, officers and affiliates of
the Company to induce them to make loans to the Company. Certain investors
subsequently converted the principal amount of and accrued interest on their
outstanding loans to the Company to units consisting of Common Stock and
warrants.

In January 1997, the Company entered into an exchange transaction with
certain investors who purchased Common Stock and warrants in the private
placement conducted on behalf of the Company by PVR Securities and with PVR
Securities. In the exchange transaction, the Company issued to such investors
new warrants to purchase an aggregate of 165,269 shares of Common Stock at an
exercise price of $4.00 per share and 165,267 newly issued shares of Common
Stock, in exchange for the cancellation of outstanding warrants to purchase an
aggregate of 330,536 shares of Common Stock at an exercise price of $8.00 per
share. In addition, the Company issued to Mr. John B. Torkelsen, President of
PVR Securities, warrants to purchase 69,106 shares of Common Stock at an
exercise price of $4.00 per share, in exchange for the cancellation of
previously outstanding warrants to purchase 34,553 shares of Common Stock at an
exercise price of $6.60 per share and previously outstanding warrants to
purchase 34,553 shares of Common Stock at an exercise price of $8.80 per share.
As part of the exchange transaction, all investors to which new warrants were
issued also agreed to change the period during which the warrants may be
exercised. The Company also exchanged warrants to acquire 102,332 shares of
Common Stock at an exercise price of $8.00 per share for warrants to acquire an
equal number of shares at an exercise price of $4.00 per share and reissued
warrants to purchase 15,000 shares of Common Stock at $8.00 per share with a new
expiration date of January 24, 2001. The new warrants issued by the Company in
the exchange transaction expire on January 24, 2001. See "Certain Transactions"
and Note 6 of Notes to Financial Statements.

The exercise price of the warrants and the number of shares of Common Stock
issuable upon exercise thereof are subject to adjustment in certain
circumstances, including the event of a stock dividend, subdivision or
combination of the Common Stock, the issuance of Common Stock or rights, options
or warrants to acquire Common Stock at a price per share less than the exercise
price of the warrants in effect immediately prior to such issuance. These
warrants are exercisable in whole or in part. Warrants to purchase 336,707
shares of Common Stock at an exercise price of $4.00 per share and warrants to
purchase 15,000 shares of Common Stock at an exercise price of $8.00 per share
expire on January 24, 2001. The holders of these warrants have certain
registration rights with respect to the shares of Common Stock underlying the
warrants. See "Certain Transactions" and "Shares Eligible for Future
Sale -- Registration Rights."

Adelson Warrant. In connection with a loan to the Company in the principal
amount of $300,000 in August 1996, the Company originally issued to the Adelson
Investment Company a warrant (the "Adelson Warrant") to purchase 33,750 shares
of Common Stock at an exercise price of $8.90 per share. The exercise price of
the Adelson Warrant and the number of shares of Common Stock issuable upon
exercise of the Adelson Warrant are subject to adjustment in certain
circumstances, including the event of a stock dividend, subdivision or
combination of the Common Stock, the issuance of Common Stock or rights, options
or warrants to acquire Common Stock at a price per share less than either the
market price or the exercise price of the Adelson Warrant in effect immediately
prior to such issuance. As a result of such adjustments, the Adelson Warrant
currently entitles the holder to purchase 43,675 shares of Common Stock at an
exercise price of $6.88 per share. The Adelson Warrant is exercisable in whole
or in part and expires on August 31, 2001. The holders of the Adelson Warrant
have certain registration rights with respect to the shares of Common Stock
underlying the Adelson Warrant. See "Shares Eligible for Future
Sale -- Registration Rights."

Bridge Warrants. In October and November 1996, the Company issued to
investors Bridge Warrants to purchase, in the aggregate, up to 500,000 shares of
Common Stock at an exercise price equal to the lesser of $3.30 per share or 60%
of the aggregate initial public offering price per share of Common Stock in the
Offering ($3.30 per share at the initial public offering price of $5.50 per
share). As a result of the surrender by certain Bridge Warrant holders of
warrants to acquire 150,000 shares of Common Stock in connection with the
Offering, Bridge Warrants to acquire 350,000 shares of Common Stock are
outstanding as of the date of the Offering. See "Certain Transactions -- Equity
Issuances." The exercise price of the Bridge Warrants and the number of shares
of Common Stock issuable upon exercise of the Bridge Warrants are subject to
adjustment in certain circumstances, including stock dividends, stock splits,
combinations or reclassifications involving or

53
<PAGE> 54

in respect of the Common Stock of the Company, or an extension by the Company of
the maturity date of the Bridge Notes. If the Company extends the maturity date
of the Bridge Notes for a period of six months, the exercise price per share of
the Bridge Warrants shall automatically decrease to the lesser of $2.75 per
share or 50% of the initial public offering price per share. The Bridge Warrants
are exercisable in whole or in part and expire on dates ranging from October
2001 to December 2001. The shares of Common Stock underlying the Bridge Warrants
are being registered in the Offering, and are subject to a 24 month lock-up
arrangement with the Underwriter. See "Certain Transactions," "Shares Eligible
for Future Sale" and "Underwriting."

Series A Warrants. In connection with the private placement of Series A
Preferred Stock in December 1996 and January 1997, the Company issued warrants
to purchase an aggregate of 100,000 shares of Common Stock at an exercise price
of $4.00 per share. The Series A Warrants are currently exercisable and expire
on December 20, 2001 and January 22, 2002. The holders of the Series A Warrants
have certain registration rights with respect to the shares of Common Stock
underlying the Series A Warrants. See "Shares Eligible for Future
Sale -- Registration Rights." The exercise price of these warrants and the
number of shares of Common Stock issuable upon exercise thereof are subject to
adjustment in certain circumstances, including the event of a stock dividend,
subdivision or combination of the Common Stock, the issuance of Common Stock or
rights, options or warrants to acquire Common Stock at a price per share less
than the exercise price of the warrants in effect immediately prior to such
issuance. The shares of Common Stock underlying the Series A Warrants are being
registered in the Offering and are subject to a 12 month lock-up arrangement
with the Underwriter. See "Certain Transactions," "Shares Eligible for Future
Sale," and "Underwriting."

DEBT SECURITIES

Bridge Financing. In connection with the Bridge Financing, the Company
issued 20 Bridge Units. Each Bridge Unit consists of a Bridge Note issued by the
Company in the principal amount of $100,000 and a Bridge Warrant to purchase up
to 25,000 shares of Common Stock at an exercise price equal to the lesser of
$3.30 per share or 60% of the initial public offering price per share in this
Offering. As a result of the surrender by certain Bridge Warrant holders of
warrants to acquire 150,000 shares of Common Stock in connection with the
Offering, Bridge Warrants to acquire 350,000 shares of Common Stock are
outstanding as of the date of the Offering. See "Certain Transactions -- Equity
Issuances." The Bridge Notes and the Bridge Warrants are separately
transferable, subject to certain restrictions upon transferability.

Bridge Notes. The Bridge Notes bear interest at the rate of 10% per annum,
with interest accruing from the date of issuance and payable in four quarterly
installments on the first day of January, April, July and October commencing on
January 1, 1997 and at maturity. The principal of, and any accrued and unpaid
interest on, the Bridge Notes are due and payable in full on the earlier of (i)
the consummation of the Offering, (ii) one year from the date on which the
Bridge Notes were issued or (iii) the date of the closing of a sale (or the
closing of the last of a series of sales) of securities by the Company or any
subsidiary or affiliate thereof (other than the Bridge Notes and Bridge
Warrants), the gross proceeds of which, in the aggregate, equal or exceed the
value of the Bridge Notes. The Company intends to use a portion of the net
proceeds of the Offering to repay in full the principal balance of the Bridge
Notes, and accrued and unpaid interest thereon. See "Use of Proceeds."

The Company has the right, at its option, to extend the maturity date of
the Bridge Notes for up to one year. In the event that the Company elects to
extend such maturity date, then the number of shares issuable upon the exercise
of each Bridge Warrant will automatically increase by an additional 10% for each
month that the Bridge Notes continue to remain outstanding and the exercise
price will decrease to the lesser of $2.75 per share or 50% of the initial
public offering price per share.

The Bridge Notes rank senior in right of payment to all junior debt of the
Company, which is defined as all existing and future indebtedness of the Company
other than (i) the indebtedness represented by the Bridge Notes, (ii) capital
lease obligations, and (iii) certain other indebtedness which was repaid by the
Company

54
<PAGE> 55

out of the proceeds of the Bridge Financing. See "Certain Transactions." The
Bridge Notes are secured by a lien on certain assets of the Company. See Note 5
of Notes to Financial Statements.

STOCKHOLDER REPORTS

The Company intends to furnish its stockholders annual reports containing
financial statements audited by independent accountants, and such other periodic
reports as the Company may deem appropriate or as may be required by law.

TRANSFER AGENT AND REGISTRAR

The Company has retained Continental Stock Transfer & Trust Company as
transfer agent and registrar for the Common Stock.

DIRECTORS' LIMITATION OF LIABILITY AND INDEMNIFICATION

The Certificate of Incorporation provides for the indemnification of the
Company's directors and officers to the fullest extent permitted under the
General Corporation Law of the State of Delaware (the "GCL").

As permitted by the GCL, the Company's Certificate of Incorporation
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except (i) for any breach of the director's duty of loyalty to the
Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or violation of law; (iii) for acts and
omissions relating to prohibited dividends or distributions or the purchase or
redemption of stock; or (iv) for any transaction from which the director derives
an improper personal benefit. As a result of this provision, the Company and its
stockholders may be unable to obtain monetary damages from a director for breach
of his or her duty of care.

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

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

Section 203 of the Delaware General Corporation Law. The Company is
subject to the provisions of Section 203 of the GCL (the "Anti-takeover Law")
regulating corporate takeovers. The Anti-takeover Law prevents certain Delaware
corporations, including those whose securities are quoted on the Nasdaq SmallCap
Market, from engaging, under certain circumstances, in a "business combination"
(which includes a merger or sale of more than 10% of the corporation's assets)
with any "interested stockholder" (a stockholder who acquired 15% or more of the
corporation's outstanding voting stock without the prior approval of the
corporation's Board of Directors) for three years following the date that such
stockholder became an "interested stockholder." A Delaware corporation may "opt
out" of the Anti-takeover Law with an express provision in its original
certificate of incorporation, or an express provision in its certificate of
incorporation or bylaws resulting from a stockholders' amendment approved by at
least a majority of the outstanding voting shares. The Company has not "opted
out" of the application of the Anti-takeover Law.

Certain Charter Provisions. The Company's Certificate of Incorporation
contains provisions that may have the effect of discouraging certain
transactions involving an actual or threatened change in control of the Company.
The Certificate of Incorporation grants to the Board the authority to issue
shares of Preferred Stock in one or more series without stockholder approval.
The ability to issue such Preferred Stock could have the effect of discouraging
unsolicited acquisition proposals or making it more difficult for a third party
to commence such an acquisition.

LISTING

The Common Stock has been approved for quotation on the Nasdaq SmallCap
Market, subject to notice of issuance, under the symbol OCOM.

55
<PAGE> 56

SHARES ELIGIBLE FOR FUTURE SALE

GENERAL

Upon completion of the Offering, there will be 4,361,844 shares of Common
Stock outstanding (4,631,844 if the Over-Allotment Option is exercised in full).
Of such shares, all of the 1,800,000 shares sold in the Offering (2,070,000 if
the Underwriter's Over-Allotment Option is exercised in full) will be freely
transferable (other than those purchased by affiliates of the Company) without
restriction or further registration under the Securities Act. In addition, the
180,000 shares of Common Stock issuable upon exercise of the Underwriter's
Options, all of which also are being registered under the Securities Act
pursuant to the registration statement of which this Prospectus constitutes a
part, will be freely transferable under the Securities Act without restriction
or further registration, subject to the limitation that the Underwriter may not
transfer, assign, or hypothecate the Underwriter's Options or the underlying
shares of Common Stock for a period of one year, with certain limited
exceptions. See "Underwriting." Concurrently with the Offering and subject to
certain lock-up arrangements described below, certain Selling Stockholders may
offer and sell from time to time up to 1,130,000 shares of Common Stock on the
Nasdaq SmallCap Market in negotiated transactions or otherwise. No underwriting
arrangements have been entered into by the Selling Stockholders.

Subject to certain limited exceptions, the holders of all of the remaining
shares of Common Stock and the holders of all of the warrants to purchase shares
of Common Stock, have agreed not to transfer or otherwise dispose of any
securities of the Company for a period following the closing of the Offering,
without the prior written consent of the Underwriter. See "-- Lock-up
Agreements" below.

Subject to the lock-up arrangements with the Underwriter, (i) the 350,000
shares of Common Stock issuable upon exercise of the Bridge Warrants, (ii) the
500,000 shares of Common Stock issuable upon conversion of the Series A
Preferred Stock, and (iii) the 100,000 shares of Common Stock issuable upon
exercise of the Series A Warrants, all of which also are being registered under
the Securities Act on a shelf registration pursuant to the registration
statement of which this Prospectus constitutes a part, will be freely
transferable under the Securities Act without restriction or further
registration, other than those shares held by affiliates of the Company.
Concurrent sales of securities by both the Company and the Selling Stockholders
would likely have an adverse effect on the market price of the Common Stock.

The remaining 2,061,844 shares of Common Stock are, and the 395,382 shares
of Common Stock issuable upon exercise of outstanding warrants (other than the
Bridge Warrants or the Series A Warrants) will be, "restricted securities"
within the meaning of Rule 144 and may not be sold other than in accordance with
Rule 144 or pursuant to an effective registration statement under the Securities
Act or an exemption from such registration requirement. In general, as of April
29, 1997, Rule 144 provides that any person (or persons whose shares are
aggregated) to whom Rule 144 is applicable, including an affiliate, who has
beneficially owned shares for at least a one-year period (as computed under Rule
144) is entitled to sell within any three-month period the number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of the
Common Stock (approximately 43,618 shares after giving effect to the Offering)
and (ii) the reported average weekly trading volume of the then outstanding
shares of Common Stock during the four calendar weeks immediately preceding the
date on which the notice of sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 also are subject to certain provisions relating
to the manner and notice of sale and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed an affiliate of the Company at any time during the 90 days
immediately preceding a sale, and who has beneficially owned shares for at least
a two-year period (as computed under Rule 144), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitation and other
conditions described above.

Prior to the date of this Prospectus, there has been no public market for
the Common Stock. Trading of the Common Stock is expected to commence following
the completion of the Offering. No prediction can be made as to the effect, if
any, that future sales of shares, or the availability of shares for future sale,
will have on the market price prevailing from time to time. Sales of substantial
amounts of Common Stock, or the

56
<PAGE> 57

perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock and the Company's ability to raise capital in the
future through the sale of additional securities.

Up to 180,000 additional shares of Common Stock may be purchased by the
Underwriter through the exercise of the Underwriter's Options during the period
commencing on the closing of the Offering and ending on the fifth anniversary of
such date. The holders of the Underwriter's Options will have certain demand and
"piggyback" registration rights with respect to the shares of Common Stock
underlying such options. Such shares of Common Stock issuable upon exercise of
the Underwriter's Options may be freely tradable, provided that the Company
satisfies certain securities registration and qualification requirements in
accordance with the terms of the Underwriter's Options. See "-- Registration
Rights" and "Underwriting."

Up to 350,000 shares of Common Stock may be purchased by the holders of the
Bridge Warrants, up to 180,269 shares of Common Stock may be purchased by the
holders of the PVR Warrants, up to 43,675 shares of Common Stock may be
purchased by the holders of the warrants originally issued to Adelson, up to
100,000 shares of Common Stock may be purchased by the holders of the Series A
Warrants and up to 171,438 shares of Common Stock may be purchased by the
holders of other outstanding warrants. The holders of such warrants are entitled
to certain demand and "piggyback" registration rights as to such shares
commencing twelve months after the closing of the Offering. Such shares will be
freely tradable upon such registration. See "-- Registration Rights" below.

REGISTRATION RIGHTS

Subject to the lock-up arrangements described below, the Company has
granted certain demand and "piggyback" registration rights with respect to
1,600,719 outstanding shares of Common Stock, the 500,000 shares of Common Stock
issuable upon conversion of the Series A Preferred Stock, the 100,000 shares of
Common Stock issuable upon exercise of the Series A Warrants, the 350,000 shares
of Common Stock issuable upon exercise of the Bridge Warrants, the 180,000
shares of Common Stock issuable upon exercise of the Underwriter's Options and
the 395,382 shares of Common Stock issuable upon exercise of other outstanding
warrants. Subject to certain conditions and limitations, the registration rights
grant to such holders the right to register all or any portion of the Common
Stock held by them or issuable upon the exercise of warrants held by them or the
conversion of convertible securities held by them upon the conclusion of the
Offering (collectively, the "Registrable Securities"), in connection with any
registration by the Company of shares of Common Stock or securities
substantially similar to the Common Stock. In addition, the holders of the
shares of Series A Preferred Stock and the Series A Warrants, as a group, are
entitled to exercise demand registration rights to require the Company to
register such securities under the Securities Act not more than twice; the
holder of a warrant to purchase an aggregate of 43,675 shares of Common Stock is
entitled to exercise demand registration rights to require the Company to
register such securities under the Securities Act not more than twice; the
holders of the Bridge Warrants, as a group, are entitled to exercise demand
registration rights to require the Company to register such securities under the
Securities Act not more than twice; the Underwriter is entitled to exercise
demand registration rights to require the Company to register under the
Securities Act the shares issuable upon exercise of the Underwriter's Options
not more than twice; and Mr. Steven A. Rogers, who will hold 979,916 shares of
Common Stock upon the conclusion of the Offering, is entitled to exercise demand
registration rights to require the Company to register such securities under the
Securities Act not more than twice. The registration rights described herein are
subject to certain notice requirements, timing restrictions and volume
limitations which may be imposed by the underwriters of an offering. The Company
is required to bear the expenses of all such registrations, except for the
expenses associated with one of the demand registrations granted to the holders
of the Bridge Warrants, and the underwriting discounts and commissions relating
to the sale of the shares of Common Stock held by such investors.

LOCK-UP AGREEMENTS

Subject to the limited exceptions described below, and pursuant to the
Underwriting Agreement, the Company, all of the existing stockholders of the
Company and all of the existing warrantholders of the Company as of the
effective date of the Registration Statement, have agreed not to offer, issue,
sell, contract to

57
<PAGE> 58

sell, grant any option for the sale of or otherwise dispose of any securities of
the Company for a period of 24 months from the date of closing of the Offering,
without the prior written consent of the Underwriter. Pursuant to the
Underwriting Agreement, the holders of the Series A Preferred Stock or the
Series A Warrants have agreed not to offer, issue, sell, contract to sell, grant
any option for the sale of or otherwise dispose of any securities of the Company
for a period of 12 months from the date of closing of the Offering, without the
prior written consent of the Underwriter. Notwithstanding these lock-up
arrangements, any stockholder subject to such arrangement may sell up to 30% of
his, her or its shares of Common Stock commencing 12 months after the completion
of the Offering in the event that the last sales price for the Common Stock on
its principal exchange has been at least 200% of the initial public offering
price for a period of 20 consecutive trading days ending within five days of the
date of such sale, and such sale is completed at a price in excess of 200% of
the initial public offering price. The remaining stockholders of the Company,
who hold an aggregate of 71,250 shares of Common Stock and warrants to purchase
43,675 shares of Common Stock, have agreed with the Underwriter not to offer,
sell, contract to sell, grant any option for the sale of or otherwise dispose of
any of the Company's securities held by them for a period of six months from the
date of closing of the Offering, without the prior written consent of the
Underwriter. The Underwriter has no current or future plans, proposals,
arrangements or understandings to modify, shorten or waive the lock-up
arrangements. The Company will file a post-effective amendment to the
registration statement of which this Prospectus constitutes a part, in the event
that the Underwriter waives the lock-up agreements with respect to 10% or more
of the shares held by existing stockholders of the Company, or will revise the
Prospectus if the lock-up is waived with respect to 5% to 10% of the shares held
by existing stockholders of the Company. The Underwriter has entered into an
agreement with the Nasdaq Stock Market, Inc. pursuant to which the Underwriter
has agreed that it will not release any warrantholder who received warrants
between October and January 1996, from such lock-up agreements for a period of
six months from the effective date of this Prospectus.

58
<PAGE> 59

UNDERWRITING

The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement (the form of which has been filed as an exhibit to the
Registration Statement), to purchase from the Company all of the shares of
Common Stock offered hereby. The Underwriting Agreement provides that the
obligations of the Underwriter are subject to certain conditions precedent and
that the Underwriter shall be obligated to purchase all of the shares of Common
Stock if any are purchased by the Underwriter.

The Underwriter has advised the Company that the Underwriter proposes to
offer the shares of Common Stock offered hereby to the public at the offering
price set forth on the cover page of this Prospectus and that the Underwriter
may allow to certain dealers, who are members of the National Association of
Securities Dealers (the "NASD"), concessions of not in excess of $0.27 per share
of Common Stock, of which not in excess of $0.10 may be reallowed to other
dealers who are members of the NASD. After the commencement of this Offering,
the public offering price, the concessions and the reallowance may be changed.

The Company has granted the Over-Allotment Option to the Underwriter,
exercisable during the 45-day period after the closing date of the Offering, to
purchase up to an aggregate of 270,000 additional shares of Common Stock at the
initial public offering price, less underwriting discounts and commissions. The
Underwriter may exercise such option only for the purpose of covering
over-allotments made in connection with the sale of the Common Stock offered
hereby.

The Company has agreed to indemnify the Underwriter against certain
liabilities in connection with the Registration Statement, including liabilities
under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to the Underwriter, the Underwriter
has been advised that, in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the aggregate offering price of the shares of Common Stock
offered hereby (including any shares of Common Stock purchased pursuant to the
Over-Allotment Option), of which $40,000 has been paid to date.

The Company also has agreed to sell to the Underwriter, or its designees,
Underwriter's Options to purchase 180,000 shares at a price of $0.001 per
option. The Underwriter's Options will be exercisable for a period of five
years, commencing on the closing date of the Offering, at an initial per share
exercise price equal to 165% of the initial public offering price per share. The
Underwriter's Options cannot be transferred, assigned or hypothecated for one
year from the date of issuance, except that they may be assigned, in whole or in
part, to any successor, officer or partner of the Underwriter (or to officers or
partners of any such successor or partner). The Underwriter's Options may be
exercised as to all or a lesser number of shares covered by the options, and
will contain certain registration rights and anti-dilution provisions providing
for appropriate adjustment of the exercise price and number of shares which may
be purchased upon exercise, upon the occurrence of certain events. See "Risk
Factors -- Effect of Options, Warrants and Underwriter's Options on Stock
Price."

The Company has granted to the Underwriter two "demand" registration rights
for the sale of the shares of Common Stock underlying the Underwriter's Options,
for a period of five years after the closing of the Offering, of which one
registration will be at the Company's expense. The Company also has granted to
the Underwriter, for a period of seven years after the date of closing of the
Offering, unlimited "piggyback" registration rights for the sale of the shares
of Common Stock underlying the Underwriter's Options. See "Shares Eligible for
Future Sale."

In addition, the Company and the Underwriter have agreed that, for a period
of two years, the Underwriter will act as a non-exclusive investment banker and
financial consultant to the Company for a fee of $80,000 (exclusive of any
accountable out-of-pocket expenses), which fee is payable upon the closing date
of the Offering.

The Company also has agreed that for a period of five years following the
completion of the Offering, it will use its best efforts (including the
solicitation of proxies) to elect one designee of the Underwriter to the Board
of Directors of the Company.

59
<PAGE> 60

The foregoing discussion of the material terms and provisions of the
Underwriting Agreement is qualified in its entirety by reference to the detailed
provisions of the Underwriting Agreement, the form of which has been filed as an
exhibit to the Registration Statement on Form SB-2, of which this Prospectus
forms a part.

The Underwriter acted as placement agent in connection with the Bridge
Financing and the placement of the Series A Preferred Stock and Series A
Warrants. In connection therewith, the Underwriter received sales commissions of
$340,000 in the aggregate, was reimbursed approximately $32,000 for certain
expenses (including attorneys' fees) and, in connection with the Bridge
Financing, was issued a total of 50,000 warrants with terms and conditions
identical to the Bridge Warrants (the "Placement Agent's Warrants"). The
Placement Agent's Warrants will be forfeited by the Underwriter upon the
consummation of the Offering.

The Company, all of the existing stockholders of the Company and all of the
existing warrantholders of the Company have agreed with the Underwriter not to
offer, pledge, sell, contract to sell, grant any option for the sale of or
otherwise dispose of any of the Company's securities held by them for certain
specified periods from the date of closing of the Offering, without the prior
written consent of the Underwriter, subject to certain limited exceptions. In
addition, the Underwriter has entered into an agreement with the Nasdaq Stock
Market, Inc. pursuant to which the Underwriter has agreed that it will not
release any warrantholder who received warrants between October and January
1996, from such lock-up agreements for a period of six months from the effective
date of this Prospectus. See "Shares Eligible for Future Sale -- Lock-up
Arrangements."

The Underwriter may engage in certain transactions which may stabilize,
maintain or otherwise affect the price of the Common Stock. Such transactions
may include over-allotments of Common Stock and purchases of the Common Stock.

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the shares of Common
Stock offered and sold in the Offering has been determined by arms-length
negotiation between the Company and the Underwriter and does not necessarily
bear any relationship to the Company's book value, assets, past operating
results, financial condition, or other established criteria of value. Factors
considered in determining such price include an assessment of the Company's
recent financial results and current financial condition, future prospects of
the Company, the qualifications of the Company's management and other relevant
factors.

LEGAL MATTERS

The validity of the Common Stock offered hereby and legal matters will be
passed upon for the Company by Shaw, Pittman, Potts & Trowbridge, Washington,
D.C., a partnership including professional corporations. Certain legal matters
in connection with the Offering will be passed upon for the Underwriter by
Kramer, Levin, Naftalis & Frankel, New York, New York.

EXPERTS

The balance sheets as of December 31, 1995 and 1996 and the statements of
operations, changes in stockholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1996 and for the period October
5, 1993 (date of inception) to December 31, 1996, included in this Prospectus,
have been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

60
<PAGE> 61

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form SB-2 (together
with all amendments, schedules and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain terms of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement,
which may be inspected without charge, at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York
10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials may be obtained from the public reference section of the
Commission, 450 Fifth Street, N.W., Washington, D.C., 20549, at prescribed
rates. The Registration Statement is also publicly available through the
Commission's web site located at http://www.sec.gov.

61
<PAGE> 62

[This page intentionally left blank.]
<PAGE> 63

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Financial Statements:
Balance Sheets................................................................... F-3
Statements of Operations......................................................... F-4
Statements of Changes in Stockholders' Equity (Deficit).......................... F-5
Statements of Cash Flows......................................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 64

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Objective Communications, Inc.

We have audited the accompanying balance sheets of Objective
Communications, Inc. (a development stage enterprise) as of December 31, 1995
and 1996, and the related statements of operations, changes in stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1996 and for the period October 5, 1993 (date of inception) to
December 31, 1996. 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 Objective Communications,
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 and
for the period October 5, 1993 (date of inception) to December 31, 1996, in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a significant working capital deficit and an accumulated deficit that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Coopers & Lybrand L.L.P.

Washington, D.C.
January 10, 1997, except for Note 6 pertaining to
subsequent events, as to which the
date is April 1, 1997

F-2
<PAGE> 65

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEETS

DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER
31,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 86,491 $ 623,241 $ 1,553,241
Accounts receivable.............................. 65,470 84,855 84,855
Inventory........................................ 30,994 366,099 366,099
Other current assets............................. 11,276 178,376 178,376
----------- ----------- -----------
Total current assets........................ 194,231 1,252,571 2,182,571
Property and equipment, net........................... 121,047 182,072 182,072
Debt issue costs, net................................. -- 214,066 214,066
Deposits.............................................. 308 -- --
Trademarks and patents................................ 18,898 32,869 32,869
----------- ----------- -----------
$ 334,484 $ 1,681,578 $ 2,611,578
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable, net of unamortized debt discounts
of $586,000 as of December 31, 1996 and pro
forma (unaudited).............................. $ 250,000 $ 1,714,000 $ 1,714,000
Notes payable -- related parties................. 164,000 199,000 199,000
Accounts payable................................. 715,375 390,438 390,438
Accrued liabilities.............................. 100,338 263,376 263,376
Obligation under capital lease................... -- 15,543 15,543
----------- ----------- -----------
1,229,713 2,582,357 2,582,357
Obligation under capital lease........................ -- 25,610 25,610
----------- ----------- -----------
Total liabilities........................... 1,229,713 2,607,967 2,607,967
Redeemable series A convertible preferred stock, par
value $.01, 500,000 shares authorized, 0 and 250,000
shares issued and outstanding at December 31, 1995
and 1996, respectively, 500,000 shares issued and
outstanding pro forma (unaudited), liquidation
preference of $0 and $1,000,000 at December 31, 1995
and 1996, respectively, and liquidation preference
of $2,000,000 pro forma (unaudited)................. -- 848,440 1,778,440
Stockholders' deficit:
Common stock, par value $.01, 10,000,000 shares
authorized; 1,711,413 and 1,896,577 shares
issued and outstanding at December 31, 1995 and
1996, respectively, 2,061,844 shares issued and
outstanding pro forma (unaudited).............. 17,115 18,966 20,618
Additional paid-in capital....................... 1,558,130 3,371,115 4,030,531
Deficit accumulated during development stage..... (2,470,474) (5,164,910) (5,825,978)
----------- ----------- -----------
Total stockholders' deficit................. (895,229) (1,774,829) (1,774,829)
----------- ----------- -----------
$ 334,484 $ 1,681,578 $ 2,611,578
=========== =========== ===========
</TABLE>

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

F-3
<PAGE> 66

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 5, 1993
FOR THE (DATE OF INCEPTION)
YEARS ENDED DECEMBER 31, TO
--------------------------------------- DECEMBER 31,
1994 1995 1996 1996
--------- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Operating revenues:
Merchandise revenue................ $ -- $ 129,861 $ 45,440 $ 175,301
Service revenue.................... 189,607 94,817 35,935 320,359
--------- ----------- ----------- -------------
Total revenues................ 189,607 224,678 81,375 495,660
--------- ----------- ----------- -------------
Operating expenses:
Cost of merchandise................ -- 124,730 44,579 169,309
Cost of services................... 49,608 12,684 17,774 80,066
Research and development........... 165,273 1,232,046 1,106,901 2,504,753
General and administrative......... 381,038 813,853 1,041,840 2,253,871
Depreciation....................... 3,762 60,298 158,714 222,774
Other.............................. 253 14,031 1,713 15,997
--------- ----------- ----------- -------------
Total operating expenses...... 599,934 2,257,642 2,371,521 5,246,770
--------- ----------- ----------- -------------
Loss from operations.................... (410,327) (2,032,964) (2,290,146) (4,751,110)
Interest (income) expense, net.......... (3,485) 13,152 404,290 400,805
--------- ----------- ----------- -------------
Net loss................................ $(406,842) $(2,046,116) $(2,694,436) $(5,151,915)
========= ========== ========== =============
Net loss per common share............... $ (0.16) $ (0.59) $ (0.75) $ (1.43)
========= ========== ========== =============
Weighted average common shares and
common share equivalents
outstanding........................... 2,514,116 3,461,659 3,607,634 3,607,634
========= ========== ========== =============
</TABLE>

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

F-4
<PAGE> 67

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD OCTOBER 5, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1996

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON PAID-IN DEVELOPMENT
SHARES STOCK CAPITAL STAGE TOTAL
--------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, October 5, 1993............ 500 $ 5 $ 995 $ -- $ 1,000
Net loss............................ -- -- -- (4,521) (4,521)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1993.......... 500 5 995 (4,521) (3,521)
Stock dividend...................... 1,299,500 12,995 -- (12,995) --
Issuance of common stock at
$2/share.......................... 171,000 1,710 340,290 -- 342,000
Issuance of common stock at $2/share
(Issued in exchange for
services)......................... 16,666 167 33,167 -- 33,334
Issuance of common stock at
$6/share.......................... 45,000 450 269,550 -- 270,000
Expenses associated with issuance of
common stock...................... -- -- (47,418) -- (47,418)
Issuance of common stock at
$2.68/share
(Issued in exchange for
services)......................... 8,375 84 22,416 -- 22,500
Net loss............................ -- -- -- (406,842) (406,842)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1994.......... 1,541,041 15,411 619,000 (424,358) 210,053
Issuance of common stock at
$6/share.......................... 111,666 1,117 668,883 -- 670,000
Expenses associated with issuance of
common stock...................... -- -- (81,389) -- (81,389)
Notes payable converted to common
stock at $6/share................. 58,704 587 351,636 -- 352,223
Net loss............................ -- -- -- (2,046,116) (2,046,116)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1995.......... 1,711,411 17,115 1,558,130 (2,470,474) (895,229)
Exercise of common stock options at
$2/ share......................... 10,000 100 19,900 -- 20,000
Issuance of common stock at
$6/share.......................... 175,166 1,751 1,052,232 -- 1,053,983
Expenses associated with issuance of
common stock...................... -- -- (166,936) -- (166,936)
Interest expense incurred for
issuance of warrants.............. -- -- 907,789 -- 907,789
Net loss............................ -- -- -- (2,694,436) (2,694,436)
--------- ------- ---------- ----------- -----------
Balance, December 31, 1996.......... 1,896,577 18,966 3,371,115 (5,164,910) (1,774,829)
Pro forma issuance of common stock
pursuant to warrant exchange
agreement (unaudited) (see Note
6)................................ 165,267 1,652 659,416 (661,068) --
--------- ------- ---------- ----------- -----------
Pro forma balance, December 31, 1996
(unaudited)....................... 2,061,844 $20,618 $4,030,531 $ (5,825,978) $(1,774,829)
========= ======= ========== =========== ===========
</TABLE>

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

F-5
<PAGE> 68

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE OCTOBER 5, 1993
YEARS ENDED DECEMBER 31, (DATE OF INCEPTION) TO
--------------------------------------- DECEMBER 31,
1994 1995 1996 1996
--------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(406,842) $(2,046,116) $(2,694,436) $ (5,151,915)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 3,762 60,298 158,714 222,774
Stock issued in exchange for services
rendered................................ 55,834 -- -- 55,834
Interest expense incurred for issuance of
warrants................................ -- -- 321,789 321,789
Changes in operating assets and
liabilities:
Accounts receivable.................. (54,073) (11,397) (19,385) (84,855)
Other current assets................. (10,300) (976) (167,100) (178,376)
Inventory............................ -- (30,994) (335,105) (366,099)
Deposits............................. (538) 230 308 --
Trademarks and patents............... (6,000) (12,898) (19,595) (38,493)
Accounts payable..................... 190,173 520,681 (324,937) 390,438
Accounts liabilities................. 24,253 76,085 163,038 263,376
--------- ----------- ----------- -----------
Net cash used in operating
activities..................... (203,731) (1,445,087) (2,916,709) (4,565,527)
--------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment........ (18,811) (166,296) (116,892) (301,999)
--------- ----------- ----------- -----------
Net cash used in investing
activities......................... (18,811) (166,296) (116,892) (301,999)
--------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from the issuance of common
stock................................... 564,582 588,611 907,047 2,061,240
Proceeds from the issuance of notes
payable................................. -- 250,000 2,300,000 2,550,000
Repayments of notes payable............... -- -- (250,000) (250,000)
Proceeds from the issuance of notes
payable to related parties.............. -- 546,223 170,000 716,223
Proceeds from issuance of Series A
preferred stock......................... -- -- 848,440 848,440
Repayments of notes payable to related
parties................................. -- (30,000) (135,000) (165,000)
Debt issue costs.......................... -- -- (258,131) (258,131)
Principal payments on capital leases...... -- -- (12,005) (12,005)
--------- ----------- ----------- -----------
Net cash provided by financing
activities......................... 564,582 1,354,834 3,570,351 5,490,767
--------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 342,040 (256,549) 536,750 623,241
Cash and cash equivalents, at beginning of the
period...................................... 1,000 343,040 86,491 --
--------- ----------- ----------- -----------
Cash and cash equivalents, at end of the
period...................................... $ 343,040 $ 86,491 $ 623,241 $ 623,241
========= =========== =========== ===========
Supplemental disclosure of non-cash investing
and financing activities
Conversion of notes payable-related
parties and accrued interest into common
stock................................... $ -- $ 352,223 -- $ 352,223
========= =========== =========== ===========
Capital lease obligations................. $ -- $ -- $ 53,158 $ 53,158
========= =========== =========== ===========
</TABLE>

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

F-6
<PAGE> 69

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF BUSINESS AND FINANCING PLAN

Objective Communications, Inc. (the "Company") was formed and incorporated
in the State of Delaware on October 5, 1993. The Company is developing a
proprietary video communications system which is an integrated hardware and
software system of video applications that provides high quality video and
stereo audio transmission capabilities for video conferencing, data and file
sharing, full-motion broadcasting and retrieval of stored data directly to a
desktop personal computer.

The Company has suffered recurring losses from operations and has a
significant working capital deficit and an accumulated deficit that raise
substantial doubt about its ability to continue as a going concern. The Company
has required substantial funding through debt and equity financings since its
inception to complete its development plans and commence full scale operations.
Management has historically been successful in obtaining outside financing to
meet obligations and fund working capital requirements as they come due.
Recently, the Company's Board of Directors approved the filing of a registration
statement on Form SB-2 (the "Registration Statement") with the Securities and
Exchange Commission relating to a proposed initial public offering ("IPO") of
1,800,000 shares of the Company's common stock at a price per share estimated to
be in the range of $5.00 to $6.00. The anticipated proceeds from this offering
would be used to fund continued product development, repay certain outstanding
notes payable, fund working capital and facilitate expansion of the Company's
business. If the Company's proposed IPO is consummated on the currently expected
time schedule and generates the anticipated proceeds, or if the Company is
successful in completing comparable fund raising activities on a similar time
schedule, management believes that the Company will continue as a going concern.
Should the IPO not be successfully completed, the Company will pursue other debt
and equity financing alternatives available. Management is aware of other
venture capital groups as well as additional potential investors interested in
the continued development of the Company's products through strategic business
relationships. These alternatives will be pursued in the event that the IPO is
unsuccessful.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING

The Company's principal activities to date have been planning and
organization, initiating research and development projects, conducting market
research and securing adequate financing for the development of its products.
Accordingly, the Company's financial statements are presented as those of a
development stage enterprise, as prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage
Enterprises."

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and investments with original
maturities of three months or less.

REVENUE RECOGNITION

The Company's revenue recognition policy is in conformity with the American
Institute of Certified Public Accountants' Statement of Position 91-1, "Software
Revenue Recognition." Merchandise revenue, consisting principally of sales of
the Company's video-teleconferencing products, is recognized upon delivery and
acceptance by customers. Service revenue, consisting principally of consulting
services, is recognized over the time period to which it relates.

F-7
<PAGE> 70

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS

Software development costs are included in research and development and are
expensed as incurred. SFAS No. 86, "Accounting for the Cost of Computer Software
to be Sold, Leased or Otherwise Marketed" requires the capitalization of certain
software development costs once technological feasibility is established.
Capitalization ceases when the products are available for general release to
customers, at which time amortization of the capitalized costs begins on a
straight-line basis over the estimated product life, or on the ratio of current
revenues to total projected product revenues, whichever is greater. To date, the
period between achieving technological feasibility and the general availability
of such software has been short, and software development costs qualifying for
capitalization have been insignificant. Accordingly, the Company has not
capitalized any software development costs.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated on an accelerated
basis over five years. Upon retirement or disposition of property and equipment,
the cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in income.

INVENTORY

Inventory, consisting principally of hardware for the Company's video
conferencing products, is valued at the lower of cost or market, with cost being
determined using the FIFO ("first-in, first-out") method of accounting.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company's cash and cash equivalents are held with a
U.S. commercial bank. The Company has not experienced any losses related to its
cash and cash equivalents. The Company generally grants uncollateralized credit
terms to its customers and has not experienced any credit related losses.

INCOME TAXES

Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the current tax provision for the period plus the change
during the period in deferred tax assets and liabilities.

NET LOSS PER COMMON SHARE

Net loss per common share is based on the weighted average number of common
shares and dilutive common share equivalents outstanding during the periods
presented. Pursuant to Securities and Exchange Commission requirements, common
stock issued and options and warrants to purchase shares of common stock granted
by the Company during the twelve months preceding the initial filing date of the
Registration Statement have been included in the calculation of weighted average
common shares and common share equivalents outstanding as if they were
outstanding for all periods presented. Options and warrants issued by

F-8
<PAGE> 71

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the Company prior to the aforementioned twelve-month period have not been
included in the calculation because the effects of such items were
anti-dilutive.

USE OF ESTIMATES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, accounts receivable and
notes payable approximate fair value because of the relatively short maturity of
these instruments.

STOCK-BASED COMPENSATION

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 is effective
beginning with the year ending December 31, 1996. SFAS No. 123 permits companies
to account for stock based compensation based on the provisions prescribed in
SFAS No. 123 or based on the authoritative guidance in Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." The
Company has elected to continue to account for its stock based compensation in
accordance with APB 25, however, as required by SFAS No. 123, the Company has
disclosed the pro forma impact on the financial statements assuming the
measurement provisions of SFAS No. 123 had been adopted (see Note 6).

RECLASSIFICATIONS

Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.

PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma financial information gives effect to the receipt
in January 1997 of $930,000 in net proceeds from the sale of 250,000 shares of
redeemable Series A convertible preferred stock and warrants to purchase 50,000
shares of Common Stock authorized for issuance in December 1996 at $4.00 per
share (see Note 7). Additionally, the unaudited pro forma financial information
gives effect to the issuance in January 1997 of 165,267 shares of common stock
pursuant to a warrant exchange agreement (see Note 6).

F-9
<PAGE> 72

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Computer equipment...................................... $158,290 $328,340
Furniture and fixtures.................................. 26,817 26,817
-------- --------
185,107 355,157
Accumulated depreciation................................ (64,060) (173,085)
-------- --------
$121,047 $182,072
======== ========
</TABLE>

Included in computer equipment is $53,158 in assets under capital lease as
of December 31, 1996 with related accumulated amortization of $13,289.
Amortization is being recorded over the three year life of the related lease.

4. INCOME TAXES

The components of the Company's net deferred tax position and the tax
effects of temporary differences giving rise to the Company's deferred tax
assets (liabilities) as of December 31, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Net operating loss carryforward..................... $ 904,000 $ 1,769,000
Accrued liabilities................................. 34,000 28,000
Depreciation........................................ (10,000) (24,000)
Valuation allowance................................. (928,000) (1,773,000)
--------- -----------
Net deferred tax assets............................. $ -- $ --
========= ===========
</TABLE>

The Company has net operating loss carryforwards for federal and state
income tax purposes available to offset future taxable income of approximately
$4,666,000 as of December 31, 1996. Utilization of these net operating loss
carryforwards could be subject to an annual limitation based on certain changes
in ownership of the Company as defined by section 382 of the Internal Revenue
Code. The net operating loss carryforwards expire as follows:

5. NOTES PAYABLE

During 1995 and 1996, the Company borrowed $224,000 and $170,000,
respectively, from various stockholders of the Company. The loans accrue
interest at 7% per annum and are payable, along with all accrued interest, upon
demand. In connection with the loans made in 1995, the Company issued warrants
to purchase common stock equal to the principal balance of the loans divided by
$6.00 per share, for an aggregate of 37,333 warrants. The exercise price of
these warrants is $8.00 per share. In June 1995, one of the lenders converted a
$30,000 loan plus accrued interest into 5,009 shares of common stock.

F-10
<PAGE> 73

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. NOTES PAYABLE -- (CONTINUED)

Additionally, during 1995, the Company borrowed an aggregate of $320,000
from a financial advisory firm hired to assist the Company in raising equity.
This amount as well as $2,166 in accrued interest were converted to common stock
during 1995 (see Note 6).

In November 1995, the Company received a letter of intent from a potential
investor pursuant to which the potential investor agreed to pay $250,000 to the
Company as an initial installment of a larger investment which would be
finalized in early 1996. The letter of intent provided that in the event that a
final agreement was not reached within a specified period of time, the letter of
intent could be canceled by the Company or the potential investor and the
$250,000 investment would be converted to a note payable, with interest accruing
at 6% per annum, payable 90 days from the date of such cancellation. The letter
of intent was canceled by the investor in June 1996, and the Company repaid the
$250,000 note, together with $5,548 in accrued interest, from the proceeds of an
August 1996 loan (see below). Due to the uncertainty of the terms of the
expected investment, the Company classified the $250,000 paid by such potential
investor as a note payable as of December 31, 1995.

In August 1996, the Company borrowed $300,000 from an investment company.
The loan bears interest at the NationsBank prime rate plus 1.5% per annum,
adjusted quarterly beginning September 30, 1996. Interest is payable
semi-annually in arrears on the last day of January and August of each year,
commencing January 31, 1997. The full balance of this note is due and payable on
the earlier of: (1) August 14, 1997, or (2) the closing date of an initial
public offering of securities of the Company. In consideration for this loan,
the Company issued to the lender warrants to purchase 33,750 shares of the
Company's common stock at an initial exercise price of $8.90 per share. Each
time the Company declares a stock split or dividend, sells previously unissued
shares, or issues additional options, warrants or rights to purchase shares of
the Company's common stock, the Company applies a formula, pursuant to the terms
of the warrant, to determine if the number of warrants and the exercise price
thereof must be adjusted. As of December 31, 1996, the number of shares subject
to warrants pursuant to the loan agreement are 42,755 at an exercise price of
$7.03.

In November 1996, the underwriter of the Company's proposed IPO placed
$2,000,000 in bridge notes of the Company to provide the Company with operating
capital until the time of the expected closing of the IPO. The bridge notes are
collateralized by substantially all of the assets of the Company. The bridge
notes are due and payable upon the earliest of the closing of the IPO, twelve
months from the date of issuance, or the closing of a series of sales of
securities of the Company with aggregate gross proceeds of at least $2,000,000,
and the notes bear interest at the rate of 10% per annum, due and payable
quarterly, beginning January 1, 1997. The notes were issued to a total of 38
investors, in three tranches: (1) $1,025,000 as of October 18, 1996, (2)
$400,000 as of November 8, 1996, and (3) $575,000 as of November 22, 1996. The
individual note holders were also issued warrants to purchase an aggregate of
500,000 shares of the Company's common stock at an exercise price of $3.30 per
share. As a fee for this transaction, the underwriter received $200,000 and
warrants to purchase 50,000 shares of common stock at an exercise price of $3.30
per share. These fee warrants will be forfeited upon the completion of the
Company's initial public offering. Based on an analysis utilizing the
Black-Scholes option-pricing model giving consideration to the features of the
warrants and the external economic environment provided by an independent
valuation firm, the Company estimated that the fair value of the warrants issued
in connection with these debt financings was approximately $782,000. This
aggregate amount has been recorded as a discount against the related notes
payable and an increase to additional paid-in-capital. The discount against the
related notes payable is being amortized to interest expense over the terms of
the related notes. As of December 31, 1996, approximately $196,000 had been
amortized to interest expense. The effective interest rate of the bridge notes
is 43.3% per annum based on the 10% stated interest rate pursuant to the bridge
notes and the fair value of the 500,000 warrants that were originally issued in
connection with the notes.

F-11
<PAGE> 74

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. CAPITAL STOCK TRANSACTIONS

REVERSE STOCK SPLIT

On October 16, 1996, the Board of Directors (the "Board") approved a one
for two reverse stock split (the "Reverse Split") of the Company's common stock
which was effective on December 5, 1996. No changes were made to the number of
common shares authorized or to the par value per share. All share and per share
data and references to options, warrants and exercise prices have been
retroactively restated to give effect to the reverse stock split.

COMMON STOCK

The Company was initially capitalized in the amount of $1,000 by the
issuance of 500 shares of common stock, par value $.01. On June 28, 1994, the
Company filed a Certificate of Amendment of Certificate of Incorporation
increasing the authorized shares to 10,000,000.

On June 28, 1994, the Company issued a stock dividend of 1,299,500 shares
to the Company's sole stockholder and President and Chief Executive Officer, Mr.
Steven A. Rogers.

On August 3, 1994, the Company sold 187,666 shares of common stock for
$2.00 per share. Of the shares issued, 171,000 shares were sold for cash and
16,666 were issued in exchange for services rendered. On December 31, 1994, the
Company sold an additional 45,000 shares of common stock for $6.00 per share.

On December 31, 1994, the Company issued 8,375 shares in fulfillment of an
obligation of $22,500 for services rendered in connection with the previous
stock offerings.

In December 1994, the Company entered into an agreement with a financial
advisory firm to assist in raising a minimum of $600,000 in equity for the
Company. In return, the Company was required to issue warrants to the financial
advisor to purchase shares of the Company's common stock equal to 10% of the
number of shares of common stock sold by the financial advisor to investors and
10% of the number of warrants issued to investors. The exercise price for these
warrants is 110% of the common stock issue price or warrant exercise price.

Pursuant to this agreement, the Company sold 111,667 shares of common stock
for $6.00 per share during June 1995. Each share of common stock sold entitled
the investor to a warrant to purchase an additional share of the Company's
common stock, at an exercise price of $8.00 per share. Further, the Company
converted $30,057 in notes payable and accrued interest into 5,009 shares of
common stock. Additionally, the Company converted $202,166 in outstanding notes
payable and accrued interest to the financial advisory firm into 33,694 shares
of common stock. Each share of common stock issued in the conversion was
accompanied by a warrant to purchase one share of common stock, at an exercise
price of $8.00 per share. The Company also converted an additional $120,000 loan
from the financial advisory firm into 20,000 shares of common stock, subject to
the warrant provision described above. In connection with this transaction,
holders of the converted notes were also issued an aggregate of warrants to
purchase 85,666 shares of common stock at an exercise price of $8.00 per share.

Pursuant to its 1995 agreement with the financial advisory firm, during
June 1996, the Company sold 175,166 shares of common stock for $6.00 per share.
Each share of common stock sold entitled the investor to a warrant to purchase
an additional share of the Company's common stock at an exercise price of $8.00
per share. In connection with the provisions of the agreement, the president of
the financial advisory firm received 34,553 warrants at an exercise price of
$6.60 per share and 34,553 warrants at an exercise price of $8.80 per share in
consideration of the services performed to assist the Company in obtaining
equity financing. Additionally, the Company issued to certain lenders as an
inducement to make loans to the Company, warrants to purchase 16,666 shares of
common stock at $8.00 per share.

F-12
<PAGE> 75

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)

A summary of the number of shares of common stock subject to purchase under
all warrant agreements and the related exercise prices as of December 31, 1996
is as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
- ---------------- --------------
<S> <C>
34,553 $ 6.60
447,868 8.00
34,553 8.80
42,755 7.03
50,000 4.00
550,000 3.30
---------
1,159,729
=========
</TABLE>

The Company has recorded a non-cash interest expense of approximately
$53,000 in the statement of operations for the year ended December 31, 1996
representing the estimated fair value of warrants to non-employees in
consideration of services performed to help the Company obtain equity financing.
The estimated fair value of such warrants was based on an analysis performed by
an independent valuation firm using a Black-Scholes option-pricing model giving
considerations to the features of the warrants and the external economic
environment.

STOCK OPTIONS

On August 3, 1994, the Company granted certain outside directors of the
Company options to purchase 200,000 shares of common stock. These options vest
on the anniversary of the option grant date in accordance with a five year
vesting schedule, 20% each year. The exercise price is $2.00 per share, which
was in excess of the fair value of the stock on the date of the grant, as
determined by the Board of Directors. As of December 31, 1996, 10,000 of these
options had been exercised and 70,000 of these options were exercisable. The
right to exercise these options terminates ten years from the grant date.

In October 1994, the Board of Directors adopted the 1994 Stock Option Plan
(the "1994 Plan") pursuant to which 343,000 shares of common stock are reserved
for issuance. The 1994 Plan is administered by the Board of Directors. Options
granted under the 1994 plan are subject to the same vesting provisions as the
options granted to directors. As of December 31, 1996, 41,000 options were
exercisable under the 1994 plan.

F-13
<PAGE> 76

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)

Option activity under the 1994 plan is as follows:

<TABLE>
<CAPTION>
SHARES PRICE
------- -----
<S> <C> <C>
Balance, December 31, 1994.................................. -- $--
Granted................................................ 232,500 4.00
Exercised.............................................. -- --
Forfeited.............................................. -- --
------- -----
Balance, December 31, 1995.................................. 232,500 4.00
Granted................................................ 138,000 4.00
Exercised.............................................. -- --
Forfeited.............................................. (27,500) --
------- -----
Balance, December 31, 1996.................................. 343,000 $4.00
======= =====
</TABLE>

All stock options granted by the Company from its inception through
December 31, 1996 were granted with an exercise price per share equal to the
fair value per share of the Company's Common Stock on the date of grant. In
December of 1996, the Company repriced the exercise price of all options
previously granted to $4.00 per share, to reflect an exercise price consistent
with the price per share paid by outside investors of the Series A Preferred
Stock issued in December of 1996 and January of 1997 (see Note 7). The Company
accounts for the fair value of its options granted to employees and directors in
accordance with APB 25. Accordingly, no compensation expense has been recognized
for the options granted, since the exercise price of the options has been in
excess of the fair value of the options on the date of grant, as determined by
the Board of Directors. Had compensation expense been determined based on the
fair value of the options at the grant dates consistent with the method of
accounting under SFAS 123, the Company's net loss and net loss per share would
have been increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net loss
As reported................................... $(2,046,116) $(2,694,436)
Pro forma..................................... $(2,046,116) $(2,895,916)
</TABLE>

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Net loss per common share
As reported............................................ $(0.59) $(0.75)
Pro forma.............................................. $(0.59) $(0.80)
</TABLE>

The fair value of each option granted in 1995 and 1996 was estimated on the
date of grant using a type of Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants during the years ended
December 31, 1995 and 1996: dividend yield of 0%, expected volatility of 43%,
risk-free interest rate of 5.9% and expected term of 5 years. All options
granted to employees have been granted at an exercise price of $4.00 per share.
Thus, this exercise price is indicative of the weighted average exercise price.

In December 1996, the Board of Directors adopted the 1996 Stock Option Plan
(the "1996 Plan") pursuant to which 450,000 shares of common stock are reserved
for issuance. The 1996 Plan is administered by the Board of Directors. No
options under the 1996 Plan have been granted.

F-14
<PAGE> 77

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
SUBSEQUENT EVENTS

During January 1997, the Company executed a warrant exchange agreement (the
"Exchange Agreement") with investors who purchased shares of common stock and
received warrants through the financial advisory firm during 1995 and 1996. The
purpose of the warrant exchange was to induce such investors to enter into
lock-up arrangements with the Underwriter and into agreements consolidating such
investors' registration rights with those granted by the Company to other
investors, and to provide those investors with the opportunity to invest in the
Company upon terms and conditions that more closely reflect the terms and
conditions upon which the other investors invested in the Company during a
comparable time period. Under the Exchange Agreement, each such investor was
given the opportunity to exchange existing warrants to purchase 5,000 shares of
common stock at an exercise price of $8.00 per share for new warrants to
purchase 2,500 shares of common stock at an exercise price of $4.00 per share
and an additional 2,500 newly issued shares of common stock. In addition, in the
original offering, certain investors purchased shares of Common Stock from Mr.
Steven A. Rogers at a purchase price of $2.00 per share at a time during which
other investors were purchasing shares of Common Stock from the Company at $6.00
per share. As part of the warrant exchange, such investors also were required to
pay Mr. Rogers $2.00 per share of Common Stock purchased from him in the
original offering, so as to cause such transactions to be consummated upon terms
and conditions more closely reflecting market conditions. Mr. Rogers received an
aggregate of $340,166 in the warrant exchange transaction. As a result of the
Exchange Agreement, the Company issued an aggregate of 165,267 shares of common
stock. Of the fair market value of such shares, the Company will reflect a
non-cash compensation expense of $340,166, and the remaining $320,902 will be a
direct charge to equity as a cost of equity financing. Additionally, an
aggregate of 345,536 warrants with an exercise price of $8.00 per share were
exchanged for 165,269 warrants with an exercise price of $4.00 per share and
15,000 warrants with an exercise price of $8.00 per share. Further, in
connection with the Warrant Agreement, the Company also exchanged warrants held
by the president of the financial advisory firm to purchase 34,553 warrants to
purchase shares of common stock at an exercise price of $6.60 per share, and
34,553 warrants to purchase shares of common stock at an exercise price of $8.80
per share, for an aggregate of 69,106 warrants to purchase shares of common
stock at an exercise price of $4.00 per share. Additionally, the Company
exchanged warrants originally issued to other investors as an inducement to loan
funds to the Company, representing the right to purchase an aggregate of 102,332
shares at an exercise price of $8.00 per share for warrants to purchase 102,332
shares of common stock at an exercise price of $4.00 per share (see Note 5). The
Company did not receive any additional cash proceeds as a result of the Exchange
Agreement.

In April 1997, in connection with the initial public offering, certain
holders of Bridge Warrants surrendered such warrants to acquire an aggregate of
150,000 shares of Common Stock. The surrender and cancellation of such warrants
did not have any other effect on the Bridge Financing, nor did the Company pay
any consideration in connection with such surrender.

A summary of the number of common shares subject to purchase under all
warrant agreements after giving effect to all subsequent events is as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
- ---------------- --------------
<S> <C>
436,707 $ 4.00
43,675 6.88
350,000 3.30
15,000 8.00
-------
845,382
=======
</TABLE>

F-15
<PAGE> 78

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. PREFERRED STOCK

On December 9, 1996, the Board of Directors and a majority of the holders
of the outstanding Common Stock authorized the establishment of 2,500,000 shares
of preferred stock, with a par value of $.01 per share. In December 1996, the
Company authorized the issuance and sale of 500,000 shares of Series A
Convertible Preferred Stock ("Series A") and warrants to purchase 100,000 shares
of common stock for aggregate consideration of $2,000,000. The Series A shares
have liquidation preferences over the common stock and any series of preferred
stock authorized in the future. The holders of Series A shares are entitled to
non-cumulative dividends when dividends are declared on the common stock as
though the Series A shares had been converted to common stock. At any time after
five years following the issuance of the Series A shares, or upon a merger in
which the Company is not the surviving entity, or upon a sale of all or
substantially all of the assets of the Company, at the request of at least 50%
of the holders of Series A shares and given sixty days notice, the Company is
required to redeem all or a portion of the outstanding Series A shares at a
redemption price equal to the amount such holders would be entitled to receive
had they converted the Series A shares into common stock or the liquidation
value of $4 per share, whichever is greater. The Series A shares are convertible
to common stock as determined by multiplying the Series A stated value plus all
declared but unpaid dividends by $4.00 and dividing that result by the
conversion price, which as defined by the agreement will not exceed $4 per
share. The Series A shares will automatically convert to shares of common stock
upon the consummation of the Company's IPO. The holders of Series A shares are
entitled to vote, with each holder entitled to the number of votes per share as
equal to the number of shares of common stock into which each share of Series A
is then convertible.

The warrants issued in conjunction with the Series A shares have an
exercise price of $4.00 per share. As a fee for the placement of the Series A
shares and related warrants, the underwriting firm received a $140,000
underwriter's discount and commission in consideration of its services on this
transaction.

As of December 31, 1996, the Company had issued 250,000 Series A shares and
50,000 warrants for the purchase of common stock and had received $1 million of
the consideration for the sale of the Series A shares. The remaining $1 million
was received in January 1997. The Series A shares have been recorded net of the
underwriters discount and commission and approximately $82,000 in other issuance
costs.

F-16
<PAGE> 79

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

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY PRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS LAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS
FURNISHED.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 8
Use of Proceeds........................ 18
Dividend Policy........................ 19
Dilution............................... 20
Capitalization......................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 23
Business............................... 28
Management............................. 39
Certain Transactions................... 46
Principal Stockholders................. 50
Description of Securities.............. 52
Shares Eligible for Future Sale........ 56
Underwriting........................... 59
Legal Matters.......................... 60
Experts................................ 60
Available Information.................. 61
Index to Financial Statements.......... F-1
</TABLE>

------------------
UNTIL APRIL 28, 1997 (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITER AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

1,800,000 SHARES

OBJECTIVE COMMUNICATIONS, INC.

COMMON STOCK
------------------------

PROSPECTUS

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

BARINGTON CAPITAL
GROUP, L.P.

April 3, 1997

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