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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-KSB
 (Mark One)
    [_X_]                ANNUAL REPORT UNDER SECTION 13
                           OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934.
                   For the fiscal year ended December 31, 2001
                                       OR
    [___]          TRANSITION REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year from _______ to _________

                        Commission File Number 000-22235

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

                       Video Network Communications, Inc.
                 (Name of Small Business Issuer in Its Charter)

                Delaware                                 54-1707962
    (State or Other Jurisdiction of         (I.R.S. Employer Identification No.)
     Incorporation or Organization)

        50 International Drive,                             03801
       Portsmouth, New Hampshire                         (Zip Code)
(Address of Principal Executive Offices)

                                 (603) 334-6700
                (Issuer's Telephone Number, Including Area Code)

           Securities registered under Section 12(b) of the Act: None.

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                          Common Stock, Par Value $0.01
                    Redeemable Common Stock Purchase Warrant

                                (Title of Class)

         Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes
[ ] No [X]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this Form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

         State issuer's revenues for its most recent fiscal year.  $12,975,715

         The aggregate market value of the voting common equity held by
         non-affiliates as of May 14, 2002, was approximately $5,994,381.

         The number of shares of the issuer's Common Stock outstanding as of May
         14, 2002, was 2,133,585 shares.

         Transitional Small Business Disclosure Format

(check one): Yes [ ]  No [X]

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                                TABLE OF CONTENTS

<TABLE>
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Item                                                                                                                    Page
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                                     PART I
<S>                                                                                                                      <C>
1.       Business....................................................................................................    1
2.       Properties..................................................................................................    5
3.       Legal Proceedings...........................................................................................    5
4.       Submission of Matters to a Vote of Security Holders.........................................................    5

                                     PART II

5.       Market for Common Equity and Related Stockholder Matters....................................................    5
6.       Management's Discussion and Analysis of Financial Condition and Results of Operations.......................    5
7.       Financial Statements........................................................................................   13
8.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................   15

                                    PART III

9.       Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
           Exchange Act..............................................................................................   14
10.      Executive Compensation......................................................................................   17
11.      Security Ownership of Certain Beneficial Owners and Management..............................................   20
12.      Certain Relationships and Related Transactions..............................................................   22
13.      Exhibits and Reports on Form 8-K............................................................................   24
14.      Signatures..................................................................................................   27
</TABLE>

                       DOCUMENTS INCORPORATED BY REFERENCE

     Sections of our definitive proxy statement for our 2002 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission no
later than May 30, 2002, are incorporated by reference into Part III of this
Form 10-KSB to the extent stated herein.

                                SUBSEQUENT EVENTS

     As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this Form 10-KSB may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.

                                   PART I

     Unless otherwise indicated, all information in this Form 10-KSB gives
effect to a one-for-seven reverse stock split of our common stock effective as
of April 14, 1999 and a one-for-five reverse stock split of our common stock
effective as of February 5, 2002. It also gives effect to a change in our name
to Video Network Communications, Inc. from Objective Communications, Inc.
effective as of September 9, 1999.

     Some of the statements in this Form 10-KSB are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
involve a number of risks and uncertainties. We have made these statements based
on currently available operating, financial and competitive information.
However, actual results and future events may differ significantly from the
results contemplated in the forward-looking statements because of a number of
factors, including product and technology development, customer and market
acceptance of our product, demand for our product, the impact of competitive
products and pricing and other risks detailed in this Form 10-KSB and in our
other Securities and Exchange Commission filings.

     In this Form 10-KSB, we refer to Video Network Communications, Inc., a
Delaware corporation, as we, the Company, VNCI or Video Network Communications.

Item 1.  Business

     Video Network Communications is a Delaware corporation formed in 1993 to
design, develop and market full-motion, high resolution, cost-effective video
network systems. Users of the VidPhone video network system can view broadcast
video, participate in multi-party videoconferences and retrieve stored video on
demand. Our VidPhone system distributes video to and from desktop and laptop
personal computers and conference rooms configured with VidPhone stations, over
the same wiring used by the telephone. We believe that the VidPhone system
offers greater functionality and compatibility with existing infrastructure and
higher quality than other video network or conferencing systems available today.


                                       i
<PAGE>

Industry Background

     Business demand for video communications, historically limited primarily to
video conferencing, is driven by the desire to achieve the most effective means
of communication. Information that is exchanged or presented visually, such as
during in-person meetings or video presentations, has a stronger impact on the
end-user than non-visual communication. People cannot always exchange or present
information in person, and technology limitations and cost constraints have
restricted the use of video applications. Consequently, people rely on
non-visual forms of communication, such as telephony, voice mail and e-mail.
Recent video application developments such as targeted broadcasting and
conferencing achieve the effectiveness of face-to-face meetings while retaining
the convenience of a telephone call.

     We believe that video networks that fully support video broadcast, video
retrieval and video conferencing applications address many of the communications
requirements of the business community. Video networks can improve worker
productivity by facilitating the efficient exchange of information between
geographically dispersed parties and reducing travel expenses. In addition, they
can enable the use of video material for training and research at the
convenience of the user rather than the presenter and permit businesses to
access business broadcasts, such as CNN, CNNfn and CNBC, at a desktop or laptop
computer. To date, however, infrastructure and transmission constraints, costs
and other limitations have precluded business quality video broadcast, retrieval
and conferencing applications at individual desktops.

     Currently, most video communications systems are conference room video
conferencing systems. These systems are expensive for most businesses. Most
conference room video conferencing systems require substantial capital
expenditures and trained personnel for set up and maintenance during video
conferencing calls. Most conference room systems also do not provide video
quality adequate for video broadcast and retrieval and are limited by
distracting latency transmission delays that result in unsynchronized audio and
video. In addition, these systems normally require the use of the public
telephone system for all video calls, including those within a building or
across a small business campus, thereby incurring telephone usage charges for
each call.

     Over the past decade, video conferencing systems have begun to evolve from
high cost, low quality, stand-alone conference room systems to desktop systems.
However, desktop systems have not been widely adopted. We believe that this is
primarily because most video network systems produce inadequate video quality
for business purposes.

     Most desktop video conferencing systems use either dedicated telephone
lines or the local area network ("LAN") to transmit video data. Some desktop
video conferencing systems use dedicated Integrated Services Digital Network
("ISDN") lines to achieve acceptable video quality (384 KBPS) for business
purposes. However, to achieve this quality, a minimum of three dedicated ISDN
lines with six associated telephone numbers must be provided to each desktop.
The installation costs of these additional lines and line use charges render
this approach prohibitively expensive on any significant scale. In addition,
these systems require the installation of either expensive and complex hardware
coder-decoders ("CODECs") in each PC, or software CODECs that render the PC
unavailable for other applications during video conferencing.

     Some video conferencing systems attempt to use the LAN rather than
dedicated telephone lines. These are referred to as IP or H.323 systems.
LAN-based systems also require the installation of hardware or software CODECs
in each user's desktop or laptop computer. Data LANs were not designed for
isochronous (i.e., time dependent) data such as video and audio. LANs were
designed to be shared by individuals using the transmission medium for short
periods of time. Most LANs today do not have the bandwidth to accommodate the
volume of data inherent in full-motion video applications. Consequently, even a
single videoconference would significantly diminish the capacity of most LANs to
support other users. Information technology managers resist LAN-based video
applications because of the additional volume of data and new infrastructure and
the associated maintenance required to support them. Although high speed
Ethernet and gigabit routing switches may alleviate some of the bandwidth
problems resulting from the transmission of video on the LAN, we believe that
these new technologies do not adequately address the transmission delay problems
plaguing such systems. We do not believe that asynchronous transfer mode ("ATM")
will reach desktop computers due to the high cost.

     We do not expect business users to adopt video applications on any
significant scale until video systems are capable of providing cost-effective
TV-quality video and FM-quality stereo audio. We believe that our VidPhone video
network meets these requirements because it takes advantage of existing
telephone wiring and supports high quality two-way video and audio, but it does
not interfere with the existing telephone systems or LAN-based computer systems
or impede the performance of an individual desktop or laptop computer.

Products and Technology

     Our VidPhone system is a full-motion, high resolution, cost-effective video
network system that uses the same wiring as the telephone, which gives it a
competitive cost advantage over other types of video network systems. Users of
the VNCI video distribution system can view broadcast video, retrieve stored
video on demand and participate in multi-party videoconferences from desktop
personal computers and conference rooms.

     Our VidPhone system is comprised of the following core components:

     VidPhone Switch. The VidPhone switch is the heart of our Video Network
System. The switch (similar to a PBX) is a communications server that uses
VNCI's patented technology to deliver full-motion TV-quality video and
FM-quality stereo audio throughout a building or campus - and does so over the
same single twisted pair of telephone wire that is already part of the telephony
infrastructure without disrupting telephone service.

     VidPhone Station. A VidPhone station is a user's computer enhanced by
incorporation of a VidModem, VidPhone station software and some non-proprietary
equipment such as speakers, a microphone and a camera. Users at a VidPhone
station are capable of utilizing all VidPhone system functionality. VidPhone
stations may be located up to 1,250 feet from the VidPhone switch when using
category 3 wiring and up to 2,000 feet when using category 5 wiring. We believe
that most modern business telephone systems use at least category 3 wire.
VidPhone stations do not need terminal-resident ISDN or ATM CODECs. Each station
connects directly to the VidPhone switch and CODECs are shared resources
available to anyone on the system. VidPhone stations may be modified easily and
inexpensively to support VidPhone system functionality in conference rooms. The
VidPhone system supports all video network applications in a large screen,
multi-party conference room setting.


                                       2
<PAGE>

     VidModem. The VidModem connects individual desktops and conference rooms
with the VidPhone switch using the existing telephone wiring. The
desktop/conference room and VidPhone switch versions of VidModem incorporate
patented VidModem technology that enables distribution of TV-quality video,
retrieval of stored video on demand and FM-quality stereo audio and data over
the single twisted pair of copper wire that connects the telephone to the PBX or
CENTREX. The transmission does not require compression or decompression of data.
The connection is transparent to the telephone and the PBX, so the user can use
the telephone concurrently with the VidPhone system. The telephone operates
independently of all video applications.

     VidPhone Station Software. VidPhone's Java-based station software supports
various desktop operating systems ("OS"), including Windows/NT, MAC, Sun and
SGI. It provides an easy-to-use graphical user interface for all video
applications offered by the VidPhone system and transforms each user's desktop
or laptop computer into a VidPhone station. The user's computer is configured
with non-proprietary equipment such as a microphone, speakers and a camera.

     ISDN/IP Gateway. VNCI's ISDN/IP Gateway is a dual port device that allows
VidPhone users to call other VidPhone switches and other H.320/H.323 video
conferencing systems over the wide area network ("WAN"). By leveraging VidPhone
technology, the ISDN/IP Gateway makes it possible for any VidPhone user to
originate a WAN call. VidPhone users can place a call directly from their
desktop without having to go to a designated ISDN/IP wired meeting room to
conduct videoconferences.

     Universal Gateway. Our Universal Gateway is a dual port device that allows
a wide variety of third party CODECs (H.320, H.323, MPEG-2 etc.) to connect
seamlessly to the VidPhone system. The Universal Gateway provides an interface
between the VidPhone switch and stand-alone system CODECs. The Universal Gateway
allows users of these third party CODECs to protect and leverage their
investment in those CODECs by making them available to all users of the VidPhone
system to originate or receive WAN calls.

     VidServer. VidServers are shared resources that provide video on demand
capabilities to the VidPhone system and individual users. VCR-like controls from
the desktop provide users with full control over the video stored on the
VidServer - play, pause, stop, skip forward and skip backward - with a single
mouse click. These software controls are integrated with our VidPhone station
software.

System Functionality

     The VidPhone system can support three business video requirements.

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

     Video Conferencing. The VidPhone system supports two-way and multi-party
video conferencing. A VidPhone system user can maintain a telephone directory
and contact other VidPhone users using standard point-and-click techniques at
any time without prior coordination.

     Retrieval of Stored Video. VidPhone system users can access video material
stored on a variety of different types of devices, such as a video server, a VCR
and a DVD player. Users access stored video using point-and-click techniques
similar to those used to access broadcast video. System Functionality

Sales and Marketing

     Our sales and marketing strategies are focused on creating brand-name
recognition of Video Network Communications, Inc. and our video networking
systems. We aggressively promote our systems in industry (horizontal) and
vertical markets through online and traditional marketing initiatives including:
press releases, articles and advertisements in key media outlets, direct and
e-mail campaigns, presentations to industry analysts and consultants, formal
product launches and participation in trade shows and conferences.

     Strategy Overview. To achieve prominence in the emerging video
communications marketspace, we intend to capitalize on three major trends: (i)
increasing demand for desktop media tools fueled by Web-based videoconferencing
and MPEG-3 audio and video content and (ii) the drive by systems integrators and
telephone and utilities providers to "get in on the ground floor" of the
multimedia enterprise information technology market, (iii) increased focus on
security and surveillance as a result of recent world events. However, we must
compete with larger, well-funded companies offering everything from traditional
videoconferencing, to Web-based conferencing, to enterprise networking
solutions. It will be increasingly important for our video network to be
positioned correctly in order to market and sell it effectively. Marketing
differentiates our networking products from lower-quality, less robust solutions
by describing the VNCI system as a high-end enterprise solution for companies
with a critical need for on-demand video communications at multiple desktops and
sites. In the high-end of this emerging market, we believe that we have few
competitors with comparable technology.

     Product advances, such as our Universal Gateway and hub and spoke
technology, allow our sales directors and resellers to compete more effectively
by offering an extremely scalable video network that delivers all three video
capabilities, locally and across the WANs, without upgrading the infrastructure.
In addition, the VidPhone networking system is more attractive than LAN- or IP
(Internet Protocol)-based systems to decision-makers such as corporate
information technology ("IT") administrators because it reaches enterprise
desktops without using LAN bandwidth, compromising LAN integrity, affecting LAN
reliability, or requiring significant PC processing power. VNCI's hybrid
networking approach enables hundreds of end users to access and share video
resources over existing telephone lines locally, while allowing customers the
choice of ATM, IP, or ISDN transport systems across the WAN. System
administrators, and existing IT staff can centrally manage and track system
resources, transport options and utilization, and feature upgrades. Finally, the
VNCI networking system consistently provides higher-quality video
communications, on-demand, from the desktop, than any LAN-based system currently
available.


                                       3
<PAGE>


     Resellers. We market our VidPhone system directly through a small team of
vertical sales directors, and through an expanding and increasingly selective
network of resellers, both of which target the healthcare, government,
education, financial services ,broadcast production and security and
surveillance sectors. We currently have agreements with approximately twelve
resellers, including Verizon, Inter-Tel, Lockheed-Martin, and InfoTech.

     Vertical Distribution Channel Support. We are developing vertical
distribution channel programs and support for our VidPhone networking system. As
discussed above, sales and marketing initially targeted education, the
government, and the video broadcast/production and healthcare industries. Over
the past year, we have continued to develop reference accounts that deepen our
experience within these sectors. This shared knowledge allows us to help our
channel partners more efficiently market our products and helps us produce video
technology that meets defined customer needs, as well as market custom
applications across vertical markets and into new business sectors. Recent
experience has shown that the healthcare, entertainment, government, and in
particular, military sectors demand the superior quality, robust capabilities,
and flexible architecture that our video systems provide. As we improve our
visibility and increase penetration in these reference accounts, VNCI channel
partners will have the opportunity to become preferred video technology partners
in these demanding markets.

     Direct Sales. We have a small direct sales force of vertical marketing
directors dedicated to (i) promoting our video network solutions in the
healthcare, government, education, financial services and broadcast production
sectors, (ii) creating reference accounts in major markets and (iii) developing
and supporting third-party reseller relationships and opportunities. As our Vice
President of Sales and Marketing continues to expand direct sales efforts in our
most promising markets, we intend to respond with increasing efficiency to our
installed customer base, as well as new vertical and international sales
opportunities as they develop, including hiring a small number of sales and
engineering support people in specific geographic areas to handle increased
activity.

     While the video networking marketspace is taking shape, we will need to be
vigilant. Aggressive partnering and co-development by competitors and broadband
companies intent on capturing mindshare before they can deliver on the promise
of LAN- or IP-based video may confuse consumers and slow our progress. By
strengthening our reseller relationships, expanding our technical and sales
support infrastructure and continuing to ratchet up marketing and public
relations efforts, we intend to educate our consumer base, while creating a
customer base that will ensure stability today - and allow us to expand our
vision into tomorrow.

     Strategic Alliances. We recognize that we are a small company with limited
resources that constrain our ability to market and sell our video network
systems. As we evaluate the potential advances in technology and our markets, we
interact with other companies that provide technology, information systems
integration, network services and other products and services that are
complimentary to our product and services offerings. We believe that an
appropriate strategic alliance or alliances could have a material positive
impact on our business through increased exposure of our products to broader
markets, additional financial, technical and personnel resources and a broader
established customer base.

     Customer Service and Support. We currently provide primary support to end
customers and support to our resellers. We are in the process of strengthening
the VNCI Customer Support Department to better assist our vertical sales staff,
resellers and end-user customers with problems related to our system, including
initial installation, technical questions, problem resolution and systems
engineering. As our resellers become more familiar with the VidPhone networking
system, we expect that they will provide primary customer support for our
products to their customers, and that our customer support department will
become a secondary customer support, focusing on providing service regarding
issues like software performance and hardware re-engineering requirements.

     Training. To promote reseller sales and marketing efforts, as well as
resellers' support for our products, we hold in-depth training programs to
educate our channel partners about our products. During 2001, we held training
classes for reseller sales, support and service personnel, both at our
facilities and at our resellers' facilities. We intend to increase the number
and availability of our training programs in the future, which we believe will
help build brand awareness, promote reseller sales and marketing of the VidPhone
system, and improve reseller service and support.

Customers

     We have a limited customer base with several customers providing in excess
of 10% of our total revenues. We generally grant uncollateralized credit terms
to our customers and have not experienced any credit-related losses. Two
customers accounted for 50% and 30%, respectively, of our total revenues in the
year ended December 31, 2001, and four customers accounted for 18%, 15%, 11% and
11%, respectively, of total revenues for the year ended December 31, 2000. Four
customers accounted for 30%, 16%, 13% and 10% of our accounts receivable at
December 31, 2001, and three customers accounted for 33%, 32% and 25%,
respectively, of accounts receivable outstanding as of December 31, 2000. Three
customers accounted for 52%, 17% and 12%, respectively, of total revenue for the
year ended December 31, 1999. Two customers accounted for 79% and 14%,
respectively, of accounts receivable outstanding as of December 31, 1999.
Failure to diversify this customer concentration could result in our inability
to continue to generate revenues sufficient to support operations.

Product Research and Development

     During 1997, our research and development efforts focused on completing the
initial development and production of the VidPhone system. We introduced the
VidPhone system in the fourth quarter of 1997, and we made the first shipments
of the commercial VidPhone system in the third quarter of 1998. Our products
demonstrated commercial readiness during the first half of 1999. Since then, our
research and development has focused on:


                                       4
<PAGE>

o    adding new features to existing product lines requested by our customers;

o    creating new products in response to customer demand;

o    adding additional user capacity to the VidPhone system; and

o    lowering production costs.

     Our engineering staff closely monitors technical developments and works
with our marketing personnel to assess evolving business video network
requirements. We will monitor emerging technologies that support new video
applications for business and tailor our research and development accordingly.
In addition to our internal research and development resources, we engage
contract-engineering services when we believe that the use of such services will
be efficient. Research and development efforts target both hardware and software
enhancements to video network capabilities. Our research and development efforts
are complemented by internal quality and assurance procedures.

Intellectual Property

     Our proprietary VidModem transmission technology, incorporated in our
VidPhone system, is covered by U.S. Patent No. 5,621,455 issued in April 1997,
U.S. Patent No. 5,786,844 issued in July 1998, Taiwan Patent No. NI-098004
issued in November 1998 and Canadian Patent No. 2,206,521 issued in January
2001. These patents relate to a method and apparatus for transmitting video
information over telephone wiring. Corresponding patent applications are pending
in Mexico, China and Japan.

     We also have obtained U.S. Patent No. 6,147,991, Taiwan Patent No.
NI-122636 and Canadian Patent No. 2,303,296 on a scalable high-speed packet
switch. Corresponding applications for this invention are pending in Europe.

     We have received notification from the U.S. Patent and Trademark Office
that U.S. Patent No. 6,346,964 was issued on February 12, 2002. This patent
relates to a broadband switching system.

     Further, we have obtained U.S. Patent No. 6,134,222 and Taiwan Patent No.
NI-133136 for a U-channel interface device that permits multiple ISDN lines to
be combined for higher bandwidth. Additional applications on this invention are
pending in Taiwan, Europe and Canada. We received an initial report from the
European Patent Office indicating that the invention meets the criteria for
patentability.

     We also received Taiwan Patent No. NI-105797 on an interoffice broadband
communication system, issued in 1999. Corresponding patent applications on this
invention are pending in the United States, Europe and Japan.

     We cannot predict when we will receive a dispositive ruling from the U.S.
Patent and Trademark Office or from foreign patent offices concerning pending
patent applications. We may file additional patent applications in 2002. The
success of our products depends in part on our continuing ability to obtain and
protect patents, licenses and other intellectual property rights covering our
significant hardware and software products. We have registered the trademarks
Video Network Communications, VidPhone and VidModem.

     The process of seeking patent and trademark protection can be long and
expensive, and there can be no assurance that patents and trademarks will issue
from currently pending or future applications.

Manufacturing

     We outsource the manufacture and assembly of components used in the
VidPhone system. In particular, we outsource the production of the VidPhone
switch to various contract manufacturers. Several manufacturers are producing
smaller sub-assemblies and components for us. We believe we will be able to
continue to outsource production and that there are a number of manufacturers
qualified to produce components of our VidPhone system because the production
process is relatively routine and does not require any unique expertise.
Although our products incorporate unique, patented technology, we also believe
that all of the components used in our equipment are readily available from
commercial suppliers. As a result, we do not believe that we depend on any
single manufacturer or supplier to a material extent. All products produced by
third-party manufacturers are shipped to us for final assembly, systems
integration and quality assurance testing. We plan to retain test and quality
assurance functions until subcontractors can be certified with respect to
quality. Any difficulties encountered with third-party manufacturers could
result in product defects, production delays, cost overruns or the inability to
fulfill orders on a timely basis. Any of these difficulties could have a
material adverse effect on us.

Competition

     The market for our video network products is new, highly competitive and
rapidly evolving. We believe that the principal competitive factors in the
markets in which we compete are product performance, price and product support.
Our principal competitors in the video network market are Viewcast, FVC.com and
Avistar. We also expect to compete with new entrants in the market and with
providers supporting IP and LAN-based video networks, including Intel, Microsoft
and Cisco. To date, no desktop system has captured any significant portion of
the potential market.

     Our video network system permits users to view broadcast video, participate
in multi-party videoconferences and retrieve stored video on demand all from
their individual desktops. As a result, we also compete with companies that
offer video broadcast and video retrieval products. Competitors in the video
broadcast market include cable television and direct satellite broadcast system
providers such as DirecTV, TCI and News Network Vision.


                                       5
<PAGE>

     While not truly competitive in the video distribution network market, there
are several video conferencing companies that represent competition for video
conferencing application of our network. These video conferencing companies
include Polycom, PictureTel (recently acquired by Polycom), VTel and Tandberg,
with Polycom being the market leader. These companies provide point-to-point
video conferencing normally over long distances. They do not provide an
enterprise video distribution solution but do represent cost-effective video
conferencing for a limited number of users (i.e., one to five).

Government Regulation

     The FCC regulates the operation of telecommunications equipment for use in
the United States. The VidModem and VidPhone switch components of the VidPhone
system must comply with certain FCC regulations.

     VidModem. The VidModem is a Class A digital device that may be operated
without an individual license. Under FCC regulations, we will be required to
follow a verification procedure consisting of a self-certification that the
radio frequency device complies with applicable regulations. A qualified,
independent testing facility tested the VidModem, and it was found to comply
with FCC regulations.

     VidPhone. We obtained equipment registration from the FCC for certain
VidPhone system components, including the VidPhone switch, that are connected to
the public switched telephone network.

     Future government regulations could increase the cost of bringing products
to market or adversely affect our ability to market and sell our products or
technology.

Employees

     As of May 1, 2002, we had approximately 42 full time employees. We also use
the services of temporary administrative staff, technical consultants and
subcontractors on an as-needed basis. Each employee and consultant has executed
a confidentiality agreement. We have an employment agreement only with Carl
Muscari, our Chairman, President and Chief Executive Officer.

     As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this section may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.

Item 2.  Properties

     We lease one facility in Portsmouth, New Hampshire at a current monthly
rental rate of $12.00 per square foot under a lease that expires in March 2008.
Rent on the facility increases over the term of the lease from an initial rate
of $11.00 per square foot to $15.00 per square foot. That facility consists of
approximately 26,000 square feet, of which approximately 13,000 square feet is
office space, approximately 6,500 square feet is a research and development
laboratory and approximately 6,500 square feet is a production facility used for
equipment assembly and testing, customer support and training.

Item 3.  Legal Proceedings

         We are not party to any lawsuits at this time.

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

     No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 2001.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

Market Information

     Our common stock traded on The Nasdaq SmallCap Market from April 3, 1997 to
October 30, 1997 and traded on The Nasdaq National Market from October 31, 1997
to April 30, 1999. From May 3, 1999 to November 1, 2001, our common stock traded
on The Nasdaq SmallCap Market. Since November 1, 2001, our common stock has been
quoted on the OTC. The following table sets forth, for the periods indicated,
the range of high and low closing sales prices per share reported on such
quotation systems. On April 14, 1999, we effected a one share for seven shares
reverse split in our common stock, and, on February 5, 2002, we effected a one
share for five shares reverse stock split. The share prices listed below have
been adjusted to reflect both reverse stock splits.

                                       6
<PAGE>

                                                        As Adjusted
                                                     ------------------
                 Period Ending                        High        Low
                                                     ------      -----

  March 31, 2000........................             $44.375    $13.280
  June 30, 2000.........................             $21.720     $8.440
  September 30, 2000....................             $13.440     $7.190
  December 31, 2000.....................             $12.345     $5.155
  March 31, 2001........................             $13.750     $7.500
  June 30, 2001.........................             $12.500     $8.550
  September 30, 2001....................             $10.200     $1.950
  December 31, 2001.....................             $ 7.650     $2.050
  March 31, 2002 .......................             $ 3.250     $1.100
  May 13, 2002..........................             $ 2.200     $ .750


     On May 14, 2002, the last sale price per share of our common stock as
reported on the OTC was $3.00 per common share.

     The market price of our common stock historically has been highly
volatile. We completed an initial public offering of 59,142 shares of our
common stock at a price of $192.50 per share in April 1997. Subsequently, in
November 1997, we completed a follow-on public offering of 28,571 shares of
common stock at a price of $809.375 per share. In June 1999, we completed a
public offering of our units consisting of three shares of common stock and
two redeemable common stock purchase options. In the June 1999 offering, we
sold a total of 2,300,000 units at $7.50 per unit, comprised of an aggregate
of 1,380,000 shares of our common stock and an aggregate of 4,600,000
redeemable common stock purchase options. It is difficult to predict the
future market price per share of our common stock.

     Our Public Warrants traded on The Nasdaq SmallCap Market from September 1,
1999 to November 1, 2001. Since November 1, 2001, our Public Warrants have been
quoted on the OTC. The following table sets forth, for the periods indicated,
the range of high and low closing sales prices per warrant as reported on The
Nasdaq SmallCap Market and the OTC. The prices listed below for the Public
Warrants have been adjusted for the one share for five shares reverse stock
split, and the adjusted closing sales prices have been calculated in the same
manner as for the common stock (i.e., multiplying each closing sales price by
five). The Public Warrants adjust for the one-for-five reverse stock split by
reducing the number of underlying shares from one share of Common Stock per
Public Warrant to two-tenths of a share of Common Stock per Public Warrant.

                 Period Ending                      High        Low
                                                  -------      -----

  March 31, 2000........................          $20.625     $4.220
  June 30, 2000.........................          $11.875     $2.815
  September 30, 2000....................          $ 5.155     $3.830
  December 31, 2000.....................          $ 4.690     $2.655
  March 31, 2001........................          $ 4.690     $3.125
  June 30, 2001.........................          $ 4.400     $3.125
  September 30, 2001....................          $ 3.750     $0.800
  December 31, 2001.....................          $ 2.250     $0.150
  March 31, 2002  ......................          $ 0.007     $0.085
  May 13, 2002..........................          $ 0.400     $0.010

     On May 14, 2002, the last sale price per warrant as reported on the OTC was
$ .688 per warrant.

Holders

     As of May 6, 2002, there were approximately 141 holders of record of our
common stock.

Dividend Policy

     We have never paid cash dividends on our common stock. We currently intend
to retain all earnings generated by our operations for the development and
growth of our business and, therefore, do not anticipate paying any cash
dividends to our stockholders in the foreseeable future. The payment of future
dividends on the common stock and the rate of such dividends, if any, will be
determined by our Board of Directors in light of our earnings, financial
condition, capital requirements, general economic conditions and other relevant
factors.

Recent Sales of Unregistered Securities

     In August 2000, we completed a private placement (the "August 2000 Private
Placement") of 1,760,000 Units (individually, a "Unit" and collectively, the
"Units"), each Unit consisting of two-tenths of one share of common stock of the
Company and one redeemable common stock purchase warrant (the "Warrant"). The
Warrant offered in the August 2000 Private Placement entitle the holder to
purchase two-tenths of one share of common stock for an initial exercise price
of $20.00 during the period (the "Exercise Period") commencing on February 26,
2001, and ending on June 15, 2004, subject to prior redemption. The Warrant is
identical to our outstanding Public Warrants to purchase up to 920,000 shares of
our common stock at an initial exercise price of $20.00 per share, which are
currently trading on the OTC Bulletin Board under the symbol "VNCIW," except
that the Warrant could not be exercised until February 26, 2001.

     We offered the Units through EarlyBirdCapital, Inc. (formerly know as
Southeast Research Partners, Inc. and referred to herein as "EBC"), as the
exclusive placement agent, on a "best efforts, all or none" basis. The Units
were offered and sold only to persons who qualified as "accredited investors" as
defined in Rule 501(a) under the Securities Act. The sale and issuance of the
Units were effected in reliance upon the exemption from registration afforded by
Section 4(2) of the Securities Act and Regulation D and Rule 506 promulgated
thereunder. The price per Unit was $1.50.


                                       7
<PAGE>

     As partial compensation to EBC for its services as placement agent, we
issued to EBC an option (the "Purchase Option") to purchase 52,800 shares of
common stock and 264,000 Warrants (two tenths of one share of common stock
and one Warrant must be purchased together as a unit) at an exercise price
of $10.625 per unit. The sale and issuance of the Purchase Option were
effected in reliance upon the exemption from registration afforded by Section
4(2) of the Securities Act and Regulation D and Rule 506 promulgated
thereunder.

     Our net proceeds from the August 2000 Private Placement were an estimated
$2,200,000, after paying commissions, a non-accountable expense allowance, blue
sky fees and other offering expenses of approximately $439,000. We used the net
proceeds of the August 2000 Private Placement for research and development,
product sales and marketing, and customer support operations, to repay a portion
of certain debt outstanding to Sanmina and our legal counsel, and for working
capital.

     In connection with the August 2000 Private Placement, we agreed to file a
registration statement for the offering and resale of the securities issued in
the August 2000 Private Placement and to use our best efforts to have such a
registration statement declared effective by the Securities and Exchange
Commission (the "Commission") no later than December 23, 2000. In connection
with the August 2000 Private Placement, we issued, on December 23, 2000, January
23, 2001 and February 23, 2001, to the purchasers of Units in the August 2000
Private Placement and to EBC, extra warrants (the "Extra Warrants") to purchase
a total of 60,714 shares of Common Stock at an initial purchase price of $20.00
per share. We were obligated to issue such Extra Warrants because a registration
statement covering the offering and resale of the securities issued in the
Private Placement had not been declared effective by the Commission by December
23, 2000. The Extra Warrants have the same terms as the Warrants. We are also
required to issue Extra Warrants on each monthly anniversary of December 23,
2000 until the earlier of the effective date of a registration statement
covering the offering and sale of the securities issued in the Private
Placement, or July 23, 2002. We issued the Extra Warrants in reliance on an
exemption provided by Section 4(2) of the Securities Act of 1933 and Regulation
D and Rule 506 promulgated thereunder. The Company has withdrawn this
registration statement and will issue additional Extra Warrants through July
2002. In addition to the Extra Warrants issued as noted above, the Company
issued 77,380 of additional Extra Warrants through December 31, 2001 and
anticipates issuing 30,952 additional Extra Warrants in 2002.

     As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this section may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

     Some of the statements in this Form 10-KSB are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
involve a number of risks and uncertainties. We have made these statements based
on currently available operating, financial and competitive information.
However, actual results and future events may differ significantly from the
results contemplated in the forward-looking statements because of a number of
factors, including product and technology development, customer and market
acceptance of our product, demand for our products, the impact of competitive
products and pricing and other risks detailed in this Form 10-KSB and in our
other Securities and Exchange Commission filings.

     You should read the following discussion of our operating results in
conjunction with the audited financial statements and notes thereto appearing
elsewhere in this Annual Report on Form 10-KSB.

Overview

     Our financial results for the both the quarter ending and the year ending
December 31, 2001 were disappointing. We recognized $694,000 in revenue in the
fourth quarter of 2001, compared to $3,611,000 in the fourth quarter of 2000.
For the quarter ended December 31, 2001, we reported a net loss of $7.2 million,
or $3.35 per share. This loss compared to a net loss of $1.1 million, or $.52
per share, for the fourth quarter of 2000. For the year ended December 31, 2001,
the Company recognized $13.0 million in revenue compared to $8.8 million for the
year ended December 31, 2000, an increase of 48%. Approximately $6.5 million of
the increase in revenues was related to a data infrastructure project and is not
deemed to be a recurring revenue source. The net loss was $9.0 million, or $4.23
per share, compared to a net loss of $6.2 million, or $3.24 per share in the
prior year.

     As indicated in the Report of Independent Accountants on page F-1 of our
Financial Statements, we have suffered losses from operations, have negative
cash flows from operations and have an accumulated deficit that raised
substantial doubt about our ability to continue as a going concern. The
following discussion and analysis of our financial condition and results of
operations and Note 1 of the Notes to Financial Statements on page F-6 describe
our plans in regard to these matters. The Financial Statements do not include
any adjustments that might result from the outcome of this uncertainty.

     We believe these results are, in part, indicative of the quarter to quarter
variability inherent in our business because purchases of our video network
system constitute a substantial capital expenditure by our customers and, at
this stage of our development as we build our customer base, each sale of our
equipment constitutes a relatively large portion of our revenues for the period
in which the sale is recognized. However, the normal quarterly variation in our
revenues was exacerbated in the second half of 2001 by several factors including
material non-cash financing costs and inventory adjustments, delays in
anticipated contract award announcements in a U.S. government-related education
program and the unprecedented events of September 11, 2001.

     The Company's year end financial results reflect three material non-cash
items, an increase of approximately $3 million in the Company's reserve for
excess inventory in the fourth quarter, amortization of the value assigned to
warrants issued in conjunction with the Company's issuance of bridge notes in
September, October, November and December of approximately $1.3M, and write-off
of $169,000 of net leasehold improvements at its facility in Portsmouth, New
Hampshire.


                                       8
<PAGE>

     One factor adversely affecting our revenues was that the U.S. government
has delayed notification of contract awards under its subsidized education
program, the E-Rate Program, well beyond the date that we expected the
announcements to be made. In forecasting our results of operations for the year,
we had anticipated that contracts would be awarded under that program prior to
the beginning of the E-Rate Program fiscal year that began on July 1, 2001, and
that contract announcements would continue through October 2001. We had also
projected that VNCI would be awarded substantial contracts or subcontracts for
our video network equipment under this program.

     In 2000 and 2001, VNCI received substantial contract and subcontract awards
under this program, resulting in significant revenues to the Company, and we had
projected awards in our second quarter of 2001 that would have been performed in
part as early as our third quarter of 2001. The failure of this program to
generate any revenues for us in the second half of 2001 was unexpected. At
December 31, 2001 we had received no notification of any awards to VNCI or to
our potential prime contractors under this program. In the past, awards to VNCI
and to our potential prime contractors have been among the later awards to be
made under the E-Rate Program.

     Our 2001 results were also adversely affected by the tragic events of
September 11, 2001 and the general economic slow-down. As a result of those
events, certain U.S. government agencies, particularly the Department of
Defense, delayed installation of our video networking equipment at U.S. military
facilities as a result of increased security measures and the focus of these
departments on security measures and military operations rather than capital
equipment purchases. Since September 11th, we have found that certain potential
customers, such as military organizations, have fewer opportunities to meet with
our sales agents regarding potential purchases because of a heightened focus on
security measures and critical operations and a concern about the economy
generally.

     In 2001, we continued our sales strategy of focusing on our five vertical
markets: healthcare, government, video production and distribution, finance and
education. We have established reference accounts in the healthcare, government
and video production and distribution markets and we believe that we have made
substantial inroads in the education market. While we achieved important
successes in both the healthcare and government markets during the year,
customers in the video production and distribution market are indicating that
future capital budgets are heavily constrained as a result of the slowing
economy. As the economy continues to be generally weak, we continue to focus on
identifying new potential customers for whom video application is "mission
critical," because we believe these potential customers will be able to realize
a return on their investment or an overall cost savings as the result of an
investment in a video network system.

     Although we experienced a delay in purchases as a result of the tragic
events of September 11, 2001, these same events also have generated significant
new interest in our video network products as corporate America and the Federal
government evaluate alternatives to travel for business purposes and the
increased use of video for security. Our web-site traffic and telephone inquires
havehave increased. We believe this new interest in visual communications will
accelerate the adoption of video networks by large, complex organizations.
However, we cannot predict when or if this new interest will result in orders
for our products, and we remain particularly concerned given the downturn in the
economy generally.

     We cannot predict how the additional interest in video or the downturn in
the economy generally will affect our overall business in the near future.
However, we believe that the general slowdown in the economy will contribute to
lower capital spending and may lengthen our sales cycle with particular
customers. We require additional cash to fund operations. Effective September
25, 2001, and on October 24, 2001, we completed an initial short-term bridge
financing in which we issued 9% Senior Secured Bridge Notes with an aggregate
principal amount of $1 million (the "Bridge Notes") and warrants to purchase up
to 400,000 shares of our common stock at an initial exercise price of $2.00 per
share (the "Bridge Warrants"). We also currently have outstanding $1,674,982
principal amount of Second Bridge Notes issued in November and December of 2001.
The outstanding principal amount of and accrued interest at the rate of 9% per
annum on the Second Bridge Notes was due and payable on the earlier of February
19, 2002, or the date on which a financing closes.

     At December 31, 2001, we had only approximately $507,000 in cash. Although
we expect to generate revenues and profits from operations during the next
twelve months, we do not believe that these additional revenues and profits
together with our existing cash will be sufficient to fund operations for that
period. Accordingly, we require additional financing to fund operations. We are
in active discussions with potential financial investors and we currently
anticipate that we will complete an additional, substantial financing. However,
we do not currently have any commitments to provide additional financing and we
cannot assure you that we will be able to secure any additional debt or equity
financing when required or at all. We currently anticipate that we will seek to
complete a private placement of equity securities in 2002. However, we do not
have any commitment with respect to any such equity financing and we cannot
assure you that we will be able to complete such a financing, or, if completed,
the timing of the financing or its terms.

     In late October, our common stock and publicly traded warrants were
delisted from The Nasdaq SmallCap Market because we did not meet The Nasdaq
SmallCap Market continued listing requirements. Quotations for our common stock
and publicly traded warrants are now available on The OTC Bulletin Board. We
cannot predict whether the delisting of our securities will adversely affect our
ability to complete additional equity or debt financings required to support
continuing operations nor do we know if it will have any adverse effects on our
current and potential customers. We intend to continue to fund operations with
existing cash and with cash generated from customer payments of accounts
receivable until we complete additional debt or equity financings. However, the
timing of customer payments is uncertain.


                                       9
<PAGE>

     For 2002, we intend to intensify our focus on selling and marketing our
video network solutions with renewed emphasis on development of channels and
other resellers and continuing product development to meet customer demands for
new functionality and to lower the cost of our systems. Specifically, our goals
are to (i) significantly enhance our marketing and public relations programs to
create better awareness of our products among customers, industry analysts and
financial analysts, (ii) pursue near term direct selling opportunities, (iii)
continue engineering our video network system to refine and improve its
functionality to meet new customer requirements and to lower our costs and the
price of our system through improved design, (iv) develop new and expand current
strategic partnerships committed to marketing our video network system as the
video solution of choice to business users, and (v) use our current strategic
and reseller arrangements to increase sales of our systems and create brand name
recognition of our product.

     Our ability to meet these objectives is subject to a number of risks and
uncertainties, including our ability to develop new strategic relationships with
significant potential resellers, our ability to sell and market our product and
develop market awareness of our video network system and our ability to obtain
financing when required. We plan to continue to subcontract all major
manufacturing and production activities for the foreseeable future, but we will
continue to retain test and quality assurance functions until all subcontractors
are certified with respect to quality.

     The reader is referred to Note 16 of the Notes to the Financial Statements
- Subsequent Events appearing elsewhere in this Annual Report on Form 10-KSB

Results of Operations

Comparison Of The Years Ended December 31, 2001 And December 31, 2000

     Revenues. We recognized $12,976,000 in revenues during 2001 compared to
$8,769,000 in 2000, an increase of $4,207,000, or 48%. Of these revenues,
$3,389,000 related to product sales in 2001 compared to $6,520,000 in 2000,
representing a decrease of $3,131,000, or 48%. The decrease in product revenues
was caused by a decrease in the number of customers in 2001 compared to the
prior year. Revenues related to installation and other services were $9,587,000
during 2001 compared to $2,249,000 in 2000, representing an increase of
$7,338,000, or 326%. Approximately $6.5 million of the increase in service sales
was related to a data infrastructure project and is not deemed to be a recurring
revenue source.

     Cost of Sales. We recognized $11,343,000 in cost of sales in 2001 compared
to $5,930,000 in 2000, an increase of $5,413,000, or 91%. Of the cost of sales
recognized in 2001, $5,830,000 was related to product sales, of which $3,000,000
was due to an increase in the reserve for excess inventory, and $5,513,000 was
related to the costs of providing installation and other services. Of the cost
of sales recognized in 2000, $4,393,000 was related to product sales and
$1,537,000 was related to the cost of providing installation and other services.

     Gross Margin on Sales. The overall gross margin on revenues recognized in
2001 was $1,633,000, or 13%, compared to an overall gross margin achieved in
2000 of $2,839,000, or 32%. Excluding the effects on gross margin of the
provisions for excess inventory in each year, the overall gross margin achieved
in 2001 was 36%, compared to 34% achieved in 2000. Gross margin in product
sales, excluding the effects of the provision for excess inventory, was
$559,000, or 16%, compared to gross margin on product sales of $2,227,000, or
34% achieved in 2000. The reduction in gross margin on product sales between
2000 and 2001 is due primarily to absorption of relatively fixed manufacturing
costs by fewer product sales. The gross margin on service sales in 2001 was
$4,074,000, or 42% compared to gross margin on service sales in 2000 of
$712,000, or 32%. The increase in gross margin in service sales is due to the
recognition of management fee revenues, against which no costs are recorded,
offset by the lower than average margin attained on the data infrastructure
project.

     Research and Development. Research and development costs decreased to
$2,774,000 in 2001 from $3,770,000 incurred in 2000, a reduction of $996,000, or
26%. Approximately $502,000 of the reduction was related to reduced use of
material and testing services in 2001 compared to 2000. During 2000 a
significant development effort to bring certain functionality to the product had
caused these expenses to be higher than normal. Depreciation expense was
approximately $232,000 lower in 2001 than 2000 as older equipment became fully
depreciated. Approximately $160,000 of the reduction was due to lower salaries
expenses. In 2000 $60,000 in previously capitalized production rights were
charged to expense, which was not repeated in 2001.

     Selling, General and Administrative Expenses. Selling, general, and
administrative expenses increased from $5,008,000 in 2000 to $6,136,000 in 2001,
an increase of $1,128,000, or 23%.

     Sales and marketing costs increased $363,000, or 13% from 2000 to 2001.
Staffing cost increased $268,000, primarily in support of marketing initiatives
and increased customer support staffing. Of the increase, $219,000 was due to a
write-down of demonstration and evaluation equipment. Advertising and collateral
materials expenses increased $141,000 in 2001 compared to 2000. Offsetting these
increases was a reduction in the use of outside consultants, $111,000, decreased
freight and postage expenses, $36,000, and lower depreciation expense, $93,000.

     General and administrative expenses increased $590,000, or 36%, from 2000
to 2001. Increased costs associated with obtaining financing represented
$319,000 of the increase in 2001. Salaries expense increased $82,000, investor
relations costs increased $56,000, insurance costs increased $56,000, and joint
marketing fees increased $54,000. Offsetting these increases was a reduction in
recruiting and relocation expenses of $46,000 and depreciation, of $19,000.

     Asset Impairment Charge During the fourth quarter of 2001, the Company
recognized impairment losses of $169,000 when certain negative conditions were
identified as indicators of impairment. In accordance with company policy,
management assessed the recoverability of long-lived assets based on the
expected future operating cash flows expected to be derived from these assets.
Based on this assessment, the Company recognized impairment losses of $169,000
related to leasehold improvements.


                                       10
<PAGE>

     Net Interest Expense. We recorded $1,579,000 in net interest expense in
2001 compared to $230,000 in 2000. Interest expense in 2001 was $1,600,000
compared to $295,000 in 2000. The value of warrants issued in connection with
bridge financings was recorded as debt discount in 2001 and the interest expense
for the year included $1,312,000 related to the amortization of that discount.
In 2001, $43,000 was related to the amortization of debt discount associated
with the notes payable to Sanmina and to our legal counsel, compared to $52,000
in 2000. Interest income in 2001 was $21,000 compared to $65,000 in 2000. The
decrease in interest income was due to lower average cash balances and generally
lower interest rates in 2001 compared to the prior year.

     Net loss As a result of the foregoing factors, the net loss for 2001
increased to $9,025,000 from $6,170,000 in 2000, an increase of $2,855,000, or
46%.

Comparison Of The Years Ended December 31, 2000 And December 31, 1999

     Revenues. We recognized $8,769,000 in revenues during 2000 compared to
$2,395,000 recognized in 1999, an increase of $6,374,000, or 266%. Of these
revenues, $6,520,000 related to product sales in 2000 compared to $1,912,000 in
1999. The increase in revenues is caused by an increased number of customers in
2000 compared to 1999. Revenues related to installation and other services were
$2,249,000 during 2000 and $483,000 in 1999. Seventy-two percent (72%) of total
sales for the year ended December 31, 2000 were to a total of twelve new
customers.

     Cost of Sales. We recognized $5,930,000 in cost of sales in 2000 compared
to $2,652,000 in 1999, an increase of $3,278,000, or 124%. Of the cost of sales
recognized in 2000, $4,393,000 was related to product sales and $1,537,000 was
related to the cost of providing installation and other services. Of the cost of
sales recognized in 1999, $2,376,000 was related to product sales and $276,000
was related to cost of providing installation and other services. Also included
in the cost of product sales in 1999 is $1,300,000 of expense related to the
increase in the inventory reserve recorded in the fourth quarter of 1999. This
additional reserve was taken against the value of certain demo equipment,
$300,000, and against potentially excess inventory on hand at December 31, 1999,
$1,000,000. During 2000, the Company increased the reserve for excess inventory
by an additional $100,000.

     In the fourth quarter of 1999, the Company determined that it was no longer
in the development stage. Accordingly, the addition to the inventory valuation
reserve of $1,300,000 recorded in the fourth quarter was recorded against
product cost of sales rather that against research and development, which had
been the policy while in the development stage.

     Gross Margin on Sales. The overall gross margin on revenues recognized in
2000 was $2,839,000, or 32%, compared to overall gross margin achieved in 1999
of ($257,000). Year 2000 gross margin was derived from product sales,
$2,127,000, yielding a gross margin percentage of 33%, and $712,000 was derived
from service revenues, yielding a gross margin percentage of 32%. Overall gross
margin on revenues recognized in 1999 was ($257,000). Of this gross margin,
$836,000 was derived from product sales, yielding a gross margin percentage of
44%, and $207,000 was derived from service revenues, yielding a gross margin
percentage of 43%. Offsetting these gross margins was a charge of $1,300,000 to
cost of sales related to the increase in inventory valuation reserves. The
decline in gross margin percentage in 2000 compared to 1999 for product sales
reflects discounting of selling price to induce early adopters to purchase our
equipment. The decline in gross margin percentage on service revenues in 2000
compared to 1999 is a result of certain system integration projects undertaken
by the Company in 2000 which generated lower gross margins than service related
activities generated in 1999.

     Research and Development. Research and development costs decreased to
$3,770,000 in 2000, from $5,040,000 in 1999, representing a decrease of
approximately $1,270,000, or 25%. Approximately $511,000 of the reduction
resulted from reduced staffing costs as engineering staffing in the research and
development departments declined from an average of approximately 24 in 1999 to
approximately 22 in 2000 and the reduction in support staff levels. In 1999, the
company charged to expense $355,000 in costs associated with the development of
certain test equipment, which was not repeated in 2000. Approximately $162,000
of the reduction was attributable to reduced use of outside design services,
relying in 2000 on in-house engineering staff instead. Depreciation expense
decreased by $313,000 in 2000 versus 1999 as older equipment becomes fully
depreciated or depreciates at a slower rate. Approximately $141,000 of the
decrease in expense was due to reduced use of rental equipment and software
maintenance contracts used in support of projects. $60,000 of the reduction was
due to lower costs allocated to the department from service departments.
Partially offsetting these reductions was approximately $289,000 of increased
materials and supplies expenses incurred in support of continuing development
projects.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to approximately $5,008,000 during 2000, from
approximately $5,420,000, representing a reduction of $412,000, or 8%.

     Sales and marketing expenses increased approximately $523,000 in 2000 as
compared to 1999. Staffing costs increased by $575,000 as additional human
resources were retained in support of renewed sales and marketing initiatives.
Similarly, travel and entertainment increased by $154,000. Partially offsetting
these increases was a $109,000 reduction due to reduced spending related to
outside consultants and tradeshow attendance and the elimination of rented sales
space. Depreciation expense charged to sales and marketing departments declined
$98,000 due to slower depreciation rates on older assets.

     General and administrative costs declined by approximately $933,000 in 2000
compared to 1999. Staffing costs were reduced by approximately $364,000 due
primarily to changes in senior management in 1999. Similarly, recruiting costs
were reduced $83,000 in 2000 compared to 1999. Consulting expenses were reduced
by approximately $548,000, primarily due to the completion in 1999 of the
amortization of certain deferred consulting costs related to a financial
consultant. Depreciation expense declined by $37,000. Offsetting these
reductions was an increase of approximately $52,000 related to insurance and to
securities' exchange expenses.


                                       11
<PAGE>

     Net Interest (Income) Expense. We recorded approximately $230,000 of net
interest expense in 2000, compared to approximately $2,213,000 in 1999. Interest
expense totaled approximately $295,000 during 2000, compared to approximately
$2,350,000 during 1999. Interest expense incurred in 2000 related primarily to
long-term debt and notes payable, $232,000, and the amortization of debt
discount, $52,000. Of the interest expense recorded in 1999, approximately
$1,847,000 was interest expense on the outstanding unsecured promissory notes
with an aggregate principal amount of $2,850,000 that we issued in a unit
offering completed in February of 1999 and repaid in June 1999. Included in the
interest expense recorded in connection with the unsecured promissory notes were
approximately $1,270,000 of amortization of debt discount and $472,000 of
amortization of debt issuance costs. These notes were repaid in June 1999. In
addition, we incurred approximately $324,000 in interest expense related to
long-term debt issued in connection with restructured vendor accounts payable
(including $50,000 of amortization of debt discount), $75,000 in interest
incurred on the 5% Convertible Debentures, $60,000 related to overdue vendor
payables balances, and an additional $34,000 related to capital lease
obligations.

     We earned approximately $65,000 in interest income during 2000, compared to
$137,000 in interest income during 1999. The interest income recorded in 1999
was earned primarily on the invested proceeds of the public offering of
securities common stock that we completed in June 1999. We had lower average
cash balances during 2000 available for investment compared to 1999 and
accordingly earned less interest income.

     Net Loss. As a result of the foregoing factors, the net loss for 2000
decreased to approximately $6,170,000 from $12,929,000 in 1999, a decrease of
approximately $6,759,000 or 52%.

Liquidity and Capital Resources

     We have an accumulated deficit balance of $67.7 million from our inception
through December 31, 2001. We expect to incur additional operating losses for
the foreseeable future, principally as a result of expenses associated with
product development efforts and anticipated sales, marketing, and general and
administrative expenses. During 2001, we satisfied our cash requirements
principally from cash on hand as of December 31,2000, from the proceeds of
bridge financings, and from collections from customers.

     We had cash and cash equivalents of $507,000 at December 31, 2001 compared
to $1,660,000 at December 31, 2000, a decrease of $1,153,000. The decrease in
cash and cash equivalents was primarily the result of cash used in operations
offset by cash generated from payments from customers, and from the proceeds of
the bridge financing.

     Net cash used in operations during 2001 was $3,175,000. The net loss in
2001, reduced by depreciation, amortization, non-cash compensation and other
non-cash charges was $3,995,000. Inventory decreased by $3,474,000 during 2001,
due to a $3,000,000 increase in the provision for excess inventory reserves, and
sales of product made during the period, offset by inventory purchases.
Accounts receivable decreased by $2,415,000 during 2001 as cash was collected
from customers, offset by new sales in 2001. Deferred revenue decreased
$2,595,000 when revenue on the related project was recognized during the year.

     Our investing activities in 2001 consisted of capital equipment purchases
of $29,000 and investments in trademarks and patents of $40,000.

     We generated $2,091,000 in cash from financing activities during 2001.

     As of December 31, 2001, we had outstanding $1,000,000 principal amount of
First Bridge Secured Notes, originally issued in September and October of 2001,
on which the outstanding principal, and interest at the rate of 9% per annum,
were originally due December 24, 2001 and were extended to be due and payable on
the earlier of February 15, 2002, or the date on which a financing closes. The
First Bridge Secured Notes are secured by substantially all of our intellectual
property, including our United States patents and trademarks.

     We also currently have outstanding $1,674,982 principal amount of Second
Bridge Notes issued in November and December of 2001. The outstanding principal,
and interest at the rate of 9% per annum, is due and payable on the earlier of
February 19, 2002, or the date on which a financing closes.

      We currently have an outstanding note to a trade creditor, Sanmina Corp.,
which was in the original principal amount of $4.3 million, relating to 1998
accounts payable due Sanmina which were reduced to a note in January 1999. In
January 2000, we defaulted on the interest payment due to Sanmina and did not
make subsequent interest and principal payments to Sanmina when due through
August 2000. Under the current terms of the note, the Company paid $150,000 on
August 25, 2000, and $150,000 in November 2000. The Company is obligated to pay
an amount each month equal to a percentage of the accounts receivable that it
collected in the previous calendar month, with the percentage ranging from 0% to
5%, based upon the net amount of accounts receivable that we collect, beginning
in February 2001. Any principal and accrued interest thereon remaining on the
note was due in full on January 12, 2002. The Sanmina note is collateralized by
the Company's personal property and certain other assets. At December 31, 2001,
the Company owed Sanmina approximately $2.9 million in principal and $550,000 in
interest on this note.

     We also had a note outstanding to our legal counsel for legal fees that
were incurred prior to 1999. Under the initial terms of the note, we were
obligated to make two semi-annual interest only payments and monthly principal
and interest payments of approximately $26,000 per month. In January 2000, we
did not make the required interest payment to our counsel, and we did not make
subsequent interest and principal payments to legal counsel in 2000 when due.
Subsequently, we paid our legal counsel $77,874 on the note, but continued to
owe legal counsel $83,200 in late principal and interest payments. In August
2000, we renegotiated the terms of the note to our legal counsel. This note was
fully paid in 2001.


                                       12
<PAGE>

Subsequent Events

     The following material events took place subsequent to December 31, 2001.
These events are material events in our operations and this section should be
read carefully and thoroughly by readers. Data in the following has been
adjusted to give effect to our one-for-five reverse stock split effected on
February 5, 2002.

     On January 25, 2002, we announced that we had completed a third bridge
financing. On January 24, 2002, we issued to investors in a private placement
$500,000 in aggregate principal amount of 9% Unsecured Promissory Notes (the
"Unsecured Notes") and warrants (the "Warrants") to purchase 200,000 shares of
our common stock at an initial exercise price of $1.30 per share (the "Bridge
Financing"). We offered the Unsecured Notes and Warrants directly to persons who
qualified as "accredited investors" under the Securities Act of 1933, as
amended, and not through any placement agent. Each investor who participated in
the Bridge Financing received an Unsecured Note representing the principal
amount of the investor's investment and a Warrant to purchase our common stock.
For every dollar that an investor invested in the Bridge Financing, the investor
received a Warrant to purchase four-tenths of a share of our common stock.

     The Unsecured Notes are unsecured debt obligations of the Company and were
due and payable upon the earlier of April 24, 2002 or the date on which we
complete our next debt or equity financing in which we raise in the aggregate,
on a cumulative basis, in excess of $2,500,000 in gross proceeds. The holders of
the Unsecured Notes have the right to convert all or any portion of the
principal amount of the Unsecured Notes into the securities that we issue in our
next financing. The Notes bear interest at a rate of 9% per annum. Interest
accrues from January 24, 2002 through the date on which the Notes become due and
payable. If the Notes are not paid when due, interest will accrue at the rate of
18% per annum thereafter.

     The Warrants will be first exercisable beginning on July 24, 2002, and will
be exercisable until July 23, 2007. The initial exercise price for the Warrants
of $1.30 per share is subject to adjustment in certain limited events, including
recapitalizations, reclassifications or split-ups of our common stock. The
Warrants have a cashless exercise provision.

     We used the net proceeds from the Bridge Financing to provide short-term
working capital.

     On March 28, 2002, we announced that we had completed a fourth short-term
debt financing. On March 28, 2002, we borrowed the aggregate principal amount of
$349,000 pursuant to a 9% Unsecured Promissory Note (the "Unsecured Note"). In
connection with the loan, we also issued to the lender a warrant (the "Warrant")
to purchase 698,000 shares of our common stock at an initial exercise price of
$1.30 per share (the "Bridge Financing"). The Unsecured Note is an unsecured
debt obligation of the Company and is due and payable on the earlier of June 26,
2002 or the date on which we completed our next debt or equity financing in
which we raises in the aggregate, on a cumulative basis, in excess of $2,500,000
in gross proceeds. The holder of the Unsecured Note has the right to convert all
or any portion of the principal amount of the Unsecured Note into the securities
that we issue in our next financing. The Unsecured Note bears interest at a rate
of 9% per annum. Interest accrues from March 28, 2002 through the date on which
the Unsecured Note becomes due and payable. If the Unsecured Note is not paid
when due, interest will accrue at the rate of 18% per annum thereafter.

     The Warrant issued in connection with the loan will first be exercisable
beginning on August 26, 2002 and will be exercisable until August 26, 2007. The
initial exercise price for the Warrant of $1.30 per share is subject to
adjustment in certain limited events, including recapitalizations,
reclassifications or split-ups of the Company's common stock and for issuances
of securities at a price less than the then current exercise price. The Warrant
has a cashless exercise provision.

     We used the net proceeds from the Bridge Financing to provide short-term
working capital.

     Defaults on Prior Bridge Notes and Sanmina Note. We are currently in
default on certain of our outstanding bridge note obligations. We are in default
on our repayment obligations to holders of the $1,000,000 aggregate principal
amount of 9% Senior Secured Promissory Notes issued in September and October of
2001 (the "First Bridge Notes") and are in breach of certain of our covenants in
the First Bridge Notes and related documentation. The First Bridge Notes are
secured by substantially all of the Company's intellectual property and, as
amended, were due and payable on February 15, 2002 or, in the case of $300,000
aggregate principal amount of the First Bridge Notes the holders of which agreed
to extend the maturity date to March 31, 2002. As a result of our default on the
First Bridge Notes, the holders of the First Bridge Notes have the right to
exercise various legal and contractual remedies, including the right to
foreclose on substantially all of the Company's intellectual property which
constitutes a material portion of our assets, and interest will accrue on the
First Bridge Notes from the first date of default at the rate of 18% per year.
We are also in default in our repayment obligations to the holders of the
$1,674,982 aggregate principal amount of 9% Unsecured Promissory Notes issued in
November and December of 2001 (the "Second Bridge Notes"), and is in breach of
certain covenants of the Company set forth in the Second Bridge Notes and
related documentation. The Second Bridge Notes are unsecured debt obligations of
the Company and, as amended, were due and payable on February 19, 2002 or, in
the case of $350,000 aggregate principal amount of Second Bridge Notes, the
holders of which agreed to extend the maturity date to March 31, 2002. As a
result of our defaults on the Second Bridge Note obligations, the holders of the
Second Bridge Notes have the right to exercise various contractual and legal
remedies and interest will accrue on the Second Bridge Notes from the first date
of default at the rate of 18% per year.

     We also have outstanding $500,000 aggregate principal amount of 9%
Unsecured Promissory Notes issued on January 24, 2002 (the "Third Bridge Notes"
and, together with the First and Second Bridge Notes, the "Prior Bridge Notes"),
which are due and payable upon the earlier of (i) April 24, 2002 or (ii) the
date on which the Company completes its next debt or equity financing in which
it raises in the aggregate, on a cumulative basis, in excess of $2,500,000 in
gross proceeds (a "Qualified Financing"). We did not complete a Qualified
Financing prior to April 23, 2002 and did not repay the Third Bridge Note
obligations when they become due and are in default. Accordingly, the holders of
the Third Bridge Notes have the right to exercise various contractual and legal
remedies and interest would accrue on the Third Bridge Notes from the date of
default at the rate of 18% per year.


                                       13
<PAGE>

     We are also in default on our outstanding note to Sanmina Corporation (the
"Sanmina Note"). The Sanmina Note is secured by substantially all of our assets,
other than our intellectual property. The Sanmina Note became due and payable on
January 12, 2002. As a result of the default on the Sanmina Note, Sanmina
Corporation has the right to foreclose on a material portion of our assets.

     We have pledged substantially all of our material assets as security for
the First Bridge Notes and the Sanmina Note. As a result of our defaults on the
Prior Bridge Notes and the Sanmina Note, the holders of those notes may
accelerate our obligation to repay in full our outstanding obligations under
these notes, including principal, interest and costs associated with the
acceleration, and any such acceleration could trigger a cross-default provision
in other obligations, requiring us to pay immediately all of the aggregate
outstanding principal and interest on other obligations. The loss of the assets
that serve as security for our outstanding obligations would materially and
adversely affect our business and could require us to file for bankruptcy.

     On April 28, 2002, we completed a fifth short-term debt financing when we
borrowed the aggregate principal amount of $200,000 pursuant to a 9% Unsecured
Promissory Note (the "Unsecured Note"). In connection with the loan, we also
issued to the lender a warrant (the "Warrant") to purchase 400,000 shares of our
common stock at an initial exercise price of $1.30 per share (the "Bridge
Financing"). The Unsecured Note is an unsecured debt obligation of the Company
and is due and payable on demand or on the date on which we complete our next
debt or equity financing in which we raise in the aggregate, on a cumulative
basis, in excess of $2,500,000 in gross proceeds. The holder of the Unsecured
Note has the right to convert all or any portion of the principal amount of the
Unsecured Note into the securities that we issue in our next financing. The
Unsecured Note bears interest at a rate of 9% per annum. Interest accrues from
March 28, 2002, through the date on which the Unsecured Note becomes due and
payable. If the Unsecured Note is not paid when due, interest will accrue at the
rate of 18% per annum thereafter.

     The Warrant issued in connection with the loan will first be exercisable
beginning on August 26, 2002 and will be exercisable until August 26, 2007. The
initial exercise price for the Warrant of $1.30 per share is subject to
adjustment in certain limited events, including recapitalizations,
reclassifications or split-ups of our common stock and for issuances of
securities at a price less than the then current exercise price. The Warrant has
a cashless exercise provision.

     We are using the net proceeds from the Bridge Financing to provide
short-term working capital.

     As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this section may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.


Critical Accounting Policies

     The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires that we make
estimates and assumptions for the reporting period and as of the financial
statement date. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
these amounts.

     Critical accounting policies are those that are important to the portrayal
of our financial condition and results, and which require us to make difficult,
subjective and/or complex judgements. Critical accounting policies cover
accounting matters that are inherently uncertain because the future resolution
of such matters is unknown. We believe that our critical accounting policies
include:

Inventories - Slow Moving

     We reserve estimated amounts related to slow moving inventories. Inventory
at December 31, 2001 has been reduced by a reserve of $3,850,000 based on our
assessment of possible exposure related to excess inventory. The Company used
historical sales trends to determine the amount of this reserve, relying on the
relatively low level of product demand experienced by it the last two quarters
of 2001. However, should demand significantly increase in 2002 due to the
favorable impact of a successful refinancing or other factors, we could find it
necessary to reverse all or a portion of the reserve and, thereby, experience
better operating results than the underlying business activity normally would
warrant. Unless and until a more predictable demand for our products develops
over a period of time, inventory related effects will be likely to continue to
affect the periodic operating results in unpredictable ways.

Risk Factors

     The following risk factors should be read in conjunction with the
Subsequent Events comments in MD&A and in Note 16 to the Financial Statements.
Subsequent events may have a material effect on some of these risk factors.

     As a result of recent developments in connection with a merger transaction
between the Company and B2BVideo Network Corp. and a financing transaction
between the Company and Moneyline Telerate Holdings, certain information in this
section may be substantially changed. Updated information will be contained in a
report on Form 8-K, to be filed not later than May 30, 2002.

We Have Negative Working Capital, a History of Losses and Limited Revenue; We
Have Accumulated a Substantial Deficit

     At December 31, 2001, we had negative working capital of $6,313,000, and we
had an accumulated deficit of approximately $67.7 million. We incurred losses
from continuing operations of approximately $7.4 million, $5.9 million, and
$10.7 million for the years ended December 31,2001, 2000, and 1999,
respectively. We have suffered recurring losses from operations, have negative
cash flows from operations and have an accumulated deficit that raise
substantial doubt about our ability to continue as a going concern. We urge
potential investors to review this report before making a decision to invest in
our company. Given our financial position, our ability to continue our
operations and to repay our substantial outstanding indebtedness depends
entirely on the completion of additional financing.


                                       14
<PAGE>

We Have Low Cash Balances; We Require Additional Financing

     We require additional cash to fund our operations. At December 31, 2001, we
had cash and cash equivalents totaling only $507,000. We cannot continue to fund
operations solely from cash and cash equivalents with cash generated from
customer payments of accounts receivable.

     We will require additional funds to sustain operations and we will need to
complete an additional financing. Our ability to complete a financing, the
timing of the financing and its terms are subject to a number of conditions,
including market conditions, many of which are beyond our control. The delisting
of our common stock and Public Warrants from The Nasdaq SmallCap Market on
November 1, 2001 could have an adverse effect on our ability to secure
additional financing or issue additional securities in the future. In addition,
the substantial doubt about our ability to continue as a going concern and the
existence of our recurring losses, negative cash flows and accumulated deficit
may make it more difficult for us to raise additional debt or equity financing
needed to run our business in the future and may affect our relationships with
suppliers and customers.

     There can be no assurance regarding our ability to secure financing or, if
obtained, the timing or the terms of any such financing. If we are unable to
raise cash in the near future we will be unable to sustain operations, and we
may be forced to consider alternative methods of maximizing stockholder value,
which could include a sale of the Company, asset sales, workout alternatives,
bankruptcy, an acquisition or a merger that may result in a substantially
different company in which VNCI may not be the surviving company and our
management may not be the management of the surviving company. Although our
Board of Directors may determine that it is in the best interests of the Company
and our stockholders to sell the Company or our assets or enter into an
acquisition or merger, an individual stockholder may find an alternative
transaction to be more favorable to such individual stockholder's interests than
the transaction pursued by our Board.

We May Be Unable to Meet the Payment Schedule on Notes Payable

     We currently have outstanding $1,000,000 principal amount of First Bridge
Secured Notes, originally issued in September and October of 2001, on which the
outstanding principal, and interest at the rate of 9% per annum, are due and
payable on the earlier of February 15, 2002, or the date on which a financing
closes. The First Bridge Secured Notes are secured by substantially all of our
intellectual property, including our United States patents and trademarks.

     We also currently have outstanding $1,674,982 principal amount of Second
Bridge Notes issued in November and December of 2001. The outstanding principal
amount of and accrued interest at the rate of 9% per annum on the Second Bridge
Notes is due and payable on the earlier of February 19, 2002, or the date on
which this financing closes.

     We also currently have outstanding $500,000 principal amount of Third
Bridge Notes issued in January of 2002. The outstanding principal amount of and
accrued interest at the rate of 9% per annum on the Third Bridge Notes is due
and payable on the earlier of April 24, 2002, or the date on which this
financing closes.

     We currently have an outstanding note to a trade creditor, Sanmina Corp.,
which was in the original principal amount of $4.3 million, relating to 1998
accounts payable due Sanmina which were reduced to a note in January 1999. In
January 2000, we defaulted on the interest payment due to Sanmina and did not
make subsequent interest and principal payments to Sanmina when due through
August 2000. Under the current terms of the note, the Company paid $150,000 on
August 25, 2000, and $150,000 in November 2000. The Company was obligated to pay
an amount each month equal to a percentage of the accounts receivable that it
collected in the previous calendar month, with the percentage ranging from 0% to
5%, based upon the net amount of accounts receivable that we collect, beginning
in February 2001. Any principal and accrued interest thereon remaining on the
note was due in full on January 12, 2002. The Sanmina note is collateralized by
the Company's personal property and certain other assets. At December 31, 2001,
the Company owed Sanmina approximately $3.4 million in principal and interest on
this note.

     We do not believe that we will be able to make the required principal and
interest payments on these notes when due if we do not complete a financing. If
we default on these notes, we could lose those assets that serve as security,
which in the aggregate constitute substantially all of our material assets, or
we could be found liable to pay immediately in one payment all of the aggregate
outstanding principal and interest on the notes. The loss of these assets could
result in a loss of the entire value of your investment in the Company.

Customers May Not Buy Our Products Due To Concerns Over Our Viability

     Due to our recurring losses from operations and lack of cash, some
potential customers may decide not to purchase our video network system because
of concerns that we may be unable to service, enhance or upgrade the systems. If
we are not able to alleviate concerns about our long-term viability, we may not
be able to market and sell our video network system successfully and continue
operations.

We Have a Limited Customer Base and Attendant Risk Concentration; We are
Dependent Upon a Few Significant Sources of Customers

     We have a limited customer base with several customers providing in excess
of 10% of our total revenues. We generally grant uncollateralized credit terms
to our customers, and have not experienced any credit-related losses. Two
customers accounted for 50% and 30%, respectively, of our total revenues in the
year ended December 31, 2001, and four customers accounted for 18%, 15%, 11% and
11%, respectively, of total revenues for the year ended December 31, 2000. Four
customers accounted for 49%, 15%, 11% and 10% of our accounts receivable at
December 31, 2001, and three customers accounted for 33%, 32% and 25%,
respectively, of accounts receivable outstanding as of December 31, 2000. We
anticipate that the concentration of our customer base will continue for the
foreseeable future, as we continue to expand our marketing efforts within our
vertical target markets. Failure to diversify this customer concentration could
increase our exposure to credit-related losses. In addition, we are dependent
upon a few significant sources of customers, and the loss of a single source of
customers could adversely affect our business.


                                       15
<PAGE>

We Have a History of Significant Losses and Expect Losses to Continue

     We have incurred substantial losses from operations to date and had an
accumulated deficit of $67.7 million through December 31, 2001. There is
substantial doubt about our ability to continue as a going concern.

     We recognized $12,976,000 in revenues during the year ended December 31,
2001, of which approximately $6.5 million was from a data infrastructure project
that is not deemed to be a recurring revenue source, compared to $8,800,000 in
revenues during 2000, and $2,400,000 in revenues during 1999. Accordingly, there
is limited historical basis for you to expect that we will be able to realize
sufficient operating revenues or profits in the future to support continuing
operations. We have a limited backlog for revenue, and we cannot predict with
accuracy what our revenues will be in the future. Our ability to generate sales
and to recognize operating revenues in the future will depend on a number of
factors, certain of which are beyond our control, including:

o    customer acceptance of products shipped and installed to date and in the
     future;

o    our ability to generate new sales of products and secure customer
     acceptance; and

o    customer payments.

We Have a Limited Operating History

     Although we were incorporated in 1993, we focused on research and
development until we shipped our first commercial VidPhone system in the third
quarter of 1998. Carl Muscari, our Chairman, President and Chief Executive
Officer, joined us in September 1999. Ronald K. Dobes, our Vice President of
Engineering, joined us on November 28, 2001. In January 2002, we hired John F.
Baney as Vice President, Sales and Marketing. Because of our limited operating
history and the relatively short tenure of several of our key senior managers,
you have limited information on which to assess our ability to realize operating
revenues or profits in the future.

We Expect to Continue to Experience Quarterly Fluctuations in our Operating
Results

     We have experienced in the past quarterly fluctuations in revenues and
operating results as a result of a number of factors, including the fact that
the typical cost of our system is relatively high, each purchase of our video
network system constitutes a substantial portion of our revenues for the period
in which it is accepted by our customer, and the timing of our sales and
marketing campaigns and the costs associated with those efforts, and our overall
expenses during the period. Customers generally pay for our products and
services only after they are installed and accepted by the customer, and we
typically incur the costs associated with the sales and installation of our
video network systems prior to receipt of any customer payments. We expect these
to continue and accordingly, we expect to continue to experience quarterly
fluctuations in our revenues and operating results for the foreseeable future.

We May Not Be Able to Market Our Products Effectively

     We Are Dependent on Resellers. We distribute our products through major
sellers of telephony products, system integrators and Value Added Resellers
("VARs"). Currently, we have agreements with approximately twelve resellers.
These arrangements are for relatively short contractual periods and may be
terminated under certain circumstances. We cannot assure you that we will be
able to maintain existing reseller relationships or establish new ones. We
compete for relationships against third-party resellers with larger,
better-established companies with substantially greater financial resources. If
we cannot maintain our current reseller relationships and cannot develop new
relationships, we may not be able to sell our video network system.

     Resellers May Not Be Effective Distributors. Sales to third party resellers
are expected to generate a significant part of our future revenues. However, we
have sold only a limited number of video network systems and components under
our reseller arrangements and to date have recognized minimal revenues from
those sales. We currently have limited orders from our resellers for additional
sales of VidPhone systems. If our resellers fail to market and sell our
products, or our products fail to become an accepted part of the resellers'
product offerings, the value of your investment could be reduced.

     We May Not Be Able To Develop Direct Sales And Marketing Capabilities. We
expect to depend on the marketing efforts of our resellers for the foreseeable
future. However, we are developing a small direct marketing capability to
promote our video network system and to support our resellers. We cannot assure
you that we will be able to create awareness of, and demand for, our products
through our marketing efforts, or that the development of our direct marketing
capabilities will lead to sales of our products and services. If we cannot
successfully develop our own sales and marketing capabilities, we may not
succeed in building brand-name recognition of the VidPhone system, and we will
remain solely dependent on reseller efforts.

     We May Not Be Able to Develop Effective Strategic Relationships with
Indirect Channel Partners. We are seeking to develop additional strategic
relationships with indirect channel partners to increase our sales. We may,
however, be unable to attract or maintain effective partners, and we will have
lower gross margins for sales through indirect channel partners.

The Market for Video Communications Products Is Evolving and May Not Support Our
Revenue Expectations; Our Business Has Been Adversely Affected by the Events of
September 11, 2001 and the General Slowdown in the Economy


                                       16
<PAGE>

     The market for video communications products continues to evolve rapidly,
and demand for and market acceptance of new products is unpredictable. In
addition, while there is renewed interest in video networking products following
the events of September 11, 2001, the economy overall has also experienced a
significant slowdown. The cost of video communications systems typically
represents a substantial investment by the customer and have tended to be
discretionary purchases. Accordingly, we cannot predict whether the renewed
interest in video networking products will result in higher overall sales of
video communications equipment. If the market for video communications products
develops more slowly than expected or is adversely effected by a slow down in
the economy, our business and financial condition could be materially and
adversely affected.

Our Industry is Subject to Rapid Technological Change; If We Are Not Able to
Adequately Respond to Changes, Our Products May Become Obsolete or Less
Competitive, and Our Operating Results May Suffer.

     We may not be able, especially given our lack of financial resources, to
respond effectively to the technological requirements of a changing market,
including the need for substantial additional capital expenditures that may be
required as a result of these changes. The video network systems industry is
characterized by rapidly changing technology and continuing process development.
The future success of our business will depend in large part upon our ability to
maintain and enhance our technological capabilities and successfully anticipate
or respond to technological changes on a cost-effective and timely basis. In
addition, our industry could in the future encounter competition from new or
revised technologies that render existing technology less competitive or
obsolete.

We May Not Receive Any Future Contract or Subcontract Awards Under the E-Rate
Program

     Over the past two years, VNCI has received substantial contract and
subcontract awards under the E-Rate Program, resulting in significant revenues
to the Company. We had anticipated that contracts would be awarded under that
program prior to the beginning of the E-Rate Program fiscal year that began on
July 1, 2001, and that contract announcements would continue through October
2001. We had also anticipated that VNCI would be awarded substantial contracts
or subcontracts for our video network equipment under this program. To date, no
awards under this program have been announced for the fiscal year that began on
July 1, 2001. In the past, awards to VNCI and to our potential prime contractors
have been among the later awards to be made under the E-Rate Program. Therefore,
we continue to believe that we will receive additional awards that will generate
revenues for the Company from this program prior to the end of the E-Rate
Program fiscal year in June 2002. However, we cannot provide you with any
assurance that we will receive any future E-Rate Program contract or subcontract
awards. If we do not receive any new contract or subcontract awards under the
E-Rate Program, our future revenues could be materially and adversely affected.

The Protection of Our Intellectual Property is Uncertain

     Our success will depend, in part, on our ability to protect our
intellectual property rights to our proprietary hardware products. Toward that
end, we rely in part on trademark, copyright and trade secret laws to protect
our intellectual property in the U.S. and abroad. The degree of protection
provided by patents is uncertain and involves largely unresolved complex legal
and factual questions.

     The process of seeking patent and trademark protection can be long and
expensive, and there is no assurance that any pending or future applications
will result in patents and/or registered trademarks. Further, although we have
some patents on our technology, we cannot assure you that these or any other
proprietary rights granted will provide meaningful protection or any commercial
advantage to us. We also cannot assure you that claims for infringement will not
be asserted or prosecuted against us in the future, although we are not
presently aware of any basis for claims. A number of companies have developed
and received proprietary rights to technologies that may be competitive with our
technologies. Most of these entities are larger and have significantly greater
resources than we do. Given the rapid development of technology in the
telecommunications industry, we cannot assure you that our products do not or
will not infringe upon the proprietary rights of others.

     A majority of our patents and intellectual property have been pledged as
collateral to the holders of the First Bridge Secured Notes. In the event that
we are unable to pay the notes when they become due, and our note holders decide
not to convert the principal amount of their notes into Units in this offering,
our note holders will have the right to our important intellectual property.
There can be no guarantee that we will be able to repay our note holders when
their notes become due.

We Are Dependent on Third Parties for Manufacturing

     We outsource the manufacturing and assembly of many of the components of
our products. We cannot assure you that our subcontractors will continue to
perform under our agreements with them or that we will be able to negotiate
continuing arrangements with these manufacturers on acceptable terms and
conditions, or at all. In particular, our failure to pay these manufacturers
when due could affect their willingness to continue working with us. If we
cannot maintain relationships with our current subcontractors, we may not be
able to find other suitable manufacturers. Any difficulties encountered with
these manufacturers could cause product defects and/or delays and cost overruns
and may cause us to be unable to fulfill orders on a timely basis. Any of these
difficulties could materially adversely affect us.

Future Government Regulation Could Adversely Affect Our Marketing and Sales

     Several components of our video network system, including the VidModem and
VidPhone Switch, must comply with certain regulations of the Federal
Communications Commission ("FCC"). Under FCC regulations, we will be required to
follow a verification procedure consisting of a self-certification that the
VidModem complies with applicable regulations pertaining to radio frequency
devices. A qualified, independent testing facility tested the VidModem, and it
was found to comply with FCC regulations. We obtained equipment registrations
from the FCC for certain VidPhone system components, including the VidPhone
switch that is connected to the public switched telephone network.


                                       17
<PAGE>


     Although we believe that at present the VidPhone system complies with all
applicable government regulations, future government regulations could increase
the cost of bringing products to market or adversely affect our ability to
market and sell our products and technology.


                                       18
<PAGE>

Item 7.  Financial Statements
<TABLE>
<CAPTION>

                                                                                                                            Page
                                                                                                                            ----

<S>                                                                                                                          <C>
Report of Independent Auditors.........................................................................................      F-1

Balance Sheets as of December 31, 2000 and 2001........................................................................      F-3

Statements of Operations for the years ended December 31, 1999, 2000, and 2001.........................................      F-4

Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 1999, 2000, and 2001..........      F-5

Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001..........................................      F-6

Notes to Financial Statements..........................................................................................      F-7
</TABLE>


                                       19
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders of
 Video Network Communications, Inc.:

We have audited the accompanying balance sheet of Video Network Communications,
Inc. (the "Company") as of December 31, 2001, and the related statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
year then ended. 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 audit. The financial statements of the Company
for the years ended December 31, 2000 and 1999, were audited by other auditors
whose report dated March 6, 2001, expressed an unqualified opinion on those
statements and included an explanatory paragraph that disclosed uncertainty
about the Company's ability to continue as a going concern.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.

In our opinion, the 2001 financial statements referred to above present fairly,
in all material respects, the financial position of Video Network
Communications, Inc. at December 31, 2001, and the results of its operations and
its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States.

The accompanying 2001 financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 1 to
the financial statements, the Company has incurred recurring losses from
operations, has negative cash flows from operations, has a working capital
deficiency, and has an accumulated deficit. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.




Manchester, New Hampshire                                      Ernst & Young LLP
April 4, 2002, except for Note 16, as
to which the date is May 17, 2002


                                      F-1


<PAGE>


                      REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Video Network Communications, Inc.:

In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Video Network
Communications, Inc. (the "Company") at December 31, 2000, and the results of
its operations and its cash flows for each of the two years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

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


PricewaterhouseCoopers LLP


Boston, Massachusetts
March 6, 2001


                                      F-2

<PAGE>

                       VIDEO NETWORK COMMUNICATIONS, INC.

                                 Balance Sheets

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                             2000          2001
                                                                             ----          ----
<S>                                                                      <C>             <C>
Current assets:
Cash and cash equivalents                                                $  1,660,051    $   507,396
Accounts receivable                                                         3,020,377        604,921
Inventories                                                                 4,668,938      1,194,749
Other current assets                                                           42,889         61,480
                                                                         ------------    -----------

Total current assets                                                        9,392,255      2,368,546

Property and equipment, net                                                   682,815        276,729
Trademarks and patents, less accumulated amortization
   of $58,473 and $81,888 in 2000  and 2001, respectively                     269,029        285,435
                                                                                8,309          8,309
                                                                         ------------    -----------

TOTAL ASSETS                                                             $ 10,352,408    $ 2,939,019
                                                                         ============    ===========

                           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable                                                          $ 1,486,949    $ 2,335,933
Deferred revenue                                                            2,623,303         28,263
Accrued liabilities                                                         1,645,516      1,200,579
Current portion of notes payable                                              138,908      5,095,739
Current portion of capital lease obligations                                    7,635         20,742
                                                                         ------------    -----------

Total current liabilities                                                   5,902,311      8,681,256
Notes payable, less current portion                                         2,855,617              -
Capital lease obligations, less current portion                                24,556         29,003

COMMITMENTS AND CONTINGENCIES (Note 5)

Stockholders' equity (deficit):
Preferred stock, par value $.01                                                     -              -
     Authorized shares - 2,500,000
     Issued and outstanding shares - 0
Common stock, par value $.01                                                   21,336         21,336
     Authorized shares - 90,000,000
     Issued and outstanding shares - 2,133,594
Additional paid-in capital                                                 60,196,065     61,879,866
Accumulated deficit                                                       (58,647,477)   (67,672,442)
                                                                         ------------    -----------

Total stockholders' equity (deficit)                                        1,569,924     (5,771,240)
                                                                         ------------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                     $ 10,352,408    $ 2,939,019
                                                                         ============    ===========
</TABLE>

                       See Notes to Financial Statements.

                                      F-3
<PAGE>

                       VIDEO NETWORK COMMUNICATIONS, INC.

                            Statements of Operations

<TABLE>
<CAPTION>
                                                  For the Years Ended December 31,
                                                  --------------------------------
                                                1999            2000            2001
                                                ----            ----            ----
<S>                                           <C>            <C>              <C>
Revenues:
    Products                                  $ 1,911,952    $  6,520,475     $ 3,388,527
    Services                                      483,159       2,248,914       9,587,188
                                              -----------    ------------     -----------
Total revenues                                  2,395,111       8,769,369      12,975,715
                                              -----------    ------------     -----------

Cost of revenues:
    Products                                    2,375,590       4,393,458       5,829,968
    Services                                      276,074       1,536,835       5,512,979
                                              -----------    ------------     -----------
Total cost of revenues                          2,651,664       5,930,293      11,342,947
                                              -----------    ------------     -----------

Gross margin                                     (256,553)      2,839,096       1,632,768
                                              -----------    ------------     -----------
Operating expenses:
Research and development                        5,039,981       3,770,234       2,774,336
Selling, general and administrative             5,419,855       5,008,465       6,135,632
Asset impairment charge                                 -               -         168,728
                                              -----------    ------------     -----------

Total operating expenses                       10,459,836       8,778,699       9,078,696
                                              -----------    ------------     -----------
Loss from operations                          (10,716,389)     (5,939,603)     (7,445,928)
Interest expense, net                          (2,212,840)       (229,962)     (1,579,037)
                                              -----------    ------------     -----------

Net loss                                      (12,929,229)     (6,169,565)     (9,024,965)
Cumulative Series B dividend                      (31,675)              -               -
                                              -----------    ------------     -----------
Net loss attributable to common
stockholders                                 (12,960,904)    $ (6,169,565)    $(9,024,965)
                                             ===========     ============     ===========

Net loss per common share - basic and
diluted                                      $    (12.58)    $      (3.24)    $     (4.23)
                                             ===========     ============     ===========

Weighted average shares outstanding -
basic and diluted                              1,030,597        1,901,728       2,133,594
                                             ===========     ============     ===========
</TABLE>

                       See Notes to Financial Statements.

                                      F-4
<PAGE>

                       VIDEO NETWORK COMMUNICATIONS, INC.

             Statements of Changes in Stockholders' Equity (Deficit)
              for the years ended December 31, 1999, 2000, and 2001

<TABLE>
<CAPTION>
                                                                                                                  Total
                                                                    Additional      Series B                   Stockholders'
                                                       Common         paid-in      Convertible    Accumulated     Equity
                                        Shares         Stock          Capital    Preferred Stock    Deficit      (Deficit)
                                     ------------   ------------   ------------   ------------   ------------   ------------
<S>              <C>                                <C>        <C>        <C>            <C>          <C>              <C>
Balance, January 1, 1999                  164,029   $      1,640   $ 36,776,565   $  1,173,958   $(39,548,683)  $ (1,596,520)

Issuance of common stock in
  connection with issuance of
  unsecured promissory notes               32,140            322      1,276,667             --             --      1,276,989
Return of shares issued with
  unsecured promissory note                  (857)            (9)       (34,777)            --             --        (34,786)
Issuance of warrants in
  connection with issuance of
  long-term debt                               --             --        146,342             --             --        146,342
Shares issued in connection with
  public offering, net of expenses      1,380,000         13,800     14,112,361             --             --     14,126,161
Issuance of Underwriter's Purchase
  Option                                       --             --            100             --             --            100
Conversion of Debentures                  174,683          1,747      3,273,576             --             --      3,275,323
Conversion of Series B Convertible
  Preferred Stock                          12,433            124      1,205,509     (1,205,633)            --             --
Compensation expense related to
  options granted to
  financial advisor                            --             --        516,713             --             --        516,713
Dividend                                       --             --        (31,675)        31,675             --             --
Net loss                                       --             --             --             --    (12,929,229)   (12,929,229)
                                     ------------   ------------   ------------   ------------   ------------   ------------

Balance, December 31, 1999              1,762,428         17,624     57,241,381             --    (52,477,912)     4,781,093

Exercise of common stock options           19,166            192        251,360             --             --        251,552
Issuance of common stock in private
   placement, net of expenses             352,000          3,520      2,197,838             --             --      2,201,358
Issuance of Placement Agent's
   Purchase Option                             --             --            100             --             --            100
Proceeds from sale of investment
   to related party                            --             --        500,000             --             --        500,000
Compensation expense related to
  non-employee options                         --             --          5,386             --             --          5,386
Net loss                                       --             --             --             --     (6,169,565)    (6,169,565)
                                     ------------   ------------   ------------   ------------   ------------   ------------

Balance, December 31, 2000              2,133,594         21,336     60,196,065             --    (58,647,477)     1,569,924

Issuance of warrants in connection
   with notes payable                          --             --      1,820,824             --      1,820,824
Costs associated with efforts to
   register restricted stock                   --             --       (163,203)            --             --       (163,203)
Compensation expense related to
   non-employee options                        --             --         26,180             --             --         26,180
Net loss                                       --             --             --             --     (9,024,965)    (9,024,965)
                                     ------------   ------------   ------------   ------------   ------------   ------------

Balance, December 31, 2001              2,133,594   $     21,336   $ 61,879,866   $         --   $(67,672,442)  $ (5,771,240)
                                     ============   ============   ============   ============   ============   ============

</TABLE>

See Notes to Financial Statements.

                                      F-5
<PAGE>

                       VIDEO NETWORK COMMUNICATIONS, INC.

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                              For the Years ended December 31,
                                                       --------------------------------------------
                                                           1999            2000            2001
                                                       ------------    ------------    ------------
<S>                                                    <C>            <C>          <C>
Cash flows from operating activities:
Net loss                                               $(12,929,229)   $ (6,169,565)   $ (9,024,965)
Adjustments to reconcile net loss to net
  cash used in operating activities:
  Depreciation                                            1,167,100         664,403         297,889
  Amortization                                               15,230          20,584          23,415
  Interest expense related to issuance of warrants           49,683          51,876       1,354,422
  Interest expense related to debentures                     74,649              --              --
  Amortization of debt discount                           1,271,070              --              --
  Amortization of debt issuance costs                       472,313              --              --
  Non-cash compensation expense                             516,713           5,386          26,180
  Net loss on sale of fixed assets                           10,469              --              --
  Provision for excess and obsolete inventory             1,300,000         100,000       3,000,000
  Write-off of net leasehold improvements                        --              --         168,728
  Other non-cash charges                                    354,992          60,000         159,520

Changes in operating assets and liabilities:
  Accounts receivable                                      (191,910)     (2,643,797)      2,415,456
  Other current assets                                      114,463         115,580         121,156
  Inventories                                               680,686         144,177         474,189
  Other assets                                                2,095              --              --
  Accounts payable                                       (2,711,350)      1,024,884         848,984
  Deferred revenues                                         (11,932)      2,595,235      (2,595,040)
  Accrued liabilities                                       198,936         796,985        (444,937)
                                                       ------------    ------------    ------------

     Net cash used in  operating activities              (9,616,022)     (3,234,252)     (3,175,003)

Cash flows from investing activities:
  Increase in trademarks and patents                        (49,369)        (55,270)        (39,821)
  Proceeds from the sale of property and equipment           84,580              --              --
  Purchase of property and equipment                        (71,780)        (42,433)        (28,531)
                                                       ------------    ------------    ------------

     Net cash used in  investing activities                 (36,569)        (97,703)        (68,352)
                                                       ------------    ------------    ------------

Cash flows from financing activities:
  Net proceeds from the issuance of common stock,
    net of expenses                                      14,126,161       2,201,358        (163,203)
  Net proceeds from the issuance of notes payable                --              --       2,515,460
  Net proceeds from the issuance of stock options               100             100              --
  Net proceeds from the exercise of stock options                --         251,552              --
  Net proceeds from the issuance of unsecured
       Promissory notes and common stock                  2,395,604              --              --
  Repayment of unsecured promissory notes                (2,850,000)             --              --
  Repayments of notes payable                            (1,280,543)       (542,036)       (247,111)
  Proceeds from the issuance of notes payable to
    related parties                                          36,000              --              --
  Repayment of notes payable to related parties             (36,000)             --              --
  Proceeds from sale of investment to related party              --         500,000              --
  Principal payments on capital leases                     (152,734)        (13,497)        (14,446)
                                                       ------------    ------------    ------------

     Net cash provided by  financing activities          12,238,588       2,397,477       2,090,700
                                                       ------------    ------------    ------------

Net increase (decrease) in cash and cash equivalents      2,585,997        (934,478)     (1,152,655)

Cash and cash equivalents, at beginning of year               8,532       2,594,529       1,660,051
                                                       ------------    ------------    ------------

Cash and cash equivalents, at end of year              $  2,594,529    $  1,660,051    $    507,396
                                                       ============    ============    ============
</TABLE>

                       See Notes to Financial Statements.

                                      F-6
<PAGE>

Notes to Financial Statements

Unless otherwise indicated, all information in the Notes to Financial Statements
gives effect to a one-for-seven reverse stock split of our common stock
effective as of April 14, 1999 and a one-for-five reverse stock split of our
common stock effective as of February 5, 2002. It also gives effect to a change
in our name to Video Network Communications, Inc. from Objective Communications,
Inc. effective as of September 9, 1999.

1. Nature of Business

         Video Network Communications is a Delaware corporation formed in 1993
to design, develop and market video network systems to deliver full motion,
high-resolution video to the business user's desktop on a cost-effective basis.
Users of the VidPhone video network system can view broadcast video, participate
in multi-party videoconferences and retrieve stored video on demand. The
Company's VidPhone system distributes video to and from desktop and laptop
personal computers and conference rooms configured with VidPhone stations, over
the same wiring used by the telephone without interfering with normal telephone
usage. The Company believes that the VidPhone system offers greater
functionality and compatibility with existing infrastructure and delivers higher
quality than other video network or conferencing systems available today.

         The Company is offering a new technology product. The Company first
introduced its technology and initial products in late 1998 and demonstrated the
Company's first commercial product during the first half of 1999. The price for
a typical 30-user video network system, including installation, is approximately
$130,000, but this price can vary significantly based on configuration options.

         The Company has suffered recurring losses from operations, has
experienced recurring negative cash flow from operations, has a working capital
deficiency, and an accumulated deficit. The Company also has notes payable
outstanding for which it is unable to make the required interest and principal
payments when due. In the event of default on these notes, the Company may lose
those assets that serve as security or may not be able to continue to receive
legal services from their attorney. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. The Company has required substantial funding through debt and
equity financings since its inception to complete its development plans and
commence full-scale operations.

         The Company expects to continue to incur significant operating expenses
to support product development efforts and to enhance its sales and marketing
capabilities. At this stage, it is difficult to predict with accuracy the level
of the Company's sales in future periods, or when marketing initiatives will
result in sales. Each sale of the Company's equipment continues to account for a
significant portion of total revenues. Accordingly, the Company expects to
continue to experience significant, material fluctuations in the Company's
revenues on a quarterly basis for the foreseeable future.

         The Company continues to evaluate all options regarding the financing
of operations. The Company believes that it must complete a substantial
financing in order to support continuing operations. The Company also believes
that significant enhancements of its sales and marketing programs are required
in order to generate sufficient operating cash flow. If the Company is not
successful realizing its projected sales and securing additional financing, the
Company will be forced to consider alternative methods of maximizing shareholder
value, which could include sales of the Company's assets, a sale of the Company,
workout alternatives, or bankruptcy.

         As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this Form 10-KSB may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.

2. Summary of Significant Accounting Policies

Basis of Accounting

         During the fourth quarter of 1999, the Company concluded that the
criteria for being considered a development stage enterprise within the meaning
of Statement of Financial Accounting Standards ("SFAS") No. 7, Accounting and
Reporting by Development Stage Enterprises, no longer applied to the Company by
virtue of the level of sales activity and completion of financings in 1999.
Accordingly, certain information previously required to be disclosed in the
financial statements has been omitted.

Cash Equivalents

         Cash equivalents consist of investments with original maturities of
three months or less. Cash equivalents are stated at cost, which approximates
fair value because of the short maturity of these investments.

Revenue Recognition and Change in Accounting

         The Company's revenues are recognized upon passage of title to
customers and acceptance by customers when contractually obligated, collection
is reasonably assured, and no further obligations to the customer exist. Service
revenues are recognized at the time the services are rendered, collection is
reasonably assured, and the Company has no further obligations to the customer.
Revenues from maintenance contracts are recognized ratably over the term of the
contract as services are performed.

         Effective January 1, 2000, the Company changed its method of revenue
recognition for certain products requiring installation in accordance with Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements.
Previously, the Company followed standard practice of recognizing revenue
related to both the sale and the installation of certain products at the time of
shipment. The change in policy defers the revenue until installation is
complete. The cumulative effect of the change on prior years was considered to
be immaterial.


                                      F-7
<PAGE>

Research and Development and Software Development Costs

         Software development costs are included in research and development and
are expensed as incurred. The accounting for such cost of computer software to
be sold has been insignificant, since the period between achieving technological
feasibility and the general availability of such software has been short.
Accordingly, the Company has not capitalized any software development costs.

Property and Equipment

         Property and equipment are stated at cost. The Company uses accelerated
methods of depreciation for book and for tax purposes. The annual provisions for
depreciation have been computed based on the following ranges of estimated
useful lives: computer and lab equipment, 3 to 5 years; computer software, 3
years; furniture and fixtures, 5 years; office equipment, 5 years; and leasehold
improvements over the lesser of 7 years or the term of the lease relating to the
improved asset. See Note 4. Expenditures for maintenance and repairs are charged
to expense as incurred. Upon retirement or disposition of property and
equipment, the cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in income.

Trademarks and Patents

         Trademarks and patents are stated at cost and are amortized on a
straight-line basis over 15 years.

Long-Lived Assets

         The Company periodically evaluates the net realizable value of
long-lived assets, including trademarks and patents and property and equipment,
relying on a number of factors including operating results, business plans,
economic projections and anticipated future cash flows. An impairment in the
carrying value of an asset is recognized when the expected future operating cash
flows derived from the asset is less than its carrying value. In addition, the
Company's evaluation considers non-financial data such as market trends, product
and development cycles, and changes in management's market emphasis.

Inventory

         Inventory is valued at the lower of cost or market, with the cost being
determined using the FIFO ("first-in, first-out") method of accounting. The
Company writes-down inventories for any slow-moving, excess or obsolete items.

Concentration of Credit Risk

         Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. The Company's cash and cash equivalents are
held with a U.S. commercial bank. The Company generally grants uncollateralized
credit terms to its customers. Two customers accounted for 50% and 30%,
respectively, of total revenues for the year ended December 31, 2001. Four
customers accounted for 30%, 16%, 13%, and 10% of accounts receivable
outstanding as of December 31, 2001. Four customers accounted for 18%, 15%, 11%
and 11%, respectively, of total revenues for the year ended December 31, 2000.
Three customers accounted for 33%, 32%, and 25%, respectively, of accounts
receivable outstanding as of December 31, 2000. Three customers accounted for
52%, 17%, and 12%, respectively, of total revenue for the year ended December
31, 1999.

Income Taxes

         Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to effect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets and liabilities.

Net Loss per Common Share

         The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share."
Net loss per common share is based on the weighted average number of common
shares and dilutive common share equivalents outstanding during the periods
presented. Basic loss per share are calculated by dividing net loss by the
weighted average shares outstanding. Diluted loss per share reflect the dilutive
effect of stock options and warrants and are presented only if the effect is not
anti-dilutive. As the Company incurred losses for all periods, there is no
difference between basic and diluted earnings per share for any period
presented. Had options and warrants been included in the computation, shares for
the diluted computation would have increased by approximately 1,289,249;
1,801,333; and 3,229,925 as of December 31, 1999, 2000, and 2001, respectively.

Advertising Expense

         The Company recognizes advertising expense as incurred. Advertising
expenses of $2,634; $13,708; and $ 87,437 were incurred in 1999, 2000, and 2001,
respectively.

Use of Estimates

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


                                      F-8
<PAGE>

Financial Instruments

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

Stock-Based Compensation

         The Company accounts for its options granted to employees and directors
in accordance with APB Opinion No. 25. Accordingly, no compensation expense has
been recognized for the options granted to employees or directors, since the
exercise price of the options has been in excess of or equal to the fair value
of the options on the date of grant, as determined by the Board of Directors.
For options granted to consultants, the Company recognizes an appropriate
compensation expense in accordance with Emerging Issues Task Force 96-18
Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services. The Company
discloses the pro forma net loss and loss per share in the notes to the
financial statements in accordance with the measurement provisions of Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation." See Note 10, Capital Stock Transactions.

Comprehensive Income

         The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income," effective January 1, 1998. The statement
requires a full set of general purpose financial statements to be expanded to
include the reporting of "comprehensive income". Comprehensive income is
comprised of two components, net income and other comprehensive income. For the
years ended December 31, 2000 and 2001 the Company had no comprehensive income.


Segment Information

         The Company operates in one business segment; the design, development,
and marketing of a video network system.

Reclassifications

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

New Accounting Pronouncements

         In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and
No. 142, Goodwill and other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling of interests method is no longer
permitted. SFAS No. 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS No. 142 no longer
permits the amortization of goodwill and indefinite-lived intangible assets.
Instead, these assets must be reviewed annually (or more frequently under
certain conditions) for impairment in accordance with the Statement. The
impairment test uses a fair value approach rather than the undiscounted cash
flows approach previously required by SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of. Intangible assets that do not
have indefinite lives will continue to be amortized over their useful lives and
reviewed for impairment in accordance with SFAS No. 121. The Company is required
to adopt SFAS No. 142 effective January 1, 2002, and it does not expect that the
adoption of the Statement will have a significant impact on the Company's
financial position or results of operations.

         In August 2001, the Financial Accounting Standards Board issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations for a disposal of a segment of a business. SFAS No. 144 is
effective for fiscal years beginning after December 14, 2001, with earlier
application encouraged. The Company expects to adopt SFAS No. 144 as of
January 1, 2002, and it does not expect that the adoption of the statement
will have a significant impact on the Company's financial position or results
of operations.

3. Inventories

         Inventories, net of reserves, consist of the following at:

                                                     December 31,
                                                     ------------
                                                   2000          2001
                                                   ----          ----
Raw materials                                   $ 3,788,851   $ 1,194,749
Finished goods                                      880,087             -
                                               ------------   -----------

                                                $ 4,668,938   $ 1,194,749
                                               ============   ===========

         In the fourth quarter of 2001, the Company recorded a provision for
excess inventory of $3 million for slow-moving inventories based upon its
assessment of recent sales activities in the second half of 2001 and
uncertainties in regard to the Company's sales forecast.


                                      F-9
<PAGE>


4. Property and Equipment

         Property and equipment consist of the following at:

                                                      December 31,
                                                      ------------
                                                  2000          2001
                                                  ----          ----
Computer and laboratory equipment              $ 3,076,959   $ 3,105,490
Computer software                                  470,426       470,426
Leasehold improvements                             606,912             -
Furniture and fixtures                             876,322       876,322
Office equipment                                   173,333       205.333
                                               -----------   -----------

                                                 5,203,952     4,657,571
Accumulated depreciation and amortization       (4,521,137)   (4,380,842)
                                              ------------   -----------

                                              $    682,815   $   276,729
                                              ============   ===========

         Depreciation expense for the years ended December 31, 1999, 2000, and
2001 was $1,167,100, $664,403, and $297,889 respectively.

         Asset Impairment Charge During the fourth quarter of 2001, the Company
recognized impairment losses of $169,000 when certain negative conditions were
identified as indicators of impairment. In accordance with company policy,
management assessed the recoverability of long-lived assets based on the
expected future operating cash flows expected to be derived from these assets.
Based on this assessment, the Company recognized impairment losses of $169,000
related to leasehold improvements.

         Sale of Certain Property and Equipment In the first quarter of 1999,
the Company sold certain office furniture, equipment, and leasehold improvements
to a third party who assumed a lease on property that the Company previously
occupied. The Company received net proceeds of $81,000 from the asset sale.

5. Commitments and Contingencies

         The Company leases office and manufacturing space and office equipment
under various operating and capital leases. Commitments for minimum rentals
under non-cancelable leases at December 31, 2001 are as follows:

                                                      Capital      Operating
                                                       Leases        Leases
                                                       ------        ------

2002                                                $ 25,488     $ 309,420
2003                                                  11,288       328,759
2004                                                   8,448       335,205
2005                                                   8,448       335,205
2006                                                   8,448       373,883
Thereafter                                                 -       467,353
                                                    --------    ----------
Total minimum lease payments                          62,120    $2,149,825
                                                    ========    ==========

Less amount representing interest                    (12,375)
                                                    -------

Present value of net minimum lease payments           49,745
Less amount representing current portion             (20,742)
                                                    $ 29,003
                                                    ========

Property and equipment at year-end include the following amounts for capitalized
leases:

                                                    2000           2001
                                                    ----           ----

Office equipment                                   $ 64,545      $ 96,545
Accumulated depreciation                            (49,055)      (56,204)
                                                   --------      -------
                                                   $ 15,490      $ 40,341
                                                   ========      ========


Rent payments made in 1999, 2000, and 2001 were $402,000, $314,000, and
$325,000, respectively.

6. Accrued Liabilities

         Accrued liabilities consisted of the following at:

                                                        December 31,
                                                        ------------
                                                     2000           2001
                                                     ----           ----
Accrued compensation expenses                    $  411,281    $  291,385
Accrued warranty expenses                           326,098       142,318
Accrued project expenses                            348,000             -
Accrued interest                                    322,431       550,165
Other accrued expenses                              237,706       216,711
                                                 ----------    ----------
                                                 $1,645,516    $1,200,579
                                                 ==========    ==========


                                      F-10
<PAGE>


7. Income Taxes

         At December 31, 2001, the Company has available net operating loss
carryforwards for federal tax purposes of approximately $56,677,000 that may
be available to offset future federal income tax liabilities and expire at
various dates through 2021. As of December 31, 2001, a valuation allowance of
$22,820,000 has been recorded against total gross deferred tax assets, due to
the uncertainty surrounding their realization in the future. Ownership
changes, as defined in the Internal Revenue Code Section 382, may have
limited the amount of net operating loss carryforwards that can be utilized
annually to offset future taxable income. Subsequent ownership changes could
further effect the limitation in future years.

         The components of the Company's net deferred tax position and the
tax effects of the temporary differences giving rise to the Company's
deferred tax assets (liabilities) as of December 31, 2000 and 2001 are as
follows:

                                                  2000            2001
                                                  ----            ----
Deferred Tax Assets:
     Net operating loss carryforwards        $18,534,000     $20,619,000
     Accrued liabilities                         156,000         149,000
     Reserves                                    983,000       1,842,000
     Depreciation and amortization               398,000         230,000
                                             -----------     -----------
     Gross deferred tax asset                 20,071,000      22,840,000
     Valuation allowance                     (20,052,000)    (22,820,000)
                                             -----------     -----------
                                                  19,000          20,000
Deferred tax liability:
     Allowance for bad debts                     (17,000)        (17,000)
     Intangible assets                            (2,000)         (3,000)
                                            ------------     -----------

Net deferred tax asset                      $          -     $         -
                                            ============     ===========

8. Subordinated Convertible Debenture

         In July 1998, the Company completed a private placement of 5%
Cumulative Convertible Debentures due 2003 with certain institutional,
affiliated and other investors, from which it received gross proceeds of
approximately $3.125 million. These debentures were senior in right of
payment to substantially all existing and future indebtedness of the Company
and the Company's equity securities. Subject to certain contractual
agreements, the holders of the debentures were entitled to convert the
debentures into shares of common stock at any time. In accordance with letter
agreements dated May 1999 between the Company and the holders of the
Company's 5% subordinated convertible debentures, the convertible debentures,
and interest accrued thereon, automatically converted to 174,683 shares of
the Company's common stock at a conversion price of $18.75 per share on June
18, 1999.

9.  Notes Payable

Sanmina Note

         In January 1999, the Company converted outstanding accounts payable to
Sanmina Corporation of $3,200,000 and $1,100,000, the latter representing the
value of inventory and materials located at a subcontract manufacturer, to a
$4,300,000 three-year term note accruing interest at 7% per year. The Company
paid Sanmina $1,100,000 in principal on the note in June 1999 upon completion of
its public offering of units and Sanmina transferred to the Company the title to
certain inventory and materials located at Sanmina.

         In connection with the restructuring of accounts payable balances to a
long-term note, the Company issued to Sanmina warrants to purchase 7,857 shares
of common stock, with a $96.25 exercise price per share. An independent
appraisal assigned a market value of $127,759 to these warrants. The Company has
recorded the value of the warrants as a discount against the face amount of the
note and amortized the value of the warrants over the life of the note,
approximately $43,000 in 2001.

         In January 2000, the Company defaulted on the interest payment due to
Sanmina and did not make subsequent interest and principal payments to Sanmina
when due through August 2000. In August 2000, the Company renegotiated the terms
of the note to Sanmina. Under the current terms of the note, the Company paid
$150,000 on August 25, 2000, and $150,000 in November 2000. The Company was
obligated to pay an amount each month equal to a percentage of the accounts
receivable that it collected in the previous calendar month, with the percentage
ranging from 0% to 5%, based upon the net amount of accounts receivable that we
collected, beginning in February 2001. Any principal and accrued interest
thereon remaining on the note was due in full on January 12, 2002. The Sanmina
note is collateralized by the Company's personal property and certain other
assets. At December 31, 2001, the Company owed Sanmina approximately $2.9
million in principal and $550,000 in interest on this note. The Company did not
make the required payment of the outstanding principal and interest on January
12, 2002. See Note 16, Subsequent Events.

Legal Counsel Note

         In January 1999, the Company also converted $375,000 of outstanding
accounts payable to legal counsel to a two-year term loan accruing interest at
7% per year. The Company paid $75,000 of the principal balance of this note
during 1999. Under the terms of the note, the Company was obligated to make two
semi-annual interest-only payments. In February 2000, the Company was to have
commenced making twelve equal monthly payments to fully amortize the remaining
balance of the note.


                                      F-11
<PAGE>

         In connection with converting the restructuring of accounts payable
balances to a long-term note, the Company issued to legal counsel warrants to
purchase 1,143 shares of common stock, with a $92.95 exercise price per share.
An independent appraisal assigned a market value of $18,583 to these warrants.
The Company has recorded the value of the warrants as a discount against the
face amount of the note and amortized the value of the warrants over the life of
the note.

         Prior to the August 2000 private placement of units discussed in Note
10, the Company had paid legal counsel $77,874 on the note, but continued to be
in default with respect to payments required by the terms of the debt
instrument. The note was renegotiated in August 2000 in connection with the
private placement to require the Company to make an approximately $50,000
payment at the time of the closing of the private placement in August 2000,
which the Company did, and to make monthly payments of $20,000 until the balance
of the note was fully paid. The Company paid the outstanding balance of the note
during 2001.

     Bridge Financing

         As of December 31, 2001, we had outstanding $1,000,000 principal amount
of First Bridge Secured Notes, originally issued in September and October of
2001, on which the outstanding principal, and interest at the rate of 9% per
annum, originally due and payable on December 24, 2001, and extended to the
earlier of February 15, 2002, or the date on which a financing closes. The First
Bridge Secured Notes are secured by substantially all of our intellectual
property, including our United States patents and trademarks.

         We also had outstanding at December 31, 2001 $1,674,982 principal
amount of Second Bridge Notes issued in November and December 2001. The
outstanding principal amount of and accrued interest at the rate of 9% per annum
on the Second Bridge Notes is due and payable on the earlier of February 19,
2002, or the date on which a financing closes.

         We also currently have outstanding $500,000 principal amount of Third
Bridge Notes issued in January 2002. The outstanding principal amount of and
accrued interest at the rate of 9% per annum on the Third Bridge Notes is due
and payable on the earlier of April 24, 2002, or the date on which a financing
closes.

         See "Warrants" in Note 10- Capital Stock Transactions

         See Note 16 - Subsequent Events

10. Capital Stock Transactions


Private Placement of Units - February 1999

         In February 1999, the Company completed a private placement of 28.5
units of unsecured promissory notes with a principal amount of $2,850,000 and
32,140 shares of common stock, from which the Company received net proceeds of
approximately $2,396,000. The notes accrued interest at 10% per year. Two
principal officers of the Company invested a total of $125,000 in units and were
issued unsecured promissory notes with an aggregate original principal amount of
$125,000, and an aggregate of 999 shares of common stock. The full principal
amount of and accrued interest on the unsecured promissory notes, totaling
$2,955,000, was repaid to the note holders in June 1999.

         An independent appraisal assigned a market value of $1,305,000 to the
common stock issued in the February 1999 private placement. The Company has
recorded the value of the common stock as a discount against the face amount of
the unsecured promissory notes and amortized the value of the common stock over
the life of the notes. In the quarter ended June 30, 1999, in connection with
the June 1999 unit offering, two participants in the February 1999 private
placement were required to return to the Company a total of 856 shares of
common, valued at $34,786.

Private Placement of Units - August 2000

         On August 25, 2000, the Company completed a private placement (the
"Private Placement") of 1,760,000 units, each unit consisting of two tenths
of one share of common stock and one warrant ("Warrant"), at a price of $1.50
per unit. Net proceeds of this private placement were $ 2,201,358. The units
were not separately certificated, and the Company did not issue any separate
units as securities in the Private Placement. The Warrants entitle the holder
to purchase two tenths of one share of the Company's common stock for an
initial exercise price of $20.00 during the period from February 26, 2001 to
June 15, 2004, subject to prior redemption. The Warrants are identical to the
Company's outstanding Public Warrants to purchase up to 920,000 shares of the
Company's common stock at an initial exercise price of $20.00 per share,
which are currently trading on the OTC Bulletin Board under the symbol
"VNWWE," except that, pursuant to the terms of the securities, the Warrants
may be exercised on or after February 26, 2001.

         The Company offered the units through Early Bird Capital ("EBC"), as
its exclusive placement agent for the Private Placement, on a "best efforts,
all or none" basis. The units were offered and sold only to persons who
qualified as "accredited investors," as defined in Rule 501(a) under the
Securities Act of 1933, as amended (the "Securities Act"). As compensation to
EBC for its services as placement agent, the Company paid EBC an 8%
commission and a 2% non-accountable expense allowance. The Company also
issued to EBC a purchase option (the "Purchase Option"), which permits EBC to
purchase 52,800 shares of common stock and 264,000 Warrants (two tenths of
one share of common stock and one warrant must be purchased together as a
unit) at an exercise price of $10.625 per unit. The Company also granted to
EBC a 30-day right of first refusal to underwrite or place future offerings
for which the Company engages the services of an investment banker for a
period of three years after the closing of the Private Placement. In
addition, the Company agreed for a period of three years from the closing of
the Private Placement to either appoint to the Company's Board of Directors a
person designated by EBC or to permit EBC to send a representative to observe
each meeting of the Board. No person has been designated by EBC for
appointment to the Company's Board. The Company also agreed to pay "source
fees" to EBC for a period of 24 months, if EBC introduces potential investors
to us and such investors make subsequent investments in the Company.


                                      F-12
<PAGE>

         The Company filed a registration statement in accordance with the
Company's contractual agreement with the investors in the Private Placement to
register the offering and resale of the securities covered by the registration
statement, however, the Company subsequently withdrew the registration
statement. In connection with the Private Placement, the Company agreed to use
its best efforts to have a registration statement covering the offering and sale
of the securities issued in the Private Placement declared effective by the SEC
no later than December 23, 2000 (the "Target Date"). Because the registration
statement was not declared effective by the Target Date, the Company was
required to issue on the Target Date to each investor in the Private Placement
and to EBC (or its designee) as holder of the Purchase Option, the Extra
Warrants to purchase that number of shares of Common Stock equal to five percent
of the number of Warrants purchased by the investor in the Private Placement
(and, as to EBC or its designee, five percent of the number of Warrants
underlying the Purchase Option), or 20,238 Extra Warrants in 2000; 117,856
Extra Warrants in 2001, and will issue 30,952 Extra Warrants in 2002. The Extra
Warrants have the same terms as the Warrants. The Company will be required to
issue Extra Warrants on each monthly anniversary of the Target Date until the
earlier of the effective date of the registration statement or the nineteenth
monthly anniversary of the Target Date. See Note 16 - Subsequent Events

Common Stock

         In February 1999, the Company issued a total of 32,140 shares of its
common stock as part of units issued in a private placement of 28.5 units,
consisting of unsecured promissory notes with a principal amount of $2,850,000
and 32,140 shares of common stock. The Company received net proceeds of
approximately $2,396,000 from the private placement.

         In June 1999 the Company completed a public offering of 2,000,000 units
and realized approximately $12.1 million in net proceeds from the offering. Each
unit consisted of six tenths of a share of common stock and one Public Warrant
to purchase common stock at an exercise price of $20.00 per share. The Public
Warrants became exercisable in June of 2000, one year from the date of closing
of the public offering. The Public Warrants are callable when they are
exercisable and after the Company's common stock has closed at $40.00 after or
more for twenty consecutive trading days. Also in June of 1999, the underwriter
exercised the 15% over-allotment option that the Company had granted to it in
connection with the June 1999 public offering of units. Upon exercise of the
option, the underwriter purchased 300,000 units, consisting of 180,000 shares of
common stock and 600,000 Public Warrants to purchase two-tenths of a share of
common stock at an exercise price of $20.00 per share. The Company received net
proceeds of $2.0 million from the exercise of the underwriter's over-allotment
option.

         At a Special Meeting of Stockholders convened on February 5, 2002, the
stockholders approved a resolution to increase the number of authorized shares
of common stock from 6,000,000 shares to 90,000,000 shares.

Warrants

         In September and October 2001, the Company issued 400,000 warrants to
purchase common stock at an exercise price of $2.00 per share in conjunction
with its issuance of secured notes (Note 9) with aggregate principal value of
$1,000,000.

         In November and December 2001, the Company issued 669,993 warrants to
purchase common stock at an exercise price of $2.75 per share in conjunction
with its issuance of notes (Note 9) with an aggregate principal value of $1,675
,000. These warrants were valued at approximately $586,000 of which
approximately $260,000 was amortized to interest expense during 2001.

         In December 2001, the Company negotiated an extension of the maturity
date of the First Bridge Secured Notes and, as consideration, issued the note
holders warrants with an aggregate value of $456,000, which was charged to
interest expense in 2001.

         The aggregate value of the above warrants, was approximately
$1,821,000, of which $1,312,000 was amortized to interest expense in 2001.
The remaining balance of $509,000 has been recorded against the face amount
of the notes and will be amortized over the remaining life of the notes.

         A summary of the number of shares of common stock subject to purchase
under all warrant agreements and related exercise prices as of December 31, 2001
is as follows:

          Number of Shares       Exercise Price
                    1,467             $ 136.35
                    9,389             $  96.25
                    1,142             $  92.95
                1,610,124             $  20.00
                  669,993             $   2.75
                  400,000             $   2.00
               ----------             --------
                2,692,115
               ==========

Stock Options

         In December 1997, the Company granted to an investment banking firm
options to purchase 3,571 shares of common stock at an exercise price of $483.35
per share, which was the fair value of the stock on the date of the grant. Since
this grant was for future services to be provided, the related compensation
expense, in accordance with SFAS No. 123, was recorded over two years, the
expected term of services. The compensation expense recorded was $20,355 in
1997, $563,687 in 1998, and $516,713 in 1999. The right to exercise these
options terminates five years from the grant date.


                                      F-13
<PAGE>

         On September 9, 1999, stockholders of VNCI approved the Company's 1999
Stock Incentive Plan (the "Plan"). The Plan authorized the Company to issue
options to employees, directors, consultants and others on up 528,000 shares of
common stock. The Company was restricted to having 402,000 of these issued and
outstanding prior to June 18, 2000 as a result of an agreement with the
Company's lead investment banker on its June 1999 public offering. The maximum
exercise period for options granted under the Plan is ten years. Vesting and
exercise periods for each individual grant are delineated in the individual
grant agreement. The Company's 1996 Stock Incentive Plan closed on that date and
no additional grants are available through the 1996 Stock Incentive Plan or any
of the Company's other prior stock option plans. Similarly to the Plan, the
maximum exercise period for options granted under the 1996 Stock Incentive Plan
was ten years. Vesting and exercise periods for each individual grant were
delineated in the individual grant agreement.

         Stock option activity during the periods indicated is summarized as
follows:


                                                         Weighted
                                         Number           Average
                                       of Shares      Exercise Price
                                       ---------      --------------
1999
Outstanding at beginning of year         50,998         $253.855
Granted                                 337,042         $ 13.560
Forfeited                               (50,203)        $102.230
Exercised                                     -                -
Outstanding at end of year              337,837         $ 36.625
                                        -------
Exercisable                              73,742         $ 56.475
                                        -------
Available for grant                      96,700

2000
Outstanding at beginning of year        337,837         $ 36.625
Granted                                 195,158         $  9.070
Forfeited                               (36,480)        $ 28.985
Exercised                               (19,165)        $ 13.125
                                        -------
Outstanding at end of year              477,350         $ 26.870
                                        -------
Exercisable                             197,069         $ 42.200
                                        -------
Available for grant                      61,912

2001
Outstanding at beginning of year        477,350         $ 26.870
Granted                                  79,580         $  4.820
Forfeited                               (19,120)        $ 16.817
                                        -------         --------
Outstanding at end of year              537,810         $ 23.958
                                        -------
Exercisable                             312,759         $ 31.018
                                        -------
Available for grant                      10,592

     The following table summarizes information about stock options outstanding
at December 31, 2001:

<TABLE>
<CAPTION>

                                         Weighted-Ave.
                                          Remaining
         Range of           Number       Contractual      Weighted-Ave.       Number        Weighted-Ave.
      Exercise Prices     Outstanding    Life (years)    Exercise Price    Exercisable     Exercise Price
      ---------------     -----------    ------------    --------------    -----------     --------------

<S>            <C>           <C>             <C>            <C>                <C>             <C>
  $   2.700 -  $  5.800      158,425         3.7            $   4.257          51,664          $   4.442
  $   7.500 -  $ 12.500       37,568         3.2            $  10.308          12,898          $  10.692
  $  12.810 -  $ 21.875      311,784         2.8            $  13.565         221,047          $  13.441
  $  70.000 -  $ 85.350        5,146         2.5            $  72.124           4,908          $  71.484
  $ 105.000 -  $192.500        8,056         1.6            $ 160.385           8,056          $ 160.385
  $ 231.870 -  $483.350       16,831         1.9            $ 352.373          14,186          $ 332.716
                              ------                                         --------
                             537,810                                          312,759
                             =======                                         ========
</TABLE>

         All stock options granted by the Company from its inception through
December 31, 2001 were granted with an exercise price per share equal to the
fair value of the Company's common stock on the date of grant.

         In July 1998, the Board approved a repricing plan to reprice employee
stock options under the 1996 Stock Incentive Plan (the "1996 Plan") to restore
the long-term employee retention and performance incentives of the stock options
outstanding. In accordance with the repricing plan, all stock options then held
by current, active full-time employees, with exercise prices above $253.75, or
with vesting periods in excess of three years, were cancelled and replaced by
the same number of options exercisable at $253.75 per share and vesting over a
three-year period. The options were granted at a price equal to the fair market
value of the Company's common stock on the date of the option repricing.


                                      F-14
<PAGE>

         Had compensation expense been determined based on the fair value of the
options at the grant dates consistent with the method of accounting under SFAS
123, the Company's net loss and net loss per share would have increased to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                         1999              2000            2001
                                         ----              ----            ----
<S>                                 <C>                <C>             <C>
Net loss
   As Reported                      $(12,960,904)      $(6,169,565)    $ (9,024,965)
   Pro forma                        $(13,509,681)      $(7,878,012)    $(10,600,887)

Net loss per common share
   As reported, basic and diluted   $     (12.58)      $     (3.24)    $      (4.23)

   Pro forma, basic and diluted     $     (13.11)      $     (4.14)    $      (4.97)
</TABLE>

         The fair value of each option granted in 1999, 2000, and 2001 was
estimated on the date of grant using the Black-Scholes option-pricing model. The
model used the following weighted-average assumptions for grants during the
years ended December 31, 1999 and 2000: volatility 93 % for both years;
risk-free rate of return of 6.0% and 5.7 %, respectively; dividend yield of 0%
for both 1999 and 2000; and an expected time to exercise of 4.2 years and 3.5
years for 1999 and 2000, respectively. For 2001, volatility was 132%, the
risk-free rate of return was 4.1%, the dividend yield was 0%, and the expected
time to exercise was 5.0 years.

Preferred Stock

         5% Cumulative Convertible Series B Preferred Stock

         In August 1998, the Company issued to certain unaffiliated investors in
a private placement 209,091 shares of 5% Cumulative Convertible Series B
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), and
warrants to purchase an aggregate of 1,493 shares of Common Stock at an exercise
price of $210.00 per share which were valued at $94,000 (the "Series B
Warrants"). The shares of Series B Preferred Stock and the Series B Warrants
were issued at a purchase price of $5.50 per share, resulting in gross proceeds
to the Company of $1.15 million. Dividends accrued on the Series B Preferred
stock at 5% annually, were cumulative, and were payable in additional shares of
Series B Preferred Stock. The Company sold and issued such securities in
reliance on an exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act") and Regulation D and
Rule 506 promulgated thereunder.

         Shares of Series B Preferred Stock were convertible at any time after
the issuance date and at the option of the holder, into shares of common stock
at an initial conversion rate of $192.50 per share, subject to adjustment in
connection with certain events, including a reclassification, reorganization or
exchange of the Company's common stock. The shares of Series B Preferred Stock
were subject to automatic conversion, without further action on the part of the
holder or the Company, if the closing price of the Company's common stock
equaled or exceeded $385.00 per share for 15 consecutive trading days.

         In connection with the private placement by the Company of units
completed in February 1999, the Company entered into a letter agreement with
both of the holders of the Series B Preferred Stock modifying certain terms of
those securities. Specifically, the Company and the holders agreed that: (i) the
holders would not exercise their right to convert the Series B preferred stock
to common stock, or exercise the Series B Warrants for common stock, until the
date on which the Company completed a public or private equity financing with
gross proceeds of not less than $8 million (a "qualified financing"); (ii) upon
the closing of a qualified financing, the stated value of and accrued and unpaid
dividends on the Series B preferred stock will automatically convert into shares
of common stock at a conversion price equal to $96.25per share, and the exercise
price of Series B Warrants would be reduced to $96.25per share; (iii) the
anti-dilution provisions of the Series B preferred stock and the Series B
Warrants would not apply to the qualified financing, the 5% Convertible
Debenture conversion, the February 1999 private placement, the conversion of the
Series B preferred stock or the exercise of the Series B Warrants; (iv) the
holders waived and agreed not to exercise any registration rights they may have
as to the common stock issuable upon conversion of the Series B preferred stock
or the exercise of the Series B Warrants in connection with the June 1999 public
offering of units; and (v) the holders would not sell any common stock issuable
upon conversion of the Series B preferred stock for at least six months after
the effectiveness of the registration statement (or up to 24 months, if
necessary to obtain regulatory approval of this offering) filed relating to the
qualified financing.

         Immediately following the completion of the public offering of units in
June 1999, all shares of Series B Preferred Stock, and accreted dividends
thereon, automatically converted to 12,433 shares of common stock at a
conversion price of $96.25 per share.

         As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this section may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.


                                      F-15
<PAGE>

11. Non-cash Transactions

         The following is a summary of non-cash transactions for the years
ended December 31, 1999, 2000, and 2001:

<TABLE>
<CAPTION>
                                                                              1999            2000            2001
                                                                              ----            ----            ----
<S>                                                                           <C>           <C>             <C>
     Current asset financed by issuance of note payable                       $      -      $ 51,090      $ 139,747
     Capital lease obligations                                                       -             -         32,000
     Return of assets under capital lease in settlement of obligation           64,806             -              -
     Dividend on preferred stock                                                31,675             -              -
     Conversion of preferred stock to common stock                           1,205,633             -              -
     Conversion of subordinated debentures, and interest thereon,
           to common stock                                                   3,275,323             -              -
     Accounts payable transferred to notes payable                           3,575,000             -              -
     Common stock issued with private placement                              1,242,203             -              -
     Warrants issued with bridge notes                                               -             -      1,820,866
     Warrants issued with long term debt                                       146,342             -              -
     Inventory financed with note payable                                    1,100,000             -              -
     Equity financing costs in prepaid expenses                                 28,867             -              -
     Reduction in accrued liabilities due to sale of assets                    181,678             -              -
     Reclassification of accrued interest to note payable                            -        10,254              -
     Debt issuance costs in other assets - net                                  17,917             -              -
     Interest Payments                                                         536,983        41,253          5,080
</TABLE>

12. Employee Benefit Plan

         The Company implemented a profit-sharing plan under Section 401(k) of
the Internal Revenue Code (the "Code") covering substantially all employees. The
plan allows employees to make contributions up to the maximum allowed by the
Code. Until December 2001 the Company contributed one dollar to an employees
account for each two dollars contributed by the employee until the employee's
contribution equaled 6% of the employee's annual salary. The Company contributed
$75,000 and $71,000 to employee accounts during 2000 and 2001, respectively.
Effective January 1, 2002, the Company no longer provides any 401(k) matching
funds.

13.  Foreign Sales

     Revenues were generated geographically as follows:
   Year-ended    United States    Europe      Asia        Other       Total
                 -------------    ------      ----        -----       -----
      1999        $ 2,358,338           -          -    $ 36,773    $ 2,395,111
      2000        $ 7,835,514    $781,918   $151,957                $ 8,796,369
                                                               -
      2001        $12,905,915           -          -    $ 69,800    $12,975,715

14. Related Party Transactions

         On December 31, 1999, the Company entered into an agreement with
B2BVideo Networks, Inc. (formerly b2bvideo.com, Corp.); a technology startup
company that intends to provide aggregated business video content to the
business market. The agreement was to become effective the day after the closing
of B2BVideo Networks's proposed private placement of Series A Preferred Stock in
the first quarter of 2000. The agreement provided that VNCI receive an equity
position in B2BVideo Networks in exchange for favorable purchase terms and
conditions regarding technical support and equipment provided to B2BVideo
Networks. B2bVideo Networks's private placement closed on March 14, 2000. The
Company received one million shares of common stock, equivalent to an ownership
percentage of approximately fourteen and one half percent (14.5%) on a fully
diluted basis on the closing date assuming conversion of all Series A Preferred
Stock. The Company has ascribed no value to this equity investment. Mr. James F.
Bunker, a director of the Company and B2BVideo Networks, participated in the
private placement purchasing less than one percent of the total offering.
Ms. Cheryl Snyder, former CEO of B2BVideo Networks is a former director of
the Company.

         On December 14, 2000, the Company sold 250,000 shares of its B2BVideo
Networks equity investment to Dalewood 2 for $2.00 per share or $500,000.
Dalewood 2 is a venture fund that is directed and controlled by
EarlyBirdCapital. EarlyBirdCapital (formerly known as Southeast Research
Partners) acted as a placement agent in the August 2000 private placement of
1,760,000 units and acted as an underwriter and the representative of the June
1999 public offering of 2,300,000 units. In connection with the June 1999 public
offering, the Company also engaged EarlyBirdCapital to act as an agent for the
solicitation of the exercise of some of the Company's warrants. EarlyBirdCapital
also acted as the placement agent for the February 1999 private placement of
securities.

         As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this section may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.


15. 2001 Quarterly Financial Information (Unaudited) (in thousands, except per
share amounts)

                                        First    Second(1)    Third    Fourth(1)
                                       Quarter    Quarter    Quarter    Quarter
                                       -------    -------    -------    -------

Revenues                                $2,654     $9,156    $   472    $   694

Gross margin                            $1,397     $3,404    $   143    $(3,311)

Net income (loss) (2)                   $ (794)      $858    $(1,934)   $(7,155)

Net income (loss) per common share -
        basic                           $ (.37)     $ .40    $  (.91)   $ (3.35)
        diluted                         $ (.37)      $.39    $  (.91)   $ (3.35)


                                      F-16
<PAGE>

(1)      Revenues and net income (loss) includes an adjustment to reduce
         revenues by $205 in the fourth quarter. In February 2002, the Company
         became aware of an error in revenues recorded during the second
         quarter. Revenues, net income (loss) and net income (loss) per common
         share - basic, and net income (loss) per common share - diluted, would
         have been $8,951; $653; $.31, and $.30, respectively, in the second
         quarter, and $899; $(6,950); $(3.26); and $(3.26), respectively, in
         the fourth quarter had the error not been made.

(2)      Net loss in the fourth quarter includes an increase in the provision
         for excess inventory of $3,000 and an asset impairment charge for
         leasehold improvements of $169.

16. Subsequent Events

         The following material events took place subsequent to December 31,
2001. These events are material events in the Company's operations and this
section should be read carefully and thoroughly by readers. Data in the
following has been adjusted to give effect to the Company's one-for-five reverse
stock split effected on February 5, 2002.

         On January 25, 2002, the Company announced that it had completed a
third bridge financing. On January 24, 2002, the Company issued to investors in
a private placement $500,000 in aggregate principal amount of 9% Unsecured
Promissory Notes (the "Unsecured Notes") and warrants (the "Warrants") to
purchase 200,000 shares of the Company's common stock at an initial exercise
price of $1.30 per share (the "Bridge Financing"). The Company offered the
Unsecured Notes and Warrants directly to persons who qualified as "accredited
investors" under the Securities Act of 1933, as amended, and not through any
placement agent. Each investor who participated in the Bridge Financing received
an Unsecured Note representing the principal amount of the investor's investment
and a Warrant to purchase the Company's common stock. For every dollar that an
investor invested in the Bridge Financing, the investor received a Warrant to
purchase four-tenths of a share of the Company's common stock.

         The Unsecured Notes are unsecured debt obligations of the Company and
were due and payable upon the earlier of April 24, 2002 or the date on which the
Company completes its next debt or equity financing in which it raises in the
aggregate, on a cumulative basis, in excess of $2,500,000 in gross proceeds. The
holders of the Unsecured Notes have the right to convert all or any portion of
the principal amount of the Unsecured Notes into the securities that the Company
issues in its next financing. The Notes bear interest at a rate of 9% per annum.
Interest accrues from January 24, 2002 through the date on which the Notes
become due and payable. The Notes were not paid when due and interest is
accruing at the rate of 18%.

         The Warrants will be first exercisable beginning on July 24, 2002, and
will be exercisable until July 23, 2007. The initial exercise price for the
Warrants of $1.30 per share is subject to adjustment in certain limited events,
including recapitalizations, reclassifications or split-ups of the Company's
common stock. The Warrants have a cashless exercise provision.

         The Company used the net proceeds from the Bridge Financing to provide
short-term working capital.

         On March 28, 2002, the Company announced that it had completed a fourth
short-term debt financing. On March 28, 2002, the Company borrowed the aggregate
principal amount of $349,000 pursuant to a 9% Unsecured Promissory Note (the
"Unsecured Note"). In connection with the loan, the Company also issued to the
lender a warrant (the "Warrant") to purchase 698,000 shares of the Company's
common stock at an initial exercise price of $1.30 per share (the "Bridge
Financing"). The Unsecured Note is an unsecured debt obligation of the Company
and is due and payable on the earlier of June 26, 2002 or the date on which the
Company completes its next debt or equity financing in which it raises in the
aggregate, on a cumulative basis, in excess of $2,500,000 in gross proceeds. The
holder of the Unsecured Note has the right to convert all or any portion of the
principal amount of the Unsecured Note into the securities that the Company
issues in its next financing. The Unsecured Note bears interest at a rate of 9%
per annum. Interest accrues from March 28, 2002 through the date on which the
Unsecured Note becomes due and payable. If the Unsecured Note is not paid when
due, interest will accrue at the rate of 18% per annum thereafter.

         The Warrant issued in connection with the loan will first be
exercisable beginning on August 26, 2002 and will be exercisable until August
26, 2007. The initial exercise price for the Warrant of $1.30 per share is
subject to adjustment in certain limited events, including recapitalizations,
reclassifications or split-ups of the Company's common stock and for issuances
of securities at a price less than the then current exercise price. The Warrant
has a cashless exercise provision.

         The Company used the net proceeds from the Bridge Financing to provide
short-term working capital.


                                      F-17
<PAGE>

         Defaults on Prior Bridge Notes and Sanmina Note. On May 17, 2001, the
Company was in default on certain of its outstanding bridge note obligations.
The Company was in default on its repayment obligations to holders of the
$1,000,000 aggregate principal amount of 9% Senior Secured Promissory Notes
issued in September and October of 2001 (the "First Bridge Notes") and is in
breach of certain of its covenants in the First Bridge Notes and related
documentation. The First Bridge Notes are secured by substantially all of the
Company's intellectual property and, as amended, were due and payable on
February 15, 2002 or, in the case of $300,000 aggregate principal amount of the
First Bridge Notes the holders of which agreed to extend the maturity date to
March 31, 2002. As a result of the Company's default on the First Bridge Notes,
the holders of the First Bridge Notes have the right to exercise various legal
and contractual remedies, including the right to foreclose on substantially all
of the Company's intellectual property which constitutes a material portion of
the Company's assets, and interest will accrue on the First Bridge Notes from
the first date of default at the rate of 18% per year. The Company was also in
default in its repayment obligations to the holders of the $1,674,982 aggregate
principal amount of 9% Unsecured Promissory Notes issued in November and
December of 2001 (the "Second Bridge Notes"), and was in breach of certain
covenants of the Company set forth in the Second Bridge Notes and related
documentation. The Second Bridge Notes are unsecured debt obligations of the
Company and, as amended, were due and payable on February 19, 2002 or, in the
case of $350,000 aggregate principal amount of Second Bridge Notes, the holders
of which agreed to extend the maturity date to March 31, 2002. As a result of
the Company's defaults on the Second Bridge Note obligations, the holders of the
Second Bridge Notes have the right to exercise various contractual and legal
remedies and interest will accrue on the Second Bridge Notes from the first date
of default at the rate of 18% per year.

         At May 17, 2002 the Company also had outstanding $500,000 aggregate
principal amount of 9% Unsecured Promissory Notes issued on January 24, 2002
(the "Third Bridge Notes" and, together with the First and Second Bridge Notes,
the "Prior Bridge Notes"), which are due and payable upon the earlier of
(i) April 24, 2002 or (ii) the date on which the Company completes its next
debt or equity financing in which it raises in the aggregate, on a cumulative
basis, in excess of $2,500,000 in gross proceeds (a "Qualified Financing").
The Company did not complete a Qualified Financing prior to April 23, 2002
and did not repay the Third Bridge Note obligations when they become due and
is in default. Accordingly, the holders of the Third Bridge Notes have the
right to exercise various contractual and legal remedies and interest would
accrue on the Third Bridge Notes from the date of default at the rate of 18%
per year.

         On May 17, 2002, the Company was also in default on its outstanding
note to Sanmina Corporation (the "Sanmina Note"). The Sanmina Note is secured by
substantially all of the Company's assets, other than its intellectual property.
The Sanmina Note became due and payable on January 12, 2002. As a result of the
default on the Sanmina Note, Sanmina Corporation has the right to foreclose on a
material portion of the Company's assets.

         The Company has pledged substantially all of its material assets as
security for the First Bridge Notes and the Sanmina Note. As a result of the
Company's defaults on the Prior Bridge Notes and the Sanmina Note, the holders
of those notes may accelerate the Company's obligation to repay in full the
Company's outstanding obligations under these notes, including principal,
interest and costs associated with the acceleration, and any such acceleration
could trigger a cross-default provision in other obligations, requiring the
Company to pay immediately all of the aggregate outstanding principal and
interest on other obligations. The loss of the assets that serve as security for
the Company's outstanding obligations would materially and adversely affect its
business and could require it to file for bankruptcy.

         On April 28, 2002, the Company completed a fifth short-term debt
financing when the Company borrowed the aggregate principal amount of $200,000
pursuant to a 9% Unsecured Promissory Note (the "Unsecured Note"). In connection
with the loan, the Company also issued to the lender a warrant (the "Warrant")
to purchase 400,000 shares of the Company's common stock at an initial exercise
price of $1.30 per share (the "Bridge Financing"). The Unsecured Note is an
unsecured debt obligation of the Company and is due and payable on demand or on
the date on which the Company completes its next debt or equity financing in
which it raises in the aggregate, on a cumulative basis, in excess of $2,500,000
in gross proceeds. The holder of the Unsecured Note has the right to convert all
or any portion of the principal amount of the Unsecured Note into the securities
that the Company issues in its next financing. The Unsecured Note bears interest
at a rate of 9% per annum. Interest accrues from March 28, 2002, through the
date on which the Unsecured Note becomes due and payable. If the Unsecured Note
is not paid when due, interest will accrue at the rate of 18% per annum
thereafter.

         The Warrant issued in connection with the loan will first be
exercisable beginning on August 26, 2002 and will be exercisable until August
26, 2007. The initial exercise price for the Warrant of $1.30 per share is
subject to adjustment in certain limited events, including recapitalizations,
reclassifications or split-ups of the Company's common stock and for issuances
of securities at a price less than the then current exercise price. The Warrant
has a cashless exercise provision.

         The Company is using the net proceeds from the Bridge Financing to
provide short-term working capital.

         As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this section may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.


                                      F-18
<PAGE>

Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure

Effective on June 26, 2001, the Board of Directors of Video Network
Communications, Inc. (the "Company") dismissed its current independent public
accountants, PricewaterhouseCoopers LLP ("PwC"), as the Company's certifying
accountant. The decision to dismiss PwC was made by the Board of Directors upon
the recommendation of the Company's management. The reports of PwC on the
financial statements of the Company for the past two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles, except that the reports on
the financial statements as of and for the years ended December 31, 2000 and
1999 each included an explanatory paragraph expressing substantial doubt
regarding the Company's ability to continue as a going concern.

In connection with its audits for the two most recent fiscal years and through
June 26, 2001, there have been no disagreements with PwC on any matter of
accounting principles or practices, financial statement disclosure, or other
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PwC would have caused them to make reference thereto in their
report on the financial statements for such years, except as described in the
following paragraph: The Company's management initially determined to record in
fourth quarter 2000 revenues, the revenue from an education-related order
pursuant to which inventory was shipped in the fourth quarter of 2000 but
delivered in the first quarter of 2001. The original documentation of the
Company and its customer were inconsistent as to when title to the inventory
passed to the customer. When this inconsistency was identified by the Company's
auditors during the audit process, in an effort to resolve this inconsistency
the Company subsequently obtained additional documentation from its customer
confirming that the customer's purchase order was incorrect and indicating that
the Company's documentation accurately reflected the parties' agreement.
However, PwC indicated that, in their view, this subsequent documentation was
not sufficiently persuasive for purposes of recognizing revenue on any basis
other than that indicated by the customer's purchase order, while the Company
felt it was appropriate to consider the later documentation. In order to clarify
this issue, the Company requested the view of the Securities and Exchange
Commission ("SEC") staff as to whether the independent accountants could
consider the information obtained after December 31, 2000, to confirm the
existence and terms of the agreement with the customer at December 31, 2000. In
accordance with the comments of the staff of the SEC and the professional
judgement of PwC, the Company did not recognize the revenues from this contract
in the fourth quarter of 2000. The matter was discussed with the Company's Audit
Committee and was resolved to the satisfaction of both PwC and the Company. The
Company has authorized PwC to respond fully to the successor auditor regarding
this disagreement.

Effective on June 26, 2001, the Company engaged Ernst & Young LLP as its
independent auditors to audit the Company's financial statements, which
engagement was approved by the Company's Board of Directors upon recommendation
of the Company's management.

The Company has not consulted with Ernst & Young LLP during its two most recent
fiscal years nor during any subsequent interim period prior to its engagement,
regarding the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the financial statements of the Company or any matter that was
either the subject of a disagreement, within the meaning of Item 304(a)(1)(iv)
or Regulation S-K, or any reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-K.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act

    The information required by this Item 9 is incorporated in this report by
reference from our definitive proxy statement for our 2002 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission no
later than May 30, 2002. You will find our response to this Item 9 in the
sections entitled "Directors and Executive Officers," "Section 16(a) Beneficial
Ownership Reporting Compliance" and "Election of Directors."

         As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this section may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.

Item 10.  Executive Compensation

                           Summary Compensation Table

     The following table lists the cash remuneration we paid or accrued during
2001, 2000 and 1999 to our President and Chief Executive Officer and to each of
our other most highly compensated executive officers for 2001 whose salary and
bonus exceeded $100,000 (the "Named Executive Officers"). We did not have any
pension or long-term incentive plan and did not grant any restricted stock
awards, bonus stock awards or stock appreciation rights to any of the executive
officers named in this table during 2001.

<TABLE>
<CAPTION>

                                                          Summary Compensation Table
                                                                                                 Long Term Compensation
                                                                                                 ----------------------
                                                                                               Awards              Payouts
                                                                                               ------              -------
                                                                 Annual Compensation         Securities            All Other
                                                                 -------------------         ----------           ---------
              Name and Principal Position                  Year     Salary       Bonus    Underlying Options     Compensation
              ---------------------------                  ----     ------       -----    ------------------------------------

<S>                                                      <C>      <C>            <C>              <C>                 <C>
Carl Muscari (1).......................................   2001     $186,329       $-0-            -0-                  $-0-
   Chairman, President &                                  2000     $187,801       $-0-         75,000                  $-0-
   Chief Executive Officer                                1999    $  44,647       $-0-        387,500                  $-0-

Roger A. Booker........................................   2001     $145,777       $-0-            -0-                  $-0-
   Senior Vice President                                  2000     $147,656       $-0-         35,000                  $-0-
   Business Development                                   1999     $130,600       $-0-        171,428                  $-0-

Robert H. Emery........................................   2001     $152,026    $20,000            -0-                  $-0-
   Chief Financial Officer and                            2000     $152,026       $-0-         35,000
   Vice President, Administration                         1999     $120,057       $-0-        175,000                  $-0-

Stephen A. LaMarche (2)   .............................   2001     $154,690       $-0-            -0-                  $-0-
   Vice President Sales and Marketing                     2000     $150,574       $-0-        195,000                  $-0-
</TABLE>


                                      19
<PAGE>

----------
(1)  Mr. Muscari joined the Company as President and Chief Operating Officer
     in September 1999.
(2)  Mr. LaMarche joined the Company as Vice President of Engineering on
     January 3, 2000.

Stock Option Grants In 2001

         No stock options were granted to the Named Executive Officers in 2001.
As of the date of this Form 10-KSB, we have not granted any stock appreciation
rights to any Named Executive Officer.

                         Stock Option Exercises In 2001

     None of our Named Executive Officers exercised any options in 2001. The
following table sets forth the number of shares of common stock underlying
unexercised options held by the Named Executive Officers at December 31, 2001
and the aggregate dollar value of in-the-money unexercised options held at
December 31, 2001.


         Aggregated Option Exercises In 2001 And Year-End Option Values
<TABLE>
<CAPTION>

                                                                  Number of
                                                             Securities Underlying        Value of Unexercised
                                                           Unexercised Options At       In-The-Money Options/SARs
                                                               December 31, 2001          At December 31, 2001
                                   Name                   Exercisable/Unexercisable   Exercisable/Unexercisable(1)
                                                          -------------------------   ----------------------------

<S>                                                            <C>       <C>                     <C>  <C>
Carl Muscari............................................       258,333 / 204,167                 $0 / $0
Roger A. Booker.........................................        136,640 / 86,429                 $0 / $0
Robert H. Emery.........................................        144,617 / 88,096                 $0 / $0
Stephen A. LaMarche.....................................         98,166 / 96,834                 $0 / $0
</TABLE>

-----------
(1)  The dollar value of in-the-money, unexercised options at December 31, 2001
     was calculated by determining the difference between the fair market value
     of the common stock underlying the options and the exercise price per share
     of the options at December 31, 2001.

Executive Employment Contracts

         As of September 9, 1999, we entered into an Employment Agreement with
Mr. Muscari under which he agreed to serve as our President and Chief Operating
Officer for a term of four years. Under the terms of Mr. Muscari's Employment
Agreement, we agree to pay him an annual minimum base salary of $188,000 per
year, subject to upward adjustment in our Board's discretion. Mr. Muscari is
also entitled to receive, as incentive compensation, a bonus equal to thirty
percent (30%) of his base salary if we achieve profitability for two consecutive
quarters, as reflected in our quarterly or annual reports filed with the
Securities and Exchange Commission. Following the date on which we achieve
profitability for two consecutive quarters, we are obligated to reach an
agreement with Mr. Muscari within 135 days on future annual cash incentive plans
which will offer Mr. Muscari equal or greater incentive compensation payments.
Mr. Muscari is also entitled to three weeks of vacation, expense reimbursement
and to participate in our other benefit and incentive plans for our employees.
We have the right to terminate Mr. Muscari for "cause" at any time during the
term of the Employment Agreement. For purposes of the agreement, "cause" means
the conviction of a felony or crime involving dishonesty or misfeasance that
interferes with our business; any conduct that substantially interferes with or
damages our business, standing or reputation; a material breach by Mr. Muscari
of the Employment Agreement; or a determination by our Board that Mr. Muscari
has engaged in illegal conduct. If we terminate Mr. Muscari for any reason other
than "cause," we are obligated to pay him one year's annual base salary as
severance, plus any bonuses to which he is entitled, payable in a lump sum, to
provide him with medical and other benefits for six months, and to give him six
months in which to exercise any of his vested stock options. We also are
obligated to provide Mr. Muscari with those benefits if he is terminated after a
change in control of our company, as that term is defined in his employment
agreement. We also agree to indemnify Mr. Muscari against certain liabilities
and expenses that he may incur while serving as an officer or director of our
company.

         As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this section may be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.

Item 11.  Security Ownership of Certain Beneficial Owners and Management


                                       20
<PAGE>

             SECURITY OWNERSHIP OF OUR DIRECTORS, EXECUTIVE OFFICERS
                           AND PRINCIPAL STOCKHOLDERS

         The following table sets forth certain information regarding the
beneficial ownership of our common stock as of December 6, 2001, by (i) all
persons known by us to beneficially own 5% or more of the outstanding shares of
common stock, (ii) each current director, (iii) each of our executive officers,
and (iv) all of our current directors and executive officers, as a group. Unless
otherwise noted, each stockholder named has sole voting and investment power
with respect to such shares, subject to community property laws where
applicable.

         As a result of a merger transaction between the Company and B2BVideo
Network Corp. and a financing transaction between the Company and an affiliate
of Moneyline Telerate Holdings of approximately $19.6 million on May 17, 2002,
certain information in this section will be substantially changed. Updated
information will be contained in a report on Form 8-K, to be filed not later
than June 3, 2002.

<TABLE>
<CAPTION>

                                                          Amount and
                                                           Nature of
Name of Beneficial Owner                             Beneficial Ownership    Percent (1)
------------------------                             --------------------    -----------
<S>                                                     <C>                   <C>
5% or Greater Stockholders
  Robert Gladstone (2).............................        644,166               5.7%
  Roger Gladstone (3)                                      560,833                5.0
  David Nussbaum (4)...............................      2,344,639               18.8
  The Rubenstein Group (5) (6).....................        850,500                7.7
Directors and Executive Officers
  Roger A. Booker (7)..............................        138,037                1.3
  James F. Bunker (8)..............................        234,843                2.2
  Eugene R. Cacciamani (9).........................         65,164                  *
  Ronald K. Dobes (10)                                           0                  *
  Robert H. Emery (11).............................        153,746                1.4
  Richard S. Friedland (12)........................         40,000                  *
  Martin Grant (13)................................          5,000                  *
  Stephen A. LaMarche (14).........................         98,166                  *
  Quentin R. Lawson (15)...........................         10,000                  *
  Carl Muscari (16)................................        258,333                2.4
  Steven A. Rogers (17)............................        172,842                1.6
  All directors and executive officers as
   a group (11 persons) (18).......................      1,176,131               10.1%
</TABLE>

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

(1)    Applicable percentage of ownership as of December 6, 2001 is based on
       10,667,970 shares of common stock outstanding. Beneficial ownership is
       determined in accordance with rules of the SEC. For each beneficial
       owner, shares of common stock subject to options or warrants
       exercisable within 60 days of December 6, 2001 are deemed outstanding.

(2)    Consists of the following securities: (i) 75,000 shares of common
       stock that may be acquired by Mr. Robert Gladstone upon the exercise
       of an outstanding option issued in connection with our June 1999
       public offering, (ii) 50,000 shares of common stock that may be
       acquired by Mr. Robert Gladstone upon the exercise of a warrant
       underlying the outstanding option issued in connection with the June
       1999 public offering, (iii) 16,667 shares of common stock issuable
       upon exercise of the Warrants purchased by Mr. Robert Gladstone in the
       August 2000 Private Placement, (iv) 2,499 shares of common stock
       issuable upon exercise of the Extra Warrants issued to Mr. Robert
       Gladstone, (v) 300,000 shares of common stock that may be acquired by
       GKN Securities Corp. upon the exercise of an outstanding option issued
       in connection with the June 1999 public offering and (vi) 200,000
       shares of common stock that may be acquired by GKN Securities Corp.
       upon exercise of a warrant underlying the outstanding option issued in
       connection with the June 1999 public offering. Mr. Robert Gladstone is
       the President and Chief Executive Officer of GKN Securities Corp. and
       a minority stockholder of Firebrand Financial Group, Inc., the parent
       company of GKN Securities Corp. As a result of such positions,
       Mr. Robert Gladstone may exercise voting or investment control over
       such securities and may be deemed to be the beneficial owner of the
       securities held by GKN Securities Corp. The address of Mr. Robert
       Gladstone is c/o EarlyBirdCapital, Inc., One State Street Plaza, 24th
       Floor, New York, New York 10004.

(3)    Consists of the following securities: (i) 15,000 shares of common
       stock that may be acquired by Mr. Roger Gladstone upon the exercise of
       an outstanding option issued in connection with our June 1999 public
       offering, (ii) 10,000 shares of common stock that may be acquired by
       Mr. Roger Gladstone upon the exercise of a warrant underlying the
       outstanding option issued in connection with the June 1999 public
       offering, (iii) 16,667 shares of common stock purchased by Mr. Roger
       Gladstone in the August 2000 Private Placement, (iv) 16,667 shares of
       common stock issuable upon exercise of the Warrants purchased by
       Mr. Roger Gladstone in the August 2000 Private Placement, (v) 2,499
       shares of common stock issuable upon exercise of the Extra Warrants
       issued to Mr. Roger Gladstone, (vi) 300,000 shares of common stock
       that may be acquired by GKN Securities Corp. upon the exercise of an
       outstanding option issued in connection with the June 1999 public
       offering and (vii) 200,000 shares of common stock that may be acquired
       by GKN Securities Corp. upon the exercise of a warrant underlying the
       outstanding option issued in connection with the June 1999 public
       offering. Mr. Roger Gladstone is a director of GKN Securities Corp.
       and a minority stockholder and director of Firebrand Financial Group,
       Inc., the parent company of GKN Securities Corp. As a result of such
       positions, Mr. Roger Gladstone may exercise voting or investment
       control over such securities and may be deemed to be the beneficial
       owner of the securities held by GKN Securities Corp. The address of
       Mr. Roger Gladstone is c/o Shochet Securities, Mizner Park, 433 Plaza
       Real, Boca Raton, Florida 33432.


                                       21
<PAGE>

(4)    Consists of the following securities: (i) 75,000 shares of common
       stock that may be acquired by Mr. Nussbaum upon the exercise of an
       outstanding option issued in connection with our June 1999 public
       offering, (ii) 50,000 shares of common stock that may be acquired by
       Mr. Nussbaum upon the exercise of a warrant underlying the outstanding
       option issued in connection with the June 1999 public offering, (iii)
       16,667 shares of common stock purchased by Mr. Nussbaum in the August
       2000 Private Placement, (iv) 16,667 shares of common stock issuable
       upon exercise of the Warrants purchased by Mr. Nussbaum in the August
       2000 Private Placement, (v) 2,499 shares of common stock issuable upon
       exercise of the Extra Warrants issued to Mr. Nussbaum, (vi) 519,166
       shares of common stock purchased by Dalewood Associates L.P. in the
       August 2000 Private Placement, (vii) 519,166 shares of common stock
       issuable to Dalewood Associates L.P. upon exercise of the Warrants
       purchased by Dalewood Associates L.P. in the August 2000 Private
       Placement, (viii) 77,874 shares of common stock issuable to Dalewood
       Associates L.P. upon exercise of the Extra Warrants issued to Dalewood
       Associates L.P., (ix) 264,000 shares of common stock issuable to EBC
       (or its designee) upon exercise of the Purchase Option, (x) 264,000
       shares of common stock issuable to EBC (or its designee) upon exercise
       of the Warrants underlying the Purchase Option, (xi) 39,600 shares of
       common stock issuable to EBC (or its designee) upon exercise of the
       Extra Warrants issued to EBC, (xii) 300,000 shares of common stock
       that may be acquired by GKN Securities Corp. upon exercise of an
       outstanding option issued to GKN Securities Corp. in connection with
       our June 1999 public offering and (xiii) 200,000 shares of common
       stock that may be acquired by GKN Securities Corp. upon exercise of a
       warrant underlying the outstanding option issued to GKN Securities
       Corp. in connection with the June 1999 public offering. Mr. Nussbaum
       is an officer and director of Dalewood Associates, Inc., the manager
       of Dalewood Associates L.P. As a result of such positions, Mr.
       Nussbaum may be deemed to be the beneficial owner of the securities
       held by Dalewood Associates L.P. Mr. Nussbaum is also a director and a
       minority stockholder of Firebrand Financial Group, Inc., which is the
       majority stockholder of the parent company of EBC, and he is the Chief
       Executive Officer of EBC. As a result of such positions, Mr. Nussbaum
       may be deemed to be the beneficial owner of the securities held by
       EBC. Mr. Nussbaum disclaims beneficial ownership of the securities
       held by Dalewood Associates L.P. and EBC because he does not exercise
       voting or investment power over the securities. Mr. Nussbaum is also a
       director and a minority stockholder of Firebrand Financial Group,
       Inc., the parent company of GKN Securities Corp. As a result of such
       positions, Mr. Nussbaum may exercise voting or investment control over
       such securities and may be deemed to be the beneficial owner of the
       securities held by GKN Securities Corp. The address of Mr. Nussbaum is
       c/o EarlyBirdCapital, Inc., One State Street Plaza, 24th Floor, New
       York, New York 10004.

(5)    The address of Mr. Barry Rubenstein and Mrs. Marilyn Rubenstein is 68
       Wheatley Road, Brookville, New York 11545.

(6)    Consists of the following securities: (i) 150,000 shares of common
       stock owned by Wheatley, 80 Cuttermill Road, Great Neck, New York
       11021, with respect to which Mr. Barry Rubenstein has shared voting
       and dispositive power; (ii) 100,000 shares of common stock owned by
       Seneca, 68 Wheatley Road, Brookville, New York 11545, and warrants to
       purchase an additional 115,000 shares of common stock held by Seneca
       which are currently exercisable or exercisable within 60 days of the
       date of this prospectus, with respect to which Mr. Barry Rubenstein
       has shared voting and investment power; (iii) 145,000 shares of common
       stock owned by Woodland Fund, 68 Wheatley Road, Brookville, New York,
       11545, and warrants to purchase an additional 230,000 shares of common
       stock held by Woodland Fund which are currently exercisable or
       exercisable within 60 days of the date of this prospectus, with
       respect to which Mr. Barry Rubenstein has shared voting and investment
       power; (iv) 53,000 shares of common stock owned by Woodland Partners,
       68 Wheatley Road, Brookville, New York 11545, with respect to which
       Mr. Barry Rubenstein has shared voting and investment power; and (v)
       Warrants to purchase an additional 57,500 shares of common stock held
       by Woodland Fund which are currently exercisable or exercisable within
       60 days of the date of this prospectus, with respect to which Mr.
       Barry Rubenstein has shared voting and investment power. Woodland
       Services Corp. is a general partner of Seneca and Woodland Fund. Mr.
       Barry Rubenstein is a general partner of Wheatley, Seneca, Woodland
       Fund and Woodland Partners, an officer and director of Woodland
       Services Corp. and a Trustee of the Rubenstein Foundation. Mrs.
       Marilyn Rubenstein is a general partner of Woodland Partners, a
       Trustee of the Rubenstein Foundation and an officer of Woodland
       Services Corp., and is the wife of Mr. Barry Rubenstein. Each of Mr.
       Barry Rubenstein and Mrs. Marilyn Rubenstein disclaim ownership of
       these securities except to the extent of his or her equity interest
       therein. Applewood Capital Corp., Irwin Lieber and Barry Fingerhut are
       also general partners of Wheatley, and Messrs. Irwin Lieber and Barry
       Fingerhut are also officers and directors of Applewood Capital Corp.,
       and as such, may be deemed to exercise voting and investment power
       over the securities owned by Wheatley. Seth Lieber and Jonathan Lieber
       are also general partners of Wheatley and officers of Applewood
       Capital Corp., and as such, may be deemed to exercise voting and
       investment power over these securities owned by Wheatley. Applewood
       Capital Corp., Irwin Lieber, Barry Fingerhut, Seth Lieber and Jonathan
       Lieber disclaim beneficial ownership of the equity securities owned by
       Wheatley except to the extent of his or its equity interest therein.
       Brian Rubenstein and Rebecca Rubenstein are also Trustees of the
       Rubenstein Foundation and, as such, may be deemed to exercise
       beneficial ownership of these securities owned by the foundation.
       Brian Rubenstein is the son and Rebecca Rubenstein is the daughter of
       Barry and Marilyn Rubenstein. Each disclaims beneficial ownership of
       the equity securities owned by the Rubenstein Foundation except to the
       extent of his or her equity interest therein.

(7)    The address of Mr. Booker is c/o Video Network Communications, Inc.,
       50 International Drive, Portsmouth, New Hampshire 03801. Includes
       136,640 shares of common stock issuable upon exercise of options.

(8)    The address of Mr. Bunker is c/o Video Network Communications, Inc.,
       50 International Drive, Portsmouth, New Hampshire 03801. Includes
       224,285 shares of common stock that may be acquired upon exercise of
       outstanding options.

(9)    The address of Dr. Cacciamani is c/o Video Network Communications,
       Inc., 50 International Drive, Portsmouth, New Hampshire 03801.
       Includes 60,941 shares of common stock issuable upon exercise of
       options.

(10)   The address of Mr. Dobes is c/o Video Network Communications, Inc., 50
       International Drive, Portsmouth, New Hampshire 03801.

(11)   The address of Mr. Emery is c/o Video Network Communications, Inc., 50
       International Drive, Portsmouth, New Hampshire 03801. Includes 144,617
       shares of common stock issuable upon exercise of options.

(12)   The address of Mr. Friedland is c/o Video Network Communications,
       Inc., 50 International Drive, Portsmouth, New Hampshire 03801.
       Consists of 40,000 shares of common stock issuable upon exercise of
       options.


                                       22
<PAGE>

(13)   The address of Mr. Grant is 535 East 86th Street, Apt. 11A, New York,
       New York 10028. Consists of 5,000 shares of common stock issuable upon
       exercise of options.

(14)   The address of Mr. LaMarche is c/o Video Network Communications, Inc.,
       50 International Drive, Portsmouth, New Hampshire 03801. Consists of
       98,166 shares of common stock issuable upon exercise of options.

(15)   The address of Mr. Lawson is c/o Video Network Communications, Inc.,
       50 International Drive, Portsmouth, New Hampshire 03801. Consists of
       10,000 shares of common stock issuable upon exercise of options.

(16)   The address of Mr. Muscari is c/o Video Network Communications, Inc.,
       50 International Drive, Portsmouth, New Hampshire 03801. Consists of
       258,333 shares of common stock issuable upon exercise of options.

(17)   The address of Mr. Rogers is c/o Video Network Communications, Inc.,
       50 International Drive, Portsmouth, New Hampshire 03801. All of the
       shares of common stock owned by Mr. Rogers are pledged to Merrill
       Lynch Credit Corporation to secure certain obligations. Includes
       40,000 shares of common stock issuable upon exercise of options.

(18)   Includes 1,017,982 shares of common stock issuable to executive
       officers and directors upon exercise of options.

Item 12.  Certain Relationships and Related Transactions

         The following is a description of material transactions between us and
our officers, directors and 5% or greater stockholders during 1999, 2000 and
2001.

Transactions with Our Directors and Executive Officers

       We had an Employment and Consulting Agreement with Mr. Bunker dated July
13, 1998, which was amended in July 1999, pursuant to which he served as one of
our executive officers. Pursuant to the terms of that agreement, as modified, we
paid Mr. Bunker salary of $196,156 in 1999 for serving as our President and
Chief Executive Officer. In 1999, we also granted Mr. Bunker options to purchase
200,000 shares of our common stock pursuant to the terms of his modified
employment agreement. Mr. Bunker served as our Chief Executive Officer until
December 29, 1999, and served as the Chairman of our Board of Directors until
January 2001. Mr. Bunker did not receive any compensation as an executive
officer in 2000, but did receive compensation for serving as one of our
non-employee directors in accordance with our director compensation policy. The
Employment and Consulting Agreement has terminated, since Mr. Bunker no longer
serves as one of our executive officers. Mr. Bunker continues to serve as one of
our non-employee directors. We also have a Confidentiality, Inventions and
Non-competition Agreement with Mr. Bunker.

         In 1999, we reached an agreement with Mr. Steven A. Rogers regarding
his departure as an executive officer of the Company and the termination of his
employment agreement with the Company. We paid Mr. Rogers $121,485 in salary in
1999, for serving as an executive officer of the Company. In addition, in 1999,
we paid Mr. Rogers an additional $65,955 in other compensation as part of his
severance arrangement with the Company. In 2000, we paid Mr. Rogers an
additional $63,553 in other compensation, representing the balance of his
severance arrangement with the Company.

         On December 31, 1999, the Company entered into an agreement with
b2bVideo Network, Inc. (formerly b2bvideo.com, Corp.), a high technology startup
company that intends to provide aggregated business video content to the
business market. The agreement was to become effective that day after the
closing of b2bVideo Network's proposed private placement of Series A Preferred
Stock in the first quarter of 2000. The agreement provides that VNCI receive an
equity position in b2bVideo Network in exchange for favorable purchase terms and
conditions regarding technical support and equipment provided to b2bVideo
Network. B2bVideo Network's private placement closed on March 14, 2000. The
Company received one million shares of common stock, equivalent to an ownership
percentage of approximately fourteen and one half percent (14.5%) on a fully
diluted basis on the closing date assuming conversion of all Series A Preferred
Stock. Mr. James F. Bunker, a director of the Company and b2bVideo Network,
participated in the private placement purchasing less than one percent of the
total offering. Ms. Cheryl Snyder, CEO of b2bVideo Network, is a former director
of the Company. As described below, the Company sold some of its b2bVideo
Network equity investment on December 14, 2000 to a venture fund that is
directed and controlled by EBC, the placement agent of this offering.

Related Party Loans

         The following is a description of loan transactions of $60,000 or more
between Video Network Communications and its directors, executive officers and
5% or greater stockholders (or members of their families) since January 1, 1999.

         On January 8, 1999, a limited partnership controlled by Mr. Bunker made
a loan to us to permit us to continue operations. The principal amount of the
loan made by Mr. Bunker was $100,000. The principal amount of the loan was
converted into units in our February 1999 private placement of units consisting
of promissory notes and shares of common stock. The purchase of securities made
by Mr. Bunker in the February 1999 private placement was made on the same terms
and conditions as unaffiliated third parties purchasing units in the offering,
except that Mr. Bunker received 714 shares of common stock and unaffiliated
investors investing a comparable amount of money received 1,142 shares of common
stock. We used a portion of the net proceeds from our June 1999 public offering
of units to repay in full the notes issued in the February 1999 private
placement, including the note held by Mr. Bunker.

         Mr. Bunker voluntarily deferred the payment of his salary from November
9, 1998, through the date on which our June 1999 public offering of units
closed. Mr. Bunker's deferred salary has been repaid in full.


                                       23
<PAGE>

         In February 1999, we completed a private placement of 28.5 units of
unsecured promissory notes with a principal amount of $2,850,000 and 32,140
shares of common stock, from which we received net proceeds of approximately
$2,396,000. The notes accrued interest at 10% per year. The principal and
accrued interest on the notes were payable at the earlier of (i) February 2000,
(ii) the closing date of the Company's then proposed public offering, or (iii)
one of several specified events. Two principal officers of the Company, Mr.
Bunker and Mr. Emery, invested $100,000 and $25,000 in units, respectively, and
were issued unsecured promissory notes for $100,000 and $25,000 principal
amount, respectively, and shares of our common stock. These notes were paid in
full at the closing of our public offering of units in June 1999.

Equity Issuances

Issuance Of 5% Convertible Debentures Due 2003

         In July 1998, we issued $3,125,000 aggregate principal amount of
convertible debentures. $2,500,000 aggregate original principal amount of
convertible debentures were purchased by certain institutional investors (the
"Institutional Investors") and $625,000 aggregate original principal amount of
convertible debentures were purchased by certain persons who were then serving
as directors and executive officers of, and outside consultants to, the Company.
Dr. Cacciamani, and Messrs. Bunker, Booker and Emery purchased convertible
debentures in the offering. Following the issuance of the convertible
debentures, the following executive officers and directors held beneficially the
principal amount of debentures indicated: Mr. Bunker - $25,000; Mr. Booker -
$5,000; Mr. Emery - $25,000; and Dr. Cacciamani - $10,000. The offering,
issuance and sale of the convertible debentures to certain directors and
executive officers was a condition precedent to the consummation of the
financing with the Institutional Investors.

         It was a condition precedent to the consummation of the February 1999
private placement that we enter into an agreement with the holders of the
convertible debentures, including the directors and executive officers indicated
above, amending certain terms of those securities. In the letter agreements,
each of the holders of the convertible debentures agreed that: (i) it would not
exercise its right to convert the convertible debentures to common stock until
the date on which a public or private equity financing with gross proceeds to us
of not less than $8 million (a "qualified financing") is completed; (ii) upon
the closing of a qualified financing, the principal amount of and accrued and
unpaid interest on the convertible debentures will automatically convert into
the securities issued in the qualified financing at a conversion price equal to
the lesser of (A) $12.50 per share, or (B) 75% of the price at which the
securities are sold in the qualified financing and that the anti-dilution
provisions of the convertible debentures would be inapplicable to the
conversion; and (iii) it waived any default by us with respect to our obligation
to register or maintain the effectiveness of a registration statement for the
shares of common stock issuable upon conversion of the convertible debentures.
The holders of the convertible debentures also agreed to hold the shares of
common stock issued upon conversion of the convertible debentures for at least
12 months following the effective date of our registration statement that
relates to the qualified financing. We agreed to include the shares of common
stock issuable upon conversion of the convertible debentures in the registration
statement filed with the SEC relating to the qualified financing. The
convertible debentures automatically converted to common stock in June 1999
immediately following the closing of our public offering of units at a
conversion price of $18.75 per share of common stock.

February 1999 Private Placement Of Units

         In February 1999, we completed a private placement of 28.5 units of
unsecured promissory notes with a principal amount of $2,850,000 and 32,140
shares of common stock, from which we received net proceeds of approximately
$2,396,000. The notes accrued interest at 10% per year. Two then executive
officers of the Company, Mr. Bunker and Mr. Emery, invested $100,000 and $25,000
in units, respectively, and were issued unsecured promissory notes for $100,000
and $25,000 principal amount, respectively, and 714 and 285 shares of our common
stock. The notes were repaid in full at the closing of our public offering of
units in June 1999.

August 2000 Private Placement

         We completed the August 2000 Private Placement through EBC as our
exclusive placement agent. As described more fully below, Messrs. David
Nussbaum, Robert Gladstone and Roger Gladstone are both affiliates of EBC and
5% or greater stockholders of the Company. Mr. Nussbaum is also an officer
and director of Dalewood Associates, Inc., which is the manager of Dalewood
Associates, L.P., one of the investors in the August 2000 Private Placement.
In addition, Mr. Barry Rubenstein, who is also one of our 5% or greater
stockholders, purchased securities in the August 2000 Private Placement
through certain affiliated entities that he controls.

Certain Transactions with 5% or Greater Stockholders

The following is a description of certain transactions between us and our 5%
or greater stockholders (or members of their families) in 1999, 2000 and
2001.

Relationship with EarlyBirdCapital, Inc.

         EarlyBirdCapital (formerly known as Southeast Research Partners),
acted as placement agent in the August 2000 Private Placement, for which it
received an 8% commission and a 2% non-accountable expense allowance. In
connection with the August 2000 Private Placement, we also issued to EBC the
Purchase Option, which permits the holder to purchase 52,800 shares of common
stock and Warrants to purchase 52,800 shares of common stock. Two-tenths of a
share of common stock and one Warrant is issuable together as a unit,
although no separate unit certificates will be issued. Each unit can be
purchased at a price of $10.625 per unit. We also granted to EBC a 30-day
right of first refusal to underwrite or place future offerings for which we
engage the services of an investment banker exercisable until August 2003. In
addition, we have agreed until August 2003 to either appoint to our Board a
person designated by EBC or to permit EBC to send a representative to observe
each meeting of the Board. No person has been designated by EBC for
appointment to our Board. We will also pay "source fees" to EBC, until August
2002, if EBC introduces potential investors to us and those investors make
subsequent investments in us.


                                       24
<PAGE>

         EBC also acted as an underwriter and the representative of our June
1999 public offering of 2,300,000 units, for which it received underwriting
discounts and commissions of approximately $1,380,000. We also paid EBC a
non-accountable expense allowance of $517,500. In addition, in connection
with the June 1999 public offering, we sold to certain affiliates of EBC, for
an aggregate of $100, purchase options to purchase 200,000 units (each unit
consisted of six tents of one share shares of our common stock and two Public
Warrants), comprised of 120,000 shares of common stock and 400,000 redeemable
common stock purchase warrants, with an initial exercise price of $12.375 per
unit. Those purchase options are exercisable during a period that began on
June 15, 2000 and ends on June 15, 2004. The warrants issuable upon exercise
of these purchase options are the same as our Public Warrants, except that
the initial exercise price of the Public Warrants included in the purchase
options is $33.00 per share of common stock. In addition, under the terms of
the underwriting agreement entered into in connection with the June 1999
public offering, we agreed to use our best efforts to appoint or elect a
designee of EBC as a member of our Board for a period of three years
beginning June 15, 1999. Our Board nominated Ms. Cheryl Snyder as a nominee
for election to our Board, and at our Annual Meeting of Stockholders held in
1999, she was elected as a director to serve for a term expiring in 2002. Ms.
Snyder served in that capacity until September 2000.

         In connection with the June 1999 public offering, we also engaged
EBC, on a non-exclusive basis, to act as our agent for the solicitation of
the exercise of our Public Warrants. To the extent not inconsistent with the
guidelines of the National Association of Securities Dealers, Inc., and the
rules and regulations of the SEC, we have agreed to pay EBC for bona fide
services rendered a commission of 5% of the exercise price of each Public
Warrant exercised after one year from June 15, 1999. In addition to
soliciting, either orally or in writing, the exercise of the Public Warrants,
such services may also include disseminating information, either orally or in
writing, to warrant holders about us or the market for our securities and
assisting in the processing of the exercise of the Public Warrants. EBC
agreed to forgo any solicitation fee with respect to the Warrants and the
Extra Warrants registered pursuant to the registration statement filed by
VNCI relating to the securities issued in connection with the August 2000
Private Placement.

         EBC also acted as one of the placement agents for our February 1999
private placement of securities, for which it received aggregate commissions
of $228,000 and a non-accountable expense allowance of $85,500.

         On December 14, 2000, the Company sold 250,000 shares of its
B2BVideo Network equity investment to Dalewood 2 for $2.00 per share or
$500,000. Dalewood 2 is a venture fund that is directed and controlled by
EBC.

         Mr. David Nussbaum, one of our 5% or greater stockholders, is an
officer and director of EBC. Mr. Nussbaum, together with Mr. Robert Gladstone
and Mr. Roger Gladstone, who are also 5% or greater stockholders of the
Company, are each minority stockholders of Firebrand Financial Group, Inc.
(formerly Research Partners International, Inc.) ("Firebrand"), which is the
majority stockholder of the parent company of EBC. Mr. Nussbaum and Mr. Roger
Gladstone are also directors of Firebrand.

Bridge Notes & Warrants

         In September 2001, Dalewood Associates, L.P., an affiliate of EBC,
loaned the Company $250,000, part of the Company's First Bridge Secured Notes
on which the outstanding principal, and interest at the rate of 9% per annum,
are due and payable on the earlier of February 15, 2002, or the date on which
a financing closes. The First Bridge Secured Notes are secured by
substantially all of our intellectual property, including our United States
patents and trademarks. In conjunction with this loan, the Company issued
warrants to purchase 150,000 shares of common stock at an exercise price of
$2.00 per share

         In October 2001, K.B.C.I. Nominees Limited., an affiliate of EBC,
loaned the Company $200,000, part of the Company's First Bridge Secured Notes
on which the outstanding principal, and interest at the rate of 9% per annum,
are due and payable on the earlier of February 15, 2002, or the date on which
a financing closes. The First Bridge Secured Notes are secured by
substantially all of our intellectual property, including our United States
patents and trademarks. In conjunction with this loan, the Company issued
warrants to purchase 120,000 shares of common stock at an exercise price of
$2.00 per share

         In November 2001, K.B.C.I. Nominees Limited., an affiliate of EBC,
loaned the Company $250,000, and Dalewood Associates, an affiliate of EBC,
loaned the Company $250,000, all as part of the Company's Second Bridge
Unsecured Notes on which the outstanding principal, and interest at the rate
of 9% per annum, are due and payable on the earlier of February 19, 2002, or
the date on which a financing closes. In conjunction with these loans, the
Company issued warrants to purchase 200,000 shares of common stock at an
exercise price of $2.75 per share

Relationship With Barry Rubenstein and Affiliates

         Mr. Barry Rubenstein has previously purchased equity securities in
our company in our public offering completed in June 1999 and in the August
2000 Private Placement through certain affiliated entities that he controls.
Mr. Rubenstein purchased such securities on the same terms and conditions as
all other persons who invested in our company in such offering.

         In September 2001, Seneca Ventures, Woodland Partners and Woodland
Venture Fund, affiliates of Mr. Rubenstein, loaned the Company an aggregate
of $250,000, part of the Company's First Bridge Secured Notes on which the
outstanding principal, and interest at the rate of 9% per annum, are due and
payable on the earlier of February 15, 2002, or the date on which a financing
closes. The First Bridge Secured Notes are secured by substantially all of
our intellectual property, including our United States patents and
trademarks. In conjunction with this loan, the Company issued warrants to
purchase 150,000 shares of common stock at an exercise price of $2.00 per
share

         In November 2001, Woodland Venture Fund and Seneca Ventures,
affiliates of Barry Rubenstein, loaned the Company an aggregate principal
amount of $200,000, as part of the Company's Second Bridge Unsecured Notes on
which the outstanding principal, and interest at the rate of 9% per annum,
are due and payable on the earlier of February 19, 2002, or the date on which
a financing closes. In conjunction with these loans, the Company issued
warrants to purchase 80,000 shares of common stock at an exercise price of
$2.75 per share


                                       25
<PAGE>

         We believe that all of the above transactions were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties and all of the transactions since our initial public offering were
approved by at least a majority of our Board of Directors, including a majority
of the disinterested members of the Board of Directors. All future transactions
between us and any of our officers, directors and principal stockholders and
their affiliates will be approved by at least a majority of the Board of
Directors, including a majority of the disinterested members of the Board of
Directors, and will be on terms no less favorable to us than could be obtained
from unaffiliated third parties.

Item 13.  Exhibits and Reports on Form 8-K

(a) Exhibits

         The following exhibits are filed herewith or are incorporated herein by
reference, as indicated.

         3.1      Fourth Amended and Restated Certificate of Incorporation of
                  the Registrant (Incorporated by reference to Exhibit 3.1 to
                  the Registrant's Quarterly Report on Form 10-QSB for the
                  quarter ended September 30, 1999 (the "Third Quarter 1999
                  Form 10-QSB") filed with the Securities and Exchange
                  Commission under the Securities Act of 1933, as amended).

         3.2      Amended and Restated Bylaws of the Registrant (Incorporated
                  by reference to Exhibit 3.2 to the Registrant's
                  Registration Statement on Form SB-2 (File No. 333-20625)
                  filed with the Securities and Exchange Commission under the
                  Securities Act of 1933, as amended (the "1997 SB-2")).

         3.3      Amendment to Amended and Restated Bylaws of the Registrant
                  effective June 8, 1999 (Incorporated by reference to
                  Exhibit 3.4 to the Registrant's Amended Quarterly Report on
                  Form 10-QSB/A for the quarter ended June 30, 1999 filed
                  with the Securities and Exchange Commission under the
                  Securities Act of 1933, as amended).

         4.1      Form of Warrant for the purchase of shares of common stock,
                  issued in connection with the private placement of
                  $2,000,000 aggregate principal amount of Bridge Notes
                  (Incorporated by reference to Exhibit 3.4 to the 1997
                  Form SB-2).

         4.2      Form of Warrant for the purchase of shares of common stock,
                  issued in connection with the private placement of units in
                  June 1995 and August 1996 (Incorporated by reference to
                  Exhibit 3.5 to the 1997 SB-2).

         4.3      Form of Warrants for the purchase of 100,000 shares of
                  common stock, issued in connection with the private
                  placement of Series A Convertible Preferred Stock and
                  warrants in December 1996 and January 1997 (Incorporated by
                  reference to Exhibit 3.7 to the 1997 SB-2).

         4.4      Form of Option for the purchase of 180,000 shares of common
                  stock, issued to Barington Capital Group, L.P.
                  (Incorporated by reference to Exhibit 3.8 to the 1997
                  SB-2).

         4.5      Form of Stock Option Agreement, dated December 18, 1997, by
                  and between the Registrant and Barington Capital Group,
                  L.P. (Incorporated by reference to Exhibit 10.8 to the
                  Registrant's Annual Report on Form 10-KSB for the year
                  ended December 31, 1997).

         4.6      Specimen certificate evidencing shares of common stock of
                  the Registrant (Incorporated by reference to Exhibit 4.2 to
                  the 1997 SB-2).

         4.7      Form of Warrant issued in connection with the Series B 5%
                  Cumulative Convertible Preferred Stock of the Registrant
                  (Incorporated by reference to Exhibit 4.11 to the
                  Registrant's Registration Statement on Form S-3 (File No.
                  333-62971) filed with the Securities and Exchange
                  Commission under the Securities Act of 1933, as amended
                  (the "1998 S-3").

         4.8      Senior Note issued to Sanmina Corporation by the Registrant
                  with a principal amount of $4,300,000. (Incorporated by
                  reference to Exhibit 4.10 to the Registrant's Annual Report
                  on Form 10-KSB, as amended, for the year ended December 31,
                  1998 (the "1998 Form 10-KSB").

         4.9      Note issued to Shaw Pittman by the Registrant with a
                  principal amount of $400,000 (Incorporated by reference to
                  Exhibit 4.11 to the 1998 Form 10-KSB).


                                       26
<PAGE>

         4.10     Form of Warrant for the purchase of 275,000 shares of
                  common stock, issued to Sanmina Corporation. (Incorporated
                  by reference to Exhibit 4.12 to the 1998 Form 10-KSB).

         4.11     Form of Warrant for the purchase of 40,000 shares of common
                  stock, issued to Shaw Pittman (Incorporated by reference to
                  Exhibit 4.13 to the 1998 Form 10-KSB). 4.12 Form of
                  Unsecured Promissory Note, issued on February 4, 1999 to
                  various subscribers in a private placement (Incorporated by
                  reference to Exhibit 4.14 to the Registrant's Registration
                  Statement on Form SB-2 (File No. 333-72429) filed with the
                  Securities and Exchange Commission under the Securities Act
                  of 1933, as amended (the "1999 Form SB-2")).

         4.13     Form of Representative's Purchase Option issued in
                  connection with the Registrant's June 1999 public offering
                  of units (Incorporated by reference to Exhibit 4.15 to the
                  1999 Form SB-2).

         4.14     Specimen certificate evidencing Redeemable Common Stock
                  Purchase Warrant (Incorporated by reference to Exhibit 4.16
                  to the 1999 SB-2).

         4.15     Form of Warrant Agreement (Incorporated by reference to
                  Exhibit 4.17 to the 1999 Form SB-2).

         4.16     Specimen certificate evidencing unit issued in connection
                  with the Registrant's June 1999 public offering of units
                  (Incorporated by reference to Exhibit 4.18 to the 1999
                  Form SB-2).

         4.17     Form of First Amendment to Warrant Agreement dated August
                  2000 by and among the Registrant, EarlyBirdCapital, Inc.
                  and Continental Stock Transfer & Trust Company
                  (Incorporated by reference to Exhibit 4.2 to the
                  Registrant's Current Report on Form 8-K dated August 25,
                  2000 and filed with the Securities and Exchange Commission
                  on August 28, 2000 under the Securities Exchange Act of
                  1934, as amended (the "August 2000 8-K")).

         4.18     Specimen certificate, as supplemented, evidencing
                  Redeemable Stock Purchase Warrant (Incorporated by
                  reference to Exhibit 4.4 to the August 2000 8-K).

         4.19     Form of Placement Agent's Purchase Option (Incorporated by
                  reference to Exhibit 4.5 to the August 2000 8-K).

         10.1*    1994 Stock Option Plan (Incorporated by reference to
                  Exhibit 10.1 to the 1997 SB-2).

         10.2*    1996 Stock Incentive Plan (Incorporated by reference to
                  Exhibit 10.2 to the 1997 SB-2).

         10.3     Form of Consulting Agreement by and between the Registrant
                  and Barington Capital Group, L.P. (Incorporated by
                  reference to Exhibit No. 10.4 to the 1997 SB-2).

         10.4     Letter Agreement, dated October 7, 1996, between Barington
                  Capital Group and the Registrant (Incorporated by reference
                  to Exhibit 10.5 to the 1997 SB-2).

         10.5     Letter Agreement, dated December 5, 1995, by and among PVR
                  Securities, Inc., the Registrant, Steven A. Rogers and John
                  B. Torkelsen (Incorporated by reference to Exhibit 10.6 to
                  the 1997 SB-2).

         10.6     Form of Stock Option Agreement, dated December 18, 1997, by
                  and between the Registrant and Barington Capital Group,
                  L.P. (Incorporated by reference to Exhibit 10.8 to the
                  Registrant's Annual Report on Form 10-KSB, as amended, for
                  the year ended December 31, 1997).

         10.7     Strategic Alliance and Marketing Agreement between the
                  Registrant and Unisys Corporation (Incorporated by
                  reference to Exhibit 10.9 to the 1998 Form 10-KSB).

         10.8     Agency Agreement, dated as of January 25, 1999, between
                  Southeast Research Partners, Inc. and the Registrant
                  (Incorporated by reference to Exhibit 10.11 to the 1999
                  Form SB-2).

         10.9     Form of Subscription Agreement, dated January 25, 1999,
                  between the Registrant and certain investors (Incorporated
                  by reference to Exhibit 10.12 to the 1999 Form SB-2).

         10.10*   Employment Agreement, dated July 13, 1998, between the
                  Registrant and James F. Bunker (Incorporated by reference to
                  Exhibit 10.13 to the 1999 Form SB-2).


                                       27
<PAGE>

         10.11    Letter Agreement dated January 12, 1999, between the
                  Registrant and Sanmina Corporation (Incorporated by
                  reference to Exhibit 10.15 to the 1998 Form 10-KSB).

         10.12    Letter Agreement dated January 21, 1999 between the
                  Registrant and Shaw Pittman Potts & Trowbridge
                  (Incorporated by reference to Exhibit 10.16 to the 1998
                  Form 10-KSB).

         10.13    Form of Letter Agreement between the Registrant and the
                  holders of the 5% Convertible Debentures due 2003, dated
                  May 1999 (Incorporated by reference to Exhibit 10.17 to the
                  1999 Form SB-2).

         10.14*   Amendment to Employment and Consulting Agreement by and
                  between the Registrant and James F. Bunker dated as of
                  September 9, 1999 (Incorporated by reference to Exhibit
                  10.17 to the Registrant's Annual Report on Form 10-KSB for
                  the year ended December 31, 1999).

         10.15*   Employment Agreement by and between the Registrant and Carl
                  Muscari dated September 9, 1999 (Incorporated by reference
                  to Exhibit 10.16 to the Third Quarter 1999 Form 10-QSB).

         10.16*   1999 Stock Incentive Plan (Incorporated by reference to
                  Exhibit 10.15 to the Third Quarter 1999 Form 10-QSB).

         10.17    Form of Agency Agreement dated August 2000 by and between
                  the Registrant and EarlyBirdCapital, Inc. (Incorporated by
                  reference to Exhibit 4.0 to the August 2000 8-K).

         10.18    Form of Subscription Agreement/Investor Information
                  Statement dated August 2000 by and among the Registrant and
                  certain Investors (Incorporated by reference to Exhibit 4.1
                  to the August 2000 8-K).

         10.19    Form of Escrow Agreement dated August 2000 by and among the
                  Registrant, EarlyBirdCapital, Inc. and Continental Stock
                  Transfer & Trust Company (Incorporated by reference to
                  Exhibit 4.3 to the August 2000 8-K).

         11+      Statement re: computation of per share earnings.

         21+      Subsidiaries of the Registrant.

         23.1     Consent of Ernst & Young LLP.

         23.2     Consent of PricewaterhouseCoopers LLP.

-----------
      *   Management contract or compensatory plan or arrangement.

      +   Filed Herewith.

(b)   Reports on Form 8-K:

      Current Report on Form 8-K, dated November 30, 2000 and filed with the
      Securities and Exchange Commission on December 7, 2000, reporting under
      Item 5 (i) the receipt of a purchase order of approximately $1,000,000,
      (ii) an increase in cash assets due in part to the sale of
      non-operating assets and receipt of customer payments on outstanding
      receivables and (iii) the negotiation of a factoring agreement for
      future customer accounts receivable.


                                       28
<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunder duly authorized.

Date: May 16, 2001
                                    VIDEO NETWORK COMMUNICATIONS, INC.
                                    (Registrant)

                                    By: /s/ CARL MUSCARI
                                        ----------------

                                    Carl Muscari
                                    President and Chief Executive Officer


                  In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>


         Signatures                                     Title                                           Date
         ----------                                     -----                                           ----

<S>     <C>                                       <C>                                                <C>
        /s/ CARL MUSCARI
------------------------------------------        Chairman, President                                May __, 2002
        Carl Muscari                              and Chief Execuitive Officer

        /s/ ROBERT H. EMERY
------------------------------------------        Chief Financial Officer
        Robert H. Emery                           Vice President Administration and Secretary        May __, 2002

        /s/ JAMES F. BUNKER
------------------------------------------        Director                                           May __, 2002
        James F. Bunker

        /s/ EUGENE R. CACCIAMANI
------------------------------------------        Director                                           May __, 2002
        Eugene R. Cacciamani

       /s/ RICHARD S. FRIEDLAND
------------------------------------------        Director                                           May __, 2002
       Richard S. Friedland

       /s/ RICHARD GRANT
-----------------------------------------         Director                                           May __, 2002
       Richard Grant

       /s/ QUENTIN R. LAWSON
-----------------------------------------         Director                                           May __, 2002
       Quentin R. Lawson

       /s/ STEVEN A. ROGERS
-----------------------------------------         Director                                           May __, 2002
       Steven A. Rogers
</TABLE>


                                       29