VIDEOLAN TECHNOLOGIES INC /DE/, POS AM, 1996-05-28

VIDEOLAN TECHNOLOGIES INC /DE/
POS AM, 1996-05-28
COMPUTER PERIPHERAL EQUIPMENT, NEC

Previous: DORCHESTER PARTNERS L P, SC 13D, 1996-05-28

Next: SHERIDAN HEALTHCARE INC, 8-K/A, 1996-05-28

<PAGE>

As Filed with the Securities and Exchange Commission on May 28, 1996
Registration No. 33-93086

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 1 TO

FORM SB-2

Registration Statement
Under the Securities Act of 1933

VIDEOLAN TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)

DELAWARE 3669 61-1283466
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)

100 Mallard Creek Road, Suite 250
Louisville, Kentucky 40207
(502) 895-4858
(Address and Telephone Number of Principal Executive Offices)

100 Mallard Creek Road, Suite 250
Louisville, Kentucky 40207
(Address of Principal Place of Business or Intended Principal Place of Business)

Ted Ralston
Chairman
VideoLan Technologies, Inc.
100 Mallard Creek Road, Suite 250
Louisville, Kentucky 40207
(502) 895-4858
(Name, Address and Telephone Number of Agent For Service)

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

Copies to:
William G. Strench, Esq.
Hirn Doheny & Harper
2000 Meidinger Tower
Louisville, Kentucky 40202
(502) 585-2450

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

Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.

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

<PAGE>

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

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

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>
VIDEOLAN TECHNOLOGIES, INC.
CROSS-REFERENCE SHEET

<TABLE>
<CAPTION>
Item Number and Caption Heading in Prospectus
- ----------------------- ---------------------
<S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page

2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page

3. Summary Information and Risk Factors............... Prospectus Summary;
Risk Factors

4. Use of Proceeds.................................... Use of Proceeds

5. Determination of Offering Price.................... Description of
Securities -- Redeemable
Warrants

6. Dilution........................................... Not Applicable

7. Selling Security Holders........................... Not Applicable

8. Plan of Distribution............................... Plan of Distribution

9. Legal Proceedings.................................. Business -- Litigation

10. Directors, Executive Officers, Promoters and
Control Persons.................................... Management

11. Security Ownership of Certain Beneficial Owners
and Management..................................... Principal Stockholders

12. Description of Securities.......................... Price Range of Common
Stock; Dividend Policy;
Description of
Securities

13. Interest of Named Experts and Counsel.............. Not Applicable

14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Description of
Securities -- Limitation
on Liability

15. Organization Within Last Five Years................ Not Applicable

16. Description of Business............................ Business

</TABLE>

<PAGE>

<TABLE>
<S> <C>
17. Management's Discussion and Analysis or Plan of
Operation.......................................... Management's Discussion
and Analysis of
Financial Condition and
Results of Operations

18. Description of Property............................ Business -- Facilities

19. Certain Relationships and Related Transactions..... Not Applicable

20. Market for Common Equity and Related Stockholder
Matters............................................ Price Range of Common
Stock and Warrants;
Dividend Policy

21. Executive Compensation............................. Management -- Executive
Compensation

22. Financial Statements............................... Prospectus Summary --
Summary Financial Data;
Selected Financial
Data; Index to Financial
Statements

23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................ Not Applicable
</TABLE>

<PAGE>
PROSPECTUS

VIDEOLAN TECHNOLOGIES, INC.

3,139,000 SHARES OF COMMON STOCK
(Upon exercise of redeemable common stock warrants)

The 3,139,000 shares of common stock, $0.01 par value per share (the
"Common Stock"), being offered hereby (the "Offering") by VideoLan Technologies,
Inc. (the "Company") are issuable upon exercise of the 3,139,000 outstanding
redeemable common stock warrants (the "Warrants"). Each Warrant entitles the
holder thereof to purchase one share of Common Stock at an exercise price of
$7.00 per share, subject to certain adjustments, at any time until August 10,
2000. The Company may at any time redeem the Warrants, in whole or in part, at
the option of the Company, upon not less than 30 days' notice at a price of $.20
per Warrant, provided that the average of the closing bid prices of Common Stock
is at least 175% of the then current exercise price of the Warrants for 20
consecutive business days ending within 30 days of the date of the notice of
redemption (the "Redemption Date"). If not previously exercised on the
Redemption Date, the Warrants may be redeemed for $.20 per Warrant.

The Common Stock and Warrants are listed on the Nasdaq SmallCap Market
under the symbols VLNT and VLNTW. On May 14, 1996, the closing prices for the
Common Stock and the Warrants, as reported by Nasdaq were $15.25 per share and
$11.00 per Warrant, respectively.

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

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6 OF THIS PROSPECTUS.

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

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>
Underwriters Discounts Proceeds to Company(1)
Price to Public and Commissions
<S> <C> <C> <C>
Per Share $ 7.00 -0- $ 7.00
Total(2) $21,973,000 -0- $21,973,000
</TABLE>

- ----------

(1) Before deducting expenses payable by the Company estimated at $65,000.00
or $0.02 per share.

(2) Assumes exercise of all Warrants, as to which there can be no assurance.

<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith,
files reports and other information with the Securities and Exchange Commission
("Commission"). Such reports and other information filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well
as at the following Regional Offices of the Commission: Northeast (New York)
Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and
Midwest (Chicago) Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street N.W., Washington, D.C. 20549 at prescribed rates.

The Company has filed with the Commission a Registration Statement on Form
SB-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended ("Securities Act"),
with respect to the Common Stock offered hereby. This Prospectus omits certain
of the information contained in the Registration Statement pursuant to the rules
and regulations of the Commission. The information so omitted may be obtained
from the principal offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the fee prescribed or may be examined
there without charge.

<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus. An
investment in the Shares offered hereby involves a high degree of risk.
Prospective investors should consider carefully the factors identified under the
heading "Risk Factors."

The Company

The Company has developed and is engaged in the continuing development of
transport and switching and communications products which utilize the Company's
proprietary technology to transmit and receive real time, interactive video,
voice and data signals over two pairs of unshielded twisted pair copper wire
("UTP copper"). The Company was incorporated in May 1994 as an Ohio corporation.
In August 1995, the state of incorporation was changed to Delaware. The
Company's initial product is a stand-alone video, voice and data communications
network solution (the "VideoLan VL2000 System") for the desktop personal
computer ("PC"). The Company also is presently attempting to develop its
proprietary technology to enable local telephone exchange carriers, regional
Bell operating companies ("RBOCs") and cable companies to utilize their existing
wiring plants to deliver various interactive video and data services to the home
or business customer.

The VideoLan VL2000 System consists of a package of components integrated
into a local area network ("LAN") or wide area network ("WAN") environment. Once
installed, users at their PCs can initiate and control multi-party, real time,
interactive video, voice and data conferences. Up to four full motion (30 frames
per second) video images can be displayed on the PC monitor, and multiple data
applications can be performed interactively. Users also can access and control
at their PCs the functionality of remote multimedia devices, such as cameras,
video monitors, video cassette recorders ("VCRs") and laser discs and any other
device that can be data controlled. A stand-alone communications solution, data
and applications accessed from a computer, which connects PCs in the LAN (a
"client/server"), are transmitted along with video and voice signals over a
network separate and parallel to the LAN, using existing LAN UTP copper
infrastructure.

Due to its proprietary technology, the Company believes that the VideoLan
VL2000 System has a greater array of features and is simpler and less expensive
to install and integrate into the LAN environment than competitive products, and
allows more users simultaneously to access and participate in conferences, using
multiple multimedia applications, without compromising the performance of the
LAN or the quality of the signals received. Designed with an open architecture,
the VideoLan VL 2000 System operates on IBM compatible PCs running Microsoft(C)
Windows(TM) operating software, and can be equipped with application programming
interfaces which also can be adapted to support MacIntosh(TM) and Unix(TM)
software platforms.

The Company intends to market the VideoLan VL2000 System through original
equipment manufacturers ("OEM"), value added resellers ("VARS"), systems
integrators, direct sales and distributors whose markets and market presence
will provide significant distribution channels, and through targeted
distributors and directly to users in niche markets particularly suited to the
Company's technology, such as financial markets, telemedicine, high-end business
and educational applications. The Company anticipates that it will subcontract
manufacturing, assembly and field maintenance services. Although it has received
some orders, commercial marketing of the VideoLan VL2000 System is not expected
to commence until the Company is able to establish its sales channels, and its
suppliers are

3
<PAGE>

capable of delivering sufficient quantities of the components of the VideoLan
VL2000 System. The Company believes that it will be able to establish sales
channels and secure suppliers capable of delivering quantities of components
sufficient for the commencement of commercial marketing of the VideoLan VL2000
System during the second half of fiscal year 1996.

The Company is located at 100 Mallard Creek Road, Suite 250, Louisville,
Kentucky 40207. The Company's telephone number is (502) 895-4858.

The Offering

<TABLE>
<S> <C>
Shares of Common Stock Offered....................... 3,139,000 shares

Shares of Common Stock outstanding
as of May 14, 1996................................... 13,898,498 (1)

Use of Proceeds...................................... Working capital

Nasdaq SmallCap Symbol (2).......................... VLNT
</TABLE>

- ----------

(1) Does not include 1,125,000 shares of Common Stock reserved for issuance
pursuant to outstanding options and 3,139,000 shares of Common Stock
reserved for issuance pursuant to the exercise of outstanding redeemable
common stock warrants.

(2) The Common Stock is listed on the Nasdaq SmallCap Market. However,

there can be no assurance that such listing will be maintained. See "Risk
Factors -- Possibility of Nasdaq Delisting and Decrease in Stock Price."

The Company intends to furnish holders of the Common Stock with annual reports
containing financial statements audited by its independent auditors, together
with an opinion thereon expressed by such auditors.

<PAGE>
Summary Financial Data
(In thousands, except for per share data)

The summary financial data presented below for the Company and L&LD, the
predecessor of the Company for financial reporting purposes, should be read in
conjunction with the financial statements of the Company and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
L&LD |
(Predecessor) | Company
-------------- | -----------------
| Period from
Period from | May 11, 1994 Three Months Ended
January 1, 1994 | (Inception) March 31
through | through Year Ended ------------------------
May 10, 1994 | December 31, 1994 December 31, 1995 1995 1996
--------------- | ----------------- ----------------- ------------------------
<S> <C> | <C> <C> <C> <C>
Statement of Operating Data: |
Net Sales ............................ $ -- | $ -- $ 50 $ -- $ --
Consulting revenues .................. 11 | -- -- -- --
Cost and expenses .................... 48 | 2,331 6,792 1,716 1,487
------- | ------- ------- ------- -------
Net loss ............................. $ (37) | $(2,331) $(6,742) $(1,716) $(1,487)
Net loss per share ................... | $ (0.21) $ (0.56) $ (0.16) $ (0.11)
Weighted average shares outstanding .. | 10,968 12,095 10,968 13,855
|
<CAPTION> |
| December 31
| -------------------------- March 31
| 1994 1995 1996
| -------------------------- --------
<S> | <C> <C> <C>
Balance Sheet Data: |
Working capital (deficit)............. | $(587) $ 7,139 $ 5,628
Total assets.......................... | 204 7,900 6,760
Total liabilities..................... | 686 410 686
Stockholders' equity (deficiency)..... | (482) 7,490 6,074
</TABLE>

5
<PAGE>
RISK FACTORS

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT
BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR TOTAL INVESTMENT.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER

INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS.

Development Stage Enterprise; Losses Since Inception; Expectation of Continuing
Losses

The Company is a development stage enterprise and has incurred aggregate
losses of $10,560,658 from inception through March 31, 1996. The Company expects
to incur continuing losses until significant quantities of the VideoLan VL2000
System are sold.

New Venture; No Prior Operating History; Dependence on Initial Product

Revenue and profitability and future commercialization of the Company's
technology could be dependent upon the success of the VideoLan VL2000 System.
The Company only recently has begun to receive orders for the VideoLan VL2000
System and there can be no assurance that the introduction and marketing of the
VideoLan VL2000 System will be successful, or that the Company will have
significant revenues or profitable operations. In addition, there can be no
assurance that unforeseen technical or other difficulties will not arise which
would interfere with the assembly, manufacture, integration or installation of
the VideoLan VL2000 System, or prevent or create delays in marketing the
product. The Company has engaged in limited field testing of the VideoLan VL2000
System, and there can be no assurance that the product will perform to the
Company's expectations.

Uncertain Market Acceptance of Technology; Risk of Obsolescence

The success of the VideoLan VL2000 System will depend in large part upon
market acceptance of the Company's technology. There can be no assurance that
the Company's technology will be accepted in the marketplace, or will be
perceived as being competitive with other technologies, including technologies
which may be developed. The potential introduction of new technologies could
have a material adverse effect on the Company.

Lack of Marketing Experience and Reliance on Marketing Partners

The Company presently is beginning to implement its marketing program for
the VideoLan VL2000 System, has conducted no market studies and has limited
marketing experience, financial resources and marketing personnel. Successful
marketing of the VideoLan VL2000 System will depend upon the Company's ability
to demonstrate effectively the technological advantages of the VideoLan VL2000
System to OEMs, VARs, systems integrators and distributors whose markets and
market presence will provide significant distribution channels, and targeted
distributors and end users in niche markets. To date, only two distribution
agreements have been entered into by the Company and there can be no assurance
that the Company will enter into any other arrangement or agreement on terms
satisfactory to the Company. The failure of the Company to establish a sales,

marketing or distribution network could have a material adverse effect on the
Company.

6
<PAGE>
In addition, the current market for desktop video conferencing products is
fragmented and growing, and other companies are actively marketing or are
expected to introduce competing products. One or more competitors could
establish significant market share before the Company's distribution channels
and product recognition are established. Also, potential distributors may form
other alliances or may develop competing products.

In the event that the Company ultimately is able to enter into satisfactory
third party distribution arrangements, the Company will be dependent largely on
such third party's marketing efforts and, in the case of OEMs and VARs, the
popularity and sales of the third party's products integrating the VideoLan
VL2000 System. While the Company believes that marketing the VideoLan VL2000
System through third party distribution channels will avoid marketing costs and
expenses, the Company's revenues will be less than if it directly marketed the
VideoLan VL2000 System.

Necessity of Developing New Applications

Even if the VideoLan VL2000 System is successfully marketed, the Company
anticipates that rapidly changing technology and new entrants into the desktop
video conferencing market could cause, over time, revenues and profitability of
the VideoLan VL2000 System to decline. Therefore, the future success of the
Company could depend upon its ability to develop and successfully commercialize
its technology for other communications applications. The Company cannot develop
all of the potential commercial applications of its technology, so it intends to
target projects it believes have the most potential and which it can afford.
However, there can be no assurance that such projects will be commercially
successful, that the cost will not exceed the financial resources available to
the Company, or that the Company will not abandon projects which do not meet its
expectations.

Uncertain Access to Additional Financing

Unless and until adequate income from sales of the VideoLan VL2000 System
is obtained, the timing, sufficiency and receipt of which cannot be predicted,
future development and commercialization of the Company's technology will depend
upon arrangements with third parties to finance research and development
projects, or the Company's ability to obtain other additional financing on terms
satisfactory to the Company. The Company presently has no arrangements or
commitments for external financing. The Company's inability to obtain such
financing could have a material adverse effect on the Company's operations.

Uncertain Protection of Intellectual Property Rights

The Company has a pending patent application in the United States which
claims an efficient network for the real time, simultaneous, bi-directional
transmission of voice, video, and data among a plurality of users connected to a
plurality of hubs. The claims in such patent application have been allowed and
the Company anticipates that the patent will be issued. In addition, an
international patent application is pending designating 56 foreign countries as
well as the United States. The Company intends to file future U.S. and foreign
patent applications if any patentable inventions are created through continued
development of the Company's technology. No assurance can be given that the
Company will receive patent protection with respect to future patent
applications relating to enhancements of, and new applications for, the
Company's technology. Further, there can be no assurance that, if issued, such
patents will afford protection against competitive products or technologies,
which could be superior to the Company's products or technology. In addition,
enforcement of patent

7
<PAGE>

rights could be costly, and there can be no assurance that the Company would be
successful in enforcing such rights. Further, a successful challenge to a
pending or issued patent could jeopardize the Company's ability to engage in its
contemplated business activities. Therefore, there can be no assurance that the
Company's intellectual property rights are or will be adequately protected,
which could have a material adverse effect on the Company.

Although the Company believes that its products and technologies do not and
will not infringe on patents or other proprietary rights of others, it is
possible that such infringement or violation has occurred or may occur. In the
event that the Company's products or technologies infringe on patents or other
proprietary rights of others, the Company could be required to discontinue the
sale of its products, including the VideoLan VL2000 System, and redesign its
product or obtain licenses. There can be no assurance that the Company would be
able to do so in a timely manner, upon acceptable terms and conditions, or at
all, or that the failure to do any of the foregoing would not have a material
adverse effect on the Company. If any of the Company's products or technologies
are deemed to infringe on patents or other proprietary rights of others, the
Company could, under certain circumstances, become liable for damages, which
could also have a material adverse effect on the Company.

Absence of Manufacturing Capabilities; Dependence on Suppliers and Third-Party
Manufacturers

The Company has no manufacturing capabilities and does not plan to
manufacture the VideoLan VL2000 System or any future products it develops. The
Company has arranged with Plexus Corp. ("Plexus") to assemble and integrate
sub-assemblies manufactured by it and other vendors according to the Company's

specifications. However, the Company and Plexus have not entered into a
contract, and the existing arrangement could be terminated at any time, which
could have a material adverse affect on delivery schedules. In addition, the
quality of the components of the VideoLan VL2000 System and the Company's
ability to meet customers' delivery schedules will be dependent upon the ability
of Plexus and the other vendors to manufacture the components and to integrate
the various sub-assemblies in a timely manner, as well as the timely delivery by
suppliers of raw materials. To date, Plexus has delivered only limited
quantities of the VideoLan VL2000 System to the Company. In the event that
Plexus or any other vendor or supplier fails to deliver quality components or
materials in a timely manner, the Company may not be able to satisfy customer
delivery schedules, which could have a material adverse effect on the Company.
See "Business--Manufacturing."

Possible Inability to Successfully Compete

A number of video conferencing products presently are being marketed, and
new entrants into the market are anticipated. There are and will be numerous
well-established competitors, including joint ventures involving major
communications companies, that possess substantially greater financial,
marketing, personnel and other resources than the Company. There can be no
assurance that the VideoLan VL2000 System will be accepted in the marketplace,
or will be perceived as being competitive with other products, including new
products which may be developed. In addition, there is intense competition among
potential providers to establish video services. Various alternative
technologies are being tested and there can be no assurance that the Company's
technology will be developed for video services before other technologies are
selected or that, if developed, will be preferred over other technologies.

Need for Additional Personnel

The success of the Company is also dependent upon its ability to hire and
retain additional qualified marketing, technical and other personnel.
Competition for such personnel is intense and there

8
<PAGE>
can be no assurance that the Company will be able to hire such additional
personnel on a timely basis or retain such personnel. See "The Company--
Employees."

Uncertain Impact of FCC Statutes and Regulations

The Company cannot precisely predict what effect current or future
governmental regulations may have on the Company's products or technology. While

Congress and the Federal Communications Commission (the "FCC") are promoting the
development of a competitive video distribution industry, the enactment or the
interpretation of relevant statutes and administrative rules, regulations,
policies and procedures could have an adverse effect on the industry as a whole,
any one segment thereof, or on the Company in particular.

The Company's potential alliances with telephone companies and cable
companies to develop video services could be affected by the Telecommunications
Act of 1996 (the"Telecom Act"), which instructs the FCC to develop rules by
August 1996 to implement the repeal of the "Cross-Ownership Ban", the statutory
ban against telephone companies providing video programming in their own service
areas. The Telecom Act provides telephone companies with four avenues for the
provision of video services and terminates the Video Dialtone rules previously
enacted by the FCC to permit some video delivery by telephone companies within
their service areas. The U.S. Supreme Court has remanded to a lower court a case
which questioned the constitutionality of the "Cross-Ownership Ban" to determine
whether or not it is moot in light of the Telecom Act. Further proposals for
additional or revised statutes and regulations are considered by Congress and
federal regulatory agencies respectively from time to time. The Company cannot
predict the effect of possible changes in federal regulations, policies or laws
on the business strategy of the Company.

Possibility of Nasdaq Delisting and Decrease in Stock Price

The trading of VideoLan's stock on Nasdaq is conditioned upon meeting
certain asset, capital and surplus, earnings and stock price tests. The
requirements to maintain eligibility on Nasdaq require the Company to maintain
total assets in excess of $2,000,000, capital and surplus in excess of
$1,000,000, and (subject to certain exceptions) a bid price of at least $1.00
per share. If the Company fails any of these tests, the Common Stock and the
Warrants may be delisted from trading on Nasdaq. The effects of delisting
include the limited release of the market prices of the Company's securities and
limited news coverage of the Company. Delisting may restrict investors' interest
in the Company's securities and materially adversely affect the trading market
and prices for such securities and the Company's ability to issue additional
securities or to secure additional financing. In addition to the risk of
volatility of stock prices and possible delisting, low price stocks are subject
to the additional risks of additional federal and state regulatory requirements
and the potential loss of effective trading markets. In particular, if the
Common Stock or Warrants were delisted from trading on Nasdaq and the trading
price of the Common Stock were less than $5.00 per share, the Common Stock and
Warrants could be subject to Rule 15g-9 under the Exchange Act, which, among
other things, requires that broker/dealers satisfy special sales practice
requirements, including making individualized written suitability determinations
and receiving any purchaser's written consent prior to any transaction. In such
case, the Company's securities could also be deemed penny stocks under the
Securities Enforcement and Penny Stock Reform Act of 1990, which would require
additional disclosure in connection with trades in the Company's securities,
including the delivery of a disclosure schedule explaining the nature and risks

of the penny stock market.

9
<PAGE>

Such requirements could severely limit the liquidity of the Company's securities
and the ability of purchasers in this Offering to sell their shares of Common
Stock in the secondary market.

Potential Adverse Impact of Exercise of Warrants and Warrants Outstanding

The Company issued the Warrants to purchase 3,144,000 shares of Common
Stock in connection with its initial public offering in August 1995. Each
Warrant entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $7.00 per share, subject to certain adjustments, at any time
until August 10, 2000, unless previously redeemed. The price that the Company
may receive for the Common Stock issued upon exercise of the Warrants may be
less than the market price for such Common Stock at the time of exercise. In
connection with the initial public offering, the Company also sold to the
underwriter of that offering, Kensington Wells Incorporated (the "Underwriter"),
warrants (the "Underwriter's Warrants") to purchase 250,000 shares. The
Underwriter's Warrants are exercisable for a period of five years from the date
of the initial public offering, at an exercise price of $6.60 per share. As long
as such Warrants and Underwriter's Warrants remain unexercised, the terms under
which the Company could obtain additional capital may be adversely affected.
Moreover, the holders of such Warrants and the Underwriter's Warrants may be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital by a new offering of its securities on
terms more favorable than those provided by such Warrants and Underwriter's
Warrants.

The Underwriter's Warrants and all of the securities underlying the
Underwriter's Warrants were registered in the initial public offering.
Additionally, the Company granted certain registration rights to the holders of
the securities underlying the Underwriter's Warrants, whereby the Company
agreed, subject to certain conditions, to register at its own expense such
underlying securities. If the holders of the Underwriter's Warrants should
exercise their registration rights to effect a distribution of the underlying
securities, the Underwriter, prior to and during such distribution, will be
unable to make a market in the Company's securities and would be required to
comply with other limitations on trading set forth in Rules 10b-2, 10b-6, and
10b-7 promulgated under the Exchange Act. Such rules restrict the solicitation
of purchasers of a security when a person is interested in the distribution of
such security and also limit market making activities by an interested person
until the completion of the distribution. If the Underwriter must cease making a
market, the market and market price for such securities may be adversely
affected and holders of such securities may be unable to sell such securities.

No Intention to Declare or Pay Cash Dividends

The Company does not currently intend to declare or pay any cash dividends
on the Common Stock in the foreseeable future and anticipates that earnings, if
any, will be used to finance the development and expansion of its business. Any
payment of future dividends and the amounts thereof will be dependent upon the
Company's earnings, financial requirements, and other factors deemed relevant by
the Company's Board of Directors, including the Company's contractual
obligations. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Potential Adverse Impact of Preferred Stock on Rights of Common Stockholders

The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue

10
<PAGE>
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Company's Common Stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company. The possible impact on
takeover attempts could adversely affect the price of the Common Stock. Although
the Company has no present intention to issue any shares of its preferred stock,
there can be no assurance that the Company will not do so in the future. See
"Description of Securities."

Potential Adverse Impact on Market Price of Shares Eligible for Future Sale

Future sales of shares by existing shareholders under Rule 144 or Rule 701
of the Securities Act or following the issuance of shares of Common Stock upon
exercise of options or otherwise could have a negative impact on the market
price of the Common Stock. As of May 14, 1996, approximately 4,269,600 shares of
Common Stock held by existing stockholders who are not subject to lock-up
agreements were eligible for sale to the public. 200,000 shares of Common Stock
are issuable upon the exercise of options and eligible for immediate sale. An
additional 420,000 shares of Common Stock issuable upon the exercise of options
will be eligible for sale (subject to vesting schedules) upon the expected
filing of a registration statement under the Securities Act on or before August
31, 1996. At various times before August 10, 1997, approximately 9,719,898
shares of Common Stock held by existing stockholders will become eligible for
sale to the public under Rule 144. Of this amount, approximately 3,868,367
shares of Common Stock will be eligible for sale on to the public on February
10, 1996 following the expiration of certain lock-up agreements with the
Underwriter. See "Shares Eligible for Future Sale."

Certain stockholders, including certain of the Selling Stockholders, have
certain registration rights with respect to the securities held by them other
than those registered in this Prospectus. See "Principal Stockholders" and
"Shares Eligible for Future Sale."

PRICE RANGE OF COMMON STOCK AND WARRANTS

The following table sets forth high and low prices for the Company's Common
Stock on Nasdaq. These prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.

<TABLE>
<CAPTION>
Quarter Ended Common Stock Warrants
------------- ------------ --------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1995
Third quarter $12.00 $ 6.00 $ 7.87 $ 1.50
Fourth quarter 47.50 9.87 41.25 6.50

1996
First quarter 38.50 8.75 31.25 5.50
------ ------ ------ ------
Second quarter
(through May 14) 20.00 14.00 16.00 10.24
------ ------ ------ ------
</TABLE>

11
<PAGE>

On May 14, 1996, the closing sale price for the Common Stock on Nasdaq was
$15.25 per share, and the closing sale price for the Warrants was $11.00 per
Warrant.

As of April 30, 1996, there were approximately 178 registered holders of
record of the Company's Common Stock, which the Company believes represents more
than 2700 beneficial holders (including brokerage firms and other nominees), and
approximately 13 registered holders of the Company's Warrants, which the Company
believes represents 1,894 beneficial holders (including brokerage firms and
other nominees).

DIVIDEND POLICY

The Company has never paid dividends on its Common Stock. The Company plans
to retain any earnings to provide for the development and growth of the Company.

<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except for per share data)

The selected financial data for the period January 1, 1994 through May 10,
1994 is derived from the financial statements of the Company's predecessor for
financial reporting purposes. The selected financial data for the period May 11,
1994 (inception) through December 31, 1994 and the year ended December 31, 1995
have been derived from the financial statements of the Company. These financial
statements have been audited by Grant Thornton LLP, the Company's independent
public accountants for such periods. This data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, including notes thereto, appearing
elsewhere in this Prospectus. The financial data with respect to the three
months ended March 31, 1995 and March 31, 1996 is unaudited; however, in the
opinion of management, such data reflects all adjustments (consisting only of
normal recurring adjustments) necessary to fairly present the data for such
interim periods. Operating results for interim periods are not necessarily
indicative of the results that may be expected for a full year.

<TABLE>
<CAPTION>
L&LD |
(Predecessor) | Company
-------------- | -----------------
| Period from
Period from | May 11, 1994 Three Months Ended
January 1, 1994 | (Inception) March 31
through | through Year Ended ------------------------
May 10, 1994 | December 31, 1994 December 31, 1995 1995 1996
--------------- | ----------------- ----------------- ------------------------
<S> <C> | <C> <C> <C> <C>
Statement of Operating Data: |
Net Sales ............................ $ -- | $ -- $ 50 $ -- $ --
Consulting revenues .................. 11 | -- -- -- --
Cost and expenses .................... 48 | 2,331 6,792 1,716 1,487
------- | ------- ------- ------- -------
Net loss ............................. $ (37) | $(2,331) $(6,742) $(1,716) $(1,487)
Net loss per share ................... | $ (0.21) $ (0.56) $ (0.16) $ (0.11)
Weighted average shares outstanding .. | 10,968 12,095 10,968 13,855
|
<CAPTION> |
| December 31
| -------------------------- March 31
|
| 1994 1995 1996
| -------------------------- --------
<S> | <C> <C> <C>
Balance Sheet Data: |
Working capital (deficit)............. | $(587) $ 7,139 $ 5,628
Total assets.......................... | 204 7,900 6,760

Total liabilities..................... | 686 410 686
Stockholders' equity (deficiency)..... | (482) 7,490 6,074
</TABLE>

13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Company Overview

The Company is a development stage enterprise incorporated in Delaware.
The Company is engaged in the continuing development of communications products
which utilize the Company's proprietary technology to transmit and receive real
time, interactive video, voice and data signals over UTP copper, as well as
coaxial cable and fiber with proper interfaces, to and from desktop personal
computers over local and wide area networks. During the second half of fiscal
year 1996, the Company plans to introduce and market the VideoLan VL2000
System, its first product, through the establishment of distribution channels
and direct sales in certain niche markets. The Company will also continue to
develop its technology to enable local telephone exchange carriers, RBOC's, and
cable companies to provide video services on existing wiring plants.

In August 1995, the Company concluded its initial public offering of
2,875,000 shares, each unit consisting of one share of common stock and one
redeemable common stock purchase warrant exercisable for one share of common
stock at a price of $7.00, subject to certain adjustments based upon
anti-dilution provisions, at any time until August 10, 2000. The net proceeds of
the offering to the Company, after payment of underwriters discounts and
commissions, and other expenses of the offering were approximately $9,600,000.

Management believes that approximately $750,000 of the proceeds of the
offering will be sufficient to accomplish the Company's marketing strategy for
the VideoLan VL2000 System ($212,072 used as of March 31, 1996), since the
Company plans to rely in part on the marketing organizations of the OEM's,
VARS's, systems integrators and distributors through which it intends to sell
the VideoLan VL2000 System. The Company plans to minimize operating expenses by
subcontracting manufacturing, installation and field maintenance services.
Additionally, it is estimated that approximately $3,000,000 of the proceeds of
the offering will be used to purchase inventory ($763,348 used as of March 31,
1996), and approximately $1,500,000 will be used during the next twelve months
to enhance the VideoLan VL2000 System and develop the Company's technology for
video services ($1,445,133 used as of March 31, 1996). Thereafter, the Company
anticipates that cash flow from the sales of the VideoLan VL2000 System and/or
development contracts with RBOC's, cable companies or other third parties will
be required to fund the integration of the Company's technology into existing
RBOC or cable company infrastructures for video services. The availability of
sufficient development funding at the earliest possible time could be a

significant factor in establishing the Company's technology, rather than a
competing technology, in the marketplace. The balance of the IPO proceeds are
being used for general corporate working capital.

There can be no assurance that the Company will establish satisfactory
distribution channels for the VideoLan VL2000 System or that the VideoLan VL2000
System will be accepted in the marketplace. There can also be no assurance that
the Company will enter into satisfactory development contracts for video
services or that it can complete development before other technologies are
selected by video services providers. See "Risk Factors--Lack of Marketing
Experience and Reliance on Marketing Partners" and "Necessity of Developing New
Applications."

14
<PAGE>
Results of Operations

Three Months Ended March 31, 1996 Compared to the Three Months Ended
March 31, 1995

Revenues. The Company had no revenues for the periods ended March 31, 1996
or March 31, 1995. The Company has engaged in limited marketing of the VideoLan
VL2000 System and is currently beginning to implement its marketing strategy.

Selling. General and Administrative Expenses. Total selling, general and
administrative expenses for the three months ended March 31, 1996 were
$1,555,782 as compared with $1,726,083 in the comparable period of the prior
year. In the first quarter of fiscal year 1995 the Company incurred non cash
compensation expense of $1,125,000 relating to the issuance of common stock to
an employee. Salaries, consulting fees and related payroll taxes increased by
$572,000 to $708,007 in the first quarter of fiscal 1996, as compared to
$135,945 in the first quarter of fiscal year 1995. Research and development
expenses for the first quarter of 1996 were $455,133 as compared with $245,553
in 1995, and marketing costs were $53,356 in 1996 as compared with $43,332 in
1995.

Net Loss. The net loss of the Company for the three months ended March 31,
1996 was $1,487,435 (($0.11) per share) as compared with $1,716,326 (($0.16) per
share) for the three months ended March 31, 1995. The Company expects to
incur continuing losses until significant quantities of the VideoLan VL2000
System are sold.

Fiscal Year Ended December 31, 1995 Compared to the Period May 11, 1994
(Inception) through December 31, 1994

Revenues. The Company had revenues of $50,053 for the fiscal year ended
December 31, 1995. The Company has engaged in limited marketing of the VideoLan
VL2000 System and is planning to implement its marketing strategy during the
second half of fiscal year 1996.

Selling, General and Administrative Expenses. The Company is a development
stage enterprise. Total selling, general and administrative expenses for the
year ended December 31, 1995 were $6,881,715 as compared with $2,330,934 for
1994. In 1995, there was non cash compensation expense of $3,233,000 relating to
the issuance of stock and stock options to employees and consultants. Research
and development expenses for 1995 increased by $333,842, to $1,423,916, as
compared with 1994 expenses of $1,090,074. Marketing costs for 1995 were
$158,716, as compared with $40,074 for 1994.

Net Loss. Net loss of the Company was $6,742,289 (($0.56) per share) for
the year ended December 31, 1995, of which approximately $0.27 per share was
attributed to non cash compensation expense relating to the issuance of stock
and stock options to employees and consultants. The Company expects to incur
continuing losses until significant quantities of the VideoLan VL2000 System are
sold.

Liquidity and Capital Resources

Through March 31, 1996, an aggregate of $6,795,866 has been expended in the
operating and development stage activities of the Company, principally for
research and development, salaries and professional fees. An additional $358,695
has been used to acquire the Company's proprietary technology, prepare the
Company's patent applications and purchase certain equipment. Additional funds
will be necessary to pay for additional engineers, technical people and
increased marketing costs in connection with the sale of the Company's products.

15
<PAGE>

As of March 31, 1996, the Company has financed its operations primarily
through investments by its founder and individual investors, a private placement
of the Company's Common Stock completed in February of 1995 which raised net
proceeds of approximately $1,900,000, and from the net proceeds of the Initial
Public Offering ("IPO") which was completed in August 1995. The Company expects
that the IPO proceeds will be sufficient to meet the Company's working capital,
marketing, research and development, engineering and inventory requirements for
the balance of 1996. Thereafter, the Company anticipates that sales of the
VideoLan VL2000 System and/or the proceeds of research and development contracts
will be the primary source of working capital.

As of this date, the Company has no material long-term debt or material
commitments for capital expenditures. The Company may need to obtain
external financing as inventory requirements increase. However, there can be no
assurance that such financing will be available, which could materially
adversely affect the Company's business.

The Company believes that, during the past year, inflation has not had a
significant impact on the Company's operating results.

BUSINESS

Background

The emphasis of the Company is the development of products utilizing the
Company's proprietary technology. The Company's first product is the VideoLan
VL2000 System, a stand-alone video, voice and data communications network for
the desktop PC.

Although video conferencing was first introduced at the 1964 New York
World's Fair, the first commercial units, known as conference room-based
systems, were introduced in the late 1970's. These systems used special
dedicated telephone lines, expensive hardware and required trained operators.
Technological improvements and increased production volumes have decreased the
current cost of room-based systems to $15,000 for lower-cost, lower-function
systems and $50,000 for more advanced systems. An estimated 50,000 room-based
systems are in use today.

The Company believes that desktop PC video, voice and data conferencing
systems, first introduced in the early 1990s offer significant advantages over
room-based systems, including lower cost and ease of use. These products also
permit data applications sharing. It is estimated that in excess of 50,000
desktop PC conferencing units were sold as of year end 1995. Industry analysts
estimate that between 2.5 and 5 million desktop units and 250,000 conference
room-based systems will be in use in two years.

The Company believes that the desktop PC video, voice and data conferencing
products presently marketed use transport and switching technologies which
result in a wide range of performance characteristics, including differences in
video and voice quality, real time interactivity, the ability to run multiple
conferences or data applications simultaneously, the number of users that can

participate in a conference, and the degree of control which the users have over
the various elements of the conference. These products connect desktop PCs
through an integrated services digital network ("ISDN"), a LAN, or a PBX-like
hub network in combination with a LAN, using UTP copper, coaxial cable or fiber
as a transmission medium.

16
<PAGE>
ISDN connections require the costly installation of ISDN telephone lines
and hardware to transport the input signals, and can result in tariff charges
for user access, even when the conferencing parties are in the same building.
ISDN connections are not a network solution and not ideal for multiple users,
since additional ISDN lines must be installed to connect each person in a user
group.

LAN connections can transmit only a finite amount of data, and the
transmission of continuous video images uses a substantial portion of this
capacity. Accordingly, LAN connections currently tend to overload the LAN, which
causes data applications to run slower, affecting the conference participants as
well as other users. Therefore, there are limitations on the number of
simultaneous video conferences and data applications which can be used. Most
LANs presently installed use UTP copper infrastructure as a transmission medium.
The installation of fiber improves performance, but not sufficiently to overcome
the limitations of a LAN connection.

Existing PBX-like hub networks transport video and voice signals over a
network separate and parallel to the LAN. These products require the
installation of coaxial cable or fiber as a transmission medium. Data
applications are transmitted through a LAN connection, which could affect the
performance of the LAN.

The VideoLan VL2000 System is a PBX-like hub network, integrated into a LAN
environment, which transports uncompressed real time analog video, voice and
data signals independently of and parallel to the LAN. A communications network
solution, the VideoLan VL2000 System accesses data from a client/server and
transports the data signals, along with the video and voice signals, using the
existing LAN UTP copper infrastructure. UTP copper has four pairs of wires (8
individual wires). The VideoLan VL2000 System transmits video, voice and data
signals over one of the pairs, while real time video, voice and data signals are
received interactively over a second pair. The LAN can use the remaining two
pairs for data only applications.

Business Strategy

The Company's business strategy is to market the VideoLan VL2000 System and
to develop additional products utilizing its proprietary technology, including
video and high bandwidth delivery systems for the telephone and cable companies
("Telephony Products"). Since the Company's technology could be adaptable to
additional applications, including home to home and business to business video,

voice and data conferencing, it may undertake other initiatives in the future.

A. Marketing of the VideoLan VL2000 System

The Company intends to sell the VideoLan VL2000 System through OEMs, VARs,
systems integrators and distributors whose markets and market presence will
provide significant sales channels, and to distributors and end users in
targeted niche markets particularly suited to its technology, such as financial
markets, telemedicine, high-end business and educational applications. The
Company anticipates that it will subcontract field maintenance services. The
Company has entered into an arrangement for the manufacture and assembly of
VideoLan VL2000 System components with Plexus Corp ("Plexus"). The VideoLan
VL2000 System components are intended to be sold to OEMs, VARs and systems
integrators for integration into fully configured PC networks and workstations.
The Company does not intend to assemble and market fully configured PC networks
or workstations.

In August 1995, the Company signed a three-year distribution agreement with
Samsung America, Inc. and Samsung Corporation of Korea (collectively,
"Samsung"). Under the terms of the agreement, Samsung will have

17
<PAGE>

a three year exclusive right to sell, service, and distribute the VideoLan
VL2000 System in Korea. In October, 1995, the Company and Samsung signed an
addendum to the agreement whereby Samsung has prospectively agreed to purchase
VL2000 Desktop Multimedia Products and associated peripherals from the Company.
Samsung recently completed uncontrolled product testing in the United States
which the Company believes was successful. The Company anticipates that Samsung
will begin importing the VideoLan VL2000 System in the near future although
there can be no assurance that Samsung will purchase significant quantities of
the VideoLan VL2000 System.

The Company has also entered into a distribution agreement (the "IE
Agreement") with Intelligent Electronics, Inc. ("IE"). Since entering that
agreement, IE has experienced an adverse change in its financial condition and
has shifted its focus away from the distribution of videoconferencing equipment.
As a result, the Company anticipates that the distribution will be made through
IE's VAR network rather than in the manner originally contemplated by the IE
Agreement.

B. Development of Video Distribution and Telephone Products

The Company presently is developing its technology for video delivery
services allowing immediate access in the home to programming selected by
customers from a remote library, or video programming. The Company believes that
local telephone exchange carriers, RBOCs and cable companies could use the
Company's proprietary technology to provide interactive video services by which
voice and data signals would be transmitted over existing infrastructure
connecting telephone facilities or cable companies with residences or businesses
without compromising the quality of the signals received.

The Company intends to enter into arrangements with one or more RBOCs and
cable companies or other large OEMs whose primary market is the RBOCs to provide
interactive video transport. Additional research and development, presently
underway, will be necessary to "scale up" and integrate the Company's transport
and switching technology into the RBOC or cable company environment. If the
integrations are successfully completed, it is anticipated that trials would be
conducted prior to the commencement of commercial service. The Company has
entered into discussions with certain RBOCs or other large OEMs whose primary
market is the RBOCs. Testing of the Company's transmission technology for
conformity with the specifications of the twisted pair infrastructure of one
RBOC has commenced. The Company anticipates that it would be paid a royalty
if commercial service begins based upon user access, and would supply components
to the service providers. There can be no assurance that the Company's
technology will be accepted in the marketplace, or will be perceived as being
competitive with other technologies, including technologies which may be
developed.

There can be no assurance that the Company's business strategy will be
successful. In addition, video services may be indirectly subject to significant
governmental regulation.

Attributes of the VideoLan VL2000 System

A basic component of each video, voice and data conferencing system is a
transmission medium capable of transporting video, voice and data signals. One
of the advantages of the VideoLan VL2000 System compared to existing products is
its ability to transport real time, interactive, full motion video (30 frames
per second), voice and data signals over UTP copper. This should significantly
lower the cost and simplify the installation of the VideoLan VL2000 System,
since UTP copper infrastructure exists in most LAN environments. No ISDN
installation and usage costs are incurred and it is not necessary to install
coaxial cable or fiber.

The VideoLan VL2000 System transmits the data signals, along with video and

voice signals, independently of a LAN. Consequently, multiple video conferencing
and data applications can be used simultaneously without overloading and
degrading the performance of the LAN.

In addition, the Company believes that no existing product permits users to
access and control at their PCs remote multimedia devices such as cameras, video
monitors, VCRs and laser disks. The

18
<PAGE>

Company also believes that the VideoLan VL2000 System can transport signals,
without degradation, over longer distances than competitive products, without
the need to amplify the signals which tends to diminish performance and reduce
the number of potential conference participants. However, there can be no
assurance that the Company is aware of all of the other technologies presently
under development some of which could have similar or other attributes. See
"Risk Factors -- Uncertain Market Acceptance of Technology; Risk of
Obsolescence."

Operation of the VideoLan VL2000 System

Most LANs presently installed use UTP copper as a transmission medium. The
VideoLan VL2000 System is connected in the LAN environment through the LAN's
existing UTP copper infrastructure. The core of the VideoLan VL2000 System is a
multipoint voice data and video switch (16 user interfaces on switch) (the
"VideoLan Hub"). The VideoLan Hub transmits and routes the video, voice and
data signals over two of the four pairs of wires comprising UTP copper, while
the LAN uses the other two pairs. Therefore, although integrated into the LAN
environment, the VideoLan VL2000 System operates independently of and parallel
to the LAN. Designed with an open architecture, the VideoLan VL2000 System
operates on IBM compatible PCs running Microsoft(C) Windows(TM) operating
software, and can be equipped with application programming interfaces which also
adapt to support MacIntosh(TM) and Unix(TM) software platforms. The VideoLan
VL2000 System presently has sufficient capacity for 128 two person conferences
at one time. All standard video, voice and data source signals can be
transmitted and received.

In order to initiate a conference, a user at his desktop PC sends an
instruction through a proprietary user interface ("UI") to the VideoLan Hub
requesting the VideoLan Hub to distribute the signals to the conference
participants. Data applications and multimedia devices accessed from a
client/server are transported with the video and voice signals over the LAN's
UTP copper infrastructure through the VideoLan Hub, operating as a stand-alone
communications network. Up to four real time full color, full motion (30 frames
per second) images, and multiple real time data and multimedia applications can

be transmitted and controlled interactively by users at their desktop PCs. The
images appear full screen or can be repositioned and reduced by the user so that
data applications can be viewed and manipulated. Images and data can be
selectively transmitted and distributed to the conference participants, and can
be completely different from the real time images and data received. For
example, participants may transmit their own image while substituting another
image on their desktop PC.

The VideoLan VL2000 System can operate inter-building, interstate, or
internationally over a variety of public telecommunications network
architectures, including T1, E1 and ISDN, using codecs (a hardware circuit used
to compress and decompress digitized audio, video or images) and satellite,
microwave or fiber connections.

Each VideoLan Hub connects up to 16 users situated up to 2,000 feet from
the VideoLan Hub. Users connected to one or more VideoLan Hubs can participate
in a conference. Up to four participants at their desktop PCs within any
VideoLan Hub can control the real time, interactive signals transmitted and
received. As a result, those participants can interactively edit a document and
a spreadsheet, and operate one or more multimedia devices. Other participants
can receive the various voice, video and/or data inputs at their desktop PCs, in
any configuration, as determined by the participants transmitting the signals,
but cannot control the functionality.

19
<PAGE>
Marketing and Sales

The Company has engaged in limited marketing of the VideoLan VL2000 System
and presently is beginning to implement its marketing strategy.

The Company anticipates that the average retail price of the VideoLan
VL2000 System components will be approximately $4,700 per user. The cost of
integration, installation and operation generally should be significantly lower
than competing products, since neither ISDN lines nor the installation of
coaxial cable or fiber is required.

The Company intends to market the VideoLan VL2000 System principally
through OEMs, VARs, systems integrators and distributors, whose markets and
market presence will provide significant sales channels, and through
distributors and directly to end users in targeted niche markets particularly
suited to its technology, such as telemedicine, high-end business and

educational applications. The Company believes that its marketing partners could
assume a portion of the marketing costs. The Company is now in discussion with
multiple entities to become resellers of the VL2000 products.

Manufacturing

The Company has no manufacturing facilities and does not plan to
manufacture the VideoLan VL2000 System or any future products it may develop.
The VideoLan Hub and UI are comprised primarily of electronic components and
sub-assemblies manufactured to the Company's specifications. Operating and
applications software, which are proprietary or licensed by the Company, will be
installed by the systems integrator.

The Company has entered into an arrangement with Plexus to subcontract the
manufacture and assembly of the VideoLan Hub and UI. The various component parts
and sub-assemblies which comprise the VideoLan VL2000 System will be purchased
from vendors recommended by the Company. After Plexus manufactures and tests the
components, Plexus will deliver them to the Company's assembly facility in
Louisville, Kentucky for additional testing, packaging and shipping.

Patents

Patents and patent applications involve complex legal and factual issues. A
number of companies have filed applications for, or have been issued, patents
relating to products or technology that is similar to some of the products or
technology being developed or used by the Company. There can be no assurance
that the Company's patent will afford protection against the development of
similar or related technology by competitors. Although the Company believes that
its VideoLan VL2000 System and technology do not and will not infringe on
patents or proprietary rights of others, it is possible that such

20
<PAGE>

infringement or violation has occurred or may occur, or that others may infringe
on the Company's patents.

The Company also will protect its proprietary intellectual property rights
with confidentiality agreements with its employees, licensees, marketing
partners and vendors. However, there can be no assurance that such rights will
be adequately protected by such agreements. See "Risk Factors--Uncertain
Protection of Intellectual Property Rights."

Research and Development

The Company intends to enter into arrangements with one or more RBOCs and
cable companies to develop video services and transport products. Additional
research and development, presently underway, will be necessary to "scale up"
and integrate the Company's proprietary technology into the RBOC or cable
company environment. If the integrations are successfully completed, it is
anticipated that trials would be conducted prior to the commencement of
commercial service. The Company anticipates that it would be paid a royalty once
commercial service begins based upon user access, and that it would supply
components to the service providers. During 1994 and 1995, the Company spent
$1,090,074 and $1,423,916, respectively, on research and development.

Government Regulation

The VideoLan VL2000 System is not directly subject to federal regulation;
however, products into which it may be integrated are subject to federal laws
relating to radiation and conduction levels to prevent interference with radio
and television communication. The VideoLan VL2000 System has been tested for
compliance with applicable FCC regulations.

The Company's potential alliances with large OEMs that have developed
relationships with telephone companies and cable companies to develop video
services could be affected by the Telecom Act, which instructs the FCC to
develop rules by August 1996 to implement the repeal of the "Cross-Ownership
Ban", the statutory ban against telephone companies providing video programming
in their own service areas. The Telecom Act provides telephone companies with
four avenues for the provision of video services and terminates the Video
Dialtone rules previously enacted by the FCC to permit some video delivery by
telephone companies within their service areas. The U.S. Supreme Court has
remanded to a lower court a case which questioned the constitutionality of the
"Cross-Ownership Ban" to determine whether or not it is moot in light of the
Telecom Act. Further proposals for additional or revised statutes and
regulations are considered by Congress and federal regulatory agencies,
respectively, from time to time. The Company cannot predict the effect of
possible changes in federal regulations, policies or laws on the business
strategy of the Company.

Competition

The market for desktop PC video conferencing products is fragmented. A
number of video conferencing products are being marketed, and new entrants into
the market are anticipated. There are numerous well established competitors,
including joint ventures involving major communications companies that possess
substantially greater financial, personnel and other resources than the Company.

The Company believes that the advantages of the VideoLan VL2000 System and
the technology of the Company are the principal factors differentiating the
VideoLan VL2000 System from competing

21
<PAGE>

products and their underlying technologies. The Company intends to compete by
demonstrating the price/performance advantages of the VideoLan VL2000 System.

Several video services trials are being conducted, including trials by
RBOCs such as Bell Atlantic, NYNEX, Pacific Bell and BellSouth, but the
development of commercial video services is at an early stage.

Employees

As of April 30, 1996, the Company employed 28 persons including research
and development employees, management and administrative employees. As the
Company proceeds with full scale commercial marketing of the VideoLan VL2000
System and continued development of other potential applications of its
technology, the Company will need to employ additional qualified marketing,
technical and other personnel.

Facilities

On May 15, 1995, the Company entered into a five year lease in Louisville,
Kentucky, for approximately 6,700 square feet of space, at an annual rental of
$102,480, effective as of June 1, 1995. The premises consist of administrative
offices and research and development facilities. The Company believes that this
facility will provide adequate capacity for its anticipated operations for the
foreseeable future.

On September 28, 1995, the Company entered into a five-year lease agreement
for approximately 4,600 square feet of space in Louisville, Kentucky at an
annual rental of $26,942. This space was utilized as an assembly facility,
warehouse, and distribution center. However, on April 15, 1996 the Company
entered into a five-year lease agreement to lease 9,778 square feet of space at
a new location in Louisville, Kentucky at an annual rental of $61,128 through
December 1997; $73,128 through August 1999; and $85,128 through April 2001. The
new location will be utilized for engineering and research and development

purposes and will serve as the new assembly facility, warehouse, and
distribution center. The old space will be subleased.

Litigation

The Company is not a party to any material pending litigation.

<PAGE>
MANAGEMENT

Directors and Executive Officers

The names of the directors and executive officers of the Company, and their
respective ages and positions with the Company, are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ted Ralston 32 Chairman of the Board and Director

Vernon L. Jackson 43 Director

Steven B. Rothenberg 50 Vice President Finance, Chief Financial Officer,
Treasurer, Secretary and Director

Peter Beck 54 Chief Operating Officer

Howard S. Jacobs 53 Director

John R. Glankler 38 Director

Richard Dean Jackson 38 Director

Jacques O. de Labry 57 Director
</TABLE>

All directors hold office until their successors have been duly elected and
qualified or until their earlier resignation or removal. Directors are elected
annually.

Ted Ralston has been Chairman of the Board and a director of the
Company since its formation in May 1994. Mr. Ralston has been the President of
TC Company, an electronics marketing firm, since 1985.

Vernon L. Jackson has been a director of the Company since June 1994. He
served as President of the Company from May 1994 to January 1996. From March
1990 until May 1994, he was the President and Chief Executive Officer of L&LD,
an engineering consulting firm. From August 1988 to March 1990, he was a Systems
Designer and Consultant with American Telephone and Telegraph Corp., in
Louisville, Kentucky, responsible for designing, installing and maintaining
telephone switching and transport infrastructure. He holds a degree in
Electronics Engineering and Technology from United Electronics Institute. In

addition, he has completed extensive related course work at the University of
Louisville, University of Kentucky, and McKindree College of Illinois.

23
<PAGE>

Steven B. Rothenberg has been Vice President Finance, Chief Financial
Officer and Treasurer of the Company since September 1995. In January 1996, he
was elected to the Board of Directors and as Secretary of the Company. During
the two year period prior to joining the Company, Mr. Rothenberg was a financial
consultant to the telecommunications industry. From 1992 to 1994, Mr. Rothenberg
was Chief Financial Officer of H2O Plus, L.P., a specialty retailer in the
cosmetics and skincare business. From 1988 to 1991, Mr. Rothenberg was Chief
Financial Officer of Ellesse USA, a subsidiary of Reebok International, Ltd. In
addition, Mr. Rothenberg has held senior financial management positions with
Warner Communications, Inc., Revlon Inc., and Ernst and Young, LLP. Mr.
Rothenberg received a BS in accounting and finance from The American University
in 1968.

Peter Beck has been the Company's Chief Operating Officer since April
1995. For ten years prior to that time, he was the founder and Chief Executive
Officer of Digital Access Corporation, a telecommunications equipment developer
and manufacturer. Prior to such time, Mr. Beck served as director of business
development planning for MCI Communications, Inc. Mr. Beck received his MBA in
finance from the University of Chicago in 1971 and his BA from Harvard
University in 1964.

Howard S. Jacobs has been a director of the Company since August 1995. He
has been a member of the law firm of Rosenman & Colin LLP, New York, New York,
since March 1994. For more than five years prior to March 1994, Mr. Jacobs was a
member of two other law firms in New York City. Mr. Jacobs is the director
designee of the Underwriter for the Company's initial public offering.

John R. Glankler has been a director of the Company since August
1995. He has been associated with the law firm of Sebaly, Shillito & Dyer, a
Legal Professional Association, Dayton, Ohio, counsel to the Company, since
April 1, 1995. For more than five years prior to April 1995, Mr. Glankler was
associated with another firm in Ohio. Mr. Glankler obtained a BA in economics
from Duke University and a JD from the University of Cincinnati.

Richard Dean Jackson has been a director of the Company since July 1994.
He served as Secretary and Executive Vice President from May 22, 1995 until
his resignation in December 1995. During 1993 and until May 1994, he was the

Chief Executive Officer of Universal Four-Pair, Inc., a Kentucky corporation,
which had licensed the marketing rights to video conferencing technology from
L&LD, which license was terminated in April 1994. From 1990 to 1992, Mr. Jackson
engaged in the practice of law in San Jose, California. He received a law degree
from the Thurgood Marshall School of Law at Texas Southern University, an MBA in
International Trade from Laredo State University, and a BA from the University
of North Carolina, Charlotte.

Jacques O. de Labry has been a director of the Company since April
1996. Mr. de Labry has been a consultant to the telecommunications industry
since 1995. Previously, Mr. de Labry served as President and Chief Executive of
Raynet International, Inc., a supplier of fiber optic telecommunications
systems, from 1988 until the sale of the company in 1995. Mr. de Labry is a
director of Multilink, Inc. Mr. de Labry received a BA from Yale University in
1960.

24
<PAGE>

Board Committees

The Company has a Compensation Committee, a Nominating Committee and an
Audit Committee. The Compensation Committee reviews, analyzes and makes
recommendations to the Board of Directors regarding salaries, incentive
compensation and stock option grants for officers, employees and directors of
the Company. The current members of the Compensation Committee, formed in
January 1996, are Ted Ralston, Steven B. Rothenberg and John R. Glankler. The
Compensation Committee held its first meeting on April 9, 1996. The Nominating
Committee was formed in April 1996. The current members of the Nominating
Committee are Ted Ralston, Howard S. Jacobs and R. Dean Jackson. This
committee's responsibilities include the selection of potential candidates for
director and the recommendation of candidates to the Board. It also makes
recommendations to the Board concerning the structure and membership of the
other Board Committees. The Nominating Committee will consider nominees for the
Board of Directors recommended by stockholders. Directors are selected on the
basis of their demonstrated broad knowledge, experience and ability in their
chosen endeavors and, most importantly, on the basis of their ability to
represent the interests of the stockholders. The Nominating Committee held its
first meeting in April 1996. The Audit Committee reviews the results and scope
of the Company's audits and other services provided by the Company's independent
auditors and approves the selection of the auditors. The current members of the
Audit Committee, appointed in January 1996, are Howard S. Jacobs, Ted Ralston
and John R. Glankler. The Audit Committee held its first meeting on April 9,
1996.

Executive Compensation

Summary of Compensation in 1995. The following summary compensation

table sets forth information concerning compensation for services in all
capacities awarded to, earned by or paid to the executive officers of the
Company whose salary and bonus exceeded $100,000 during the year ended December
31, 1995 ("Named Executive Officers").

<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
---------------------------- ----------------------------
Securities
Underlying All Other
Name and Principal Other Annual Options/ Compensation
Position Year Salary($) Compensation($) SARs (#) ($)
------------------ ---- --------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Ted Ralston 1995 75,000 - 100,000(2) 40,000(3)
(CEO and Chairman of
the Board(1))
John E. Haines 1995 67,742 - 250,000(5) 30,000(6)
(CEO(4))
Vernon L. Jackson 1995 166,250 - 375,000(8) 0
(President(7))
R. Dean Jackson 1995 101,625 - 100,000(10) 0
(Executive Vice
President(9))
</TABLE>

(1) Mr. Ralston resigned as CEO on September 1, 1995. He remains Chairman of
the Board.

25
<PAGE>

(2) Reflects options to purchase shares of Common Stock at $2.00 per share
granted on March 1, 1995. These options were not exercisable until the
Company had cumulative net income before income taxes of $1,000,000. The
options were cancelled pursuant to Mr. Ralston's resignation as CEO on
September 1, 1995.

(3) Reflects consulting fees paid to Mr. Ralston for the period September 1,
1995 to December 31, 1995 pursuant to a consulting agreement with the
Company. This consulting agreement requires Mr. Ralston to provide at least
thirty hours of service per week and provides for a monthly payment to Mr.
Ralston of $10,000 in consideration of his performance of services.

(4) Mr. Haines' employment as CEO ceased in January 1996.

(5) Reflects options to purchase shares of Common Stock at $3.00 per share
granted on August 18, 1995. Such options were exercisable semi-annually
over a 30 month period in five equal installments. Each installment vested
12 months prior to its exercise date. Options for 100,000 of these shares
were cancelled on May 14, 1996 under a termination and release agreement
between the Company and Mr. Haines.

(6) Reflects consulting fees paid to Mr. Haines for the period June 1, 1995
to August 31, 1995.

(7) Mr. Jackson resigned as President of the Company in January 1996. Mr.
Jackson continues to serve the Company as a director and employee.

(8) Reflects options to purchase shares of Common Stock at $2.00 per share
granted on March 1, 1995. Options for 187,500 shares are not exercisable
until the Company has cumulative net income before income taxes of
$1,000,000. The remaining options for 187,500 shares are not exercisable
until the Company has cumulative net income before income taxes of
$3,000,000.

(9) Mr. Jackson resigned as Executive Vice President in February 1996 to
relocate to San Francisco. He remains affiliated with the Company as a
manufacturers' representative, and also remains a director.

(10) Reflects options to purchase shares of Common Stock at $2.00 per share
granted on March 1, 1995. These options are not exercisable until the
Company has cumulative net income before income taxes of $1,000,000. These
options were cancelled in February 1996 pursuant to Mr. Jackson's
resignation as Executive Vice President.

Stock Options. The following table sets forth certain information regarding
option grants to Named Executive Officers during the year ended December 31,
1995.

<TABLE>
<CAPTION>
% of Total
Options
Granted to
Options Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/sh) Date
- ---- ----------- ------------ ---------------- ----------
<S> <C> <C> <C> <C>
Ted Ralston 100,000 8.4% 2.00 None(1)
Vernon L. Jackson 375,000 31.4% 2.00 None
R. Dean Jackson 100,000 8.4% 2.00 None(2)
John E. Haines 250,000 20.9% 3.00 3/1/03(3)
</TABLE>

26
<PAGE>

(1) These options were cancelled pursuant to Mr. Ralston's resignation as CEO
on September 1, 1995.

(2) These options were cancelled pursuant to Mr. Jackson's resignation as
Executive Vice President in February 1996.

(3) The terms of these options provided that they were subject to early
termination upon the occurrence of certain events. Options for 100,000
shares were cancelled under a termination and release agreement between the
Company and Mr. Haines dated May 14, 1996. The termination date of the
option for the remaining 150,000 shares was changed to May 14, 2001.

Option Exercises in 1995 and Year-End Option Values

The following table provides information relating to number and value of
stock options held by the Named Executive Officers at December 31, 1995. The
Named Executive Officers did not exercise any stock options during 1995.

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Options/SAR Value of In-the-Money
At FY-End ($) Options/SARs at FY-End ($)

Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ted Ralston 0 0 0 0
Vernon L. Jackson 0 375,000 0 11,859,375
R. Dean Jackson 0 100,000 0 3,162,500
John E. Haines 0 250,000 0 7,656,250
</TABLE>

Employment Agreements

On September 1, 1995, the Company entered into a two-year consulting
agreement with Ted Ralston, the Company's Chairman of the Board. Effective on
the same date, Mr. Ralston resigned as Chief Executive Officer and Treasurer of
the Company, and his previous employment agreement was terminated. Mr. Ralston's
consulting agreement requires him to provide at least 30 hours of service per
week and provides for a monthly payment to Mr. Ralston of $10,000 in
consideration of his performance of services.

On August 17, 1995, the Company entered into a two-year employment
agreement with Vernon L. Jackson to serve as President and Chief Executive
Officer of the Company at an annual salary of $250,000. The agreement requires
Mr. Jackson to devote his full time and attention to the Company. Mr. Jackson's
employment agreement contains a noncompetition provision which prohibits Mr.
Jackson from competing with the Company during the term and for two years
thereafter. Pursuant to the terms of the agreement, termination by the Company
for any reason without cause, would entitle Mr. Jackson to receive his salary
throughout the remaining term or for one year, whichever is longer.

<PAGE>

On August 17, 1995, the Company entered into a two-year employment
agreement with R. Dean Jackson to serve as Executive Vice President and
Secretary of the Company at an annual salary of $125,000. Under the agreement,
Mr. Jackson was prohibited from competing with the Company during the term of
the agreement and for two years thereafter. Pursuant to the terms of the
agreement, termination by the Company for any reason without cause, would
entitle Mr. Jackson to receive his salary throughout the remaining term or for
one year, whichever was longer. Effective February 15, 1996, Mr. Jackson
resigned as Executive Vice President of the Company. As part of his settlement
agreement with the Company, Mr. Jackson is to receive $125,000 in salary paid
over a four-month period.

On September 1, 1995, the Company entered into a two-year employment
agreement with John E. Haines to serve as Chief Executive Officer and a director
of the Company at an annual salary of $187,500. Mr. Haines' employment agreement
also contained a noncompetition provision which prohibited Mr. Haines from
competing with the Company during the term of the agreement and for two years
thereafter. Prior to September 1, 1995, Mr. Haines was providing consulting
services to the Company under a consulting agreement dated June 1, 1995.
Pursuant to the consulting agreement, Mr. Haines was paid $10,000 a month for
services rendered and was granted stock options to purchase 250,000 shares at
$3.00 per share subject to a vesting schedule. Additionally, pursuant to the
terms of the consulting agreement, Mr. Haines could earn an annual bonus up to
$112,500 provided certain sales goals were achieved by the Company.

Mr. Haines resigned as Chief Executive Officer of the Company on January
17, 1996. On May 14, 1996, Mr. Haines entered into a termination and release
agreement with the Company. Under the terms of this agreement, Mr. Haines was
permitted to retain already vested options for 150,000 shares of Common Stock
granted to him under the consulting agreement. The termination and release
agreement requires the Company to register 50,000 of such shares by June 20,
1996 and grants Mr. Haines certain registration rights with respect to the
remaining 100,000 shares. In addition, Mr. Haines was permitted to continue to
receive compensation at his base salary through the earlier of August 31, 1997
or 90 days after he first sells shares purchased pursuant to the exercise of the
option. The agreement contains certain other provisions regarding
non-competition, non-disclosure of proprietary information and reimbursement of
certain expenses. Upon entering the agreement, Mr. Haines resigned as a director
of the Company.

Compensation of Directors

The Company does not currently compensate directors who are also executive
officers of the Company for service on the Board of Directors. Under Company
policy, each non-employee director of the Company is entitled to reimbursement
of expenses incurred in connection with attending meetings of the Board.
Non-employee directors also receive immediately exercisable options to purchase
10,000 shares of Common Stock, at the then fair market value, on the date of
their initial election to the Board and on each of the first and second
anniversary dates of their election to the Board, if they are re-elected.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of May 15, 1996 by (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock of the Company, (ii) each of the
Company's current directors, (iii) each of the Company's executive officers, and
(iv) all directors and executive officers of the Company as a group. Unless
indicated otherwise, the Company believes that each person named below has the
sole power to vote and dispose of the shares of Common Stock beneficially owned
by such person.

<PAGE>

Name Number Percent
- ---- ------ -------
<S> <C> <C>

Ted Ralston(1) 1,389,308 10.0%
Vernon L. Jackson(1) 554,059 4.0%
Steven B. Rothenberg(1) 25,000(2) *
Peter Beck(1) 75,000(3) *
Darrell Griffith(4) 755,000 5.4%
John R. Glankler(5) 35,000(6) *
Howard S. Jacobs(7) 26,400(8) *
R. Dean Jackson(9) 305,000 2.2%
Jacques O. de Labry(10) 10,000(11) *
All directors and 2,419,767 17.1%
executive officers as a
group (8 persons)
</TABLE>

- ----------

* Less than 1%

(1) The address of each of Ted Ralston, Vernon L. Jackson, Steven B.
Rothenberg and Peter Beck is 100 Mallard Creek Road, Suite 250,
Louisville, Kentucky 40207.

(2) Represents an option to purchase 25,000 shares of Common Stock which is
presently exercisable.

(3) Represents an option to purchase 75,000 shares of Common Stock which is
presently exercisable.

(4) The address of Mr. Griffith is 1300 Leighton Circle, Louisville, Kentucky
40222.

(5) The address of Mr. Glankler is 1300 Courthouse Plaza NE, Dayton, Ohio
45402.

(6) Includes an option to purchase 10,000 shares of Common Stock which is
presently exercisable.

(7) The address of Mr. Jacobs is 575 Madison Avenue, New York, New York 10022.

(8) Mr. Jacobs' wife owns 4,000 shares. Mr. Jacobs disclaims beneficial
ownership of these shares. Includes an option to purchase 10,000 shares of
Common Stock which is presently exercisable and warrants to purchase 8,000
shares of Common Stock which are presently exercisable.

(9) The address of Mr. Jackson is 1388 Gough Street, San Francisco, California
94109.

(10) The address of Mr. de Labry is 11702 Glen Court Road, Potomac, Maryland
20851.

(11) Represents an option to purchase 10,000 shares of Common Stock which is
presently exercisable.

USE OF PROCEEDS

The Company will receive all the net proceeds from the sale of Common Stock
by exercise of the Warrants. Assuming exercise of all Warrants, net proceeds
will be approximately $21,973,000. The Company intends to add all net proceeds
for working capital purposes.

PLAN OF DISTRIBUTION

All of the shares of Common Stock covered by this Prospectus may be
acquired by holders of the Warrants. Such Warrants were issued and sold by the
Company in August 1995 as part of its initial public offering whereby the
Company offered "Units," each consisting of one share of Common Stock and one
Warrant. The Common Stock and the Warrant comprising the Units were detachable
and separately transferable upon issuance.

The Common Stock offered hereby is offered pursuant to the terms and
conditions of an agreement (the "Warrant Agreement") between the Company and
Continental Stock Transfer & Trust Company, as warrant agent (the "Warrant
Agent"), as described below. See "Description of Securities--Redeemable
Warrants." The Company does not intend to use any underwriter, broker or dealer
with respect to the solicitation of exercise of any of the Warrants.

How to Exercise Warrants

Holders of Warrants may exercise them by completing the form of "Election
to Purchase" appearing on the reverse of the Warrant certificate, and forwarding
the completed and duly executed Warrant certificate, together with the payment
provided for therein, to the Warrant Agent. The Warrant Agent's address and
telephone number are: Continental Stock Transfer & Trust Company, 2 Broadway,
New York, NY 10004; telephone (212) 509-4000. There are certain instructions on
the reverse of the Warrant certificate; holders should contact the Warrant Agent
in the event they have any further questions. In the event that the Warrant
certificates and payments are not hand delivered to the Warrant Agent,
registered mail or insured overnight delivery are recommended. In the case of
beneficial owners of Warrants who hold in "street name" or "nominee name,"
please contact their broker or bank to arrange exercise.

For a holder to exercise the Warrants there must be a current registration
statement in effect with the Commission and qualifications with or approval from
various state securities agencies with respect to the shares of Common Stock
underlying the Warrants, or an opinion of counsel for the Company that there is
an effective exemption from registration. As long as the Warrants remain
outstanding and exercisable, the Company may be required to file a registration
statement with the Commission and have

30
<PAGE>

such registration statement declared effective. There can be no assurance,
however, that such registration statement can be kept current. If a registration
statement covering such shares of Common Stock is not kept current for any
reason, or if the shares underlying the Warrants are not registered in the state

in which a holder resides, the Warrants will not be exercisable and therefore
will be deprived of any value. However, the Company will not be required under
the Warrant Agreement to honor the exercise of the Warrant if, in the opinion of
the Board of Directors upon advice of counsel, the sale of securities upon such
exercise would be unlawful, under federal or state securities laws or otherwise.
The Company has taken action to qualify the sale of Common Stock in certain
states where it has reason to believe that beneficial holders of Warrants
reside. The fact that the Company has commenced such actions, however, does not
mean that it will be able to successfully qualify the sales of Common Stock. In
addition, there are other states in which shares of Common Stock may be
purchased under an exemption from state securities laws and/or future action by
the Company.

DESCRIPTION OF SECURITIES

The Company is authorized to issue 20,000,000 shares of Common Stock, $0.01
par value per share, and 5,000,000 shares of Preferred Stock, $0.01 par value
per share. As of May 14, 1996, 13,898,498 shares of Common Stock were
outstanding. As of such date, there were 178 holders of record of the
outstanding shares of Common Stock.

The following description of the capital stock of the Company is a summary
and is qualified in its entirety by the provisions of the Company's Certificate
of Incorporation (the "Certificate of Incorporation"), and By-Laws, copies of
which are filed as exhibits to the Registration Statement of which this
Prospectus forms a part.

Common Stock

Holders of Common Stock are entitled to one vote for each share of Common
Stock beneficially owned, on each matter submitted to a vote at a meeting of
stockholders. The Common Stock does not have cumulative voting rights, which
means that the holders of a majority of voting shares for the election of
directors can elect all of the members of the Board of Directors. The Common
Stock has no preemptive rights and no redemption or conversion privileges. The
holders of the outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available at such times and in such amounts as
the Board of Directors may, from time to time, determine, and upon liquidation
and dissolution are entitled to receive all assets available for distribution to
the stockholders. A majority vote of shares represented at a meeting at which a
quorum is present is sufficient for all actions that require the vote of
stockholders. All of the outstanding shares of Common Stock are, and the shares
to be sold by the Company or on exercise of the Warrants will be, when issued
and paid for, fully-paid and nonassessable.

Preferred Stock

Pursuant to the Certificate of Incorporation, the Company is authorized to
issue "blank check" Preferred Stock, which may be issued from time to time in
one or more series upon authorization by the Company's Board of Directors. The
Board of Directors, without further approval of the stockholders, will be
authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences, and any other
rights, preferences, privileges and restrictions applicable to each series of
the Preferred Stock. The issuance of Preferred Stock, while

31
<PAGE>
providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, adversely affect the voting power
of the holders of Common Stock and, in certain circumstances, make it more
difficult for a third party to gain control of the Company, discourage bids for
the Company's Common Stock at a premium or otherwise adversely affect the market
price of the Common Stock.

Redeemable Warrants

Warrants to purchase an aggregate of 3,144,000 shares of Common Stock were
issued pursuant to the Warrant Agreement. Each Warrant entitles the holder to
purchase, at any time until August 10, 2000 (the "Expiration Date"), one share
of Common Stock at an exercise price of $7.00 per share, subject to certain
adjustments based upon anti-dilution provisions. The Warrants may be exercised
in whole or in part. Unless exercised, the Warrants will automatically expire on
the Expiration Date, unless extended by the Company. The exercise price of the
Warrants and the number of shares of Common Stock issuable upon exercise of the
Warrants are subject to adjustment in certain circumstances, including the event
of a stock dividend, subdivision or combination of the Common Stock and the
issuance of Common Stock or rights, options or warrants to subscribe for Common
Stock at a price per share less than the exercise price of the Warrants in
effect immediately prior to such issuance. As of May 14, 1996, 5,000 Warrants
have been exercised.

The Company may at any time redeem the Warrants, in whole or in part, at
the option of the Company, upon not less than 30 days' notice, at a price of
$.20 per Warrant, provided that (i) the average of the closing bid prices of
the Common Stock is at least 175% of the then current exercise price of the
Warrants for 20 consecutive business days ending within 30 days of the date of
the notice of redemption, and (ii) the Company is in compliance with its
obligations to register under the Securities Act the shares of Common Stock
issuable on exercise of the Warrants. If the Company exercises its right to
redeem the Warrants, such Warrants will be exercisable until the close of
business on the date fixed for redemption in such notice. If any Warrant called
for redemption is not exercised by such time, it will cease to be exercisable
and the holder thereof will be entitled only to the redemption price.

Pursuant to the Warrant Agreement, the Company, by notice to the Warrant

Agent, may reduce the exercise price, permanently or for such period as it may
determine, or extend the expiration of the date of the Warrants. The Warrant
Agent is required to send a notice of any such change to each registered holder
of the Warrants.

Limitation of Liability

The Certificate of Incorporation includes a provision which eliminates the
personal liability of the Company's directors and officers for monetary damages
resulting from breaches of their fiduciary duty of care (provided that such
provision does not eliminate liability for breaches of the duty of loyalty, acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, violations of Section 174 of the Delaware General
Corporation Law, or for any transaction from which the director derived an
improper personal benefit). This provision does not limit or eliminate the right
of the Company 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.
The Certificate of Incorporation also provides that the Company shall indemnify
its directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise

32
<PAGE>
discretionary. The Company believes that these provisions are necessary to
attract and retain qualified persons as directors and officers. It is the
position of the Commission that indemnification for liabilities under the
Securities Act is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

Delaware Anti-Takeover Law

Under Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law"), certain "business combinations" are prohibited between a
Delaware corporation, the stock of which is generally publicly traded or held of
record by more than 2,000 stockholders, and an "interested stockholder" of such
corporation for a three-year period following the date that such stockholder
became an interested stockholder, unless (i) the corporation has elected in its
certificate of incorporation not to be governed by the Delaware anti-takeover
law (the Company has not made such an election), (ii) the business combination
is approved by the board of directors of the corporation before the other party
to the business combination became an interested stockholder, (iii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by the directors who are also officers
or held in employee benefit plans in which the employees do not have a
confidential right to tender or vote stock held by the plan), or (iv) the
business combination was approved by the board of directors of the corporation
and ratified by 66 2/3% of the voting stock which the interested stockholder did
not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or

notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries, and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as those stockholders who become beneficial owners of 15% or more of a
Delaware corporation's voting stock.

These provisions could delay or frustrate the removal of incumbent
directors or a change in control of the Company. The provisions also could
discourage, impede, or prevent a merger, tender offer or proxy contest, even if
such event would be favorable to the interests of stockholders.

SHARES ELIGIBLE FOR FUTURE SALE

As of May 14, 1996, the Company had 13,898,498 shares of Common Stock
outstanding, of which approximately 4,269,600 were freely tradeable without
restriction or registration under the Securities Act, except for shares held by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act.

The remaining 9,719,898 shares of Common Stock outstanding are "restricted
securities" (the "Restricted Shares") within the meaning of Rule 144 under the
Securities Act, and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including an
exemption contained in Rule 144.

33
<PAGE>

In general, Rule 144 as currently in effect provides that any person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least two years, including persons who may be deemed "affiliates" of the Company
(as defined under the Securities Act), is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
the average weekly trading volume in the Common Stock in the over-the-counter
market during the four calendar weeks preceding the date on which notice of such
sale is filed with the Commission or (ii) 1% of the shares of Common Stock then
outstanding (approximately 138,985 shares on the date of this Prospectus). In
addition, sales under Rule 144 are subject to certain other restrictions
regarding the manner of sale, required notice and availability of current public
information concerning the Company. A person who is not deemed an affiliate of
the Company and who has not been an affiliate for at least three years after
the later of the date the shares were acquired from the Company or the date they
were purchased from an affiliate of the Company, is entitled to sell such shares
under Rule 144(k) immediately without regard to the volume limitations and

current public information requirements described above. Affiliates, including
members of the Board of Directors and executive officers, continue to be subject
to such limitations.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 under the Securities Act generally
may be relied upon with respect to the resale of shares originally purchased
from the Company by its employees, directors, officers or consultants prior to
the date the Company become subject to the reporting requirements of the
Exchange Act.

The Company and certain of its stockholders and optionees (who own a total
of approximately 3,868,367 shares of Common Stock have agreed with the
Underwriter that, subject to certain exceptions, they will not offer, sell,
contract to sell, grant any option to purchase, or otherwise dispose of any
shares of Common Stock, or any securities convertible or exercisable or
exchangeable for shares of Common Stock beneficially owned by them until
February 10, 1997 without the prior written consent of the Underwriter (the
"Lock-Up Agreements").

Of the Restricted Shares, approximately 920,700 shares will be eligible
before September 30, 1996 for resale in the public market pursuant to Rule 144.
At various times after September 30, 1996, the remaining 8,799,198 Restricted
Shares will be eligible for immediate sale, subject to compliance with Rule 144,
and, with respect to certain shares, the terms of the Lock-Up Agreements.

As of March 14, 1996, options to purchase a total of approximately
1,245,000 shares of Common Stock were outstanding, some of which were subject to
vesting schedules. 200,000 shares issuable upon exercise of options are eligible
for immediate resale to the public. The Company expects to file one or more
registration statements on Form S-8 under the Securities Act to register
approximately 945,000 shares of Common Stock subject to stock options granted by
the Company. The Company expects to file these registration statements on or
before August 31, 1996. 420,000 shares covered by these registration statements
will be immediately eligible for sale in the public markets upon exercise;
options to purchase approximately 525,000 shares covered by those registration
statements are subject to Lock-Up Agreements.

The holder of 1,143,000 shares of Common Stock is entitled to piggyback
registration rights with respect to 550,000 of his shares. The holders of an
additional 1,468,498 shares of Common Stock received in a private placement by
the Company have unlimited piggyback registration rights for a period of six
years commencing August 10, 1996 and one demand registration right, for a period
of four years commencing August 10, 1996. Holders of an additional 2,373,727

shares of Common Stock have piggyback registration rights and one demand
registration right for 50% of their shares for a five year period commencing
August 10, 1996. Mr. Ted Ralston, Chairman of the Board, is entitled to
piggyback registration rights with respect to up to 200,000 shares of
Common Stock, subject to the consent of the Underwriter. The holders of options
to purchase 60,000 shares of Common Stock have piggyback registration rights for
a period of five years commencing August 10, 1996. Such rights require the
Company, if requested by such holders, to register such shares for sale under
the Securities Act and/or to include such shares in certain registration
statements filed by the Company during the applicable periods. The Company has
also granted the Underwriter certain demand and piggyback registration rights in
connection the Underwriter's Warrants.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hirn Doheny & Harper, Louisville, Kentucky.

EXPERTS

The financial statements of the Company for the period May 11, 1994
(inception) through December 31, 1994 and the fiscal year ended December 31,
1995, and the statements of operations and cash flows of the predecessor of the
Company for the period January 1, 1994 through May 10, 1994 have been included
herein and in the Registration Statement of which this Prospectus is a part, in
reliance upon the report of Grant Thornton LLP, independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing.

<PAGE>
INDEX TO FINANCIAL STATEMENTS

Page

Audited Financial Statements:

Report of Independent Certified Public Accountants......................F-2

Balance Sheet as of December 31, 1995...................................F-3

Statements of Operations for the Company for the period from May 11,
1994 (Inception) through December 31, 1994, the year ended December 31,
1995, and the period from May 11, 1994 (Inception) through December 31,
1995, statement of operations for the Predecessor for the period
January 1, 1994 through May 10, 1994....................................F-4

Statement of Stockholders' Equity for the period from May 11, 1994
(Inception) to December 31, 1994 and the year ended December 31, 1995...F-5

Statements of Cash Flows for the Company for the period from May 11,
1994 (Inception) through December 31, 1994, the year ended December 31,
1995, and the period from May 11, 1994 (Inception) through December 31,
1995, Statement of Cash Flows for the Predecessor for the period
January 1, 1994 through May 10, 1994.....................................F-6

Notes to Financial Statements............................................F-7

Unaudited Condensed Financial Statements:

Unaudited Condensed Balance Sheet as of March 31, 1996...................F-16

Unaudited Condensed Statements of Operations for the Company for the
three months ended March 31, 1995, and the three months ended March 31,
1996, and the period May 11, 1994 (Inception) through March 31, 1996.....F-17

Unaudited Condensed Statement of Stockholders' Equity for the Period
from January 1, 1996 through March 31, 1996..............................F-18

Unaudited Condensed Statements of Cash Flows for the Company, for the
three months ended March 31, 1995, the three months ended March 31,
1996, and the period May 11, 1994 (Inception) through March 31, 1996.....F-19

Notes to Unaudited Condensed Financial Statements........................F-20

F-1

<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

Board of Directors
VIDEOLAN Technologies, Inc.

We have audited the accompanying balance sheet of VIDEOLAN Technologies, Inc. (a
development stage enterprise) as of December 31, 1995, and the related
statements of operations, stockholders' equity and cash flows for the period
May 11, 1994 (Inception) through December 31, 1994, the year ended December 31,
1995 and the period May 11, 1994 (Inception) through December 31, 1995. We have
also audited the statements of operations and cash flows of L&LD Communications
Consultants, Inc. (the "Predecessor") for the period January 1, 1994 through May
10, 1994. These financial statements are the responsibility of VIDEOLAN
Technologies Inc.'s and the Predecessor'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 audits 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 VIDEOLAN Technologies, Inc. (a
development stage enterprise) as of December 31, 1995, and the results of its
operations and its cash flows for the period from May 11, 1994 (Inception)
through December 31, 1994, the year ended December 31, 1995 and the period May
11, 1994 (Inception) through December 31, 1995 and the results of operations and
cash flows of the Predecessor for the period January 1, 1994 through May 10,
1994, in conformity with generally accepted accounting principles.

Grant Thornton LLP
New York, New York
March 8, 1996

F-2

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>

Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,508,997
Accounts receivable 24,664
Inventories 820,369
Prepaid expenses and other current assets 158,481
-----------
Total Current Assets $ 7,512,511

Property and equipment, net 293,299

Other assets:
Patent pending applications 35,215
Notes receivable 33,800
Security deposits 25,661
-----------
94,676
-----------

$ 7,900,486
===========

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 344,842
Capital lease obligations-current 28,214
-----------
Total Current Liabilities $ 373,056

Long term liabilities:
Capital lease obligations-non current 37,238

Commitments and Contingencies

Stockholders' equity:
Preferred stock, $.01 par value 5,000,000
shares authorized, none issued
Common stock, $.01 par value; 20,000,000 shares
authorized; 13,843,498 shares issued and outstanding 138,435
Additional paid-in-capital 16,424,980
Deficit accumulated during development stage (9,073,223)
-----------

Total Stockholders' Equity $ 7,490,192

-----------
$ 7,900,486
===========
</TABLE>

See Notes to Financial Statements

F-3

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Predecessor | Company
----------- | ---------------------------------------
| Period from Period from
Period from | May 11, 1994 May 11, 1994
January 1, 1994 | (Inception) Year (Inception)
through | through Ended through
May 10, | December 31, December 31, December 31,
1994 | 1994 1995 1995
---- | ---- ---- ----
<S> <C> | <C> <C> <C>
Net sales $ -- | $ -- $ 50,053 $ 50,053
Consulting revenues 10,591 |
-------- | ----------- ----------- -----------
10,591 | -- 50,053 50,053
|
Cost of sales -- | -- 37,372 37,372
-------- | ----------- ----------- -----------
-- | -- 37,372 37,372
|
Gross profit 10,591 | -- 12,681 12,681
|
Selling, general and |
administrative expenses: |
Salaries 27,400 | 159,438 605,233 764,671
Compensation expense | 21,875 3,233,000 3,254,875
Payroll taxes 2,359 | 31,284 113,430 144,714
Consulting fees | 665,000 206,113 871,113
Marketing cost | 40,074 158,716 198,790
Professional fees | 126,244 313,967 440,211
Travel and entertainment 7,571 | 72,346 396,568 468,914
Research and development | 1,090,074 1,423,916 2,513,990
Equipment rental | 16,305 122,086 138,391
Rent 4,589 | 48,348 70,570 118,918
Insurance 1,347 | 4,684 40,257 44,941
Office | 51,937 123,032 174,969
Depreciation and |
amortization 2,805 | 1,570 31,819 33,389
Other 2,117 | 1,755 43,008 44,763
-------- | ----------- ----------- -----------
Total expenses 48,188 | 2,330,934 6,881,715 9,212,649
|
Other income (expense) |
Interest income | 135,243 135,243
Interest expense | (8,498) (8,498)
-------- | ----------- ----------- -----------
| 126,745 126,745

See Notes to Financial Statements

F-4

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from May 11, 1994 (Inception) through December 31, 1995
and the year ended December 31, 1995

<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During Total
Preferred ---------------------- Paid-in Development Stockholders'
Stock Shares Amount Capital Stage Equity
---- ------ ------ ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Issuance on May 11, 1994 $ 3,677,000 $ 36,770 $ (36,370) $ 400
Issuances of common stock for cash 1,023,000 10,230 394,770 405,000
Issuances of common stock for
services rendered 437,500 4,375 17,500 21,875
Issuances of common stock for cash
and consulting services rendered 950,000 9,500 703,000 712,500
Issuances of common stock for
purchased research and development 2,662,500 26,625 682,500 709,125
Net loss $(2,330,934) (2,330,934)
------------ ------------ --------- ----------- ----------- -----------
Balances at December 31, 1994 8,750,000 87,500 1,761,400 (2,330,934) (482,034)

Issuances of common stock in
private placement 1,468,498 14,685 1,861,799 1,876,484
Issuance of common stock for release
of royalty rights 750,000 7,500 1,117,500 1,125,000
Issuance of common stock through
an initial public offering 2,875,000 28,750 9,576,281 9,605,031
Issuance of stock options to consultants 2,108,000 2,108,000
Net loss (6,742,289) (6,742,289)
------------ ------------ --------- ----------- ----------- -----------
Balances at December 31, 1995 $ 13,843,498 $ 138,435 $16,424,980 $(9,073,223) $ 7,490,192
============ ============ ========= =========== =========== ===========

</TABLE>

See Notes to Financial Statements

F-5

<PAGE>
VideoLan Technologies, Inc.

(a development stage enterprise)
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Predecessor | Company
--------------- | -----------------------------------------------------
| Period from Period from
Period from | May 11, 1994 May 11, 1994
January 1, 1994 | (Inception) Year (Inception)
through | through Ended through
May 10, | December 31, December 31, December 31,
1994 | 1994 1995 1995
---- | ---- ---- ----
<S> <C> | <C> <C> <C>
Cash flows from operating and development |
stage activities: |
|
Net loss $(37,597) | $(2,330,934) $(6,742,289) $(9,073,223)
Adjustments to net loss: |
Issuances of common stock for services rendered | 21,875 1,125,000 1,146,875
Issuances of common stock for consulting services |
rendered | 665,000 665,000
Issuance of common stock for purchased research |
and development | 709,125 709,125
Issuances of stock options to consultants | 2,108,000 2,108,000
Depreciation and amortization 2,805 | 1,570 31,819 33,389
Increase in accounts receivable 250 | (24,664) (24,664)
Increase in inventories | (820,369) (820,369)
Increase in prepaid expenses and other current assets | (30,192) (128,289) (158,481)
Increase in security deposits | (6,000) (19,661) (25,661)
Increase in accounts payable and accrued liabilities 4,262 | 310,771 34,071 344,842
-------- | ----------- ----------- -----------
Net cash used in operating and development stage |
activities (30,280) | (658,785) (4,436,382) (5,095,167)
-------- | ----------- ----------- -----------
Cash flow from investing activities: |
|
Acquisition of property and equipment | (15,921) (224,845) (240,766)
Patent application costs | (30,129) (5,086) (35,215)
-------- | ----------- ----------- -----------
Net cash used in investing activities: -- | (46,050) (229,931) (275,981)
-------- | ----------- ----------- -----------
Cash flows from financing Activities: |
|
Proceeds from issuance of common stock in |
private placement 15,000 | 452,900 2,202,747 2,655,647
Offering costs | (37,560) (288,703) (326,263)
Proceeds from initial public offering | 11,500,000 11,500,000
Underwriter's commissions and expense allowances | (1,449,000) (1,449,000)
Offering costs | (445,970) (445,970)

Proceeds from notes payable 50,000 | 331,000 331,000
Repayment of notes payable (34,496) | (331,000) (331,000)
Repayment of capital lease obligations | (3,398) (17,071) (20,469)
Proceeds from bridge loans | 900,000 900,000
Repayment of bridge loans | (900,000) (900,000)
Loans to employees, net | (69,110) 35,310 (33,800)
Cash overdraft (52) | 31,003 (31,003) --
-------- | ----------- ----------- -----------
Net cash provided by financing activities: 30,452 | 704,835 11,175,310 11,880,145
-------- | ----------- ----------- -----------
Increase in cash and cash equivalents: 172 | -- 6,508,997 6,508,997
Cash and cash equivalents at beginning of period -- | -- -- --
-------- | ----------- ----------- -----------
Cash and cash equivalents at end of period $ 172 | $ -- $ 6,508,997 $ 6,508,997
======== | =========== =========== ===========
</TABLE>

Supplemental disclosure of cash flow information: Capital lease obligations of
$17,000 and $70,000 were incurred in 1994 and 1995, respectively, when the
Company entered into new leases for computer equipment. Interest expense paid in
cash was $8,498.

See Notes to Financial Statements.

F-6

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

NOTE A-DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

VideoLan Technologies, Inc. (the "Company"), formerly known as Triple R
Industries, Inc., is a development stage enterprise incorporated in Ohio in May
1994, to acquire certain technology and the rights to a pending U.S. Patent
application for an analog video distribution communications system designed to
provide real-time, interactive video, to and from a desktop personal computer
("PC") over local and wide area networks ("VideoLan Technology"). Since
inception the Company has primarily been engaged in research and development.

In the course of its development activities, the Company has incurred
significant losses which have been funded with resources from the Chairman,
bridge loan financing, proceeds from a private placement, and proceeds from an
initial public offering.

Unless income from sales of the VideoLan System is obtained, the timing,
sufficiency and receipt of which the Company cannot predict, future development
and commercialization of the Company's technology will depend upon arrangements
with third parties to finance research and development projects, or the
Company's ability to obtain other additional financing on terms satisfactory to
the Company. The Company presently has no formal arrangements or commitments for
external financing. The Company's inability to obtain such financing could have
a material adverse effect on the Company's operations.

On May 23, 1994, the Company acquired the rights to a pending U.S. patent
application from L&LD Communications Consultants, Inc. ("Predecessor" or
"L&LD"), which is the Company's predecessor for financial reporting purposes and
which was formed by Vernon Jackson, a director and stockholder of the Company.

On September 1, 1994, by amendment to its Articles of Incorporation, the
Company changed its name from Triple R Industries, Inc. to VideoLan
Technologies, Inc. Additionally, on October 17, 1994 and February 13, 1995, the
Company amended its articles of incorporation and increased the number of shares
of capital stock authorized to 10,000,000 shares and 11,000,000 shares,
respectively.

Immediately prior to the close of the Company's initial public offering in
August 1995, the Company merged with and into a newly formed Delaware
corporation, VideoLan Technologies, Inc., for the primary purposes of changing
the Company's state of incorporation and increasing the Company's number of
authorized shares. Effective upon the consummation of the initial public
offering, the authorized capital stock of the Company consisted of 5,000,000
shares of preferred stock, $.01 par value per share, none of which is issued and
outstanding, and 20,000,000 shares of common stock, $.01 par value per share, of
which 13,843,498 shares are issued and outstanding.

NOTE B-ACQUISITION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

1. Acquisition

On May 23, 1994, the Company acquired a pending U.S. patent application and
assumed certain liabilities of L&LD Communications Consultants, Inc.

In connection with this acquisition, the Company purchased a $50,000
cognovit note payable by L&LD to Mr. Ted Ralston, Chairman of the Board of the
Company, and was required to pay lease termination costs of $42,227 to an
unrelated party.

The aforementioned acquisition costs were expensed directly to research and
development costs. The Predecessor ceased operations on the date of acquisition.

F-7

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

The following unaudited pro forma results of operations for the year ended
December 31, 1994 account for the acquisition as if it had occurred on January
1, 1994.

Unaudited Pro Forma Results of Operations

Revenues $ 10,591
===========
Net loss $(2,368,531)
===========
Net loss per common share $ (0.22)
===========

2. Research and Development Costs

Research and development costs are expensed as incurred.

3. Net Loss Per Share of Common Stock

The computation of loss per common share is based on the weighted average
number of outstanding shares. All common stock of the Company issued within one
year of the initial public offering was considered outstanding for all periods
presented. Stock options and warrants have not been included in the calculation
as their inclusion would be antidilutive.

4. Inventories

Inventories consist of the subcomponents necessary to manufacture the
Company's product and are valued at the lower of average actual cost or market.
The Company has entered into an arrangement to subcontract the manufacture,
assembly, testing, and maintenance of the product.

5. Cash Equivalents

Cash equivalents consist of short-term government obligations. These
securities have original maturity dates not exceeding three months. Such
investments are carried at cost which approximates market, and are considered
cash equivalents for purposes of reporting cash flows.

6. Property and Equipment

Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
respective assets.

7. 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, the
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.

8. Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable and accrued liabilities approximate fair value, principally
because of the short maturity of these items.

F-8

<PAGE>

VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

NOTE C-PATENT PENDING APPLICATIONS

Patent pending applications consist of filing fees and certain legal costs
relating to the filing of domestic and international patent applications for the
VideoLan technology. (Reference is made to Notes A, B and J.)

NOTE D-PROPERTY AND EQUIPMENT

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

Estimated
Useful Life
-----------
Furniture and Fixtures $ 8,876 5
Equipment 216,534 5
Leasehold Improvements 101,278 5
---------
326,688
Less: Accumulated Depreciation and
Amortization 33,389
---------
$293,299
=========

NOTE E-CAPITAL LEASE OBLIGATIONS

The Company leases certain computer equipment. Such leases have been

accounted for in accordance with Statement of Financial Accounting Standards No.
13 "Accounting for Leases".

Future minimum lease payments on these capital leases are as follows:

Year Ending December 31,
1996 $ 33,026
1997 31,645
1998 7,956
---------
72,627

Less amount representing interest 7,175
---------
$ 65,452
=========

The carrying value of assets under capital leases was $69,653 at December
31, 1995 and is included in property and equipment. Amortization of these assets
is included in depreciation expense.

F-9
<PAGE>

VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

NOTE F-BRIDGE LOAN FINANCING

In January, 1995 a shareholder provided the Company with a $450,000 bridge
loan to cover working capital needs. There was no written loan agreement and the
loan was without a stated interest rate. The loan was repaid in full out of
proceeds derived in the Company's private placement. (Reference is made to Note
I(7)).

In June, 1995, three individuals loaned an aggregate of $450,000 to the
Company for working capital needs. The loans bore interest at the rate of 10%
per annum. The Company repaid these loans out of the proceeds of the initial
public offering. In connection with the loans, each individual received options
to purchase 20,000 shares of the Common Stock of the Company with an exercise
price of $2.00 per share exercisable immediately and until June 16, 2000. Each
individual is entitled to piggyback registration rights with respect to the
shares underlying the options for a period of five years, commencing one year
after the date of the Company's initial public offering.

NOTE G-INCOME TAXES

The Company follows Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), "Accounting for Income Taxes," which requires the use of the

asset and liability method of accounting for income taxes. Under this method,
deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities.

The temporary differences which result in deferred tax assets primarily
consist of compensation deductions and net operating loss carryforwards. The
tax effect of these temporary differences are as follows:

Net operating loss carryforwards and
compensation $ 2,219,000
Valuation allowance (2,219,000)
------------
$ -
============

Due to losses incurred by the Company in the development stage, a full
valuation of the deferred tax asset has been provided because realization of
this future benefit cannot currently be assured. The valuation allowance
increased by $1,151,000 in 1995. The Company's net operating loss carryforwards
of approximately $4,419,000 will begin to expire in 2009, if not utilized. The
Company's ability to utilize net operating losses, incurred prior to its initial
public offering to offset future taxable income is limited due to the change in
control as defined in Internal Revenue Code Section 382.

NOTE H-ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities as of December 31, 1995 consists
of:

Accounts payable $ 141,730
Accrued professional fees 84,867
Customer security deposits 70,209
Other accrued expenses 48,036
------------
$ 344,842
============

F-10
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

NOTE I-CAPITAL STOCK TRANSACTIONS

The following stock transactions have taken place since the Company's

incorporation:

Number of
common shares Average
issued and share Total
outstanding amounts proceeds
- ------------------------------------------------ -------- --------
Date of incorporation(6) 3,677,000 $ 0.0001 $ 400
June 1994 (1) 437,500 .05 21,875
June 1994 (2) 862,500 .05 43,125
June 1994 (6) 150,000 .3333 50,000
July 1994 (6) 150,000 .377 56,500
August 1994 (6) 50,000 .37 18,500
August 1994 (3) 1,800,000 .37 666,000
August 1994 (6) 500,000 .30 150 000
September 14, 1994 (6) 173,000 .7514 130,000
October 7, 1994(7) 950,000 .75 712,500
----------- -----------
Balance at
December 31, 1994 8,750,000 1,848,900
January and
February 1995 (4) 1,468,498 1.50 1,876,484
March, 1995 (5) 750,000 1.50 1,125,000
August, 1995 (8) 2,875,000 4.00 9,605,030
----------- -----------
Balance at December 31, 1995 13,843,498 $14,455,414
=========== ===========

(1) These shares were issued to employees of the Company for services
rendered. The Company has recorded $21,875 as compensation expense.

(2) These shares were issued to two individuals for their release of
certain claims against the Company's technology. The Company has recorded
purchased research and development expenses of $43,125.

(3) These shares were issued to four individuals for their release executed
in settlement of certain claims against the Company's technology. The Company
has recorded purchased research and development expenses of $666,000. As part of
their agreement, the stockholders were additionally granted options to purchase
500,000 shares of stock at $2.00 per share exercisable through August 18, 1995.
In connection with the initial public offering, the Company and four individuals
agreed in July 1995 to terminate these options. In connection with such
termination, the Company agreed to register in the initial public offering an
aggregate of 180,000 shares of common stock owned by the investors and to pay
the investors an aggregate of $175,000.

(4) The Company completed a private placement in February, 1995 whereby the
Company sold 1,468,498 shares of common stock at a purchase price of $1.50 per
share. In connection with the private placement, the placement agent was paid
$286,351 in cash as a commission and as a nonaccountable expense allowance. The
placement agent's fees and certain other expenses of the offering, totaling
$39,912 were recorded as reductions to additional paid-in-capital.

(5) These shares were issued to an employee of the Company as a release for

certain royalty rights. The Company has recorded $1,125,000 as compensation
expense.

(6) These shares were issued for cash.

F-11

<PAGE>

VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

(7) An individual entered into a stock purchase agreement with the Company
to acquire 950,000 shares of the Company's common stock for $47,500. The
Company has recorded consulting fee expenses of $665,000, which represents the
difference between the fair market value of the aforementioned shares over their
cost.

(8) On August 10, 1995, the Company had an initial public offering of its
securities, which consisted of a total of 2,875,000 units at a price of $4 per
unit. Each unit consisted of one share of $.01 par value common stock and one
redeemable common stock purchase warrant to purchase one share of common stock
at a price of $7 at any time until August 10, 2000. The warrants may be redeemed
in whole or in part, at the option of the Company, for $.20 per warrant, if the
average of the closing bid price of the common stock equals or exceeds 175% of
the exercise price of the warrants for twenty consecutive trading days ending
within thirty days of the notice of redemption.

On closing, the Company received net proceeds of $10,051,000, after
underwriting commissions and expense allowances of $1,449,000. In addition, the
Company incurred other registration costs of $445,970 which have been reflected
as a reduction to additional paid in capital.

In connection with the initial public offering, the underwriters were
issued 250,000 unit purchase warrants to purchase units for $6.60 during the
five year period commencing August 10, 1995.

Stock Option Plan

On March 1, 1995, the Board of Directors of the Company, subject to
shareholder approval, adopted the 1995 Stock Option Plan ("Plan") which provides
for issuances to officers, key employees, directors, advisors, independent
contractors, consultants and such other person as the Board of Directors
believes valuable to the Company nontransferable stock options to purchase up
to 1,000,000 shares of Common Stock. Awards granted under the Plan may be in the
form of incentive stock options ("ISOs") or nonqualified options, both of which
are described under Section 422 of the Internal Revenue Code of 1986. The fair
market value of shares of common stock with respect to which ISOs are granted
during any calendar year may not exceed $100,000. The exercise price per share
for all options granted under the Plan must be at least equal to the fair market
value of a share of common stock on the date of the grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of the
Company's outstanding capital stock, the exercise price per share must equal at
least 110% of the fair market value of a share of the common stock on the date
of the grant. Except with respect to ISOs, the Compensation Committee has the
authority to determine grant recipients, exercise prices, vesting periods and
expiration dates. The plan was approved by the shareholders on July 28, 1995.

Through December 31, 1995, the Company has granted 670,000 nonqualified options
and 95,000 ISO's under the Plan.

Options outstanding
Options -------------------------
available Number Price per
for grant of shares Share
--------- --------- ------------
Balance at January 1, 1995 --- --- ---
Authorized 1,000,000 --- ---
Granted (765,000) 765,000 $2.00-$25.00
------------------------------------
Outstanding at December 31, 1995 235,000 765,000 $2.00-$25.00
====================================

At December 31, 1995, options for 75,000 shares were exercisable at an
exercise price of $2.00 per share.

Grants of 387,500 of options are not exercisable until the Company has
cumulative net income before taxes of $1,000,000. Grants of 187,500 of options
are not exercisable until the Company has cumulative net income before taxes of
$3,000,000. As of February 15, 1996, options to acquire 200,000 shares at $2.00
were canceled.

F-12

<PAGE>

VideoLan Technologies, Inc.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS

Other Stock Options

In June 1994 the Company issued 250,000 options to employees with an
exercise price of $1.00 per share. Such options are exercisable through December
31, 2000.

In August and October 1995, the Company issued 350,000 and 100,000 stock
options, respectively, to consultants to the Company under contract. The options
all have an exercise price of $3.00 per share and are exercisable over a two and
one half year vesting schedule. In September and December 1995 respectively, the
Company canceled the consulting contracts when these individuals became
employees of the Company. The Company utilized a "Black Scholes" formula to
calculate the fair value of the stock options granted and adjusted the
financial statements in the fourth quarter 1995 to reflect compensation expense
of $2,108,000.

NOTE J-COMMITMENTS AND CONTINGENCIES

Employee Compensation

In July of 1994, the Company entered into a three-year employment agreement
with Remy Fenouil to serve as Director of Research and Development of the
Company at an annual salary of $144,000. Upon completion of the initial public
offering, Mr. Fenouil's salary was increased to $288,000 annually. Mr. Fenouil
is required to devote his full time and attention to the Company.

On April 17, 1995, the Company entered into a three-year employment
agreement with Mr. Peter Beck to serve as Chief Operating Officer at an initial
salary of $60,000 per annum which was raised to $100,000 per annum upon
completion of the initial public offering.

Upon the closing of the initial public offering, the Company signed amended
employment agreements with Vernon Jackson and Richard Dean Jackson to serve as
President and Vice President-Operations, respectively. The terms of each of the
above agreements are for two years. The annual compensation of Mr. Vernon
Jackson is $250,000, the annual compensation for Mr. R. Dean Jackson is
$125,000. The Company also signed an employment agreement with Mr. Ted Ralston
to serve as Chairman of the Board and Chief Executive Officer at an annual
salary of $250,000. Mr. Ralston resigned his position as Chief Executive Officer
on August 31, 1995. This event terminated his employment contract. On September
1, 1995 Mr. Ralston signed a two year consulting contract which requires him to
provide a minimum of thirty hours per week to the Company in the capacity of
Chairman of the Board. His consulting agreement is for two years calling for a
monthly fee of $10,000.

In September and December of 1995, the Company signed employment agreements
with Mr. John Haines, Mr. Steven Rothenberg, and Mr. Mark P. Scott to serve as
Chief Executive Officer, Chief Financial Officer, and Vice President-Business
Development, respectively. The above contracts are for two years, two years and
three years, respectively. The above contracts provide annual salaries for
Haines, Rothenberg, and Scott of $187,500, $145,000, and $125,000, respectively.

All of the above agreements contain noncompetition provisions which
prohibit the employees from competing with the Company during the term of the
agreements and for a period of two years thereafter. The employment agreements
are terminable by the Company at any time for cause, which includes willful
misconduct. Termination of the agreements for any reason without cause, would
entitle Mr. Vernon Jackson and Mr. Dean Jackson the right to receive their
salary throughout the remaining term or for one year, whichever is longer.
Termination of the agreements for any reason without cause, would entitle Mr.
Haines, Mr. Rothenberg, and Mr. Scott the right to receive their salary for the
remaining term, 6 months, and 12 months respectively. (Reference is made to Note
K).

F-13

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

Leases

On May 15, 1995, the Company entered into a five-year lease agreement for
approximately 6,700 square feet of space in Louisville, KY at an annual rental
of $102,480. The space will be utilized as an office and a research and
development facility.

On September 28, 1995, the Company entered into a five-year lease agreement
for approximately 4,600 square feet of space in Louisville, KY at an annual
rental of $26,942. The space is being utilized as an assembly facility,
warehouse, and distribution center.

Future minimum lease payments under noncancellable operating leases are as
follows:

Year Ending
December 31,

1996 $129,420
1997 129,420
1998 129,420
1999 129,420
2000 65,150
--------
Total $582,830
========

Rent expense for the year ended December 31, 1995 and for the period May
11, 1994 (Inception) though December 31, 1994 was $70,570 and $48,348
respectively.

Patent Pending Applications

The Company's pending U.S. patent applications and pending international
patent applications claim an efficient network for the real time, simultaneous,
bi-directional transmission of voice, video, and data among a plurality of users
connected to a plurality of hubs.

Although the Company believes that its VideoLan System and technology do
not and will not infringe on patents or proprietary rights of others, it is
possible that such infringement or violation has occurred or may occur or that

others may infringe on the Company's patents.

In the event that the Company's products or technologies infringe on
patents or other proprietary rights of others, the Company could be required to
discontinue the sale of its products, including the VideoLan System, and
redesign its product or obtain licenses. There can be no assurance that the
Company would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all, or that the failure to do any of the foregoing would not
have a material adverse effect on the Company. If any of the Company's products
or technologies are deemed to infringe on patents or other proprietary rights of
others, the Company could, under certain circumstances, become liable for
damages, which could also have a material adverse effect on the Company.

F-14

<PAGE>

VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO FINANCIAL STATEMENTS

Distribution Agreements

On November 1, 1994, the Company signed a two-year nonexclusive agreement
with Intellicom Solutions, Inc. (a wholly owned subsidiary of Intelligent
Electronics, Inc.), a distributor of personal computer hardware and related
products. The agreement grants Intellicom the nonexclusive right to purchase the
Company's products (for resale distribution) at a substantial discount, plus
funding from the Company for an Intellicom-based product manager (currently
estimated to be compensated, at $60,000 per annum, including bonuses). There can
be no assurances that Intellicom will purchase significant quantities of the
VideoLan Systems.

In August, 1995, the Company signed a three year distribution agreement
with Samsung America, Inc. and Samsung Corporation of Korea. Under the terms
of the agreement, Samsung will have a three year exclusive right to sell,
service, and distribute the VideoLan System in Korea. In October, 1995, the
Company and Samsung signed an addendum to the agreement whereby Samsung has
prospectively agreed to purchase VL2000 Desktop Multimedia Products and
associated peripherals from the Company. There can be no assurances that
Samsung will purchase significant quantities of the VideoLan System.

NOTE K-SUBSEQUENT EVENTS

On January 17, 1996, Mr. Haines' employment with the Company ceased. The
Company is presently negotiating a separation agreement with Mr. Haines. Mr.
Haines remains a director of the Company.

Effective February 15, 1996, Richard Dean Jackson resigned as Executive
Vice President of the Company. As part of his separation agreement with the
Company, Mr. Jackson is to receive $125,000 paid over a four month period,
commencing March 1996. Mr. Jackson concurrently signed a marketing

representative agreement to serve as a commissioned marketing representative of
the Company. Additionally, he was issued options to acquire 150,000 shares of
the Company's common stock at $12 per share.

NOTE L-ACCOUNTING PRONOUNCEMENT NOT YET ADOPTED

In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which gives companies a choice of the method of
accounting used to determine stock-based compensation either by using the
intrinsic value-based method provided by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB No. 25") or the fair market
value-based method provided in SFAS No. 123. These accounting standards are
effective for financial statements for fiscal years beginning after December 15,
1995. The Company intends to continue to use the intrinsic value-based method
provided in APB No. 25, to determine stock-based compensation. The sole effect
of the adoption of SFAS No. 123 will be the obligation to comply with the new
disclosure requirements provided thereunder.

F-15
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED BALANCE SHEET
March 31, 1996
(Unaudited)

Assets
Current assets:
Cash and cash equivalents $ 4,785,781
Accounts receivable 24,664
Inventories 1,253,717
Prepaid expenses and other current assets 214,453
-------------
Total Current Assets $6,278,615

Property and equipment, net 342,797

Other assets:
Patent pending applications 75,315
Notes receivable 33,800
Security deposits 29,219
-------------
138,334
----------
$6,759,746
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $606,510
Capital lease obligations-current 44,289
-------------
Total Current Liabilities $ 650,799

Long term liabilties:
Capital lease obligations-non current 35,190

Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value 5,000,000
shares authorized, none issued
Common stock, $.01 par value; 20,000,000
shares authorized; 13,884,498 shares
issued and outstanding 138,845
Additional paid-in-capital 16,495,570
Deficit accumulated during development
stage (10,560,658)
-------------
Total Stockholders' Equity 6,073,757
----------
$6,759,746
==========

See Notes to Condensed Financial Statements

F-16

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Period from
11-May-94
Three Months Ended (Inception)
March 31, through
----------------------------- March 31,
1995 1996 1996
--------------------------------------------
Net sales $ -- $ -- 50,053
Cost of sales -- -- 37,372
----------- ----------- ------------
Gross profit -- -- 12,681

Selling, general and administrative
expenses:
Salaries 108,388 488,985 1,253,656
Compensation expense 1,125,000 -- 3,254,875
Payroll taxes 27,557 73,466 218,180
Consulting fees -- 145,556 1,016,669
Marketing cost 43,332 53,355 252,145
Professional fees 32,951 48,519 488,730
Travel and entertainment 64,344 74,902 543,816
Research and development 245,553 455,133 2,969,123
Equipment rental 23,144 20,613 159,004
Rent 14,054 33,930 152,848
Insurance 4,377 45,918 90,859
Office 29,512 39,707 214,676
Depreciation and amortization 2,071 17,945 51,334
Stock Administration Charges 10,061 10,061
Other 5,800 47,692 92,455
----------- ----------- ------------
Total expenses 1,726,083 1,555,782 10,768,431

Other income (expense)
Interest income 9,757 68,485 203,728
Interest expense (2,356) (10,854)
Other Income 2,218 2,218
----------- ----------- ------------
9,757 68,347 195,092

Net loss $(1,716,326) $(1,487,435) $(10,560,658)
=========== =========== ============

Loss per share $ (0.16) $ (0.11) $ (0.88)
=========== =========== ============

Weighted average common shares
outstanding 10,968,498 13,855,366 11,945,063
=========== =========== ============

See Notes to Condensed Financial Statements

F-17

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
Period from January 1, 1996 through March 31, 1996
(Unaudited)

<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During Total
Preferred --------------------- Paid-In Development Stockholders'
Stock Shares Amount Capital Stage Equity
--------- ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 13,843,498 $138,435 $16,424,980 $ (9,073,223) $ 7,490,192
Warrants exercised 5,000 50 34,950 35,000
Employee stock options exercised 36,000 360 35,640 36,000
Net loss (1,487,435) (1,487,435)
--------- ---------- -------- ----------- ------------ -----------
Balances at March 31, 1996 $ 13,884,498 $138,845 $16,495,570 $(10,560,658) $ 6,073,757
========= ========== ======== =========== ============ ===========

</TABLE>

See Notes to Condensed Financial Statements

F-18

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

Period from
Three Months Ended May 11, 1994
March 31, (Inception)
----------------------------- through
1995 1996 March 31, 1996
----------------------------------------------
Cash flows from operating and
development stage activities:
Net loss $(1,716,326) $(1,487,435) $(10,560,658)
Adjustments to net loss:
Issuances of common stock for
services rendered 1,125,000 1,146,875
Issuances of common stock for
consulting services rendered 665,000
Issuances of common stock for
purchased research and
development 709,125
Issuances of stock options to
consultants 2,108,000
Depreciation and amortization 2,071 17,945 51,334
Increase in accounts receivable (24,664)
Increase in inventories (223,227) (433,348) (1,253,717)
Increase in prepaid expenses
and other current assets (15,172) (55,972) (214,453)
Increase in security deposits (3,558) (29,219)
Increase (decrease) in accounts
payable and accrued liabilities (9,721) 261,668 606,510
----------- ----------- ------------
Net cash used in operating
and development stage
activities (837,375) (1,700,700) (6,795,867)
----------- ----------- ------------

Cash flow from investing
activities:
Acquisition of property and
equipment (14,568) (42,704) (283,470)
Patent application costs (4,452) (40,100) (75,315)
----------- ----------- ------------
Net cash used in investing
activities: (19,020) (82,804) (358,785)
----------- ----------- ------------

Cash flows from financing
activities:
Proceeds from issuance of
common stock in private
placement 2,202,747 2,655,647

Offering costs (288,703) (326,263)
Proceeds from the exercise of
stock options by employees 36,000 36,000
Proceeds from initial public
offering 11,500,000
Underwriter's commissions and
expense allowances (1,449,000)
Offering costs (445,970)
Proceeds from exercise of
common stock warrants 35,000 35,000
Proceeds from notes payable 331,000
Repayment of notes payable (325,000) (331,000)
Repayment of capital lease
obligations (4,299) (10,712) (31,181)
Proceeds from bridge loans 450,000 900,000
Repayment of bridge loans (450,000) (900,000)
Loans to employees, net 35,311 (33,800)
Cash overdraft (31,003) --
----------- ----------- ------------
Net cash provided by
financing activities: 1,589,053 60,288 11,940,433
----------- ----------- ------------
Increase (decrease) in cash and
cash equivalents: 732,658 (1,723,216) 4,785,781
Cash and cash equivalents at
beginning of period -- 6,508,997 --
----------- ----------- ------------
Cash and cash equivalents at
end of period $ 732,658 $ 4,785,781 $ 4,785,781
=========== =========== ============

Supplemental disclosure of cash flow information: Capital lease obligations of
$24,740 were incurred when the Company entered into new leases for computer
equipment. Interest expense paid in cash was $2,356.

See Notes to Condensed Financial Statements

F-19

<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 1996
(Unaudited)

NOTE A-DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Unless income from sales of the VideoLan System is obtained, the timing,
sufficiency and receipt of which the Company cannot predict, future development
and commercialization of the Company's technology will depend upon arrangements
with third parties to finance research and development projects, or the
Company's ability to obtain other additional financing on terms satisfactory to
the Company. The Company presently has no formal arrangements or commitments
for external financing. The Company's inability to obtain such financing could
have a material adverse effect on the Company's operations.

On May 23, 1994, the Company acquired the rights to a pending U.S. patent
application from L&LD Communications Consultants, Inc. ("L&LD"), which is the
Company's predecessor for financial reporting purposes and which was formed by
Vernon Jackson, a director and stockholder of the Company.

On September 1, 1994, by amendment to its Articles of Incorporation, the
Company changed its name from Triple R Industries, Inc. to VideoLan
Technologies, Inc.

The interim condensed financial statements included herein are unaudited;

however, in the opinion of management, such financial statements reflect all
adjustments (consisting of only normal recurring adjustments) necessary to
fairly present the financial statements for such interim periods.

NOTE B-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Research and Development Costs

Research and development costs are expensed as incurred.

F-20
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 1996
(Unaudited)

2. Net Loss Per Share of Common Stock

The computation of loss per common share is based on the weighted average
number of outstanding shares. All common stock of the Company issued within one
year of the initial public offering was considered outstanding for all periods
presented. Stock options and warrants have not been included in the
calculation as their inclusion would be antidilutive.

3. Inventories

Inventories consist of subcomponents necessary to manufacture the Company's
product and are valued at the lower of average actual cost or market. The
Company has entered into an arrangement to subcontract the manufacture,
assembly, testing, and maintenance of the product.

4. Cash Equivalents

5. Property and Equipment

Property and equipment is stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the respective assets.

6. 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, the
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.

7. Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable and accrued liabilities approximate fair value, principally
because of the short maturity of these items.

NOTE C-PATENT PENDING APPLICATIONS

F-21
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 1996
(Unaudited)

NOTE D-PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

Estimated
Useful
Life

Furniture and Fixtures $ 14,012 5
Equipment 274,251 5
Leasehold Improvements 105,868 5
--------
394,131
Less: Accumulated Depreciation
and Amortization 51,334
--------
$342,797
========

NOTE E-ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consists of:

Accounts payable $490,901
Accrued professional fees 45,400
Customer security deposits 70,209
--------
$606,510
========

NOTE F-CAPITAL STOCK TRANSACTIONS

On January 31, 1996, 5,000 warrants were redeemed for shares of common
stock at $7 per share. During February and March, 1996, 36,000 employee stock
options were exercised at $1 per share.

NOTE G-COMMITMENTS AND CONTINGENCIES

Employee Compensation

On January 17, 1996, Mr. John Haines' employment as CEO of the Company
ceased. The Company is finalizing a separation agreement with Mr. Haines. Once
finalized, Mr. Haines will resign as a director of the Company.

Effective February 15, 1996, Mr. Richard Dean Jackson resigned as Executive
Vice President of the Company. As part of his separation agreement with the
Company, Mr. Jackson is to receive $125,000 paid over a four month period,
commencing March 1996. Mr. Jackson concurrently signed a marketing
representative agreement to serve as a commissioned marketing representative of
the Company. Additionally, he was issued options to acquire 150,000 shares of
the Company's common stock at $12 per share.

F-22
<PAGE>
VideoLan Technologies, Inc.
(a development stage enterprise)

NOTES TO CONDENSED FINANCIAL STATEMENTS

March 31, 1996
(Unaudited)

Patent Pending Applications

similar or related technology by competitors.

NOTE H-SUBSEQUENT EVENTS

During May 1996, the Company plans to open a new 9,778 square foot facility
in Jeffersontown, KY. The Company will be relocating the Product Engineering
Department and the Research and Development Department from the Corporate Office
to the new facility. The current manufacturing facility will be relocated to
the new facility. It is the Company's intention to sub lease this existing
manufacturing facility. The minimum annual lease payments under this new lease
are as follows:

1996 $ 40,752
1997 61,128
1998 73,128
1999 77,128
2000 85,128
Thereafter 28,376
--------
$365,640
========

In May 1996, Mr. John Haines entered into a termination and release
agreement relating to his resignation as Chief Executive Officer of the Company
on January 17, 1996. Under the terms of the agreement, Mr. Haines will retain
150,000 vested stock options granted to him under a consulting agreement. The
agreement requires the Company to register 50,000 shares underlying such options
by June 20, 1996 and grants Mr. Haines certain registration rights with respect
to the remaining shares. Additionally, Mr. Haines will continue to receive his
base salary through the latter of August 31, 1997 or ninety days after selling
shares purchased pursuant to the exercise of the options. Upon entering the
agreement, Mr. Haines resigned as a director of the Company.

F-23

<PAGE>

No person has been authorized to give any information or make any
representations not 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. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than those to which it
relates or an offer to sell, or a solicitation of an offer to buy any
securities, by 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 the
information contained here is correct as of any time subsequent to the date
hereof.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Price Range of Common Stock and
Warrants............................ 11
Dividend Policy....................... 12
Selected Financial Data............... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 16
Management............................ 22
Principal Stockholders................ 28
Use of Proceeds....................... 29
Plan of Distribution.................. 29
Description of Securities............. 30
Shares Eligible for Future Sale....... 32
Legal Matters......................... 34
Experts............................... 34
Index to Financial Statements......... 35
</TABLE>

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

3,139,000 Shares

VIDEOLAN
TECHNOLOGIES, INC.

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

COMMON STOCK

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

PROSPECTUS

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

May , 1996

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The Company is incorporated in Delaware. Under Section 145 of the General
Corporation Law of the State of Delaware, a Delaware corporation has the power,
under specified circumstances, to indemnify its directors, officers, employees,
and agents in connection with actions, suits, or proceedings brought against
them by a third party or in the right of the corporation, by reason of the fact
that they were or are such directors, officers, employees, or agents, against
expenses incurred in any action, suit or proceeding. Article Seventh of the
Certificate of Incorporation provides for indemnification of directors and
officers to the fullest extent permitted by the General Corporation Law of the
State of Delaware. Reference is made to the Certificate of Incorporation of the
Company filed as an Exhibit hereto. Section 102(b)(7) of the General Corporation
Law of the State of Delaware provides that a certificate of incorporation may
contain a provision eliminating or limiting the personal liability of a director
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director provided that such provision may not eliminate or
limit the liability of a director (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) under Section 174 (relating to liability for unauthorized
acquisitions or redemptions of, or dividends on, capital stock) of the General
Corporation Law of the State of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit. Article Eighth of the
Company's Certificate of Incorporation contains such a provision.

The Company maintains a directors' and officers' liability insurance policy
which indemnifies the directors and officers against certain acts and omissions.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses in connection with the
distribution of the securities being registered, other than fees and commissions
of underwriters and dealers. All such expenses are estimated, except for the SEC
registration fee:

<TABLE>
<S> <C>
SEC registration fee.......................................... $ *
Accounting fees and expenses.................................. *
Legal fees and expenses....................................... *
Printing and engraving expenses............................... *
Transfer agent and registrar fees............................. *
Blue Sky fees and expenses.................................... *
Miscellaneous expenses........................................ ------------
Total....................................................... $ *
============
</TABLE>

* To be filed by amendment.

<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

(a) As of May 11, 1994, the Company issued 3,677,000 shares of its Common
Stock to Ted Ralston in consideration of $400.

(b) In May and August of 1994, the Company issued 500,000 shares of its
Common Stock to Bruce Stuart in consideration of $150,000 ($.30 per share).

(c) As of June 1, 1994, the Company sold 800,000 shares of its Common Stock
to Vernon L. Jackson in consideration of services rendered and a release of all
rights to the Company's technology.

(d) As of June 1, 1994, the Company issued 87,500 shares of its Common
Stock to Richard Dean Jackson in consideration of services rendered and 262,500
shares of its Common Stock in consideration of a release of rights to the
Company's technology.

(e) As of June 1, 1994, the Company issued 25,000 shares of its Common
Stock to Jeff Clark in consideration of services rendered.

(f) As of June 1, 1994, the Company issued 75,000 shares of its Common
Stock to James Robert Werner in consideration of services rendered.

(g) As of June 1, 1994, the Company issued 50,000 shares of its Common
Stock to James L. Turner in consideration of services rendered.

(h) During June and July of 1994, the Company sold 150,000 shares of its
Common Stock to O. H. Koeplin in consideration of $50,000 ($.33 per share).

(i) During June, July and August of 1994, the Company sold 150,000 shares
of its Common Stock to Protype Circuits, Inc. in consideration of $56,500 ($.377
per share).

(j) During June, July and August of 1994, the Company sold 50,000 shares of
its Common Stock to Leighton MacMillan in consideration of $18,500 ($.37 per
share).

(k) As of August 18, 1994, the Company issued (i) 800,000 shares of its
Common Stock to Darrell Griffith, (ii) 200,000 shares of its Common Stock to
Norman Carmichael, (iii) 650,000 shares of its Common Stock to Olden Lee, and
(iv) 150,000 shares of its Common Stock to Roger Reynolds in consideration of a
settlement agreement and release executed by Messrs. Griffith, Carmichael, Lee
and Reynolds in settlement of disputed claims of such shareholders with respect
to their rights to the ownership of the technology of the VideoLan VL2000
System.

(l) As of September 14, 1994, the Company sold 40,000 shares of its Common
Stock to Robert Slechter in consideration of $30,000 ($.75 per share).

(m) As of September 14, 1994, the Company sold 133,000 shares of its Common
Stock to Lou Schroeder in consideration of $100,000 ($.752 per share).

(n) As of October 7, 1994, the Company sold 950,000 shares of its Common
Stock to Ruben Levy in consideration of $47,500 ($.05 per share).

<PAGE>
(o) During January and February of 1995, the Company sold an aggregate of
1,468,498 shares of its Common Stock in consideration of $2,202,749.50 ($1.50
per share) to 88 shareholders pursuant to a Private Placement offered to
accredited investors under Regulation D of the Securities Act. The placement
agent was Kensington Wells Incorporated. The placement agent received a
commission in the amount of ten percent (10%), and a non accountable expense
allowance of 3%, which amounted to $286,351.

(p) As of March 1, 1995, the Company issued 750,000 shares of its Common
Stock to Vernon L. Jackson in consideration of Mr. Jackson's agreement to
release the Company from its obligation to pay Mr. Jackson a royalty equal to

five percent (5%) of the sales of the Company's products.

All of the above transactions were made in reliance upon the exemption
provided by Section 4(2) of the Securities Act. The following factors were
relied upon by the Company to establish the availability of this exemption for
the sales of securities described above: (1) all offers and sales were made by
personal contact from officers or directors of the Company, (2) each purchaser
was sophisticated in relation to his investment, (3) each purchaser gave written
assurance of investment intent, (4) share certificates or warrants included
legends referring to restrictions on transfer, (5) sales were made to a limited
number of persons, and (6) each purchaser was given, or had full access to, all
material information regarding the Company and the security necessary to make an
informed decision.

(q) As of February 29, March 18, March 25, and April 24, 1996, the Company
issued 8,000, 8,000, 8,000, and 8,000 shares of Common Stock, respectively, to
James Robert Werner in consideration of $8,000, $8,000, $8,000, and $8,000
($1.00 per share) pursuant to exercise of an option.

(r) As of March 12, March 28, and May 3, 1996, the Company issued 8,000,
4,000, and 6,000 shares of its Common Stock, respectively, to James L. Turner in
consideration of $8,000, $4,000, and $6,000 ($1.00 per share) pursuant to
exercise of an option.

The above two transactions were made in reliance upon the exemption
provided by Rule 701 adopted pursuant to the Securities Act.

No underwriting commissions or discounts were paid with respect to any of
the sales of unregistered securities described above.

ITEM 27. EXHIBITS.

<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
3.1 - Certificate of Incorporation of the Company, a Delaware corporation(1)

3.2 - By-Laws of the Company, a Delaware corporation(1)

4.1 - Specimen certificate for Common Stock(1)

4.2 - Specimen certificate for Warrants (included in 4.3)(1)

4.3 - Form of Warrant Agreement(1)

4.4 - Form of Underwriter's Warrant(1)
</TABLE>

<PAGE>

<TABLE>
<S> <C>
4.5 - Form of Consulting Agreement between Kensington Wells Incorporated and
the Company(1)

4.6 - Lock-Up Agreement (6 months)(1)

4.7 - Lock-Up Agreement (18 months)(1)

5 - Legal Opinion of Hirn Doheny & Harper(2)

10.1 - Form of Merger Agreement between VideoLan Technologies, Inc., an Ohio
corporation, and VideoLan Technologies, Inc., a Delaware company(1)

10.2 - Employment Agreement between the Company and Peter Beck(1)

10.3 - Employment Agreement between the Company and Remy Fenouil(1)

10.4 - Employment Agreement between the Company and Vernon L. Jackson(1)

10.5 - Amendment to Employment Agreement between the Company and Vernon L.
Jackson(1)

10.6 - Employment Agreement between the Company and Richard Dean Jackson(1)

10.7 - Amendment to Employment Agreement between the Company and Richard Dean
Jackson(1)

10.8 - Employment Agreement between the Company and Ted Ralston(3)

10.9 - Employment Agreement between the Company and Vernon L. Jackson(3)

10.10 - Employment Agreement between the Company and Richard Dean Jackson(3)

10.11 - Lease between the Company and Plainview Plaza(1)

10.12 - Lease between the Company and HFH Commercial Real Estate Limited
Partnership(1)

10.13 - 1995 Stock Option Plan of the Company(1)

10.14 - Release of rights against the Company executed by Richard Dean
Jackson(3)

10.15 - Settlement Agreement and Release among Triple R Industries, Inc. and
four investors(1)

10.16 - Consulting Agreement between Ruben Levy and the Company(1)

10.17 - Assignment of Invention and Letters Patent from L&LD Communications
Consultant, Inc. to Triple R Industries, Inc.(1)

10.18 - Placement Agency Agreement between the Company and Kensington Wells
Incorporated(1)

10.19 - Form and Registration Rights Agreement among the purchasers of shares
of Common Stock in the private placement(1)

10.20 - Registration Rights Agreement between Ruben Levy and the Company(1)
</TABLE>

<PAGE>

<TABLE>
<S> <C>
10.21 - Option Termination and Release Agreement executed by O.H. Koeplin(1)

10.22 - Option Termination and Release Agreement executed by Protype Circuits,
Inc.(1)

10.23 - Option Termination and Release Agreement executed by Bruce Stuart(1)

10.24 - Promissory Notes payable by VideoLan Technologies, Inc. to Aaron
Wolfson, Abraham Wolfson and Arielle Wolfson(1)

10.25 - Form of Non Qualified Stock Option Agreement between the Company and
Aaron Wolfson, Abraham Wolfson and Arielle Wolfson(1)

10.26 - Form of Custody Agreement between the Selling Stockholders and
Continental Stock Transfer & Trust Co.(1)

10.27 - Consulting Agreement between the Company and Ted Ralston(3)

10.28 - Employment Agreement between the Company and John Haines(3)

10.29 - Employment Agreement and Employment Agreement Addendum between the
Company and Steven B. Rothenberg(3)

10.30 - Exclusive Distribution Agreement between the Company and Samsung
America, Inc. And Samsung Corporation(3)(4)

10.31 - Severance and Release Agreement between the Company and R. Dean
Jackson(3)

10.32 - Termination and Release Agreement between the Company and John E.
Haines

10.33 - Option Agreement between the Company and John E. Haines

10.34 - Registration Rights Agreement Agreement between the Company and John
E. Haines

23.1 - Consent of Grant Thornton LLP, independent public accountants

23.2 - Consent of Hirn Doheny & Harper (included in Exhibit 5)

</TABLE>

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

(1) Incorporated by reference to the exhibits to the registration statement on
Form SB-2 filed by the Company, as amended, SEC File Number 33-93086.

(2) To be filed by amendment.

(3) Incorporated by reference to the exhibits to the report on Form 10-KSB
filed by the Company for the fiscal year ended December 31, 1995.

(4) Portions of this exhibit have been removed pursuant to a request for
confidential treatment to the Secretary of the Securities and Exchange
Commission.

ITEM 28. UNDERTAKINGS.

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

<PAGE>
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.

(b) The undersigned small business issuer will:

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

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

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

(i) Include any prospectus required by section 10(a)(3) of the
Act;

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

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

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

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

<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Post-Effective
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, in the City of Louisville, Commonwealth of Kentucky, on May 28,
1996.

VIDEOLAN TECHNOLOGIES, INC.

By: /s/ Peter Beck
------------------------------------
PETER BECK, Chief Operating Officer

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>

/s/ Peter Beck Chief Operating Officer May 28, 1996
- --------------------------- (Principal Executive Officer)
Peter Beck

/s/ Steven B. Rothenberg Vice President Finance, Chief May 28, 1996
- --------------------------- Financial Officer, (Chief
Steven B. Rothenberg Accounting Officer), and Director

/s/ Ted Ralston
- --------------------------- Director May 28, 1996
Ted Ralston

/s/ Vernon L. Jackson Director May 28, 1996
- ---------------------------
Vernon L. Jackson

Director May 28, 1996
- ---------------------------
R. Dean Jackson

Director May 28, 1996
- ---------------------------
Howard S. Jacobs

/s/ John R. Glankler Director May 28, 1996
- ---------------------------
John R. Glankler
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
Director May , 1996
- ---------------------------
Jacques O. de Labry
</TABLE>

<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit No. Page Number
- ----------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, a
Delaware corporation(1)

3.2 By-Laws of the Company, a Delaware corporation(1)

4.1 Specimen certificate for Common Stock(1)

4.2 Specimen certificate for Warrants (included in 4.3)(1)

4.3 Form of Warrant Agreement(1)

4.4 Form of Underwriter's Warrant(1)

4.5 Form of Consulting Agreement between Kensington Wells
Incorporated and the Company(1)

4.6 Lock-Up Agreement (6 months)(1)

4.7 Lock-Up Agreement (18 months)(1)

5 Legal Opinion of Hirn Doheny & Harper

10.1 Form of Merger Agreement between VideoLan
Technologies, Inc., an Ohio corporation, and VideoLan
Technologies, Inc., a Delaware company(1)

10.2 Employment Agreement between the Company and Peter
Beck(1)

10.3 Employment Agreement between the Company and Remy
Fenouil(1)

10.4 Employment Agreement between the Company and Vernon L.
Jackson(1)

10.5 Amendment to Employment Agreement between the Company
and Vernon L. Jackson(1)

10.6 Employment Agreement between the Company and Richard
Dean Jackson(1)

10.7 Amendment to Employment Agreement between the Company
and Richard Dean Jackson(1)

10.8 Employment Agreement between the Company and Ted
Ralston(3)

10.9 Employment Agreement between the Company and Vernon L.
Jackson(3)

10.10 Employment Agreement between the Company and Richard
Dean Jackson(3)
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
10.11 Lease between the Company and Plainview Plaza(1)

10.12 Lease between the Company and HFH Commercial Real
Estate Limited Partnership(1)

10.13 1995 Stock Option Plan of the Company(1)

10.14 Release of rights against the Company executed by
Richard Dean Jackson

10.15 Settlement Agreement and Release among Triple R
Industries, Inc. and four investors(1)

10.16 Consulting Agreement between Ruben Levy and the
Company(1)

10.17 Assignment of Invention and Letters Patent from L&LD
Communications Consultant, Inc. to Triple R
Industries, Inc.(1)

10.18 Placement Agency Agreement between the Company and
Kensington Wells Incorporated(1)

10.19 Form and Registration Rights Agreement among the
purchasers of shares of Common Stock in the private
placement(1)

10.20 Registration Rights Agreement between Ruben Levy and
the Company(1)

10.21 Option Termination and Release Agreement executed by
O.H. Koeplin(1)

10.22 Option Termination and Release Agreement executed by
Protype Circuits, Inc.(1)

10.23 Option Termination and Release Agreement executed by
Bruce Stuart(1)

10.24 Promissory Notes payable by VideoLan Technologies,
Inc. to Aaron Wolfson, Abraham Wolfson and Arielle
Wolfson(1)

10.25 Form of Non Qualified Stock Option Agreement between
the Company and Aaron Wolfson, Abraham Wolfson and
Arielle Wolfson(1)

10.26 Form of Custody Agreement between the Selling
Stockholders and Continental Stock Transfer & Trust
Co.(1)

10.27 Consulting Agreement between the Company and Ted
Ralston(3)

10.28 Employment Agreement between the Company and John
Haines(3)

10.29 Employment Agreement and Employment Agreement Addendum
between the Company and Steven B. Rothenberg(3)
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
10.30 Exclusive Distribution Agreement between the Company
and Samsung America, Inc. and Samsung
Corporation(3)(4)

10.31 Severance and Release Agreement between the Company
and R. Dean Jackson(3)

10.32 Termination and Release Agreement between the Company
and John E. Haines

10.33 Option Agreement between the Company and John E. Haines

10.34 Registration Rights Agreement between the Company and
John E. Haines

23.1 Consent of Grant Thornton LLP, independent public
accountants

23.2 Consent of Hirn Doheny & Haper (included in Exhibit 5)

</TABLE>

- ----------

(1) Incorporated by reference to the exhibits to the registration statement on
Form SB-2 filed by the Company, as amended, SEC File Number 33-93086.

(2) To be filed by amendment.

(3) Incorporated by reference to the exhibits to the report on Form 10-KSB
filed by the Company for the fiscal year ended December 31, 1995.

(4) Portions of this exhibit have been removed pursuant to a request for
confidential treatment to the Secretary of the Securities and Exchange
Commission.

<PAGE>
TERMINATION AND RELEASE AGREEMENT

This termination and full and final release of all claims agreement (this
"Agreement") is by and between VIDEOLAN TECHNOLOGIES, INC., a Delaware
corporation (the "Company") and JOHN E. HAINES, and individual ("Haines").

In consideration of the mutual promises contained herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows, subject to all of the terms,
provisions and conditions of this Agreement:

1. Termination & Compensation.

(a) Haines acknowledges and agrees that he ceased to be an officer of
the Company on January 17, 1996 (the "Effective Date"). Haines hereby resigns as
a director of the Company effective the date hereof.

(b) Haines hereby acknowledges receipt of payment to him of his salary
for all pay periods ending on or before the Effective Date.

(c) Concurrently herewith, Haines and the Company shall enter into an
Option Agreement in the form of Exhibit A hereto (the "Option Agreement") to
amend and restate the option (the "Option") to purchase 150,000 of the shares of
the Company's common stock, $.01 par value ("Shares") granted pursuant to that
certain Consulting Agreement dated June 1, 1995 between the Company and Haines,
as amended by that certain Addendum dated August 18, 1995 between the Company
and Haines (collectively, the "Consulting Agreement") and to cancel the Option
with respect to the remaining 100,000 shares.

(d) Concurrently herewith, Haines and the Company shall enter into a
Registration Rights Agreement in the form of Exhibit B hereto (the "Registration
Rights Agreement") relating to the registration of the shares to be acquired by
Haines pursuant to the Option Agreement.

(e) From the Effective Date of this Agreement, Haines shall receive
from the Company monthly severance in the amount of $15,625 per calendar month
(prorated for partial months), paid in the usual manner compensation is paid by
the Company to its then current employees, from which amounts the Company shall
make appropriate withholding for federal, state and local taxes ("Termination
Payment"). Termination Payments shall cease on the earlier of: (i) 90 days
subsequent to the first date on which Haines shall sell Shares acquired by
Haines pursuant to the Option Agreement; or (ii) September 1, 1997.

(f) The Company agrees that, through the period ending May 31, 1996,
it shall be responsible for furniture rental in the amount of $274.57 and
appliance rental in the amount of $152.56 per month, and that the Company shall
in addition to the payment of current rent in the amount of $1,300 per month, be
responsible for an early termination expense not to exceed $1,300.

(g) In settlement of various miscellaneous claims between Haines and
the Company not otherwise addressed herein, it is agreed that, within five
business days of the execution

<PAGE>
of this Agreement the Company shall pay to Haines, in immediately available
funds, the amount of $40,000.00.

(h) Haines agrees not to file any claims for unemployment benefits
resulting from the termination of his employment with the Company.

(i) Concurrently herewith, Haines agrees to return to the Company all
physical property of the Company currently in his possession.

(j) If Haines should elect COBRA coverage, he shall be responsible for
all premiums and other payments from the date of this Agreement.

2. Relocation Expenses.

(a) The Company agrees and acknowledges that, as part of its
inducement to Haines to join the Company, he was provided with a relocation
expense account in the amount of up to $40,000, which amounts would be paid to
Haines upon the submission of appropriate invoices and other appropriate
evidence of payment. To date, Haines has received $25,203 in reimbursement from
this account. In addition, Haines acknowledges that the amount of $2,797.15 has
been paid to him under this account despite the fact that appropriate invoices
and documentation has not been submitted. Until such time as appropriate
documentation for the advanced amount of $2,797.15 is submitted, reimbursement
of relocation expenses shall, in said amount, be delayed and counted as a credit
against this advance. To the extent not previously paid, the Company
acknowledges its continuing obligation to provide Haines with up to $40,000 in
relocation expenses of the type summarized in Exhibit C hereto (a portion of
which are described in section 1(c)). All invoices to be submitted against this
account shall be forwarded to the Company by November 1, 1996. All reimbursement
of Haines for invoices submitted shall take place within thirty days of
submission, the Company having the right to contest the sufficiency of any
submission within the fifteen calendar days after submission. Haines and the
Company agree to cooperate in continuing efforts to resolve any matters arising
under the relocation expense account.

(b) Haines acknowledges that he has in his possession and, with the
approval of the Company has retained, a color ink jet printer, the agreed fair
market value of which is $500.00, and the value of which shall be deducted from
the relocation expense account.

3. Release.

(a) Haines on behalf of himself and any representatives, heirs,
successors, devisees, assigns, and agents, acknowledges and agrees that his
employment by the Company terminated as of January 17, 1996 and that he has no
further rights pursuant to the Consulting Agreement or the Employment Agreement
by and between him and the Company dated September 1, 1995 (the "Employment
Agreement") except as evidenced by the Option Agreement, the Registration Rights
Agreement and this Agreement and gives up, releases and settles any and all
claims against the Company, including but not limited to any and all claims in
any way connected with his business relationship with the Company, whether such
relationship was as an employee, shareholder, option holder, consultant,
officer, director, agent, independent contractor, or otherwise, or by or
pursuant

2
<PAGE>
to one or more verbal or written contracts, agreements, or otherwise, and the
termination of such relationship(s), together with all other claims, lawsuits or
demands, known or unknown, accrued or unaccrued, of any kind which he has made
or could make now or in the future based upon events and circumstances which
occurred or existed on or prior to the actual date of execution of this
Agreement, against the Company (including any predecessor, successor, affiliated
and related companies) or against its and their officers, directors,
shareholders, warrant holders, option holders, employees, consultants,
attorneys, accountants, transfer agents or agents, in their individual and
corporate capacities, including but not limited to claims of tort, breach of
contract or otherwise, or for attorney's fees.

(b) The Company, on behalf of itself and its representatives,
successors, assigns and agents, including without limitation, any director or
executive officer of the Company, either currently serving or previously
serving, gives up, releases and settles any and all claims against Haines,
including but not limited to any and all claims in any way connected with his
business relationship with the Company, whether such relationship was as an
employee, shareholder, option, holder, consultant, officer, director, agent,
independent contractor, or otherwise or by or pursuant to one or more written
contracts, agreements, or otherwise, and the termination of such
relationship(s), together with all other claims, lawsuits or demands, known or
unknown, accrued or unaccrued, of any kind which it has may or could make now or
in the future based upon events and circumstances which occurred or existed on
or prior to the actual date of execution of this Agreement, against Haines,
including but not limited to claims of tort, breach of contract or otherwise, or
for attorney's fees.

(c) The Company agrees and acknowledges that Haines is and shall
remain, to the extent provided for by the Certificate of Incorporation, the
Bylaws, and/or any insurance or similar indemnification policies now or in the
future maintained by the Company, protected and indemnified against personal
liability for any loss, claim or damage, including attorney and other
professional fees, for any claim which may be made against Haines rising out of
or in connection with his service, in any capacity, to the Company.

4. Letter of Recommendation. The Company and Haines have agreed upon the
wording and content of the Letter of Recommendation in the form of Exhibit D
hereto (the "Letter of Recommendation"). It is agreed that the Company shall not
offer any comment, statement or recommendation with respect to Haines and his
service, in any capacity, with and to the Company, other than the Letter of
Recommendation.

5. Nondisparagement.

(a) Haines agrees not to disparage, directly or indirectly, the
Company (including any predecessor, successor, affiliated and related
companies), or its officers, directors, employees, consultants, attorneys,
accountants, transfer agents, other agents, products or technology to third
parties or otherwise.

(b) The Company (including any predecessor, successor, affiliated and
related companies), and its officers, directors, employees, consultants,
attorneys, accountants, transfer agents

3
<PAGE>
and other agents agree not to disparage, directly or indirectly, Haines to third
parties or otherwise.

6. No Admission. This Agreement is not an admission by the Company of any
liability whatsoever or that the Company in any way has acted improperly or
unlawfully in the termination of Haines. This Agreement is not a declaration by
Haines that the Company properly terminated his service with the Company.

7. Non-Disclosure. "Proprietary Information" means information disclosed to
or otherwise made available to Haines or known by him as a consequence of or
through his business relationship and/or employment by the Company prior to the
effective date of this Agreement and related to any of the Company's
technologies, applications, patents, patent applications and/or claims,
products, processes, or services, including, without limitation, information
relating to patents, patent applications, research, development and inventions.
Haines recognizes and acknowledges that all information defined herein as
Proprietary Information is valuable, special, and unique belonging solely to the
Company. Haines shall not, at any time, directly or indirectly, use or disclose
Proprietary Information whether or not specifically described above except as
permitted, in writing, by the Board of Directors of the Company. The obligation
of Haines to protect and not to disclose the Proprietary Information disclosed
to him shall not apply to information that is: generally available to the public
prior to its disclosure by the Company or that becomes generally available to
the public after disclosure by the Company through no fault of Haines; obtained
or acquired by Haines from a third party in possession of such information who
is not under obligation to the Company not to disclose the information; or
ordered by a court of competent jurisdiction or governmental agency to be
produced by Haines; provided, however, that upon the receipt of any such order,
Haines shall immediately notify the Company of such order so that an appropriate
protective agreement or order can be sought.

8. Non-Competition.

(a) (i) Through the period up to and including August 31, 1996,
worldwide; and

(ii) through and including December 31, 1996, for any location in
the United States.

Haines agrees that he will not engage or participate in directly or indirectly,
individually or as an agent, employee, officer, director, shareholder (excluding
being the holder of stock which represents not more than 1% interest in a
publicly held corporation), partner, financier, consultant, independent
contractor or any other capacity whatsoever or lend his name to any business
involved in the research, development, commercialization, manufacture, assembly,
sale, licensing, sublicensing, distribution, supplying or marketing of desktop
video conferencing products, video on demand products, and/or related products
and other applications (as currently exist) of the Company's technology and/or
products. Notwithstanding anything to the contrary in this Agreement, the
Company acknowledges that Haines is a shareholder and director of CMed
Corporation, which engages in the sell, distribution, supply and marketing of
primarily telemedical applications of desktop video conferencing products, which
participation shall in no way be deemed a violation of this Agreement.

4
<PAGE>
(b) After August 31, 1996, and through December 31, 1996, in any
location outside the United States, Haines will not engage or participate in
directly or indirectly, individually or as an agent, employee, officer,
director, shareholder (excluding being the holder of stock which represents not
more than 1% interest in a publicly held corporation), partner, financier,
consultant, independent contractor or any other capacity whatsoever or lend his
name to any business involved in the research, development, commercialization,
manufacture, assembly, sale, licensing, sublicensing, distribution, supplying or
marketing of desktop video conferencing products, video on demand products,
and/or related products and other applications (as currently exist) of the
Company's technology and/or products for any of the five largest competitors of
the Company as of the date of this Agreement.

(c) Through the period up to and including December 31, 1996, Haines
agrees that he will not attempt to hire, on behalf of himself or otherwise, any
current employee of the Company, which limitation will not apply to blood
relatives of Haines.

9. Confidentiality.

(a) Haines will keep this Agreement and its terms confidential and
will not discuss the same or the details of negotiations preceding this
Agreement publicly, or disclose them in any manner inconsistent with full
confidentiality, at any time, or for any reason whatsoever, other than by
express court order or applicable federal securities laws, except to his
immediate family, and when necessary, to his attorney(s) accountant(s) and other
professional advisor(s). In any event, each of those persons shall be instructed
concerning the confidentiality of this Agreement and the need to maintain such
confidentiality.

(b) The Company will keep this Agreement and its terms confidential
and will not discuss the same or the details of negotiation preceding this
Agreement publicly, or, disclose them in any manner inconsistent with full
confidentiality at any time or for any reason, other than by express court order
or applicable federal securities laws.

(c) Haines and the Company agree that no descriptive disclosure of the
terms of this Agreement, the Option Agreement, the Registration Rights Agreement
or any exhibit thereto shall be made pursuant to the Federal securities laws
except as shall have been agreed by and between the parties in the form of
Exhibit D hereto (the "Agreed Disclosure"). The Company may satisfy any
obligation imposed by the Federal securities laws to file these documents.

10. Complete Agreement.

(a) This Agreement, together with the Option Agreement and the
Registration Rights Agreement, contain the complete understanding between the
Company and Haines and supersede all other agreements, written and oral, between
the parties, and any predecessor, related or affiliated entities and/or
officers, directors, employees, consultants and agents of the Company with
respect to the subject matter hereof, including but not limited to the
Consulting Agreement and the Employment Agreement (collectively, the "Prior
Agreements"). The parties acknowledge and agree that, other than as stated in
this Agreement and the Option Agreement, Haines is not entitled, now or in the
future, to any compensation or benefits, including but not limited to stock
options, pursuant

5
<PAGE>
to the Prior Agreements or otherwise. In signing this Agreement, the parties are
not relying on any fact, statement or assumption not set forth in this
Agreement. Haines acknowledges and agrees that the release contained in this
Agreement is a general release and expressly waives and assumes the risk of any
and all claims or damages which exist as of this date, but which Haines does not
know of or suspect to exist, whether through ignorance, oversight, error,
negligence or otherwise, and which, if known, would materially affect Haines's
decision to enter into this Agreement. Haines hereby further agrees that he has
accepted the consideration specified herein as a complete compromise of matters
involving disputed issues of law and fact and fully assumes the risks that the
facts or the law may be otherwise than believed or understood.

(b) Notwithstanding any provision of this Agreement to the contrary,
it is agreed and acknowledged that the parties have this day entered into a
series of agreements, namely a Termination and Release Agreement, an Option
Agreement and a Registration Rights Agreement, which together constitute one
transaction and settlement. A party permitted at law or equity to renounce any
one of these agreements due to the other party's breach may elect to renounce
all of these agreements.

11. Voluntary. Haines has entered into this Agreement voluntarily.

12. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Kentucky.

13. Further Acts.

(a) Haines shall perform such further acts and execute and deliver
such further documents as may be reasonably necessary to carry out the
provisions of this Agreement.

(b) The Company shall perform such further acts and execute and
deliver such further documents as may be reasonably necessary to carry out the
provisions of this Agreement, including but not limited to the proper and
complete execution of such documents as must be filed with federal and state
securities authorities to carry out the provisions of the Registration Rights
Agreement.

14. Enforceability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision hereof.

15. Relief.

(a) In the event of a breach or threatened breach by Haines of the
provisions contained in Sections 5, 7, 8 or 9, the Company shall be entitled to
an injunction restraining Haines with respect to such prohibited conduct. In the
event that the Company should bring an action for such injunctive relief, the
parties hereto stipulate that the Company will be irreparably harmed and have no
adequate remedy at law. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to the
Company from such breach or threatened breach against Haines, or any other
person or entity, including for the recovery of damages.

6
<PAGE>
(b) In the event of a breach by the Company of any of its obligations
under this Agreement, the Option Agreement and/or the Registration Rights
Agreement, it is acknowledged by the Company, that, save to the extent that such
breach relates solely to the payment to make required monetary payments to
Haines, Haines will be irreparably harmed and will have no adequate remedy at
law, and that such action or inaction on behalf of the Company may seriously
jeopardize the ability of Haines to enjoy future gainful employment in his area
of expertise. As such, the Company stipulates that, in addition to monetary
relief, he will be entitled to injunctive and other equitable relief. Nothing
contained herein shall be construed as prohibiting Haines from pursuing any
other remedies available to Haines for such breach or threatened breach against
the Company, or any other person or entity, including for the recovery of
damages.

16. Counterparts. For the convenience of the parties, this Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.

17. Rule of Construction. The language in all parts of this Agreement shall
in all cases be construed as a whole according to its fair meaning, strictly
neither for nor against any party hereto, and without implying a presumption
that the terms hereof shall be more strictly construed against one party by
reason of the rule of construction that a document is to be construed more
strictly against the person who himself or through his agent prepared the same.

18. EACH PARTY HAS CAREFULLY READ THIS AGREEMENT, FULLY UNDERSTANDS THIS
AGREEMENT, AND SIGNS IT AS HIS OR ITS OWN FREE ACT.

IN WITNESS WHEREOF, the parties have signed this Agreement on the 14th day
of May, 1996, effective as of the Effective Date.

VIDEOLAN TECHNOLOGIES, INC.
(the "Company")

By:
Title:

JOHN E. HAINES
("Haines")

7
<PAGE>
Exhibit A

<PAGE>
Exhibit B

<PAGE>
Exhibit C

1) packing and unpacking
2) physical move and transportation
3) installation and connection fees (phone, utilities, etc.)
4) termination fees (lease, phone, utilities, etc.)
5) corrections to prior submissions, if any
6) documentation for previous advance of $2,797.15

<PAGE>
Exhibit D

<PAGE>
OPTION AGREEMENT

THIS OPTION AGREEMENT (this "Agreement") is made as of the 14th day of May,
1996, by and between VIDEOLAN TECHNOLOGIES, INC., a Delaware corporation (the
"Company") and JOHN E. HAINES ("Haines").

WHEREAS, pursuant to that certain Consulting Agreement dated June 1, 1995
between the Company and Haines, as amended by that certain Addendum dated August
18, 1995 between the Company and Haines (the "Consulting Agreement"), Haines was
granted an option (the "Original Option") to purchase 250,000 shares of the
Company's common stock (the "Shares");

WHEREAS, simultaneously herewith, Haines and the Company have entered into
a Termination and Release Agreement of even date herewith (the "Termination
Agreement") providing, inter alia, for the amendment and restatement of the
terms of the Original Option;

WHEREAS, Haines and the Company desire to set forth the terms and
conditions of the Original Option, as so amended and restated (the "Option");

NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt, mutuality and sufficiency of which is
acknowledged, the parties hereto agree as follows:

1. Continuance of Option. On the terms and subject to the conditions of
this Agreement, Haines shall continue to have the right to purchase up to
150,000 Shares, subject to adjustment in accordance with Section 6 of this
Agreement. The option to purchase the remaining 100,000 shares of the Company's
common stock granted under the Original Option is hereby canceled. All options
to purchase such 150,000 shares are fully vested and are not subject to
forfeiture.

2. Option Exercise Price. The exercise price of the Option (the "Exercise
Price") shall be $3.00 per Share, subject to adjustment in accordance with
Section 6 of this Agreement.

3. Duration of Option. The Option shall expire five years from the date
hereof.

4. Exercise of Option.

(a) The Option to purchase the Shares shall be exercisable at any time
prior to its expiration. This Option may be exercised by delivery of written
notice to the Company at its executive offices, addressed to the attention of
the Chief Financial Officer. Such notice: (i) shall be signed by Haines or his
legal representative; (ii) shall specify the number of full Shares then elected
to be purchased with respect to the Option; and (iii) shall be accompanied by
payment in full of the Exercise Price of the Shares to be purchased.

(b) The Exercise Price upon exercise of this Option shall be payable
to the Company in full either: (i) in cash or its equivalent; or (ii) a
"cashless exercise," as permitted under

<PAGE>
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions; or (iii) by a combination of (i) and (ii).

(c) As promptly as practicable after the receipt of notice and payment
upon exercise, the Company shall cause to be delivered to Haines (or his legal
representative), as the case may be, certificates for the Shares so purchased.
The Share certificates shall be issued to Haines (or, jointly in the name of
Haines and his spouse). The Company or its agent shall maintain a record of all
information pertaining to Haines' rights under this Agreement. If the Option
shall have been exercised in full, this Agreement shall be returned to the
Company and canceled.

5. Registration of Shares.

(a) On or prior to June 20, 1996 (the "Registration Date"), the
Company shall register 50,000 Shares (the "Initial Shares") under the Securities
Act of 1933 (the "Act") and under the securities laws of the states of Georgia,
Kentucky and one other state designated by Haines. The Company shall maintain
such registration until the earlier of (a) the sale of all of the Initial Shares
or (b) December 31, 1997.

(b) The Company and Haines shall enter into a Registration Rights
Agreement in the form of Annex A hereto with respect to all Shares other than
the Initial Shares.

(c) In the event that Haines should acquire any Shares which, at the
time of acquisition, are not duly registered under the Act and, as necessary,
applicable state securities law, certificates evidencing the unregistered Shares
shall bear the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, AND WILL
NOT BE TRANSFERRED ON THE BOOKS AND RECORDS OF THE COMPANY, UNLESS (i)
THEY HAVE BEEN REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR (ii) REGISTRATION UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED.

Upon the registration of any shares represented by a certificate bearing this
legend, the Company shall issue replacement certificates free of this legend.

(d) In the event that Haines acquires Shares, registered or
unregistered, certificates evidencing the Shares shall bear the following
legend:

<PAGE>
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A CERTAIN
OPTION AGREEMENT BY AND BETWEEN THE COMPANY AND THE HOLDER WHICH
IMPOSES CERTAIN LIMITATIONS ON THEIR RESALE.

6. Adjustments in Authorized Shares and the Option. In the event of a
merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, share dividend, share split,
reverse share split, share combination, share exchange or other change in the
capital structure of the Company affecting the Shares, the Board of Directors of
the Company may substitute or adjust the total number and class of Shares or
other securities that may be issued hereunder, and the Exercise Price, as it
determines to be appropriate and equitable to prevent dilution or enlargement of
the rights of Haines and to preserve, without diluting or exceeding, the value
of the Option, provided, however, that such adjustments shall be equivalent to
that imposed equally upon all other option holders and/or shareholders in the
Company.

7. Sale Volume Restrictions. It is agreed that the shares acquired by
exercise of the Option will not be sold on the market at a rate greater than
10,000 shares per month and 2,000 shares per day, which per day limits are
waived to the extent necessary to permit the sale of 10,000 shares in the period
August 1 through August 6, 1996.

8. Miscellaneous.

(a) Tax Withholding. The parties acknowledge and agree that any and
all compensation received by Haines pursuant to any exercise of the Option will
be self-employment income, and that Haines shall bear the sole responsibility
with respect to withholding and estimated tax payments on such compensation.

(b) Amendment. This Agreement may not be changed or terminated except
by written instrument signed by the parties.

(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to Haines, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no succession had taken place; and

(ii) This Agreement and all rights of Haines hereunder shall
inure to the benefit of and be enforceable by Haines' personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.

<PAGE>
(d) Severability. In the event any provision of this Agreement shall
be held illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining parts of this Agreement, and this Agreement shall be
construed and enforced as if the illegal or invalid provision had not been
included.

(e) Entire Agreement. This Agreement (including Annex A hereto)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and thereof and supersedes all prior agreements, arrangements or
understandings with respect to its subject matter; it, however, being agreed and
acknowledged that the parties have this day entered into a series of agreements,
namely a Termination and Release Agreement, an Option Agreement and a
Registration Rights Agreement, which together constitute one transaction and
settlement. A party permitted at law or equity to renounce any one of these
agreements due to he other party's breach may elect to renounce all of these
agreements.

(f) Governing Law. This Agreement, and the application or
interpretation thereof, shall be governed by the laws of the Commonwealth of
Kentucky.

IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first above written.

VIDEOLAN TECHNOLOGIES, INC.
(the "Company")

By:
Title:

JOHN E. HAINES
("Haines")

<PAGE>
REGISTRATION RIGHTS AGREEMENT

This Agreement dated as of May 14th, 1996 is entered into by and among
VIDEOLAN TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and JOHN E.
HAINES ("Haines").

WHEREAS, the Company and Haines have entered into an Option Agreement of
even date herewith (the "Option Agreement") pursuant to which Haines has the
right to acquire capital stock of the Company; and

WHEREAS, the Company and Haines desire to provide for certain arrangements
with respect to the registration of such shares of capital stock of the Company
under the Securities Act of 1933;

NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:

1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:

"Commission" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.

"Common Stock" means the common stock, $.01 par value per share, of
the Company.

"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation); with equivalent state filings.

"Registration Expenses" means the expenses described in Section 4.

"Registrable Shares" means (i) the Shares and (ii) any other shares of
Common Stock issued in respect of the Shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
however, that Shares which are Registrable Shares shall cease to be Registrable
Shares at such time that the Shares become eligible for resale pursuant to Rule
144(k) under the Securities Act.

<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under such Act, as they each may, from time to time, be in effect.

"Shares" means the shares of Common Stock issued upon exercise of the
Option (as defined in the Option Agreement), other than the shares registered
pursuant to section 5 of the Option Agreement.

2. Incidental Registration.

(a) Whenever the Company proposes to file a Registration Statement at
any time and from time to time, it will, prior to such filing, give written
notice to Haines of its intention to do so and, upon the written request of
Haines given within 10 days after receipt of the Company's notice (which request
shall state the intended method of disposition of such Registrable Shares), the
Company shall use its best efforts to cause all Registrable Shares which the
Company has been requested by Haines to register to be registered under the
Securities Act to the extent necessary to permit their sale or other disposition
in accordance with the intended methods of distribution specified in the request
of Haines; provided that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Section 2 without obligation
to Haines. Further, it is agreed that the Company shall only be required to
register the Registrable Shares under the securities laws of (i) the states of
Georgia, Kentucky and one other state designated by Haines; or (ii) the states
in which the Company is, for its own benefit or for other shareholders,
registers the offering of shares. Haines shall have the option of selecting (i)
or (ii) from the preceeding sentence.

(b) In connection with any registration under this Section 2 involving
an underwriting, the Company shall not be required to include any Registrable
Shares in such registration unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (provided that such terms must be consistent with this Agreement). If in the
opinion of the managing underwriter it is appropriate because of marketing
factors to limit the number of Registrable Shares to be included in the offering
(a "Share Cutback"), then the Company shall be required to include in the
registration only that number of Registrable Shares, if any, which the managing
underwriter believes should be included therein. If the number of Registrable
Shares to be included in the offering in accordance with the foregoing is less
than the total number of shares which Haines has requested to be included, then
Haines and other holders of securities entitled to include them in such
registration shall participate in the registration pro rata based upon their
total ownership of shares of Common Stock (giving effect to the conversion into
Common Stock of all securities convertible thereinto). Further, it is agreed
that, with respect to any shareholder who, as of the date of this Agreement, is
a director or executive officer of the Company, Haines shall have the right,
without expense, to take unto himself that portion of any piggyback registration
rights which may be granted such director or executive officer in any
registration to the extent Haines would otherwise be subject to Share Cutback.
If any holder would thus be entitled to include more securities than such holder
requested to be registered, the excess shall be allocated among other requesting
holders pro rata in the manner described in the preceding sentence.

2
<PAGE>
(c) Upon the first possible registration of the shares pursuant to
this Section 2, Haines shall not be entitled to any further registration rights
under this Agreement, unless the number of Shares to be included in the offering
made pursuant to such registration is limited in accordance with Section 2(b) to
a number less than the total number of Registrable Shares which Haines has
requested to be included.

(d) If in connection with any registration under this Section 2,
Haines is not able to include all of the Registrable Shares in the offering
because of a Share Cutback, and the Registrable Shares not so registered (the
"Excluded Shares") are not subsequently registered under this Section 2 on or
before February 28, 1997, within thirty days thereafter, the Company shall
register the Excluded Shares under the Securities Act and under the securities
laws of the states of Georgia, Kentucky and one other state designated by
Haines.

3. Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:

(a) file with the Commission a Registration Statement with respect to
such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;

(b) as expeditiously as possible prepare and file with the Commission
any amendments and supplements to the Registration Statement and the prospectus
included in the Registration Statement as may be necessary to keep the
Registration Statement effective, in the case of a firm commitment underwritten
public offering, until each underwriter has completed the distribution of all
securities purchased by it and, in the case of any other offering, until the
earlier of the sale of all Registrable Shares covered thereby or 90 days after
the effective date thereof;

(c) as expeditiously as possible furnish to Haines such reasonable
numbers of copies of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as Haines may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares owned by Haines; and

(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as provided in section 2(a), and do
any and all other acts and things that may be necessary or desirable to enable
Haines to consummate the public sale or other disposition in such states of the
Registrable Shares owned by Haines; provided, however, that the Company shall
not be required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a consent to service of process, other than a consent to
service limited to claims or matters arising out of or in connection with the
offering of securities in connection with the Registration Statement, in any
jurisdiction.

<PAGE>
(e) If the Company has delivered preliminary or final prospectuses to
Haines and after having done so the prospectus is amended to comply with the
requirements of the Securities Act, the Company shall promptly notify Haines
and, if requested, Haines shall immediately cease making offers of Registrable
Shares and return all prospectuses to the Company. The Company shall promptly
provide Haines with revised prospectuses and, following receipt of the revised
prospectuses, Haines shall be free to resume making offers of the Registrable
Shares.

4. Allocation of Expenses. The Company will pay all Registration Expenses
of all registrations under this Agreement. For purposes of this Section 4, the
term "Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Agreement, including, without limitation, all registration
and filing fees, exchange listing fees, printing expenses, fees and expenses of
counsel for the Company, state Blue Sky fees and expenses, and the expense of
any special audits incident to or required by any such registration, but
excluding underwriting fees, discounts and selling commissions attributable to
the sale of Registrable Shares and the fees and expenses of counsel retained by
Haines.

5. Information from Haines. Haines shall furnish to the Company such
information regarding Haines and the distribution proposed by Haines as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.

6. Mergers, Etc. The Company shall not, directly or indirectly, enter into
any merger, consolidation or reorganization in which the Company shall not be
the surviving corporation unless the proposed surviving corporation shall, prior
to such merger, consolidation or reorganization, agree in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Shares" shall be deemed to be references to the
securities which Haines would be entitled to receive in exchange for Registrable
Shares under any such merger, consolidation or reorganization; provided,
however, that the provisions of this Section 6 shall not apply in the event of
any merger, consolidation or reorganization in which the Company is not the
surviving corporation if Haines is entitled to receive in exchange for his
Registrable Shares consideration consisting solely of (i) cash, (ii) securities
of the acquiring corporation which may be immediately sold to the public without
further registration under the Securities Act, or (iii) securities of the
acquiring corporation which the acquiring corporation has agreed to register
within 90 days of completion of the transaction for resale to the public
pursuant to the Securities Act. Furthermore, and notwithstanding any other
provision of this Section 6, in the event that the Company should, either
directly or indirectly, enter into any merger, consolidation or reorganization
in which the net capital of the Company should increase or decrease by more than
25% from that immediately before such transaction, all rights of Haines under
Section 5 of the Option Agreement shall be and become immediately exercisable,
and the Company shall be obligated to immediately perform its obligations
hereunder.

7. Termination. All of the Company's obligations to register Registrable
Shares under this Agreement shall terminate five years from the date of this
Agreement.

4
<PAGE>
8. Transferability. The registration rights granted Haines in this
Agreement are not transferable by Haines.

9. General.

(a) Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:

If to the Company, at 100 Mallard Creek Road, Suite 250, Louisville,
Kentucky 40207, Attention: President, or at such other address or addresses as
may have been furnished in writing by the Company to Haines, with a copy to Hirn
Doheny & Harper, 2000 Meidinger Tower, Louisville, Kentucky, 40202, Attention:
William G. Strench; or

If to Haines, at 211 Club Oak Court, Louisville, Kentucky, 40223, or at
such other address or addresses as may have been furnished to the Company in
writing by Haines, with a copy to Ogden Newell & Welch, 1200 One Riverfront
Plaza, Louisville, Kentucky, 40202, Attention: Thomas E. Rutledge.

Notices provided in accordance with this Section 8(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.

(b) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter; it, however, being agreed and acknowledged that the parties have
this day entered into a series of agreements, namely a Termination and Release
Agreement, an Option Agreement and a Registration Rights Agreement, which
together constitute one transaction and settlement. A party permitted at law or
equity to renounce any one of these agreements due to he other party's breach
may elect to renounce all of these agreements.

(c) Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and Haines. No waivers of or exceptions to any
term, condition or provision of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.

(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.

(e) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.

5
<PAGE>
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Kentucky.

Executed as of the date first written above.

VIDEOLAN TECHNOLOGIES, INC.
("Company")

By:
Title:

JOHN E. HAINES
("Haines")

<PAGE>
Exhibit 23

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated March 8, 1996, accompanying the financial
statements of VIDEOLAN Technologies, Inc. and L&LD Communications Consultants,
Inc. contained in the Registration Statement and Prospectus. We consent to the
use of the aforementioned report in the Registration Statement and Prospectus
and to the use of our name as it appears under the captions "Experts" and
"Selected Financial Data."

GRANT THORNTON LLP

New York, New York
May 24, 1996