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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

           [X]       Annual Report pursuant to Section 13 or 15(d) of the
                     Securities Exchange Act of 1934 For the fiscal year ended
                     December 31, 1997

           [ ]       Transition Report Pursuant to Section 13 or 15(d) of the
                     Securities Exchange Act of 1934 For the transition period 
                     from____________________ to _______________________ .

           Commission File Number 0-22521

                              NETSPEAK CORPORATION
                            (Exact Name of Registrant
                          as Specified in Its Charter)

                      Florida                                   65-0627616
           (State or Other Jurisdiction of                  (I.R.S. Employer
           Incorporation or Organization)                    Identification No.)

                         902 Clint Moore Road, Suite 104
                            Boca Raton, Florida 33487
                                  561-997-4001

               (Address, including zip code, and telephone number
        (including area code) of registrant's principal executive office)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value per share

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. [X] YES [ ] NO

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $149,066,638 as of February 27, 1998, based
upon the closing sale price of the Common Stock as quoted on the Nasdaq National
Market. This amount excludes an aggregate of 5,934,879 shares of Common Stock
held by executive officers, directors and by each entity that owns 5% or more of
the Common Stock outstanding at February 27, 1998.

         The number of shares of the registrant's Common Stock outstanding as of
February 28, 1998 was 12,113,807.

                       DOCUMENTS INCORPORATED BY REFERENCE

         As stated in Part III of this Form 10-K, portions of the registrant's
definitive proxy statement (the "Proxy Statement") for the registrant's 1997
Annual Meeting of Shareholders are incorporated by reference in Part III of this
Form 10-K.

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<PAGE>




                              NETSPEAK CORPORATION
                                    FORM 10-K
                     For Fiscal Year Ended December 31, 1997
<TABLE>
<CAPTION>
TABLE OF CONTENTS

                                                                                                     Page No.
PART I                                                                                             -------------
<S>                                                                                                    <C>
Item 1.    Business......................................................................................3

Item 2.    Properties...................................................................................14

Item 3.    Legal Proceedings............................................................................14

Item 4.    Submission of Matters to a Vote of Security Holders .........................................15

PART II

Item 5.    Market for the Registrant's Common Equity and Related Stockholder Matters ...................15

Item 6.    Selected Financial Data......................................................................17

Item 7.    Management's Discussion and Analysis of Financial Condition
                  and Results of Operations.............................................................18

Item 8.    Financial Statements and Supplementary Data..................................................22

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........38

PART III

Item 10.   Directors and Executive Officers of the Registrant ..........................................38

Item 11.   Executive Compensation.......................................................................38

Item 12.   Security Ownership of Certain Beneficial Owners and Management...............................38

Item 13.   Certain Relationships and Related Transactions ..............................................38

PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K .............................38
</TABLE>


                                       2
<PAGE>


                           FORWARD LOOKING STATEMENTS

         NetSpeak Corporation ("NetSpeak" or the "Company") cautions readers
that certain important factors may affect the Company's actual results and could
cause such results to differ materially from any forward-looking statements
which may be deemed to have been made in this report or which are otherwise made
by or on behalf of the Company. For this purpose, any statements contained in
this Form 10-K and documents incorporated by reference herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may", "will",
"expect", "believe", "anticipate", "intend", "could", "would", "estimate", or
"continue" or the negative other variations thereof or comparable terminology
are intended to identify forward-looking statements. Factors which may affect
the Company's results include, but are not limited to, the Company's limited
operating history, the need for ongoing product development in an environment of
rapidly changing technology, the uncertainty of acceptance of the Company's
products in the marketplace, the uncertainty of the Internet and its use as a
means for real-time voice and video communications, the uncertainty of future
governmental regulation, the highly competitive nature of the industry and the
Company's ability to compete successfully, the Company's ability to successfully
enter into new, and maintain existing, strategic relationships, the Company's
ability to develop a recurring revenue stream, manage growth, obtain patent
protection, obtain additional funds and other risks discussed in this Report and
in the Company's other filings with the Securities and Exchange Commission (the
"Commission").

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

General

         NetSpeak develops, markets, licenses, and supports a suite of
intelligent software products and systems which enable real-time, concurrent
interactive voice, video and data transmission over packetized data networks
such as the Internet and local-area and wide-area networks ("LANs" and "WANs",
respectively). NetSpeak's products allow organizations to build new voice and
video-enabled communications networks, or to add these communications
capabilities to their existing network infrastructure. The Company's software
uses its patent-pending virtual circuit switching architecture and its
intelligent call routing and management software to provide gateways between
packetized data networks and traditional circuit switched voice transmission
networks to enable users to transparently communicate with each other on a
point-to-point basis. NetSpeak's technology integrates into packetized data
networks a variety of features and functions commonly found in traditional voice
transmission networks, and expands a network's functionality by offering
additional features such as concurrent voice and data transmission and video
conferencing. The Company has focused its efforts on developing its suite of
products and systems to meet the stringent requirements of telecommunications
carriers which include at a minimum scalability, reliability , interoperability
and redundancy as well as a number of other systems management, remote
operations, administration and maintenance features commonly found in carrier
grade technology.

         In order to facilitate and accelerate the acceptance of NetSpeak's
technology, as well as enhance marketing and distribution of its products and
systems, the Company has established a number of strategic alliances with
leaders in various segments of the telecommunications and networking industries.
The Company intends to leverage its partners' extensive existing sales and
distribution channels to accomplish this objective. Pursuant to certain of these
agreements, either the Company's technology is integrated into products which
are marketed by its strategic partners or the Company' s products and systems
are marketed


                                       3
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and distributed by its strategic partners through various distribution channels.
To date, the Company has established strategic alliances with Motorola, Inc.
("Motorola"), Bay Networks, Inc. ("Bay Networks"), Siemens Telecom Networks
("Siemens"), Creative Technology Ltd. ("Creative") and several other industry
leaders.

         The Company is also directly targeting common carriers and other
end-users of its products and systems. The Company's customers in this market
include MCI Communications Inc. ("MCI"), Networks Telephony Corporation ("NTC"),
a subsidiary of Infonet Services Corporation, and BellSouth Telecommunications,
Inc. ("BellSouth") among others.

         The Company's strategy is to become an industry leader in providing
business solutions for concurrent real-time interactive voice, video and data
transmission over packetized data networks. The Company intends to achieve its
goal by (i) expanding and strengthening its existing and establishing new
strategic alliances to facilitate technological acceptance and enhance the
marketing and distribution of its products and systems; (ii) expanding its
internal marketing and sales efforts; and (iii) continuing research and
development to enhance existing product applications, as well as develop new
applications.

Recent Development

         On March 18, 1998, NetSpeak and Motorola expanded their existing
strategic alliance to include joint development and licensing of technology as
well as a $30 million multi-year minimum purchase commitment by Motorola for
NetSpeak's products.

         Under a joint development and licensing agreement pursuant to which the
parties will seek to join their technologies to enable Internet Protocol ("IP")
multimedia communications on wireless networks, NetSpeak granted Motorola an
exclusive license to develop RF (Radio Frequency) products using NetSpeak's
technology. Motorola will be able to include NetSpeak's technology in all
wireless infrastructure (such as cellular phones, pagers, satellite phones, and
two way radios) to support real-time multimedia communications (e.g. voice, fax,
audio, video, data) over a variety of wireless networks. Additionally, NetSpeak
has granted Motorola a non-exclusive license for the manufacture and sale of
NetSpeak's products.

         As part of this expanded relationship, Motorola will seek to increase
its equity investment in NetSpeak by means of a cash tender offer for 3.0
million shares of NetSpeak Common Stock, representing approximately 27.7% of
NetSpeak's outstanding shares not owned by Motorola at a purchase price of
$30.00 per share. Motorola has also agreed to purchase 35,000 shares of NetSpeak
Common Stock from two officers. The offer will be made pursuant to a tender
agreement and certain other related agreements and definitive offering documents
to be filed with the Commission. The offer is conditional upon the tender of a
minimum number of shares and receipt of regulatory approvals as well as certain
other conditions to be set forth in the offering documents. Officers and
directors may participate in the offer, although the Company has not been
advised as to the number of shares that officers and directors will tender.

         Assuming a fully subscribed tender, Motorola will own approximately
28.2% of NetSpeak's common stock on a fully diluted basis upon completion of the
offering. In addition, NetSpeak's Board of Directors will be increased from
seven up to ten members with Motorola acquiring up to two additional seats on
the Board of Directors (pending consummation of the offer) and certain
management shareholders have agreed to vote in favor of the elections of such
directors. Motorola has also agreed for three years, subject to certain
exceptions, not to buy or offer to buy additional NetSpeak shares or seek to
effect a change of control of NetSpeak without the consent of NetSpeak's Board
of Directors.

INDUSTRY BACKGROUND


                                       4
<PAGE>

         Two fundamentally different switching technologies exist that enable
digital communications: circuit switching and packet switching. Since the
differing performance requirements for voice transmission and data transmission
impose different design priorities, historical development of voice
communication systems such as the telephone, and its related business systems,
such as a corporate business telephone system ("PBX") and automatic call
distribution ("ACD"), has centered on circuit switching technology, while that
of data communications systems such as LANs and WANs and the Internet have
primarily relied upon packet switching technology. As a result, separate
cultures and networking fabrics have evolved for the design, development,
application, and support for real-time voice communications (circuit switched
networks) and non real-time data transmission (packetized data networks).

         High quality, real-time interactive voice communications must emulate a
reasonable approximation of a face to face conversation between two
geographically separated people. To accomplish this, the modulated signal
representing the spoken words must (i) have enough information to re-create a
recognizable voice by using a fixed bandwidth, (ii) be delivered with minimum
delay by using a dedicated path in order not to impede interactive
communications, (iii) be delivered at a constant rate in order to avoid
distortion to the ear of the listener and (iv) not be subject to significant
loss of information en route. These capabilities are inherent in circuit
switched networks such as the public switching telephone network (the "PSTN")
but must be created when using packetized data networks for voice transmission.

         The design of private Intranets such as LANs and WANs, and that of the
Internet generally is fundamentally different from the architecture of
conventional voice transmission networks. Each of these packetized data networks
breaks down data into a series of small, discrete packets for transmission. Each
packet of data travels independently through the network to the destination
address where application software reassembles the packets to recreate the
original data set. As currently designed, packetized data networks handle
congestion by discarding or delaying packets or by sending packets from the same
source along different pathways, which can result in packets which were sent in
sequence arriving out of order. If the transmitted data packet represents
real-time voice, the listener may perceive a gap or "choppiness" as a result of
missing, late-arriving or out-of-sequence packets.

         As the work environment increasingly demands faster access to greater
volumes of information from multiple sources, the individual capabilities of
separate circuit switched and packetized data networks are being seriously
challenged. The response from circuit switch manufacturers has been the
development of new switching system architectures that make it easier for
separate, application-specific software to control the circuit switching
function, and to seek to maintain the market value of circuit switched systems
by increasingly using voice applications processes to offer additional services
such as voice mail, interactive voice response and ACD. The intensity of
technical activity involved in further integrating the interaction of specific
application processes and information delivery systems has given computer
telephony integration the status of a technology in its own right.

         A growing number of businesses and other organizations have recognized
the Internet as a network which enables an enhanced form of public
communication. In order to create conditions amenable to satisfactory commerce
and business communications on the Internet, the same kinds of services offered
in communicating with customers via traditional voice transmission networks such
as the PSTN must be available when communicating with customers via the
Internet.

         The Internet represents primarily an access to potential markets that
cannot be efficiently exploited if a separate, parallel infrastructure is
required for its service. Its evolution, however, has supported the development
of technologies such as those of NetSpeak that have made feasible the
integration of the two different architectures of circuit switched and
packetized data networks in such a way that communications between the two are
meaningful, and such that each can selectively take advantage of the special
capabilities of the other.


                                       5
<PAGE>

         There are many applications currently utilizing traditional telephony
that could benefit from the capabilities available from data communications
networks such as contemporaneous transmission of data and voice over a single
system. The general difficulty in adapting some of these capabilities to the
circuit switching environment lies in the limited expertise of those in the
traditional telephony environment in developing and applying the desired
adaptations on the one hand, and the limited systems and application expertise
necessary for those in the packetized data network environment to recognize the
problems, understand the opportunities, or design appropriate solutions on the
other.

         The introduction and rapid development of IP technology revolutionized
the deployment and use of data communications networks such as the Internet.
Even though this technology is in its infancy, it is already creating a growing
demand for the integration of features and functions available in traditional
voice communications networks into the packetized data network environment.

NETSPEAK'S CORE COMMUNICATIONS TECHNOLOGY

         NetSpeak has developed a core communications technology which addresses
the challenges associated with real-time interactive voice transmission over
packetized data networks. NetSpeak's technology surmounts the difficulties
inherent in real-time interactive voice transmissions in the packetized data
network environment and permits the integration into this environment of
features commonly found in traditional voice transmission networks, as well as
enabling the concurrent voice, video and data transmission over packetized data
networks, thereby expanding the functionality of packetized data networks. For
example, NetSpeak's core communications technology will permit a call placed
over the Internet to the technical support department of a customer to be
transferred from the Internet to the customer's LAN, route the call to the next
available service agent, and provide the service agent with information
regarding the call. NetSpeak's core communications technology is the platform
utilized in all of its products and systems. Among other features and functions,
NetSpeak's core communications technology:

/bullet/ permits encrypted, two-way voice transmission. NetSpeak's software
         manages different types of information streams, using different
         priorities, to optimize use of available bandwidth capacity, while
         providing the most sensitive applications such as voice transmission
         with first priority to that capacity, thereby minimizing the choppiness
         typically associated with voice transmission over packetized data
         networks. Encryption allows for secure communications even over
         packetized data networks, such as the Internet;

/bullet/ allows users to connect to other users in a point-to-point fashion,
         rather than through an intermediate routing mechanism. NetSpeak's
         intelligent virtual switching technology implements a patent-pending
         technique for address resolution which translates circuit switching
         addresses to IP network addresses, thereby eliminating the need to know
         an end-user's packetized network address;

/bullet/ provides dynamic and fixed IP address mixing which can create networks
         that carry traffic from both fixed-address networks such as a LAN and
         dynamically-assigned address networks such as the Internet to form a
         seamless communications network (a "network of networks")
         infrastructure. This infrastructure can operate over any physical
         network that supports IP;

/bullet/ uses a common object-oriented code base that allows the technology to
         be integrated into other NetSpeak and third party products;

/bullet/ operates on multiple operating systems and can be ported to various
         operating platforms.


                                       6
<PAGE>

         NetSpeak is conducting ongoing research and development to further
enhance its core technology, by continuing to develop additional applications
and features and functionality in its products.

NETSPEAK'S STRATEGY

         The Company's goal is to use its core communications technology to
become an industry leader in providing business solutions for concurrent
real-time interactive voice transmission over packetized data networks while
seemlessly integrating the features and functions of existing voice transmission
networks into the packetized data networking environment. The Company's strategy
includes the following key elements:

     ESTABLISH STRATEGIC ALLIANCES TO FACILITATE TECHNOLOGICAL ACCEPTANCE

          In order to facilitate and accelerate the acceptance of NetSpeak's
     technology, as well as enhance marketing and distribution of its products
     and systems, the Company has established a number of strategic alliances
     with various leaders in the telecommunications and networking industries.
     The Company intends to leverage its partners' extensive existing sales and
     distribution channels to accomplish this objective. Pursuant to certain of
     these agreements, either the Company's technology is integrated into
     products which are marketed by its strategic partners or the Company' s
     products and systems are marketed and distributed by its strategic partners
     through various distribution channels. The Company believes that these
     strategic alliances also offer access to its partners' leading edge
     technologies. To date, the Company has established strategic alliances with
     Motorola, Bay Networks, Siemens, Creative and several other industry
     leaders. The Company intends to expand and strengthen existing and
     establish additional strategic alliances.

     EXPAND INTERNAL MARKETING AND SALES EFFORTS

          The Company is developing an infrastructure to facilitate distribution
     of the Company's technology, products and services. The Company is
     presently building an in-house sales force and expanding its direct
     marketing and sales efforts to service providers, including
     telecommunications and other common carriers, large business enterprises,
     governmental and educational entities, as well as original equipment
     manufacturers ("OEMs"), systems integrators ("SIs") and value-added
     resellers ("VARs").

     EDUCATE THE MARKETPLACE

          Given the historical use of different infrastructures for voice and
     data transmission, NetSpeak believes that it needs to continue the
     education process to our potential customer base on how our IP telephony
     technology can facilitate the consolidation of these infrastructures by
     integrating capabilities and features commonly found in traditional voice
     transmission networks into the packetized data network environment. The
     Company is expanding the number of marketing programs it conducts in this
     regard, including advertising in trade journals and similar media,
     attendance at industry trade shows and direct mail campaigns. In addition,
     the Company has been and continues to be involved in industry wide standard
     setting bodies, such as the Massachusetts Institute of Technology's ("MIT")
     ITC (Internet Telephony Interoperability Consortium) consortium, VoIP
     (Voice on IP) forum, IMTC (Interoperable Multimedia Teleconference), and
     VON (Voice on the Net) Coalition.

     CONTINUE RESEARCH AND DEVELOPMENT

          The Company intends to extend the functionality and uses of its core
     communications technology by continuing to invest in research and
     development. The Company believes that it can further improve its
     technology which will allow it to enhance its existing product applications
     as well as develop new 


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<PAGE>

     applications.

PRODUCTS AND SYSTEMS

         NetSpeak's products and systems consist of four principal groups:
gateway systems, IP telephony server products, call-center systems and client
software. The Company has focused on developing its suite of products and
systems to meet the stringent requirements of telecommunications carriers which
include scalability, reliability, interoperability and redundancy as well as a
number of other systems management, remote operations, administration and
maintenance features. NetSpeak's products and systems combine its various
intelligent software modules to provide applications that furnish each
particular product's desired features and functions. The Company's initial
product offering was its WebPhone client software, released in February 1996.
Throughout most of 1997, the Company's carrier-grade gateway systems and IP
telephony server products were in a limited release to certain strategic
partners and key customers and were made commercially available in the fourth
quarter of 1997. The Company anticipates commercial release of its initial call
center products in the second quarter of 1998.

     GATEWAY SYSTEMS

          Gateway products are designed as transition points between two
     different network types, such as between the PSTN and the Internet. Gateway
     products convert regular voice transmission to or from the compressed data
     packets that travel over packetized data networks. Gateway products can be
     used to bring packetized voice transmission into existing voice
     transmission networks such as a PBX or translate voice from the voice
     transmission network to a user's Intranet.

          NetSpeak's WebPhone Gateway eXchange ("WGX") is PC-based and offers up
     to 96 and 120 ports in a single chassis with digital T1 and E1,
     respectively, and standard analog PSTN network interfaces. NetSpeak is also
     developing a gateway product line based on the Company's proprietary
     hardware design which is targeted at the specific requirements of
     telecommunications carriers. This product line will offer increased port
     densities as well as optimize the efficiency at which the gateway
     functions.

     IP TELEPHONY SERVER PRODUCTS

          NetSpeak IP telephony server software provides intelligent system and
     network management functions for IP telephony networks. These modules
     perform complex call routing by controlling the connection process between
     users, manage network operations, coordinate detailed user activity and
     account billing, and provide other value-added features and functions to
     users.

          NetSpeak's software modules can be combined to construct various types
     of voice transmission networks. These software modules include the Gateway
     Routing Server which dynamically manages call routing between multiple
     gateways deployed on a network; the Subscriber Account Manager, maintains
     customer account records including prepaid account balances; the Event
     Management Server, provides system operations management and enables
     real-time billing; the Credit Processing Server, provides real-time
     collection and customer account management for credit card transactions;
     the Connection and Information Services Servers, which are responsible for
     finding the destination party and coordinating the connection between
     users; the ACD Server module, which is the key to NetSpeak's call center
     systems (described below); and the Control Center module, which is the
     management control software for all of NetSpeak's products. A variety of
     other support modules which will offer further valued-added features and
     functions are under development.

     CALL CENTER SYSTEMS


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<PAGE>

          Call center systems are generally used by customer service departments
     within corporations for a wide variety of communications functions, such as
     sales, service and technical support between such companies and their
     customers. Call center systems route calls to individual customer service
     agents based on factors such as agent skills or agent call volume, and
     provide the agents with information about incoming calls in order to
     facilitate customer interaction.

          The Company's ITEL Call Center allows a customer to construct a call
     center entirely in a packetized data network environment utilizing only a
     PC as the call center agent's user interface. The system allows for
     transmission of voice and video based calls.

          The WebPhone Enterprise ACD integrates the capabilities of the ITEL
     Call Center with the power of WGX for translating calls from the PSTN and
     converting them to packetized voice for distribution to an agent's PC. As a
     result, all caller traffic arrives at the agent's desktop in a uniform
     format, whether originated over the Internet, the user's Intranet or the
     PSTN.

     CLIENT SOFTWARE PRODUCTS

          NetSpeak's client or end-user software products include the standard
     NetSpeak WebPhone, NetSpeak's Internet telephone software product, which
     was the first NetSpeak client product on the market. WebPhone is the basis
     of the NetSpeak client software products including the Agent and Mini
     WebPhones, which are key components of NetSpeak's call center systems.

STRATEGIC ALLIANCES

         In order to facilitate and accelerate the acceptance of NetSpeak's
technology, as well as enhance marketing and distribution of its products and
systems, the Company has established a number of strategic alliances with
leaders in various segments of the telecommunications and networking industries.
The Company intends to leverage its partners' extensive existing sales and
distribution channels to accomplish this objective. Pursuant to certain of these
agreements, either the Company's technology is integrated into products which
are marketed by its strategic partners or the Company' s products and systems
are marketed and distributed by its strategic partners through various
distribution channels. The Company believes that these strategic alliances also
offer access to its partners' leading edge technologies. To date, the Company
has established strategic alliances with Motorola, Bay Networks, Siemens,
Creative and several other industry leaders. The Company intends to expand and
strengthen its existing and establish additional strategic alliances.

         The following highlights companies with which NetSpeak is currently
participating in strategic relationships:

     MOTOROLA

          In August 1996, the Company established a strategic alliance with
     Motorola, as part of which Motorola made a minority investment in the
     Company. In connection with the investment by Motorola, the Company granted
     to Motorola a right of first negotiation on licenses of NetSpeak's
     technology as it applies to the cellular, cable and wireless communications
     industries. A designee of Motorola serves on the Company's Board of
     Directors. In March 1998, the Company and Motorola agreed to significantly
     expand their strategic relationship as described in "Overview - Recent
     Development" above.

     BAY NETWORKS


                                       9
<PAGE>

          In January 1998, the Company established a strategic relationship with
     Bay Networks. Under the agreements entered into with Bay Networks, NetSpeak
     will integrate its technology into certain of Bay Networks' router and
     remote access products, and the companies will jointly develop products
     employing NetSpeak's technology. Bay Networks will also resell NetSpeak's
     gateway and IP telephony server products. In connection with this
     agreement, the Company issued approximately 1.3 million shares of common
     stock to Bay Networks for $36.8 million, net of offering costs.
     Additionally, the Company has agreed not to enter into any new agreements
     with certain of Bay Networks' competitors to resell NetSpeak's products for
     a period of one year and not to provide its source code to such competitors
     for a period of three years.

     SIEMENS

          In June 1997, the Company established a strategic partnership with
     Siemens. In November 1997, the Company expanded its agreement with Siemens
     and, as a result, Siemens will market NetSpeak's carrier-grade gateway
     products and IP telephony server products and include NetSpeak's technology
     and applications on the Siemens gateway platform.

     CREATIVE

          In June 1996, the Company entered into a strategic alliance with
     Creative. Pursuant to the agreements, Creative made a minority investment
     in the Company and the Company granted Creative a worldwide exclusive
     license to market, distribute and bundle an Internet telephone based on the
     Company's WebPhone client software product under the Creative brand name in
     the retail distribution channel until August 2000. NetSpeak and Creative
     are also jointly developing other multimedia Internet-related applications
     which use both companies proprietary technology. In conjunction with this
     development, the Company has licensed its technology to Creative through
     December 2006. Creative has a right to market any jointly developed
     applications exclusively for up to seven months.

     OTHER ALLIANCES

          The Company has also entered into strategic relationships with a
     number of other companies such as Telstra R&D Management Pty, Ltd , a
     subsidiary of Telstra Corporation Ltd., the Australia telephone company, to
     jointly develop and market a gateway utilizing SS7 signaling and NetSpeak's
     IP telephony technology. The Company has OEM and distribution agreements
     with ACT Networks, Inc., Fujitsu Business Communications Systems and the
     Switching Systems Division of Rockwell International Corporation in which
     the Company is integrating its software into the companies' proprietary
     hardware platforms. The Company also has agreements with MCI and NTC to
     supply IP telephony products and systems. Both MCI and NTC, offer
     commercially available services which utilize the Company's products and
     systems.

MARKETING AND SALES

         The principal target market for NetSpeak's products and systems
encompasses a wide variety of service providers, including telecommunications
and other common carriers, large business enterprises, governmental and
educational entities, as well as OEMs, SIs and VARs. NetSpeak is also marketing
its WebPhone client software products over the Internet, by advertising in
computer periodicals, and through distribution agreements with over 900 ISPs
worldwide.

         The Company's current marketing and sales efforts have focused on
establishing and building strategic relationships with leaders in the
telecommunications and networking industries in an effort enhance the
distribution of the Company's products by leveraging its partners' extensive
existing sales and distribution 


                                       10
<PAGE>

channels. In addition to marketing its products and systems with its strategic
partners, NetSpeak's in-house sales force, which is divided into groups, focuses
its sales efforts on direct sales to end-users and distributors. The Company's
in-house marketing and sales efforts consist of direct contact with potential
customers, direct mail, advertising, and other marketing campaigns and
attendance at industry trade shows, which in addition to generating sales, are
intended to educate potential customers as to the features, functionality, cost
effectiveness and other benefits of NetSpeak's technology, products and systems.
The Company intends to continue increasing its in-house sales force in the
future.

         In addition, the Company's site on the World Wide Web permits
prospective customers to obtain information about its products and services,
download software for evaluation and order certain products. The Company intends
to continue to intensify and expand its marketing and sales efforts and, as a
result, intends to significantly increase marketing and sales expenses in future
periods.

CUSTOMER SERVICE AND SUPPORT

         NetSpeak is committed to maintaining customer satisfaction and loyalty.
The Company provides technical support services to its direct customers and to
its strategic partners. The Company maintains a technical support hotline in
which the Company's customer support specialists diagnose and solve technical
problems related to the Company's products and systems as well as to other
hardware and software with which the Company's products and systems may be
integrated. All support requests are tracked through a series of customer
databases, including current status reports and historical customer interaction
logs. The Company uses customer feedback as a source of ideas for product
application improvements and enhancements.

         The Company provides maintenance for all of its gateway and business
systems through a program of periodic technical upgrades. The price of a
NetSpeak business system includes 90 days of maintenance service. For a fee, the
Company will provide extended maintenance services to its gateway and business
system customers and to certain volume purchasers of its client software
products.

         The Company anticipates hiring additional technical customer service
representatives to support the expected increase in its installed base of its
gateway, IP telephony server and call center products.

RESEARCH AND DEVELOPMENT

         The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, and frequent new product
introductions. Management believes that the Company's future success depends in
large part upon its ability to continue to enhance the functionality and uses of
its core technology. The Company believes that it can further improve its
technology which will allow it to enhance its existing product applications as
well as develop new applications.

         The Company is involved in the review and establishment of industry
standards by actively participating in standard setting bodies such as MIT's ITC
(Internet Telephony Interoperability Consortium) consortium, VoIP (Voice on IP)
Forum, IMTC (Interoperable Multimedia Teleconference) and VON (Voice on the Net)
Coalition.

         The Company currently conducts the majority of its product development
efforts in-house. On occasion, the Company employs independent contractors to
assist with product development and testing activities and also intends to work
with its strategic partners with a view to enhancing its products. The Company
has aggressively expanded its Research and Development group from six software
engineers as of December 31, 1995 to 63 software engineers and support staff as
of December 31, 1997. Research and development expenses were approximately $5.5
million for the year ended December 31, 1997 and approximately $2.3 


                                       11
<PAGE>

million and $203,000 in 1996 and 1995, respectively. All of the Company's
research and development costs have been expensed as incurred, including
purchased research and development of $557,000 in connection with the
acquisition of Internet Telephone Company. The Company intends to significantly
increase research and development expenses in future periods to perform product
enhancements and new product development in order to seek to establish and
maintain a competitive advantage.

COMPETITION

         The Company anticipates that competition in the IP telephony software
market, which includes gateways, IP telephony network management systems and
applications will increase and become intensely competitive in the future.
Currently, the Company faces competition from different companies across each of
its product lines. The Company competes with companies such as Lucent
Technologies, Inc., VocalTec Communications Ltd., Vienna Systems Corporation,
Clarent Corporation and Inter-tel, Incorporated. The Company anticipates it will
also face further competition in all market segments from companies in the
telecommunications and computer industries which decide to market competitive
products or systems. Although the Company faces increased competition from this
segment, these companies represent existing and potential future customers and
strategic partners. In addition, the Company also competes with manufacturers of
hardware-based business systems.

         Many of the Company's current and potential competitors have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than the
Company. The Company believes that the principal competitive factors affecting
its potential success include development, time-to-market, quality, performance,
product features; such as flexibility, scalability, interoperability,
functionality and ease of use; price, customer service and support,
product/vendor reputation and the overall effectiveness of its sales and
marketing efforts. Certain of these competitors may be existing or potential
strategic partners.

GOVERNMENT REGULATION

         At present, there are few laws or regulations that specifically address
access to or commerce on the Internet. The increasing popularity and use of the
Internet, however, enhance the risk that the governments of the United States
and other countries in which the Company sells or expects to sell its products
will seek to regulate computer telephony and the Internet with respect to, among
other things, user privacy, pricing, and the characteristics and quality of
products and services. The Company is unable to predict the impact, if any, that
future legislation, legal decisions or regulations may have on its business,
financial condition or results of operations.

         In March 1996, the ACTA, a group of telecommunications common carriers,
filed the ACTA Petition with the FCC arguing that providers (such as the
Company) of computer software products that enable voice transmission over the
Internet (Internet "telephone" services) are operating as common carriers
without complying with various regulatory requirements and without paying
certain charges required by law. The ACTA Petition argues that the FCC has the
authority to regulate both the Internet and the providers of Internet
"telephone" services and requests that the FCC declare its authority over
interstate and international telecommunications services using the Internet,
initiate rule- making proceedings to consider rules governing the use of the
Internet for the provision of telecommunications services, and order providers
of Internet "telephone" software to immediately cease the sale of such software.
Any action by the FCC to grant the relief sought by ACTA or otherwise to
regulate use of the Internet as a medium of communication, including any action
to permit local exchange carriers to impose additional charges for connections
used for Internet access, could have a material adverse effect on the Company's
business, financial condition and results of operations.


                                       12
<PAGE>

PATENTS AND PROPRIETARY RIGHTS

         The Company generally relies upon patent, copyright, trademark and
trade secret laws to protect and maintain its proprietary rights for its
technology and products. The Company has filed 19 U.S. utility patent
applications and one Patent Cooperation Treaty patent application relating to
various aspects of the Company's software, its virtual circuit switching
architecture, and techniques for resolving dynamically assigned Internet
Protocol addresses. Several additional patent applications are currently being
prepared. The Company expects to routinely file patent applications, as deemed
appropriate to protect its technology and products.

         Elk Industries has asserted, in a letter to NetSpeak, just prior to the
November 1996 expiration of U.S. Patent No. 4,128,773, owned by Elk Industries,
that the Company's WebPhone client software product infringed the now expired
patent. Given the initial distribution of the Company's WebPhone client software
prior to expiration of the asserted patent, the Company believes any potential
liability related to the allegation will not have a material effect on the
Company's financial position or results of operations. In May 1997, the Company
received a letter from e-Net, Inc. ("e-Net"), alleging that the Company's
WebPhone product infringes U.S. Patent No. 5,526,353 owned by e-Net. Although
there can be no assurance of the outcome of this uncertainty, following an
analysis of the subject patent and the WebPhone product, management believes the
allegations are without merit and that any potential liability related to
e-Net's allegations will not have a material effect on the Company's financial
position or results of operations.

         Generally, litigation, which could be costly and time consuming, may be
necessary to determine the scope and validity of others' proprietary rights, or
to enforce any patents issued to the Company, in either case, in judicial or
administrative proceedings. An adverse outcome could subject the Company to
significant liabilities to third parties, require the Company to obtain licenses
from third-parties, or require the Company to cease product sales and possibly
alter the design of the products. There can be no assurance that any licenses
required under any third-party patents or proprietary rights would be made
available on acceptable terms, if at all. In addition, the laws of certain
countries may not protect the Company's intellectual property.

         To help protect its rights, the Company currently requires employees,
consultants and strategic partners to enter into confidentiality agreements that
prohibit disclosure of the Company's proprietary information. The Company also
currently requires employees and consultants to assign to it their ideas,
developments, discoveries and inventions. NetSpeak has entered into agreements
with customers which require the Company to place its source code in escrow.
These agreements provide that customers will have a limited, non-exclusive right
to use such code in the event that there is a bankruptcy proceeding by or
against the Company, if the Company ceases to do business or if the Company
fails to meet its support obligations. The Company may enter into similar
agreements in the future which may increase the likelihood of misappropriation
by third parties.

EMPLOYEES

         As of February 28, 1998, the Company employed 109 persons, 63 in
research and development, 30 in sales and marketing and 16 in administration and
finance. The Company anticipates increasing its staff significantly in future
periods. None of the Company's employees are subject to collective bargaining
agreements. The Company considers its relations with its employees to be
satisfactory.

         Competition for technical personnel in the Company's industry is
intense. The Company believes that it has been successful in recruiting
qualified employees, but there is no assurance that it will continue to be as
successful in the future. The Company believes that its future success depends
in part on its continued ability to hire, assimilate and retain qualified
personnel.


                                       13
<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

         The non-director executive officers of the Company and their respective
ages and positions with the Company as of February 28, 1998 were as follows:

<TABLE>
                Name                   Age                                  Position

----------------------------------    -----  --------------------------------------------------------
<S>                                    <C>   <C>                                          
John W. Staten......................   31    Chief Financial Officer and Assistant Secretary
Steven F. Mills.....................   43    Senior Vice President of Advanced Technology Development
Harvey Kaufman .....................   66    Executive Vice President, Secretary and Treasurer
</TABLE>


         JOHN W. STATEN has served as the Company's Chief Financial Officer and
Assistant Secretary since February 1996. Prior to joining NetSpeak Mr. Staten
was employed by Deloitte & Touche LLP, a public accounting firm, from 1990 to
January 1996, most recently as Manager focusing on the retail and technology
sectors. Mr. Staten holds a bachelor's and master's degree in accounting from
the University of Florida and is a Certified Public Accountant. In addition, the
Company intends to appoint Mr. Staten to its Board of Directors upon the
consummation of the cash tender offer by Motorola, as described in "Overview -
Recent Development" above.

         STEVEN F. MILLS has been Senior Vice President of Advanced Technology
Development for the Company since February 1998. From October 1996 to February
1998 he served as the Company's Vice President of Marketing since October 1996.
Prior to joining NetSpeak Mr. Mills was employed by Boca Research, Inc., a
developer and manufacturer of modems, from April 1995 to October 1996, most
recently as Vice President of Business Development. From January 1994 to April
1995, Mr. Mills was employed by General DataCom Services as Assistant Vice
President of Transmission Products. Prior to General DataCom, Mr. Mills was
employed by Primary Access Corp from 1991 to January 1994 serving in various
capacities.

         HARVEY KAUFMAN has served as Executive Vice President, Secretary and
Treasurer of the Company since December 1995. Mr. Kaufman has over 25 years of
expertise in the telecommunications industry. He joined Telecom Plus
International, Inc. ("TPI") in 1979 as Vice President of Strategic Planning with
additional responsibilities for Applications Engineering and Product Management.
Upon the sale of TPI's core telecommunications business to Siemens AG
("Siemens") in 1987, Mr. Kaufman joined Siemens as Executive Director of
Marketing for Siemens Information Systems and subsequently served as Vice
President of Product Management and Applications Engineering and Director for
Advanced Systems and Applications. Mr. Kaufman retired from Siemens in October
1995.

ITEM 2. PROPERTIES

         The Company occupies approximately 20,000 square feet of space in Boca
Raton, Florida, which it leases agreements at a combined annual rental of
$266,000. The leases for the Company's facilities expire between January, 2000
and February, 2001. The Company also occupies branch offices in North Sydney,
Australia and Tustin, California in which it leases on a month to month basis.
The Company believes that its existing facilities are adequate for its needs
through the end of 1998. Should the Company require additional space at that
time or prior thereto, it believes that such space can be secured on
commercially reasonable terms and without undue operational disruption.

ITEM 3. LEGAL PROCEEDINGS

         The Company is, from time to time, involved in certain legal actions
arising in the ordinary course of business. While the outcome of claims cannot
be predicted with certainty, management believes the 


                                       14
<PAGE>

outcome of such actions known to date will not have a material adverse effect on
the Company's business, financial position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1997.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS.

(a) Market Information

         The Company's Common Stock has been listed for trading on the Nasdaq
National Market under the symbol "NSPK," since May 29, 1997. The following table
sets forth for the calendar quarter indicated the high and low sale prices as
quoted on The Nasdaq Stock Market.

<TABLE>
                                                                               High            Low
                                                                            ----------     ------------
<S>                                                                         <C>            <C>      
    Quarter ended June 30, 1997, (commencing May 29, 1997).....             $   9.50       $    8.68

    Quarter ended September 30, 1997...........................             $  15.13       $    7.75
    
    Quarter ended December 31, 1997............................             $  26.88       $   15.38
</TABLE>
    
(b) Holders

         As of February 27, 1998 there were in excess of 2,500 holders of the
Company's Common Stock.

(c) Dividends

         The Company has never declared or paid any cash dividends on its Common
Stock and does not intend to pay dividends for the foreseeable future. The
Company intends to retain earnings, if any, to finance the development and
expansion of its business. Payment of dividends in the future will depend upon,
among other things, the Company's ability to generate earnings, need for capital
and overall financial condition.

(d) Use of IPO Proceeds

         On May 29, 1997, the U.S. Securities and Exchange Commission declared
effective the Company's Registration Statement of Form S-1 (SEC File Number
333-22123). The offering of the securities (the "IPO") registered pursuant to
the Registration Statement also commenced on May 29, 1997. The IPO terminated
after the sale of 2,400,000 shares of the Company's Common Stock for $8.75 per
share. The managing underwriters for the public offering of the Company's Common
Stock were Josephthal, Lyon & Ross Incorporated and Cruttenden Roth, Inc.

         The Company incurred expenses of approximately $1,587,000 in connection
with the IPO. These expenses represented direct payments to others and not
direct or indirect payments to directors or officers of the Company or to
persons owning more than 10% of any class of securities of the Company. Net
proceeds 


                                       15
<PAGE>

from the IPO were $17,943,000. The Company has used approximately $910,000 for
the purchase of equipment, approximately $735,000 to increase the Company's
research and development and sales, marketing and administrative staff, and
approximately $3,926,000 for working capital. None of the payments from the use
of proceeds were made to officers, directors or persons owning more than 10% of
any class of securities of the Company. The Company invested $14,336,000 of the
IPO proceeds in short-term, investment-grade, interest-bearing securities.



                                       16
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA.

         The selected consolidated financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included in Items 7 and 8 of this Form 10-K.

<TABLE>
                                                 PREDECESSOR(1)               SUCCESSOR(1)
                                                 -------------- ---------------------------------------
                                                                                       YEAR ENDED
                                                 MAY 15, 1995   DECEMBER 8, 1995       DECEMBER 31,
                                                 TO DECEMBER    TO DECEMBER 31,   ---------------------
                                                   18, 1995          1995          1996         1997
                                                 ------------   ----------------  ---------------------
STATEMENT OF OPERATIONS DATA:
<S>                                               <C>            <C>            <C>           <C>      
Net revenues                                      $       -      $       -      $     867     $   5,353
Operating expenses:
     Cost of revenues                                                                  47           931
     Research and development                           175             28          2,256         5,496
     Sales and marketing                                  -              -            722         2,919
     General and administrative                           6             57            837         1,631
     Purchased research and development                   -            557              -             -
                                                  ---------      ---------      ---------     ---------
          Total operating expenses                      181            642          3,862        10,977
Loss from operations                                   (181)          (642)        (2,995)       (5,624)
Interest and other income                                 -              -            172           753
                                                  ---------      ---------      ---------     ---------
Loss before income taxes                               (181)          (642)        (2,823)       (4,871)
Income taxes                                              -              -             43           209
                                                  ---------      ---------      ---------     ---------
Net loss                                          $    (181)          (642)        (2,866)       (5,080)
                                                  =========      =========      =========     =========
Net loss per share (basic and diluted)                           $   (0.15)     $   (0.41)    $   (0.54)
                                                                 =========      =========     =========
Shares used in computing net loss per share                          4,408          7,019         9,396
                                                                 =========      =========     =========
</TABLE>


<TABLE>
                                                                                SUCCESSOR(1)
                                                                                DECEMBER 31,
                                                                      ---------------------------------
                                                                      1995           1996          1997
                                                                      ----           ----          ----
BALANCE SHEET DATA:
<S>                                                              <C>            <C>           <C>      
Cash, cash equivalents and short-term investments                $     483      $   6,295     $   19,054
Working capital                                                        391          4,304         18,413
Total assets                                                           556          8,278         23,201    
Shareholders' equity                                                   448          5,679         21,108    
</TABLE>
----------

(1) NetSpeak acquired Internet Telephone Company ("ITC") by issuing 2,500,000
shares of Common Stock, valued at $500,000, in exchange for all of the
outstanding shares of ITC. The acquisition was accounted for as a purchase, and
the purchase price was allocated to the assets acquired, including purchased
research and development in process, and liabilities assumed based upon their
fair value on the date of acquisition. The financial information identified
herein as for the Predecessor is for ITC for the period May 15, 1995 (inception)
to December 18, 1995, the date of its acquisition by NetSpeak. The financial
information identified herein as for the Successor is for NetSpeak (including
ITC on a consolidated basis from the date of acquisition) as of December 31,
1995, 1996 and 1997 and for the period from December 8, 1995 (inception) to
December 31, 1995, for the years ended December 31, 1996 and 1997.



                                       17
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

INTRODUCTION

         The Company released its first product in February 1996 and, for
accounting purposes, emerged from the development stage during 1996. The Company
generates revenues from the sale of products, licenses and fees for services.
The Company's products are licensed primarily to service providers, including
telecommunications carriers, cable companies and other common carriers, business
enterprises, OEMs, SIs, VARs and directly to individual client software
end-users. Service revenues consist of customer support, maintenance and
engineering fees.

         Product and license revenues are generally recognized upon shipment,
provided that there are no significant post-delivery obligations and that
payment is due within one year. If customer acceptance is required, revenues are
recognized upon customer acceptance. Customer support revenues are recognized
over the term of the support period, which is typically one year. Engineering
fees are recognized upon customer acceptance or over the period in which
services are provided if customer acceptance is not required. All research and
development costs to date have been expensed as incurred.

         The Company has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. As of December 31,
1997, the Company had an accumulated net loss of $8.6 million. The limited
operating history of the Company makes its future results of operations
difficult to predict. The Company's operating results may fluctuate
significantly in the future as a result of a variety of factors such as the
introduction of new products or services by the Company or its competitors, the
amount and timing of capital expenditures and other costs relating to the
expansion of the Company's operations, the budgeting cycles of potential
customers, the timing in the deployment of the Company's products by customers,
technical difficulties with respect to product development or the use of
products developed by the Company and general economic conditions.

RESULTS OF OPERATIONS

         YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER 31,
1996 AND THE PERIOD FROM DECEMBER 8, 1995 (INCEPTION) TO DECEMBER 31, 1995
COMBINED WITH THE PREDECESSOR FOR THE PERIOD FROM MAY 15, 1995 (PREDECESSOR'S
INCEPTION) TO DECEMBER 18, 1995. UNLESS OTHERWISE INDICATED THE DISCUSSION OF
THE COMBINED AMOUNTS IS REFERRED TO AS "1995" HEREIN.

         Net revenues for the year ended December 31, 1997 were $5.4 million as
compared to $867,000 for the year ended December 31, 1996. The Company had no
revenues during 1995.

         During 1997, the Company's sales mix shifted towards the sale of
gateway systems and IP telephony server products, representing 46% of net
revenues during 1997 as compared to 6% during 1996. Net revenues generated from
gateway systems and server software included the sale of the Company's software
based products as well as the sale of fully integrated "turn-key" systems, where
the Company integrates third party computer hardware and software components
with its gateway and server software. The increase in gateway system and server
software revenues is due to the commercial deployment and trial evaluations of
the Company's products and systems by service providers, including telephone
companies, cable companies and other common carriers and equipment suppliers.

         Net revenues from client software represented 35% and 72% of net
revenues for the years ended December 31, 1997 and 1996, respectively. Net
revenues generated from client software were primarily due to a product license
and distribution agreement with Creative. Creative represented the Company's
largest 


                                       18
<PAGE>

customer during 1997 and 1996, accounting for 47% and 76% of net revenues,
respectively. The Company expects that revenues generated from Creative, as well
as client software, will decrease significantly in future periods. The Company
anticipates that its sales mix will shift predominately towards the sale of
gateway systems, IP telephony server products and call center systems, including
turn-key systems, in future periods.

         Cost of revenues for the year ended December 31, 1997 was $931,000, or
17% of net revenues, as compared to $47,000, or 5% of net revenues, for the year
ended December 31, 1996. The increase in cost of revenues was primarily due to a
shift in the Company's sales mix towards the sale of fully integrated "turn-key"
gateway systems. The Company began selling fully integrated systems in the
fourth quarter of 1997 as a short-term means of expediting the distribution of
its technology, and anticipates that sales of fully integrated systems will
increase as a percentage of net revenues, to represent a significant portion of
the Company's sales mix in the near term and, as a result, cost of revenues will
also increase as a percentage of net revenues. However, the Company believes
that cost of revenues will decrease as a percentage of net revenues in the
longer term as the Company expects that system integration will be performed by
its partners and, as a result, the Company anticipates its sales mix will
primarily consist of software based solutions in the long term. Additionally,
should the Company elect to manufacture and sell certain specialized computer
hardware components that it is currently designing, cost of revenues would
increase as a percentage of net revenues. The Company had no cost of revenues
during 1995.

         Research and development expenses for the year ended December 31, 1997
were $5.5 million as compared to $2.3 million for the year ended December 31,
1996. Research and development expenses during 1995 were $203,000. The increases
in research and development expenses were primarily the result of the expansion
of the Company's research and development staff. As a result, the Company
experienced an increase in costs related to compensation expense, as well as
computer hardware and software utilized in product development and greater
equipment depreciation expense. The Company also developed and introduced a new
line of gateway products on a new hardware platform during 1997 and, as a
result, incurred additional costs to facilitate the development and testing of
these products. All research and development costs have been expensed as
incurred. The Company intends to significantly increase research and development
expenses in future periods to perform product enhancements and new product
development to maintain a competitive advantage. In connection with the
acquisition of Internet Telephone Company, $557,000 of purchased research and
development was charged to expense in 1995. See Note 2 to the consolidated
financial statements.

         Sales and marketing expenses for the year ended December 31, 1997 were
$2.9 million as compared to $722,000 for the year ended December 31, 1996. The
increase in sales and marketing expenses was primarily due to the expansion of
the Company's sales and marketing staff. During 1997, the Company opened two
branch sales offices and increased its promotional activities, primarily through
generating a greater presence at industry trade shows and conferences. The
Company intends to continue to intensify and expand its sales and marketing
efforts and, as a result, expects sales and marketing expenses to significantly
increase in future periods. The Company had no sales and marketing expenses
during 1995.

         General and administrative expenses for the year ended December 31,
1997 were $1.6 million as compared to $837,000 for the year ended December 31,
1996. General and administrative expenses during 1995 were $63,000. The increase
in general and administrative expenses was due to the addition of personnel and
greater operating expenses as a result of the expansion of the Company's
corporate infrastructure. The Company expects general and administrative
expenses to increase in future periods as it continues to expand its corporate
infrastructure.


                                       19
<PAGE>

         Interest and other income for the years ended December 31, 1997 and
1996 was $753,000 and $172,000, respectively. The increase in interest income is
the result of interest earned on excess funds attributable to the net proceeds
from the IPO. The Company had no interest income during 1995.

         Income taxes for the years ended December 31, 1997 and 1996 were
$209,000 and $43,000, respectively. Such taxes were the result of income taxes
paid to the Singapore government related to license fees received pursuant to
agreements with Creative. The Company paid no income taxes during 1995.

LIQUIDITY AND CAPITAL RESOURCES

         The Company currently does not have any available lines of credit. The
Company has financed its operations through sales of equity securities. Prior to
completion of the IPO in June 1997, the Company raised approximately $8.7
million, net of offering costs, from private sales of securities in a private
placement and to Motorola and Creative, two strategic partners. As of December
31, 1997, the Company had $4.7 million in cash and cash equivalents and $14.3
million in short-term investments. In January 1998, the Company sold 1,334,171
shares of Common Stock for $36.8 million, net of offering costs, in a private
transaction to Bay Networks, another strategic partner.

         Net cash used in operating activities during the years ended December
31, 1997 and 1996 was $5.9 million and $1.0 million, respectively. Net cash used
in operating activities primarily related to the Company's continued expansion
of its research and development and sales and marketing efforts.

         Net cash used in investing activities during the years ended December
31, 1997 and 1996 was $16.1 million and $1.2 million, respectively. For the year
ended December 31, 1997 net cash used in investing activities reflects $14.3
million in net purchases of short-term investments and $1.7 million primarily
related to purchases of computer equipment. Net cash used in investing
activities during 1996 primarily related to purchases of equipment.

         Net cash provided by financing activities for the year ended December
31, 1997 was $20.4 million. On June 3, 1997, the Company closed on the IPO of
its Common Stock. The Company offered and sold 2,400,000 shares of Common Stock
at an initial public offering price of $8.75 per share, raising proceeds, net of
offering costs, of approximately $17.9 million. Upon consummation of the IPO,
Motorola, Inc., a strategic partner of and investor in the Company, exercised a
previously granted warrant to purchase 452,855 shares of Common Stock for $2.5
million or $5.50 per share.

         Net cash provided by financing activities for the year ended December
31, 1996 was $8.1 million and was primarily attributable to private offerings of
equity securities.

         The Company has no material commitments other than those under office
and equipment leases. The Company expects to significantly increase its capital
expenditures in future periods as a result of its anticipated growth, primarily
through the purchase of computer-related equipment for use in research and
development activities. The Company anticipates that, based on its present plans
and assumptions, the current cash balances will be sufficient to enable it to
maintain its current and planned operations for a period of at least the next 12
months. If the Company's estimates or assumptions prove to be incorrect, the
Company may require additional capital. Additional funding, whether obtained
through public or private debt or equity financing, or from strategic alliances,
may not be available when needed or may not be available on terms acceptable to
the Company. Failure to secure needed additional financing, if and when needed,
may have a material adverse effect on the Company's business, financial
condition and results of operations.


                                       20
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENT

         In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued statement of position ("SOP") 97-2, "Software Revenue
Recognition," which supersedes SOP 91-1. SOP 97-2 provides guidance as to when
revenue should be recognized and in what amounts for licensing, selling, leasing
or otherwise marketing computer software. SOP 97-2 is effective for transactions
entered into for annual periods beginning after December 15, 1997. The Company
will adopt SOP 97-2 in 1998 and is in the process of evaluating the impact, if
any, on the Company.

YEAR 2000 MATTERS

         The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year, consequently,
in the year 2000 such systems may be unable to accurately process certain
date-based information. The Company can potentially be affected by this issue in
two separate areas, through the internal computer applications on which it
relies as well as the software which it develops and sells. NetSpeak is in
process of reviewing all significant third party applications which it utilizes
and obtaining documentation from the manufacturers which certify Year 2000
compliance. The Company also is in process of examining the architecture of its
products, as well as documentation on the third party components which are
integrated into the Company's software products, and believes that its products
are Year 2000 compliant. The Company is also developing a test plan, for both
internal applications and software which the Company develops, to validate the
results of its initial review. Should the Company find any items which are not
Year 2000 compliant in the course of its testing, the Company will take the
necessary actions to correct the matter. The Company expects that its testing
procedures and any required Year 2000 compliance activities will be completed by
December 31, 1998. The Company does not anticipate that Year 2000 compliance
activities will have a material effect on the Company's business, financial
position or results of operations. However, there can be no assurance that the
Company's systems and products are Year 2000 compliant until the successful
completion of its testing procedures. Additionally, there can be no assurance
that the systems of other companies on which the Company relies will be Year
2000 compliant which could result in a material adverse effect on the Company.

FORWARD LOOKING STATEMENTS

         Except for the historical information contained herein, this "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains forward looking statements that involve a number of risks
and uncertainties, including the risks described elsewhere in this report and
detailed from time to time in the Company's filings with the Commission.



                                       21
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
                                                NETSPEAK CORPORATION
                                     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>

                                                                                                 PAGE NO.
                                                                                             ---------------

<S>                                                                                                    <C>
Independent Auditors' Report.........................................................................  23

Consolidated Balance Sheets as of December 31, 1996 and 1997.........................................  24

Consolidated Statements of Operations for the Predecessor for the period May 15,
 1995 (date of inception) to December 18, 1995 and for the Successor for the
 period December 8, 1995 (date of inception) to December 31, 1995
 and the years ended December 31, 1996 and 1997......................................................  25

Consolidated Statements of Shareholders' Equity for the Predecessor for the
 period May 15, 1995 (date of inception) to December 18, 1995 and for the
 Successor for the period December 8, 1995 (date of inception) to December 31,
 1995 and the years ended December 31, 1996 and 1997.................................................  26

Consolidated Statements of Cash Flows for the Predecessor for the period May 15,
 1995 (date of inception) to December 18, 1995 and for the Successor for the
 period December 8, 1995 (date of inception) to December 31, 1995
 and the years ended December 31, 1996 and 1997......................................................  27

Notes to Consolidated Financial Statements...........................................................  28
</TABLE>



                                       22
<PAGE>



                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of NetSpeak Corporation:

         We have audited the accompanying consolidated balance sheets of
NetSpeak Corporation and subsidiary (the "Company") as of December 31, 1996 and
1997, and the related consolidated statements of operations, shareholders'
equity and cash flows of Internet Telephone Company (the "Predecessor") for the
period from May 15, 1995 (date of inception) to December 18, 1995, and of the
Company for the period December 8, 1995 (date of inception) to December 31, 1995
and for the years ended December 31, 1996 and 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December
31, 1996 and 1997, and the results of operations and cash flows of the
Predecessor for the period from May 15, 1995 (date of inception) to December 18,
1995, and of the Company for the period December 8, 1995 (date of inception) to
December 31, 1995 and the years ended December 31, 1996 and 1997 in conformity
with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Certified Public Accountants
Fort Lauderdale, Florida

February 3, 1998



                                       23
<PAGE>


<TABLE>
                              NETSPEAK CORPORATION
                           CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share amounts)
<CAPTION>

                                                                                    December 31,

                                                                           -------------------------------
                                                                               1996             1997
                                                                           -------------   ---------------
ASSETS

<S>                                                                         <C>                 <C>     
Cash and cash equivalents.................................................  $  6,295            $  4,718
Short-term investments....................................................         -              14,336
Accounts receivable.......................................................       340                 898
Prepaid and other current assets..........................................        86                 521 
Deferred tax asset........................................................       182                  33 
                                                                            --------            --------
            Total current assets..........................................     6,903              20,506 
                                                                          
Property and equipment, net...............................................     1,050               2,178
Other assets..............................................................       325                 517
                                                                            --------            --------     
                                                                            $  8,278            $ 23,201 
                                                                            ========            ========
                                                                          

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable..........................................................  $     92            $    676
Accrued compensation......................................................        83                 687
Other accrued expenses....................................................       182                 474 
Unearned revenue..........................................................     2,242                 256
                                                                            --------            -------- 
            Total current liabilities.....................................     2,599               2,093
                                                                            --------            -------- 

Commitments and contingencies (Note 7)....................................         -                   -
                                                                          

Shareholders' equity:
     Preferred stock:  1,000,000 shares of $.01 par value.................
         authorized; no shares issued or outstanding......................
     Common stock: 25,000,000 shares of $.01 par value....................
         authorized; 7,698,532 and 10,554,721 shares issued and ..........
         outstanding at December 31, 1996 and 1997, respectively..........        77                 106  
     Additional paid-in capital...........................................     9,110              29,590 
     Accumulated deficit..................................................    (3,508)             (8,588)
                                                                            --------            --------
            Total shareholders' equity....................................     5,679              21,108 
                                                                            --------            --------
                                                                            $  8,278            $ 23,201
                                                                            ========            ========
</TABLE>
                                                                          
                                                                          
                                                                          

          See accompanying notes to consolidated financial statements.


                                       24
<PAGE>

<TABLE>
                              NETSPEAK CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
<CAPTION>


                                                                    PREDECESSOR                  SUCCESSOR                  
                                                                  --------------   ---------------------------------------  
                                                                                                          YEAR ENDED        
                                                                    MAY 15, 1995   DECEMBER 8, 1995       DECEMBER 31,      
                                                                     TO DECEMBER    TO DECEMBER 31,  ---------------------  
                                                                      18, 1995          1995          1996         1997     
                                                                    ------------   ----------------  ---------------------  
                                                        
<S>                                                                <C>            <C>            <C>           <C>        
Net revenues..........................................          $       -      $       -         $     867     $   5,353  
Operating expenses:
   Cost of revenues...................................                                                  47           931  
   Research and development...........................                   175             28          2,256         5,496  
   Sales and marketing................................                     -              -            722         2,919  
   General and administrative.........................                     6             57            837         1,631  
   Purchased research and development.................                     -            557              -             -  
                                                                   ---------      ---------      ---------     ---------  
       Total operating expenses.......................                   181            642          3,862        10,977  

Loss from operations..................................                  (181)          (642)        (2,995)       (5,624) 

Interest and other income.............................                     -              -            172           753  
                                                                   ---------      ---------      ---------     ---------  
Loss before income taxes..............................                  (181)          (642)        (2,823)       (4,871) 

Income taxes..........................................                     -              -             43           209  
                                                                   ---------      ---------      ---------     ---------  
Net loss..............................................             $    (181)          (642)        (2,866)       (5,080) 
                                                                   =========      =========      =========     =========  
Net loss per share (basic and diluted)................                            $   (0.15)     $   (0.41)    $   (0.54) 
                                                                                  =========      =========     =========  
Weighted-average shares outstanding...................                                4,408          7,019         9,396  
                                                                                  =========      =========     =========  
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       25
<PAGE>

<TABLE>
                              NETSPEAK CORPORATION
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (in thousands)
<CAPTION>



                                                       COMMON STOCK      ADDITIONAL
                                                   -------------------    PAID-IN   ACCUMULATED
                                                   SHARES       AMOUNT     CAPITAL    DEFICIT        TOTAL
                                                   ------       ------     -------    -------        -----
Predecessor

<S>            <C> <C>                                          <C>        <C>        <C>           <C>     
Balance at May 15, 1995 ........................         --     $   --     $   --     $     --      $     --
Sale of common stock ...........................          1          1         --           --             1
Capital paid in ................................         --         --        128           --           128
Net loss .......................................         --         --         --         (181)         (181)
                                                    -------     ------     ------     --------      -------- 
Balance at December 18, 1995 ...................          1     $    1     $  128     $   (181)     $    (52)
                                                    =======     ======     ======     ========      ======== 
</TABLE>
                                                                         
--------------------------------------------------------------------------------
<TABLE>
Successor
<S>                 <C>                                       <C>        <C>          <C>           <C>     
Balance at December 8, 1995 ....................         --   $     --   $     --     $     --      $     --
Sale of common stock ...........................      2,950         30        560           --           590
Issuance of common stock in
  acquisition ..................................      2,500         25        475           --           500
Net loss .......................................         --         --         --         (642)         (642)
                                                    -------   --------   --------     --------      -------- 
Balance at December 31, 1995 ...................      5,450         55      1,035         (642)          448


Issuance of common stock
  and warrant  .................................      2,196         22      7,943           --         7,965
Exercises of stock options .....................         53         --        132           --           132
Net loss .......................................         --         --         --       (2,866)       (2,866)
                                                    -------   --------   --------     --------      -------- 
Balance at December 31, 1996 ...................      7,699         77      9,110       (3,508)        5,679


Issuance of common stock
  and warrants .................................      2,400         24     17,985           --        18,009
Exercise of warrant ............................        453          5      2,486           --         2,491
Exercises of stock options .....................          3         --          9           --             9
Net loss .......................................         --         --         --       (5,080)       (5,080)
                                                    -------   --------   --------     --------      -------- 
Balance at December 31, 1997 ...................     10,555   $    106   $ 29,590     $ (8,588)     $ 21,108
                                                    =======   ========   ========     ========      ======== 
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       26

<PAGE>

<TABLE>
<CAPTION>

                              NETSPEAK CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)


                                                                                        SUCCESSOR
                                                        PREDECCESSOR       --------------------------------------------
                                                        ---------------                                YEAR ENDED
                                                        MAY 15, 1995 TO     DECEMBER 8, 1995           DECEMBER 31,
                                                         DECEMBER 18,        TO DECEMBER 31,      ---------------------
                                                             1995                 1995               1996         1997
                                                        ---------------     ----------------      ---------    --------
<S>                                                     <C>                 <C>                   <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss ..........................................    $          (181)    $           (642)     $  (2,866)   $ (5,080)
 Adjustments to reconcile net loss to net cash
    used in operating activitities
   Depreciation ....................................                  2                  -              198         609
   Purchased research and development ..............                -                    557            -           -
   Common stock issued for services ................                -                    -               35          66
   Deferred taxes ..................................                -                    -             (182)        149
   Changes in assets and liabilities:
     Accounts receivable ...........................                -                    -             (340)       (558)
     Prepaid and other current assets ..............                -                    (16)           (70)       (435)
     Other assets ..................................                -                    (25)          (299)       (192)
     Accounts payable ..............................                 44                   36             12         584
     Accrued compensation ..........................                -                    -               83         604
     Other accrured expenses .......................                -                     28            154         292
     Unearned revenue ..............................                -                    -            2,242      (1,986)
                                                        ---------------     ----------------      ---------    --------
       Net cash used in operating activities .......               (135)                 (62)        (1,033)     (5,947)
                                                        ===============     ================      =========    ========

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase of equipment .............................                (26)                  (7)        (1,217)     (1,737)
 Purchase of short-term investments ................                -                    -              -       (26,996)
 Maturities and sales of short-term invesments .....                -                    -              -        12,660
 Acquisition costs paid and cash overdraft assumed .                -                    (38)           -           -
                                                        ---------------     ----------------      ---------    --------
        Net cash used in investing activities ......                (26)                 (45)        (1,217)    (16,073)
                                                        ===============     ================      =========    ========

CASH FLOWS FORM FINANCING ACTIVITIES
 Proceeds from issuance of common stock and warrant .               129                  590          7,930      17,943
 Proceeds from exercise of warrant ..................               -                    -              -         2,491
 Proceeds from exercise of employee stock options ...               -                    -              132           9
 Cash overdraft .....................................                32                  -              -           -
                                                        ---------------     ----------------      ---------    --------
        Net cash provided by financing activities ...               161                  590          8,062      20,443
                                                        ===============     ================      =========    ========
Net increase (decrease) in cash and cash equivalents.               -                    483          5,812      (1,577)

Cash and cash equivalents, beginning of period ......               -                    -              483       6,295
                                                        ---------------     ----------------      ---------    --------
Cash and cash equivalents, end of period ............   $                   $            483      $   6,295    $  4,718
                                                        ===============     ================      =========    ========
SUPPLEMENTAL INFORMATION:

Cash paid for income taxes ..........................   $                   $                     $     225    $     60
                                                        ===============     ================      =========    ========

</TABLE>

NON CASH INVESTING AND FINANCING ACTIVITIES SEE NOTES 2 AND 3.

           See accompanying notes to consolidated financialstatements.

                                       27

<PAGE>


                              NETSPEAK CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION AND OPERATIONS - NetSpeak Corporation ("NetSpeak") and its
subsidiary (collectively, the "Company") develops, markets, licenses, and
supports a suite of intelligent software products and systems, which enable
real-time, concurrent interactive voice, video and data transmission over
packetized data networks such as the Internet and local-area and wide-area
networks ("LANs" and "WANs", respectively).

         The markets for the Company's products and systems have only recently
begun to develop and are rapidly evolving. Additionally, the Company's products
and systems are based on emerging technologies. As is typical in the case of new
and rapidly evolving industries, demand and market acceptance for recently
introduced technology products are subject to a high level of uncertainty. Broad
acceptance of the Company's products by customers and end users is critical to
the Company's success and ability to generate revenues. The Company has a
limited operating history upon 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 the
early stage of development, particularly companies in new and rapidly evolving
markets. As of December 31, 1997, the Company had an accumulated deficit of $8.6
million. Additionally, the Company's operating results may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside the Company's control. These factors include the volume of revenues
generated to the Company's strategic partners from sales of products and systems
incorporating the Company's technology or products, the emergence of new
competitors in the marketplace, the mix of distribution channels used by the
Company, the timing of new product announcements and release by the Company and
its competitors, and general economic conditions. However, the Company believes
that adequate capital resources are available to fund the Company's operations
for a period of at least twelve months.

         NetSpeak was incorporated on December 8, 1995 under the name "Comnet
Corporation" and assumed its present name on December 18, 1995. For accounting
purposes, the Company emerged from the development stage during 1996.

         Effective December 18, 1995, NetSpeak acquired the Internet Telephone
Company ("ITC"). ITC was incorporated for the purpose of developing telephony
communication software for use on the Internet and LANs and WANs. The
accompanying financial statements identified as for the Predecessor are for ITC
for the period from May 15, 1995 (inception) to the date of acquisition. The
accompanying financial statements identified as for the Successor are for the
Company, including ITC on a consolidated basis, as of December 31, 1996 and 1997
and for the period from December 8, 1995 (inception) to December 31, 1995 and
for the years ended December 31, 1996 and 1997. See Note 2.

         CONSOLIDATION - The consolidated financial statements include the
accounts of NetSpeak and its wholly-owned subsidiary, ITC. Significant
intercompany transactions and balances have been eliminated in consolidation.

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


                                       28
<PAGE>

         NET LOSS PER SHARE - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128 in the fourth quarter of 1997. SFAS No.
128 requires a dual presentation of basic and diluted earnings per share on the
face of the income statement. Basic earnings per share excludes dilution and is
computed by dividing income or loss attributable to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were converted into common
stock, but such securities or contracts are excluded if their effects would be
anti-dilutive. Pursuant to the requirements of Staff Accounting Bulletin ("SAB")
No. 98 of the Securities and Exchange Commission, issued in February 1998,
common equivalent shares which have an anti-dilutive effect on net loss per
share are no longer included in computing net loss per share for the period that
includes the initial public offering. All prior-period loss per share data has
been restated in accordance with SFAS No. 128 and SAB No. 98.

         REVENUE RECOGNITION - The Company generates revenues from products,
licenses and fees for services. License revenue includes a combination of fees
for initial and annual license fees. Service revenues are derived from fees for
customer maintenance and support and engineering.

         Product and license revenues are generally recognized upon product
shipment or delivery of permanent authorization codes. License fees which cover
a specified time period are amortized ratably over the term of the license
agreement.

         Service revenues for customer maintenance and support are recognized
ratably over the term of the maintenance period which is typically twelve
months. Service revenues for engineering services are generally recognized when
the services are performed, except when customer acceptance is required, then
revenues are recognized when customer acceptance has been received.

         Costs related to insignificant obligations, primarily telephone
support, are accrued upon product shipment.

         Advance payments of products, licenses and services are reported as
unearned revenue until all conditions for revenue recognition are met.

         RESEARCH AND DEVELOPMENT - Research and development expenditures are
charged to operations as incurred. SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs once technological
feasibility has been established.

         Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred by
the Company between completion of the working model and the point at which the
product is ready for general release have been insignificant. All research and
development costs have been expensed as incurred.

         FINANCIAL INSTRUMENTS - Cash and cash equivalents include cash and
short-term investments purchased with a maturity of three months or less.
Short-term investments generally mature between three months and two years from
the purchase date. All short-term investments are classified as available for
sale and are recorded at fair value. Unrealized gains and losses are to be
reported in shareholders equity. There were no significant differences between
cost and fair value for all classifications of short-term investments, nor were
there significant unrealized holding gains.

         FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosure about
Fair Value of Financial Instruments," require disclosure of the fair value of
financial instruments, both assets and liabilities, recognized and not
recognized in the Consolidated Balance Sheets of the Company, for which it


                                       29
<PAGE>

is practicable to estimate fair value. The estimated fair values of financial
instruments, which are presented herein have been determined by the Company
using available market information. There were no significant differences as of
December 31, 1996 and 1997 in the carrying value and fair value.

         PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost.
Depreciation is provided on the straight-line basis over the estimated useful
lives of the assets. Estimated useful lives range from 3 to 5 years.

         INCOME TAXES - Income taxes are provided based on the treatment
prescribed by SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109 requires
accounting for income taxes based on the liability method and, accordingly,
deferred income taxes are provided to reflect temporary differences between
financial and tax reporting bases of assets and liabilities and net operating
loss carryforwards.

         RECENT ACCOUNTING PRONOUNCEMENT - In October 1997, the American
Institute of Certified Public Accountants ("AICPA") issued statement of position
("SOP") 97-2, "Software Revenue Recognition," which supersedes SOP 91-1. SOP
97-2 provides guidance as to when revenue should be recognized and in what
amounts for licensing, selling, leasing or otherwise marketing computer
software. SOP 97-2 is effective for transactions entered into for annual periods
beginning after December 15, 1997. The Company will adopt SOP 97-2 in 1998 and
is in the process of evaluating the impact, if any, on the Company.

2. ACQUISITION OF ITC

         Effective December 18, 1995, the Company acquired ITC by issuing
2,500,000 shares of the Company's common stock, valued at $500,000, in exchange
for all of the outstanding shares of ITC. The acquisition was accounted for as a
purchase. The purchase price was allocated to the assets acquired, including
purchased research and development in process, and liabilities assumed based
upon their fair value on the date of acquisition. ITC's only activities from
inception to the date of acquisition consisted of research and development of
telephony communication software, and as such operating activities did not
commence. As of the date of the acquisition, technological feasibility of the
telephony communication software in process of development had not been
established and there was no alternative use; accordingly, the portion of the
purchase price allocated to purchased research and development was immediately
expensed in accordance with general accepted accounting principles. Pro forma
information for 1995 giving effect to the acquisition is not presented because
such information would not be significantly different from that in the
historical statements of operations. The following summarizes the acquisition
(in thousands):

     Equipment acquired.................................... $    25
     Purchased research and development....................     557
     Accounts payable assumed..............................     (44) 
     Acquisition costs and cash overdraft assumed..........     (38)
                                                            -------
     Common stock issued................................... $   500  
                                                            =======

3. SHAREHOLDERS' EQUITY.................................

         The initial capitalization of the Company consisted of the issuance of
2,500,000 shares of common stock for $500,000.

         ITC's capitalization since inception consisted of the issuance of 1,000
shares of common stock for $1,000 cash and additional capital contributions of
$128,000.


                                       30
<PAGE>

         During the period from December 8, 1995 to December 14, 1995, the
Company issued 450,000 shares of common stock for $90,000.

         In the first quarter of 1996 the Company sold 1,204,000 million shares
of common stock for $2.50 per share in a private placement raising $2,992,000,
net of offering costs. In January 1996, the Company issued an option to purchase
250,000 shares of common stock for $2.50 per share to a consulting firm, which
assisted the Company with its private placement. The fair value of this option,
$271,000, was recorded as a cost of the offering. The option expires in January
2003.

         In June 1996, the Company issued 207,679 shares of common stock to
Creative Technology Ltd. ("Creative") at a price of $5.05 per share raising an
aggregate of $944,000, net of offering costs. The Company also issued Creative a
21 month warrant to purchase up to an additional 207,679 shares of common stock
at a price of $5.05 per share, which warrant is only exercisable if Creative
distributes, during a specified period, a predetermined quantity of the
Company's Internet telephone client software product licensed to Creative.
During 1997, the Company determined that the product distribution requirements
were likely to be met and recorded as an expense the fair value, $66,000, of the
warrant. The Company derived 44% and 47% of its net revenues from Creative for
the years ended December 31, 1996 and 1997, respectively.

         In August 1996, the Company issued 769,853 shares of common stock at a
price of $5.50 per share and a warrant to purchase up to an additional 452,855
shares of common stock at a price of $5.50 per share for a six year period
expiring in August 2002 to Motorola , Inc. ("Motorola") raising $3,994,000, net
of offering costs.

         On June 3, 1997, the Company closed on the initial public offering of
its Common Stock. The Company offered and sold 2,400,000 shares of the Common
Stock at an initial public offering price of $8.75 per share, raising proceeds,
net of offering costs, of $17,943,000. Upon consummation of the offering,
Motorola, Inc., exercised the previously granted warrant to purchase 452,855
shares of Common Stock for $2,491,000.

         In January 1998, the Company entered into a joint development and
equity agreement with Bay Networks, Inc. In conjunction with the agreement, on
February 3, 1998, the Company issued 1,334,171 shares of common stock to Bay
Networks, Inc., raising $36,753,000, net of offering costs.

         The Company has authorized 1,000,000 shares of preferred stock, $.01
par value. No shares of preferred stock have been issued.


4. SHORT-TERM INVESTMENTS

                                         DECEMBER 31,
                                   ------------------------
                                     1996            1997
                                   --------        --------
U.S. Treasury Notes............           -        $ 10,150
U.S. Government Agencies.......           -           4,168
Certificate of Deposit.........           -              18
                                   --------        --------
Short-term investments ........           -        $ 14,336
                                   ========        ========


                                       31
<PAGE>


5. PROPERTY AND EQUIPMENT

                                                       DECEMBER 31,
                                                 -----------------------
                                                   1996            1997 
                                                 ---------     ---------
Computer equipment.............................  $   1,030     $   2,420
Furniture, fixtures and office equipment.......        156           416 
Leashold improvements..........................         63           155
                                                 ---------     ---------
Property and equipment, cost...................      1,249         2,991
Accumulated depreciation.......................       (199)         (813)
                                                  ---------     ---------
Property and equipment, net....................  $   1,050     $   2,178
                                                 =========     =========

      Depreciation expense during 1995, 1996 and 1997 was $0, $198,000 and
$609,000, respectively.

6. STOCK BASED COMPENSATION

     The Company may grant stock options under the 1995 Stock Option Plan
(the "Plan") to key employees, consultants, officers and directors for up
to 2,700,000 shares of common stock. Under the Plan, the exercise price of
each option must not be less than the fair market value of the Company's
stock on the date of grant and an option's maximum term is 10 years.
Incentive stock options vest equally over 3 years beginning on the first
anniversary date of the grant, while non-statutory options vest over
various periods.

     A summary of the status of the Plan as of December 31, 1995, 1996 and
1997, and changes during the periods ended on those dates is presented
below:


                                       32
<PAGE>


                                                          PRICE PER SHARE
                                                    ---------------------------
                                                                     WEIGHTED-
                                                                      AVERAGE  
                                         SHARES         RANGE          PRICE
                                     -------------  -------------   -----------
                                     (in thousands)

Outstanding at December 8, 1995 .....            -  $           -    $       -
  Granted ...........................          550           1.00         1.00
  Exercised .........................            -              -            -
  Canceled ..........................            -              -            -
                                     -------------  -------------   -----------
Outstanding at December 31, 1995 ....          550           1.00         1.00
  Granted ...........................        1,621   2.50 to 5.50         3.24
  Exercised .........................           53           2.50         2.50
  Canceled ..........................          132   1.00 to 2.50         1.36
                                     -------------  -------------   -----------
Outstanding at December 31, 1996 ....        1,986   1.00 to 5.50         2.76
  Granted ...........................          294   5.50 to 26.88       10.71
  Exercised .........................            3           2.50         2.50
  Canceled ..........................           39   2.50 to 8.75         6.72
                                     -------------  -------------   -----------
Outstanding at December 31, 1997 ....        2,238  $1.00 to 26.88   $    3.70
                                     =============  =============   ===========


           The following table summarizes information about employee stock
options outstanding at December 31, 1997:

<TABLE>
                                 OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                       ----------------------------------------------  -----------------------------
                                     WEIGHTED-AVERAGE
                                        REMAINING        WEIGHTED-                      WEIGHTED-
     RANGE OF                          CONTRACTUAL        AVERAGE                        AVERAGE
  EXERCISE PRICE       OUTSTANDING     LIFE (YEARS)    EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
  --------------       -----------     ------------    --------------   -----------   --------------
                     (in thousands)                                    (in thousands)


<S>                         <C>           <C>        <C>                    <C>      <C>        
$       1.00                 450           8.0        $      1.00            350      $      1.00
        2.50               1,132           8.1               2.50            998             2.50
    5.05 to 5.50             399           8.7               5.47            131             5.47
    7.00 to 26.88            257           9.5              11.02             15             8.13 
                       -----------         ---         --------------   -----------   -------------
$   1.00 to $26.88         2,238           8.3               3.70          1,494             2.47
                       ===========         ===         ==============   ===========   =============
</TABLE>


       The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations
in measuring stock based compensation, including options. Accordingly, no
compensation expense has been recognized for options granted under the
Plan. Had compensation expense been determined based upon the fair value
at the grant date for awards under the Plan consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net loss and net
loss per share, on a pro forma basis, would have been:


                                       33
<PAGE>

<TABLE>
                                              1995              1996            1997
                                         ------------       -----------     ------------
                                                           (in thousands)
<S>                                      <C>                <C>             <C>          
     Proforma net loss.................  $       (642)      $    (3,123)    $     (5,599)
     Proforma net loss per share.......  $      (0.15)      $     (0.44)    $      (0.60) 
</TABLE>

     The fair value of each employee stock option grant has been
estimated on the date of grant using the Black-Scholes option pricing
model. The weighted-average fair value of employee stock options granted
in 1996 and 1997 was $0.83 and $4.69, respectively. Employee stock
options granted in 1995 had no fair value. The following assumptions were
used in calculating the fair values: dividend yield 0%, expected
volatility 60%, risk-free interest rates ranging between 5.39% and 6.77%,
and an expected life of 5 years. An expected volatility of 0% was used
prior to the Company's IPO.

7. COMMITMENTS AND CONTINGENCIES

     The Company leases its office facility and certain equipment under
operating leases with remaining lease terms in excess of one year. Future
minimum lease payments as of December 31, 1997 are as follows (in
thousands):

      YEAR ENDING DECEMBER 31,

          1998..............  $           282
          1999..............              289
          2000 .............              162
          2001..............                7
                              ---------------
                              $           740
                              ===============

    Rent expense for the periods ended December 31, 1995, 1996 and 1997 
was $1,000, $67,000 and $168,000, respectively.

     In September 1996, the Company established a 401(k) deferred
compensation plan for all employees meeting certain service requirements.
The Company matches employee contributions to the Plan at its discretion.
The Company's contributions during the years ended December 31, 1996 and
1997 were $0 and $19,000, respectively. The administrative costs of the 
plan are paid by the Company.

     The Company has entered into employment agreements with six officers
with salaries aggregating $1,140,000 annually. The terms of these
agreements are for two years, with renewal provisions.

     The Company has entered into Indemnification Agreements with each of
the existing directors and officers, which provides for the maximum
indemnification permitted by law.

     The Company may, from time to time, be involved in certain legal
actions arising in the ordinary course of business. In the opinion of
management, the outcome of such actions known to date will not have a
material adverse effect on the Company's financial position or results of
operations.

     Elk Industries has asserted, in a letter to the Company, just prior
to the November 1996 expiration of U.S. Patent No. 4,128,773, owned by Elk
Industries, that the Company's WebPhone client software product infringed
the now expired patent. The Company sought advice of counsel relating to
the 


                                       34
<PAGE>

infringement allegations, which Elk Industries has asserted against other
software concerns, and believes, based upon an opinion of counsel, the Company's
WebPhone client software product does not infringe the asserted patent.
Accordingly, the Company believes that this matter will not have a material
effect on its financial position and results of operations.

     In May 1997, the Company received a letter from e-Net, Inc. ("e-Net")
alleging that the Company's WebPhone product infringes U.S. Patent No.
5,526,353 owned by e-Net. Although, there can be no assurance of the
outcome of this uncertainty, following an analysis of the subject patent
and the WebPhone product, management believes the allegations are without
merit and that any potential liability related to e-Net's allegations will
not have a material effect on the Company's financial position and results
of operations.

     At present, there are few laws or regulations that specifically
address access to or commerce on the Internet. The increasing popularity
and use of the Internet, however, enhance the risk that the governments of
the United States and other countries in which the Company sells or
expects to sell its products will seek to regulate computer telephony and
the Internet with respect to, among other things, user privacy, pricing
and the characteristics and quality of products and services. The Company
is unable to predict the impact, if any, that future legislation, legal
decisions or regulations may have on its business, financial condition or
results of operations.

     The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year,
consequently, in the year 2000 such systems may be unable to accurately
process certain date-based information. The Company can potentially be
affected by this issue in two separate areas, through the internal
computer applications on which it relies as well as the software which it
develops and sells. NetSpeak is in process of reviewing all significant
third party applications which it utilizes and obtaining documentation from
the manufacturers which certify Year 2000 compliance. The Company also is
in process of examining the architecture of its products, as well as
documentation on the third party components which are integrated into the
Company's software products, and believes that its products are Year 2000
compliant. The Company is also developing a test plan, for both internal
applications and software which the Company develops, to validate the
results of its initial review. Should the Company find any items which are
not Year 2000 compliant in the course of its testing, the Company will
take the necessary actions to correct the matter. The Company expects that
its testing procedures and any required Year 2000 compliance activities
will be completed by December 31, 1998. The Company does not anticipate
that Year 2000 compliance activities will have a material effect on the
Company's business, financial position or results of operations. However,
there can be no assurance that the Company's systems and products are Year
2000 compliant until the successful completion of its testing procedures.
Additionally, there can be no assurance that the systems of other
companies on which the Company relies will be Year 2000 compliant which
could result in a material adverse effect on the Company. (unaudited)

8. INCOME TAXES 

     The Company's provision for income taxes consists of the following:


                                       35
<PAGE>
                                                DECEMBER 31, 
                                          -----------------------
                                            1996           1997
                                          --------      ---------
                                              (in thousands)
          Current - Foreign............   $    225      $      60
          Deferred - Foreign...........       (182)           149
                                          --------      ---------
                                          $     43            209
                                          ========      =========


     Income taxes for the year ended December 31, 1996 and 1997 were
attributable to income taxes paid to the Singapore government related to
license fees received pursuant to an agreement with Creative. The Company
did not pay income taxes during 1995.

     Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and their income tax bases. As of December
31, 1996 and 1997, the Company had deferred tax assets as follows:


                                                        DECEMBER 31,
                                                 ---------------------------
                                                    1996            1997
                                                 -----------    ------------
                                                       (in thousands)
      Deferred tax assets:

      Unearned revenue - foreign................ $       182    $         33
      Net operating loss carryforwards..........       1,291           3,097
      Valuation allowance.......................      (1,291)         (3,097)
                                                 -----------    ------------
          Net deferred tax asset................ $       182    $         33   
                                                 ===========    ============


     The valuation allowance has been established to reduce the deferred
tax asset to an amount that is more likely than not to be realized, and is
based on the uncertainty as to the utilization of the net operating loss
carryforwards due to the Company's short operating history and losses to
date.

     As of December 31, 1996 and 1997, the Company had approximately
$3,254,000 and $7,829,000, respectively, of federal and state net
operating loss carryforwards available to offset future taxable income;
such carryforwards begin to expire in 2009. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating losses carried
forward may be impaired or limited in certain circumstances. Events which
may cause limitations in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50% over a three year period. As
of December 31, 1997, the effect of such limitations, is not expected to
be material.

     The Company's income tax provisions differed from the statutory federal
rate of 34% as follows:


                                       36
<PAGE>


                                                   DECEMBER 31,
                                             ------------------------
                                               1996            1997
                                             ---------       --------
Statutory rate applied to...............        
  earnings before income taxes..........         34.0%         34.0% 
State rate net of federal benefit.......          3.6           3.6
Foreign taxes...........................         (1.5)         (4.3)
Valuation allowance.....................        (37.6)        (37.6)
                                             ---------       ---------
Income tax provision....................         (1.5)%        (4.3)%
                                             =========       =========


9. Selected Quarterly Financial Data (unaudited):




<TABLE>
                                                  QUARTER ENDED
                                 ----------------------------------------------------
                                 MARCH 31,    JUNE 30,     SEPTEMBER 30, DECEMBER 31,
                                 ---------    --------     ------------  -----------
                                         (in thousands, except per share data)
<S>                              <C>          <C>          <C>           <C>     
1996
    Net revenues..............   $     91     $     90     $     196     $    490
    Loss from operations......       (418)        (725)         (858)        (994)
    Net Loss..................       (401)        (696)         (823)        (946)
    Net loss per share........   $  (0.06)    $  (0.10)    $   (0.11)    $  (0.12)
1997
    Net revenues..............   $    904     $  1,130     $   1,503     $  1,816
    Loss from operations......       (998)      (1,229)       (1,346)      (2,051)
    Net loss..................       (985)      (1,148)       (1,151)      (1,796)
    Net loss per share........   $  (0.13)    $  (0.13)    $   (0.11)    $  (0.17) 
</TABLE>






                                       37
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information concerning the Company's directors and regarding
compliance with Section 16 of the Securities Exchange Act of 1934 required by
this Item will be set forth in the Company's definitive Proxy Statement, to be
filed within 120 days after the end of the fiscal year covered by this Form
10-K, and is incorporated by reference to the Company's Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this Item will be set forth in the
Company's definitive Proxy Statement, to be filed within 120 days after the end
of the fiscal year covered by this Form 10-K, and is incorporated by reference
to the Company's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item will be set forth in the
Company's definitive Proxy Statement, to be filed within 120 days after the end
of the fiscal year covered by this Form 10-K, and is incorporated by reference
to the Company's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item will be set forth in the
Company's definitive Proxy Statement, to be filed within 120 days after the end
of the fiscal year covered by this Form 10-K, and is incorporated by reference
to the Company's Proxy Statement.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)        Documents filed as part of this Report.

         (1)   Consolidated Financial Statements

                Reference is made to the Index to Consolidated Financial
                Statements included in Part II, Item 8 of this Report.

         (2)   Financial Statement Schedules

                None.



                                       38
<PAGE>

         All schedules for which provision is made in applicable regulations of
the Commission are omitted because they are not applicable or the required
information is in the Consolidated Financial Statements or the notes thereto.

(b)        Exhibits.

      EXHIBIT
        NO.                       DESCRIPTION
   -------------  --------------------------------------------

         3.1      Certificate of Incorporation, as amended.(1)

         3.2      Bylaws.(1)

         4.1      Specimen Certificate of Common Stock.(1)

         4.2      Form of Advisors' Warrant Agreement including Form of
                  Advisors' Warrants.(1)

         10.1     1995 Stock Option Plan, as amended.(1)*

         10.2     Form of Indemnification Agreement between the Registrant and
                  each of its directors and executive officers.(1)*

         10.3     Employment Agreement between the Registrant and Stephen R.
                  Cohen.(1)*

         10.4     Employment Agreement between the Registrant and Robert
                  Kennedy.(1)*

         10.5     Employment Agreement between the Registrant and Shane D.
                  Mattaway.(1)*

         10.6     Employment Agreement between the Registrant and John W.
                  Staten.(1)*

         10.7     Employment Agreement between the Registrant and Harvey
                  Kaufman.(1)*

         10.8     Employment Agreement between the Registrant and Steven F.
                  Mills.(1)*

         10.9     Leases relating to premises at 902 Clint Moore Road, Boca
                  Raton, Florida.(1)

         10.10    Common Stock and Warrant Purchase Agreement between the
                  Registrant and Motorola, Inc.(1)

         10.11    Right of First Negotiation Agreement between the Registrant
                  and Motorola, Inc.(1)

         10.12    Common Stock and Warrant Purchase Agreement between the
                  Registrant and Creative Technology, Ltd.(1)

         10.13    Technology Development and Licensing Agreement between the
                  Registrant and Creative Technology, Ltd., as amended.(1)(3)

         10.14    Distributor Agreement between Rockwell International
                  Corporation, Switching Systems Division, and NetSpeak dated
                  January 30, 1997(1)(3)

         10.15    Common Stock Purchase Agreement between the Registrant and ACT
                  Networks, Inc.(2)

         10.16    Technology Development and Licensing Agreement between the
                  Registrant and ACT Networks, Inc.(1)

         21.1     List of Subsidiaries of the Registrant.(1)

         23.2     Consent of Deloitte & Touche LLP, independent auditors.(2)

         27.1     Financial Data Schedule.(2)

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

           *   Management compensation plan or arrangement

          (1)   Previously filed and incorporated by reference to an Exhibit of
                the same number in the Company's Registration Statement on Form
                S-1 (File Number 333-22123).
          (2)   Filed herewith.
          (3)   A request for confidential treatment pursuant to Rule 406 under
                the Securities Act of 1933, as amended has been granted for
                certain portions of this Exhibit.

(b)       Reports on Form 8-K:


                                       39
<PAGE>

                  No Current Report on Form 8-K was filed by the Company in the
                  fourth quarter ended December 31,1997.

(c)        Item 601 Exhibits

           The exhibits required by Item 601 of Regulation S-K are set forth in
           (A)(3) above. 

(d)        Financial Statement Schedules

           The financial statement schedules required by Regulation S-K are set
           forth in (A)(2) above.



                                       40
<PAGE>


                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                         NETSPEAK CORPORATION

                                         By: /s/ STEPHEN R. COHEN
                                         ---------------------------------------
                                         Stephen R. Cohen, Chairman of the Board
                                         and Chief Executive Officer

March 20, 1998

     Pursuant to the requirements of the Securities Act of 1934, this Form 10-K
has been signed by the following persons on behalf of the registrant in the
capacities and on the date stated.


<TABLE>
         SIGNATURE                                      TITLE                               DATE
--------------------------------------  -----------------------------------------      --------------
<S>                                     <C>                                            <C> 
/s/  STEPHEN R. COHEN                   Chairman of the Board and Chief Executive      March 20, 1998
--------------------------------------    Officer (Principal Executive Officer)

     Stephen R. Cohen

/s/  JOHN W. STATEN                     Chief Financial Officer (Principal              March 20, 1998
--------------------------------------     Financial and Accounting Officer)
     John W. Staten

/s/  ROBERT KENNEDY                     President, Chief Operating Officer and          March 20, 1998
--------------------------------------     Director
     Robert Kennedy

/s/   SHANE D. MATTAWAY                 Executive Vice President, Chief Scientist       March 20, 1998
--------------------------------------     and Director

     Shane D. Mattaway

/s/  STEVEN D. LEEKE                    Director                                        March 20, 1998
--------------------------------------
     Steven D. Leeke

/s/  MICHAEL B. GOLDBERG                Director                                        March 20, 1998
--------------------------------------
     Michael B. Goldberg

/s/  A. JEFFRY ROBINSON                 Director                                        March 20, 1998
-------------------------------------
     A. Jeffry Robinson

/s/  MARTIN SHUM                        Director                                        March 20, 1998
-------------------------------------
     Martin Shum
</TABLE>


                                       41
<PAGE>


                                 EXHIBIT INDEX

EXHIBIT                     DESCRIPTION

23.2                Independent Auditors' Consent

27                  Financial Data Schedule