OBJECTIVE COMMUNICATIONS INC, SB-2, 1997-09-18

OBJECTIVE COMMUNICATIONS INC
SB-2, 1997-09-18
TELEGRAPH & OTHER MESSAGE COMMUNICATIONS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1997
REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------

OBJECTIVE COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

4825
(PRIMARY STANDARD INSTITUTIONAL
CLASSIFICATION CODE NUMBER)

54-1707962
(I.R.S. EMPLOYER
IDENTIFICATION NO.)

OBJECTIVE COMMUNICATIONS, INC.
75 ROCHESTER AVENUE
PORTSMOUTH, NEW HAMPSHIRE 03801
(603) 334-6700
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)

STEVEN A. ROGERS
75 ROCHESTER AVENUE
PORTSMOUTH, NEW HAMPSHIRE 03801
(603) 334-7740
(NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)

------------------
Copies to:

ELLEN C. GRADY, ESQ.
SHAW, PITTMAN, POTTS & TROWBRIDGE
1501 FARM CREDIT DRIVE
MCLEAN, VIRGINIA 22102
(703) 790-7900
LAWRENCE LEVY, ESQ.
BROWN, RUDNICK, FREED & GESMER
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 856-8372

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

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

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, as amended, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

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

CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value........ 2,300,000 shares $27.375 $62,962,500 $19,079.55
==========================================================================================================
</TABLE>

(1) Includes 300,000 shares which the Underwriters have the option to purchase
from the Company to cover over allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

================================================================================
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.

SUBJECT TO COMPLETION, DATED SEPTEMBER , 1997

2,000,000 SHARES

[LOGO]

OBJECTIVE COMMUNICATIONS, INC.
COMMON STOCK

Objective Communications, Inc. ("Objective Communications" or the
"Company") hereby offers (the "Offering") 2,000,000 shares of common stock, par
value $.01 per share (the "Common Stock"). The Company's Common Stock currently
is quoted on the Nasdaq SmallCap Market under the symbol "OCOM." The Company has
applied for listing of the Common Stock on the Nasdaq National Market. The last
reported bid quotation of the Common Stock on September 17, 1997, as reported on
the Nasdaq SmallCap Market, was $29.25 per share. See "Price Range of Common
Stock."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.

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

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

<TABLE>
<CAPTION>
============================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company (2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
Total(3).......................... $ $ $
============================================================================================
</TABLE>

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company, estimated at
$ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock solely to cover over
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total
$ and Proceeds to Company will total $ . See "Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the offices of Montgomery Securities on or about , 1997.

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

MONTGOMERY SECURITIES
ROBERTSON, STEPHENS & COMPANY
BARINGTON CAPITAL GROUP

, 1997
<PAGE> 3

[DESCRIPTION OF GRAPHICS]

FIRST PAGE GRAPHIC: Photographs of people using desktop video conferencing
equipment.

GATEFOLD GRAPHIC:

Upper left -- Photograph of VidPhone(R) system enabled PC with bullet
point description of technical features.

Upper right corner -- Photograph of EVS-50 switch with bullet point
description of technical features.

Lower left corner -- Photograph of ISDN kit with bullet points on ISDN
component of Company's products.

Lower right corner -- Photograph of VidModemTM with bullet points on the
VidModemTM technical specifications and capabilities.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY, INCLUDING THE ENTRY OF STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS
OR THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

Objective Communications(R), VidPhone(R) and TeleDraw(R) are registered
trademarks of the Company and ObjectiveViewTM, TeleShareTM, TeleWordTM, EVSTM
and VidModemTM are trademarks of the Company. This Prospectus also contains
trademarks and trade names of other companies.

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus, including "Risk Factors" and the
Financial Statements and Notes thereto. Except as otherwise noted, all
information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option; and (ii) reflects a one-for-two reverse stock split
effective on December 5, 1996.

THE COMPANY

Objective Communications designs, develops and markets the first high
quality, cost-effective video network system that supports video broadcast,
retrieval of stored video and multi-party conferencing to and from a desktop
personal computer or conference room over the same wire used by the telephone.
The Company's VidPhone(R) system enables simultaneous transmission of
full-duplex S-VHS quality full-motion video, CD-quality stereo audio, and high
speed data. The VidPhone(R) system has imperceptible video and audio latency
within an enterprise. Because the VidPhone(R) system uses the same wiring to the
desktop as the telephone and is independent of the Local Area Network ("LAN"),
no additional wiring or LAN management is required. In addition, the VidPhone(R)
system is independent of the desktop's operating system and requires minimal
processing power. The Company introduced the VidPhone(R) system in July 1997 and
currently has arrangements with Sprint Communications Corporation, L.P.
("Sprint") and Bell Atlantic Corp. ("Bell Atlantic") to market and resell the
VidPhone(R) system. The Company has orders for and expects to begin delivery of
the VidPhone(R) system in the fourth quarter of 1997.

The demand for video communications, historically limited primarily to
video conferencing, is driven by the desire to achieve the most effective means
to communicate. Information that is exchanged or presented visually, such as
in-person meetings or video presentations, has a stronger impact on the end-user
than non-visual communications. Unfortunately, people cannot always exchange or
present information in person and technology limitations and cost constraints
have restricted the use of video applications. Consequently, non-visual forms of
communication, such as telephony, voice mails, e-mails, facsimiles and overnight
mailings, are relied upon to communicate. Recent video application developments
such as broadcasting and conferencing achieve the effectiveness of face-to-face
meetings, while retaining the convenience of a telephone call. These
applications have the potential to become commonly used means of communication.
The Aberdeen Group estimates that the video communications market will grow from
an estimated $3.7 billion in 1996 to $28.4 billion in 2003, representing a
compound annual growth rate of 34%.

The Company is marketing the VidPhone(R) system through telephone product
and service providers that will resell it as an enhancement to existing
telephone systems. These providers offer sales, service and support
organizations, have relationships with virtually every business telephone user
in the world, and enjoy a high level of customer loyalty. These distribution
channels have a mature customer base which is generally receptive to system
upgrades. In July 1997, the Company entered into a one-year agreement with
Sprint under which Sprint has agreed to resell the Company's video network
products worldwide. The Company also has an arrangement with Bell Atlantic under
which it will market and resell the VidPhone(R) system to the U.S. Department of
Defense (the "DOD") and related agencies.

The Company intends to leverage its position as the first provider of
integrated video networks to obtain brand-name recognition of the VidPhone(R)
system. The Company believes that existing video systems fail to meet the
requirements of the business community and that the VidPhone(R) system meets the
need for a fully functional video network.

The Company was incorporated in Delaware on October 5, 1993 by Steven A.
Rogers, its founder, President and Chief Executive Officer. The Company's
executive offices and engineering facilities are located at 75 Rochester Avenue,
Portsmouth, New Hampshire, 03801. The Company's telephone number is (603)
334-6700.

3
<PAGE> 5

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company..... 2,000,000 shares
Common Stock to be outstanding after the
Offering(1)........................... 6,636,844 shares
Use of Proceeds......................... The net proceeds of the Offering will be used by
the Company: (i) to increase production of the
VidPhone(R) system and establish a product
inventory; (ii) to fund product development
efforts; (iii) to fund sales and marketing efforts;
(iv) for capital expenditures, including facilities
expansion and improvement; and (v) for working
capital and general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol........... OCOM
</TABLE>

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

(1) Excludes (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 in October and November 1996 (the "Bridge
Financing"); (ii) 493,584 shares issuable upon exercise of other outstanding
warrants to purchase shares of Common Stock; (iii) 180,000 shares of Common
Stock issuable upon exercise of an option (the "Barington Option") granted
to Barington Capital Group, L.P. ("Barington") in connection with the
Company's initial public offering (the "Initial Offering"); (iv) 338,000
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 (v) 450,000 shares reserved
for issuance upon exercise of outstanding options granted or to be granted
to certain directors, executive officers and key employees of the Company
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."

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results contemplated in the forward-looking statements as a result of a number
of factors, including but not limited to those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.

4
<PAGE> 6

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)

The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------ --------------------------
1995 1996 1996 1997
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues................................ $ 225 $ 81 $ 20 $ --
Total operating expenses...................... 2,258 2,371 1,147 3,129
Loss from operations.......................... (2,033) (2,290) (1,127) (3,129)
Interest expense, net......................... 13 404 4 429
Net loss...................................... (2,046) (2,694) (1,131) (3,558)
Net loss per common share..................... $ (0.59) $ (0.75) $ (0.31) $ (1.11)
Weighted average common shares and common
share equivalents outstanding............... 3,461,659 3,607,634 3,607,634 3,196,822
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $5,019 $
Working capital........................................................ 4,963
Total assets........................................................... 6,265
Total stockholders' equity............................................. 5,969
</TABLE>

- ---------------
(1) Adjusted to reflect the sale and issuance of the 2,000,000 shares offered
hereby at an assumed public offering price of $ per share, after
deduction of the underwriting discount and estimated offering expenses
payable by the Company. See "Use of Proceeds."

5
<PAGE> 7

RISK FACTORS

An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as
other information set forth in this Prospectus. 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.

DEVELOPMENT STAGE ENTERPRISE; LIMITED OPERATING HISTORY

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 research and product development activities and the introduction of
its principal product, the VidPhone(R) system, and related products in the video
applications field. The Company is currently conducting product and market
testing relating to the VidPhone(R) system. See "Business -- Products and
Technology." The VidPhone(R) system has been offered for sale to customers only
since July of 1997, and no deliveries of the VidPhone(R) system have been made
to date. The Company has received a limited number of orders to purchase
VidPhone(R) systems and expects to begin delivery in the fourth quarter of 1997.
Accordingly, to date the Company has not generated substantial revenues from the
sales of its products and services. The Company's business strategy is to
increase revenues through the sales of its products, particularly the
VidPhone(R) system, and to devote substantially all of its efforts to
production, sales and support of the VidPhone(R) system. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." 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 and
had an accumulated deficit of approximately $9.1 million through June 30, 1997.
As a result of recurring losses from operations and the accumulated deficit, the
report of the Independent Accountants on the Financial Statements of the Company
contains an explanatory paragraph related to the Company's ability to continue
as a going concern. The Company believes that the net proceeds from the Offering
will be sufficient to permit the Company to continue as a going concern. See
Notes 1 and 8 of Notes to Financial Statements.

The Company expects to continue to incur operating losses until the
Company's products achieve commercial acceptance, which is expected to occur in
1998. This expectation is based on a number of factors, certain of which are
beyond the Company's control. Accordingly, there can be no assurance that such
expectation will be correct. Most of the revenues earned by the Company from its
inception through December 31, 1996 were generated by consulting services
provided by the Company, not by its primary business. The Company did not earn
any revenues during the six months ended June 30, 1997. 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.

RISKS OF DISTRIBUTION; RELIANCE ON THIRD-PARTY RESELLERS

The Company's distribution strategy is to establish relationships with
major resellers of telephony products. Because these distributors generally have
large, captive customer bases, the Company believes that they will be able to
resell VidPhone(R) systems in large volume, without competing with one another.
However, to date the Company has arrangements with only two resellers. In July
1997, the Company entered into a one-year agreement with Sprint pursuant to
which Sprint has agreed to use commercially reasonable efforts to resell the
Company's video networking products worldwide. The Company also has an
arrangement with Bell

6
<PAGE> 8

Atlantic pursuant to which Bell Atlantic will offer the Company's products to
customers under certain telecommunications contracts Bell Atlantic has with the
DOD and related contracting agencies. The Company has received a limited number
of orders for VidPhone(R) systems under such reseller arrangements, but to date
it has not delivered any systems. The process of developing and maintaining
reseller relationships is complex, and there can be no assurance that the
Company will be able to maintain existing relationships or establish
relationships with other major resellers of telephony products. Further, there
can be no assurance that the resellers of telephony products with which the
Company contracts will be successful in marketing and reselling the Company's
products, maintaining their customer bases, or competing with other resellers.

A significant portion of the Company's future revenues is expected to be
attributable to sales to third-party resellers, particularly telephone product
and service providers. The Company's future performance will depend to a
significant degree upon the extent to which these resellers incorporate the
Company's products and services as part of their product and service offerings
to end users. The failure of these resellers to succeed in the marketplace, or
the failure of the Company's products to perform favorably in and become an
accepted component of the product and service offerings of resellers, would have
a material adverse effect on the Company's business, financial condition and
operating results. See "Business -- Sales and Marketing."

DEPENDENCE ON EMERGING MARKET FOR VIDEO APPLICATIONS TECHNOLOGY

The market for video communications 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, the video applications market has thus far not developed
as rapidly as predicted by some and it is not known whether this market will
continue to develop 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 government organizations. However, to date the Company has not derived any
revenues from sales of the VidPhone(R) system, and there can be no assurance the
Company will be successful in its efforts to market and sell its products and
services. Further, corporations or government agencies that have already
invested substantial resources in 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, in particular the VidPhone(R) system, 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."

DEVELOPMENT OF NEW PRODUCTS; INDUSTRY ACCEPTANCE

The Company's ability to design, develop, test, introduce and support new
products 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 depend 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 products or services uncompetitive 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 develop-

7
<PAGE> 9

ments, 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 has
completed pre-production development of the basic VidPhone(R)system and
continues to develop system enhancements. Pre-production VidPhone(R) systems
also are being used as demonstration units to support sales and marketing
initiatives. There can be no assurance that such development initiatives will be
successful. The failure of the Company to achieve success in such initiatives
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 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 continue
to seek patents and copyrights on certain of its inventions and proprietary
processes. The Company relies in part on trademark, copyright and trade secret
law to protect its intellectual property in the U.S. and abroad. The degree of
protection provided by patents is uncertain and involves complex legal and
factual questions for which important legal principles are largely unresolved.

Part of the Company's proprietary VidPhone(R) system technology is covered
by a U.S. patent (No. 5,621,455) issued in April 1997, which relates to a method
and apparatus for transmitting video information over telephone wires.
Corresponding foreign patent applications on the VidPhone(R) system technology
are pending in China, Canada, Mexico, Europe, Japan and Taiwan. Additionally,
the Company has filed a "continuation" U.S. patent application covering
variations of the basic VidPhone(R) system technology. This continuation
application is still pending and the Company does not expect to receive any
notice from the U.S. Patent and Trademark Office concerning this application
until early to mid-1998. 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. The
Company is in the process of preparing additional U.S. patent applications
directed to various improvements in the field of video conferencing. The Company
expects to file approximately four to six new U.S. patent applications before
the end of 1997 covering these improvements. The Company also has registered its
trademarks Objective Communications(R), VidPhone(R) and TeleDraw(R) and has
applications pending to register additional trademarks.

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. 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 efforts 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 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. 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's business,
financial condition and operating results. See "Business -- Intellectual
Property" and "Business -- Competition."

8
<PAGE> 10

LIMITED MARKETING EXPERIENCE; NEED TO ESTABLISH PARTNERING RELATIONSHIPS; NEED
FOR ADDITIONAL PERSONNEL

As of August 31, 1997, the Company had only six full-time sales and
marketing employees. It will have to further develop its sales and marketing
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 resellers, would have a material adverse
effect on the Company's business, financial condition and operating results.
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 the third parties'
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 -- Sales and Marketing."

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

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

Execution of the Company's business plan and strategy could place
significant strain on its limited 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's business, financial condition and operating results. See
"Business -- Objective Communications Strategy."

The Company has formulated its business plan and strategy based upon
certain assumptions of management regarding the size of the video communications
market and the estimated price of and level of acceptance of the Company's
products and services. There can be no assurance that these assumptions 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 U.S. federal and state regulatory authorities; and reduced margins
caused by competitive pressures and other factors. See "Business -- Objective
Communications 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. A significant portion of the Company's revenues in any quarter may be
derived from a limited number of large, non-recurring product sales, which may
cause significant variations in quarterly revenues. The Company also believes
that the purchase of its products is relatively discretionary and declines in
general economic conditions could precipitate significant reductions in
corporate spending for information technology, which

9
<PAGE> 11

could result in delays or cancellations of orders for the Company's products.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

GOVERNMENT REGULATION

The Enterprise Video Switch ("EVSTM") component of the Company's
VidPhone(R) system and the VidModemTM 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 VidModemTM
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
VidModemTM formally tested by a qualified, independent testing facility, and it
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
EVSTM 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, 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.
Additionally, there can be no assurance that future governmental regulations
will 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 manufacturing 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's
business, financial condition and operating results. See
"Business -- Manufacturing."

COMPETITION

The market for the Company's products and services is new, highly
competitive and rapidly evolving. The principal competitors in the video
conferencing market have been PictureTel Corporation ("PictureTel"), VTEL Corp.
("VTEL," formerly, Video Telecom Corp.) and Compression Labs, Inc. ("CLI"), a
wholly-owned subsidiary of VTEL. According to a June 1995 article in U.S. News &
World Report, PictureTel and CLI accounted for approximately 71% of market share
in the video conferencing systems market. Competitors in the video broadcast
market include cable television and direct satellite broadcast system providers.
The Company is not aware of any current competitors in the video retrieval
market. The Company expects to compete with the companies listed above and
expects substantial additional competition from new market entrants, such as
Intel Corporation. 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 the Company. 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."

10
<PAGE> 12

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. There can be no assurance that the Company will have the resources
required to respond effectively to market or technological changes. In addition,
there can be no assurance 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, financial condition and operating results
would be materially and adversely affected. See "Business -- Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's performance is substantially dependent upon the continued
efforts and abilities of its key managerial and technical personnel,
particularly Mr. 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 a key person life insurance policy on Mr.
Rogers. However, the Company does not 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 need to recruit, 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 highly qualified 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. The Company recently relocated to
Portsmouth, New Hampshire, north of Boston, Massachusetts, an area with a high
concentration of technology companies and technology professionals, from which
the Company expects to be able to recruit additional employees. However, there
can be no assurance that the Company will be able to hire or retain qualified
personnel. See "Management -- Employment and Confidentiality Agreements."

CONTROL BY EXISTING STOCKHOLDERS

Following completion of the Offering, Mr. Steven A. Rogers will
beneficially own, and the directors and executive officers of the Company will
beneficially own in the aggregate, 14.2% and 29.5%, respectively, of the
outstanding shares of Common Stock (approximately 13.6% and 28.3%, respectively,
if the Underwriters' 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

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

The Company expects to use a significant portion of the net proceeds of the
Offering for working capital and general corporate purposes, and for such
specific purposes as management of the Company may determine. Management will
have broad discretion with respect to the expenditure of the net proceeds of the
Offering. In addition, the uses of the net proceeds of the Offering set forth
under "Use of Proceeds" may be reapportioned among such purposes 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

11
<PAGE> 13

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 resources and revenues from continuing operations, will be
adequate to satisfy its operating and capital requirements for at least the next
12 months. 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. These changes could create the need to raise additional moneys
earlier than expected in order to fund its operations or expansion, to develop
new or enhanced products, to respond to competitive pressures or to acquire
complementary businesses. 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 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 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's business, financial condition and operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Notes 1 and 8 of Notes to
Financial Statements.

APPLICATION FOR QUOTATION OF COMMON STOCK ON THE NASDAQ NATIONAL MARKET;
POSSIBILITY OF NASDAQ DELISTING

The Company's Common Stock currently is quoted on the Nasdaq SmallCap
Market. The Company has applied for listing of the Common Stock on the Nasdaq
National Market upon completion of the Offering. There can be no assurance that
the Company's application will be approved or, if approved, that such listing
will be maintained. The continued quotation of the Company's Common Stock on the
Nasdaq National Market will be conditioned upon the Company meeting certain
asset, capitalization or income tests and stock price tests established by The
Nasdaq Stock Market, Inc. ("Nasdaq"). To maintain eligibility for continued
quotation on the Nasdaq National Market, the Company would be required to
maintain either (i) net tangible assets in excess of $4.0 million and a bid
price of at least $1.00 per share or (ii) a market capitalization of at least
$50.0 million or total assets and total revenues of $50.0 million each, and a
bid price of at least $5.00 per share. The Company believes that it will
continue to meet these tests set forth by Nasdaq. If the Company fails any of
the applicable 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 Common Stock and materially
and 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. See "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Future sales of Common Stock following the Offering could adversely affect
the market price of the Common Stock. Upon the completion of the Offering, the
Company will have 6,636,844 shares of Common Stock outstanding (6,936,844 shares
if the Underwriters' over-allotment option is exercised in full). Of such
shares, 4,592,500 shares of Common Stock (4,892,500 shares if the Underwriters'
over-allotment option is exercised in full), consisting of (i) the 2,000,000
shares sold in the Offering (2,300,000 if the Underwriters' over-allotment
option is exercised in full), (ii) the 2,070,000 shares sold in the Initial
Offering, (iii) 22,500 shares previously resold in reliance on Rule 144 ("Rule
144") under the Securities Act of 1933, as amended (the "Securities Act"), and
(iv) 500,000 shares of Common Stock registered under the Securities Act on a
shelf registration in the Initial Offering, will be transferable without
restriction by persons other than "affiliates" of the Company, subject to
certain lock-up arrangements with Montgomery Securities.

12
<PAGE> 14

The remaining 2,044,344 shares of Common Stock are "restricted securities" under
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. The holders of 2,105,718 shares of Common
Stock also have certain registration rights. See "Shares Eligible for Future
Sale -- Registration Rights."

Of the shares of Common Stock outstanding upon completion of the Offering,
2,544,344 shares of Common Stock available for sale in the public market are
limited by restrictions under lock-up agreements entered into in connection with
the Initial Offering and assumed by Montgomery Securities. Under these
agreements, the holders of shares of Common Stock, options to purchase Common
Stock and warrants to purchase Common Stock at the time of the Initial Offering
agreed not to sell or otherwise dispose of any of their shares of Common Stock
for certain specified periods after April 8, 1997, except in certain limited
circumstances, without the prior written consent of Montgomery Securities. In
addition, the executive officers have executed lock-up agreements in connection
with the Offering. Sales of substantial amounts of the Common Stock in the
public market, whether by purchasers in the Offering or other stockholders of
the Company, or the perception that such sales could occur, may adversely affect
the market price of the Common Stock. See "Principal Stockholders," "Description
of Securities," "Shares Eligible for Future Sale" and "Underwriting."

EFFECT OF OPTIONS AND WARRANTS ON STOCK PRICE

The Company has reserved (i) 338,000 shares of Common Stock for issuance to
key employees, officers and consultants upon the exercise of options granted
under the 1994 Plan, (ii) 450,000 shares of Common Stock for issuance to
directors, executive officers and key employees upon the exercise of options
granted or to be granted under the 1996 Plan, and (iii) 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 (i) 350,000 shares of Common Stock
for issuance upon exercise of the Bridge Warrants, (ii) 100,000 shares of Common
Stock for issuance upon exercise of the warrants issued in connection with the
private placement of the Series A Preferred Stock (the "Series A Warrants"),
(iii) 180,000 shares of Common Stock for issuance upon exercise of the Barington
Option, and (iv) 393,584 shares of Common Stock for issuance upon exercise of
other outstanding warrants. The Company has registered under the Securities Act
on a shelf registration (i) the 350,000 shares of Common Stock issuable upon
exercise of the Bridge Warrants, (ii) the 100,000 shares of Common Stock
issuable upon exercise of the Series A Warrants and (iii)the 180,000 shares of
Common Stock issuable upon exercise of the Barington Option. The Bridge
Warrants, the Series A Warrants, the other outstanding warrants, the Barington
Option, outstanding options issued under the 1994 Plan, options that have been
or may be issued 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 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 PRICE

The market price of the shares of the Company's Common Stock has been and
may in the future be highly volatile. Factors such as operating results,
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, 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."

LIMITATION ON UTILIZATION OF INCOME TAX LOSS CARRYFORWARDS

Based on the equity transactions consummated by the Company during 1996 and
early 1997, the Company may have undergone an "ownership change" within the
meaning of Section 382 of the Internal

13
<PAGE> 15

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. The
Company has a full valuation allowance against its net deferred tax asset. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

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 (the "GCL"), 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."

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 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 or
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. The Company also
has obtained directors' and officers' liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act. See "Description of Securities -- Directors' Limitation of
Liability and Indemnification."

14
<PAGE> 16

USE OF PROCEEDS

The net proceeds from the sale of the shares of Common Stock offered
hereby, assuming a public offering price of $ per share and after
deducting the estimated underwriting discount and other expenses of the
Offering, are estimated to be approximately $ ($ if the
Underwriters' over-allotment option is exercised in full).

The Company intends to use the net proceeds of the Offering: (i) to
increase production of the VidPhone(R) system, in order to establish and
maintain a more comprehensive inventory to satisfy customers' orders; (ii) to
complete the initial development of its VidPhone(R) system, which includes the
VidModemTM and EVSTM, and continue software and hardware development through
engineering efforts; (iii) to further 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-user customer support; and (iv) for capital
expenditures, including purchasing capital equipment to support the product
development and sales and marketing described above, and expanding and improving
its facilities. The remaining net proceeds will be employed for working capital
and general corporate purposes.

The discussion above represents the Company's best estimate 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 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 amounts of the uses of
proceeds cannot be predicted.

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 U.S. government.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has traded on the Nasdaq SmallCap Market under
the symbol "OCOM" since April 3, 1997, the date on which the Initial Offering
was completed. The Company has applied for quotation of the Common Stock on the
Nasdaq National Market upon completion of the Offering. The following table sets
forth, for the periods indicated, the range of high and low bid quotations per
share of Common Stock, as reported on the Nasdaq SmallCap Market.

<TABLE>
<CAPTION>
PERIOD HIGH LOW
------------------------------------------------------------------ ------- -------
<S> <C> <C>
April 3, 1997 to June 30, 1997.................................... $14.250 $ 6.000
July 1, 1997 to date.............................................. $31.000 $11.125
</TABLE>

The prices shown above represent quotations among securities dealers, do
not include retail markups, markdowns or commissions, and may not represent
actual transactions.

On September 17, 1997, the last bid quotation per share of the Common Stock
as reported on the Nasdaq SmallCap Market was $29.250 per share. The number of
stockholders of record of the Company at August 31, 1997 was 59.

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.

15
<PAGE> 17

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
June 30, 1997; and (ii) as of June 30, 1997, on an as adjusted basis to reflect
the issuance and sale by the Company of the 2,000,000 shares of Common Stock
offered hereby at an assumed public offering price of $ per share and the
receipt of the net proceeds therefrom. 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. See "Use of Proceeds" and "Description of
Securities."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT SHARE DATA)

<CAPTION>
<S> <C> <C>
Obligation under capital lease........................................ $ 35 $ 35
------- -----------
Common stock, $.01 par value, 10,000,000 shares authorized; 4,631,844
shares issued and outstanding, actual; 6,631,844 shares issued and
outstanding, as adjusted(1)......................................... 46 66
Additional paid-in capital............................................ 15,039
Accumulated deficit................................................... (9,116) (9,116)
------- -----------
Total stockholders' equity....................................... $ 5,969 $
------- -----------
Total capitalization........................................ $ 6,004 $
======= =========
</TABLE>

- ---------------
(1) Excludes (i) 350,000 shares of Common Stock issuable upon exercise of the
Bridge Warrants issued by the Company to purchasers of the Bridge Notes in
connection with the Bridge Financing; (ii) 493,584 shares issuable upon
exercise of other outstanding warrants to purchase shares of Common Stock;
(iii) 180,000 shares of Common Stock issuable upon exercise of the Barington
Option; (iv) 338,000 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 options granted to
certain directors of the Company; and (v) 450,000 shares reserved for
issuance upon exercise of outstanding options granted or to be granted to
certain directors, executive officers and key employees of the Company under
the 1996 Plan. See "Management -- Directors' Non-Qualified Options,"
"-- 1994 Stock Option Plan," "-- 1996 Stock Incentive Plan," "Certain
Transactions" and "Description of Securities."

16
<PAGE> 18

DILUTION

The net tangible book value of the Company as of June 30, 1997 was
$5,873,530, or $1.27 per share of Common Stock. Net tangible book value per
share is equal to the Company's total tangible assets less total liabilities
divided by the total number of shares of Common Stock outstanding. After giving
effect to the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby, and after deducting the estimated underwriting discount and
other expenses of the Offering, the net tangible book value of the Company as of
June 30, 1997 would have been $ , or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares in the Offering. The following table illustrates
this per share dilution.

<TABLE>
<S> <C> <C>
Public offering price per share....................................... $
----
Net tangible book value per share as of June 30, 1997............... $1.27
Increase in net tangible book value per share attributable to the
Offering.........................................................
-----
Net tangible book value per share after the Offering..................
----
Dilution of net tangible book value per share to new investors........ $
====
</TABLE>

The following table summarizes, as of June 30, 1997, the number of shares
of Common Stock purchased from the Company, the total consideration paid, and
the average price paid per share by existing stockholders and by new investors.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 4,631,844 69.8% $16,180,381 $3.49
New investors............................. 2,000,000 30.2
--------- ----- ----------- -----
Total................................ 6,631,844 100.0% $ 100.0% $
========= ===== =========== =====
</TABLE>

The foregoing table excludes (i) 350,000 shares of Common Stock issuable
upon exercise of the Bridge Warrants issued by the Company to purchasers of the
Bridge Notes in connection with the Bridge Financing; (ii) 493,584 shares
issuable upon exercise of other outstanding warrants to purchase shares of
Common Stock; (iii) 180,000 shares of Common Stock issuable upon exercise of the
Barington Option; (iv) 338,000 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 non-qualified options granted to certain
directors of the Company; and (v) 450,000 shares reserved for issuance upon
exercise of outstanding options granted or to be granted to certain directors,
executive officers and key employees of the Company under the 1996 Plan. To the
extent outstanding options and warrants are exercised, there will be further
dilution to new investors. See "Management -- Directors' Non-Qualified Options,"
"-- 1994 Stock Option Plan," "-- 1996 Stock Incentive Plan," "Certain
Transactions" and "Description of Securities."

17
<PAGE> 19

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)

The following selected financial data should be read in conjunction with
the Company's Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The selected financial data as of
December 31, 1995 and 1996, and for each of the three years in the period ended
December 31, 1996 have been derived from the Company's Financial Statements
included in this Prospectus which have been audited by Coopers & Lybrand L.L.P.,
independent accountants, whose report thereon is also included in this
Prospectus. The selected financial data for the six months ended June 30, 1996
and 1997 have been derived from the unaudited Financial Statements of the
Company, which in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments) necessary to represent fairly the
information set forth therein. The results for the six months ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
full year or for any future period.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- --------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)

<CAPTION>
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues..................... $ 190 $ 225 $ 81 $ 20 $ --
Operating expenses:
Cost of merchandise........... -- 125 44 -- --
Cost of services.............. 50 13 17 10 --
Research and development...... 165 1,232 1,107 565 1,330
Selling, general and
administrative.............. 381 814 1,042 520 1,476
Depreciation and
amortization................ 4 60 159 52 323
Other......................... -- 14 2 -- --
---------- ---------- ---------- ----------- -----------
Total operating
expenses............... $ 600 $ 2,258 $ 2,371 $ 1,147 $ 3,129
---------- ---------- ---------- ----------- -----------
Loss from operations............... (410) (2,033) (2,290) (1,127) (3,129)
Interest (income) expense, net..... (3) 13 404 4 429
---------- ---------- ---------- ----------- -----------
Net loss........................... $ (407) $ (2,046) $ (2,694) $ (1,131) $ (3,558)
========= ========= ========= ========= =========
Net loss per common share.......... $ (0.16) $ (0.59) $ (0.75) $ (0.31) $ (1.11)
========= ========= ========= ========= =========
Weighted average common shares and
common share equivalents
outstanding...................... 2,514,116 3,461,659 3,607,634 3,607,634 3,196,822
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------ AS OF
1995 1996 JUNE 30, 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 87 $ 623 $ 5,019
Working capital (deficit)..................................... (1,035) (1,330) 4,963
Total assets.................................................. 334 1,682 6,265
Total liabilities............................................. 1,230 2,608 296
Total stockholders' equity (deficit).......................... (895) (1,775) 5,969
</TABLE>

18
<PAGE> 20

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

Management's Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this Prospectus contain forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed in "Risk Factors."

OVERVIEW

During the year following the consummation of the Offering, the Company
intends to focus on product development and sales and marketing. Specifically,
the Company intends to: (i) complete engineering modifications required for
commercially available VidPhone(R)systems; (ii) hire additional personnel; (iii)
negotiate reseller relationships with providers of telephony equipment and
services; (iv) continue research and development to enhance current products and
develop complementary products; (v) establish direct sales relationships with
reference accounts; and (vi) secure further intellectual property protection,
including additional patent, trademark and copyright protections. However, there
can be no assurance that the Company will achieve these objectives. 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.

The Company has completed pre-production development of the VidPhone(R)
system. The Company currently expects to begin commercial production and
installation of the initial VidPhone(R) systems in the fourth quarter of 1997.
These initial systems will support up to 50 simultaneous conferees, and are
designed by the Company to be highly reliable and easily maintained. There can
be no assurance that the Company will begin production or 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."

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 has 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
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 -- Development Stage Enterprise; Limited Operating History," "-- Risks
of Distribution; Reliance on Third-Party Resellers," "-- Dependence on Emerging
Market for Video Applications Technology," "-- Development of New Products
Industry Acceptance," and "Business -- Objective Communications Strategy."

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 other selling, general and administrative expenses.

19
<PAGE> 21

Through June 30, 1997, the Company had incurred substantial losses from
operations, and had an accumulated deficit of approximately $9.1 million. The
Company expects to continue to incur operating losses until the Company's
products achieve commercial acceptance, which is expected to occur in 1998. This
expectation is based on a number of factors, certain of which are beyond the
Company's control. Accordingly, there can be no assurance that such expectation
will be correct.

As a result of recurring losses and the accumulated deficit, the report of
the Independent Accountants on the Financial Statements of the Company contains
an explanatory paragraph related to the Company's ability to continue as a going
concern. The Company believes that the net proceeds from the Offering, together
with its existing resources and revenues from continuing operations, will be
sufficient to permit the Company to continue as a going concern. The Company's
results of operations may vary significantly from quarter to quarter during this
quarter of development. See "Risk Factors -- Development Stage Enterprise;
Limited Operating History," "-- Losses Since Inception; Accumulated Deficit;
Expectation of Continuing Losses" and Notes 1 and 8 of Notes to Financial
Statements.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

Revenues. The Company had no revenues in the six months ended June 30,
1997 compared to revenues of approximately $20,000 in the same period in 1996.
The revenues recorded in 1996 were generated primarily from consulting
arrangements, not from the Company's primary business. In 1997, the Company
devoted all of its resources to the development, production, and sale of the
VidPhone(R) system and related software products.

Research and Development. Research and development expenses increased by
approximately $766,000, or 135.5%, for the six months ended June 30, 1997, to
approximately $1.3 million as compared to $565,000 for the period ended June 30,
1996. The increase was due primarily to the hiring of additional technical staff
and increased use of subcontractors in the development of components for the
Company's VidPhone(R) system. Research and development expenses include the
costs associated with all personnel, materials and contract personnel engaged in
research and development for the Company, as well as an allocated portion of
overhead expenses, such as rent, telephone and office supplies.

The Company intends to accelerate and expand research and development by
hiring additional technical staff and purchasing additional research and
development related material. As the Company continues testing and demonstrating
its product line, it expects research and development expenses to increase.

The Company expects to continue to incur substantial research and
development expenses as it further enhances existing products and develops new
products and services. The Company is developing a number of new inventions and
associated products to complement and expand its 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 with Rapid Growth and with the Company's Business
Plan and Strategy," "Use of Proceeds" and "Business -- Objective Communications
Strategy."

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately $956,000, or 184.0%, in the
six months ended June 30, 1997 to approximately $1.5 million from $520,000 in
the six months ended June 30, 1996. Included in selling, general and
administrative expenses for the six months ended June 30, 1997 is approximately
$340,000 in non-recurring compensation expense associated with a warrant
exchange conducted in January 1997. The remaining increase is mainly
attributable to increased sales and marketing expenses as the Company began to
market its VidPhone(R) products and to increased administrative expenses
associated with becoming a public company in the second quarter of 1997.

Upon completion of the Offering, the Company intends to hire additional
personnel to expand its engineering staff, sales and marketing personnel,
including customer support and, to a lesser extent, administrative staff
personnel to support accounting and personnel management. See "Risk Factors --

20
<PAGE> 22

Limited Marketing Experience; Need to Establish Partnering Relationships; Need
for Additional Personnel" and "Business -- Objective Communications Strategy"
and "-- Sales and Marketing."

Depreciation and Amortization. Depreciation and amortization increased
approximately $271,000 to $323,000 in the six months ended June 30, 1997 from
$52,000 in the six months ended June 30, 1996. During such period, the Company
charged to amortization expense $209,000 of capitalized debt issuance costs upon
the repayment of the debt from the proceeds of the Initial Offering. To a lesser
extent, depreciation on increased levels of fixed assets owned by the Company
also contributed to the increase.

Interest Expense, Net. Interest expense, net, increased by approximately
$424,000 to approximately $428,000 in the six months ended June 30, 1997 from
approximately $4,000 in the six months ended June 30, 1996. Net interest expense
for the period consisted of approximately $455,000 of interest expense offset by
nearly $27,000 in interest income. Interest expense included a write-off of
approximately $385,000 of unamortized debt discount representing the fair value
of warrants issued to holders of Bridge Notes in connection with the Bridge
Financing. Offsetting this expense was interest income earned during the period
ended June 30, 1997 on the invested proceeds of the Initial Offering.

Net Loss. As a result of the foregoing factors, the net loss increased by
approximately $2.5 million, or 214.6%, from approximately $1.1 million to $3.6
million for the six months ended June 30, 1997 as compared to the six months
ended June 30, 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues. Revenues for 1996 decreased by approximately $143,000, or 63.8%,
to approximately $81,000, from approximately $225,000 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
Integrated Services Digital Network ("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 approximately $125,000, or 10.2%, to $1.1 million, from $1.2
million for 1995. 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 selling, general and
administrative expense rather than a research and development expense.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1996 increased by approximately $228,000, or 28.0%,
to approximately $1.0 million, from $814,000 for 1995. Selling, general and
administrative expenses consist of sales and marketing 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 selling, 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.

Depreciation and Amortization. Depreciation and amortization for 1996
increased by approximately $98,000, or 163.2%, to approximately $159,000, from
approximately $60,000 for 1995. This increase was

21
<PAGE> 23

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
approximately $12,000, or 87.8% to approximately $1,700, from $14,000 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, Net. Interest expense, net, for 1996 increased by
approximately $391,000 to approximately $404,000 from approximately $13,000 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, approximately $322,000 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 approximately $648,000, or 31.7%, to approximately $2.7
million from approximately $2.0 million for 1995.

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

Revenues. Revenues for 1995 increased by approximately $35,000, or 18.5%,
to approximately $225,000, from approximately $190,000 for 1994. Of the
Company's revenues in 1995, 57.8% were derived from sales of VidPhone(R) Remote
Terminals 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 approximately $1.1 million, or 645.5%, to
approximately $1.2 million, from approximately $165,000 for 1994. This
significant increase was primarily due to the retention of additional technical
personnel and research and development-related materials as the Company shifted
its focus to product development from organizational activities.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased significantly by approximately $433,000, or
113.6%, for 1995 to approximately $814,000, from $381,000 for 1994. The increase
in selling, 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 and Amortization. Depreciation and amortization for 1995
increased by approximately $57,000, to approximately $60,000, from approximately
$4,000 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
approximately $14,000, to approximately $14,000, from approximately $250 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
approximately $3,400 in 1994 related to interest earned on a note receivable
from an investor. The Company recorded interest expense of approximately $13,000
in 1995.

22
<PAGE> 24

Net Loss. As a result of the foregoing factors, the Company's net loss for
1995 increased by approximately $1.6 million, or 402.9%, to approximately $2.0
million from $407,000 for 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations to date primarily through the
public and private sales of equity and debt securities. From inception through
June 30, 1997, the Company had not generated any significant cash from
operations. The primary uses of cash have been to fund research and development
and for selling, general and administrative expenses. From inception through
June 30, 1997, the Company incurred cumulative losses of approximately $9.1
million and it has not experienced any quarter of profitable operations. The
Company expects to continue to incur operating losses until the Company's
products achieve commercial acceptance, which is expected to occur in 1998. This
expectation is based on a number of factors, certain of which are beyond the
Company's control. Accordingly, there can be no assurance that such expectation
will be correct.

At June 30, 1997, the Company had cash of approximately $5.0 million and a
working capital surplus of approximately $5.0 million. In April 1997, the
Company received net proceeds of approximately $9.5 million from the issuance of
2,070,000 shares of Common Stock at a price of $5.50 per share in the Initial
Offering, including the exercise in full of the over-allotment option granted to
the underwriter of the Initial Offering (net of underwriting discounts and
commissions and other expenses of the Initial Offering). Approximately $2.1
million of the gross proceeds from the Initial Offering were used to retire
outstanding indebtedness under Bridge Notes and Bridge Warrants issued in the
Bridge Financing completed during October and November 1996 and approximately
$600,000 were used to repay related party loans and other expenses. The
remainder of the net proceeds from the Initial Offering have been or will be
used to fund the Company's sales and marketing and product development efforts,
for working capital and for general corporate purposes. See "Certain
Transactions" and "Description of Securities."

In October and November 1996, the Company issued $2.0 million aggregate
principal amount of Bridge Notes. Of the approximately $1.7 million 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 sales and marketing.
The Bridge Notes were repaid upon the closing of the Initial Offering. In
December 1996 and January 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 $2.0 million. Of the approximately $1.8 million 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 selling, general and administrative expenses, an
estimated $204,000 to purchase capital assets used in product development and an
estimated $157,000 for sales and marketing. The Company intends to use the
remaining $438,000 in estimated net proceeds for continued product development,
selling, general and administrative expenses, capital asset purchases and for
sales and marketing, in approximately the same proportion as set forth above.
The 500,000 outstanding shares of Series A Preferred Stock automatically
converted to 500,000 shares of Common Stock upon completion of the Initial
Offering. See Notes 5 and 6 of Notes to Financial Statements.

Net cash used in operating activities for the six months ended June 30,
1997 totaled approximately $3.2 million and for the years ended 1996, 1995 and
1994 totaled approximately $2.9 million, $1.4 million and $204,000,
respectively. Net cash provided by financing activities for the six months ended
June 30, 1997 totaled approximately $8.0 million and for the years ended
December 31, 1996, 1995 and 1994 totaled approximately $3.6 million, $1.4
million and $565,000, 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.

The Company intends to use approximately $2.0 million for capital
expenditures over the next 12 months. The Company currently anticipates that
such capital expenditures will include acquisition of (i) computer hardware and
software to support new engineering staff, (ii) test equipment to support
research and

23
<PAGE> 25

development, integration, and quality assurance testing, (iii) demonstration
units and trade show materials to support sales and marketing, and (iv)
furniture, fixtures and other personal property to support expanded staff in new
facilities. The Company is in the process of evaluating its capital requirements
and, as a result of such evaluation, its capital expenditures over the next 12
months may be significantly higher than anticipated.

As of December 31, 1996, the Company had available net operating loss
carryforwards of approximately $4.7 million to reduce future income tax
liabilities. These carryforwards expire from 1997 through 2011, and are subject
to review and possible adjustment by the appropriate taxing authorities.
Pursuant to the Code, the utilization of net operating loss carryforwards for
tax purposes may be subject to an annual limitation if a cumulative change of
ownership of more than 50% occurs over a three-year period. As a result of the
equity transactions consummated by the Company in 1996 and 1997, the Company may
have undergone an "ownership change" within the meaning of Section 382 of the
Code. Under Section 382 of the Code, upon undergoing an ownership change, the
use of the net operating loss carryforwards will be limited. The Company has a
full valuation allowance on this deferred tax asset, because the Company
believes that it is more likely than not that it will not be able to realize
this asset. See Note 4 of Notes to Financial Statements.

Based on the Company's operating plan, the Company believes that the net
proceeds of the Offering, together with its existing resources and revenues from
continuing operations, will be sufficient to satisfy its capital requirements
and finance its operations for at least the next 12 months. 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. Should the Offering
not be successfully completed, the Company will pursue other debt and equity
financing alternatives. The Company has no current arrangements with respect to,
or specific sources of, any such capital. 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. 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."

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.

24
<PAGE> 26

BUSINESS

INTRODUCTION

Objective Communications designs, develops and markets the first high
quality, cost-effective video network system that supports video broadcast,
retrieval of stored video and multi-party conferencing to and from a desktop
personal computer or conference room over the same wire used by the telephone.
The VidPhone(R) system provides full-motion video in support of video broadcast,
retrieval of stored video information, video conferencing, and concurrent data
and file sharing directly to and from the desktop or conference room. The
Company believes that the VidPhone(R) system offers greater functionality and
compatibility with existing infrastructure and higher quality than most video
conferencing systems on the market today. The Company also believes that it
offers the only video network system that supports the three major video
applications in a single cost-effective solution. The Company intends to become
the leading provider of video networks.

The Company's strategy is to form long-term relationships with major
business telephone product and service providers and to resell the VidPhone(R)
system through such providers. The Company anticipates that these providers will
be interested in establishing relationships with the Company because of the ease
with which the VidPhone(R) system can be marketed and resold to existing
customers as an enhancement to telephone systems. In July 1997, the Company
entered into a one-year agreement with Sprint pursuant to which Sprint has
agreed to resell the Company's video network products worldwide. In August 1997,
the Company entered into an arrangement with Bell Atlantic to market and resell
the VidPhone(R) system to the DOD and related agencies.

The Company is discussing joint marketing relationships and test marketing
arrangements for the VidPhone(R) system with leading private branch exchange
("PBX") manufacturers and other resellers. 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 interexchange carriers ("IXCs"), one of
the four largest regional bell operating companies ("RBOCs") and at one end-user
customer location. There can be no assurance that the Company 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 to Establish Partnering Relationships; Need for Additional
Personnel."

INDUSTRY BACKGROUND

A video network that fully supports video broadcast, video retrieval and
video conferencing applications addresses the communications requirements of the
business community. A video network can improve worker productivity by
facilitating the efficient exchange of information between geographically
dispersed parties while reducing travel expenses. In addition, it enables the
use of video material for training and research at the convenience of the user
rather than the presenter and permits businesses to access business broadcasts
such as CNN and CNBC at the desktop. To date, however, transmission constraints,
costs and other limitations have

25
<PAGE> 27

precluded the development and deployment of acceptable video broadcast,
retrieval and conferencing applications to the desktop.

Until recently, video communications systems were boardroom video
conferencing systems. These systems typically used a proprietary protocol rather
than an international standard and, as a result, could not interface with
systems using other protocols. In addition, these systems were prohibitively
expensive for most businesses. Even today, most boardroom video conferencing
systems require substantial capital expenditures for new infrastructure, and
require trained personnel for set up and maintenance during the video conference
call. Most boardroom systems also do not provide video quality adequate for
video broadcast and retrieval and are limited by distracting
latency -- transmission delays that result in unsynchronized audio and video.

Over the past decade, video conferencing systems have begun to evolve from
high cost, low quality, stand-alone boardroom systems to desktop systems.
However, desktop systems have not been widely adopted. The Company believes that
this is primarily because currently available systems produce inadequate video
quality for virtually all business purposes. Nevertheless, a January 1996
special report in Video Technology News estimated that desktop sales comprised
approximately 8% of the video communications market in 1995. According to a 1996
article in PC Week, the desktop segment of the video conferencing market is
expected to grow from 300,000 units in 1996 to 6.2 million units by the year
2000.

Most desktop video conferencing systems use either dedicated telephone
lines or the LAN to transmit video data. Some desktop video conferencing systems
use dedicated ISDN lines to achieve acceptable video quality for business
purposes. However, to achieve this quality, three dedicated lines with six
associated telephone numbers must be provided to each desktop. The installation
costs of these additional lines and line use charges render this approach
impractical on any significant scale. In addition, these systems require the
installation of either expensive and complex hardware coder-decoders ("CODECs")
in each PC or software CODECs that render the PC unavailable for other
applications during video conferences.

Some video conferencing systems attempt to use the LAN rather than
dedicated telephone lines. LAN-based systems also require the installation of
hardware or software CODECs. LANs were designed to be shared by individuals
using the transmission medium for short periods of time and do not have the
bandwidth to accommodate the volume of data inherent in full-motion video
applications. Consequently, even a single video conference would significantly
diminish the capacity of most LANs to support other users. IT managers resist
LAN-based video applications because of the additional infrastructure and
associated maintenance required to support them. Although high speed Ethernet
and gigabit routing switches may alleviate some of the bandwidth problems
resulting from the transmission of video on the LAN, the Company believes that
these new technologies do not go far enough to address the latency problems
plaguing such systems. The Company believes that in the future synchronous fiber
optic networks ("SONET") and Asynchronous Transfer Mode ("ATM") switching will
dominate in the Wide Area Network ("WAN"). However, the Company does not believe
that ATM will reach the desktop due to the high cost and other limiting factors.

There is growing demand for business video applications at the desktop.
However, business users require a cost-effective video network capable of
providing high quality, non-latency-impaired video and CD-quality stereo audio
before they will adopt desktop video applications on a significant scale. The
Company believes that a video network must leverage an organization's existing
infrastructure, without sacrificing the functionality of the desktop computers,
in order to be an acceptable video network solution.

THE OBJECTIVE COMMUNICATIONS SOLUTION

Objective Communications offers a patented video network system, the
VidPhone(R) system, that supports high quality, cost-effective video broadcast,
retrieval and conferencing to and from the desktop or conference room over
existing telephone lines. The VidPhone(R) system offers the following features:

- The Video Network Solution. The Company believes that the VidPhone(R)
system is the first video network system that offers a single
comprehensive solution of sufficient quality to support the three major
video applications: video broadcast, retrieval of stored video
information, and multi-party

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conferencing. The VidPhone(R) system is fully functional today and is
designed to be fully compatible with emerging technologies, such as SONET
and ATM.

- High Quality; Low Latency. The VidPhone(R) system provides full-duplex
S-VHS quality full-motion video, CD-quality stereo audio, and high speed
data to and from a desktop or a conference room over most existing analog
and digital telephone systems. In contrast to existing video conferencing
systems, the VidPhone(R) system has imperceptible video and audio latency
within an enterprise. Voice and video are synchronized, and audio
conversations are unimpeded by interruptions.

- Uses Existing Telephony Infrastructure. The VidPhone(R) system uses the
same single twisted pair of copper wire to the desktop used by the
telephone. No additional wiring infrastructure is required to transmit
full-duplex video, audio and data.

- LAN Independent. The VidPhone(R) system operates independently of the
LAN. Because no video, audio or data is transmitted on the LAN, no
additional LAN management or maintenance is required.

- PC/Platform Independent. The VidPhone(R) system requires minimal
processing by the desktop computer. The computer's CPU or bus remains
available to run other applications simultaneously. In addition, the
VidPhone(R) system is independent of the desktop computer operating
system. Windows, MacOS and Unix operating systems will be supported on
platforms such as PCs, Macintoshes and work stations.

- Cost-Effective. The price per seat for a standard VidPhone(R) system
configuration is competitive with low-end desktop video conferencing-only
systems, while providing higher quality and greater functionality.

OBJECTIVE COMMUNICATIONS STRATEGY

The Company's objective is to become the leading provider of video
networks. The key elements of the Company's strategy include:

Leverage Position as the First Provider of an Integrated Video
Network. The Company intends to leverage its position as the first provider of
integrated video networks. The Company believes that existing video conferencing
systems fail to meet the needs of the business community, and that the
VidPhone(R) system will meet the requirements for a fully functional video
network.

Seek Brand-Name Recognition of the VidPhone(R) System. The Company intends
to actively pursue multi-faceted programs to promote the VidPhone(R) system as
the brand-name video network. Initiatives include press releases, presentations
to industry analysts, technology announcements, formal product launches and
participation in trade shows.

Position the VidPhone(R) System as an Upgrade to Existing Telephone
Systems. The Company intends to market the VidPhone(R) system as an enhancement
to existing telephone systems, capitalizing on the drive by telephone product
and service companies to regain prominence in the corporate information systems
market. These companies can offer the VidPhone(R) system as a fully functional
video network that competes directly with computer and LAN video applications.
The Company believes that the VidPhone(R) system is more attractive to IT
administrators than LAN-based systems because it does not impact bandwidth,
compromise LAN integrity, or affect LAN reliability.

Distribute the VidPhone(R) System Through Large, Established Distribution
Channels. The Company intends to market the VidPhone(R) system using the same
telephone product and service providers that install and provide services for
the user's business telephone systems. Most telephone product and service
providers offer large sales, service and support organizations, have
relationships with virtually every business telephone user in the world and
enjoy a high level of customer loyalty. The Company currently has reseller
arrangements with Sprint and Bell Atlantic and intends to expand its reseller
arrangements with other telephone product and service providers. The Company is
discussing joint marketing relationships and test marketing arrangements for the
VidPhone(R) system with leading PBX manufacturers and other resellers.

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<PAGE> 29

Develop Additional Applications. The Company intends to continue
developing and promoting applications, such as video mail, and sources of
content, such as direct broadcast news channels, that use the VidPhone(R) system
video network capabilities to enhance productivity in the business environment.

PRODUCTS AND TECHNOLOGY

The Company's principal product is the VidPhone(R)system, which provides
full-motion video in support of video broadcast, retrieval of stored video
information and video conferencing within an enterprise over the same wire used
by the telephone. In addition, the VidPhone(R) system supports video
communications to any other location worldwide through the WAN.

DIAGRAM

The VidPhone(R) system is comprised of the following components:

- EVSTM. EVSTM is the video, audio and data switch that is the cornerstone
of the VidPhone(R) system. It enables users to access all VidPhone(R)
system functions within an enterprise and to communicate with remote
locations through a WAN. The EVS-50, the current version of the EVSTM, is
a scaleable, modular video network server that supports from five to 50
concurrent video network users and also permits users to receive
broadcast video and retrieve stored video images. The EVSTM normally
resides near the PBX or CENTREX point of entry and is rack mountable in
standard 19-inch racks.

- VidModemTM. The VidModemTM enables the connection between the desktop
and the EVSTM. The desktop and EVSTM versions of VidModemTM incorporate a
patented technology that permits distribution of full-motion video,
CD-quality stereo audio and high speed data over the single twisted pair
of copper wire that connects the desktop telephone to the PBX or CENTREX.
The connection is transparent to the telephone and PBX.

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<PAGE> 30

- VidPhone(R) Terminal. The VidPhone(R) Terminal is a user's desktop
computer configured with a microphone, speakers, camera and proprietary
software. VidPhone(R) Terminals connect to the EVSTM via VidModemsTM and
can receive broadcast video, retrieve stored video material and
participate in video conferences. VidPhone(R) Terminals may be located up
to 1,250 feet from the EVSTM when using Category 3 wiring, or up to 2,500
feet when using Category 5 wiring. The Company believes that most modern
business telephone systems use at least Category 3 wire. VidPhone(R)
Terminals do not need a terminal-resident ISDN or ATM CODECs because they
connect directly to the EVSTM. VidPhone(R) Terminals may be easily and
inexpensively modified for deployment as conference room systems. In this
configuration, all video network applications are available in a large
screen multi-party conference room setting.

- Software Applications. ObjectiveViewTM is the primary software platform
supporting users of the VidPhone(R) system. It provides an easy-to-use
graphical user interface for all video applications offered by the
VidPhone(R) system. Two other software programs are currently provided
with each VidPhone(R) system, TeleDraw(R) and TeleShareTM. TeleDraw(R) is
a full-featured program for collaborative drawing, annotation and editing
of drawings and pictures. TeleShareTM enables users to share applications
such as word processing and spreadsheet programs while simultaneously
participating in a video conference.

- VidPhone(R) Remote Terminal. VidPhone(R) Remote Terminals provide
VidPhone(R) system connectivity for users that are not directly connected
to the EVSTM via telephone wiring in the enterprise. Employees in branch
offices, individuals working out of their homes, and other parties
outside an enterprise are potential users of VidPhone(R) Remote
Terminals. VidPhone(R) Remote Terminal users have access to all video
network functions of the EVSTM to which they connect; however, the
quality of the video and audio presentation will be limited by the
bandwidth of the external communications connection. VidPhone(R) Remote
Terminal connectivity may be over a variety of communications circuits,
such as ISDN (1 Basic Rate Interface ("BRI"), 2BRI, 3BRI, etc.), T1 or
ATM.

SYSTEM FUNCTIONALITY

The Company believes that the VidPhone(R) system is the only video network
solution currently available that is capable of adequately supporting the three
basic business video requirements.

Broadcast Video. Sources of broadcast video material include, but are not
limited to, satellite broadcasts, cable television, and narrowcasts over an ATM
network. These sources are connected to the EVSTM through a specially designed
circuit card. The user selects the desired broadcast from a menu using standard
point-and-click techniques. The non-blocking architecture of the EVSTM permits
multiple users to access the same broadcast video source without degrading
system performance.

Retrieval of Stored Video Material. VidPhone(R) system users may access
stored video material residing on a variety of different types of devices, such
as a video server, a video jukebox or a video tape player. Users access stored
video using point-and-click techniques similar to those used to access broadcast
video. For example, the Company is developing video mail applications which
would allow users to create video mail with video, audio, text and file
attachments for later access by and delivery to VidPhone(R) system users.

Video Conferencing. The VidPhone(R) system supports two-way and
multi-party video conferencing. VidPhone(R) system users may be delineated in
telephone directories and contacted using standard point-and-click techniques at
any time without prior coordination.

SALES AND MARKETING

The Company's sales and marketing strategy is to leverage its position as
the first provider of integrated video networks that support the three major
video applications. The Company believes that existing video conferencing
systems fail to meet the requirements of the business community, and that the
VidPhone(R) system meets the need for a fully functional video network. The
Company seeks to obtain brand-name recognition of the VidPhone(R) system by
actively promoting the VidPhone(R) system as the brand-name video network.
Initiatives include press releases, presentations to industry analysts,
technology announcements,

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<PAGE> 31

formal product launches and participation in trade shows. In July and August
1997, the Company held industry and press conferences in San Francisco, New
York, Boston and the metropolitan Washington D.C. area to introduce its EVS-50
product. The Company maintains a Web page and has retained a public relations
firm to help ensure the effectiveness of the Company's marketing campaigns.

The Company intends to market the VidPhone(R) system as an upgrade to
existing telephone systems to capitalize on the drive by telephone product and
service companies to regain prominence in the corporate information systems
market. The attributes of the VidPhone(R)system enable telephone product and
service companies to offer a fully functional video network that competes
directly with computer and LAN vendors offering video applications. The Company
believes that the VidPhone(R) system is more attractive to IT administrators
than LAN-based systems, because it does not use LAN bandwidth, compromise LAN
integrity, or affect LAN reliability.

The Company is discussing joint marketing relationships and test marketing
arrangements for the VidPhone(R) system with leading PBX manufacturers and other
resellers. As part of these test marketing arrangements, as of August 31, 1997,
the Company had 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 IXCs, one of the four largest RBOCs and at one end-user
customer location. There can be no assurance that the Company 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 to Establish Partnering Relationships; Need for Additional
Personnel."

The Company intends to use a portion of the net proceeds from the Offering
to further develop the sales channels for its products, including the
establishment of customer and technical service teams, the creation of sales,
training and technology programs for resellers and marketing partners, and
establishment of end-user customer support. The Company intends to expand its
internal sales and marketing staff to help implement its strategy. The Company
believes that following such expansion, its internal sales and marketing staff
will be adequate to implement and support its sales and marketing strategy.
However, there can be no assurance that the Company will be successful in its
efforts to attract additional experienced sales and marketing personnel and
implement its strategy or that, if implemented, its sales and marketing strategy
will increase product sales, revenues or profitability.

PRODUCT RESEARCH AND DEVELOPMENT

The Company's research and development efforts focus on completing the
initial development and production of the VidPhone(R) system and further
refining and upgrading the Company's products. The Company has completed the
pre-production development of the basic VidPhone(R) system and continues to
develop system enhancements. Pre-production VidPhone(R) systems are being used
as demonstration units to support sales and marketing initiatives. The Company
is further improving its underlying VidModemTM technology, the EVS-50 and the
accompanying user interface and applications software.

The Company expended $1.2 million for research and development for the year
ended December 31, 1995, $1.1 million for the year ended December 31, 1996 and
$1.3 million for the six months ended June 30, 1997. Subsequent to the Offering,
the Company intends to further expand its engineering capabilities and product
development efforts.

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<PAGE> 32

The Company's engineering staff closely monitors technical developments and
works with the Company's marketing personnel to assess evolving business video
network requirements. The Company intends to monitor emerging technologies that
support new business applications and tailor its research and development
accordingly. In addition to the Company's internal research and development
resources, the Company engages contract engineering services when it is
efficient. Contractors have completed several component design initiatives in
support of product development. Research and development efforts target both
hardware and software enhancements to video network capabilities in support of
all business video applications.

INTELLECTUAL PROPERTY

The Company intends to continue to seek patents and copyrights on certain
of its inventions and proprietary processes. Parts of the Company's technology
are protected by a patent or pending patents. The Company has a patent (U.S.
Patent No. 5,621,455) issued in April 1997 covering a method and apparatus for
transmitting video information over telephone wires. Corresponding foreign
patent applications on the VidPhone(R) technology are pending in China, Canada,
Mexico, Europe, Japan and Taiwan. Additionally, the Company has filed a
"continuation" U.S. patent application covering variations of the basic
VidPhone(R) technology. This continuation application is still pending and the
Company does not expect to receive any notice from the U.S. Patent and Trademark
Office concerning this application until early to mid-1998. 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. The Company is in the process of preparing additional U.S.
patent applications directed to various improvements in the field of video
conferencing. The Company expects to file approximately four to six new U.S.
patent applications before the end of 1997 covering these improvements. The
success of the Company's products depends in part on its continuing ability to
obtain and protect patents, licenses and other intellectual property rights
covering its significant hardware and software products.

The Company has registered the trademarks Objective Communications(R),
VidPhone(R), and TeleDraw(R) and has several other trademarks pending, including
VidModemTM and EVSTM. 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.

COMPETITION

The market for the Company's products is new, highly competitive and
rapidly evolving. 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 principal competitors in the video conferencing market have been
PictureTel, VTEL and its wholly-owned subsidiary, CLI. According to a June 1995
article in U.S. News & World Report, PictureTel and CLI (prior to its
acquisition by VTEL) had approximately 71% market share in the video
conferencing systems market. Competitors in the video broadcast market include
cable television and direct satellite broadcast system providers. The Company is
not aware of any current competitors in the video retrieval market. The Company
expects to compete with these companies and expects substantial additional
competition from new market entrants, such as Intel Corporation. In addition, at
least one competing "desktop" system, manufactured by C-Phone Corporation, is
designed to operate on a LAN using shielded or co-axial cable. The Company
believes that approximately 22 companies, including Apple Computers and Creative
Labs, currently offer 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 the
Company. The Company believes that it will be able to compete effectively

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against larger companies with substantially greater resources on the basis of
its products' capabilities, distribution strategy, and price. There can be no
assurance, however, that 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,
including manufacture and assembly of the VidPhone(R) system. The products will
be shipped to the Company for final assembly check, systems integration and
testing. The Company plans to retain test and quality assurance function until
all subcontractors can be certified with respect to quality. The Company has
initiated discussions with several 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 U.S. The VidModemTM and EVSTM components of the VidPhone(R) system 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. Pursuant to these FCC regulations, the Company has determined that the
VidModemTM is an unintentional radiator that constitutes a Class A digital
device that may be operated without an individual license. Under 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 regulations. The Company has already had the
VidModemTM formally tested by a qualified, independent testing facility, and it
was found to comply. Under the FCC regulations, the Company has the option of
ensuring compliance with the applicable technical specifications at the location
of a business end-user after installation. In addition, pursuant to Part 68 of
the FCC regulations, the Company will need to obtain equipment registration from
the FCC for a certain number of the VidPhone(R) system components (including the
EVSTM) that are connected to the PSTN. 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 and does not believe that FCC 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 recently relocated its headquarters to a new facility in
Portsmouth, New Hampshire, and continues to lease a sales office in the
Washington D.C. metropolitan area. The Company's headquarters consist of
approximately 13,000 square feet of space for offices, engineering facilities,
research and development facilities, and product integration and demonstration
rooms. The term of the lease expires in September 2001. The Company's sales
office consists of approximately 5,000 square feet of office space and
demonstration facilities in Chantilly, Virginia leased on a monthly basis.

EMPLOYEES

As of August 31, 1997, the Company had 39 employees, of whom 36 were
full-time and three were part-time. The Company's employees included 16 hardware
and software engineers, five service technicians, four manufacturing supervisors
and six sales and marketing personnel. 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 any employment

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agreements with its employees, except for Mr. Steven A. Rogers. The Company's
employees are not unionized, and the Company believes that its relations with
its employees and consultants are good.

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.

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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)............. 66 Chairman of the Board
Mr. Anthony M. Agnello(3)................. 47 Director
Mr. Robert L. Barnett(3).................. 56 Director
Mr. Donald W. Barrett(4).................. 51 Director
Dr. Eugene R. Cacciamani(1)(3)............ 60 Director
Mr. Marc S. Cooper(1)(2).................. 35 Director
Lt. Gen. Lincoln D. Faurer, 69 Director
USAF(Ret.)(4)...........................
Mr. Richard T. Liebhaber(1)(4)............ 62 Director
Mr. Roy C. Nash(2)........................ 55 Director
Mr. John B. Torkelsen..................... 52 Director
Mr. Robert H. Emery....................... 53 Vice President, Administration and Finance
and Secretary
Mr. Frank M. Gore......................... 57 Vice President, Sales
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., an encrypted facsimile machine manufacturer 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 and currently is Chairman of the Executive Committee. Mr. Kendall is
one of the founders and current Chairman of the Board of Computer Data Systems,
Inc. ("CDSI"), a professional 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 Boards 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, a DSP (Digital Signal
Processing) equipment provider, 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
and currently is Chairman of the Compensation Committee. Mr. Barnett has served
as Senior Vice President of Motorola, Inc. since 1995, where he is responsible
for the development of two-way 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

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<PAGE> 36

Group and Vice-Chairman of Ameritech 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.

Marc S. Cooper has served as a director of the Company since April 1997.
Mr. Cooper has served as Executive Vice President, Director of Investment
Banking and Research at Barington Capital Group, L.P. since March 1992. He also
serves as a director of Thinking Tools, Inc., a software developer.

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 serves on the board of directors of QWEST
Communications, Inc., 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 and
is Chairman of its Audit Committee. Mr. Nash has been Vice President of Finance
for MCI Communications Corporation since December 1996. From January 1995 to
November 1996, Mr. Nash was Vice President of Audit for MCI Communications
Corporation. 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 a director serving on the Audit and Compensation Committees of
Voice Control Systems, Inc. and a director serving on the Compensation Committee
of Mikros Systems Corporation. He has a B.S. in engineering from Princeton
University and an M.B.A. from Harvard University.

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<PAGE> 37

Robert H. Emery has served as Vice President, Administration and Finance
and Secretary 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, an M.S. in information systems from the Naval
Postgraduate School and an M.S. in accounting from George Mason University. He
is a CPA and a certified financial planner.

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.

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., an encrypted facsimile machine manufacturer, 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 development of a new 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.

For a period of five years following completion of the Initial Offering on
April 8, 1997, the Company has agreed to use its best efforts (including the
solicitation of proxies, if necessary) to elect one designee of Barington to the
Board of Directors of the Company. Pursuant to such agreement, the Board of
Directors elected Marc Cooper as a director on April 10, 1997. Mr. Cooper was
the general partner of a partnership that was a financial investor with a
controlling interest in KRI, Inc., a restaurant franchisee, which filed a
petition under federal bankruptcy laws in 1996.

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<PAGE> 38

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 Mr. Steven A. 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 April 1997, the Company granted certain directors options to
purchase an aggregate of 64,600 shares of Common Stock under the 1996 Plan. 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
provided, and may in the future provide, investment banking services to the
Company. Mr. Cooper, a director of the Company, is Executive Vice President,
Director of Investment Banking and Research at Barington, which served as the
underwriter of the Initial Offering and has provided other investment banking
services to the Company in the past. Barington also is serving as an underwriter
of the Offering and may, in the future, provide other investment banking
services to the Company. See "-- Directors' Non-Qualified Options" and "-- 1996
Stock Incentive Plan" below and "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 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 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 110,000 shares of Common Stock are vested, and
Directors' Non-Qualified Options to purchase 10,000 shares of Common Stock were
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.

In April 1997, the Company granted to each director of the Company then
serving (other than Mr. Steven A. Rogers) options to purchase an aggregate of
64,600 shares of Common Stock ("Directors' 1996 Non-Qualified Options") under
the 1996 Plan. Such options were granted in lieu of directors' fees. The options
are exercisable for a period of five years from the date of grant, have an
exercise price of $6.625 per share and vest ratably on each of the first, second
and third anniversaries of the date of grant. Notwithstanding the foregoing
vesting schedule, if a director fails to attend more than 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, none of the Directors' 1996
Non-Qualified Options have vested. See "1996 Stock Incentive Plan."

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) outside, non-employee directors and the Chief
Executive Officer. The Executive Committee has the authority to exercise
substantially all of the powers and authority of the full Board of Directors in
the

37
<PAGE> 39

management and affairs of the Company between meetings of the full Board of
Directors, to the fullest extent permitted by the GCL. Messrs. Rogers, Kendall,
Liebhaber, Cooper and Cacciamani currently serve as members of the Executive
Committee.

Audit Committee. The Board of Directors has established an Audit Committee
comprised of three (3) outside, non-employee directors. The Audit Committee is
responsible for approving the Company's independent accountants, reviewing the
scope of their engagement, consulting with such independent accountants,
reviewing the results of any audit examination, reviewing the disposition of
recommendations made by the independent accountants during the past year, acting
as a liaison between the Board of Directors and the independent accountants and
reviewing various Company policies, including those related to accounting and
internal control matters. Messrs. Kendall, Cooper 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.

Preferred Stock 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 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. See "Description of
Securities -- Delaware Anti-takeover Law and Certain Charter Provisions."

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
ANNUAL AWARDS
COMPENSATION ------------------
------------ SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY UNDERLYING 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 1994 Plan. In April 1997, the Company
also granted to Mr. Rogers under the 1996 Plan options to acquire 50,000 shares
of Common Stock at an exercise price of $6.625 per share, the fair market value
on the

38
<PAGE> 40

date of grant. These options vest ratably over a three-year period on the
anniversary of the date of grant. See "-- 1996 Stock Incentive Plan" below.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF TOTAL
SECURITIES UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE
NAME OPTIONS GRANTED(1) EMPLOYEES IN 1996 ($/SH) EXPIRATION 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.

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" below.

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 338,000 shares of
Common Stock upon the exercise of options awarded under the 1994 Plan. The 1994
Plan authorizes the issuance of incentive stock options ("Incentive Options")
qualifying under Section 422 of the Code 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 338,000 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 85,000 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. As of August 31, 1997, options to purchase 326,600
shares of Common Stock had been granted under the 1996 Plan, including options
to acquire 64,600 shares of Common Stock granted to directors of the Company.

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. 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 thereof, 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-

39
<PAGE> 41

fifth of each option granted to a participant vests on each of the first five
anniversaries 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.

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 was effective on 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
also maintains 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 man life insurance on, any of its other employees.

40
<PAGE> 42

CERTAIN TRANSACTIONS

FOUNDER'S TRANSACTIONS

In October 1993, the Company issued 500 shares of Common Stock to Mr.
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 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 and, in April 1997, granted
options to purchase 50,000 shares of Common Stock at an exercise price of $6.63
per share. See Note 6 of Notes to Financial Statements.

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
were repaid shortly following the Initial Offering. Additionally, in July, 1997,
Mr. Kendall elected to exercise an option for 50,000 shares of Common Stock from
Steven Rogers at an exercise price of $2.00 per share. See "Principal
Stockholders."

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

Mr. 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. The principal amount of and accrued interest on the loans were
repaid in full in April 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

41
<PAGE> 43

issuance. The Company repaid the loans outstanding to Mr. Rogers in full in
April 1997 upon completion of the Initial Offering.

EQUITY ISSUANCES

Private Placement Services Provided by Barington Capital Group,
L.P. Barington, an investment banking firm that is acting as an underwriter of
the Offering and of which Mr. Marc S. Cooper, a director of the Company, serves
as Executive Vice President, Director of Investment Banking and Research, acted
as the placement agent of the Company in connection with the private placement
of $2.0 million aggregate principal amount of Bridge Notes and Bridge Warrants
to purchase 500,000 shares of Common Stock at an exercise price of $3.30. The
Bridge Financing was completed in November 1996. As partial compensation for
services provided in that offering, Barington received warrants to purchase up
to 50,000 shares of Common Stock at an exercise price of $3.30 per share, which
warrants were forfeited upon consummation of the Initial Offering. In addition,
Barington 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.

Barington 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 $2.0 million. As compensation for services provided
in that private placement, the Company paid Barington 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.

Initial Public Offering. Barington acted as underwriter of the Initial
Offering, for which it received underwriting discounts and commissions of
approximately $1.1 million. In addition, Barington received a non-accountable
expense allowance of $341,550, and was issued the Barington Option to acquire
180,000 shares of Common Stock of the Company. This Barington Option is
exercisable for a period of five years beginning on April 8, 1997 at an exercise
price of $9.08 per share of Common Stock. See "Principal Stockholders."

Private Placement Services Provided by PVR Securities, Inc. PVR
Securities, Inc., a corporation of which Mr. 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. 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.

Each PVR Investor was also given the opportunity to purchase from Mr.
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.

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<PAGE> 44

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,
which converted to Common Stock on a one-to-one basis upon the Initial Offering,
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, which converted to Common Stock on a one-to-one basis
upon the Initial Offering, 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. Mr. Torkelsen was the President and Manager of the general partner
of Acorn. In September 1997, Acorn distributed its holdings of the Company's
securities to PVR . PVR served 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 Barington, the underwriter of the Initial Offering,
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. 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 $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

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<PAGE> 45

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 Barington, the underwriter of the Initial Offering.
Barington has conveyed to Montgomery Securities all rights and responsibilities
under this agreement. 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 Mr.
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. 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.

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<PAGE> 46

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of September 15, 1997, and 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. Unless otherwise noted, each stockholder
named has sole voting and investment power with respect to such shares, subject
to community property laws, where applicable.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
------------------------ ------------------------
NUMBER NUMBER
OF SHARES PERCENT OF SHARES PERCENT
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Steven A. Rogers (2)............................. 946,582 20.3% 946,582 14.2%
Anthony M. Agnello (3)........................... -- -- -- --
Robert L. Barnett (4)............................ 20,000 * 20,000 *
Donald W. Barrett (5)............................ 20,000 * 20,000 *
Eugene R. Cacciamani (6)......................... 25,000 * 25,000 *
Marc S. Cooper (7)............................... 180,000 3.7 180,000 2.6
Lincoln D. Faurer (8)............................ 15,000 * 15,000 *
Clifford M. Kendall (9).......................... 52,500 1.1 52,500 *
Richard T. Liebhaber (10)........................ 40,000 * 40,000 *
Roy C. Nash (11)................................. 16,000 * 16,000 *
John B. Torkelsen (12)........................... 760,661 15.7 760,661 11.1
Applewood Associates, L.P. (13).................. 425,000 8.8 425,000 6.2
All directors and executive officers as a group
(14 persons) (14).............................. 2,123,076 40.8% 2,123,076 29.5%
</TABLE>

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

(1) Applicable percentage of ownership is based on 4,636,844 shares of Common
Stock outstanding as of September 15, 1997 and 6,636,844 shares of Common
Stock outstanding upon completion of the Offering. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. For each beneficial owner, shares of Common Stock subject to
options or conversion rights exercisable within 60 days of September 15,
1997 are deemed outstanding.

(2) The address of Mr. Rogers is c/o Objective Communications, Inc., 75
Rochester Avenue, Portsmouth, New Hampshire, 03801. 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.

(3) The address of Mr. Agnello is 2540 Route 130, Cranbury, New Jersey, 08512.
Mr. Agnello was elected as a member of the Board of Directors pursuant to a
voting agreement among the Company, Mr. Rogers, Applewood and Acorn.

(4) The address of Mr. Barnett is 1445 South Ridge Road, Lake Forest, Illinois
60045. Includes 12,500 shares of Common Stock issuable upon exercise of
options.

(5) The address of Mr. Barrett is 3105 Bennett Point Road, Queenstown, Maryland
21658. Includes 15,000 shares of Common Stock issuable upon exercise of
options.

(6) The address of Dr. Cacciamani is 11409 Rolling House Road, Rockville,
Maryland 20852. Includes 15,000 shares of Common Stock issuable upon
exercise of options.

(7) The address of Mr. Cooper is 888 Seventh Avenue, 17th Floor, New York, New
York 10019. Consists of 180,000 shares of Common Stock that may be acquired
upon exercise of the Barington Option. The Barington Option is held by
Barington and was granted by the Company in connection with the Initial
Offering. See "Certain Transactions." Mr. Cooper also is a stockholder in
LNA Capital Corp., the

45
<PAGE> 47

corporate general partner of Barington. Includes options to acquire 27,000
shares of Common Stock which Cross Connect, L.L.C. has the right to acquire
under certain conditions. Cross Connect, L.L.C. is not affiliated with
Barington or Mr. Cooper, and Mr. Cooper disclaims beneficial ownership of
the 27,000 shares of Common Stock that may be acquired upon exercise of
such options.

(8) The address of Lt. Gen. Faurer is 1438 Brookhaven Drive, McLean, Virginia
22102. Consists of 15,000 shares of Common Stock issuable upon exercise of
options.

(9) The address of Mr. Kendall is 2 Tobin Court, Potomac, Maryland 20854.
Includes 27,500 shares of Common Stock issuable upon the exercise of
options.

(10) The address of Mr. Liebhaber is 1100 Chain Bridge Road, P.O. Box 8210,
McLean, Virginia 22106. Includes 12,500 shares of Common Stock issuable
upon the exercise of options and 2,500 shares of Common Stock that may be
acquired upon the exercise of warrants.

(11) The address of Mr. Nash is 9800 Arnon Chapel Road, Great Falls, Virginia
22066. Includes 12,500 shares of Common Stock issuable upon the exercise of
options.

(12) 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 warrants; (ii) 270,000 shares of Common
Stock beneficially owned by PVR, of which Mr. Torkelsen is the President
and 55,000 shares of Common Stock that may be acquired upon the exercise of
warrants beneficially owned by PVR; and (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 warrants
beneficially owned by Pamela Torkelsen. Mr. Torkelsen disclaims beneficial
ownership of all shares of Common Stock and warrants owned by Mrs.
Torkelsen.

(13) The address of Applewood, a New York limited partnership, is c/o Barry
Rubenstein, 68 Wheatley Road, Brookville, New York 11545. Includes 75,000
shares of Common Stock that may be acquired by Applewood upon the exercise
of 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 Barington, Acorn or the
Company.

(14) Includes 596,619 shares of Common Stock issuable to executive officers and
directors upon exercise of warrants and options.

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<PAGE> 48

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, 4,636,844 shares are issued and outstanding as of the date of this
Prospectus. As of August 31, 1997, the Company had approximately 59 holders of
record of Common Stock. Upon completion of the Offering, there will be 6,636,844
shares of Common Stock issued and outstanding. 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 "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 were
issued in December 1996 and January 1997 in connection with a private placement.
The Series A Preferred Stock automatically converted to shares of Common Stock
on a one-to-one basis at the time of the closing of the Company's Initial
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 843,584 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 431,707 shares of Common Stock at an exercise price of
$4.00 per share; warrants to purchase 46,877 shares of Common Stock at an
exercise price of $6.41 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 on Form SB-2 (together with all amendments,
schedules and exhibits thereto, 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

47
<PAGE> 49

share, and warrants to acquire 34,553 shares of Common Stock with an exercise
price of $8.80 per share. 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. Additionally, an investor
which originally purchased Common Stock and warrants in the private placement
with PVR Securities exercised its warrants in August 1997 to acquire 5,000
shares of Common Stock. 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 331,707
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 46,877 shares of Common Stock at an
exercise price of $6.41 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
Initial Offering, Bridge Warrants to acquire 350,000 shares of Common Stock are
outstanding as of the date of the

48
<PAGE> 50

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 in respect of the Common Stock of the Company.
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 were registered in the Initial Offering, and are
subject to a 24 month lock-up arrangement. 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, all of which converted to
Common Stock on a one-to-one basis upon the Initial Offering, 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
were registered in the Initial Offering and are subject to a 12 month lock-up
arrangement. See "Certain Transactions," "Shares Eligible for Future Sale," and
"Underwriting."

Barington Option. The Company also issued to Barington options to purchase
180,000 shares at an exercise price of $9.075 per share of Common Stock. The
Barington Option is exercisable for a period of five years, commencing on April
8, 1997. The Barington Option cannot be transferred, assigned or hypothecated
until April 8, 1998, except that options may be assigned, in whole or in part,
to any successor, officer or partner of Barington (or to officers or partners of
any such successor or partner). The Barington Option may be exercised as to all
or a lesser number of shares covered by the options, and contains 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.

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

Continental Stock Transfer & Trust Company is the 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 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.

49
<PAGE> 51

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.

The Company has also obtained officer and director liability insurance with
respect to liabilities arising out of certain matters, including matters arising
under the Securities Act.

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.

50
<PAGE> 52

SHARES ELIGIBLE FOR FUTURE SALE

GENERAL

Upon completion of the Offering, there will be 6,636,844 shares of Common
Stock outstanding (6,936,844 if the Underwriters' over-allotment option is
exercised in full). Of such shares, 4,592,500 shares of Common Stock (4,892,500
shares if the Underwriters' over-allotment option is exercised in full),
consisting of (i) the 2,000,000 shares sold in the Offering (2,300,000 if the
Underwriter's over-allotment option is exercised in full), (ii) the 2,070,000
shares sold in the Initial Offering, (iii) 22,500 shares previously resold in
reliance on Rule 144, and (iv) 500,000 shares of Common Stock registered under
the Securities Act on a shelf registration in the Initial Offering, will be
transferable without restriction by persons other than "affiliates" of the
Company, subject to certain lock-up arrangements with Montgomery Securities.

In addition, subject to such lock-up arrangements, certain selling
stockholders may offer and sell from time to time up to 1,130,000 shares of
Common Stock in negotiated transactions or otherwise pursuant to a shelf
registration statement filed by the Company on their behalf. Such selling
stockholders have not entered into any underwriting arrangements with respect to
the sale of such shares of Common Stock.

The securities of the Company held by such selling stockholders consist of:
(i) the 350,000 shares of Common Stock issuable upon exercise of the Bridge
Warrants, (ii) the 500,000 shares of Common Stock issued upon conversion of the
Series A Preferred Stock upon the Initial Offering, (iii) the 100,000 shares of
Common Stock issuable upon exercise of the Series A Warrants, and (iv) the
180,000 shares of Common Stock issuable upon exercise of the Barington Option.
All of such shares of Common Stock were registered under the Securities Act on a
shelf registration at the time of the Initial Offering, are freely transferable
under the Securities Act without restriction by persons other than "affiliates"
of the Company. Sales of securities by the selling stockholders would likely
have an adverse effect on the market price of the Common Stock.

Subject to certain limited exceptions, the holders of the remaining
2,544,344 shares of Common Stock, the holders of all of the warrants to purchase
shares of Common Stock, and the holders of all of the options 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 Montgomery Securities. See "-- Lock-up
Agreements" below.

The remaining 2,044,344 shares of Common Stock are, and 393,584 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. As currently in effect,
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 66,368 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.

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 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.

51
<PAGE> 53

Up to 180,000 additional shares of Common Stock may be purchased by
Barington through the exercise of the Barington Option during the five-year
period commencing April 8, 1997. The holders of the shares of Common Stock
acquired upon exercise of the Barington Option have certain demand and
"piggyback" registration rights. Shares of Common Stock issuable upon exercise
of the Barington Option may be freely tradable, provided that the Company
satisfies certain securities registration and qualification requirements in
accordance with the terms of the Barington Option. See "-- Registration Rights"
below 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 46,877 shares of Common Stock may be
purchased by the holders of the warrants originally issued to Adelson Investment
Company, 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
2,105,718 outstanding shares of Common 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 Barington Option and the 393,584
shares of Common Stock issuable upon exercise of other outstanding warrants.
Subject to certain conditions and limitations, the registration rights grant to
the 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 (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, each of the following persons or groups separately has the right to
require the Company to register its securities listed below up to two times: (i)
the holders of the shares of Common Stock issued upon conversion of the Series A
Preferred Stock and the Series A Warrants, as a group; (ii) the holder of a
warrant to purchase an aggregate of 46,877 shares of Common Stock; (iii) the
holders of the Bridge Warrants, as a group; (iv) Barington with respect to the
shares issuable upon exercise of the Barington Option; and (v) Mr. Steven A.
Rogers with respect to 946,582 shares of Common Stock. 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

In connection with the Initial Offering, Barington entered into lock-up
agreements with all of the then existing stockholders, optionholders and
warrantholders of the Company in which they 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 periods ranging from six months to 24 months from
April 8, 1997, without the prior written consent of Barington. Barington has
conveyed to Montgomery Securities all of its rights and responsibilities under
those agreements. Notwithstanding these lock-up arrangements, any stockholder,
optionholder or warrantholder subject to a 24 month lock-up may sell up to 30%
of his, her or its shares of Common Stock commencing April 8, 1998 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. Pursuant to the underwriting agreement executed in connection
with the Initial Offering, the holders of the shares of Common Stock issued upon
conversion of the Series A Preferred Stock and the Series A Warrants have agreed
not to offer, issue, sell, contract to sell, grant any option for the sale of

52
<PAGE> 54

or otherwise dispose of any securities of the Company before April 8, 1998
without the prior written consent of Montgomery Securities. In addition, the
executive officers of the Company have agreed not to offer, pledge, sell,
contract to sell, grant an option for sale of, or otherwise dispose of any
shares of the Common Stock for a period of 12 months from the date of closing of
the Offering, except that Steven A. Rogers may pledge a portion of his Common
Stock subject to certain limitations. The remaining stockholders of the Company,
who hold an aggregate of 71,250 shares of Common Stock and warrants to purchase
46,877 shares of Common Stock, have agreed with Montgomery Securities 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 before October 8, 1997,
without the prior written consent of Montgomery Securities. Montgomery
Securities has no current or future plans, proposals, arrangements or
understandings to modify, shorten or waive the lock-up arrangements.
Additionally, Barington entered into an agreement with Nasdaq, pursuant to which
it agreed that it will not release any warrantholder who received warrants
between October 1996 and January 1997, from such lock-up agreements before
October 3, 1997.

53
<PAGE> 55

UNDERWRITING

The underwriters named below (the "Underwriters"), represented by
Montgomery Securities, Robertson, Stephens & Company LLC and Barington Capital
Group, L.P. (the "Representatives") have severally agreed, subject to the terms
and conditions of the underwriting agreement (the "Underwriting Agreement") by
and among the Company and the Underwriters, to purchase from the Company the
number of shares of Common Stock indicated below opposite their respective
names, at the public offering price less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of the shares of Common
Stock, if they purchase any.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities.....................................................
Robertson, Stephens & Company LLC.........................................
Barington Capital Group, L.P. ............................................

---------
Total........................................................... 2,000,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters
initially propose to offer the Common Stock to the public on the terms set forth
on the cover page of this Prospectus. The Underwriters may allow selected
dealers a concession of not more than $ per share and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the public offering, the offering price
and other selling terms may be changed by the Representatives. The Common Stock
is offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 300,000 additional shares of Common Stock to cover over-allotments if any, at
the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may purchase such shares only to cover
over-allotments made in connection with the Offering.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their employees and controlling persons against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.

In connection with the Initial Offering, Barington entered into lock-up
agreements with all of the then existing stockholders and warrantholders of the
Company. Barington has conveyed to Montgomery Securities all of its rights and
responsibilities under those agreements, pursuant to which the Company and all
of the then existing stockholders and warrantholders agreed 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 periods ranging from
six months to 24 months from April 8, 1997, the date of the closing of the
Initial Offering. Barington is also a party to an agreement with Nasdaq pursuant
to which it agreed that it will not release any warrantholder who received
warrants between October and January 1996, from such lock-up agreements before
October 3, 1997. See "Shares Eligible for Future Sale -- Lock-up Arrangements."
In addition, in connection with the Initial Offering, the Company and Barington
agreed that, for a period of two years, Barington will act as a non-exclusive
investment banker and financial consultant to the Company for a fee of $80,000,
which was paid upon consummation of the Initial Offering. The Company also
agreed that, for a period of five years following

54
<PAGE> 56

the completion of the Initial Offering, it would use its best efforts (including
the solicitation of proxies) to elect one designee of Barington to the Board of
Directors of the Company.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members, if any, to bid for and purchase the Common Stock.
As an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Stock. If the Underwriters create a short
position in the Common Stock in connection with the Offering, i.e. if it sells
more shares of Common Stock than are set forth on the cover page of this
Prospectus, the Underwriters may also reduce that short position by purchasing
Common Stock in the open market. The Underwriters may also elect to reduce any
short position by exercising all or part of the over-allotment option described
above.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. Neither the Company nor the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor the Underwriters
makes any representation that the Underwriters will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.

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 Underwriters by
Brown, Rudnick, Freed & Gesmer, Boston, Massachusetts, a partnership including
professional corporations.

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.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form SB-2 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.

55
<PAGE> 57

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> 58

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> 59

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- -----------
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 86,491 $ 623,241 $ 5,019,061
Accounts receivable................................. 65,470 84,855 35,723
Inventory........................................... 30,994 366,099 93,714
Other current assets................................ 11,276 178,376 75,204
----------- ----------- -----------
Total current assets........................ 194,231 1,252,571 5,223,702
Property and equipment, net........................... 121,047 182,072 847,747
Debt issue costs, net................................. -- 214,066 --
Other assets.......................................... 308 -- 98,000
Trademarks and patents................................ 18,898 32,869 95,888
----------- ----------- -----------
$ 334,484 $ 1,681,578 $ 6,265,337
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable, net of unamortized debt discounts of
$586,000 as of December 31, 1996................. $ 250,000 $ 1,714,000 $ --
Notes payable--related parties...................... 164,000 199,000 --
Accounts payable.................................... 715,375 390,438 98,484
Accrued liabilities................................. 100,338 263,376 139,130
Obligation under capital lease, current portion..... -- 15,543 22,889
----------- ----------- -----------
Total current liabilities................... 1,229,713 2,582,357 260,503
Obligation under capital lease........................ -- 25,610 35,416
----------- ----------- -----------
Total liabilities........................... 1,229,713 2,607,967 295,919
Redeemable Series A Convertible Preferred Stock, par
value $.01, 500,000 shares authorized, 0, 250,000
and 0 shares issued and outstanding at December 31,
1995 and 1996 and June 30, 1997, respectively,
liquidation preference of $1,000,000 at December 31,
1996................................................ -- 848,440 --
Stockholders' equity (deficit):
Preferred Stock, par value $.01, 2,500,000 shares
authorized, none issued and outstanding at
December 31, 1995 and 1996 and June 30, 1997
Common stock, par value $.01, 10,000,000 shares
authorized; 1,711,413, 1,896,577 and 4,631,844
shares issued and outstanding at December 31,
1995 and 1996, and June 30, 1997, respectively... 17,115 18,966 46,318
Additional paid-in capital.......................... 1,558,130 3,371,115 15,039,553
Deficit accumulated during development stage........ (2,470,474) (5,164,910) (9,116,453)
----------- ----------- -----------
Total stockholders' equity (deficit)............. (895,229) (1,774,829) 5,969,418
----------- ----------- -----------
$ 334,484 $ 1,681,578 $ 6,265,337
=========== =========== ===========
</TABLE>

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

F-3
<PAGE> 60

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
OCTOBER 5, 1993 FOR THE SIX MONTHS OCTOBER 5, 1993
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION) ENDED JUNE 30, (DATE OF INCEPTION)
------------------------------------ TO ------------------------ TO
1994 1995 1996 DECEMBER 31, 1996 1996 1997 JUNE 30, 1997
---------- ----------- ----------- ------------------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)

<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues:
Merchandise
revenue.......... $ -- $ 129,861 $ 45,440 $ 175,301 $ -- $ -- $ 175,301
Service revenue.... 189,607 94,817 35,935 320,359 20,182 -- 320,359
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total
revenues.... 189,607 224,678 81,375 495,660 20,182 -- 495,660
---------- ----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Cost of
merchandise...... -- 124,730 44,579 169,309 -- -- 169,309
Cost of services... 49,608 12,684 17,774 80,066 10,347 -- 80,066
Research and
development...... 165,273 1,232,046 1,106,901 2,504,753 565,019 1,330,640 3,835,393
Selling, general
and
administrative... 381,038 813,853 1,041,840 2,253,871 519,710 1,475,885 3,729,756
Depreciation and
amortization..... 3,762 60,298 158,714 222,774 51,535 322,679 545,453
Other.............. 253 14,031 1,713 15,997 -- -- 15,997
---------- ----------- ----------- ----------- ----------- ----------- -----------
Total
operating
expenses.... 599,934 2,257,642 2,371,521 5,246,770 1,146,611 3,129,204 8,375,974
---------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations... (410,327) (2,032,964) (2,290,146) (4,751,110) (1,126,429) (3,129,204) (7,880,314)
Interest (income)
expense, net......... (3,485) 13,152 404,290 400,805 4,381 428,437 829,242
---------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss............... $ (406,842) $(2,046,116) $(2,694,436) $(5,151,915) $(1,130,810) $(3,557,641) $(8,709,556)
========== =========== =========== =========== =========== =========== ===========
Net loss per common
share................ $ (0.16) $ (0.59) $ (0.75) $ (0.31) $ (1.11)
========== =========== =========== =========== ===========
Weighted average common
shares and common
share equivalents
outstanding.......... 2,514,116 3,461,659 3,607,634 3,607,634 3,196,822
========== =========== =========== =========== ===========
</TABLE>

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

F-4
<PAGE> 61

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
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)

<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)
Issuance of common stock pursuant
to warrant exchange agreement.... 165,267 1,652 659,416 (320,902) 340,166
Reversal of interest expense upon
surrender of Bridge Warrants..... -- -- (201,000) -- (201,000)
Shares issued in connection with
initial public offering, net of
expenses......................... 2,070,000 20,700 9,331,379 -- 9,352,079
Conversion of Redeemable Series A
Convertible Preferred Stock to
Common Stock..................... 500,000 5,000 1,805,643 -- 1,810,643
Interest expense incurred for
issuance of warrants............. -- -- 73,000 (73,000) --
Net loss........................... -- -- -- (3,557,641) (3,557,641)
--------- ------- ----------- ----------- -----------
Balance, June 30, 1997
(unaudited)...................... 4,631,844 $46,318 $15,039,553 $ (9,116,453) $ 5,969,418
========= ======= =========== =========== ===========
</TABLE>

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

F-5
<PAGE> 62

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
OCTOBER 5, 1993 FOR THE SIX MONTHS OCTOBER 5, 1993
FOR THE YEARS ENDED DECEMBER 31, (DATE OF INCEPTION) ENDED JUNE 30, (DATE OF INCEPTION)
----------------------------------- TO ------------------------ TO
1994 1995 1996 DECEMBER 31, 1996 1996 1997 JUNE 30, 1997
--------- ----------- ----------- ------------------- ----------- ----------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss........... $(406,842) $(2,046,116) $(2,694,436) $(5,151,915) $(1,130,810) $(3,557,641) $(8,709,556)
Adjustments to
reconcile net
loss to net cash
used in operating
activities:
Depreciation
and
amortization.. 3,762 60,298 158,714 222,774 51,535 322,679 545,453
Stock issued in
exchange for
services
rendered..... 55,834 -- -- 55,834 -- -- 55,834
Interest
expense
related to
issuance of
warrants..... -- -- 321,789 321,789 -- 385,000 706,789
Non-cash
compensation
expense:..... -- -- -- -- -- 340,166 340,166
Changes in
operating assets
and liabilities:
Accounts
receivable... (54,073) (11,397) (19,385) (84,855) 11,159 49,131 (35,724)
Other current
assets....... (10,300) (976) (167,100) (178,376) 9,172 (92,826) (173,204)
Inventory...... -- (30,994) (335,105) (366,099) (126,846) (81,919) (93,714)
Deposits....... (538) 230 308 -- -- -- --
Trademarks and
patents...... (6,000) (12,898) (19,595) (38,493) (11,834) (64,848) (103,341)
Accounts
payable...... 190,173 520,681 (324,937) 390,438 46,241 (427,852) 98,484
Accounts
liabilities... 24,253 76,085 163,038 263,376 98,472 (44,175) 139,130
--------- ----------- ----------- ----------- ----------- ----------- -----------
Net cash
used in
operating
activities... (203,731) (1,445,087) (2,916,709) (4,565,527) (1,052,911) (3,172,285) (7,229,683)
--------- ----------- ----------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Purchase of
property and
equipment........ (18,811) (166,296) (116,892) (301,999) (16,496) (396,380) (1,052,682)
--------- ----------- ----------- ----------- ----------- ----------- -----------
Net cash
used in
investing
activities... (18,811) (166,296) (116,892) (301,999) (16,496) (396,380) (1,052,682)
--------- ----------- ----------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Net proceeds from
the issuance of
common stock..... 564,582 588,611 907,047 2,061,240 849,377 9,510,576 11,413,318
Net proceeds from
the issuance of
notes payable.... -- 250,000 2,300,000 2,550,000 68,205 -- 2,550,000
Repayments of notes
payable.......... -- -- (250,000) (250,000) -- (2,300,000) (2,550,000)
Proceeds from the
issuance of notes
payable to
related
parties.......... -- 546,223 170,000 716,223 104,500 -- 716,223
Net proceeds from
issuance of
Series A
Preferred
Stock............ -- -- 848,440 848,440 -- 962,203 1,810,643
Repayments of notes
payable to
related
parties.......... -- (30,000) (135,000) (165,000) -- (199,000) (364,000)
Debt issue costs... -- -- (258,131) (258,131) -- -- (253,459)
Principal payments
on capital
leases........... -- -- (12,005) (12,005) -- (9,294) (21,299)
--------- ----------- ----------- ----------- ----------- ----------- -----------
Net cash
provided
by
financing
activities... 564,582 1,354,834 3,570,351 5,490,767 1,022,082 7,964,485 13,301,426
--------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents.......... 342,040 (256,549) 536,750 623,241 (47,325) 4,395,820 5,019,061
Cash and cash
equivalents, at
beginning of
period............... 1,000 343,040 86,491 -- 86,491 623,241 --
--------- ----------- ----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents, at end
of the period........ $ 343,040 $ 86,491 $ 623,241 $ 623,241 $ 39,166 $ 5,019,061 $ 5,019,061
========= =========== =========== =========== =========== =========== ===========

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 $ -- $ -- $ 352,223
========= =========== =========== =========== =========== =========== ===========
Capital lease
obligations...... $ -- $ -- $ 53,158 $ 53,158 $ -- $ 26,446 $ 79,604
========= =========== =========== =========== =========== =========== ===========
</TABLE>

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

F-6
<PAGE> 63

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

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
Financial Statements do not include any adjustments that might result from the
outcome of this uncertainty. 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. (See Note 8, "Subsequent Event (unaudited)", pertaining to the
completion of the IPO.)

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

F-7
<PAGE> 64

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
and acceptance by customers. Service revenue, consisting principally of
consulting services, is recognized over the time period to which it relates.

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

F-8
<PAGE> 65

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 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.

INTERIM INFORMATION (UNAUDITED)

The interim information as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 is unaudited. The unaudited interim financial statements
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the results of
operations, changes in cash flows and financial position as of and for the
periods presented. The unaudited interim financial information should be read in
conjunction with the audited financial statements and related notes thereto. The
results for the interim periods presented are not necessarily indicative of
results to be expected for the full year.

F-9
<PAGE> 66

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
<S> <C> <C> <C>
(UNAUDITED)

<CAPTION>
<S> <C> <C> <C>
Computer equipment.......................... $146,365 $316,415 $ 1,011,812
Leasehold improvements...................... 11,925 11,925 93,657
Furniture and fixtures...................... 26,817 26,817 26,817
-------- -------- -----------
185,107 355,157 1,132,286
Accumulated depreciation.................... (64,060) (173,085) (284,539)
-------- -------- -----------
$121,047 $182,072 $ 847,747
======== ======== ===========
</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>
DECEMBER 31,
------------------------
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

F-10
<PAGE> 67

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. NOTES PAYABLE -- (CONTINUED)
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.

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 issued 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 the warrant 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 lease $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 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

F-11
<PAGE> 68

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. NOTES PAYABLE -- (CONTINUED)
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.

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

F-12
<PAGE> 69

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
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.

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> 70

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

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
Granted.............................................. -- --
Exercised............................................ -- --
Forfeited............................................ -- --
------- -----
Balance, June 30, 1997.................................... 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 year ended
December 31, 1995 and 1996: dividend yield of 0%, expected volatility of 43%,
risk-free interest

F-14
<PAGE> 71

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
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. The
Company granted 262,600 shares under the 1996 Plan during the six months ended
June 30, 1997. No options have been exercised or forfeited under this Plan.

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 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 with a fair value of $1.34 per warrant, resulting
in a decrease of $201,000 in stockholders' equity. 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.

F-15
<PAGE> 72

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
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>

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 received 250,000 Series A shares
and 50,000 warrants for the purchase of common stock and had received $1 million
of 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.

8. SUBSEQUENT EVENT (UNAUDITED)

During April 1997, the Company issued 2,070,000 shares of common stock, par
value $.01 for approximately $9.5 million in proceeds, net of underwriting
discounts and commissions and certain other expenses of the offering of $1.9
million. The issuance of these shares was pursuant to an initial public offering

F-16
<PAGE> 73

OBJECTIVE COMMUNICATIONS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

8. SUBSEQUENT EVENT (UNAUDITED) -- (CONTINUED)
at a price of $5.50 per share. The net proceeds of the initial public offering
were used primarily to repay certain outstanding notes payable and to fund the
continued research and development and the working capital deficiencies of the
Company. In connection with the initial public offering, all of the issued and
outstanding shares of Redeemable Series A Convertible Preferred Stock were
converted into common stock on a one-for-one basis.

The Company continues to experience recurring losses from operations during
the six months ended June 30, 1997 that raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
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 offering of 2,000,000 shares of the
Company's common stock. The anticipated proceeds from this offering would be
used for production of the VidPhone system, to fund product development efforts,
to further develop the sales channels, for capital expenditures, to fund working
capital and for general corporate purposes. If the Company's proposed offering
is consummated on the 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 offering 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 offering is unsuccessful.

During the six months ended June 30, 1997, the following pronouncements
have been issued by the Financial Accounting Standards Board:

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128) which
simplifies the existing earnings per share (EPS) computations. The adoption of
FAS 128 should not have a material effect on the Company.

The Financial Accounting Standard Board recently issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income." This
Statement requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. The Statement will become effective for fiscal years beginning after
December 15, 1997. The Company will adopt the new standard beginning in the
first quarter of the fiscal year ending December 31, 1998.

F-17
<PAGE> 74

[DESCRIPTION OF GRAPHICS]

BACK INSIDE COVER PAGE GRAPHIC: Photographs of telephone wiring. Caption reads:
"Conventional video technology uses up to eight wires to connect a two-way
communications system to a central switch for video, audio and data
capabilities. These wires include two 75 ohm coaxial cables to carry a video
signal 300 feet or more, two sets of audio coaxial cable for left and right
audio, each way. Also required is a four-twisted-pair Local Area Network cable
for data communications. A one or two pair twisted-pair cable is needed for
telephone service. Objective believes that running on the LAN and installing
multiple wires at hundreds of desktops is a significant impediment to the
implementation of a video enterprise network. VidModem(TM) technology needs only
a single unshielded twisted-pair wire, the actual twisted-pair used by the
telephone. The technology delivers two-way video, audio and data to a desktop or
conference room. The VidModem(TM) technology is compatible with standard analog
ISDN or digital telephones from leading PBX manufacturers. VidModem(TM)
technology uses no LAN bandwith and minimal processing power from the CPU."
<PAGE> 75

================================================================================

No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such offer or solicitation
would be unlawful. 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
Summary Financial Data............... 5
Risk Factors......................... 6
Use of Proceeds...................... 15
Price Range of Common Stock.......... 15
Dividend Policy...................... 15
Capitalization....................... 16
Dilution............................. 17
Selected Financial Data.............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................. 25
Management........................... 34
Certain Transactions................. 41
Principal Stockholders............... 45
Description of Securities............ 47
Shares Eligible for Future Sale...... 51
Underwriting......................... 54
Legal Matters........................ 55
Experts.............................. 55
Additional Information............... 55
Index to Financial Statements........ F-1
</TABLE>
================================================================================

================================================================================
2,000,000 SHARES

[LOGO]

OBJECTIVE
COMMUNICATIONS, INC.

COMMON STOCK

----------------------------
PROSPECTUS
----------------------------

MONTGOMERY SECURITIES

ROBERTSON, STEPHENS & COMPANY

BARINGTON CAPITAL GROUP

, 1997

================================================================================
<PAGE> 76

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The General Corporation Law of the State of Delaware (the "GCL") provides
that a corporation may limit the liability of each director to the corporation
or its stockholders for monetary damages, except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases; and (iv) for any
transaction from which the director derived an improper personal benefit. The
Amended and Restated Certificate of Incorporation (the "Certificate") of the
Registrant provides for the elimination and limitation of the personal liability
of directors of the Registrant for monetary damages to the fullest extent
permitted by the GCL.

In addition, the Certificate provides that if the GCL is amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of the directors of the Registrant shall be eliminated or
limited to the fullest extent permitted by the GCL, as so amended. The effect of
this provision is to eliminate the right of the Registrant and its stockholders
(through stockholders' derivative suits on behalf of the Registrant) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
The provision does not limit or eliminate the rights of the Registrant or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the Certificate
provides that the Registrant shall, to the fullest extent permitted by the GCL,
as amended from time to time, indemnify each of its currently acting and former
directors, officers, employees and agents.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be incurred by the
Registrant in connection with the issuance and distribution of the securities
registered hereby, all of which expenses, except for the registration fee and
the Nasdaq SmallCap Market filing fee, are estimates:

<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
--------------------------------------------------------------------------- -------
<S> <C>
SEC registration fee....................................................... $19,080
NASD filing fee............................................................ 6,796
Nasdaq filing fee.......................................................... 34,842
Blue Sky fees and expenses (including fees of counsel)..................... *
Transfer agent and registrar's fee......................................... *
Printing expenses.......................................................... *
Legal fees and expenses (other than Blue Sky).............................. *
Accounting fees and expenses............................................... *
Miscellaneous.............................................................. *
-------
TOTAL...................................................................... $ *
=======
</TABLE>

- ---------------
* To be filed by amendment.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

All share information set forth below has been adjusted to reflect a
one-for-two reverse stock split effective on December 5, 1996.

II-1
<PAGE> 77

(1) Since the formation of the Registrant on October 5, 1993, the
Registrant has issued or sold unregistered Common Stock as set forth below:

<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE PRICE
---------------- ---------------
<S> <C> <C>
From inception (October 5, 1993) through 500 $ 2.00
December 31, 1993....................................
Year ended December 31, 1994........................... 187,666 $ 2.00
8,375 $ 2.68
45,000 $ 6.00
1,299,500 stock dividend
Year ended December 31, 1995........................... 170,370(1) $ 6.00
Year ended December 31, 1996........................... 175,166(1) $ 6.00
Year ended December 31, 1997 (to date)................. 165,267 (2)
5,000 $ 4.00
</TABLE>

- ---------------
(1) Represents 345,536 shares of Common Stock issued by the Company in a private
offering to accredited investors for which PVR Securities, Inc. acted as the
placement agent.
(2) Such shares of Common Stock were issued in connection with the warrant
exchange in January 1997 pursuant to which certain investors exchanged
warrants to purchase an aggregate of 330,536 shares of Common Stock with an
exercise price of $8.00 per share, for warrants to purchase an aggregate of
165,269 shares of Common Stock with an exercise price of $4.00 per share.

(2) Since January 1, 1994, the Registrant has issued or sold unregistered
Preferred Stock as set forth below:

<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE PRICE
---------------- ---------------
<S> <C> <C>
Year ended December 31, 1994........................... -- --
Year ended December 31, 1995........................... -- --
Year ended December 31, 1996........................... 250,000 $4.00
Year ended December 31, 1997 (to date)................. 250,000 $4.00
</TABLE>

(3) Since January 1, 1994, the Registrant issued shares of Common Stock
pursuant to the exercise of stock options granted to employees or directors of
the Registrant as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE PRICE
---------------- ---------------
<S> <C> <C>
Year ended December 31, 1994........................... -- --
Year ended December 31, 1995........................... -- --
Year ended December 31, 1996........................... 10,000 $2.00
Year ended December 31, 1997 (to date).................
</TABLE>

Pursuant to the 1994 Stock Option Plan adopted in October 1994 (the "1994
Plan"), the Company has granted to executive officers, other key employees and
consultants non-qualified stock options (the "Non-Qualified Options") to
purchase an aggregate of 338,000 shares of Common Stock at an exercise price of
$4.00 per share. As of the date hereof, 85,000 of such shares have vested. Of
the 200,000 options granted to the directors, options to purchase 10,000 shares
of Common Stock have been exercised as of the date hereof. The shares were
restricted and were legended against transfer. The issuance of the shares was
effected without registration in reliance upon the exemption available under
Section 4(2) of the Securities Act.

The Company has reserved for issuance 450,000 shares of Common Stock upon
exercise of options awarded under the 1996 Stock Incentive Plan adopted in
January 1997 (the "1996 Plan"). As of September 15, 1997, options to purchase
326,600 shares of Common Stock at an exercise price ranging from $6.125 to
$28.50 per share have been granted under the 1996 Plan. None of such options has
vested.

II-2
<PAGE> 78

(4) Since January 1, 1994 the Registrant has issued or sold unregistered
warrants as set forth below:

<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE PRICE
---------------- ---------------
<S> <C> <C>
Year ended December 31, 1994........................... -- --
Year ended December 31, 1995........................... 17,031(1) $6.60
256,036(2) $8.00
17,037(1) $8.80
Year ended December 31, 1996........................... 550,000(3) $3.30
17,516(1) $6.60
43,675(4) $6.88
191,832(2) $8.00
17,516(1) $8.80
Year ended December 31, 1997 (to date)................. 386,707(5) $4.00
</TABLE>

- ---------------
(1) Such warrants were subsequently exchanged in 1997 for new warrants to
purchase an equal number of shares at an exercise price of $4.00 per share.

(2) Of such warrants issued in 1995 and 1996, warrants to purchase an
aggregate of 432,868 shares of Common Stock (consisting of warrants to purchase
256,036 shares of Common Stock issued in 1995 and warrants to purchase 176,832
shares of Common Stock issued in 1996) were subsequently exchanged in 1997 for
new warrants to purchase 267,601 shares of Common Stock at an exercise price of
$4.00 per share.

(3) Such warrants were issued in connection with the Bridge Financing in
October and November 1996. In April 1997, in connection with the initial public
offering of 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.

(4) The Company originally issued warrants to purchase 33,750 shares of
Common Stock at an exercise price of $8.90 per share. The number of Shares of
Common Stock issuable upon exercise of the warrant set forth above reflect the
warrant currently outstanding which reflects adjustments pursuant to the terms
of the warrant.

(5) The warrants to purchase 386,707 shares of Common Stock issued by the
Company to date in 1997 consist of (i) warrants to purchase an aggregate of
165,269 shares of Common Stock issued to the PVR Investors at an exercise price
of $4.00 per share in the warrant exchange transaction, in exchange for warrants
to purchase an aggregate of 330,536 shares of Common Stock at $8.00 per share,
(ii) warrants to purchase an aggregate of 69,106 shares of Common Stock at an
exercise price of $4.00 per share issued to John B. Torkelsen, President of PVR
Securities, Inc., in the warrant exchange transaction, in exchange for warrants
to purchase 34,553 shares of Common Stock at an exercise price of $6.60 per
share and warrants to purchase 34,553 shares of Common Stock at an exercise
price of $8.80 per share, (iii) warrants to purchase 102,332 shares of Common
Stock issued to the Debt Inducement Investors at an exercise price of $4.00 per
share in the warrant exchange transaction, in exchange for warrants to purchase
an aggregate of 102,332 shares of Common Stock at $8.00 per share, and (iv)
warrants to purchase 50,000 shares of Common Stock at an exercise price of $4.00
per share issued to an investor in connection with the issuance of the Series A
Preferred Stock.

In October 1993, the Registrant issued 500 shares of Common Stock to Steven
A. Rogers, founder, President and Chief Executive Officer of the Registrant, in
exchange for services rendered in connection with the formation of the
Registrant and an initial capital contribution of $1,000 in cash. 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.

Of the remaining shares of Common Stock issued by the Registrant in 1994,
171,000 shares and 45,000 shares of Common Stock were issued to accredited
investors in private placements by the Registrant at a purchase price of $2.00
and $6.00 per share, respectively. In addition, the Registrant issued 16,666
shares of Common Stock in exchange for services, at a deemed purchase price of
$2.00 per share, and issued an additional 8,375 shares of Common Stock in
fulfillment of a $22,500 obligation for services rendered in

II-3
<PAGE> 79

connection with previous stock offerings pursuant to an agreement which
obligated the Registrant to issue such shares at a purchase price of $2.68 per
share.

In 1995 and 1996, PVR Securities, Inc. ("PVR Securities") acted as the
placement agent for a private offering to accredited investors (the "PVR
Investors") of 50 units and 19.11 units, respectively. Each unit consisted of
5,000 shares of Common Stock and warrants to purchase an additional 5,000 shares
of Common Stock at an exercise price of $8.00 per share. Pursuant to such
offering, the Company issued an aggregate of 345,536 shares of Common Stock and
warrants to acquire 345,536 shares of Common Stock. Of such aggregate shares,
the Registrant issued in 1995 170,370 shares of Common Stock to accredited
investors for $6.00 per share and warrants to purchase an aggregate of 170,370
shares of Common Stock at an exercise price of $8.00 per share, including shares
of Common Stock purchased upon conversion of notes payable by the Company. Also
as part of such aggregate issuance of Common Stock and warrants, in 1996, the
Registrant issued to accredited investors for a purchase price of $6.00 per
share, 175,166 shares of Common Stock and warrants to acquire an additional
175,166 shares of Common Stock at an exercise price of $8.00 per share.

As partial compensation for services provided in the private offering, the
Company issued to Mr. John B. Torkelsen, President of PVR Securities, warrants
to acquire an aggregate of 69,106 shares of Common Stock in 1995 and 1996. In
1995, the Registrant issued to an affiliate of PVR Securities warrants to
purchase 17,037 shares of Common Stock at an exercise price of $6.60 per share
and warrants to purchase 17,037 shares of Common Stock at an exercise price of
$8.80 per share. In 1996, the Registrant issued to Mr. John B. Torkelsen,
President of PVR Securities, warrants to purchase 17,516 shares of Common Stock
at an exercise price of $6.60 per share and warrants to purchase 17,516 shares
of Common Stock at an exercise price of $8.80 per share.

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"), 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. As part of such aggregate
issuance to the Debt Inducement Investors, in 1995, the Registrant converted
outstanding notes payable (and accrued and unpaid interest thereon) into
warrants to purchase 85,666 shares of Common Stock at an exercise price of
$8.00, and in 1996, the Registrant converted outstanding notes payable (and
accrued and unpaid interest thereon) into warrants to purchase 16,666 shares of
Common Stock at an exercise price of $8.00. 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. The sale and issuance of such securities by the Company were
effected in reliance upon the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act") and
Regulation D and Rule 506 promulgated thereunder.

In 1996, Barington Capital Group, L.P. ("Barington") acted as the placement
agent for the Registrant in connection with the private placement to accredited
investors 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 of
$3.30 per share. The sale and issuance of such securities by the Company were
effected in reliance upon the exemption from registration afforded by Section
4(2) of the Securities Act and Regulation D and Rule 506 promulgated thereunder.
In April 1997, in connection with the initial public 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 for such surrender. As
partial compensation for services provided in that offering, Barington received
warrants to purchase up to 50,000 shares of Common Stock of the Registrant,
which were forfeited upon consummation of the Registrant's initial public
offering. In December 1996 and January 1997, Barington acted as the placement
agent in connection with the private placement by the Registrant of 500,000
shares of Series A Convertible Preferred Stock and warrants to purchase an
additional 100,000 shares of Common Stock at an exercise price of $4.00 per
share to two accredited investors. The sale and issuance of such securities by
the Company were effected in reliance upon the exemption from registration
afforded by Section 4(2) of the Securities Act and Regulation D and Rule 506
promulgated thereunder.

In connection with a loan to the Company in the principal amount of
$300,000 in August 1996, the Company issued to the Adelson Investment Company,
an accredited investor, a warrant to purchase 33,750 shares of Common Stock at
an exercise price of $8.90 per share. The exercise price and number of

II-4
<PAGE> 80

shares of the warrant have been adjusted, pursuant to its provisions to an
exercise price of $6.88 per share for 43,675 shares of Common Stock. The warrant
is exercisable in whole or in part and expires on August 31, 2001. The sale and
issuance of such securities by the Company were effected in reliance upon the
exemption from registration afforded by Section 4(2) of the Securities Act and
Regulation D and Rule 506 promulgated thereunder.

In January 1997, as part of a warrant exchange transaction with the
existing PVR Investors and the Debt Inducement Investors, the Registrant issued
an aggregate of 165,267 shares of Common Stock and, in exchange for existing
warrants to purchase 516,974 shares of Common Stock, issued new warrants to
purchase 336,707 shares of Common Stock consisting of (i) warrants to purchase
165,269 shares of Common Stock issued to existing PVR Investors, (ii) warrants
to purchase 69,106 shares of Common Stock issued to John B. Torkelsen, 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 the warrant exchange, 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 $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.

Also as part of the warrant exchange, the Company issued to John B.
Torkelsen, 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 Investment 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. The
sale and issuance of such securities by the Company were effected in reliance
upon the exemption from registration afforded by Section 4(2) of the Securities
Act and Regulation D and Rule 506 promulgated thereunder.

In August, 1997 an investor which originally purchased Common Stock and
warrants in the private placement with PVR Securities exercised its warrants to
acquire 5,000 shares of Common Stock. The sale and issuance of such securities
by the Company were effected in reliance upon the exemption from registration
afforded by Section 4(2) of the Securities Act and Regulation D and Rule 406
promulgated thereunder.

Transactions With Steven A. Rogers. In connection with the PVR Offering,
certain PVR Investors also purchased from Steven A. Rogers, the Chief Executive
Officer and President of the Registrant, an aggregate of 172,583 shares of
Common Stock for aggregate consideration to Mr. Rogers of $345,166. As part of
the warrant exchange, in order to restructure that transaction to terms and
conditions more closely reflecting market terms and conditions, each PVR
Investor who originally purchased shares of Common Stock from Mr. Rogers was
required to pay Mr. Rogers an additional $2.00 for each share. Mr. Rogers
received an aggregate of $350,166 from PVR Investors in connection with the
warrant exchange. In issuing and selling such shares, Mr. Rogers relied upon the
so-called "Section 4-1/2" exemption, which, although not specifically provided
for in the Securities Act, has been recognized by the Securities and Exchange
Commission as within the intended purpose of the Securities Act. See Sec. Act
Release No. 6188 (Feb. 1, 1980), 1 Fed Sec. L. Rep. (CCH) para. 1051 at 2073-28
n. 178.

II-5
<PAGE> 81

ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>
EXHIBITS
-------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
3.2 Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form SB-2 (File No. 333-20625)
filed with the Securities and Exchange Commission under the Securities Act of 1933,
as amended).
3.3 Form of Warrant for the Purchase of Shares of Common Stock, issued in connection with
the private placement of $2,000,000 aggregate principal amount of Bridge Notes
(Incorporated by reference to Exhibit 3.4 to the Registrant's Registration Statement
on Form SB-2 (File No. 333-20625) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
3.4 Form of Warrant to Purchase Common Stock of the Registrant, issued in connection with
the private placement of units in June 1995 and August 1996 (Incorporated by
reference to Exhibit 3.5 to the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
3.5 Warrant to Purchase 43,382 Shares of Common Stock, issued to the Adelson Investment
Company (Incorporated by reference to Exhibit 3.6 to the Registrant's Registration
Statement on Form SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
3.6 Form of Warrants for the Purchase of 100,000 Shares of Common Stock issued in
connection with the private placement of Series A Convertible Preferred Stock and
warrants in December 1996 and January 1997 (Incorporated by reference to Exhibit 3.7
to the Registrant's Registration Statement on Form SB-2 (File No. 333-20625) filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended).
3.7 Form of Option for the Purchase of 180,000 Shares of Common Stock issued to Barington
Capital Group, L.P. (Incorporated by reference to Exhibit 3.8 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended).
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, and 3.7.
4.2 Specimen certificate evidencing shares of Common Stock of the Registrant
(Incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement
on Form SB-2 (File No. 333-20625) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
5* Form of opinion of Shaw, Pittman, Potts & Trowbridge as to the legality of the
securities being registered.
10.1 1994 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended).
10.2 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form SB-2 (File No. 333-20625) filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended).
10.3* Authorized Reseller Agreement, dated July 18, 1997, between the Registrant and Sprint
Communications Company, L.P.
10.4 Employment Agreement between the Registrant and Steven A. Rogers (Incorporated by
reference to Exhibit 10.3 to the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
10.5 Form of Consulting Agreement by and between the Registrant and Barington Capital
Group, L.P (Incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended).
</TABLE>

II-6
<PAGE> 82

<TABLE>
<CAPTION>
EXHIBITS
-------------------------------------------------------------------------------------
<S> <C>
10.6 Letter Agreement, dated October 7, 1996, between Barington Capital Group, L.P. and
the Registrant (Incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended).
10.7 Letter Agreement, dated December 5, 1995, by and among PVR Securities, Inc., the
Registrant, Steven A. Rogers and John B. Torkelsen (Incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on Form SB-2 (File No.
333-20625) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
10.8 Voting Agreement, dated December 19, 1996, by and among the Registrant, Steven A.
Rogers, Applewood Associates, L.P. and Acorn Technology Partners, L.P. (Incorporated
by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
11 Statement regarding calculation of weighted average shares.
21 Subsidiaries of the Registrant.
23.1* Consent of Shaw, Pittman, Potts & Trowbridge (included as part of Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
24 Power of Attorney (included on signature page to the Registration Statement).
</TABLE>

- ---------------
* To be filed by amendment.

FINANCIAL STATEMENT SCHEDULES

Schedules other than those listed above have been omitted since they are
not required or are not applicable or the required information is in the
financial statements or related notes.

ITEM 28. UNDERTAKINGS.

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

(b) The undersigned Registrant hereby undertakes that:

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

For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-7
<PAGE> 83

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies it has reasonable grounds to believe it meets all the
requirements for filing this Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the County of Rockingham, New Hampshire, on September 18, 1997.

OBJECTIVE COMMUNICATIONS, INC.
(Registrant)

By: /s/ STEVEN A. ROGERS
------------------------------------
Steven A. Rogers
President and Chief Executive
Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven A. Rogers and Robert H. Emery and each of
them, his true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution, for and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any or all other documents in
connection therewith, and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission, granting unto said authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as might or could be
done in person, hereby ratifying and confirming all said attorney-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ ----------------------------- -------------------

<C> <S> <C>
/s/ STEVEN A. ROGERS President and Chief Executive September 18, 1997
- ------------------------------------------ Officer, and Director
Steven A. Rogers (Principal Executive Officer)

/s/ ROBERT H. EMERY Vice President of September 18, 1997
- ------------------------------------------ Administration and Finance
Robert H. Emery and Secretary (Principal
Financial and Accounting
Officer)
/s/ CLIFFORD M. KENDALL Chairman of the Board of September 18, 1997
- ------------------------------------------ Directors
Clifford M. Kendall

/s/ ANTHONY M. AGNELLO Director September 18, 1997
- ------------------------------------------
Anthony M. Agnello

/s/ ROBERT L. BARNETT Director September 18, 1997
- ------------------------------------------
Robert L. Barnett

/s/ DONALD W. BARRETT Director September 18, 1997
- ------------------------------------------
Donald W. Barrett

/s/ EUGENE R. CACCIAMANI Director September 18, 1997
- ------------------------------------------
Eugene R. Cacciamani

/s/ MARC S. COOPER Director September 18, 1997
- ------------------------------------------
Marc S. Cooper
</TABLE>

II-8
<PAGE> 84

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------ ----------------------------- -------------------

/s/ LINCOLN D. FAURER Director September 18, 1997
- ------------------------------------------
Lincoln D. Faurer

/s/ RICHARD T. LIEBHABER Director September 18, 1997
- ------------------------------------------
Richard T. Liebhaber

/s/ ROY C. NASH Director September 18, 1997
- ------------------------------------------
Roy C. Nash

/s/ JOHN B. TORKELSEN Director September 18, 1997
- ------------------------------------------
John B. Torkelsen
</TABLE>

II-9
<PAGE> 85

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Registrant (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement on Form SB-2 (File
No. 333-20625) filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended).
3.2 Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form SB-2 (File No. 333-20625) filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended).
3.3 Form of Warrant for the Purchase of Shares of Common Stock, issued in connection with
the private placement of $2,000,000 aggregate principal amount of Bridge Notes
(Incorporated by reference to Exhibit 3.4 to the Registrant's Registration Statement
on Form SB-2 (File No. 333-20625) filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended).
3.4 Form of Warrant to Purchase Common Stock of the Registrant, issued in connection with
the private placement of units in June 1995 and August 1996 (Incorporated by reference
to Exhibit 3.5 to the Registrant's Registration Statement on Form SB-2 (File No.
333-20625) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
3.5 Warrant to Purchase 43,382 Shares of Common Stock, issued to the Adelson Investment
Company. (Incorporated by reference to Exhibit 3.6 to the Registrant's Registration
Statement on Form SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
3.6 Form of Warrants for the Purchase of 100,000 Shares of Common Stock issued in
connection with the private placement of Series A Convertible Preferred Stock and
warrants in December 1996 and January 1997 (Incorporated by reference to Exhibit 3.7
to the Registrant's Registration Statement on Form SB-2 (File No. 333-20625) filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended).
3.7 Form of Option for the Purchase of 180,000 Shares of Common Stock issued to Barington
Capital Group, L.P. (Incorporated by reference to Exhibit 3.8 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7.
4.2 Specimen certificate evidencing shares of Common Stock of the Registrant (Incorporated
by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
5* Form of opinion of Shaw, Pittman, Potts & Trowbridge as to the legality of the
securities being registered.
10.1 1994 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
10.2 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form SB-2 (File No. 333-20625) filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended).
10.3* Authorized Reseller Agreement, dated July 18, 1997, between the Registrant and Sprint
Communications Company, L.P.
10.4 Employment Agreement between the Registrant and Steven A. Rogers (Incorporated by
reference to Exhibit 10.3 to the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
</TABLE>
<PAGE> 86

<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C>
10.5 Form of Consulting Agreement by and between the Registrant and Barington Capital
Group, L.P. (Incorporated by reference to Exhibit 10.4 to the Registrant's
Registration Statement on Form SB-2 (File No. 333-20625) filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended).
10.6 Letter Agreement, dated October 7, 1996, between Barington Capital Group, L.P. and the
Registrant (Incorporated by reference to Exhibit 10.5 to the Registrant's Registration
Statement on Form SB-2 (File No. 333-20625) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended).
10.7 Letter Agreement, dated December 5, 1995, by and among PVR Securities, Inc., the
Registrant, Steven A. Rogers and John B. Torkelsen (Incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on Form SB-2 (File No.
333-20625) filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended).
10.8 Voting Agreement, dated December 19, 1996, by and among the Registrant, Steven A.
Rogers, Applewood Associates, L.P. and Acorn Technology Partners, L.P. (Incorporated
by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form SB-2
(File No. 333-20625) filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended).
11 Statement regarding calculation of weighted average shares.
21 Subsidiaries of the Registrant.
23.1* Consent of Shaw, Pittman, Potts & Trowbridge (included as part of Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.
24 Power of Attorney (included on signature page to the Registration Statement).
</TABLE>

- ---------------
* To be filed by amendment.

<PAGE> 1

Exhibit 11

Objective Communications, Inc.
Weighted average shares

<TABLE>
<CAPTION>
For the Six Months
Years ended December 31, Ended June 30,
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding 617,895 1,565,438 1,711,413 1,711,413 1,896,577

Shares issued within one year of filing of initial
public offering 350,431 350,431 350,431 350,431

Options issues within one year of filing of initial
public offering 138,000 138,000 138,000 138,000

Warrants issued within one year of filing of initial
public offering 907,790 907,790 907,790 907,790

Convertible securities issued within one year of
filing of initial public offering 500,000 500,000 500,000 500,000

Weighted average of warrants outstanding 151,571

Weighted average shares issued for initial
public offering 919,392

Weighted average of conversion of preferred
stock to common stock 229,282
--------- --------- --------- --------- ---------
2,514,116 3,461,659 3,607,634 3,607,634 3,196,822
========= ========= ========= ========= =========

</TABLE>

<PAGE> 1
EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

None.

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form SB-2 of our
report, dated January 10, 1997, except for Note 6 pertaining to subsequent
events, as to which the date is April 1, 1997, on our audits of the financial
statements of Objective Communications, Inc. (a development stage enterprise)
as of December 31, 1995 and 1996, and 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. We also consent to the reference to our firm under the
caption "Experts" and "Selected Financial Data."

COOPERS & LYBRAND L.L.P.

Boston, MA
September 18, 1997