AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

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

DELAWARE 7375 06-1428705
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)

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456 GLENBROOK ROAD
STAMFORD, CT 06906
(203) 327-3332
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACE OF BUSINESS)

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WILLIAM E. WHEATON, III
CHIEF EXECUTIVE OFFICER
VCS TECHNOLOGIES, INC.
456 GLENBROOK ROAD
STAMFORD, CT 06906
(203) 327-3332
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

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Copies to:

JOHN J. HUGHES, JR., ESQ. LAWRENCE B. FISHER, ESQ.
MOSKOWITZ ALTMAN & HUGHES LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
11 EAST 44TH STREET, SUITE 504 30 ROCKEFELLER PLAZA
NEW YORK, NY 10017 NEW YORK, NY 10112
(212) 953-1121 (212) 506-3660

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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. / /

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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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
under the Securities Act, please check the following box. / /

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CALCULATION OF REGISTRATION FEE

PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(2) PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE

Common Stock par value $.001............ 1,150,000 $7.00 $8,050,000 $2,374.75

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) of the Securities Act.
(2) Includes 150,000 shares of Common Stock subject to the over-allotment option
granted to the Representative of the Underwriters.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN
ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED , 1998

PROSPECTUS

[LOGO OF VCS TECHNOLOGIES, INC. APPEARS HERE]

VCS TECHNOLOGIES, INC.

1,000,000 SHARES OF COMMON STOCK

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All of the shares of Common Stock, par value $.001 (the "Common Stock")
offered hereby (the "Offering") are being sold by VCS Technologies, Inc. ("VCS"
or the "Company"). Prior to this Offering, there has been no public market for
the Common Stock of the Company and there can be no assurance that such a market
will develop after the completion of the Offering or, if developed, that it will
be sustained. It is currently anticipated that the initial public offering price
will be between $6.00 and $7.00 per share. For information regarding the factors
considered in determining the initial public offering price of the Common Stock,
see "Risk Factors" and "Underwriting." The Company has applied for listing of
the Common Stock for quotation on The Nasdaq SmallCap Market under the symbol
"VCST."

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND
"DILUTION."

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THE SECURITIES OFFERED HEREBY 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.

UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)

Per share......................................... $ $ $
Total(3).......................................... $ $ $

(1) Does not include additional compensation payable to Gilford Securities
Incorporated (the "Representative") in the form of: (a) a warrant to
purchase up to 100,000 shares of Common Stock (10% of the number of shares
of Common Stock underwritten for the account of the Company) exercisable for
a period of four years commencing one year from the date of this Prospectus
at a price equal to 120% of the initial public offering price (the
"Representative's Warrants"); and (b) a non-accountable expense allowance.
In addition, see "Underwriting" for information concerning indemnification
and contribution arrangements with the Underwriters and other compensation
payable to the Representative.

(2) Before deducting estimated expenses of $445,000 payable by the Company,
including the Representative's non-accountable expense allowance.

(3) The Company has granted to the Underwriters an option (the "over-allotment
option"), exercisable for a period of 45 days after the date of this
Prospectus, to purchase up to 150,000 additional shares of Common Stock upon
the same terms and conditions as set forth above, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $ , $ and $ , respectively. See "Underwriting."

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The Common Stock is being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify the
Offering and to reject any order in whole or in part. It is expected that
delivery of the Common Stock will be made against payment therefor at the
offices of Gilford Securities Incorporated, New York, New York, on or about
, 1998.

GILFORD SECURITIES INCORPORATED

THE DATE OF THIS PROSPECTUS IS , 1998

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

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The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.

"VCS Technologies" is a trademark of the Company. This prospectus also
includes the proprietary trademarks and trade names of other companies.

PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information including the Company's
financial statements (including the notes thereto), appearing elsewhere in this
Prospectus. Unless otherwise indicated, all financial information and share and
per-share data in this Prospectus (i) gives effect to the Company's 1-2.64
reverse stock split in September 1998 and (ii) assumes no exercise or conversion
of (a) the over-allotment option, (b) the Representative's Warrants,
(c) outstanding warrants, (d) options granted or available for grant under the
Company's 1997 Incentive Stock Option Plan, (e) convertible promissory notes ,
or (f) the Series A Convertible Preferred Stock. The Common Stock offered hereby
involve a high degree of risk and immediate substantial dilution. See "Risk
Factors," "Dilution" and "Underwriting."

THE COMPANY

The Company is a full service provider of interactive video communications
solutions. The Company resells, installs and integrates videoconferencing
equipment and systems and video streaming software and systems, which includes
the Company's proprietary software that enables browsing, recall and playback of
digitized video content on an interactive basis. Additionally, the Company
records, digitizes, stores, edits and delivers or "streams" on-demand video and
audio programs over telecommunications lines and the Internet ("Video On-Demand
Services").

Real-time videoconferencing and on-demand video streaming enable more
effective and cost-efficient enterprise collaboration across disparate physical
locations. The utilization of videoconferencing and on-demand video streaming
systems has increased dramatically in the last several years due to
technological advancements, a significant decline in the costs of
videoconferencing systems and video streaming systems and an attempt by
businesses to reduce travel costs and speed the delivery of products to market.
According to TeleSpan Publishing Corporation, the combined sales revenues from
the sale and use of videoconferencing systems alone grew to $2.7 billion for the
year ended December 31, 1996.

The Company has developed strong relationships as an authorized reseller of
videoconferencing systems and video streaming systems for the established market
leaders. VCS resells a full line of videoconferencing equipment and systems for
Intel Corporation ("Intel"), PictureTel Corporation ("PictureTel") and
VideoServer, Inc. ("VideoServer"), resells video streaming systems for Starlight
Networks, Inc. ("Starlight") and RealNetworks, Inc. ("RealNetworks") and resells
video publishing software for Digital Lava, Inc. ("Digital Lava"). The Company
also provides a full range of installation, integration and support services in
connection with such systems sales. Additionally, VCS and Starlight have entered
into a joint marketing arrangement and Starlight has qualified the Company's
proprietary software for interaction with Starlight's video streaming product
line.

The Company's Video On-Demand Services enable customers to record and
digitize business meetings, training sessions or other presentations or
demonstrations on video and to retrieve the video content for later distribution
to employees, students or other end-users at different times and multiple
locations. The Company has entered into licensing agreements to provide access
to approximately 500 training tapes and believes that it is one of the leading
distributors of digitized training videotapes in the United States. In addition,
the Company's Video On-Demand Services provide customers with the ability to
edit and enhance recorded video content. The Company has supplemented its own
editing and enhancement capabilities by entering into a licensing agreement with
Digital Lava, which grants the Company's customers access to Digital Lava's
video publishing software. This video publishing software allows users to
(i) organize and manage video content and other information from diverse
sources, (ii) create links to other data and (iii) distribute the content on
CD-ROM or DVD or stream the content over intranets or the Internet.
Additionally, the Company has entered into a joint marketing arrangement with
AT&T Corp. ("AT&T"), the largest provider of videoconferencing services in the
United States, pursuant to which AT&T offers the Company's Video On-Demand
Services to all of its videoconferencing customers.

Demand Services through additional joint marketing arrangements, by expanding
its library of video tapes through additional licensing relationships, by
leveraging its access to customers of videoconferencing and video streaming
systems and by incorporating new product and technology developments as they
become available.

The Company is a Delaware corporation incorporated in July 1995. The
Company's principal executive offices are located at 456 Glenbrook Road, CT
06906, its telephone number is (203) 327-3332.

THE OFFERING

Common Stock offered by the Company...... 1,000,000 shares

Common Stock outstanding after the
Offering(1)............................ 1,617,509 shares

Series A Convertible Preferred Stock..... 4,796 shares

Use of Proceeds.......................... The Company intends to use the net proceeds from the Offering to repay
short term indebtedness and accrued interest, for sales and marketing,
for capital expenditures and for general corporate and working capital
purposes. See "Use of Proceeds."

Proposed Nasdaq SmallCap Market Symbol... "VCST"

Risk Factors............................. An investment in the Common Stock offered hereby involves a high degree
of risk and immediate substantial dilution and should be made only by
investors who can afford the loss of their entire investment. See "Risk
Factors" and "Dilution."

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(1) Does not include: (a) 100,000 shares of Common Stock reserved for issuance
upon exercise of the Representative's Warrants; (b) 209,091 shares of Common
Stock reserved for issuance upon exercise of stock options available for
grant under the Company's 1997 Incentive Stock Option Plan (the "Stock
Option Plan"); (c) 75,000 shares of Common Stock reserved for issuance upon
the exercise of stock options granted under the Stock Option Plan as of the
effective date of this Prospectus at a weighted average exercise price of
$4.00 per share; (d) 294,318 shares of Common Stock reserved for issuance
upon exercise of warrants held by employees, directors and consultants of
the Company at a weighted average exercise price of $1.63 per share;
(e) 96,154 shares of Common Stock reserved for issuance upon exercise of
convertible promissory notes at a conversion price of $5.20 per share; and
(f) 56,424 shares of Common Stock reserved for issuance upon exercise of
Series A Convertible Preferred Stock at a conversion price of $8.50 per
share. See "Management--1997 Incentive Stock Option Plan," "Description of
Securities" and "Underwriting," and Notes 6, 7 and 12 of Notes to Financial
Statements.

SUMMARY FINANCIAL INFORMATION

JULY 12,
1995
(INCEPTION)
THROUGH YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
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1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED)

AS OF JUNE 30, 1998 (UNAUDITED)
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ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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BALANCE SHEET DATA:
Cash................................................................ $ 190,310 $ 190,310 $5,280,310
Working capital (deficit)........................................... (1,148,665) (516,421) 4,938,579
Total assets........................................................ 1,070,701 1,070,701 6,110,701
Total liabilities................................................... 2,932,067 2,292,105 1,927,105
Stockholders' equity (deficit)...................................... (1,861,366) (1,221,404) 4,183,596

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(1) See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in per share calculations.
(2) On a Pro Forma basis to reflect the August 1998 restructuring of
indebtedness and the issuance of Common Stock, Common Stock purchase
warrants and Series A Convertible Preferred Stock in connection therewith.
See Note 12 of Notes to Financial Statements.
(3) As adjusted to reflect the sale of 1,000,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $6.50
per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. See "Use
of Proceeds" and "Capitalization."

RISK FACTORS

An investment in the Common Stock offered hereby is speculative in nature,
involves a high degree of risk and should only be made by an investor who can
afford the loss of his entire investment. In addition to the other information
contained in this Prospectus, prospective investors should carefully consider
the following risk factors in evaluating whether to purchase the Common Stock
offered hereby. Moreover, prospective investors are cautioned that the
statements in this Prospectus that are not descriptions of historical facts may
be forward looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth below and elsewhere in this
Prospectus.

GOING CONCERN ASSUMPTION; LIMITED OPERATING HISTORY; WORKING CAPITAL
DEFICIT; ACCUMULATED DEFICIT; HISTORY OF LOSSES AND ANTICIPATION OF FUTURE
LOSSES. The Company was incorporated in July, 1995 and has only a limited
operating history on which an evaluation of the Company and its prospects can be
based. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in early stages of
development, particularly companies in rapidly evolving markets such as
real-time videoconferencing and video streaming delivery over the Internet and
intranets. The Company has incurred significant losses since its inception and
may continue to incur substantial operating losses for the foreseeable future.
As of June 30, 1998, the Company had a working capital deficit of $1,148,665 and
an accumulated deficit of $2,720,126. The Company's independent auditors' report
on the Company's financial statements as of December 31, 1997 and for the year
then ended contains an explanatory paragraph indicating that the Company's
operating losses since inception, working capital deficiency and net capital
deficiency raise substantial doubt about its ability to continue as a going
concern. To achieve and sustain profitability, the Company must, among other
things, establish market acceptance of its existing products and services,
successfully develop new products and services, respond quickly and effectively
to competitive, market and technological developments, expand sales and
marketing operations, broaden customer support capabilities, control expenses
and continue to attract and retain qualified personnel. There can be no
assurance that the Company will achieve or sustain profitability. See
"--Unpredictability of Future Revenues; Potential Fluctuation in Quarterly
Operating Results," "--Competition" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

UNPREDICTABILITY OF FUTURE REVENUES; POTENTIAL FLUCTUATION IN QUARTERLY
OPERATING RESULTS. As a result of the Company's limited operating history and
the emerging nature of the markets in which it competes, the Company is unable
to forecast accurately its revenues. The Company expects to experience
significant fluctuations in its future quarterly operating results due to a
variety of factors, many of which are outside the Company's control, including:
demand for the products and services offered by the Company; introduction or
enhancement of products and services by the Company and its competitors; market
acceptance of new products and services of the Company and its competitors;
price reductions by the Company or its competitors or changes in how products
and services are priced; the mix of products and services sold by the Company
and its competitors; the mix of distribution channels through which the
Company's products are licensed and sold; the mix of international and U.S.
revenues; costs of litigation and intellectual property protection; the growth
in the use of the Internet and intranets; the growth in the use of real-time
videoconferencing and video streaming solutions; the Company's ability to
attract, train and retain qualified personnel; the amount and timing of
operating costs and capital expenditures related to expansion of the Company's
business, operations and infrastructure; governmental regulations; and general
economic conditions and economic conditions specifically related to the video
communications market and the Internet. It is often difficult to forecast what
the effect of such factors would be, or the effect that any such factors or any
combination thereof would have, on the Company's results of operations for any
fiscal quarter. There can be no assurance that the Company will be able to
achieve historical revenue levels. Based on the foregoing, the Company believes
that its quarterly revenues, expenses and operating results could vary
significantly in the future, and that period-to-period comparisons should not be
relied upon as indications of future performance.

As a result of the Company's limited operating history, the Company does
not have relevant historical financial data for a significant number of periods
on which to base planned operating expenses. The Company's expense levels are
based in part on its expectations with regard to future revenues. The Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. As a result, any

significant shortfall in demand for the products and services offered by the
Company relative to the Company's expectations would have an immediate material
adverse effect on the Company's business, financial condition and results of
operations. Due to the foregoing factors, it is likely that in some future
quarters the Company's operating results will fall below the expectations of
securities analysts and investors, which would likely have a material adverse
effect on the trading price of the Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

COMPETITION. The markets for the Company's products and services are
intensely competitive. Pricing pressure, rapid development, feature upgrades,
and new undefined technologies characterize the general nature of the industry.
The Company competes with videoconferencing, video streaming and
teleconferencing companies, along with companies that provide Internet
broadcasting services to businesses and other organizations. Numerous companies,
including Broadcast.com Inc ("Broadcast.com") and VStream Incorporated, offer
products and services which compete directly or indirectly with one or more of
the Company's products and services. Most of the Company's competitors and
potential competitors have longer operating histories, significantly greater
financial, management, technical, marketing and other resources, greater name
recognition, and a larger installed base of customers than the Company. In
addition, many of the Company's competitors have well-established relationships
with current and potential customers of the Company, have extensive knowledge of
the videoconferencing and video streaming industry, and are capable of offering
a single-vendor solution. As a result, the Company's competitors may be in a
better position than the Company to devote significant resources toward the
development, promotion and sale of competing products and to respond more
quickly to new or emerging technologies and changes in customer requirements.
The Company also expects that the competition will increase as a result of
videoconferencing, video streaming and computer hardware and software industry
consolidations and alliances. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
materially adversely affect the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will be able to compete successfully against current and future competitors,
that competition will not intensify or that competitive pressure faced by the
Company will not materially adversely affect its business, financial condition
and results of operations.

POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company anticipates that the
net proceeds from this Offering and cash provided by operations will enable it
to meet its capital and operational requirements for at least the 12 months
following the date of this Prospectus, although there can be no assurance that
such resources will be sufficient to satisfy the Company's capital and
operational requirements for such period. This expectation is based on the
Company's current operating plan which can change as a result of many factors,
and the Company could require additional funding sooner than anticipated. In
addition, unplanned acquisition and development opportunities and other
contingencies may arise, which also could require additional capital. Sources of
funds may include the issuance of common or preferred stock sold in a public
offering or in private placements, or the issuance of debt or bank financing. To
the extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of such securities could result in
dilution to the Company's stockholders. Warrants may also be issued in
connection with debt or bank financing, which could also result in dilution to
the Company's stockholders. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Company presently has a financing agreement whereby the Company receives
purchase order financing up to a maximum of $1 million and accounts receivable
financing up to a maximum of $2 million. The financing agreement has a term of
one year ending in March, 1999. There can be no assurance that the Company would
be able to enter into a new financing agreement or another similar financing
agreement on substantially equivalent terms, or obtain additional financing on a
timely basis, on favorable terms, or at all. If the Company is unable to obtain
such financing, or generate funds from operations sufficient to meet its needs,
the Company would be materially adversely affected. See "Use of Proceeds."

DEVELOPING MARKETS; DEPENDENCE ON THE INTERNET AND INTRANETS AS MEDIUMS OF
COMMERCE AND COMMUNICATIONS. The market for the products and services offered
by the Company has only recently begun to develop and is evolving rapidly. This
market continues to experience new developments in technology, product
distribution methods, and marketing and licensing relationships. The development
of a market for the products and services offered by the Company also depends on
increased use of the Internet and intranets for video streaming and for
information, publication, distribution and commerce. Continued growth in the use
of the

Internet, generally, and in the use of videoconferencing and video streaming, in
particular, will depend on potential increases in available bandwidth or
transmission speeds or on other technological improvements. There can be no
assurances that such potential increases or improvements will be achieved.
Changes in network infrastructure, transmission and content delivery methods and
underlying software platforms, and the emergence of new Internet access devices
such as TV set-top boxes could dramatically change the structure and competitive
dynamic of the market for video communications solutions. Critical issues
concerning use of the Internet and intranets (including security, reliability,
cost, ease of use and quality of service) remain unresolved and may affect the
growth of and the degree to which business is conducted over the Internet and
intranets. If the market for the products and services offered by the Company
fails to grow, develops more slowly than expected or becomes saturated with
competing products or services, the Company's business, financial condition and
results of operations would be materially adversely affected.

UNCERTAINTY OF ACCEPTANCE OF STREAMING MEDIA TECHNOLOGY. The Company's
success partially depends on the market acceptance of streaming media technology
provided by companies such as RealNetworks and Starlight. Prior to the advent of
streaming technology, Internet users could not initiate the playback of audio or
video content until such content was downloaded in its entirety, resulting in
significant waiting times. As a result, live broadcasts of audio and video
content over the Internet or intranets were not possible. Early streaming media
technology suffered from poor audio quality, and video streaming at 28.8 kbps
(thousands of bits per second) currently is of lower quality than traditional
media broadcasts. In addition, congestion over the Internet and packet loss may
interrupt audio and video streams, resulting in unsatisfying user experiences.
Furthermore, in order for users to receive streaming media over corporate
intranets, information systems managers may need to reconfigure such intranets.
Some information systems managers may block reception of streamed media because
of bandwith constraints on corporate intranets. Widespread adoption of streaming
media technology depends on overcoming these obstacles, improving audio and
video quality and educating customers and users in the use of streaming media
technology. If streaming media technology fails to achieve broad commercial
acceptance or such acceptance is delayed, the Company's business, results of
operations and financial condition could be materially adversely affected.

DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL. The Company's
performance and development is substantially dependent on the continued services
of certain members of senior management, generally, and William E. Wheaton III,
Chief Executive Officer, in particular. The Company's future success also
depends on its continuing ability to attract and retain highly qualified
technical personnel and management. Competition for such personnel is intense
and there can be no assurance that the Company will be able to retain its key
management and technical employees or that it will be able to attract or retain
additional qualified technical personnel and management in the future. The
inability to attract and retain the necessary technical personnel and management
could have a material adverse effect upon the Company's business, result of
operations and financial condition. See "Management."

SYSTEM INTEGRITY RISKS. The Company's ability to provide a consistent
level of high-quality customer service depends in part on the efficient and
uninterrupted operation of its computer and communications hardware systems.
Substantially all of the Company's computer and communications hardware is
located at a single, leased facility in Stamford, Connecticut. The Company's
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and similar
events. The Company does not presently have offsite fully redundant systems or a
formal disaster recovery plan; therefore, there can be no assurance that a
system failure would not have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's servers
are vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays, loss of data or the
inability to accept and fulfill customer orders. The occurrence of any of the
foregoing risks would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business."

RISK OF TECHNOLOGICAL CHANGE. The market for videoconferencing, video
streaming systems and Internet broadcast services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require the Company to continuously adopt the leading
technologies, continue to develop its technological expertise, and enhance its
services. Changes in network infrastructure, transmission and content delivery
methods

and underlying software platforms and the emergence of new broadband
technologies, such as xDSL and cable modems, could dramatically change the
structure and competitive dynamic of the market for videoconferencing and
streaming media solutions. In particular, technological developments that
accelerate the adoption of broadband access technologies or advancements in
streaming and compression technologies may require the Company to expend
resources to address these developments. There can be no assurance that the
Company will be successful in responding quickly, cost effectively and
sufficiently to these or other such developments. In addition, the widespread
adoption of new Internet technologies or standards could require substantial
expenditures by the Company to modify or adapt its services. A failure by the
Company to rapidly respond to technological developments would have a material
adverse effect on the Company's business, results of operations and financial
condition.

INTELLECTUAL PROPERTY. The Company's success depends in part on its
ability to protect its proprietary technology and other copyrights, trademarks,
trade secrets and similar intellectual property, and the Company relies on a
combination of copyright and trademark laws, trade secret protection,
confidentiality and non-disclosure agreements and contractual provisions with
its employees and with third parties to establish and protect its proprietary
rights in its products and technology. There can be no assurance that these
steps will be adequate, that the Company will be able to secure trademark
registrations for all of its marks in the United States or other countries or
that third parties will not infringe upon or misappropriate the Company's
copyrights, trademarks, service marks and similar proprietary rights. In
addition, effective copyright and trademark protection may be unenforceable or
limited in certain countries. In the future, litigation may be necessary to
enforce and protect the Company's trade secrets, copyrights and other
intellectual property rights. The Company also licenses certain of its
proprietary rights to third parties. There can be no assurance that the
licensees will abide by compliance and quality control guidelines with respect
to such proprietary rights or that such licenses will not take actions that
would materially adversely affect the Company's business.

The Company may also be subject to litigation to defend against claims of
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. If competitors of the Company
prepare and file applications in the United States that claim trademarks used or
registered by the Company, the Company may oppose those applications and be
required to participate in proceedings before the United States Patent and
Trademark Office to determine priority of rights to the trademark, which could
result in substantial costs to the Company. An adverse outcome could require the
Company to license disputed rights from third parties or to cease using such
trademark. Any litigation regarding the Company's proprietary rights could be
costly and divert management's attention, result in the loss of certain of the
Company's proprietary rights, require the Company to seek licenses from third
parties and prevent the Company from selling its services, any one of which
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "--Government Regulation and Legal
Uncertainty."

As part of its confidentiality procedures, the Company generally enters
into agreements with its employees and consultants and limits access to and
distribution of its software, documentation and other proprietary information.
There can be no assurance that the steps taken by the Company will prevent
misappropriation of its proprietary information or that agreements entered into
for that purpose would be enforceable. Notwithstanding the precautions taken by
the Company, it might be possible for a third party to copy or otherwise obtain
and use the Company's proprietary information without authorization. The laws of
some countries may afford the Company little or no effective protection of its
intellectual property.

CONTROL BY CURRENT MANAGEMENT. After the Offering, the Company's directors
and executive officers and their affiliates will beneficially own approximately
32.3% of the outstanding Common Stock. As a result, current management may be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such control could delay or prevent a change in control of the
Company or adversely affect the market price of the Common Stock. See
"Management" and "Principal Stockholders."

MANAGEMENT OF GROWTH. The Company intends to expand primarily by
increasing its marketing activities and its sales force. The Company expects to
incur significant expenses related to the planned expansion prior to the
Company's realization of the benefits, if any, of such expansion. Accordingly,
the Company expects that the incurrence of these expenses will adversely affect
the Company's earnings and working capital in the periods

prior to the Company's realization of the benefits, if any, of any expansion.
There can be no assurance that the Company's systems, procedures or controls
will be adequate to support its current or future operations or that the
Company's management will be able to manage the expansion and still achieve the
rapid execution necessary to exploit fully the market for the Company's products
and services. To manage its growth, the Company must implement, improve and
effectively utilize its operational, management, marketing and financial systems
and train and manage its employees. Certain of the Company's senior management
have only recently joined the Company. These individuals have not previously
worked together and are in the process of integrating as a management team.
There can be no assurance that the Company will be able to manage effectively
the expansion of its operations or that the Company's current personnel,
systems, procedures and controls will be adequate to support the Company's
operations. Any failure of management to manage effectively the Company's growth
could have a material adverse effect on the Company's business, results of
operations and financial condition.

DEPENDENCE ON SUPPLIERS. For the six months ended June 30, 1998,
approximately 34% and 18% of the Company's consolidated cost of revenues were
attributable purchase of equipment manufactured by PictureTel and Intel,
respectively. Termination of or change of the Company's business relationships
with PictureTel or Intel, disruption in supply, failure of PictureTel or Intel
to remain competitive in product quality, function or price or a determination
by PictureTel or Intel to reduce reliance on independent providers such as the
Company, among other things, would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
is a party to agreements with PictureTel and Intel that authorize the Company to
serve as a non-exclusive dealer and sales agent, respectively, in certain
geographic territories. The PictureTel and Intel agreements can be terminated
without cause upon written notice by the suppliers, subject to certain
notification requirements. There can be no assurance that these agreements will
not be terminated, or that they will be renewed on terms acceptable to the
Company. These suppliers have no affiliation with the Company and are
competitors of the Company.

NO ASSURANCE OF NASDAQ SMALLCAP MARKET CONTINUED LISTING; RISK OF
LOW-PRICED SECURITIES; RISK OF APPLICATION OF PENNY STOCK RULES. The Board of
Governors of the National Association of Securities Dealers, Inc. has
established certain standards for the continued listing of a security on the
Nasdaq SmallCap Market. The maintenance standards require, among other things,
that an issuer have net tangible assets of at least $2,000,000; that the minimum
bid price for the listed securities be $1.00 per share; that the minimum market
value of the public float be at least $1,000,000; and that there be at least two
market makers for the issuer's securities. A deficiency in either the market
value of the public float or the bid price maintenance standard will be deemed
to exist if the issuer fails the individual stated requirement for ten
consecutive trading days. There can be no assurance that the Company will
continue to satisfy the requirements for maintaining a Nasdaq SmallCap Market
listing. If the Company's Common Stock were to be excluded from the Nasdaq
SmallCap Market, it would adversely affect the prices of such securities and the
ability of holders to sell them, and the Company would be required to comply
with the initial listing requirement to be relisted on the Nasdaq SmallCap
Market.

If the Company is unable to satisfy the maintenance requirements and the
price per share were to drop below $5.00, then unless the Company satisfied
certain net tangible asset or revenue tests, the Company's Common Stock would
become subject to certain penny stock rules promulgated by the Securities and
Exchange Commission (the "Commission"). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prepared by the
Commission that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from such rules, the broker-
dealer must make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. If the Common Stock becomes
subject to the penny stock rules, investors in the Offering may find it more
difficult to sell their Common Stock.

NO PRIOR PUBLIC MARKET FOR THE COMMON STOCK; ARBITRARY DETERMINATION OF
OFFERING PRICE; PRICE VOLATILITY. Prior to this Offering, there has been no
public market for the Common Stock, and there can be no

assurance that an active trading market for any of the Common Stock will develop
or, if developed, be sustained after the Offering. See "Underwriting." The
initial public offering price of the Common Stock has been determined
arbitrarily by negotiations between the Company and the Representative. Factors
considered in such negotiations, in addition to prevailing market conditions,
included the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure and the market for initial public offerings.
Therefore, the public offering price of the Common Stock does not necessarily
bear any relationship to the Company's assets, book value, results of operations
or any other established valuation criteria and may not be indicative of prices
that may prevail at any time or from time to time in the public market for the
Common Stock. See "Underwriting."

VOLATILITY OF STOCK PRICE. The trading price of the Common Stock is likely
to be highly volatile and could be subject to wide fluctuations in response to
factors such as actual or anticipated variations in quarterly operating results,
announcements of technological innovations, new sales formats or new services by
the Company or its competitors, changes in financial estimates by securities
analysts, conditions or trends in Internet markets, changes in the market
valuations of other companies in similar markets, announcements by the Company
or its competitors of significant acquisitions, strategic partnerships, joint
ventures, capital commitments, additions or departures of key personnel, sales
of Common Stock and other events or factors, many of which are beyond the
Company's control. In addition, the stock market in general, and the market for
technology companies in particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. The trading prices of many technology companies'
stocks are at or near historical highs and reflect price earnings ratios
substantially above historical levels. There can be no assurance that these
trading prices and price earnings ratios will be sustained. These broad market
and industry factors may materially adversely affect the market price of the
Common Stock, regardless of the Company's operating performance. In the past,
following periods of volatility in the market price of a company's securities,
securities class-action litigation has often been instituted against such
companies. Such litigation, if instituted, could result in substantial costs and
a diversion of management's attention and resources, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this Offering,
1,617,509 shares of Common Stock (1,767,509 shares if the over-allotment option
is exercised in full) will be outstanding. The 1,000,000 shares (1,150,000
shares if the over-allotment option is exercised in full) offered hereby will be
immediately freely tradeable without restriction under the Securities Act of
1933, as amended (the "Securities Act"), except for any securities purchased by
an "affiliate" of the Company (as that term is defined in the Securities Act),
which securities will be subject to the resale limitations of Rule 144 under the
Securities Act ("Rule 144"). The remaining 617,509 shares of Common Stock are
"restricted securities," as that term is defined in Rule 144 under the
Securities Act, and may not be resold in a public distribution, except in
compliance with the registration requirements of the Securities Act or in
compliance with Rule 144. The sale, or availability for sale, of substantial
amounts of Common Stock in the public market subsequent to this Offering
pursuant to Rule 144 or otherwise could materially adversely affect the market
price of the Common Stock and could impair the Company's ability to raise
additional capital through the sale of its equity securities or debt financing.

Each officer and director of the Company, all holders of the shares of
Common Stock, and all holders of securities convertible into or exchangeable or
exercisable for shares of Common Stock have agreed not to, directly or
indirectly, offer, sell, transfer, pledge, assign, hypothecate or otherwise
encumber or dispose of any of the Company's securities, whether or not presently
owned, for a period of 13 months after the date of this Prospectus, without the
prior written consent of the Company and the Representative. The 617,509
restricted shares of Common Stock may be sold in accordance with Rule 144 at
various times beginning ninety days after the effective date of this Prospectus,
subject to the lock-up agreements described above. See "Shares Eligible for
Future Sale."

DILUTION. Purchasers of the Common Stock in this Offering will experience
immediate and substantial dilution in the net tangible book value of their
shares. Assuming an initial public offering price of $6.50 per share, dilution
to new investors would be $3.93 per share. Additional dilution will occur upon
exercise of outstanding warrants or stock options or conversion of outstanding
convertible notes. As a result, new investors will bear substantially all of the
risks inherent in an investment in the Company. See "Dilution."

YEAR 2000 COMPLIANCE. The "year 2000 problem" is pervasive and complex, as
virtually every computer operation will be affected in some way. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The Company
is in the process of working with its software vendors to assure that the
Company is prepared for the year 2000. The Company has not verified that its
vendors, suppliers or customers are year 2000 compliant. The Company does not
anticipate that it will incur significant operating expenses or be required to
invest heavily in computer systems improvements to be year 2000 compliant.
However, significant uncertainty exists concerning the potential costs and
effects associated with any year 2000 compliance. Any year 2000 compliance
problem of either the Company or its customers could have a material adverse
effect on the Company's business, results of operations and financial condition.

GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTY. The Company currently is
not subject to direct regulation by any governmental agency, other than laws and
regulations generally applicable to businesses, although certain United States
export controls and import controls of other countries, including controls on
the use of encryption technologies, may apply to the Company's products. Due to
the increasing popularity and use of the Internet, it is possible that a number
of laws and regulations may be adopted in the United States and abroad relating
to the Internet. It is possible that governments will enact legislation to
regulate areas such as content, network security, encryption and the use of key
escrow, data and privacy protection, electronic authentication or "digital"
signatures, illegal and harmful content, access charges and retransmission
activities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, content, taxation, defamation and
personal privacy is uncertain. The majority of such laws were adopted before the
widespread use and commercialization of the Internet and, as a result, do not
contemplate or address the unique issues of the Internet and related
technologies. Any such export or import restrictions, new legislation or
regulation or governmental enforcement of existing regulations may limit the
growth of the Internet, increase the Company's cost of doing business, restrict
the Company's business or increase the Company's legal exposure, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.

LIABILITY FOR INTERNET CONTENT. As a distributor of Internet content, the
Company faces potential liability for negligence, copyright, patent, trademark,
defamation, indecency and other claims based on the nature and content of the
materials that it makes available over the Internet. Such claims have been
brought, and sometimes successfully pressed, against Internet content
distributors. In addition, the Company could be exposed to liability with
respect to the content or unauthorized duplication or broadcast of content.
Although the Company maintains general liability insurance, the Company's
insurance may not cover potential claims of this type or may not be adequate to
indemnify the Company for all liability that may be imposed. In addition,
although the Company generally requires its content providers to indemnify the
Company for such liability, such indemnification may be inadequate. Any
imposition of liability that is not covered by insurance, is in excess of
insurance coverage or is not covered by an indemnification by a content provider
could have a material adverse effect on the Company's business, results of
operations and financial condition.

SALES AND OTHER TAXES. The Company currently does not collect sales or
similar taxes with respect to the sale of products or services into states and
countries other than the State of Connecticut. However, one or more states or
foreign countries may seek to impose sales or other tax obligations on companies
that engage in online commerce within their jurisdictions. A successful
assertion by one or more states or any foreign country that the Company should
collect sales or other taxes on the sale of products, license of technology or
provision of services, or remit payment of sales or other taxes for prior
periods, could have a material adverse effect on the Company's business,
financial condition and results of operations.

CERTAIN ANTI-TAKEOVER PROVISIONS. Certain statutory provisions and
provisions of the Company's Restated Certificate of Incorporation and Bylaws may
have the effect of discouraging, delaying or making more difficult a change in
control of the Company or preventing the removal of incumbent directors even if
some, or a majority, of the Company's stockholders were to deem such an attempt
to be in the best interest of the Company. The Company is governed by the
provisions of the General Corporation Law of the State of Delaware (the "DGCL")
Section 203, an anti-takeover law. In general, the law prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in

a prescribed manner. "Business combination" is defined to include mergers, asset
sales and certain other transactions resulting in a financial benefit to the
stockholders. An "interested stockholder" is defined as a person who, together
with affiliates or associates, owns (or, within the prior three years, did own)
15% or more of a corporation's voting stock. As a result of the application of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect an acquisition transaction with the Company, thereby
possibly depriving holders of the Company's securities of certain opportunities
to sell or otherwise dispose of such securities at above market prices pursuant
to such transactions. In addition, the Company's Board of Directors has the
authority to issue up to 990,000 shares of Preferred Stock and to determine the
price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the stockholders
of the Company. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Company's Common Stock at a premium over
the market price of the Common Stock and may adversely affect the market price
of, and the other rights of the holders of, the Common Stock. The Company has no
present plans to issue shares of Preferred Stock. See "Description of
Securities."

ABSENCE OF DIVIDENDS. The Company has never declared or paid cash
dividends on its Common Stock and does not anticipate paying any cash dividends
on its Common Stock in the foreseeable future. See "Dividend Policy."

REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET. A significant number
of shares of Common Stock offered hereby may be sold to customers of the
Representative. Such customers subsequently may engage in transactions for the
sale or purchase of shares of Common Stock through or with the Representative.
Although it has no obligation to do so, the Representative intends to make a
market in the Common Stock and may otherwise effect transactions in the Common
Stock. If it participates in such market, the Representative may influence the
market, if one develops, for the Common Stock. Such market-making activity may
be discontinued at any time. Moreover, if the Representative sells the
securities issuable upon exercise of the Representative's Warrants, it may be
required under the Securities Exchange Act of 1934, as amended, to temporarily
suspend its market-making activities. The prices and liquidity of the Common
Stock may be significantly affected by the degree, if any, of the
Representative's participation in such market. See "Underwriting."

POTENTIAL ADVERSE EFFECT OF SUBSTANTIAL SHARES OF COMMON STOCK
RESERVED. The Company has reserved a total of 830,987 shares of Common Stock
for issuance as follows: (i) 294,318 shares upon the exercise of outstanding
warrants; (ii) 100,000 shares upon the exercise of the Representative's
Warrants; (iii) 209,091 shares upon the exercise of stock options available for
grant under the Stock Option Plan; (iv) 75,000 shares upon the exercise of stock
options granted under the Stock Option Plan; (v) 96,154 shares upon the
conversion of outstanding convertible promissory notes; and (vi) 56,424 shares
upon the conversion of Series A Preferred Convertible Stock. The existence of
the Representative's Warrants and securities convertible into Common Stock may
adversely affect the Company's ability to consummate future equity financings.
Further, the holders of the warrants and options may exercise them at a time
when the Company would otherwise be able to obtain additional equity capital on
terms more favorable to the Company. See "Shares Eligible for Future Sales."

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS. The Company's
Restated Certificate of Incorporation eliminates the personal liability of
directors to the Company and its shareholders for monetary damages for breach of
fiduciary duties as a director to the fullest extent permitted by the DGCL. See
"Management--Limitation on Liability; Indemnification of Directors and
Officers."

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
PROSPECTUS. This Prospectus contains certain forward-looking statements,
including, without limitation, the plans and objectives of management for future
product and future operations. The forward-looking statements included herein
are based on a successful execution of the Company's strategy, the assumption
that the software industry will not change materially or adversely, and that
there will be no unanticipated material adverse change in the Company's
operations or business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company.

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the
1,000,000 shares of Common Stock offered hereby are estimated to be $5,405,000
based upon an assumed initial public offering price of $6.50 per share, after
deducting underwriting discounts, commissions and estimated expenses (or
approximately $6,253,250 if the over-allotment option granted to the
Underwriters is exercised in full). The net proceeds are expected to be used as
follows:

APPLICATION OF PROCEEDS AMOUNT PERCENT
- --------------------------------------------------------------------------------- ---------- -------

Repayment indebtedness and accrued interest...................................... $ 365,000 6.8%
Sales and marketing.............................................................. 2,250,000 41.6
Capital expenditures............................................................. 750,000 13.9
General corporate and working capital............................................ 2,040,000 37.7
---------- -----
Total....................................................................... $5,405,000 100%
---------- -----
---------- -----

The Company's intended allocation of net proceeds of the Offering is based
upon the Company's current plans and prevailing economic and industry
conditions. Although the Company does not currently contemplate material changes
with respect to allocation of the net proceeds, to the extent that management of
the Company finds that adjustment thereto is required, the amounts shown may be
adjusted among the uses indicated above.

The Company estimates that the amounts listed in the above table together
with cash from operations will meet the Company's cash requirements for at least
12 months from the date of this Prospectus. If the Underwriters exercise the
over-allotment option, the Company intends to add the net proceeds of such
exercise to working capital.

Pending their ultimate use, the net proceeds will be invested in
short-term, investment grade, interest-bearing securities, certificates of
deposit or direct or guaranteed obligations of the United States.

DIVIDEND POLICY

The Company has not paid, and does not anticipate paying, any dividends on
its Common Stock in the foreseeable future. The Company accrues annual dividends
on the outstanding shares of Series A Convertible Preferred Stock at the rate of
$8.50 per share, and no dividends may be paid on other classes of stock until
all accrued dividends on the Series A Convertible Preferred Stock have been
paid. In addition, the Series A Convertible Preferred Stock is entitled to
receive a liquidation preference in the amount of $100 per share plus all
accrued and unpaid dividends prior to any liquidation payments made to any other
class of stock. The Company currently intends to retain its future earnings for
use in operations and expansion of its business. Declaration and payment of
future dividends, if any, will be at the sole discretion of the Board of
Directors of the Company.

CAPITALIZATION

The following table sets forth the capitalization of the Company: (i) as of
June 30 , 1998; (ii) on a Pro Forma basis to reflect the August 1998
restructuring of indebtedness and the issuance of Common Stock, Common Stock
Purchase Warrants and Series A Convertible Preferred Stock in connection
therewith and (iii) as adjusted to give effect to the sale of the Common Stock
offered hereby at an assumed initial public offering price of $6.50 per share
and the initial application of the estimated net proceeds therefrom. The
following table should be read in conjunction with the financial statements and
related notes thereto included elsewhere in this Prospectus:

JUNE 30, 1998
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
----------- ------------ --------------

Short-term debt..................................................... $ 582,298 $ 403,530 $ 238,530
----------- ------------ ------------
----------- ------------ ------------
Long-term debt...................................................... $ 1,106,712 $ 1,098,994 $ 1,098,994
----------- ------------ ------------
Stockholders' equity
Series A Convertible Preferred Stock, $.001 par value 10,000
shares authorized, no shares outstanding, actual; 4,796 shares
issued and outstanding (with a total liquidation preference of
$479,600), pro forma and pro forma as adjusted................. -- 5 5
Preferred Stock, $.001 par value; 990,000 shares authorized; no
shares outstanding............................................. -- -- --
Common Stock, $.001 par value; 49,000,000 shares authorized;
465,530 shares issued and outstanding, actual; 617,509 shares
issued and outstanding, pro forma; and 1,617,509 shares issued
and outstanding, pro forma as adjusted (1) .................... 466 617 1,617
Additional paid-in capital.......................................... 858,294 1,928,611 7,332,611
Accumulated deficit................................................. (2,720,126) (3,150,637) (3,150,637)
----------- ------------ ------------
Total stockholders' equity (deficit)........................... (1,861,366) (1,221,404) 4,183,596
----------- ------------ ------------
Total capitalization.............................................. $ (754,654) $ (122,410) $ 5,282,590
----------- ------------ ------------
----------- ------------ ------------

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

(1) Does not include: (a) 100,000 shares of Common Stock reserved for issuance
upon exercise of the Representative's Warrants; (b) 209,091 shares of Common
Stock reserved for issuance upon exercise of stock options available for
grant under the Company's 1997 Incentive Stock Option Plan (the "Stock
Option Plan"); (c) 75,000 shares of Common Stock reserved for issuance upon
the exercise of stock options granted under the Stock Option Plan as of the
effective date of this Prospectus at a weighted average exercise price of $
4.00 per share; (d) 294,318 shares of Common Stock reserved for issuance
upon exercise of warrants held by employees, directors and consultants of
the Company at a weighted average exercise price of $1.63 per share;
(e) 96,154 shares of Common Stock reserved for issuance upon exercise of
convertible promissory notes at a conversion price of $5.20 per share; and
(f) 56,424 shares of Common Stock reserved for issuance upon exercise of
Series A Convertible Preferred Stock at a conversion price of $8.50 per
share. See "Management--1997 Incentive Stock Option Plan," "Description of
Securities" and "Underwriting," and Notes 6, 7 and 12 of Notes to Financial
Statements.

(2) On a Pro Forma basis to reflect the August 1998 restructuring of
indebtedness and the issuance of Common Stock, Common Stock purchase
warrants and Series A Convertible Preferred Stock. See Note 12 of Notes to
Financial Statements.

(3) As adjusted to reflect the sale of 1,000,000 shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $6.50
per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. See "Use
of Proceeds" and "Capitalization."

DILUTION

The pro forma net tangible book value (deficit) of the Company at June 30,
1998 (after giving effect to the August 1998 restructuring of indebtedness and
the issuance of Common Stock, Common Stock purchase warrants and Series A
Convertible Preferred Stock in connection therewith. See Note 12 of Notes to
Financial Statements) was approximately $(1,296,404), or $(2.10) per share of
Common Stock. The pro forma net tangible book value (deficit) per share is equal
to total tangible assets less total liabilities, divided by the number of shares
of the Common Stock outstanding on such date. Dilution per share represents the
difference between the amount per share paid by purchasers in the Offering and
the pro forma net tangible book value per share after the Offering. After giving
effect to the sale of the shares of Common Stock being offered hereby and the
receipt of the net proceeds from the Offering by the Company, the pro forma as
adjusted net tangible book value of the Company at June 30, 1998 would have been
approximately $4,158,596 or $2.57 per share. This represents an immediate
increase in pro forma net tangible book value of $4.67 per share to existing
stockholders, and an immediate dilution of $3.93 per share to persons purchasing
shares of Common Stock at the initial public offering price. The following table
illustrates this per share dilution:

Assumed initial public offering price per share....................................... $6.50
Pro forma net tangible book value (deficit) before the Offering..................... $ (2.10)
Increase per share attributable to new investors.................................... 4.67
-------
Pro forma as adjusted net tangible book value per share after the Offering............ 2.57
-----
Dilution per share to new investors................................................... $3.93
-----
-----

The following table summarizes at September 15, 1998 the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by existing stockholders since inception and by new
investors in this Offering (at an assumed initial public offering price of $6.50
per share):

AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE PER
-------------------- --------------------- ---------
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ---------- ------- ---------

Existing stockholders.................................... 617,509 38.2% $ 601,015 8.5% $ .97
New investors............................................ 1,000,000 61.8 6,500,000 91.5 6.50
--------- ----- ---------- ----- -----
Totals................................................... 1,617,509 100% $7,101,015 100%
--------- ----- ---------- -----
--------- ----- ---------- -----

The tables do not give effect to the exercise or conversion of any
outstanding options, warrants, convertible promissory notes or shares of Series
A Convertible Preferred Stock. To the extent such options, warrants, convertible
promissory notes or shares of Series A Convertible Preferred Stock are exercised
or converted, there will be further dilution to new investors. See
"Management--Stock Options Plan," "Description of Capital Stock" and Notes 6, 7
and 12 of Notes to Financial Statements.

SELECTED FINANCIAL INFORMATION

The following table sets forth selected financial information for the
periods presented. The statement of operations data of the Company presented for
the period from July 12, 1995 (inception) to December 31, 1995, the years ended
December 31, 1996 and 1997, and the balance sheet data for the years ended
December 31, 1996 and 1997 are derived from the financial statements of the
Company audited by KPMG Peat Marwick LLP, independent accountants which are
included elsewhere in this Prospectus. The report of KPMG Peat Marwick LLP on
the aforementioned financial statements contains an explanatory paragraph that
states that the Company's recurring losses from operations since inception,
working capital deficiency and net capital deficiency raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty. The selected financial data of the Company presented for the six
months ended June 30, 1997 and 1998 and the balance sheet as of June 30, 1998
were derived from the Company's unaudited financial statements also appearing
herein and which, in the opinion of the Company's management, include all
adjustments, consisting of normal recurring accruals and other adjustments,
necessary for the fair presentation of the financial position and results of
operations for these periods. The results of operations for the six months ended
June 30, 1998 may not be indicative of results that may be expected for the full
year ending December 31, 1998. The financial information set forth below should
be read in conjunction with, and is qualified in its entirety by, the Financial
Statements of the Company and related notes thereto that appear elsewhere in
this Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

STATEMENT OF OPERATIONS DATA:
Revenues, net................................ $131,750 $ 274,755 $ 96,722 $ 49,517 $ 740,548
Cost of revenues............................. 89,359 193,653 76,598 39,385 468,591
-------- ---------- ------------ ---------- ----------
Gross profit................................. 42,391 81,102 20,124 10,132 271,957
Operating expenses:
Research and development................... -- 47,020 122,341 82,251 18,750
Selling general and administrative......... 118,986 483,612 1,399,363 741,482 512,487
Depreciation............................... 982 14,860 78,226 35,600 44,462
-------- ---------- ------------ ---------- ----------
Operating loss........................ (77,577) (464,390) (1,579,806) (849,201) (303,742)
Interest expense-net......................... -- (24,041) (130,555) (21,398) (140,015)
-------- ---------- ------------ ---------- ----------
Net loss.............................. $(77,577) $ (488,431) $ (1,710,361) $ (870,599) $ (443,757)
-------- ---------- ------------ ---------- ----------
-------- ---------- ------------ ---------- ----------
Basic and diluted net loss per share......... $ (0.20) $ (1.25) $ (3.69) $ (1.89) $ (0.95)
-------- ---------- ------------ ---------- ----------
-------- ---------- ------------ ---------- ----------
Shares used in the net loss per share
calculations(1)............................ 384,470 390,909 463,005 461,780 465,530

DECEMBER 31, JUNE 30,
------------------------- -------------
1996 1997 1998(2)
---------- ------------- -------------
(UNAUDITED)

BALANCE SHEET DATA:
Cash.................................................................... $ 24,059 $ 7 $ 190,310
Working capital (deficit)............................................... (158,584) (993,563) (1,148,665)
Total assets............................................................ 285,112 400,215 1,070,701
Total liabilities....................................................... 250,105 1,871,389 2,932,067
Stockholders' equity (deficit).......................................... 35,007 (1,471,174) (1,861,366)

- ------------------
(1) See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in per share calculations.
(2) Does not reflect the August 1998 restructuring of indebtedness and the
issuance of Common Stock, Common Stock purchase warrants and Series A
Convertible Preferred Stock in connection therewith. See Note 12 of Notes to
Financial Statements.

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

The following discussion should be read in conjunction with "Selected
Financial Information" and the Financial Statements of the Company, including
the notes related thereto, and the other financial data appearing elsewhere in
this Prospectus.

Certain information included herein contains statements that constitute
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act. Such forward looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward looking statements. Such factors include,
among others, the following: general economic and business conditions; industry
capacity; uncertainty regarding and changes in customer preferences; demographic
changes; competition; changes in methods of marketing and technology; changes in
political, social and economic conditions and regulatory factors and various
other factors beyond the Company's control. The "safe-harbor" protections
provided under the aforementioned sections of the Securities Act and the
Securities Exchange Act are not available to initial public offerings, including
this offering.

GENERAL

The Company was incorporated in July 1995. For the balance of its first
fiscal year (ended December 31, 1995), the Company was primarily engaged in
activities related to sales of videoconferencing systems and integration
services and the commencement of its operations, including establishing
relationships with suppliers and distributors. During 1996 the Company changed
its business focus and began the development of its proprietary software for use
in connection with videoconferencing systems offered by the Company, and the
implementation of its plan to offer its Video On-Demand Services. Accordingly,
the Company does not believe that its results of operations for the period from
inception through December 31, 1995 are useful as a basis for evaluating its
current or future results or that comparisons to its results of operations for
the corresponding period of fiscal 1996 would be meaningful.

During 1996, the Company continued to serve as a videoconferencing systems
integrator and began the development of its proprietary software products and
its Video On-Demand Services. The Company continued these efforts through the
end of 1997 when the Company focused its efforts on reselling, installing and
integrating videoconferencing and video streaming systems, including the
Company's proprietary software, and the sales of its Video On-Demand Services.
Accordingly, the Company operated as a development stage company until 1998 and,
has had a limited operating history on which the evaluation of the Company and
its prospects can be based.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.

Net Revenues. Net revenues increased by $691,031 during the six months
ended June 30, 1998 compared to the six months ended June 30, 1997. This
increase was primarily due to the shift in the Company's focus from development
of its proprietary software for use in connection with videoconferencing systems
offered by the Company to sales of videoconferencing and video streaming systems
in the second half of 1997. The increase in sales relates primarily to sales of
videoconferencing systems and related equipment and services.

Gross Profits. Gross profit for the six months ended June 30, 1998 was
$271,957 compared to $10,132 for the six months ended June 30, 1997. The
increase in gross profit of $261,825 resulted from increased sales of
videoconferencing systems and related equipment and services. Gross profit as a
percentage of revenue equalled 37% for the six months ended June 30, 1998
compared to 21% for the six months ended June 30, 1997.

Research and Development. Research and development expenses decreased by
$63,501 or 77% during the six months ended June 30, 1998 compared to the six
months ended June 30, 1997. The decrease was the result of the completion of the
development of the Company's proprietary software product and management's
decision to

concentrate its efforts on the marketing and sales of videoconferencing and
video streaming systems and the Company's Video On-Demand Services.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $228,995 or 31% during the six months ended
June 30, 1998 compared to the six months ended June 30, 1997. The decrease is
primarily a result of a reduction in administrative staff as the Company
implemented its plan to reduce expenses and focus its marketing and sales
efforts on videoconferencing and video streaming systems, and its Video
On-Demand Services.

Depreciation. Depreciation expense increased by $8,862 or 25% during the
six months ended June 30, 1998 compared to the six months ended June 30, 1997.
The increase reflected the purchase of equipment associated with software
development and the continued investment in equipment required in connection
with the Company's Video On-Demand Services.

Interest Expense. Interest expense increased by $118,617 during the six
months ended June 30, 1998 compared to the six months ended June 30, 1997. The
increase was due to the Company's borrowings during 1997 and 1998 to fund
operations, develop its proprietary software and to implement its Video
On-Demand Services.

Net Loss. Net loss decreased to $443,757 for the six months ended June 30,
1998 from $870,599 for the year ended June 30, 1997, representing a decrease of
$426,842. The decrease in net loss is attributable to the factors discussed
above.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.

Net Revenues. Net revenues decreased by $178,033 or 65% during the year
ended December 31, 1997 compared to the year ended December 31, 1996. The
decrease was primarily due to the Company's focus on software development
beginning in June 1996 and continuing through the third quarter of 1997, and the
establishment of its Video On-Demand Services during 1997.

Gross Profits. Gross profits for the year ended December 31, 1997 was
$20,124 compared to $81,102 for the year ended December 31, 1996. The decrease
in gross profit of $60,978 was due to the reduced emphasis on sales of
videoconferencing systems and related equipment and services during the year
ended December 31, 1997. Gross profit as a percentage of revenue equalled 21%
for the year ended December 31, 1997 as compared to 30% for the year ended
December 31, 1996.

Research and Development. Research and development expenses increased
$75,321 during the year ended December 31, 1997 compared to the year ended
December 31, 1996. The increase was due to the Company's efforts to develop its
software products.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $915,751 during the year ended December 31,
1997 compared to the year ended December 31, 1996. The increase represented
costs associated with the marketing of the Company's proprietary software and
Video On-Demand Services and the staffing needs associated with the commencement
of its Video On-Demand Services.

Depreciation. Depreciation expense increased by $63,366 during the year
ended December 31, 1997 compared to the year ended December 31, 1996. The
increase reflects the purchase of equipment associated with the development of
the Company's proprietary software for use in connection with videoconferencing
systems offered by the Company, and the establishment of its Video On-Demand
Services.

Interest Expense. Interest expense increased by $106,514 during the year
ended December 31, 1997 compared to the year ended December 31, 1996. The
increase was primarily due to the increase in indebtedness associated with the
Company's borrowings for working capital, the development of the Company's
proprietary software for use in connection with videoconferencing systems
offered by the Company, and the implementation of its Video On-Demand Services.

Net Loss. Net loss increased to $1,710,361 for the year ended December 31,
1997 from $488,431 for the year ended December 31, 1996, representing an
increase of $1,221,930. The increase in net loss is attributable to the factors
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Through June 30, 1998, the Company has raised approximately $2,350,000 from
the private placement of debt and equity securities. Through June 30, 1998,
$162,000 was advanced to the Company by the President of the Company. In 1996,
$600,000 of indebtedness was converted into 75,758 shares of Common Stock. In
August 1998, the Company converted $757,173 of indebtedness and accrued interest
into equity. The Company's operations generated insufficient cash flow in 1996
and thereafter to enable it to meet its capital expenditure, debt service and
other cash needs. The Company has sustained significant losses since its
inception and, as of June 30, 1998, had an accumulated deficit of $2,720,126. At
June 30, 1998, December 31, 1997 and December 31, 1996 the Company had working
capital deficits of approximately $1,148,665, $993,563 and $158,584,
respectively.

Net cash used in operating activities was $374,831 for the six months ended
June 30, 1998 and $929,265 and $389,956 for the years ended December 31, 1997
and 1996, respectively.

The Company presently has a financing agreement whereby the Company
receives purchase order financing (70% of purchase order) up to a maximum of $1
million and accounts receivable financing (85% of the invoiced amount) up to a
maximum of $2 million. The charges for monies advanced are based upon an initial
rate of 4.5% of the invoice amount for the first thirty days the invoice is
outstanding and unpaid and increases 1% for each 15 days the invoice remains
unpaid up to a maximum of 12%. The financing agreement has a term of one year
ending in March, 1999. As of June 30, 1998, the Company had secured borrowings
of $29,157 under this financing agremeent. See "Risk Factors--Possible Need for
Additional Financing." See Note 12 of Notes to Financial Statements.

In August and September, 1998, the Company conducted a restructuring of its
indebtedness. As of September 16, 1998, the Company had (i) converted $479,607
of indebtedness into 4,796 shares of Series A Convertible Preferred Stock and
issued 18,939 Common Stock purchase warrants in connection therewith; (ii)
converted $215,566 of indebtedness into 40,827 shares of Common Stock and issued
18,939 Common Stock purchase warrants in connection therewith; (iii) converted
$62,000 of indebtedness into 30,303 shares of Common Stock and cancelled 30,303
Common Stock purchase warrants in connection therewith; and (iv) restructured
$915,000 of indebtedness and issued 79,154 shares of Common Stock and cancelled
97,904 Common Stock purchase warrants in connection therewith.

The Company anticipates that it will continue to incur net operating losses
as it expands its marketing network and facilitate the business included in its
strategic plan. Cash provided by operations is not expected to be sufficient to
fund the operation, expansion and development of marketing and customer networks
and as such the Company expects to use cash on hand and the proceeds from this
Offering to fund its expansion and development.

The report of the Company's independent auditors on the Company's financial
statements as of December 31, 1996 and 1997, and the results of its operations
and its cash flows for the period from July 12, 1995 (inception) through
December 31, 1995 and for each of the years in the two year period ended
December 31, 1997, contains an explanatory paragraph expressing substantial
doubt with respect to the ability of the Company to continue as a going concern.
The Company believes that the net proceeds from this Offering will be sufficient
to finance the Company's working capital requirements for 12 months following
the completion of the Offering. See "Use of Proceeds." There can be no assurance
that the Company will generate sufficient revenues or be able to raise
additional capital to fund its operations after such period.

YEAR 2000 COMPLIANCE

There are issues associated with the programming code in existing computer
systems as the year 2000 approaches. The "year 2000 problem" is pervasive and
complex, as virtually every computer operation will be affected in some way by
the rollover of the two-digit year value to 00. The issue is whether computer
systems will properly recognize date sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company is in the process of
working with its software vendors to assure that the Company is prepared for the
year 2000. The Company has not verified that companies doing business with it
are year 2000 compliant. The Company does not anticipate that it will incur
significant operating expenses or be required to invest heavily in computer
systems

improvements to be year 2000 compliant. However, significant uncertainty exists
concerning the potential costs and effects associated with year 2000 compliance.
Any year 2000 compliance problem of either the Company or its users, customers
or advertisers could have a material adverse effect on the Company's business,
result of operations and financial conditions.

NET OPERATING LOSS CARRYFORWARDS

At December 31, 1997, the Company had available net operating loss
carryforwards of approximately $1,503,169 to offset future taxable income for
federal tax purposes. The utilization of the loss carryforwards to reduce future
income taxes will depend upon the Company's ability to generate sufficient
taxable income prior to the expiration of the net operating loss carryforwards.
The carryforwards expire in the year 2003 through 2004. However, the Internal
Revenue Code of 1986, as amended, limits the maximum annual use of net operating
loss and tax credit carryforwards in certain situations where changes occur in
the stock ownership of a corporation. As a result of this Offering, a change in
ownership is likely to occur which would substantially restrict the Company's
use of the net operating loss carryforwards for federal and state income tax
purposes. See Note 8 of Notes to Financial Statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). The Company adopted the provisions of SFAS 130 in the quarter ended
March 31, 1998. SFAS No. 130 requires the Company to report its financial
statement, in addition to its net income (loss), comprehensive income (loss),
which includes all changes in equity during a period from non-owner sources
including, as applicable, foreign currency items, minimum pension liability
adjustments and unrealized gains and losses on certain investments in debt and
equity securities. There were no differences between the Company's comprehensive
loss and its net loss as reported.

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company has not yet determined the
impact, if any, of adopting SOP 98-1, which will be effective for the Company's
year ending December 31, 1999.

In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the new way that public business enterprises report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997. The Company has determined
that it does not have any separately reportable business segments.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to affect the Company as the Company currently
does not have any derivative instruments or hedging activities.

BUSINESS

The Company is a full service provider of interactive business video
communications solutions. The Company resells, installs and integrates
videoconferencing equipment and systems and video streaming software and
systems, which includes the Company's proprietary software that enables
browsing, recall and playback of digitized video content through
videoconferencing systems on an interactive basis. Additionally, the Company
records, digitizes, stores, edits and delivers or "streams" on-demand video and
audio programs over telecommunications lines and the Internet ("Video On-Demand
Services").

The Company's objective is to become a leading provider of interactive
video communications solutions. To achieve its objective, the Company intends to
further establish itself as a recognized reseller of videoconferencing and video
streaming systems and products by expanding its sales and marketing efforts and
to grow its Video On-Demand Services through additional joint marketing
arrangements, by expanding its library of videotapes through additional
licensing relationships, by leveraging its access to customers of
videoconferencing and video streaming systems and by incorporating new product
and technology developments as they become available.

INDUSTRY

Benefits of Interactive Video Communications

The market for interactive video communications solutions is driven in part
by demand for more effective enterprise communication and collaboration, whether
in real-time or on a stored-and-retrieved basis, among persons or groups across
disparate physical locations. Interactive video communications solutions offer
the opportunity to increase worker productivity and reduce costs by eliminating
or reducing travel. In addition to cost savings, visual collaboration reduces
the cycle time of key business processes; for example, visual collaboration

can hasten the decision-making process by reducing the time needed to exchange
information between geographically dispersed work groups. Visual collaboration
also allows companies to leverage scarce personnel resources located at a
distance from co-workers who need their expertise.

Rapid Technological and Market Changes

Initial generations of interactive video communications solutions were
relatively expensive and typically required dedicated, high speed transmission
facilities, trained operators and special rooms. The price and performance
characteristics of these systems limited market demand to large corporations.
Despite broad market interest, cost-benefit analyses discouraged most potential
users from investing in these systems. In recent years, however, numerous
factors have led to greater acceptance and use of interactive video
communications solutions, including the rapid growth of world-wide switched
digital circuit network services, multi-media enabled PCs, improved software,
the Internet, corporate intranets, and decreasing costs of these network
services.

Switched digital networks provide increased bandwidth or capacity compared
to traditional analog telephone lines. The increased bandwidth improves the
quality of videoconferencing by significantly reducing breaks in transmission,
blurred images and instances of audio and video content being out of synch. The
recent increased availability of, and reductions in cost of, switched digital
circuit networks combined with improvements in quality offered by switched
digital circuit networks have resulted in substantial increased utilization of
videoconferencing systems and related services.

In addition, the introduction of new software decoders and quality of
service software for network routers and switches have resulted in rapid
advances in the quality of video and audio transmissions and ease of use on
packet-switched Internet Protocol ("IP") corporate intranets and the Internet.
Although the quality of videoconferencing transmissions on IP intranets and the
Internet is not at the same high level available on digital switched circuit
networks, the Company anticipates that substantial utilization of IP intranets
and the Internet and the expected growth rate in utilization of such networks
will drive continued improvement in videoconferencing related software and
hardware and the quality of videoconferencing transmissions. The Company
believes such improvements to packet-switched IP intranets and the Internet will
yield further improvements in quality of videoconferencing and video streaming
transmissions and further reductions in cost which will further increase demand
for videoconferencing systems and related services.

VIDEOCONFERENCING SYSTEMS BUSINESS

The Company is a reseller of videoconferencing systems such as digital
computer-based products manufactured by Intel and analog appliance-type (single
purpose) products manufactured by PictureTel and Polycom. The Company
anticipates a shift in the current dominance of appliance-type products to
computer-based products. In addition, the Company resells a complete range of
hardware components such as compression and decompression products ("CODECS"),
audio modules and video modules, and supporting bridges, gateways, and
peripherals such as cameras, whiteboards, audio systems, video cassette
recorders and furniture. The Company also provides installation, integration and
support services in conjunction with these sales.

Videoconferencing Systems Market

The videoconferencing systems market is highly competitive, with over 75
manufacters of video systems. The market is dominated by PictureTel and Intel.
PictureTel sells its products through resellers such as VCS and recently has
begun selling directly to end users because of the limited availability of
qualified resellers. PictureTel resellers are typically sellers of telephone
equipment (Lucent Technologies, Siemens, etc.) or audio-visual equipment, and
tend to lack specific expertise in computer-based videoconferencing. Recently,
PictureTel announced its intention to purchase Starlight as part of a strategy
to support all forms of business video communication. VCS believes it is
currently the only reseller of both PictureTel and Starlight product lines.

Intel distributes its products through established computer sales channels.
Although any firm authorized to purchase from computer wholesalers can buy
Intel's videoconferencing products, Intel has experienced difficulties in
finding qualified vendors for its videoconferencing products.

Delivering video communication solutions requires expertise in several
areas; telephony, computer networking, acoustical systems, lighting, video
production and software development. The Company believes it is one of a limited
number of entities which has developed expertise in all these areas. Due to its
expertise, VCS has been referred frequently by Intel and PictureTel to
purchasers of videoconferencing systems.

Videoconferencing Systems Strategy

For the near term, the Company has targeted resales of videoconferencing
equipment as its major source of revenues. The Company provides customers with
turnkey solutions by consulting with them and designing systems that meet their
needs. The Company believes that due to rapidly increasing demand for
videoconferencing capabilities, the Company's expertise will provide opportunity
for the Company to realize an increase in sales volume.

The Company has established relationships with videoconferencing technology
market leaders, such as Intel and PictureTel. The Company believes that such
associations are necessary in order to establish market share in the
videoconferencing market. In addition to its relationship with Intel and
PictureTel the Company has also formed reseller relationships with system and
component manufacturers Polycom Inc., VideoServer, Inc. and SoftBoard (a
division of Microfield Graphics, Inc.). The Company also believes that such a
strategy will build brand identity and broaden the Company's customer base for
its Video On-Demand Services.

As a result of its strong relationships with Intel and PictureTel, the
Company receives marketing leads, marketing support and technical support for
the sale of their respective products.

Turnkey systems sales, as opposed to individual component sales, allows the
Company to focus its resources on generating additional sales without
undertaking the cost of building a large technical staff. In this regard, the
Company may elect to outsource the installation and maintenance of a turnkey
system to fulfill either domestic or international sales without the need to
supply its own staff members. The Company provides all customers with ongoing
technical support and services.

The Company's largest customers of videoconferencing systems and related
services, Caliber Learning Network, Inc., Reckson Associates Realty Corp., and
FactSet Research Systems Inc., accounted for 30%, 15%, and 19%, respectively, of
the Company's revenues for the six months ended June 30, 1998.

VIDEO STREAMING SYSTEMS BUSINESS

The Company is a reseller of video streaming and related software products
of Starlight and RealNetworks, encoders manufactured by Opitbase and Winnov, and
computer workstations and servers. In addition, the Company is a reseller of
video publishing software products manufactured by Digital Lava, Inc. The
Company also provides installation, integration and support services in
conjunction with these sales.

Video Streaming Systems Market

The video streaming system market is a new market experiencing rapid
growth. The first video streaming systems were introduced in 1991. Starlight
introduced its first products during 1992 and dominated the initial market by
focusing on the delivery of high quality video via intranets. In 1995, several
companies introduced streaming systems that utilized the Internet. The Internet
systems initially delivered poor quality video and were not acceptable for
business use.

According to RealNetworks, more than 30 million users have downloaded its
RealPlayer(Trademark) products to their PC's. In July, 1998, RealNetworks and
the Microsoft Corporation ("Microsoft") each introduced new streaming media
technology which substantially improves the quality of video. Microsoft is now
shipping a new Windows Media Player, which supports multiple streamed multimedia
file types, with every copy of Windows Operating System.

As in the videoconferencing market, VCS believes there is a limited number
of resellers who have developed the expertise in these areas, and VCS believes
it is one of a few resellers that offer both RealNetworks and Starlight systems
in the market. In the short term, the market for video streaming systems will
continue to

lack qualified vendors to support this emerging market because of the
multi-discipline requirements for a successful implementation.

Video Streaming Systems Strategy

As with its videoconferencing systems operations, the Company has formed
relationships with market leaders of video streaming technology. The Company
believes that such associations are necessary in order to establish market share
in the video streaming market. In furtherance of this strategy, the Company has
entered into a joint marketing agreement with Starlight. The Company also
believes that such a strategy will build brand identity and broaden the
Company's customer base for its Video On-Demand Services.

As part of its Video On-Demand Services, the Company allows its customers
to use video streaming on a trial basis using the customers' existing
videoconferencing equipment and networks. This service gives customers an
opportunity to test the benefits of video streaming without having to first
invest in a digital system. The Company believes these trial services will
result in increased sales of video streaming systems and further broaden the
Company's customer base for its Video On-Demand Services.

VIDEO ON-DEMAND SERVICES BUSINESS

The Company provides a range of services (collectively or individually,
"Video On-Demand Services") for the recording, digitizing, storage, repurposing,
packaging and on-demand retrieval of video content. Customers of the Company's
Video On-Demand Services are typically corporations desiring to capture business
meetings and conferences or training sessions for later distribution to its
employees or customers. The Company's customers also include commercial
producers of training materials who are seeking to make their products available
in digital format.

Generally, the Company captures video content for recording by means of
direct feed from a real-time video conference, or by means of a videotape
delivered to the Company. The Company digitizes the video content to various
digital formats (MPEG-1, RealNetworks' RealMedia(Trademark), etc.) and stores
the content onto a server for subsequent retrieval by a viewer using a video
conferencing system, the Internet, intranet or locally onto a PC from a CD-ROM.
Whenever necessary, the Company provides editing and other production services
for refining the final product.

Video On-Demand Services Market

The technology development supporting the conversion of video to a digital
format, the delivery of such content to the end user and the transition of
intranet technology into an Internet delivery system, has been extremely rapid.
As a result of this transaction, the demand for knowledgeable service providers
is high. Over the course of the past year alone, over 30 new firms have entered
this servicing arena.

The initial activity in the market has been focused at the consumer arena
and has included firms such as Broadcast.com. Over 145,000 hours of content is
currently being encoded weekly. The momentum of streaming such content into an
Internet format for the business consumer is embryonic. The Company is
positioned through its Video On-Demand Services operation to take advantage of
this shift.

Video On-Demand Services Strategy

The Company's strategy is to leverage its strategic relationships with key
participants in the video conferencing arena on the one hand and the streaming
business on the other, to maintain its knowledge and service technology
advantage, to continue to expand its penetration of large corporate customers
and to leverage its background in video conferencing to grow its business as
this important technology development continues.

Additionally, the Company has entered into a joint marketing arrangement
with AT&T Corp. ("AT&T"), the largest provider of videoconferencing services in
the United States, pursuant to which AT&T offers the Company's Video On-Demand
Services to all of its videoconferencing customers.

COMPETITION

The market for sales of products and services related to videoconferencing
and video streaming system suppliers is highly competitive and the Company
expects that competition will continue to intensify. The Company competes with
(i) videoconferencing and video streaming system suppliers, (ii) other resellers
and (iii) Internet business services providers. There can be no assurance that
the Company will be able to compete successfully or that the competitive
pressures faced by the Company, including those described below, will not have a
material adverse effect on the Company's business, results of operations and
financial condition.

Competition among providers of interactive video communication solutions,
is intense and is expected to increase significantly in the future. The Company
competes against a variety of businesses that offer videoconferencing and or
video streaming systems and related services. These companies have significantly
greater brand recognition and financial, technical, marketing and other
resources than the Company. To compete successfully, the Company must enter into
and maintain reseller relationships with major suppliers of videoconferencing
and video streaming products. The Company believes that the principal
competitive factors in attracting users include the quality of service and the
relevance, timeliness, depth and breadth of the technologies and services
offered. The Company expects competition to intensify and the number of
competitors to increase significantly in the future. In addition, as the Company
expands the scope of its products and services, it will compete directly with a
greater number of providers of interactive video communications products and
services. The operations and strategic plans of existing and future competitors
are undergoing rapid change, therefore, it is extremely difficult for the
Company to anticipate which companies are likely to offer competitive services
in the future.

The Company and its Video On-Demand Services competes with
videoconferencing and teleconferencing companies, along with companies that
provide Internet broadcasting services to businesses and other organizations.
Principal competitive factors include price, transmission quality, transmission
speed, reliability of service, ease of access, ease of use, customer support,
brand recognition and operating experience. The Company's current and potential
competitors may have significantly greater financial, technical and marketing
resources, longer operating histories and greater brand recognition. As prices
for videoconferencing and video streaming systems decrease and transmission
quality increases, the installed base of interactive video communications
systems may increase. Companies that provide media streaming software may also
enter the market for Internet broadcast services. If media streaming technology
becomes more readily available to companies at low prices, the Company may face
additional competition. In particular, local exchange carriers, ISPs and other
data communication service providers may compete in the future with a portion of
or all of the Company's Video On-Demand Services. There can be no assurance that
the Company will be able to compete successfully against current or future
competitors for videoconferencing and video streaming products and services.

INTELLECTUAL PROPERTY MATTERS

The Company's success depends in part on its ability to protect its
intellectual property. To protect its proprietary rights, the Company relies
generally on copyright, trademark and trade secret laws, confidentiality
agreements with employees and third parties, and license agreements with
consultants, vendors and customers. The Company has not obtained a
confidentiality agreement with each customer or vendor. Despite such
protections, a third party could, without authorization, copy or otherwise
obtain and use the Company's proprietary products. There can be no assurance
that the Company's agreements with employees, consultants and others who
participate in development activities will not be breached, that the Company
will have adequate remedies for any breach, or that the Company's trade secrets
will not otherwise become known or independently developed by competitors.

The Company has not secured registration for its trademarks. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States, and effective
copyright, trademark and trade secret protection may not be available in such
jurisdictions. In general, there can be no assurance that the Company's efforts
to protect its intellectual property rights through copyright, trademark and
trade secret laws will be effective to prevent misappropriation of its
intellectual property, and the

Company's failure or inability to protect its proprietary rights could
materially adversely affect the Company's business, financial condition and
results of operations.

RESEARCH AND DEVELOPMENT

The Company is engaged in research and development efforts aimed at
improving and expanding the potential markets for its products and services.

The Company's primary focus in 1997 was development of its proprietary
software. The Company intends to develop subsequent upgrades and related
products through independent software developers.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings or claims that it
believes will have, individually or in the aggregate, a material adverse effect
on the Company's business, financial condition or results of operations.

EMPLOYEES

At August 31, 1998, the Company had 10 full-time employees, of whom 4 were
employed in sales, marketing and customer support, 2 in product research and
development, and 4 in administration and finance. The Company's success will
depend in part upon its ability to attract and retain highly skilled and
motivated personnel who are in great demand throughout the industry. None of the
Company's employees are represented by a labor union. The Company believes that
its relations with its employees are satisfactory.

FACILITIES

The Company leases space for offices in Stamford, Connecticut
(approximately 2,600 square feet) on a one year lease expiring in April 30,
1999.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following sets forth certain information with respect to the directors
and executive officers of the Company:

NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------

William E. Wheaton III.......................... 37 Chairman of the Board, President and Chief
Executive Officer
David Russell, Jr............................... 56 Chief Financial Officer and Director
Bruce McArthur.................................. 45 Vice President of Sales and Marketing
Daniel Piergentili.............................. 38 Director
Edward E. Vahan................................. 37 Director
Scott Wheaton................................... 35 Director

William E. Wheaton III, founder of the Company, has served as its Chairman
of the Board, President and Chief Executive Officer since the inception of the
Company in July, 1995. From September, 1993 to July, 1995, Mr Wheaton was the
founder and President of Interactive Conferencing Networks, which provided
satellite-based video conferencing services. From March 1992 to September, 1993,
Mr. Wheaton was General Manager of Synergy Marketing Group, a division of Boron
& LePore Associates, Inc., which produced medical educational programs. From
1985 to March, 1992, Mr. Wheaton held a position as Product Manager at Pfizer,
Inc., which provided marketing programs for Procardia XL. From 1983 to August,
1985, he held a product development position with Proctor and Gamble, where he
conducted research on health care products. Mr. Wheaton attended Worcester
Polytechnic Institute graduating with a B.S. Degree in Chemical Engineering in
June, 1983 and received an MBA Degree from New York University in May, 1989 with
a specialization in Marketing. William E. Wheaton is the brother of Scott
Wheaton.

David Russell, Jr. has been the Company's Chief Financial Officer since
March, 1998 and a Director since June, 1998. Mr. Russell, as the owner and
principal of Cove Hill Consulting, Inc., has been an independent consultant to
small emerging firms since 1990. During that time, he specialized in
infrastructure growth financing and strategic planning. He has been involved in
the securities industry since 1968, having held positions as a partner or
principal at Cowen & Co., Donaldson, Lufkin & Jenrette and Jefferies & Co. From
1981 to 1985, he founded and operated his own securities brokerage firm.
Mr. Russell attended State University of New York at Binghamton, graduating with
a BA Degree in History in 1963, and received his MBA Degree in Finance from New
York University in 1971.

Bruce McArthur has been the Company's Vice President of Sales and Marketing
since March, 1997. From April, 1990 to January, 1997, Mr. McArthur held a
position as an Account Manager at MTV Networks, where he was responsible for
developing and building accounts for advertising sales. From August of 1983, to
April, 1990 Mr. McArthur held a position as an Account Executive for television
advertising sales at Blair Television, where he was responsible for developing
and building accounts for advertising sales. Mr. McArthur attended the
University of Houston graduating with a B.A. Degree in Communications in 1978.

Daniel Piergentili has served as a Director of the Company since January,
1998. From 1998 to the present, Mr. Piergentili served as a member of the senior
staff at Qualcomm Inc. From October, 1997 to August, 1998, Mr. Piergentili was a
independent consultant for Mitec Telecom Inc. and Qualcomm Inc. From April, 1995
to October, 1997, Mr. Piergentili served as a Director of Mitec
Telecommunications. From November, 1992 to October, 1997, Mr Piergentili has
held a variety of executive positions, with Mitec Telecommunications including
Vice President of Operations, General Manager and Chief Technical Officer.
Mr. Piergentili attended Northeastern University graduating with a B.S.E.E.
Degree in Engineering in 1984.

Edward E. Vahan has served as a Director of the Company since October,
1996. Since April of 1991, Mr. Vahan has been employed by Complete Business
Solutions, Inc. (Formerly C.W. Costello & Associates) as an Information Systems
Consultant, where he is responsible for strategic technology planning, project
management and change management consulting and sales. From July, 1982 to April,
1991, Mr Vahan held a

position at Anderson Consulting, where he was responsible for project management
and technology consulting. Mr. Vahan attended Worcester Polytechnic Institute
graduating with a B.S. Degree in Management Engineering and Industrial
Engineering in 1982 .

Scott Wheaton has served as a Director of the Company since July, 1995. In
September, 1994, Mr. Wheaton founded and has served as President of Apex
Communications, Inc., a communications company with annual revenue of $20
million and over one hundred employees. For the two years prior to founding Apex
Communications, Inc., Mr. Wheaton served as a National Accounts Manager,
responsible for sales and marketing, for Boron, LePore & Associates.
Mr. Wheaton attended Worcester Polytechnic Institute graduating with a B.S.
Degree in Chemical Engineering in 1985 and received in 1992 an MBA Degree from
Drexel University with a specialization in Marketing. Scott Wheaton is the
brother of William E. Wheaton, III.

DIRECTOR COMPENSATION

Directors of the company who are not employees of the Company do not
receive any compensation for attending meetings of the Board of Directors.
Directors are reimbursed for their expenses in attending such meetings.

BOARD COMMITTEES

Audit Committee. The Company's audit committee (the "Audit Committee") is
responsible for the selection and engagement of the Company's independent
certified public accountants and for reviewing the scope of the annual audit,
audit fees, and results of the audit. The Audit Committee also reviews and
discusses with management and the Board of Directors such matters as accounting
policies and internal accounting controls, and procedures for preparation of
financial statements. The Audit Committee will consist of a majority of non-
employee directors. David Russell, Jr., Edward Vahan and Daniel Piergentili are
the members of the Audit Committee.

Compensation Committee. The Company's compensation committee (the
"Compensation Committee") approves the compensation and benefits paid to
executive employees of the Company. The Compensation Committee reviews and
recommends to the Board of Directors general policy matters relating to
compensation and benefits of employees of the Company and administers the
Company's Stock Option Plan. The Compensation Committee will consist of a
majority of non-employee directors. William E. Wheaton III, Edward Vahan and
Scott Wheaton are the members of the Compensation Committee.

EXECUTIVE COMPENSATION

The following table sets forth the compensation received by the Company's
Chief Executive Officer. No other executive officers of the Company received
total salary and bonus compensation in excess of $100,000 during the year ended
December 31, 1997.

SUMMARY COMPENSATION TABLE

ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------------ OTHER AWARDS SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS
- --------------------------------------------------- ---- ----------- ----- ------------ ------------------

William E. Wheaton III............................. 1997 $ 195,250(1) -- -- --
President and Chief
Executive Officer

- ------------------
(1) Mr. Wheaton was paid $35,500 in cash during 1997, and he agreed to defer
$159,750. See Note 12 of Notes to Financial Statements. In September 1998,
Mr. Wheaton exchanged advances and deferred compensation owed to him in the
amount of $371,582 (inclusive of the aforementioned $159,750) for 3,716
shares of Series A Convertible Preferred Stock. See "Certain Transactions."

EMPLOYMENT AGREEMENTS

The Company has entered into an employment agreement with Mr. Wheaton for a
term commencing on September 1, 1998, and ending on December 31, 2001, subject
to automatic successive one-year extensions in the absence of a notice of
termination by either the Company or Mr. Wheaton. The agreement provides for an
annual base salary of $150,000 for 1998, plus a bonus when and if agreed upon
with the Company's Compensation Committee of the Board of Directors. The
agreement has regularly scheduled increases of a minimum of 5% in such salary
through the year 2001.

The employment agreement provides that at any time within 180 days
following a Change of Control of the Company (as defined in the employment
agreement), Mr. Wheaton can terminate his agreement. Following such termination,
Mr. Wheaton is entitled to payment of compensation equal to the sum of (a) the
remaining base salary payable to Mr. Wheaton through the date on which the
employment agreement would have expired by its terms and (b) all benefits owed
to the employee under the agreement for the period of time which is the longer
of (x) the period through the date on which the employment agreement would have
expired by its terms or (y) one year.

1997 INCENTIVE STOCK OPTION PLAN

The Company's Board of Directors and stockholders have approved the Stock
Option Plan which has an initial share reserve of 284,091 shares of Common
Stock. The Stock Option Plan is administered by the Board of Directors of the
Company or the Compensation Committee. Under the Stock Option Plan, options may
be granted to employees, officers, and directors, although only employees and
directors and officers who are also employees may receive "incentive stock
options" intended to qualify for certain favorable tax treatment. The exercise
price of incentive stock options must be no less than the fair market value on
the date of grant. Options granted under the Stock Option Plan generally vest
over four years. The options terminate not more than 10 years from the date of
grant, subject to earlier termination on the optionee's death, disability or
termination of employment with the Company. Options are not assignable or
otherwise transferable except by will or the laws of descent and distribution.

LIMITATION ON LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Restated Certificate of Incorporation includes certain
provisions permitted pursuant to the DGCL whereby officers and directors of the
Company shall be indemnified against certain liabilities to the Company or its
shareholders. The Restated Certificate of Incorporation also limits to the
fullest extent permitted by the DGCL a director's liability to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, including gross negligence, except liability for (i) breach of the
director's duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the laws, (iii) the unlawful payment of a dividend or unlawful
stock purchase or redemption and (iv) any transaction from which the director
derives an improper personal benefit. This provision of the Company's Restated
Certificate of Incorporation has no effect on the availability of equitable
remedies, such as injunction or rescission. The Company believes that these
provisions will facilitate the Company's ability to continue to attract and
retain qualified individuals to serve as directors and officers of the Company.

CERTAIN TRANSACTIONS

During the period from June, 1996 to November, 1996, the Company issued to
Chaim Sieger (a former director of the Company) convertible promissory notes in
the principal amount of $500,000, convertible into Common Stock at a conversion
price of $7.92 per share, and 31,566 Common Stock purchase warrants exercisable
at $7.92 per share. On December 30, 1996, pursuant to a Stock Purchase Agreement
between the Company and Mr. Sieger, Mr. Sieger surrendered to the Company for
cancellation his $500,000 principal amount of convertible promissory notes and
31,566 warrants, and in exchange therefor, the Company issued to Mr. Sieger
63,144 shares of Common Stock and 6,314 Common Stock purchase warrants
exercisable at $15.84 per share.

During the period from January, 1997 through February, 1997, the Company
issued to Chaim Sieger promissory notes in the principal amount of $350,000 and,
as of June 1, 1997, 10,606 Common Stock purchase warrants exercisable at $15.84
per share. On June 1, 1997, pursuant to an oral agreement between Mr. Sieger and
the Company, these notes, together with an additional loan in the principal
amount of $250,000, were rolled into a convertible debenture in the aggregate
principal amount of $600,000. As additional consideration for this refinancing
transaction, the Company issued to Mr. Sieger 48,485 Common Stock purchase
warrants exercisable at $10.56 per share. The previously issued 10,606 warrants
were canceled upon the issuance of the new 48,485 warrants.

On September 1, 1997, the Company adjusted the exercise price of certain
outstanding warrants, including all of the warrants held by Chaim Sieger, down
to $7.92 per share.

During November, 1997, Chaim Sieger advanced the Company $25,000 of his
personal line of credit with a credit card. The Company is currently paying this
amount in monthly payments. Also in November, 1997, the Company issued to
Mr. Sieger a promissory note in principal amount of $25,000 and 5,037 Common
Stock purchase warrants exercisable at $7.92 per share.

On August 12, 1998, pursuant to a refinancing agreement between the Company
and Chaim Sieger, the $600,000 principal amount convertible debenture was rolled
into a term loan accruing interest at 14% annually. The combined principal and
interest will be paid in sixty equal monthly payments, the first payment due
(i) on the first business day of the second month following the date on which
the Company receives the IPO proceeds if the IPO occurs on or prior to
November 30, 1998; or (ii) January 15, 1999. Interest owed to Mr. Sieger accrued
as of prior to the commencement of these payments will be paid as follows:
(i) in a single lump sum cash payment made on the last business day of the month
in which the Company receives the IPO proceeds if the IPO occurs on or prior to
November 30, 1998; or (ii) in twelve equal monthly payments, the first payment
due on January 15, 1999. Additionally, the 59,836 Common Stock purchase warrants
previously issued to Mr. Sieger were exchanged for 59,836 shares of Common
Stock.

In May, July and December, 1997, the Company issued to Apex Communications,
Inc. ("Apex"), a company controlled by Scott Wheaton (a director of the Company
and a brother of William E. Wheaton III), promissory notes in exchange for loans
in the aggregate principal amount of $100,000. As additional consideration for
these loans, the Company issued 3,788 Common Stock purchase warrants exercisable
at $7.92 per share. On March 1, 1998, pursuant to a refinancing agreement
between the Company and Apex, (i) payments due on outstanding loans were
deferred; (ii) the 3,788 previously issued warrants were surrendered to the
Company for cancellation; and (iii) the Company issued 18,939 Common Stock
purchase warrants exercisable at $5.28 per share. During 1997, Apex advanced the
Company an additional $10,000. This amount has been paid. On August 31, 1998,
the combined principal amount and accrued interest owed to Apex, in the
aggregate amount of $108,025, was exchanged for 1,080 shares of Series A
Convertible Preferred Stock, and the Company issued to Apex 18,939 Common Stock
purchase warrants exercisable at $0.26 per share in exchange for the
cancellation of previously issued 18,939 Common Stock purchase warrants.

On December 1, 1997, in consideration for deferral of salary, commissions
and unreimbursed expenses, the Company issued (i) to William E. Wheaton III
(President and a director of the Company), 170,455 Common Stock purchase
warrants exercisable at $2.64 per share; (ii) to Robert Delson (a former Chief
Financial Officer of the Company), 26,515 Common Stock purchase warrants
exercisable at $7.92 per share; and (iii) to Bruce McArthur (an officer of the
Company) and another employee of the Company, 30,303 Common Stock purchase

warrants exercisable at $13.20 per share. On January 15, 1998, the Company
issued to Robert Delson 4,924 Common Stock purchase warrants exercisable at
$7.92 per share in exchange for the cancellation of 4,924 options previously
issued to Mr. Delson under the Company's 1997 Incentive Stock Option Plan. On
August 31, 1998, the Company issued to Mr. McArthur and another employee of the
Company 30,303 shares of Common Stock in exchange for the cancellation of 30,303
warrants and forgiveness of deferred compensation and reimbursable expenses.

On December 1, 1997, the Company issued to Edward E. Vahan, a director of
the Company, as partial consideration for consulting services rendered to the
Company, 379 Common Stock purchase warrants exercisable at $7.92 per share. On
August 31, 1998, Mr. Vahan exchanged 379 Common Stock purchase warrants
exercisable at $7.92 per share for 379 Common Stock purchase warrants
exercisable at $0.26 per share.

On January 7, 1998, William E. Wheaton III (President and a director of the
Company) personally guaranteed a $100,000 principal amount convertible
promissory issued by the Company to an outside investor. This personal guarantee
was released and canceled as of September 15, 1998.

On January 15, 1998, the Company issued to Cove Hill Consulting, a company
controlled by David Russell, Chief Financial Officer and a director of the
Company, as partial compensation for consulting services rendered to the
Company, 49,242 Common Stock purchase warrants exercisable at $5.28 per share.
On August 31, 1998, Mr. Russell exchanged 49,242 Common Stock purchase warrants
exercisable at $5.28 per share for 47,727 Common Stock purchase warrants
exercisable at $0.26 per share.

On January 19, 1998, the Company issued to Daniel Piergentili, a director
of the Company, convertible promissory notes in the principal amount of
$100,000, convertible into Common Stock at a conversion price of $5.28 (subject
to adjustment), and 18,939 Common Stock purchase warrants exercisable at $5.28
per share. In August, 1998, the convertible promissory notes and accrued
interest were converted into 20,322 shares of Common Stock, and the Company
issued to Mr. Piergentili 9,470 Common Stock purchase warrants exercisable at
$0.26 per share in exchange for the cancellation of previously issued 18,939
Common Stock purchase warrants.

On September 16, 1998, advances from and deferred compensation owed to
William E. Wheaton III (President and a director of the Company) in the amount
of $371,582 was exchanged for 3,716 shares of Series A Convertible Preferred
Stock.

The Company has issued 45,454 options under its 1997 Incentive Stock Option
Plan to certain of its current directors and officers. See "Management--1997
Incentive Stock Option Plan."

Each of the transactions between the Company and each officer and
stockholder of the Company was made on terms no less favorable to the Company
and those that were available from unaffiliated third parties. All future
transactions, including loans, between the Company and its officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than those that could be obtained from
unaffiliated third parties.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of September 16, 1998
with respect to the beneficial ownership of the Company's Common Stock by
(i) each of the Company's directors; (ii) each of the Company's executive
officers; (iii) each person or entity who is known to the Company to
beneficially own 5% or more of the outstanding Common Stock; and (iv) all
directors and executive officers of the Company as a group.

PERCENTAGE OF CLASS
NUMBER OF SHARES BENEFICIALLY OWNED
BENEFICIALLY ---------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ---------------- --------------- --------------

William E. Wheaton III(3)...................................... 524,780 63.1% 28.6%
David Russell, Jr.(4).......................................... 47,727 7.2 2.9
Bruce McArthur(5).............................................. 28,409 4.6 1.8
Daniel Piergentili(6).......................................... 29,792 4.8 1.8
Edward E. Vahan(7)............................................. 379 * *
Chaim Sieger................................................... 122,980 19.9 7.6
Scott Wheaton(8)............................................... 31,645 4.9 1.9
Susan B. Kramer................................................ 37,879 6.1 2.3
All Directors and executive officers as a group (6 persons)
(9).......................................................... 662,732 71.5% 32.3%

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

* Less than one percent

(1) The address of each person is c/o VCS Technologies, Inc., 456 Glenbrook
Road, Stamford, CT 06906.

(2) Beneficial ownership has been determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934, as amended. Generally, a person is
deemed to be the beneficial owner of a security if he has the right to
acquire voting or investment power within 60 days of September 16, 1998.
Except as otherwise noted, each individual or entity has sole voting and
investment power over the securities listed. Any security that any person
named above has the right to acquire within 60 days of September 16, 1998 is
deemed to be outstanding for the purposes of calculating the ownership
percentage of such person but is not deemed to be outstanding for the
purposes of calculating the ownership percentage of any other person.

(3) Includes an aggregate of 170,455 shares of Common Stock issuable pursuant to
warrants currently exercisable and 43,718 shares of Common Stock issuable
upon conversion of 3,716 shares of Series A Convertible Preferred Stock
currently convertible.

(4) Includes an aggregate of 47,727 shares of Common Stock issuable pursuant to
warrants currently exercisable held by Cove Hill Consulting, Inc., a company
controlled by Mr. Russell.

(5) Includes an aggregate of 5,682 shares of Common Stock issuable pursuant to
options currently exercisable.

(6) Includes an aggregate of 9,470 shares of Common Stock issuable pursuant to
warrants currently exercisable.

(7) Includes an aggregate of 379 shares of Common Stock issuable pursuant to
warrants currently exercisable.

(8) Includes an aggregate of 18,939 shares of Common Stock issuable pursuant to
warrants currently exercisable held by Apex Communications, Inc., a company
controlled by Mr. Wheaton, and 12,706 shares of Common Stock issuable upon
conversion of 1,080 shares of Series A Convertible Preferred Stock currently
convertible held by Apex Communications, Inc.

(9) Includes an aggregate of 246,970 shares of Common Stock issuable pursuant to
warrants currently exercisable, 5,682 shares of Common Stock issuable
pursuant to options currently exercisable, and 56,424 shares of Common Stock
issuable upon conversion of 4,796 shares of Series A Convertible Preferred
Stock which are currently convertible.

DESCRIPTION OF SECURITIES

The following description of the Company's securities does not purport to
be complete and is subject in all respects to applicable Delaware law and the
provisions of the Company's Restated Certificate of Incorporation and Bylaws and
the Underwriting Agreement between the Company and the Underwriter, copies of
all of which have been filed with the Commission as exhibits to the Registration
Statement of which this Prospectus forms a part.

COMMON STOCK

The Company's Restated Certificate of Incorporation authorizes the issuance
of up to 49,000,000 shares of Common Stock, $.001 par value per share. As of
September 16, 1998, there were 617,509 shares of Common Stock outstanding held
by 28 holders of record. Each share of Common Stock entitles the holder thereof
to one vote on each matter submitted to the stockholders of the Company. The
holders of Common Stock are entitled to receive ratable dividends, if any, as
may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of Company,
the holders of Common Stock are entitled to share ratable in all of the assets
of the Company available for distribution. The Common Stock has no preemptive,
subscription or conversion rights, or redemption or sinking fund provisions
applicable thereto. All outstanding shares of Common Stock are fully paid and
non-assessable. The Company has not paid any dividends on its Common Stock to
date.

SERIES A PREFERRED CONVERTIBLE STOCK

The Company's Restated Certificate of Incorporation authorizes the issuance
of up to 10,000 shares of Series A Preferred Convertible Stock, $.001 par value
per share. As of September 16, 1998, there were 4,796 shares of Series A
Preferred Convertible Stock outstanding held by two holders of record. Holders
of Series A Preferred Convertible Stock are entitled to receive cumulative
dividends at the rate of $8.50 per share per annum. No dividends (other than
stock dividends) may be paid upon any other class of stock of the Company during
such time that any accrued dividends on outstanding Series A Preferred
Convertible Stock shall remain unpaid. Holders of Series A Preferred Convertible
Stock are entitled to a liquidation preference of up to $100 per share plus
accrued and unpaid dividends. Holders have the right to convert their Series A
Preferred Convertible Stock into Common Stock at any time. The number of shares
of Common Stock issuable upon conversion is determined by multiplying the number
of shares of Series A Preferred Convertible Stock to be converted by 100 and
dividing the result by the conversion price of $8.50 per share, as such
conversion price may be adjusted from time to time for corporate
reorganizations, forward or reverse stock splits or dividends paid on the
outstanding Common Stock paid in Common Stock. The Company may elect at any time
to purchase and redeem any number of outstanding shares of Series A Preferred
Convertible Stock by paying to the holder thereof, in cash, the sum of $100 per
share plus all unpaid dividends accrued thereon. Except as otherwise provided by
law, the holders of Series A Preferred Convertible Stock shall not be entitled
to vote in any proceeding or on any matter or question at any meeting of the
Company's shareholders.

PREFERRED STOCK

In addition to the Series A Preferred Convertible Stock, the Restated
Certificate of Incorporation of the Company authorizes the issuance of up to
990,000 shares of Preferred Stock, $.001 par value per share. The Board of
Directors is authorized to issue shares of Preferred Stock from time to time in
one or more series, and, subject to the limitations contained in the Restated
Certificate of Incorporation and any limitations prescribed by law, to establish
and designate any such series and to fix the number of shares and the relative
conversion rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences. If shares of Preferred Stock with
voting rights are issued, such issuance could affect the voting rights of the
holders of the Common Stock by increasing the number of outstanding shares
having voting rights, and by the creation of class or series voting rights.
Issuance of shares of Preferred Stock could, under certain circumstances, have
the effect of delaying or preventing a change in control of the Company and may
adversely affect the rights of holders of Common Stock. Also, the Preferred
Stock could have preferences over the Common Stock (and other series of
Preferred Stock) with respect to dividends and liquidation rights.

OPTIONS

As of the effective date of this Prospectus, the Company had granted
options to purchase 75,000 shares of Common Stock under the Stock Option Plan of
which 9,470 shares were then currently exercisable, at average or limited
exercise prices that generally range from $3.88 to $4.27. See "Management--1997
Incentive Stock Option Plan." Previous offerings under the Plans have been
exempt from registration and shares issued in connection therewith are subject
to resale restrictions. The Company intends to file a Registration Statement on
Form S-8 registering shares to be issued in connection with current and future
option grants. See "Shares Eligible for Future Sale."

WARRANTS

As of the effective date of this Prospectus, the Company has outstanding
warrants entitling the holders thereof to purchase a total of 294,318 shares of
Common Stock of the Company with exercise prices of weighted average exercise
price $1.63 per share.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION
AND BYLAWS

The Restated Certificate of Incorporation and Bylaws contain provisions
that could discourage potential takeover attempts and prevent stockholders from
changing the Company's management. The Bylaws provide that no proposal by a
stockholder shall be presented for vote at an annual meeting of stockholders
unless such stockholder shall, not later than the close of business of the last
business day of January and, with respect to a special meeting, not later than
the close of business on the fifth calendar day following the date on which
notice of the meeting is first given to stockholders, provide the Board of
Directors or the Secretary of the Company with written notice of intention to
present a proposal for action at the forthcoming meeting of stockholders, which
notice shall include the name and address of such stockholder, the number of
voting securities he or she holds of record and which he or she holds
beneficially, the text of the proposal to be presented at the meeting and a
statement in support of the proposal.

Additionally, because the Board of Directors is authorized to issue up to
990,000 shares of Preferred Stock of the Company, $.001 par value ("Preferred
Stock") and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any vote or action by the
stockholders, the rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third-party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
economic rights, senior to the Common Stock, and as a result, the issuance of
such Preferred Stock could have a material adverse effect on the market value of
the Common Stock.

LIMITATION ON LIABILITY OF DIRECTORS

The Company's Restated Certificate of Incorporation provides that a
director of the Company will not be personally liable to the Company or its
stockholders for monetary damages for the breach of his or her fiduciary duty of
care as a director. By its terms and in accordance with the DGCL, however, this
provision does not eliminate or limit the liability of a director of the Company
(i) for breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (relating to unlawful payments of dividends or unlawful stock
repurchases or redemptions) or (iv) for any transaction from which the director
derived an improper personal benefit.

CERTAIN PROVISIONS OF DELAWARE LAW

The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of the Company's outstanding voting
stock) from engaging in a "business combination" (as defined in Section 203)
with the Company for three years following the date that person became an
interested stockholder unless (i) before that

person became an interested stockholder or approved the business combination,
(ii) upon completion of the transaction that resulted in the interested
stockholder becoming an interested stockholder the interested stockholder owed
at least 85% of the voting stock of the Company outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the Company and by employee stock plans that do not provide employees with
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer) or (iii) on or following the
date of which that person became an interested stockholder, the business
combination is approved by the Company's Board and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least 66 2/3% of the
outstanding voting stock of the Company not owed by the interested stockholder.

Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors (but not less than one) who were
directors before any person became an interested stockholder in the previous
three years or who were recommended for election or elected to succeed such
directors by a majority of such directors then in office.

Under Section 162 of the DGCL, the Board of Directors of the Company can,
without stockholders approval, issue authorized but unissued shares of Capital
Stock, which may have the effect of delaying deferring or preventing a change of
control of the Company. Except as contemplated hereby, the Company has no plan
or arrangement for the issuance of any shares of capital stock other than in the
ordinary course pursuant to the Stock Option Plan.

REGISTRATION RIGHTS

The holders of the Representative's Warrants will also have certain demand
and piggyback registration rights with respect to such warrants and the 100,000
shares of Common Stock underlying such warrants. Any exercise of the above
registration rights may hinder efforts by the Company to arrange future
financings of the Company and or have an adverse effect on the market price of
the Company's shares. See "Underwriting."

TRANSFER AGENT & REGISTRAR

Continental Stock Transfer and Trust Company, New York, New York, is the
Transfer Agent and Registrar for the Company's securities. Its telephone number
is (212) 509-4000.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
1,617,509 shares of Common Stock (1,767,509 shares if the over-allotment option
is exercised in full). Of these shares, the 1,000,000 shares (1,150,000 shares
if the over-allotment option is exercised in full) offered hereby will be freely
transferable after the Offering without restriction or further registration
under the Securities Act, unless purchased by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act ("Rule 144") described
below, which will be subject to the resale limitations of Rule 144. The
remaining 617,509 shares of Common Stock will be "restricted securities" within
the meaning of Rule 144 (the "Restricted Shares") and may not be resold in a
public distribution unless they are registered under the Securities Act or are
sold pursuant to Rule 144 or another exemption from registration. All of the
Restricted Shares will be subject to lock-up agreements as described below. Such
Restricted Shares will become eligible for sale in the public market pursuant to
Rule 144 at various times commencing ninety days after the effective date of
this Prospectus, subject to the lock-up agreements.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year (including the holding period of any prior owner except an
affiliate) is entitled to sell publicly, within any three-month period, a number
of shares that does not exceed the greater of (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately 16,175
shares immediately after this Offering) or (ii) the average weekly reported
trading volume of the Common Stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under
Rule 144(k), a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares to be sold for at least two years (including the holding period of
any prior owner except an affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.

The Company has granted certain piggyback registration rights with respect
to an aggregate of 100,000 shares of Common Stock. See "Description of
Securities--Registration Rights" and "Underwriting."

Notwithstanding the above, all officers and directors of the Company and
all existing holders of all of the outstanding shares of Common Stock (including
shares issuable upon exercise of options) have agreed not to sell or otherwise
dispose of any shares of Common Stock without the Underwriter's prior written
consent for a period of 13 months after the effective date of the Registration
Statement of which this Prospectus forms a part. In addition, the Company has
agreed to not sell or otherwise sell any of its securities except pursuant to
the exercise of options and warrants currently outstanding without the
Underwriters' prior written consent for a period of 13 months after the
effective date of the Registration Statement of which this Prospectus forms a
part. See "Underwriting."

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Gilford
Securities Incorporated is acting as Representative (the "Representative"), have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement (the "Underwriting Agreement"), to purchase from the
Company, and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the shares of Common Stock set forth opposite their names.

NUMBER
UNDERWRITER OF SHARES
- ------------------------------------------------------------------------------------------- ---------

Gilford Securities Incorporated............................................................
Total...................................................................................... 1,000,000

The Underwriters are committed to purchase all shares of Common Stock
offered hereby if any such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to the
conditions precedent specified therein.

The Company has been advised by the Representative that it initially
proposes to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and may allow to certain dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD")
concessions not in excess of $ per share of Common Stock, of which amount a
sum not in excess of $ per share of Common Stock may in turn be
reallowed by such dealers to other dealers. After the commencement of the
offering, the public offering price, concessions and reallowances may be changed
by the Representative. The Representative has informed the Company that it does
not expect sales to discretionary accounts by the Underwriters to exceed five
percent of the Common Stock offered by the Company hereby.

The Company has granted to the Underwriters an option, exercisable within
45 days of the date of this Prospectus, to purchase from the Company at the
offering price, less underwriting discounts and the non-accountable expense
allowance, all or part of an additional 150,000 shares of Common Stock on the
same terms and conditions of the Offering for the sole purpose of covering
over-allotments, if any. To the extent such option is exercised, in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional shares of Common Stock
proportionate to its initial commitment.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Representative a non-accountable expense allowance
equal to three percent of the gross proceeds derived from the sale of the shares
of Common Stock underwritten, of which $50,000 has been paid to date.

The officers and directors of the Company and all of the existing holders
of Common Stock have executed agreements pursuant to which they have agreed not
to, directly or indirectly, offer, sell, transfer, pledge, assign, hypothecate,
or otherwise encumber any shares of Common Stock or securities convertible into
shares of Common Stock for a period of thirteen months from the effective date
of the Registration Statement (the "Lock-Up Period"), without the prior written
consent of the Representative and the Company. An appropriate legend shall be
marked on the face of certificates representing all such securities. In
addition, the Company has agreed not to sell or offer for sale any of its
securities for a period of thirteen months from the effective date of the
Registration Statement without the consent of the Representative except pursuant
to options and warrants issued on the effective date of the Registration
Statement.

In connection with the Offering, the Company has agreed to issue and sell
to the Representative and/or its designees, at the closing of the proposed
underwriting, for nominal consideration, five year Representative's Warrants
(the "Representative's Warrants") to purchase 100,000 shares of Common Stock.
The Representative's Warrants are exercisable at any time during a period of
four years commencing at the beginning of the second year after their issuance
and sale at a price of $ (120% of the initial public offering price per
share of Common Stock) per share of Common Stock. The Representative's Warrants
contain anti-dilution provisions providing for adjustment of the number of
shares of Common Stock and exercise price under certain circumstances. The
Representative's Warrants grant to the holders thereof and to the holders of the
underlying securities certain rights of registration of the securities
underlying the Representative's Warrants.

The Company has agreed that for three years from the effective date of the
Registration Statement, the Representative may designate one person for election
to the Company's Board of Directors (the "Designation Right"). In the event that
the Representative elects not to exercise its Designation Right, then it may
designate one person to attend all meetings of the Company's Board of Directors
for a period of three years. The Company has agreed to reimburse the
Representative's designee for all out-of-pocket expenses incurred in connection
with the designee's attendance at meetings of the Board of Directors.

Prior to this Offering, there has been no public market for the Common
Stock. Accordingly, the initial public offering price of the Common Stock was
determined by negotiation between the Company and the Representative. Among the
factors considered in determining such prices and terms, in addition to the
prevailing market conditions, included the history of and the prospects for the
industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and such other
factors that were deemed relevant. The offering price does not necessarily bear
any relationship to the assets, results of operations or net worth of the
Company.

In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of establishing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 150,000 shares of Common Stock, by
exercising the over-allotment option. In addition, the Representative may impose
"penalty bids" under contractual arrangements with the Underwriters, whereby it
may reclaim from an Underwriter (or dealer participating in the Offering) for
the account of other Underwriters, the selling concession with respect to Common
Stock that is distributed in the Offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.

In connection with the Company's June, 1998 private placement of $500,000
of convertible promissory notes, the Company paid to the Representative, as
placement agent, $25,000 in cash as commissions.

The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."

INTEREST OF NAMED EXPERTS AND COUNSEL

Moskowitz Altman & Hughes LLP, counsel to the Company, owns warrants to
purchase 18,939 shares of Common Stock at $.26 per share exercisable for a
period of five years.

LEGAL MATTERS

Certain legal matters in connection with the issuance of the securities
being offered hereby will be passed upon for the Company by Moskowitz Altman &
Hughes LLP, New York, New York. Orrick, Herrington & Sutcliffe LLP, New York,
New York, has acted as counsel for the Underwriters in connection with the
Offering.

EXPERTS

The financial statements of the Company as of December 31, 1996 and 1997,
and for the period from July 12, 1995 (inception) to December 31, 1995 and for
each of the years for the two year period ended December 31, 1997 included in
this Prospectus and elsewhere in the Registration Statement have been so
included in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere

herein, upon authority of said firm as experts in auditing and accounting. The
report of KPMG Peat Marwick LLP on the aforementioned financial statements
contains an explanatory paragraph that states that the Company's recurring
losses from operations since inception, working capital deficiency and net
capital deficiency raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
SB-2 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act relating to the Common
Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, as permitted by
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement. A copy of
the Registration Statement may be inspected by anyone without charge at the
Commission's principal office located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained from the
Public Reference Branch of the Commission upon the payment of certain fees
prescribed by the Commission. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission (http://www.sec.gov).

Following the Offering, the Company will be subject to the reporting and
other requirements of the Exchange Act and intends to furnish its shareholders
annual reports containing financial statements audited by its independent
auditors and to make available quarterly reports containing unaudited financial
statements for each of the first three quarters of each year.

VCS TECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

Independent Auditor's Report............................................................................... F-2

Consolidated Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998 (unaudited)................. F-3

Consolidated Statements of Operations for the period from July 12, 1995 (inception) through December 31,
1995 and for the years ended December 31, 1996 and 1997 and for the six months ended June 30, 1997
(unaudited) and 1998 (unaudited)......................................................................... F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the period
from July 12, 1995 (inception) through December 31, 1995 and for the years December 31, 1996 and 1997 and
for the six months ended ended June 30, 1998 (unaudited)................................................. F-5

Consolidated Statements of Cash Flows for the period from July 12, 1995 (inception) through December 31,
1995 and for the years ended December 31, 1996 and 1997 and for the six months ended June 30, 1997
(unaudited) and June 30, 1998 (unaudited)................................................................ F-6

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

F-1

INDEPENDENT AUDITOR'S REPORT

The Board of Directors and Stockholders
VCS Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of VCS
Technologies, Inc. as of December 31, 1996 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the period from July 12, 1995 (inception) through
December 31, 1995 and for each of the years in the two year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of VCS Technologies,
Inc. as of December 31, 1996 and 1997 and the results of its operations and its
cash flows for the period from July 12, 1995 (inception) through December 31,
1995 and for each of the years in the two year period ended December 31, 1997 in
conformity with generally accepted accounting principles.

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

KPMG PEAT MARWICK LLP

New York, New York
August 15, 1998

F-2

VCS TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
---------------------- JUNE 30,
1996 1997 1998
ASSETS -------- ---------- -----------
(UNAUDITED)

Current assets:
Cash.................................................................... $ 24,059 7 190,310
Accounts receivable..................................................... 21,337 15,960 357,711
Inventory............................................................... 34,129 44,646 59,783
Prepaids and other assets............................................... 11,996 15,979 68,886
-------- ---------- -----------
Total current assets................................................. 91,521 76,592 676,690
-------- ---------- -----------
Property and equipment, at cost:
Computer equipment...................................................... 191,759 400,017 439,867
Furniture and fixtures.................................................. 17,674 17,674 17,674
-------- ---------- -----------
209,433 417,691 457,541
Less accumulated depreciation........................................... (15,842) (94,068) (138,530)
-------- ---------- -----------
Property and equipment, net.......................................... 193,591 323,623 319,011
-------- ---------- -----------
Deferred financing and offering costs..................................... -- -- 75,000
-------- ---------- -----------
Total assets......................................................... $285,112 400,215 1,070,701
======== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses................................... 96,882 506,088 841,936
Deferred compensation................................................... -- 189,278 239,289
Due to stockholder...................................................... 153,223 173,136 161,832
Notes payable, less unamortized discount of $-0-, $14,377 and $21,232... -- 175,623 556,268
Current portion of capital leases payable............................... -- 26,030 26,030
-------- ---------- -----------
Total current liabilities............................................ 250,105 1,070,155 1,825,355
Capital leases payable.................................................. -- 44,467 36,494
Notes payable; less unamortized discount of $0, $96,207, and $85,256.... -- 756,767 1,070,218
-------- ---------- -----------
Total liabilities.................................................... 250,105 1,871,389 2,932,067
-------- ---------- -----------
Stockholders' equity (deficit):
Preferred stock, $.001 par value. Authorized 1,000,000 shares; none
issued and outstanding............................................... -- -- --
Common stock, $.001 par value. 49,000,000 shares authorized: 461,742,
465,530, and 465,530 shares issued and outstanding at December 31,
1996, 1997, and June 30, 1998, respectively.......................... 462 466 466
Paid-in capital......................................................... 600,553 804,729 858,294
Accumulated deficit..................................................... (566,008) (2,276,369) (2,720,126)
-------- ---------- -----------
Total stockholders' equity (deficit)................................. 35,007 (1,471,174) (1,861,366)
-------- ---------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit)...................... $285,112 400,215 1,070,701
======== ========== ===========

See accompanying notes to consolidated financial statements.

F-3

VCS TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

JULY 12,
1995 SIX MONTHS
(INCEPTION) ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------- --------------------
1995 1996 1997 1997 1998
------------ -------- ---------- -------- --------
(UNAUDITED)

Revenue, net...................................... $131,750 274,755 96,722 49,517 740,548
Cost of revenue................................... 89,359 193,653 76,598 39,385 468,591
-------- -------- ---------- -------- --------
Gross profit............................... 42,391 81,102 20,124 10,132 271,957

Operating expenses:
Research and development........................ -- 47,020 122,341 82,251 18,750
Selling, general and administrative............. 118,986 483,612 1,399,363 741,482 512,487
Depreciation.................................... 982 14,860 78,226 35,600 44,462
-------- -------- ---------- -------- --------
Operating loss............................. (77,577) (464,390) (1,579,806) (849,201) (303,742)
Interest expense, net............................. -- (24,041) (130,555) (21,398) (140,015)
-------- -------- ---------- -------- --------
Net loss................................... $(77,577) (488,431) (1,710,361) (870,599) (443,757)
======== ======== ========== ======== ========
Net loss per share--basic and diluted............. $ (0.20) (1.25) (3.69) (1.89) (0.95)
======== ======== ========== ======== ========
Weighted average number of shares outstanding..... 384,470 390,909 463,005 461,780 465,530
======== ======== ========== ======== ========

See accompanying notes to consolidated financial statements.

F-4

VCS TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

PREFERRED STOCK COMMON STOCK
------------------- -------------------
NO. OF NO. OF PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- -------- ------- -------- ------- ----------- ----------

Balance at July 12,
1995 (inception)................ -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock to
President and founders.......... -- -- 384,470 385 630 -- 1,015
Net loss for the period from
July 12, 1995 through
December 31, 1995............... -- -- -- -- -- (77,577) (77,577)
------- -------- ------- -------- ------- ----------- ----------
Balance at December 31, 1995...... -- -- 384,470 385 630 (77,577) (76,562)
Net loss.......................... -- -- -- -- -- (488,431) (488,431)
Conversion of notes payable to
common stock and issuance of
common stock for consulting
services........................ -- -- 77,272 77 599,923 -- 600,000
------- -------- ------- -------- ------- ----------- ----------
Balance at December 31, 1996...... -- -- 461,742 462 600,553 (566,008) 35,007
Net loss.......................... -- -- -- -- -- (1,710,361) (1,710,361)
Issuance of common stock for
consulting services............. -- -- 3,788 4 21,496 -- 21,500
Issuance of warrants in connection
with notes payable.............. -- -- -- -- 134,680 -- 134,680
Issuance of warrants for
consulting services............. -- -- -- -- 48,000 -- 48,000
------- -------- ------- -------- ------- ----------- ----------
Balance at December 31, 1997...... -- -- 465,530 466 804,729 (2,276,369) (1,471,174)
Net loss for the period
(unaudited)..................... -- -- -- -- -- (443,757) (443,757)
Issuance of warrants for
consulting services
(unaudited)..................... -- -- -- -- 10,000 -- 10,000
Issuance of warrants in connection
with notes payable
(unaudited)..................... -- -- -- -- 43,565 -- 43,565
------- -------- ------- -------- ------- ----------- ----------
Balance at June 30, 1998
(unaudited)..................... -- $ -- 465,530 $ 466 858,294 (2,720,126) (1,861,366)
======= ======== ======= ======== ======= =========== ==========

See accompanying notes to consolidated financial statements.

F-5

VCS TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

JULY 12,
1995
(INCEPTION) SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------- --------------------
1995 1996 1997 1997 1998
------------ -------- ---------- -------- --------
(UNAUDITED)

Cash flows from operating activities:
Net loss........................................... $(77,577) (488,431) (1,710,361) (870,599) (443,757)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation................................... 982 14,860 78,226 35,600 44,462
Noncash compensation........................... -- -- 69,500 -- 10,000
Amortization of debt discounts................. -- -- 24,096 2,200 49,704
Changes in operating assets and liabilities:
Accounts receivable......................... (43,500) 22,163 5,377 8,917 (341,751)
Inventory................................... (34,067) (62) (10,517) (21,110) (15,137)
Prepaid and other assets.................... -- (11,996) (3,983) (54,387) (52,907)
Accounts payable and accrued expenses....... 42,071 54,811 409,206 260,602 335,848
Deferred compensation....................... -- -- 189,278 47,034 50,011
Due to stockholder.......................... 134,524 18,699 19,913 30,913 (11,304)
-------- -------- ---------- -------- --------
Net cash provided by (used in) operating
activities.............................. 22,433 (389,956) (929,265) (560,830) (374,831)
-------- -------- ---------- -------- --------
Cash flows from investing activities:
Capital expenditures, net.......................... (5,896) (203,537) (129,216) (168,582) (39,850)
-------- -------- ---------- -------- --------
Net cash used in investing activities..... (5,896) (203,537) (129,216) (168,582) (39,850)
-------- -------- ---------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of notes payable............ -- 600,000 1,050,000 750,000 700,000
Proceeds from loan-related party................... -- 30,000 -- -- --
Repayment of lease................................. -- -- (8,545) (1,186) (7,973)
Repayment of note.................................. -- -- (7,026) (1,408) (12,043)
Repayment of loan-related party.................... -- (30,000) -- -- --
Proceeds from issuance of common stock to President
and founders..................................... 1,015 -- -- -- --
Debt financing and offering costs.................. -- -- -- -- (75,000)
-------- -------- ---------- -------- --------
Net cash provided by financing
activities.............................. 1,015 600,000 1,034,429 747,406 604,984
-------- -------- ---------- -------- --------
Net change in cash........................ 17,552 6,507 (24,052) 17,994 190,303
Cash at beginning of period.......................... -- 17,552 24,059 24,059 7
-------- -------- ---------- -------- --------
Cash at end of period................................ $ 17,552 24,059 7 42,053 190,310
======== ======== ========== ======== ========
Supplemental disclosure of cash flow information:
Interest paid...................................... $ -- 24,041 11,093 2,084 12,943
Taxes paid......................................... $ -- 250 250 250 250
Supplemental disclosure of noncash financing
transactions:
Equipment acquired under lease..................... $ -- -- 79,042 58,872 --
Issuance of common stock to extinguish debt........ $ -- 600,000 -- -- --

See accompanying notes to consolidated financial statements.

F-6

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FROM JULY 12, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997

(1) DESCRIPTION OF BUSINESS

VCS Technologies, Inc. (the "Company"), a Delaware Corporation, was formed
in July 1995. In January 1997, the Company changed its name from VC Solutions,
Inc. to VCS Technologies, Inc. The Company is a full service provider of
interactive video communications solutions. VCS resells, installs and integrates
video conferencing equipment and systems and video streaming software and
systems, including the Company's proprietary software which enables browsing,
recall and playback of digitized video content on an interactive basis.
Additionally, the Company records, digitizes, edits, stores and delivers or
"streams" on-demand video and audio programs over telephone communications lines
and the Internet.

These consolidated financial statements include VCS Technologies, Inc. and
its wholly-owned subsidiaries: (i) VCS on Demand Service, Inc., (ii) VC
Solutions, Inc. (iii) VCS Software, Inc., and (iv) VCS Products, Inc. To date,
no business has been conducted or corporate action taken with respect to any of
these subsidiaries.

The Company was a development stage corporation through December 31, 1997
as the Company's activities consisted primarily of the development of its
products and services. The Company has incurred losses from operations since
inception. Through the development stage, management focused its resources on
selling of equipment in order to generate revenues. In addition, management has
focused on its on demand services as source of future growth. The Company is
actively pursuing additional financing. Although management believes that it can
successfully market its products and those of other vendors as well as obtain
financing, there can be no assurance that it will be able to do so. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

(2) SIGNIFICANT ACCOUNTING POLICIES

(A) PROPERTY AND EQUIPMENT

Computer equipment and furniture and fixtures are stated at cost. Computer
equipment and furniture and fixtures under capital leases are stated at the
present value of minimum lease payments. Depreciation of computer equipment and
furniture and fixtures is calculated on the straight-line method over their
estimated useful lives of five and seven years, respectively. Computer equipment
and furniture and fixtures under capital leases are amortized straight line over
the shorter of the lease term or estimated useful life of the asset.

(B) INVENTORY

Inventory consists primarily of videoconferencing hardware purchased by the
Company for resale to end users. Inventories are stated at the lower of cost or
market and are determined on the first-in, first-out basis.

For the period from July 12, 1995 (inception) through December 31, 1996,
the Company had elected to be treated as a small business corporation under
Subchapter S ("S corporation") for income tax purposes and therefore was not
subject to U.S. federal income taxes. As of January 1, 1997, the Company revoked
the S corporation election and became a registered C corporation.

The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities, if any, are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or

F-7

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(2) SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that the tax rate change occurs.

(D) REVENUE RECOGNITION

Revenue from product sales is recognized when the product is shipped.
Revenues from services are recognized as services are performed.

(E) RESEARCH AND DEVELOPMENT

All research and development costs incurred to date have been expensed as
incurred in accordance with generally accepted accounting principles.

(F) USE OF ESTIMATES

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

(G) STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of APB No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under APB No. 25, compensation cost
is recognized based on the difference, if any, on the date of grant between the
fair value of the Company's stock and the amount an employee must pay to acquire
the stock.

The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.

(H) INTERIM RESULTS (UNAUDITED)

The accompanying interim financial statements as of June 30, 1998 and for
the six months ended June 30, 1997 and 1998 are unaudited. In the opinion of
management, the unaudited interim consolidated financial statements have been
prepared on the same basis as the annual consolidated financial statements and
reflect all adjustments, which include only normal recurring adjustments,
necessary to present fairly the financial position as of June 30, 1998 and the
results of the Company's operations and its cash flows for the six months ended
June 30, 1997 and 1998. The financial data and other information disclosed in
these notes to consolidated financial statements related to these periods are
unaudited. The results for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998.

(I) LOSS PER SHARE

Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS 128) and
the Securities and Exchange Commission Staff Accounting Bulletin No. 98. SFAS
128 replaced the presentation of primary and fully diluted earnings (loss) per
share (EPS), with a presentation of basic EPS and diluted EPS. Under SFAS 128,
basic EPS excludes dilution for common stock equivalents and is computed by
dividing income or loss available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential

F-8

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(2) SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock and resulted in the issuance of
common stock. Only basic EPS is presented as all common stock equivalents are
anti-dilutive for each of the periods presented. Anti-dilutive potential common
shares outstanding were 0, 644, and 132,211 for the period from inception
through December 31, 1995 and the years ended December 31, 1996 and 1997,
respectively, and 24,027 and 695,498 for the six-month periods ended June 30,
1997 and 1998, respectively.

(J) RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" in the quarter
ended March 31, 1998. SFAS No. 130 requires the Company to report in its
financial statements, in addition to its net income (loss), comprehensive income
(loss), which includes all changes in equity during a period from non-owner
sources including, as applicable, foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain investments in
debt and equity securities. There were no differences between the Company's
comprehensive loss and its net loss as reported.

(K) CONCENTRATION OF CREDIT RISK

For the period from July 12, 1995 to December 31, 1995, 3 customers
accounted for approximately 84% of revenues generated by the Company. For the
years ended December 31, 1996 and 1997, 4 and 4 customers accounted for
approximately 65% and 52% of revenues generated by the Company and 81% and 100%
of accounts receivable at December 31, 1996 and 1997, respectively. For the six
months ended June 30, 1998, three customers accounted for approximately 64% of
revenues generated by the Company and 70% of accounts receivable at June 30,
1998.

(3) ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at December 31, 1996 and 1997 and
June 30, 1998 (unaudited) consist of the following:

F-9

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(3) ACCOUNTS PAYABLE AND ACCRUED EXPENSES -- (CONTINUED)

DECEMBER 31, JUNE 30,
------------------ -----------
1996 1997 1998
------- ------- -----------
(UNAUDITED)

Accounts payable..................................................... $47,008 258,774 544,739
Accrued expenses..................................................... 49,874 53,786 56,993
Accrued interest..................................................... -- 91,884 169,637
Accrued payroll...................................................... -- 101,644 70,567
------- ------- -------
Total.............................................................. $96,882 506,088 841,936
======= ======= =======

(4) NOTES PAYABLE

Notes payable at December 31, 1996, December 31, 1997, and June 30, 1998
(unaudited) consist of the following:

DECEMBER 31, JUNE 30,
-------------------- -----------
1996 1997 1998
------- --------- -----------
(UNAUDITED)

Promissory notes (a)............................................... $-- 165,000 165,000
Convertible debentures (b)......................................... -- 150,000 150,000
Convertible debentures-Related party (c)........................... -- 600,000 600,000
Promissory notes--Related party (d)................................ -- 102,974 92,974
Promissory note--Related party (e)................................. -- 25,000 25,000
Convertible notes (See note 12(b))................................. -- -- 700,000
------- --------- ---------
Total notes payable................................................ -- 1,042,974 1,732,974
Less:
Current portion.................................................. -- (175,623) (556,268)
Unamortized debt discount........................................ -- (110,584) (106,488)
------- --------- ---------
Notes payable...................................................... $-- 756,767 1,070,218
======= ========= =========

(A) PROMISSORY NOTES

During the period from August 1997 through September 1997, the Company
issued promissory notes in the aggregate amount of $165,000. These notes bore
interest at 12% through November 30, 1997, 14% through February 28, 1998, and
16% through July 31, 1998. The notes and all accrued interest and principal were
due on August 1, 1998 (see note 12(d)). Concurrently with the issuance of these
notes, the Company agreed to issue warrants entitling the holders to purchase a
total of 25,000 shares of common stock at an exercise price of $21.12 per share.
The warrants were to be issued quarterly beginning September 30, 1997, if the
Company did not prepay the notes on such quarterly dates. All such warrants were
exercisable during the period beginning November 1, 1997 and ending upon the
sooner of (i) November 1, 2000 or (ii) the date prior to the effective date of
the registration statement filed in connection with the Company's initial public
offering. The Company valued the warrants at $16,167, which was recorded as a
debt discount and is being amortized to interest expense over the term of the
notes.

(B) CONVERTIBLE DEBENTURES

In January and February of 1997, the Company issued notes payable totaling
$150,000. These notes were due and payable as follows: (i) the notes initially
bore interest at the rate of 12% and the Company would pay note holders all
accrued interest on March 1, 1997; (ii) thereafter, interest was to accrue at
12% through April 30,

F-10

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(4) NOTES PAYABLE -- (CONTINUED)

1997; (iii) 14% through July 31, 1997; (iv) and 16%, thereafter; and (v) the
Company was to repay all accrued interest and principal in twelve equal
consecutive, monthly installments commencing September 1, 1997.

As additional consideration for the loan proceeds described above, the
Company issued to the note holders warrants to purchase 2,273 shares of common
stock at an exercise price of $15.84. Per the agreements, as the Company did not
prepay the loans on certain dates, 2,273 additional warrants to purchase shares
of common stock (at the same exercise price) were issued on May 1, 1997, August
1, 1997, November 1, 1997, and February 1, 1998.

In June 1997, the Company exchanged these notes into convertible debentures
in the principal amount of $150,000. These debentures, which are convertible at
$9.24 per common share, accrue interest at a rate of 14% per annum and both
principal and accrued interest are payable in four equal installments on
June 1, 1999, December 1, 1999, June 1, 2000 and December 1, 2000. Concurrently
with the issuance of these debentures, the Company issued warrants entitling the
holders to purchase 12,121 shares of common stock at an exercise price of $10.56
per share (subsequently reduced to $7.92 per share in September 1997) and
cancelled the previously issued warrants.

The warrants are exercisable over a five-year period. The Company valued
the warrants at $21,120, which was recorded as a debt discount and is being
amortized to interest expense over the term of the debentures. See
note 12(d) for subsequent exchange of debt.

On various dates in January and February of 1997, the Company issued notes
to a former director payable for loans in an aggregate amount of $350,000. The
notes initially bore interest at the rate of 12%. Thereafter, interest was to
accrue at 12% through April 30, 1997; 14% through July 31, 1997; and 16%
thereafter. The Company was to pay all accrued interest to date on March 31,
1997 and all additional accrued interest and principal in twelve equal
consecutive, monthly installments commencing September 1, 1997.

As additional consideration for the loan proceeds described above, the
Company issued warrants to purchase 5,303 shares of common stock. As the Company
did not prepay the loans by certain dates, 5,303 additional warrants were issued
on May 1, 1997, August 1, 1997, November 1, 1997, and February 1, 1998. The
warrants were exercisable at $15.84 for a period of three years.

In June 1997, pursuant to an agreement between the former director and the
Company, together with $250,000 additional funding in May 1997, the Company
exchanged $600,000 of notes payable into convertible debentures in the principal
amount of $600,000. These debentures accrue interest at a rate of 14% per annum
and both principal and accrued interest are payable in four equal installments
on June 1, 1999, December 1, 1999, June 1, 2000 and December 1, 2000. The
debentures are convertible into common stock at $9.24 per share. Concurrently
with the issuance of these debentures, the Company issued new warrants entitling
the holder to purchase 48,485 shares of common stock at an exercise price of
$10.56 per share (subsequently reduced to $7.92 per share in September 1997) and
cancelled all previously issued warrants. The new warrants are exercisable over
a five-year period. The Company valued these warrants at $84,480, which was
recorded as a debt discount to the convertible debenture and is being amortized
to interest expense over the term of the debentures. See note 12(e) for
subsequent exchange of debt.

(D) PROMISSORY NOTE--RELATED PARTY

In May and July 1997, the Company issued promissory notes for loans in the
aggregate amount of $100,000 to Apex Communications, a company owned by a
director of the Company and the brother of the President of the Company. These
notes accrue interest at the rate of 14% per annum and both accrued interest and
principal are due on demand. Concurrent with the issuance of these notes,
warrants were issued entitling the holder to purchase

F-11

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(4) NOTES PAYABLE -- (CONTINUED)

3,788 shares of common stock at an exercise price of $7.92 per share. The
Company valued the warrants at $8,413 which was recorded as a debt discount to
the notes payable and is being amortized over the term of the note. These
warrants are exercisable over a three year period. In December 1997, an
additional $10,000 was loaned to the Company by Apex Communications. See
note 12(b) for subsequent exchange of debt.

(E) PROMISSORY NOTE--RELATED PARTY

In November 1997, the Company issued a promissory note for a loan in the
amount of $25,000 to a former director of the Company. This note accrues
interest at the rate of 14% per annum and both accrued interest and principal
are due in August 1999. Concurrently with the issuance of this note, warrants
were issued to purchase 5,037 shares of common stock at an exercise price of
$7.92 per share. These warrants are exercisable during the period beginning in
November 1997 and ending upon the sooner of (i) November 2000, or (ii) the date
prior to the effective date of the registration statement filed in connection
with the Company's initial public offering of its common stock. The Company
valued the warrants at $4,500, which was recorded as a debt discount to the
promissory note and is being amortized over the term of the loan.

(5) SHAREHOLDERS' AGREEMENTS

The Company has agreements with (i) the holders of all the outstanding
common stock and common share purchase warrants issued pursuant to the private
placements described in footnotes 4 and 6 and (ii) the holders of all
outstanding incentive stock options as described in footnote 7, whereby, until
such time as the Company's common stock is publicly traded, all shares held by
such individuals are subject to the Company's right of first purchase. Under
these right-of-first-purchase agreements, the Company is entitled to prior
notice of any potential sale or transfer of the common stock and has the right
to purchase the stock within thirty days of such notice at a price equal to the
stock's fair market value, as defined in the right-of-first-purchase agreements.
Additionally, the Company has the right to purchase the shares held by said
individuals at fair market value, as defined, during a period of nine months
subsequent to the date of death of such individuals.

(6) COMMON STOCK TRANSACTIONS

(A) PRIVATE PLACEMENT

During 1996, the Company issued $600,000 in notes payable to a group of
independent investors. The notes bore interest at the rate of 12% per annum and
were to mature on May 1, 1997. In 1996, the Company recorded and paid $23,441 of
interest expense relating to these notes.

In December 1996, in connection with the Company's private placement
offering, the Company entered into a stock purchase agreement with each of the
aforementioned independent investors whereby each individual note holder agreed
to convert the outstanding notes due from the Company into shares of the
Company's common stock and warrants to purchase shares of common stock. In
total, the Company issued 75,758 shares of common stock and 7,576 warrants in a
noncash financing transaction in order to satisfy the $600,000 aggregate
proceeds from the offering.

The warrant exercise price is $15.84 for each share of common stock. The
warrants expire three years after the date they become exercisable but in any
event will expire on the day prior to the date the Securities and Exchange
Commission declares effective any registration statement filed in connection
with an initial public offering of the Company.

F-12

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(6) COMMON STOCK TRANSACTIONS -- (CONTINUED)

(B) PREFERRED AND COMMON STOCK

On December 27, 1996, the Board of Directors of the Company declared and
approved (i) an increase in the Company's authorized shares from 1,500 no par
value shares (date of inception) to 10,000,000 shares and (ii) a 1,000 for 1
stock split on its common shares. The authorized shares are comprised of 10,000
shares of preferred stock and 9,990,000 shares of common stock, each with a par
value of $.001 per share.

On September 21, 1998, the Board of Directors declared and approved an
increase in the Company's authorized shares to 50,000,000, of which (i)
49,000,000 shares are common stock (ii) 990,000 shares are preferred stock, and
(iii) 10,000 shares are Series A Convertible Preferred Stock. All stock has a
par value of $0.001.

The Board of Directors is authorized to provide for the issuance of
preferred stock in series and to establish the rights and restrictions of each
series upon issuance. The following rights and restrictions were established for
Series A Convertible Preferred Stock: (i) each share is convertible into a
number of shares of common stock determined by multiplying the number of shares
to be converted by 100 and dividing the result by 8.5, (ii) each share has a
liquidation value of $100, (iii) the Company may redeem each share at $100,
(iv) the holders of Series A Convertible Preferred Stock will receive annual
cash dividends of $8.50 per share which are cumulative and accrue from the date
of issue of the stock, and (v) the holders of Series A Convertible Preferred
Stock have no voting rights. No other series of preferred stock have been
issued.

Warrant activity during the periods indicated is as follows:

WEIGHTED
AVERAGE
WARRANTS EXERCISE
GRANTED PRICE
-------- --------

Outstanding at December 31, 1995.................................................. -- $ --
Granted........................................................................... 7,729 15.84
Exercised......................................................................... -- --
Canceled.......................................................................... -- --
--------
Outstanding at December 31, 1996.................................................. 7,729 $15.84
Granted........................................................................... 363,825 5.78
Exercised......................................................................... -- --
Canceled.......................................................................... (15,152) 15.84
--------
Outstanding at December 31, 1997.................................................. 356,402 5.57
Granted (unaudited)............................................................... 123,485 7.00
Exercised (unaudited)............................................................. -- --
Canceled (unaudited).............................................................. (3,788) 7.92
--------
Outstanding at June 30, 1998 (unaudited).......................................... 476,099 5.99
========

The warrants issued during the year ended December 31, 1997 were issued at
prices ranging from $.26 to $21.12 with terms ranging from 3 to 5 years.
Professional fees totaling $48,000 and debt discounts totaling $134,680 were
recorded in connection with the issuance of warrants in 1997. Warrants issued in
the six months ended June 30, 1998 (unaudited) were at exercise prices ranging
from $5.28 to $21.12 and with terms of 3 years.

F-13

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(7) 1997 STOCK OPTION PLAN

In December, 1996, the Company's Board of Directors authorized an Incentive
Stock Option Plan. The Company has reserved 284,091 shares of its common stock
for issuance under the Plan. Such options shall be issued at the fair market
value of the Company's common stock on the date of the applicable grant. The
options will vest in equal annual installments over a four-year period
commencing on the grant date and expire ten years from the date of grant or in
90 days of termination of employment.

Stock option activity under the plan are summarized below:

NUMBER OF
SHARES
---------

Outstanding at January 1, 1997.......................................... --
Granted................................................................. 75,757
Exercised............................................................... --
Cancelled............................................................... (22,727)
-------
Outstanding at December 31, 1997........................................ 53,030
Granted (unaudited)..................................................... 37,121
Exercised (unaudited)................................................... --
Cancelled (unaudited)................................................... (15,151)
-------
Outstanding at June 30, 1998 (unaudited)................................ 75,000
=======

There were 0 and 9,470 vested options at December 31, 1997 and June 30,
1998 (unaudited), respectively. Options were granted in 1997 at exercise prices
of $7.92 and $13.20 a share. Options were granted to employees at $13.20 and
$15.84 during the six months ended June 30, 1998 (unaudited). In June 1998, the
Company amended all outstanding option agreements to change the exercise price
to $3.88 which represents the market value of the Company's stock at that time.
Options were granted to the President of the Company in June 1998 at an exercise
price $4.28.

As discussed in note 2, the Company adopted SFAS No. 123 during 1996 and
under the provisions of the statement elected not to recognize compensation
expense related to employee stock options and warrants where the exercise price
of the option or warrant equaled the fair value of the stock on the date of
grant. The Company used the Black Scholes method to determine compensation
expense based on the fair value of the options and warrants on the date of grant
in accordance with SFAS No. 123. Following are the resultant pro forma amounts
of net loss and net loss per share:

1996 1997
--------- ----------

Net loss--as reported.............................................. $(488,431) (1,710,361)
Net loss--pro forma................................................ (488,431) (1,725,857)
Primary net income per share--as reported.......................... (1.25) (3.69)
Primary net income per share--pro forma............................ (1.25) (3.73)

The fair value of each option and warrant granted to employees in 1997
ranged from $0.00 to $3.43 with a weighted average fair value of $.34 based on
estimates on the date of grant using the modified Black Scholes option pricing
model using the following weighted average assumptions:

1997
-----------

Risk free interest rate................................................ 6.44%
Expected life in years................................................. 7.54 years

(8) INCOME TAXES

At December 31, 1997, the Company had federal tax net loss carryforwards of
$1,503,169 expiring between the years 2003 and 2004. Section 182 of the Internal
Revenue Code imposes a limitation on the amount of tax loss carryforwards which
can be utilized in any year after there has been a 50% or greater ownership
change of

F-14

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(8) INCOME TAXES -- (CONTINUED)

the Company. The ownership change is based on the number of shares of stock or
the aggregate market value of the stock within any consecutive three year
period. Future years' utilization of the Company's tax loss carryforwards could
be subject to this limitation.

At December 31, 1997, the components of deferred taxes were as follows:

1997
-------

Deferred tax liabilities....................................... $13,654
Deferred tax assets, net of valuation allowance of $682,525.... $13,654
Net deferred taxes............................................. $ --

Significant temporary differences which give rise to deferred tax (a)
assets and (b) liabilities are (a) the net operating loss carryforward and
deferred compensation, and (b) depreciation.

(9) DUE TO STOCKHOLDER

At December 31, 1996 and 1997 and June 30, 1998 (unaudited), amounts due to
the President and majority stockholder of the Company were $153,223, $173,136,
and $161,832, respectively. Deferred compensation of $-0-, $159,750, and
$209,750 was due to the President as of December 31, 1996, 1997 and June 30,
1998. Such amounts represent periodic deferral of the President's salary and
advances to the Company, all of which are non-interest bearing and may be repaid
at anytime, and from time to time, as Company resources allow. There can be no
assurance that the President will continue to provide advances or defer any
future compensation. See note 12(f) for conversion of amounts to Series A
Convertible Preferred Stock.

(10) COMMITMENTS AND CONTINGENCIES

The Company has several non-cancelable operating leases that expire over
the next three years. Future minimum lease payments under operating and capital
leases at December 31, 1997 are:

OPERATING CAPITAL
--------- -------

1998.................................................................... $51,802 26,030
1999.................................................................... 29,162 26,030
2000.................................................................... 2,129 22,079
2001.................................................................... -- 14,236
2002.................................................................... -- 5,932
------- -------
Total................................................................... $83,093 94,327
=======
Less amount representing interest....................................... 23,830
-------
Present value of minimum capital lease payments......................... $70,497
=======

Total rent expense for the period from July 12, 1995 (date of inception)
through December 31, 1995, the years ended December 31, 1996 and 1997, and the
six months ended June 30, 1997 (unaudited) and 1998 (unaudited) were $0,
$10,400, $56,912, $20,266 and $35,962, respectively.

(11) RELATED PARTY TRANSACTIONS

In November 1997, a former director advanced the Company $25,000 by the use
of his personal line of credit with a credit card. The Company is currently
making monthly payments. During the year ended December 31, 1997 and the six
months ended June 30, 1998 (unaudited), such payments were $400 and $1,255,
respectively. Such advance is included in accounts payable and accrued expenses.

At December 31, 1997, the Company has a note payable of $102,974 due to a
related party. Certain of the Company's fixed assets were pledged as collateral
to this agreement. The Company also sold equipment totaling $3,561 to the
related party at cost.

F-15

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(11) RELATED PARTY TRANSACTIONS -- (CONTINUED)

In December 1997, the Company granted 379 common stock purchase warrants to
a director of the Company exercisable at $7.92 per share as consideration for
consulting services provided. These warrants are exercisable during the period
from December 1, 1997 to December 31, 2000. The Company recorded compensation
expense of $1,000 as a result of using the Black Scholes model.

In December 1997, the Company granted 22,727 common stock purchase warrants
to an officer of the Company as partial consideration for deferral of salary
commissions and unreimbursed expenses. These warrants are exercisable at $13.20
per share during the period from December 1, 1997 to December 31, 2000. No value
was attributed to the warrants as a result of using the Black Scholes model, due
to the exercise price exceeding fair market value at the date of grant.

In December 1997, the Company granted 170,455 common stock purchase
warrants to the President of the Company as consideration for deferral of
salary, advances to the Company and various guarantees. These warrants are
exercisable at $2.64 per share during the period from December 1, 1997 to
December 31, 2000. No value was attributed to the warrants as a result of using
the Black Scholes model, due to the exercise price exceeding fair market value
at the date of grant.

In December 1997, the Company granted 26,515 common stock purchase warrants
to the former chief financial officer of the Company as consideration for
deferral of salary, unreimbursed expenses, and loans to the Company. These
warrants are exercisable at $7.92 per share. These warrants are exercisable upon
issuance and expire on the earlier of the day prior to the effective date of the
Company's initial public offering or the third anniversary of issuance. No value
was attributed to the warrants as a result of using the Black Scholes model, due
to the exercise price exceeding fair market value at the date of grant.

(12) SUBSEQUENT EVENTS--UNAUDITED

(A) INITIAL PUBLIC OFFERING AND REVERSE COMMON STOCK SPLIT

The Company is offering one million shares of its common stock, par value
$.001, in an Initial Public Offering (IPO) at an offering price estimated to be
between $6.00 and $7.00 per share. On September 16, 1998, the Board of Directors
declared and approved a 1 for 2.64 reverse common stock split. The accompanying
consolidated financial statements have been retroactively adjusted to reflect
this reverse common stock split.

(B) ISSUANCE OF PROMISSORY NOTES

In January 1998, the Company issued two $100,000 convertible promissory
notes to new investors. One of these notes was issued to a director of the
Company. These notes accrue interest at the rate of 12% annually and are
convertible into common stock at $5.28 per share. The principal and accrued
interest are payable on January 31, 1999. One of the notes is collateralized by
the following: (i) a security interest in the assets of the Company,
(ii) 18,939 shares of common stock owned by the President of the Company, and
(iii) the personal guarantee of the President of the Company. In addition,
the Company issued 37,879 warrants to purchase common stock at an exercise price
of $5.28 per share to the note holders. These warrants are exercisable upon
issuance and expire the earlier of the day prior to the effective date of an IPO
or five years. The Company recorded a debt discount of $22,000 related to the
valuation of these warrants which is being amortized over the life of the notes.

In March 1998, the balance of the demand note with Apex Communications,
(see note 4 (d)) a related party, totaled $92,974. This note was exchanged for
promissory notes in the same amount which accrue interest at 14% annually.
Concurrently with this exchange, all warrants associated with the demand note
were cancelled and the Company issued new warrants for 18,939 shares of common
stock at an exercise price of $5.28. These warrants are exercisable for three
years beginning March 1, 1998. The Company recorded a debt discount of $11,000
related to these warrants which is being amortized over the life of the notes.

F-16

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(12) SUBSEQUENT EVENTS--UNAUDITED -- (CONTINUED)

In June 1998, the Company issued convertible promissory notes in the amount
of $500,000 to four investors. The notes accrue interest at 12% annually and are
convertible into common stock at a conversion price of (i) 80% of the IPO price
or (ii) $3.88 in the event there is no IPO prior to conversion. The combined
principal and interest are due in June 2000. The Company recorded $25,000 of
deferred financing costs in connection with the issuance of these notes. The
deferred financing costs will be amortized over the life of the notes.

As discussed in note 4 (a), the Company is required to issue 6,250 warrants
quarterly to the holders of the $165,000 promissory notes until the notes are
repaid or June 30, 1998. As a result, the Company issued an additional 12,500
warrants and recorded an additional debt discount of $16,170 which will be
amortized over the life of the notes.

In August, 1998, the Company also granted 18,939 common stock warrants at
an exercise price of $.26 to the Company's legal counsel in exchange for 18,939
common stock warrants at an exercise price of $7.92. Legal expense totaling
$48,500 were recorded as a result of this transaction.

In August 1998, the Company issued 1,680 shares of common stock to an
outside consultant in exchange for 1,680 warrants. No proceeds were received by
the Company as a result of this transaction.

(D) RESTRUCTURE OF INDEBTEDNESS

In August, 1998, notes payable totaling $165,000 (see note 4 (a)) and
related accrued interest were rolled into a $165,000 term note which accrues
interest at 14% annually. The total principal and additional accrued interest is
due either (i) on the last business day of the month in which the Company
receives the IPO proceeds if the IPO occurs prior to November 30, 1998, or
(ii) in twelve equal monthly payments beginning January 15, 1999. In addition,
the Company issued 6,250 shares of common stock in exchange for the cancellation
of 25,000 warrants previously issued at $21.12 as a result of the above
transactions, the Company fully amortized the remaining debt discount of $7,126
associated with the original notes payable.

In August, 1998, convertible debentures totaling $150,000 (see note 4 (b))
were rolled into a term loan which accrues interest at 14% annually. The
principal and accrued interest will be paid in sixty monthly payments, the first
payment due (i) on the first business day of the second month following the date
on which the Company received the IPO proceeds if the IPO occurs on or prior to
November 30, 1998, or (ii) on January 15, 1999. In addition, the Company issued
13,068 shares of common stock in exchange for the cancellation of 13,068
warrants at an exercise price of $7.92. As a result of the above transactions,
the Company fully amortized the remaining debt discount of $16,338.

In August and September, 1998, convertible notes payable totaling $200,000
(see Note 12(b)) and accrued interest of $15,566 were converted into 40,827
shares of common stock based on a $5.28 conversion price per share. The
remaining debt discount of $11,246 associated with these notes was fully
amortized upon conversion. In addition, the Company issued 18,939 warrants at
$.26 in exchange for 37,879 warrants at $5.28. Additional expenses of $37,500
were recorded in connection with the issuance of the new warrants.

(E) RELATED PARTY TRANSACTIONS

In January 1998, the Company granted 49,242 common stock purchase warrants
to Cove Hill Consulting, Inc. (a company controlled by a director and Chief
Financial Officer of the Company) as consideration for consulting services
provided. These warrants are exercisable at $5.28 per share over a three year
period. The Company recorded consulting expenses of $10,000 as a result of this
issuance.

In August 1998, the following transactions occurred:

o The Company issued 30,303 shares of common stock to two employees in
exchange for the cancellation of 30,303 warrants and forgiveness of
deferred compensation and reimbursable expenses due to the

F-17

VCS TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(12) SUBSEQUENT EVENTS--UNAUDITED -- (CONTINUED)

employees totaling $62,000. In connection with this issuance, the Company
recorded additional compensation expenses of $66,323.

o Cove Hill Consulting, Inc. (a company controlled by the Chief Financial
Officer and a director of the Company) exchanged 49,242 common stock
purchase warrants at an exercise price of $5.28 for the issuance of
47,727 common stock purchase warrants at an exercise price of $.26 per
share. These new warrants are exercisable over a three year period. The
Company has recorded compensation expense of $129,100 for such issuance.

o Convertible Debentures in the amount of $600,000 (see note 4(c)) due to a
former director were rolled into a term loan which accrues interest at
14% annually. The principal and accrued interest will be paid in sixty
monthly payments, the first payment due (i) on the first business day of
the second month following the date which the Company received the IPO
proceeds if the IPO occurs on or prior to November 30, 1998, or (ii) on
January 15, 1999. All accrued interest shall be paid as follows: (i) on
the last business day of the month in which the Company received the IPO
proceeds if the IPO occurs on or prior to November 30, 1998, or (ii) in
twelve monthly payments, the first payment due January 15, 1999. In
addition, the Company issued 59,836 shares of common stock in exchange
for the cancellation of 59,836 common stock purchase warrants at an
exercise price of $7.92. As a result of the above transactions, the
Company fully amortized the remaining debt discount of $59,432.

o Notes payable and accrued interest to Apex Communications, a company
controlled by a director of the Company and the brother of the President
in the amount of $108,025 were exchanged for 1,080 shares of Series A
Convertible Preferred Stock. In addition, the Company cancelled 18,939
common stock purchase warrants with an exercise price of $5.28 per share
in exchange for 18,939 common stock purchase warrants with an exercise
price of $.26 per share exercisable over a period of five years. The
Company has fully amortized the remaining debt discount of $8,556 and
recorded additional expenses of $42,500 in connection with such issuance.

(F) DUE TO STOCKHOLDER

In September 1998, advances from and deferred compensation owed to the
President of the Company in the amount of $371,582 was exchanged for 3,716
shares of Series A Convertible Preferred Stock.

(G) FACTORING AGREEMENT

On March 10, 1998, the Company signed agreements with Brookridge Funding,
Inc. ("Brookridge") and Creative Capital Solutions Limited ("Creative") wherein
the Company would receive purchase order financing and accounts receivable
factoring, respectively. Under the terms of the purchase order financing
agreement with Brookridge, qualified purchase orders may be submitted for
payment advances up to 70% of the invoice amount to Original Equipment
Manufacturers in order to secure equipment for delivery to the Company's
customers. Upon delivery of equipment and the Company's submittal of an invoice
to Creative for mailing and collection. Brookridge is paid by Creative for
monies advanced. Brookridge receives a 5% fee for monies advanced. The facility
may be used for qualified customers so long as the aggregate amount of such
advances does not exceed $1 million. Under the agreement with Creative, the
Company submits its invoices for mailing and collection and may draw upon the
invoiced amounts as much as 85% of the invoice. The charges for monies advanced
are based upon an initial rate of 4.5% of the invoice amount for the first
thirty days the invoice is outstanding and unpaid and increases 1% for each
15 days the invoice remains unpaid up to a maximum of 12%. Creative has a right
to charge back to the Company advances in the event of non-payment of a customer
invoice. Maximum usage under the credit facility is $2 million. The financial
arrangements are for a period of a year and may be amended upon 60 days written
notice and cancelled by the Company without penalty. As of June 30, 1998, the
Company had secured borrowings of $29,157 under this factoring agreement.

F-18

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

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

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

TABLE OF CONTENTS

PAGE
----

Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Selected Financial Information................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 23
Management..................................... 29
Certain Transactions........................... 32
Principal Stockholders......................... 34
Description of Securities...................... 35
Shares Eligible for Future Sale................ 38
Underwriting................................... 39
Interest of Named Experts and Counsel.......... 40
Legal Matters.................................. 40
Experts........................................ 40
Additional Information......................... 41
Index to Financial Statements.................. F-1

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

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

1,000,000 SHARES

COMMON STOCK

VCS TECHNOLOGIES, INC.
(VCS LOGO)

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

PROSPECTUS

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

GILFORD SECURITIES INCORPORATED

, 1998

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Underwriter has agreed to indemnify the Company, its directors and each
person who controls it within the meaning of Section 15 of the Securities Act of
1933, as amended (the "Act"), with respect to any statement in or omission from
the Registration Statement or the Prospectus or any amendment or supplement
thereto if such statement or omission was made in reliance upon information
furnished in writing to the Company by the Underwriter specifically for or in
connection with the preparation of the Registration Statement, the Prospectus,
or any such amendment or supplement thereto.

Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation, a "derivative action"), if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
bylaws, disinterested director vote, stockholder vote, agreement or otherwise.

The Company's Restated Certificate of Incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the DGCL.

The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against any such
person in their official capacities if such person acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*

The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of Common Stock being registered. All
amounts are estimates.

Securities and Exchange Commission
Registration fee............................................................. 2,374.75
NASD Filing Fee................................................................ 1,305.00
Nasdaq SmallCap Market listing fee............................................. 10,000.00
Printing and engraving expenses................................................ 60,000.00
Legal fees and expenses........................................................ 95,000.00
Accounting fees and expenses................................................... 35,000.00
Blue Sky fees and expenses..................................................... 40,000.00
Transfer agent and registrar fees.............................................. 5,000.00
Miscellaneous expenses......................................................... 1,320.25
-----------
Total................................................................ $250,000.00
-----------
-----------

- ------------------
* All expenses other than the Securities and Exchange Commission Registration
Fee and the NASD Filing Fee are estimated.

II-1

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

Since inception, the Company has issued unregistered securities to a
limited number of persons as described below. The share information presented
has been adjusted to give effect to the 1-for-2.64 reverse stock split of the
Company's common stock approved by the Board of Directors in September, 1998.

(1) Upon the inception of the Company in July, 1995, the Company issued
384,470 shares of common stock at a subscription price of $0.001 per share. Each
of the founding shareholders was sophisticated within the meaning of the
exemption provided for by Section 4(2) of the Securities Act.

(2) Between June and November 1996, the Company issued convertible
promissory notes in the principal amount of $600,000, convertible into common
stock at a conversion price of $7.92 per share, and 37,879 common stock purchase
warrants exercisable at $7.92 per share. In December, 1996, the Company issued
75,758 shares of common stock and 7,576 common stock purchase warrants
exercisable at $15.84 per share in exchange for the cancellation of $600,000
principal amount convertible promissory notes and 37,879 common stock purchase
warrants. Each of the investors was sophisticated within the meaning of the
exemption provided for by Section 4(2) of the Securities Act.

(3) In December, 1996, the Company issued 1,515 shares of common stock and
152 common stock purchase warrants exercisable at $15.84 per share as partial
consideration for consulting services rendered to the Company. Between June and
August, 1997, the Company issued 3,788 shares of common stock and 1,212 common
stock purchase warrants exercisable at $10.56 per share as partial consideration
for consulting services rendered to the Company. In August, 1998, the Company
issued 1,680 shares of common stock in exchange for the cancellation of 1,680
common stock purchase warrants. The recipient was sophisticated within the
meaning of the exemption provided for by Section 4(2) of the Securities Act.

(4) Between January and May 1997, the Company issued promissory notes in
the principal amount of $500,000 and 15,152 common stock purchase warrants
exercisable at $15.84 per share. In June, 1997, the Company issued convertible
debentures in the principal amount of $750,000, convertible into common stock at
a conversion price of $9.24 per share, and 60,606 common share purchase warrants
exercisable at $10.56 per share, in exchange for the cancellation of $500,000
principal amount promissory notes (plus additional loans in the principal amount
of $250,000) and 15,152 common stock purchase warrants. In November, 1997, the
Company issued a promissory note in principal amount of $25,000 and 5,037 common
stock purchase warrants exercisable at $7.92 per share. In August, 1998, the
Company issued promissory notes in the principal amount of $750,000 and 72,904
shares of common stock in exchange for the cancellation of convertible
debentures in the principal amount of $750,000 and 72,904 common stock purchase
warrants. Each of the investors was sophisticated within the meaning of the
exemption provided for by Section 4(2) of the Securities Act.

(5) In July, 1997, the Company issued to an affiliate of a director
promissory notes in principal amount of $100,000 and 3,788 common stock purchase
warrants exercisable at $7.92 per share. In March, 1998, the Company issued
18,939 common stock purchase warrants exercisable at $5.28 per share in exchange
for deferral of amounts due and cancellation of 3,788 common stock purchase
warrants. In August, 1998, the Company issued 1,080 shares of Series A
Convertible Preferred Stock and 18,939 common stock purchase warrants
exercisable at $0.26 per share in exchange for forgiveness of $108,025 owed by
the Company and cancellation of previously issued 18,939 common stock purchase
warrants. The investor was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

(6) Between August and September, 1997, the Company issued promissory notes
in the principal amount of $165,000 and 25,000 common stock purchase warrants
exercisable at $21.12 per share (these warrants were issued in four quarterly
instalments, each in the aggregate amount of 16,500, the last instalment issued
on June 1, 1998). In August, 1998, the Company issued new promissory notes in
the principal amount of $165,000 and 25,000 shares of common stock in exchange
for cancellation of the previously issued promissory notes and 25,000 common
stock purchase warrants. Each of the investors was sophisticated within the
meaning of the exemption provided for by Section 4(2) of the Securities Act.

(7) In September, 1997, the Company issued to its attorneys 18,939 common
stock purchase warrants exercisable at $7.92 per share (subject to adjustment)
as partial consideration for legal services rendered to the

II-2

Company. The recipient was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

(8) In November, 1997, the Company issued 18,939 common stock purchase
warrants exercisable at $0.26 per share as partial consideration for consulting
services rendered to the Company. The recipient was sophisticated within the
meaning of the exemption provided for by Section 4(2) of the Securities Act.

(9) In December, 1997, in consideration for deferral of salary, commissions
and unreimbursed expenses, the Company issued to the President and director of
the Company 170,455 common stock purchase warrants exercisable at $2.64 per
share. The recipient was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

(10) In December, 1997, in consideration for deferral of salary,
commissions and unreimbursed expenses, the Company issued to its former Chief
Financial Officer 26,515 common stock purchase warrants exercisable at $7.92 per
share. In January, 1998, the Company issued to its former Chief Financial
Officer 4,924 common stock purchase warrants exercisable at $7.92 per share in
exchange for the cancellation of 4,924 options issued under the Company's 1997
Incentive Stock Option Plan. The recipient was sophisticated within the meaning
of the exemption provided for by Section 4(2) of the Securities Act.

(11) In December, 1997, in consideration for deferral of salary,
commissions and unreimbursed expenses, the Company issued to two employees of
the Company 30,303 common stock purchase warrants exercisable at $13.20 per
share. In August, 1998, the Company issued 30,303 shares of common stock in
exchange for forgiveness of deferred salary, commissions and unreimbursed
expenses, and cancellation of 30,303 common stock purchase warrants. Each of the
recipients was sophisticated within the meaning of the exemption provided for by
Section 4(2) of the Securities Act.

(12) In December, 1997, the Company issued to a director 379 common stock
purchase warrants exercisable at $7.92 per share as partial consideration for
consulting services rendered to the Company. In August, 1998, the Company issued
379 common stock purchase warrants exercisable at $0.26 per share as
consideration for additional consulting services rendered to the Company and in
exchange for cancellation of previously issued 379 common stock purchase
warrants. The recipient was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

(13) In January, 1998, the Company issued convertible promissory notes in
the principal amount of $200,000, convertible into common stock at a conversion
price of $5.28 (subject to adjustment), and 37,879 common stock purchase
warrants exercisable at $5.28 per share. In August, 1998, the convertible
promissory notes and accrued interest were converted into 40,827 shares of
common stock, and the Company issued 18,939 common stock purchase warrants
exercisable at $0.26 per share in exchange for the cancellation of previously
issued 37,879 common stock purchase warrants. Each of the investors, one of whom
a director of the Company, was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

(14) In January, 1998, the Company issued to an affiliate of its Chief
Financial Officer and a director 49,242 common stock purchase warrants
exercisable at $5.28 per share in partial consideration for consulting services
rendered to the Company. In August, 1998, the Company issued 47,727 common stock
purchase warrants exercisable at $0.26 per share as consideration for additional
consulting services rendered to the Company and in exchange for cancellation of
previously issued 49,242 common stock purchase warrants. The recipient was
sophisticated within the meaning of the exemption provided for by
Section 4(2) of the Securities Act.

(15) In June, 1998, the Company issued convertible promissory notes in the
principal amount of $500,000, convertible into common stock at a conversion
price of (i) 80% of the Company's IPO price or (ii) $3.88 in the event there is
no IPO prior to conversion. Each of the investors was sophisticated within the
meaning of the exemption provided for by Section 4(2) of the Securities Act.

(16) In September, 1998, the Company issued 3,716 shares of Series A
Convertible Preferred Stock to the President and director of the Company in
exchange for forgiveness of advances and deferred compensation in the amount of
$371,582. The recipient was sophisticated within the meaning of the exemption
provided for by Section 4(2) of the Securities Act.

II-3

(17) The Company has from time to time granted stock options to employees
under its Stock Option Plan in reliance upon an exemption under the Securities
Act of 1933 pursuant to Rule 701 promulgated thereunder. No shares of common
stock have been issued pursuant to option exercises.

None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the Registrant believes
that each transaction was exempt from the registration requirements under
Section 4(2) of the Securities Act or Regulation D promulgated thereunder or
Rule 701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates or instruments issued
in such transactions. All recipients had adequate access, through their
relationships with the Company, to information about the Company.

ITEM 27. EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------

1.1 -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation.
3.2 -- By-Laws.
+4.1 -- Form of Common Stock Certificate (see also Restated Certificate of Incorporation).
4.2 -- Form of Representative's Warrant Agreement, including Representative's Warrant Certificate.
4.3 -- Unsecured fixed-term Promissory Note, principal amount $600,000, dated August 12, 1998.
+5.1 -- Opinion of Moskowitz Altman & Hughes LLP.
10.1 -- Preferred Stock Purchase Agreement between William E. Wheaton, III and the Company, dated
September 16, 1998.
10.2 -- Employment Agreement, effective as of September 1, 1998, between William E. Wheaton, III and the
Company.
10.3 -- Confidentiality and Inventions Agreement between David Russell, Jr., and the Company, dated
January 16, 1998.
10.4 -- Warrant Issuance Agreement between David Russell, Jr., and the Company, dated August 31, 1998.
10.5 -- Stock Purchase Agreement between Bruce McArthur and the Company, dated August 31, 1998.
10.6 -- Investment Restructuring Agreement between Daniel Piergentili and the Company, dated August 28, 1998.
10.7 -- Warrant Issuance Agreement between Edward E. Vahan, dated August 31, 1998.
10.8 -- Investment Restructuring Agreement between Chaim Sieger and the Company, dated August 12, 1998.
10.9 -- Investment Restructuring Agreement between Apex Communications, Inc. (a company controlled by Scott
Wheaton), and the Company, dated March 31, 1998.
10.10 -- Investment Restructuring and Preferred Stock Purchase Agreement between Apex Communications, Inc. (a
company controlled by Scott Wheaton), and the Company, dated August 31, 1998.
10.11 -- Lease Agreement between 456 Glenbrook Road Associates and the Company, dated September 9, 1996.
10.12 -- Lease Modification Agreement between 456 Glenbrook Road Associates and the Company, dated June 5,
1998.
10.13 -- The Company's 1997 Incentive Stock Option Plan.
10.14 -- Form of the Company's Incentive Stock Option Agreement under the 1997 Incentive Stock Option Plan.
+10.15 -- OEM/Value Added Remarketer Agreement between VideoServer, Inc., and the Company, dated March 28,
1997.
+10.16 -- Value Added Reseller Agreement between PictureTel and the Company, dated August 29, 1997.

II-4

EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------

+10.17 -- Marketing Agreement between AT&T and the Company, dated November 21, 1997.
+10.18 -- Master License Agreement and Starlight Product Addendum to Master License Agreement between Starlight
Networks, Inc., and the Company.
23.1 -- Consent of KPMG Peat Marwick LLP.
+23.2 -- Consent of Moskowitz Altman & Hughes LLP (included in its opinion filed as Exhibit 5.1).
+24.1 -- Power of Attorney (included on signature page).
27.1 -- Financial Data Schedule.

+ to be filed by amendment.

ITEM 28. UNDERTAKINGS

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

The undersigned Registrant hereby undertakes that:

(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 Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Act as part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, treat
each post-effective amendment that contains a form of prospects as
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time as the
initial bona fide offering thereof.

The undersigned Registrant hereby undertakes to provide to the
underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.

The undersigned Registrant hereby undertakes that it will:

(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 even which ,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.

(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.

II-5

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
THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF
STAMFORD, STATE OF CONNECTICUT, ON THIS 29TH DAY OF SEPTEMBER, 1998.

VCS TECHNOLOGIES, INC.

By: /s/ William E. Wheaton III
----------------------------------
WILLIAM E. WHEATON, III
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENT, that the persons whose signatures appear
below each severally constitutes and appoints William E. Wheaton, III as true
and lawful attorney-in-fact and agent, with full powers of substitution and
resubstitution, for them in their name, place and stead, in any and all
capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement, any registration
statement relating to the same offering as this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all which said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do, or cause to be done by
virtue hereof.

Pursuant to 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 indicated:

SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------

/s/ William E. Wheaton III
- ------------------------------------------ President, CEO and Chairman of the Board September 30, 1998
William E. Wheaton III (Principal executive
officer)

/s/ David Russell, Jr.
- ------------------------------------------ Chief Financial Officer and Director September 30,1998
David Russell, Jr. (Principal accounting officer)

/s/ Daniel Piergentili
- ------------------------------------------ Director September 30, 1998
Daniel Piergentili

/s/ Edward E. Vahan
- ------------------------------------------ Director September 30, 1998
Edward E. Vahan

/s/ Scott Wheaton
- ------------------------------------------ Director September 30, 1998
Scott Wheaton

II-7

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------

+ to be filed by amendment.