<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                   For the fiscal year ended December 31, 1996

                           Commission File No. 0-24303


                   COHERENT COMMUNICATIONS SYSTEMS CORPORATION
             (Exact name of registrant as specified in its charter)


Delaware                                                             11-2162982
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

                             44084 Riverside Parkway
                            Lansdowne Business Center
                            Leesburg, Virginia 22075
                                 (703) 729-6400

               (Address of principal executive offices) (Zip Code)
              (Registrant's telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

     Title of each class                                           Name of each
                                                    exchange on which registered

         None                                                    Not applicable

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


                     Common Stock, Par Value $.01 Per Share


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]

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

     The aggregate market value of voting stock held by nonaffiliates of the
registrant as of March 13, 1997, was approximately $153,044,650 based on the
sale price of the Common Stock on March 13, 1997, of $16.75 as reported by the
NASDAQ National Market System. As of March 13, 1997, the registrant had
outstanding 15,146,522 shares of its Common Stock, par value $.01 per share.

Documents incorporated by reference

     Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on May 15, 1997 are incorporated herein by reference in Part III, Items
10, 11, 12 and 13.
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Coherent Communications Systems Corporation



                   COHERENT COMMUNICATIONS SYSTEMS CORPORATION

                               INDEX TO FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

Item                                                                       Page
No.                                                                         No.
----                                                                       ----
                                     Part I

   1  Business...............................................................  3

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

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

   4  Submission of Matters to a Vote of Security Holders.................... 14

                                     Part II

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

   6  Selected Consolidated Financial Data................................... 15

   7  Management's Discussion and Analysis of Financial Condition
       and Results of Operations............................................. 16

   8  Financial Statements and Supplementary Data............................ 19

   9  Changes in and Disagreements with Accountants on Accounting
       and Financial Disclosure.............................................. 34

                                    Part III

  10  Directors and Executive Officers of the Registrant..................... 34

  11  Executive Compensation................................................. 34

  12  Security Ownership of Certain Beneficial Owners and Management......... 34

  13  Certain Relationships and Related Transactions......................... 34

                                     Part IV

  14  Exhibits, Financial Statement Schedules and Reports on Form 8-K........ 35


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Coherent Communications Systems Corporation

                   COHERENT COMMUNICATIONS SYSTEMS CORPORATION
                                    FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

ITEM 1.           BUSINESS

         Coherent Communications Systems Corporation, a Delaware corporation
("Coherent" or "the Company"), develops, manufactures and markets voice quality
enhancement products for wireless (including digital cellular and Personal
Communication Systems ("PCS")), satellite-based, Cable Communication Systems,
and wireline telecommunications systems throughout the world. Coherent's
principal product lines are transmission products and teleconference products.
The Company's transmission and teleconference products utilize proprietary high
speed reduced instruction set computer ("RISC") microchip along with proprietary
software to enhance the quality of voice communications during a telephone call.
The Company's products are compatible with domestic and foreign
telecommunications systems.

         The Company's transmission products include standalone echo cancellers,
integrated echo cancellers, and echo canceller platforms that enhance voice
quality in several ways, including eliminating electrical and acoustic echoes
inherent in modern telecommunications systems. The technological advances
incorporated into telecommunications systems, such as wireless and digital
transmission technology, speech compression, fiber optic transmission lines and
satellite links, make echo canceller products an essential component of most
digital telecommunications networks. The Company's transmission products are
designed to support a variety of speech enhancement functions in addition to
echo cancellation. Sculptured Sound(R), Netreach(R) and Enhanced Audio Plus(TM)
are three released examples of this strategy. Sculptured Sound was introduced in
early 1995 and is designed to automatically optimize speech levels in a variety
of local, long distance and cellular networks. Enhanced Audio Plus, Outreach and
other software products which have been developed by the Company may be
incorporated into new transmission products or marketed to existing transmission
product customers of the Company that desire enhanced audio quality and
functionality. The Company sells its transmission products to network operators
and other end-users through its direct sales force and third-party distributors,
and also to telecommunications equipment manufacturers through its direct sales
force. Users of the Company's transmission products include telecommunications
network operators throughout the world, such as British Telecommunications PLC
("British Telecom"), Deutsche Bundespost, AT&T Wireless, Motorola, Kokusai
Denshin Denwa Co., Ltd., Telefonos de Mexico, SA, Teleglobe Canada Inc., PTT
Telecom Logistics (Netherlands) and Telia Mobitel (Sweden).

         The Company has directed selling efforts for its transmission products
extensively in international markets. During 1996, however, the Company
increased its selling effort in the United States with a larger direct sales
force. Competition is price sensitive. However, this issue has changed somewhat
recently due to the release of improved standards and the demands for improved
quality for digital wireless communications. The Company believes that the cost
effective performance of the transmission products that have resulted from its
focus on technological advancements will enable it to participate in the
expansion of, and in the changes in, worldwide telecommunications systems,
particularly in the areas of digital cellular, PCS and other wireless
communications.

         During 1994 and early 1995, the Company introduced a second generation
version of its EC-6000 digital echo canceller, which provides customers with two
major new features. First, installation has been made simple and easy, reducing
the traditional costs of installation. Second, the usefulness of the Company's
echo cancellers has been expanded by the introduction of a series of software
products including Enhanced Audio Plus, Sculptured Sound and Netreach. Another
software product, Netwise(TM), enables the telephone company to mix voice, fax
and video and data services on Integrated Services Digital Network "ISDN"
circuits, thus improving the operators' use of their facilities.

         The Company's teleconference products include equipment and related
software used in teleconferencing and in videoconferencing applications, such as
distance learning and business television. These products include the Call
Port(R), ConferenceMaster(R) and Voicecrafter(TM) lines of audio systems. Call
Port provides a natural high quality, full-duplex, hands free audio connection
to personal computers and workstations. ConferenceMaster provides group
teleconferencing facilities for meeting rooms, and Voicecrafter provides
full-duplex, high quality audio for videoconference systems.

         In October 1995, the Company purchased the technology, and related
assets for the Consortium(TM) conference bridge teleconferencing product line.
The Consortium is a modestly priced, user friendly


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Coherent Communications Systems Corporation

teleconferencing bridge targeted to the corporate customer and other
organizations that require multi-party teleconferencing for 24 - 96
participants. During 1996, as the product was introduced, the Company had modest
sales.

         The Company utilizes an indirect distribution strategy in marketing
teleconference products to end users through a network of more than 100
independent dealers and distributors throughout the world. The Company also
directly markets teleconference products to equipment manufacturers and systems
integrators, such as Intel, AT&T, British Telecom, CBCI Telecom and others.

Strategy

         The Company's objective is to be a leading provider of software
configurable products that improve the voice quality and efficiency of
telecommunications systems throughout the world. The Company's strategy for
achieving this goal includes the following elements:

        o Expand Alliances with Telecommunications Network Operators and
Equipment Manufacturers. In the course of developing and marketing its echo
canceller and teleconference products, the Company has established strategic
relationships with major telecommunications network operators, large
manufacturers of telecommunications equipment, and telecommunications equipment
distributors. The Company intends to continue to develop these relationships to
keep abreast of the trends in telecommunications technology, to support customer
needs as they arise, to expand the Company's distribution channels, and to
identify additional product and market opportunities using the Company's
proprietary technology. The Company believes that the numerous strategic
alliances that the Company enjoys with much larger equipment manufacturers and
network operators will further support the growth of the Company's business in
all of its marketplaces and provide a basis for expansion into new markets. For
example, the development of the Company's relationships with equipment
manufacturers has led to several arrangements to include the Company's products
and technology in large telecommunication systems project bids that the Company
might not have been able to bid upon independently. Certain equipment
manufacturers have entered into supply agreements with the Company for
customized products designed and produced for the equipment manufacturers'
specific application.

        o Support Wireless Telecommunication Systems. Speech compression
performed in digital wireless networks delays speech to the degree that echo
cancellation equipment is required on all calls, both local and long distance.
As wireless telecommunications systems expand and convert to digital wireless
systems and as PCS and low earth orbit satellite systems are implemented, the
Company intends to continue to introduce software products aimed at supporting
these new technologies. An example of the Company's efforts in this area is the
1995 introduction of Enhanced Audio Plus software, designed specifically for
speech enhancement by controlling noise, gain and echo in digital wireless
telephone systems. Additional products targeted for the wireless industry were
under development in 1996.

        o Expand sales presence in worldwide markets. The Company has begun to
open sales offices to serve growing markets in China, India, Eastern Europe,
Japan and has been adding sales personnel in the USA. Late in 1996, offices were
opened in Singapore, Tokyo and Beijing.

Transmission Products

          Background. Telecommunications networks are subject to many
transmission system impairments that degrade the quality of local and long
distance telephone service. One of the most serious of these impairments is
"echo." Echo is a reflected signal that may be bounced back to a speaker at
various points during the transmission to the listener. The degree of perception
by the speaker of the echo is a function of the strength of the echo and the
duration of the delay between the original transmission and the return of the
echo. The longer the delay, the more significant the degradation in the clarity
of the transmission. A 30 millisecond ("ms") delay in the return of the
reflected signal will result in a perception that the voice clarity is hollow,
or that the speaker is talking in a tunnel. A 500 ms delay would result in the
speaker hearing complete words as an echo. The impairment in transmission
quality caused by echo is capable of rendering conversation virtually impossible
if active measures to control its effects are not employed.

          Speech signals travel throughout the inter-exchange telephone network
on 4-wire trunks, consisting of two separate paths where each path is dedicated
to a particular direction of travel. When these signals arrive at a local
telephone company central office they must be converted so they can be
transmitted over the 2-wire local loop


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Coherent Communications Systems Corporation

between central office and the remote subscriber. This conversion is performed
by a device called a 2- to 4-wire converter.

          The local loop between the central office and the subscriber is not
ideal and its characteristics can change with time, temperature and humidity.
For this reason, the conversion is never perfect and some of the speech going to
the telephone is reflected back and appears in the speech path coming from the
telephone. This is called echo. This echo is perceived at the other end of the
call where the person speaking into the telephone handset hears his own voice
returning back to him.

          The strength or amplitude of the echoed signal is dependent on the
impedance mismatch at the 2-wire to 4-wire converter. The time delay in receipt
of the reflected signal is dependent on the round trip delay in the speech path.
In the case of copper-wire analog telecommunications networks, this delay is
principally a function of the length of the speech path. Local telephone calls
on an exclusive copper-wire system will generally involve no discernible echo
while long distance calls increase the likelihood of significant echo. Time
delay in modern telecommunications networks, which may incorporate copper wire,
fiber optic lines, analog and digital transmission and conversion, international
gateway switching, and satellite transmission, are also a function of the delays
caused by signal processing at various points along the transmission route.

          In the case of telecommunications systems using satellite links, which
have round trip delays of greater than 500 ms, the impairment is very severe,
resulting in a strong, distinct, and very objectionable echo during speech.
Digital transmission methods introduce additional signal delays due to the
additive effects of switching and processing inside each piece of digital
network equipment. This processing increases the round trip delay and can result
in objectionable echo even on short distance links. The use of fiber optic links
further increases the requirement for echo cancellation. The time it takes to
transmit a signal through fiber optic cable is considerably more than through
copper cable or microwave. As a result, echo problems may occur on even
relatively short fiber links compared to copper cable or microwave links. As
existing long-distance routes are converted to fiber-optic transmission media,
echo cancellers are needed to preserve high-quality service.

          During the 1970s, telecommunications companies attempted to deal with
the system problems caused by echo, principally in satellite circuits, through
the technique of echo suppression. An echo suppression system is essentially a
voice-activated switch that attempts to permit the speaker to transmit but then
turns off the circuit to the speaker in an attempt to block an echo signal. The
use of echo suppressers to reduce echoes caused other transmission problems,
including chopped first syllables, artificial volume adjustments and the
inability of two persons to talk at the same time. These problems reduced the
ability to provide a natural conversation environment on echo
suppresser-equipped telecommunications systems.

          Echo cancellation technology was deployed during the 1980s to address
the problems caused by echo in telecommunications transmission systems without
the drawbacks of the echo suppression methodology. Echo cancellers make use of
high speed digital signal processing techniques to develop a model of the
returning echo. This echo model is subtracted from the echo return path and in a
well-designed echo canceller can provide more than 30 decibels ("dB") of echo
return loss enhancement to the voice circuit. Since some small residual echo
will still remain in the return path, the echo canceller also includes an
additional circuit called a non-linear processor that will remove this residual
echo from the path during single talker speech. Total echo cancellation in a
high quality echo canceller is in the order of 65-70 dB.

          The Company expects that its transmission product sales will increase
in five main markets: digital wireless telephony, co-axial cable communications,
long distance telephony, speech enhancement and network management. The Company
is not aware of any independent market surveys that project potential demand for
transmission products in any of these markets, and it is difficult to forecast
such demand for the speech enhancement and network management markets because
these markets are new and no historical information is available. However,
independent forecasts call for an increase in the total number of digital
wireless subscribers from one million, in 1993, to 100 million, in the year
2000. Even in the face of declining transmission product prices due to
technological advancements, the Company believes it could experience significant
sales growth if the size of the digital cellular telephony market alone grows as
projected. The Company estimates that a majority of digital wireless networks,
including networks utilizing present technology and the developing PCS and low
earth orbit systems technologies, will need to employ echo cancellers due to
their use of digital speech compression, which causes delay and resultant echo.
Potential customers requiring echo cancellers in these four markets include all
telephone operating companies and are not limited to the cellular or long
distance operators to whom the Company currently sells its transmission
products.


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Coherent Communications Systems Corporation

          Products. The Company offers a broad range of echo canceller products
to satisfy the needs of public and private telecommunications networks,
satellite networks, digital cellular networks, international gateway switches
and terrestrial networks. Its principal echo canceller products are its EC-6000
in both T-1 and E-1 formats, its EC-7000 in E-1 format, and its related software
products. The EC-6000 is designed to provide echo canceller capabilities in a
variety of digital formats. The EC-6000 T-1 is designed for use in
telecommunications systems using the United States T-1 carrier line standard
while the EC-6000 E-1 is designed for use in telecommunications systems using
the international CEPT carrier line standard prevalent outside the United
States. The EC-6000 Dual Di-Group Digital Echo Canceller is a compact and low
cost echo canceller designed to support one or two T-1 or CEPT lines for remote
and private earth station applications. The EC-7000, introduced in July 1993, is
specifically designed for echo cancellation in digital transmissions using the
international CEPT standard, including modifications to the CEPT standard
proposed by the European Telecommunications Standard Institute, and is sized for
a particular European cabinet configuration. An EC-6000 unit in a 23 inch shelf,
when fully loaded with 16 circuit boards, can provide echo cancellation for 384
telephone circuits under the T-1 standard and 480 telephone circuits under the
CEPT standard. Depending upon the options included in the unit, such as
software, redundant power supply boards, and varying levels of Company training
and support included in the sale, the Company's echo canceller product prices
generally range from $55 to $210 for each telephone circuit supported.

          The EC-6000 and EC-7000 utilize the Company's proprietary echo
cancellation software and proprietary high speed RISC microchips. These products
contain substantial speech processing power, of up to 132 million instructions
per second ("MIPs") per line, compared to the less than 20 MIPs processing power
of competitors' echo cancellers that do not use RISC technology. As a result of
this processing power and speed, management believes that the Company's echo
canceller products are able to react more quickly and comprehensively to network
system echo problems than competitors' echo canceller products, and are more
suited as a platform for additional software speech enhancement products.

          The Company introduced Audio Plus (1993), and Enhanced Audio Plus
(1995), for the digital wireless telephone network. These software products,
which run on the Company's echo canceller hardware platform, are designed to
improve digital cellular speech quality by addressing several sources of
interference that degrade digital cellular telephone calls. The Company believes
that Enhanced Audio Plus is the only available product that truly cancels
acoustic echo in the wireless network.

          In early 1995, the Company introduced Sculptured Sound, a speech level
optimization product that resides on its echo canceller platform. Sculptured
Sound is designed to automatically adjust the speech level on all circuits of a
T1 (24 channel) telephone link so that they are within the operating parameters
of the telephone operating company. Speech levels in the international telephone
network vary considerably and extreme variations can cause degradation in call
quality.

          Distribution and Marketing. As of February 28, 1997, 27 employees on
the Company's sales staff marketed the Company's transmission products directly
to telecommunications network operators, telecommunications equipment
manufacturers and distributors. The Company also indirectly markets echo
canceller products to network operators and other end-users through
distributors, which receive marketing and technical support from the Company's
direct sales staff. The Company's distributors are generally responsible for
sales to telephone companies in specific countries. For example, Wandel &
Goltermann Inc. distributes echo cancellers in Canada, P.T. Metaplas distributes
echo cancellers in Indonesia, and Telecommunications Systems Professionales
distributes echo cancellers in Mexico. The Company does not usually grant
distributors the exclusive right to distribute selected echo canceller products
in their respective territories.

          The Company has entered into product development and sales agreements
with Nokia Telecommunications Oy, of Finland ("Nokia"), and StrataCom, Inc., of
the United States ("StrataCom"), pursuant to which the Company has custom
designed echo canceller products for sale to such manufacturers, which
incorporate the Company's products into their telecommunications switches. In
1994, the Company entered into a five-year renewable supply and license
agreement with NEC Australia, and in 1992 entered into a ten-year supply and
licensing agreement with TRT Telecommunications Radioelectriques Et
Telephoniques ("TRT"), a French Affiliate of Philips N.V., pursuant to which NEC
Australia and TRT each license an echo canceller design of the Company and
purchase key components from the Company to enable NEC Australia and TRT to
manufacture their own echo canceller products and market such products
worldwide. NEC Australia has an exclusive right to market such products in
Australia. TRT has an exclusive right to market such products in France,
Switzerland, Scandinavia and French speaking Africa. Nokia and the Company have
a written agreement establishing estimated purchases of the Company's products
through 1999. StrataCom and TRT submitted advance notice of purchase
requirements to the Company, StrataCom, NEC Australia and TRT have agreed to
certain established purchase price terms that are


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Coherent Communications Systems Corporation

dependent upon the quantity of products purchased. These four arrangements
generated, in the aggregate, 22 % of the Company's total net sales for 1996.
Pursuant to these arrangements, the Company's echo canceller products have been
used as an adjunct to these four manufacturers in their bidding upon major
telecommunications network expansion and upgrade construction projects. In
November of 1995, TRT was acquired by Lucent which has continued performance
under the contract.

          Product Development. During the last three fiscal years, the Company's
total annual product development expenditures amounted to $4.0 million in 1994,
$4.6 million in 1995 and $6.2 million in 1996, reflecting the Company's
commitment to new product development and, in particular, the Company's focus on
the development of new software products running on the echo canceller platforms
and new teleconference products. Echo canceller product development has
resulted, in the introduction of Enhanced Audio Plus, which truly cancels the
acoustic echo in a wireless network, and the introduction of Netreach, which is
capable of canceling far-end hybrid echo and Sculptured Sound level
optimization. The Company currently is developing additional software products
intended to take advantage of the echo canceller as a hardware platform that is
strategically located in the telecommunications network infrastructure.

          Speech Enhancement. The Company's transmission products currently make
use of several enhancement techniques designed to improve the intelligibility of
speech and lower background noise during a telephone call. The Company intends
to employ these and other technologies, such as advanced echo cancellation
algorithms and noise cancellation, to develop dedicated speech enhancement
products that will provide noticeable improvements in speech quality in both
local and long distance telephone networks and the wireless environment. This
improvement is possible without requiring major upgrades to switches, telephone
instruments, or transmission lines by use of the Company's existing echo
canceller equipment as a platform. This provides the Company with an immediate
installed base of upgradeable products.

          Competition. The echo canceller industry is intensely competitive and
is characterized by rapid rates of technological change and product
obsolescence, price competition and competition in product specifications and
capabilities. The Company experiences competition from a number of domestic and
foreign companies, some of whom have substantially greater financial,
manufacturing and marketing resources than the Company and offer a more complete
product line of telecommunications equipment than that offered by the Company.
The Company believes, however, that its focus on developing products with
superior echo cancellation and advanced noise cancellation technology and
related software products, and its alliances with other participants in the
telecommunications industry, will enable it to compete effectively in its
markets.

          Telecommunication Standards. Echo cancellers are critical components
in a telecom carrier's high-revenue long distance circuits, and the quality of
their performance is critical to customer satisfaction. International standards
have been developed to ensure that these products provide a certified level of
performance and that they do not interact in an adverse manner with other
network equipment. The International Telecommunications Union, a division of the
United Nations based in Geneva, Switzerland, is responsible for developing these
global standards. In late 1994 Coherent joined the ITU, and is now an active
member of this organization. In 1996, with the Company's encouragement and
participation, the ITU released a new echo canceller standard which raises the
quality level demands for canceller equipment. Coherent's membership in the ITU
will help ensure not only that its products are fully compliant with evolving
standards, but also that new standards will recognize the rapid achievement in
telecommunications technology being developed by the Company.


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Coherent Communications Systems Corporation

Teleconference Products

          Background. Teleconferencing is a communications technology through
which individuals in two or more locations can exchange information by telephone
or other communications medium as if they were face-to-face. In the last several
years, the use of and applications for teleconference products have increased
due to changing business practices that increasingly require compressed "time to
market" demands for products and services. Decision making in today's
competitive business environment demands accurate and timely exchange of
information by individuals and groups often separated by significant distances.
Telephones and facsimile machines have become essential business tools that
facilitate communication in convenient and inexpensive formats. In many
situations, however, information cannot be transferred effectively by standard
telephones or in writing, and more natural communication is necessary, through
teleconferencing or videoconferencing, which often serve as an effective
substitute for time consuming and expensive business travel. The Company's
products are used to provide the audio portion of a videoconferencing system.
The key components of the Company's teleconference products consist of acoustic
echo cancellation and noise cancellation equipment, microphones, loudspeakers,
an amplifier and dialing/signaling equipment. The Company's teleconference
products accept a voice signal through the microphone for transmission and
deliver a received voice signal through a loudspeaker.

          Acoustic echo is present in every office environment. In a
teleconference telephone, speech from the speaking party's end is amplified and
sent to the listening party's loudspeaker. Some of this speech goes directly
from the listening party's loudspeaker to the listening party's microphone, and
some is reflected off the walls of the conference room and, after a time delay
dependent on the size of the room, is also received by the listening party's
microphone. To the microphone, the direct and reflected speech appear to be
originating in the room and would normally be sent to the speaking party's end,
where such speech would be heard as unwanted echo. The delayed speech is
particularly objectionable and makes it very difficult to carry on a
conversation. In order to eliminate this unwanted echo, traditional
teleconference systems and speakerphones employ a "half-duplex" operation that
simply turns off the microphone if speech is being received. This shut-off
mechanism effectively blocks the echo from returning to the person that
initiated the speech, but it produces negative side-effects: it blocks speech
that is intended to be transmitted to the other party and allows the loudest
person to capture the microphone. The result is a clipping of speech syllables
at the beginning and end of sentences, which results in the remote party missing
some of the conversation. Furthermore, this "half-duplex" operation can only be
used for point-to-point, not multipoint, links and precludes multiple parties
from speaking at the same time. To counter the problems and inconvenience
associated with half-duplex conference phones, the Company's teleconference
products eliminate echo electronically and allow the teleconference system to be
live in both directions. This permits people to engage in natural conversation
and enhances productivity by allowing more meaningful and timely communication.

          The market for teleconference products and services has grown
significantly in the past three years. Reductions in basic technology
development costs have enabled companies to reduce teleconference product prices
and offer advanced technological features, which in turn have produced increased
consumer demand for these products. In 1996 U.S. Robotics introduced a line of
low cost teleconference products along with a major advertising campaign. Not
only did this expand the sales of "speakerphones" significantly but it also
shifted the distribution model from telecommunications product resellers to
personal computer distributors and discount retailers.

          The Company believes the market for desktop video conferencing systems
continued to grow at a rapid pace. There is continued pressure to lower costs
in order to achieve even wider use of business use of personal
videoconferencing systems that has been predicted by more than one industry
observer.

          Products. The Company introduced its first teleconference product in
1989 and subsequently introduced products with advanced technology, such as one
of the industry's first full duplex audio systems that worked with video codecs,
which was introduced in 1990 and sold primarily to the videoconference
marketplace, and the first full duplex conference telephone to include echo
cancellation technology and an integrated dial pad, which was introduced in
1992. The Company was the first supplier of teleconference products to use a
proprietary high speed RISC in its products, rather than a generic signal
processor, and currently is the only company utilizing RISC technology in its
teleconference products. As a result, the Company's products provide
significantly more processing power and acoustic performance than competing
products. For example, the ConferenceMaster conference telephone couples a
network of proprietary RISC audioprocessing microchips with a DSP, and provides
a processing resource of approximately 160 MIPs. The speech processing power
contained in the Voicecrafter is approximately 750 MIPs. When compared to the
typical DSPs used in other manufacturers' products, which have


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Coherent Communications Systems Corporation

from 20 to 40 MIPs available, this additional processing power provides higher
quality audio and very robust performance in adverse audio environments.

          Echo cancellation technology in the Company's full duplex
teleconference products permits all microphones and loudspeakers in a
point-to-point or multipoint link to be kept open at all times, allowing
teleconference participants to talk freely and contemporaneously without any
loss of quality. The echo cancellers operate under software control to compute
speech models as speech occurs, and filter copies of the speech model (or echo)
to ensure that echo is not transmitted to or heard at the distant end. The
Company's teleconference products are designed to be used by small, medium and
large users, in both narrow band (i.e., telephone quality) and wide band (i.e.,
higher fidelity, higher frequency audio quality) applications.

          All of the Company's teleconference products incorporate its
proprietary Sculptured Sound voice quality enhancement technology, which allows
clear, natural and undistorted conversation that is spontaneous and
simultaneous, as in face-to-face communication. Sculptured Sound utilizes
substantial speech microprocessing power to reproduce and deliver robust, high
fidelity audio quality by reducing background noise and enhancing speech at high
and low frequencies (i.e., treble and bass) that typically are eliminated in
ordinary telephone transmission. The Company's teleconference products consist
principally of the Call Port, ConferenceMaster, Voicecrafter, and the
Consortium.

          Call Port is the first self contained, full-duplex, hands-free
subsystem designed specifically to operate with a personal computer or
workstation. It is designed to eliminate the need for an audio headset or
handset when using audio-enabled applications, such as desktop
videoconferencing, document collaboration, or speech recognition/response
applications. It allows the user the free use of his hands while using an audio
application and is designed to operate unobtrusively in open office
environments. This product competes in a very price sensitive market segment and
may be subject to volume or price declines.

          The ConferenceMaster line of conference telephones, which was
introduced in January 1992, serves the meeting room marketplace and consists of
full duplex audioconferencing systems that can service up to 40 participants in
conference rooms and executive suites with areas of up to 800 square feet. The
ConferenceMaster products are ergonomically designed, are equipped with two
omnidirectional microphones, one loudspeaker, a dial pad and ringer, and can be
connected to a standard telephone outlet. ConferenceMaster has been recognized
for its outstanding industrial design by the Smithsonian Institution, which has
acquired a sample for its permanent collection in the National Design Museum at
the Cooper-Hewitt Museum in New York. While the product continues to be sold as
a premium teleconferencing system capable of accommodating larger rooms and more
participants than competing products, it is under pressure from lower priced
competition.

          The Voicecrafter line of products is designed to supply highly
interactive audio for group videoconferencing through a direct connection to a
video codec, such as a videoconference room unit or desktop video system. The
Voicecrafter product line has the longest echo cancellation span available in
its class, allowing it to operative effectively in the widest range of acoustic
environments. While the Voicecrafter 3000 was originally aimed at the growing,
lower cost, roll-about videoconferencing market it has found increasing success
in the rapidly growing "distance learning" market and such new markets as
"telearraignment." Distance learning involves one or two way video in an
educational environment with two way audio whereby remote classrooms can
communicate with the instructor. Telearraignment is a term coined to describe
the use of videoconferencing in a courtroom to minimize the transportation of
prisoners.

          The Consortium Conference Bridge, acquired in a technology/asset
acquisition in October 1995, incorporates the latest in DSP technology, in a
user friendly conferencing bridge. Consortium allows multiple participants at
several sites to communicate simultaneously in a "virtual conference room". The
bridge provides a cost effective, turnkey solution for a company's
audioconferencing needs. Simplified installation and training require less than
half a day, and does not require a dedicated human operator to coordinate
conferences. The product allows for up to 96 participants, in a managed
environment which includes security code password protection, true duplex "all
talker" audio, and exclusive echo cancellation for each port. Special features
of the Consortium include an intuitive graphical user interface. It is expected
that during 1997 a series of enhancements will be introduced.

          Due to the rapidly growing demand for hands free communication,
Coherent's strategy to grow the teleconferencing part of their business will be
to partner with OEMs who want to add hands free audio capability to their
products rather than try to compete directly in each market.


                                       9
<PAGE>   10

Coherent Communications Systems Corporation

          Product Development. In developing teleconference products, the
Company makes extensive use of the experience acquired in developing and
marketing telephony echo cancellers. Teleconference telephone equipment requires
not only acoustic echo cancellation but also line echo cancellation, which can
be accomplished by employing technology that is very similar to the technology
incorporated in the Company's echo canceller products. By promoting an active
sharing of technology within the organization, the Company believes it has
created a unique technical position in the industry, in that no other supplier
of audio teleconference terminal equipment maintains any significant market or
technical position in both telephony and acoustic echo cancellation. The
Company's technology sharing and design and manufacturing capabilities are
critical to the Company's future success because the teleconference products
market is characterized by short product life cycles. In-house development and
manufacturing capabilities typically shorten the Company's product development
cycle, as compared to competitors that do not have such capabilities and must
rely upon outsourcing to achieve component design or manufacture for subsequent
product integration or sale.

          During the last three fiscal years, the Company's total annual product
development expenditures increased from $4.0 million in 1994, to $4.6 million in
1995 and $6.2 million in 1996. Teleconference product development has resulted
in the introduction of the Call Port, as well as new generations within the
Company's Voicecrafter, Consortium and ConferenceMaster product lines.

          Distribution and Marketing. The Company has established a global sales
and distribution network for teleconference products based upon projected
worldwide growth in demand for teleconference products. Key employees of the
Company are assigned to or located in these regions and are familiar with the
requirements for transacting business in the various local markets. In addition,
key alliances have been formed around the world with other companies and
individuals that have broad technological expertise and significant distribution
capabilities.

          The Company currently sells its teleconference products through
distributors in North America, as well as through international distributors in
Australia, Japan, Canada, France, Germany, the United Kingdom and other
countries. In addition to selling its products through dealers and distributors
to end users, the Company also sells teleconference products directly to
equipment manufacturers and systems integrators, which integrate standard or
custom teleconference products into their audio or video teleconference systems
for later resale.

          Competition. Competition in the teleconference product market is
intense and is primarily characterized by short product lives and rapidly
declining prices. The Company has also encountered, and may in the future
encounter, a form of indirect competition from telecommunications equipment
manufacturers that integrate internally developed audio products in place of
components previously sold to them by the Company.

          Given the competitive nature of the teleconference product market and
constant new product introductions, no assurance can be given that the Company
will be able to maintain a competitive price advantage over its competitors for
any given product for any certain period of time. Intense competition within the
teleconference product market has given rise to rapid rates of technological
change, short product life cycles and product obsolescence, and price
competition, and such competition is expected to intensify as product prices
decline further.

          The Company believes that in order for it to be competitive in the
teleconference product market, it must integrate its technology in OEM products.
In order to achieve success in this market, the Company has structured its
marketing and sales organization according to projected growth in teleconference
product sales worldwide. In addition, the Company spends a substantial
percentage of teleconference product net sales on product development.

Manufacturing Capability

          The Company purchases microchips and other hardware components of its
products from a number of suppliers and is not materially dependent on any
single supplier. Company designed proprietary RISC microchips are manufactured
on behalf of the Company by two sources, one of which maintains a 90-day supply
of such microchips in inventory for the Company. The Company incorporates its
software into the RISC microchips and DSPs, and assembles and tests its products
at the Company's manufacturing facility in Hauppauge, New York, before shipment
to its customers. During 1996 the Company invested in several capital
improvements to its manufacturing product testing process. The Company's
in-house manufacturing capability allows the Company to adjust production to
meet customer delivery schedules, to make production design changes quickly to
respond to market needs and to closely monitor production quality. This
capability is particularly advantageous since the Company competes in product
markets defined by short product life cycles.


                                       10
<PAGE>   11

Coherent Communications Systems Corporation

          The Company is ISO-9001 certified. In order to obtain ISO-9001
certification, an international standard of manufacturing quality, a
manufacturer must meet standards for control of procedures and pass an
independent operational audit. This standard of manufacturing quality is
important because many international companies require their vendors to satisfy
this standard as a condition to commencing and maintaining a business
relationship. ISO-9001 certification involves satisfaction of quality standards
company-wide, not solely in manufacturing.

Backlog and Cancellation Policy

          The Company typically fills orders for its products within 7 to 60
days of the receipt of the purchase order. Customers usually purchase products
on an as-needed basis, and, accordingly, the Company generally has less than
two-months net sales in backlog. Backlog consists of purchase orders received by
the Company with a schedule of deliveries within twelve months of the purchase
order date. Written commitments without delivery schedules are not considered in
calculating backlog. The Company's total backlog of product orders as of
December 31, 1996 was approximately $ 5.7 million. The Company expects that all
of this backlog will be filled during the current year.

          The Company has a policy to charge a 20% restocking fee for a purchase
order cancellation, except in cases in which the cancellation request was
received more than 30 days prior to the scheduled delivery date and no prior
cancellation request had been previously delivered by the prospective customer.

Patents and Trademarks

          The Company relies upon its know-how and trade secrets as well as upon
its patents to develop and maintain its competitive position. Although the
Company believes its patents are valuable, it also believes its future success
depends primarily on its technical and engineering competence and the creative
skills of its employees. The Company attempts to protect its proprietary
information through the use of confidentiality agreements with employees and
through other security measures, although there can be no assurance that these
measures will be adequate to protect the Company's interests.

          The Company owns or holds rights under a total of seven patents
granted by the United States Patent Office, three of which relate to echo
canceller product technology, and four of which relate to other aspects of the
Company's product lines. In mid-1995 the Company entered into a non-exclusive
license agreement to acquire the rights to 50 patents in basic noise
cancellation technology.

          The Company has filed foreign patent applications which are currently
pending. The Company has obtained a design patent on its ConferenceMaster
product in both the United Kingdom and Canada. There can be no assurance that
the Company's current patents will be upheld as valid. Numerous patents on
various communications technologies are held by others, including competitors of
the Company. Such patents could inhibit or restrict the Company's ability to
develop new products. If there is a conflict between products of the Company and
its competitors' patents or between its competitors' products and the Company's
patents, it could be very costly for the Company to enforce its rights in an
infringement action or defend itself in an infringement action brought by
another party against the Company. No assurance can be given that in the future
the Company will not be subject to actions by competitors or others claiming
that the Company's products infringe upon their patents.

          The Company strives to protect tradenames and marks through
registration. The Company owns United States registered trademarks, including
"ConferenceMaster," "Linemate," "Sculptured Sound" and "Enhancing the Way the
World Communicates" and claims rights to other trademarks, including "Audio
Plus," "Consortium, " "Voicecrafter," "Enhanced Audio Plus," and "Virtual
Presence."

Employees

          As of March 14, 1997 the Company had 202 full-time employees, 43 of
whom were engaged in product development, 54 of whom were engaged in sales and
marketing, 19 of whom were engaged in finance and administration, 71 of whom
were engaged in operations and 15 of whom served in multiple disciplines of the
Company's operations. The Company's employees are not represented by any
collective bargaining agreements, and the Company has never experienced a work
stoppage. The Company believes that its employee relations are good.


                                       11
<PAGE>   12

Coherent Communications Systems Corporation

Warranty Policy

          The Company's transmission products are backed by a warranty, which
generally provides that the Company will repair or replace any defective product
prior to the passage of the earlier of 18 months from the mailing date of the
product invoice or 12 months from the date of product installation.
Teleconference products provide for repair or replacement of defective parts for
up to 3 years from date of purchase. The Company does not have any significant
warranty claims outstanding.

Customers

     One customer accounted for 12%, 18% and 11% of net sales for 1996, 1995 and
1994, respectively. A different customer accounted for approximately 12% of 1995
net sales.

Export Sales

     Marketing in foreign countries is accomplished through independent sales
representatives paid on a commission basis and through a sales office in
England, Japan and Singapore. Export sales accounted for 69%, 75% and 71% of the
Company's net sales in 1996, 1995 and 1994, respectively. Sales are principally
denominated in U.S. dollars. During 1996, 1995 and 1994, net sales into Europe,
Africa and the Middle East contributed 42%, 51% and 50%; net sales into
Asia/Pacific contributed 18%, 20% and 10%; and net sales into other foreign
countries accounted for 9%, 4% and 11%, respectively.


                                       12
<PAGE>   13

Coherent Communications Systems Corporation

EXECUTIVE OFFICERS OF THE REGISTRANT

          Information concerning the executive officers is set forth below. The
executive officers of the Company are elected annually by the Board of Directors
and hold office until their successors are elected and qualified.

          Name                Age                     Position

Daniel L. McGinnis...........  58     Chief Executive Officer and Director
David L.  Powell ............  45     President and Chief Operating Officer
Michael P. Gendron...........  49     Vice President and Chief Financial Officer
Miles R.  Pratt..............  54     Vice President

          Daniel L. McGinnis was elected Chief Executive Officer of Coherent in
September 1994. From 1988 until September 1994, Mr. McGinnis served as President
and Chief Operating Officer. He has also been a director of Coherent since March
1988. Prior to joining Coherent from Safeguard Scientifics, Inc., where he held
a financial management position, Mr. McGinnis held a variety of management and
executive positions in the fields of sales, operations and finance with Air
Products & Chemicals Inc., Bausch & Lomb, Inc., C. & J. Clark, Inc. and
Hercules, Inc.

          David L. Powell was appointed  President and Chief  Operating  Officer
in September 1994. From December 1993 until September 1994, Mr. Powell served as
the Company's Vice President. Mr. Powell has also served as the Managing
Director from June 1990 through the present date of Coherent Communications
Systems, Limited, a wholly owned subsidiary of the Company. Prior to joining the
Company, Mr. Powell was General Sales Manager of Tech Nel Data Products Ltd., in
England.

          Michael P. Gendron was appointed Vice President and Chief  Financial
Officer in June 1995. Prior to joining Coherent, Mr. Gendron was Vice President
- Finance of the U.S. Pharmaceutical Group - Alpharma, Inc. , from 1992 to 1995
and prior to that he held a variety of management and executive positions at
Bausch & Lomb, Inc. Mr. Gendron is a Certified Public Accountant.


          Miles R. Pratt has served as Vice President of the Company since
January 1989. From January 1987 to December 1988, Mr. Pratt served as Director
of International Sales for the Company. Prior to joining Coherent Mr. Pratt held
management and executive positions with the NCR Corporation, Ascom Switzerland
and Olivetti International.


                                       13
<PAGE>   14

Coherent Communications Systems Corporation

ITEM 2.           PROPERTIES


          The Company's world headquarters, located in Leesburg, Virginia,
consists of approximately 20,000 square feet of office space, is used for sales,
administrative and product development functions and is leased pursuant to an
agreement which has been canceled effective September 1997. The Company has
agreed to lease a new facility for its worldwide headquarters. Construction of
the 75,000 square foot facility commenced in September 1996 and is expected to
be completed in September 1997. The Company's lease will be for a term of 15
years, beginning upon the completion of the facility. The Company's
approximately 30,000 square feet of space in Hauppauge, New York houses its
manufacturing facility and a sales office and is leased pursuant to a lease
expiring in 2000. The Company also maintains sales offices in Abingdon, England,
Scottsdale, Arizona, Beijing, China, Tokyo, Japan and Singapore.


ITEM 3.           LEGAL PROCEEDINGS


         The Company is involved in various legal actions incidental to the
normal conduct of its business. Management does not believe that the ultimate
resolution of these actions will have a material adverse effect on the Company.


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


         None.


                                       14
<PAGE>   15

Coherent Communications Systems Corporation

                                     Part II


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


      The Company's Common Stock has been listed on the NASDAQ National Market
System since June 16, 1994 under the symbol "CCSC". The table below sets forth
for the periods indicated the high and low sales prices for the Common Stock as
compiled from published sources.

                                            1996              1995
                                            ----              ----
                                        High     Low      High    Low
                                        ----     ---      ----    ---
               First Quarter          25 3/4   17 1/4   12 3/8   6  5/8
               Second Quarter         28 1/4   18       21       8  3/4
               Third Quarter          22       13 1/8   28 1/2   16  3/4
               Fourth Quarter         24       18       27 3/4   12  1/2

      As of March 18, 1997, there were approximately 4,800 beneficial holders of
the Company's Common Stock.

Dividend Policy

      To date, the Company has not paid any dividends on its Common Stock. The
Company currently intends to retain future earnings for use in its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. Future dividends, if any, will depend, among other things, on the
Company's results of operations, capital requirements and financial condition
and on such other factors as the Company's Board of Directors may, in its
discretion, consider relevant.

ITEM 6.                    SELECTED FINANCIAL DATA

         The following table presents selected financial information relating to
the financial condition and results of operations of the Company and should be
read in conjunction with the consolidated financial statements and notes
included elsewhere.

                   Summary Consolidated Financial Information
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                         -------------------------------------------------------------------------------
                                             1996            1995             1994             1993            1992
                                         -------------    ------------     ------------     ------------    ------------
<S>                                         <C>             <C>              <C>              <C>             <C>
Net Sales                                   $54,431         $43,829          $30,516          $22,944         $18,002
Gross profit                                 34,238          26,804           17,883           12,902           9,444
Net income                                    9,748           7,590            3,801              423             539
Net income per common share                     .63             .49             .26               .01
Cash and short term investments              16,769          10,477           2,473               423*            474
Working capital                              25,652          15,993           9,694             4,044           2,847
Total assets                                 37,558          28,616          17,278             9,306           8,399
Long-term debt including current                  -           2,949           3,000               461               -
portion
Total stockholders' equity                   31,799          20,448          10,391             2,467           2,825

* After a non-recurring Goodwill write-off of $1,087.
</TABLE>


                                       15
<PAGE>   16

Coherent Communications Systems Corporation

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

Results of Operations

         The Company's positioning in the worldwide, digital telecommunications
marketplace has led to a very successful year in 1996. Sales increased 24% in
1996 to $54.4 million while net income increased 28% to $9.7 million, primarily
the result of higher sales and modestly higher margins.

         The following table sets forth for the periods indicated selected data
as a percentage of net sales:

<TABLE>
<CAPTION>
                                                  Years Ended December 31,
                                           -----------------------------------------
                                               1996          1995           1994
                                           ------------   -----------   ------------
<S>                                        <C>            <C>           <C>
Net sales
     Transmission  products                      86 %         86 %           82%
     Teleconference products                     14           14             18
                                           ------------   -----------   ------------
         Total net sales                        100           100           100

Gross profit                                     63            61            59

Operating expenses
     Selling                                     16            16            17
     Product development and engineering         11            10            13
     General and administrative                   8             8             8
                                           ------------   -----------   ------------
         Total expenses                          35            34            38

Operating income                                 28%           27%           21%
</TABLE>


         Net sales increases of 24% and 44% in 1996 and 1995, respectively, are
primarily attributable to higher unit sales of transmission products for which
net sales increased by 24% and 55% in 1996 and 1995, respectively. The sales
growth of transmission products was the result of strong demand from equipment
manufacturers in the United States, sales to end customers in the digital
wireless market in Europe, Mexico and the United States and sales to
distributors in Australia. It is anticipated that the Company will continue to
benefit from the growth occurring in the wireless market and from the Company's
product positioning in the growing worldwide digital telecommunications market.

         Teleconference products sales increased by $1.5 million compared to
1995 primarily as a result of increased sales of the Call Port and sales of the
Consortium(TM) product, which was acquired at the end of 1995. This increase was
partially offset by the decrease in sales of the Company's ConferenceMaster
product. Voicecrafter sales were slightly increased over prior year. The Company
anticipates that there will be continued pricing pressure on teleconferencing
products.

         The Company typically fills orders for its products within 7 to 60 days
of the receipt of the purchase order. Customers usually purchase products on an
as-needed basis and, accordingly, the Company generally has less than 45 days
net sales in backlog. Backlog currently consists of purchase orders received by
the Company with a schedule of deliveries within twelve months of the purchase
order date. Written commitments without delivery schedules are not considered in
calculating backlog. The Company's total backlog of product orders as of
December 31, 1996 was approximately $5.7 million. The Company expects that all
of this backlog will be filled during the current year.

         Gross profit as a percentage of net sales improved to 63% in 1996 from
61% in 1995 and 59% in 1994. Gross profit margin has steadily improved primarily
due to higher margins on transmission products and the effect


                                       16
<PAGE>   17

Coherent Communications Systems Corporation

of increased sales without a significant increase in manufacturing overhead
spending, resulting in reduced unit manufacturing costs.

         Selling expense remained at 16% of sales during 1996 and 1995 compared
to 17% in 1994, but increased by $1.9 million in 1996 and $1.5 million in 1995.
The Company has continued to expand its sales and marketing functions to support
plans for growth of its transmission and teleconference products. During 1996
the Company expanded the strategic partnering functions and also enhanced
product management. Selling staff was increased to expand sales in China,
Singapore, Japan and Latin America during 1996. Expansion of the Technical
Assistance Center and personnel increases in the Marketing areas contributed to
the increased spending. Marketing programs in 1995 included the introduction of
an improved ConferenceMaster and a new Call Port.

         Product development and engineering expenses increased by $1.7 million
or 36% and $.6 million or 15% in 1996 and 1995, respectively. The increase in
product development and engineering expenses permitted continued work on a
number of customer-specific projects throughout 1996 while simultaneously
extending our basic product line. In addition, a dedicated team was left in
place to work on our next version of technology and hardware platform in
parallel with general development efforts. Increases in 1995, resulted from
additional personnel and investments in voice enhancement software products
including payments for licenses. The Company will continue to invest in product
development to remain competitive in the telecommunications market.

         General and administrative expenses increased $1 million in both 1996
and 1995, while remaining constant as a percentage of sales. The increase in
general and administrative expenses in 1996 and 1995 were primarily the result
of an increase in administrative activities required to support the Company's
continued growth.

         In light of the anticipated development of new wireless service
markets, the Company will increase its operating expenses to position the
Company for future growth, especially in the United States, Latin America and in
Asia. The expense investment in personnel and related operating expenses will be
made while maintaining the current return on sales. The Company's forward
looking statements of expected growth revenue are subject to various risks, such
as an unanticipated general decline in infrastructure investment in developing
countries or worldwide reductions in telecommunications expenditures.

         Income taxes reflect an effective tax rate of 36% in 1996 and 40% in
1995 and 1994. The decrease in effective tax rate was due in part to tax
benefits recorded on export sales during 1996.

Liquidity and Capital Resources

         The Company has cash and short term investments totaling $16.8 million.
Short term investments are generally limited to obligations of the U.S.
Government and its agencies with a maturity of less than one year. The Company
continues to generate sufficient cash from operations to fund its working
capital and capital expenditure requirements. The Company has available a $10
million uncommitted bank line of credit to provide a supplementary source of
funds in the event of accelerated working capital requirements, however, the
line has not been utilized in 1996 or 1995. During 1996, receivables and
inventories increased to support the significant growth in sales, however, days
outstanding in receivables decreased during 1996 compared to 1995. Inventory
turns on cost of sales were approximately seven in 1996 and 1995.

         During 1995, the Company acquired substantially all the assets,
technology, and certain liabilities of Teleconferencing Technologies, Inc. In
exchange, the Company agreed to pay $1,500,000 in cash, of which $450,000 was
paid at closing, $350,000 paid upon the completion of the documentation of
certain technology and $700,000 plus accrued interest was paid one year from the
closing date. The assumed liabilities were paid at closing. The note was paid in
full as of December 31, 1996.

         During 1994, the Company raised $3.7 million from an initial public
stock offering. In conjunction with the offering, the Company issued a note for
$4 million to redeem its outstanding preferred stock. The note was due in four
equal annual installments. Offering proceeds of $1 million were used to pay the
initial installment. The second installment was paid in June of 1995 and the
remaining two installments were paid in full by September 1996.


                                       17
<PAGE>   18

Coherent Communications Systems Corporation

         The Company's business has not been capital asset intensive, and
capital asset expenditures in any year normally are not significant. Capital
expenditures for 1996 and 1995 were $2.0 million and $1.4 million, respectively,
and relate primarily to the purchase of manufacturing and engineering equipment,
computerized development equipment for new products, and the installation of an
enhanced integrated information system. It is expected that during 1997 the
Company will invest approximately $3-$5 million in capital expenditures
predominantly in product development and improvements related to the new
facility.

         The Company has agreed to lease a new facility for its worldwide
headquarters. Construction of the facility commenced in September 1996 and is
expected to be completed in September 1997. The Company's lease will be for a
term of 15 years, beginning upon the completion of the facility. The Company has
terminated the lease of the existing Virginia headquarters in accordance with
the lease provision and is not subject to significant cancellation costs.


                                       18
<PAGE>   19

Coherent Communications Systems Corporation

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Independent Auditors' Report............................................  20

Consolidated Balance Sheets as of December 31, 1996 and 1995............  21

Consolidated Statements of Income for the
         Years Ended December 31, 1996, 1995 and 1994...................  22

Consolidated Statements of Stockholders' Equity for the
         Years Ended December 31, 1996, 1995 and 1994...................  23

Consolidated Statements of Cash Flows for the
         Years Ended December 31, 1996, 1995 and 1994...................  24

Notes to Consolidated Financial Statements..............................  25-32

Schedule II - Valuation and Qualifying Accounts for the Years
         Ended December 31, 1996, 1995 and 1994.........................  33





Schedules not listed above have been omitted because they are either not
applicable or the required information has been given elsewhere in the
consolidated financial statements.


                                       19
<PAGE>   20

Coherent Communications Systems Corporation

                          Independent Auditors' Report

The Board of Directors
Coherent Communications Systems Corporation:

We have audited the accompanying consolidated financial statements of Coherent
Communications Systems Corporation and subsidiaries as listed in the
accompanying index. In connection with our audits of the consolidated financial
statements we also have audited the related financial statement schedule listed
in the accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Coherent
Communications Systems Corporation and subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule when considered in relation to the basic
consolidated financial statements taken as a whole presents fairly, in all
material respects, the information set forth therein.


                                                           KPMG Peat Marwick LLP

Jericho, New York
January 31, 1997


                                       20
<PAGE>   21

Coherent Communications Systems Corporation

                           Consolidated Balance Sheets
                           December 31, 1996 and 1995
                      (Amounts in thousands except shares)

<TABLE>
<CAPTION>
                                                                                          1996             1995
                                                                                      -------------    -------------
<S>                                                                                   <C>              <C>

ASSETS
Current assets
     Cash and cash equivalents                                                        $     9,251      $     3,352
     Short term investments                                                                 7,518              ---
     Accounts receivable - trade, less allowances ($684  in 1996 and $449  in 1995)        10,065            8,068
     Notes receivable from related parties                                                    ---            7,125
     Inventories                                                                            3,301            2,769
     Other current assets                                                                     562            1,295
     Deferred taxes                                                                           547              375
                                                                                      -------------    -------------

               Total current assets                                                        31,244           22,984

Property, plant and equipment
     Building and leasehold improvements                                                      314              239
     Machinery and equipment                                                                5,115            3,408
     Furniture and fixtures                                                                   970              755
                                                                                      -------------    -------------
                                                                                            6,399            4,402
     Less accumulated depreciation                                                          2,577            1,469
                                                                                      -------------    -------------

               Net property, plant and equipment                                            3,822            2,933

Goodwill (net of amortization)                                                              1,359            1,583
Other assets                                                                                1,133            1,116
                                                                                      -------------    -------------

               Total assets                                                           $    37,558      $    28,616
                                                                                      =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
     Accounts payable                                                                 $       733      $       862
     Accrued expenses                                                                       2,675            2,707
     Note payable - related party                                                             ---            1,000
     Notes payable                                                                            ---              949
     Income taxes payable                                                                   2,184            1,473
                                                                                      -------------    -------------
               Total current liabilities                                                    5,592            6,991

Note payable - related party                                                                  ---            1,000

Deferred taxes                                                                                167              177
                                                                                      -------------    -------------

                Total liabilities                                                           5,759            8,168
                                                                                      -------------    -------------

Stockholders' equity
     Common stock, par value $.01 per share; authorized - 30,000,000 shares;
        issued and outstanding, 15,128,000 in 1996 and 14,733,000 in 1995                     151              147
     Additional paid-in capital                                                            10,657            9,058
     Retained earnings (from December 31, 1993)                                            20,991           11,243
                                                                                      -------------    -------------
               Total stockholders' equity                                                  31,799           20,448
                                                                                      -------------    -------------

               Total liabilities and stockholders' equity                             $    37,558      $    28,616
                                                                                      =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       21
<PAGE>   22

Coherent Communications Systems Corporation

                        Consolidated Statements of Income
                  Years ended December 31, 1996, 1995 and 1994
                 (Amounts in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                              1996                  1995                 1994
                                                         ---------------       ---------------      ----------------
<S>                                                      <C>                   <C>                  <C>
Net sales                                                $     54,431          $     43,829         $     30,516

Cost of sales                                                  20,193                17,025               12,633
                                                         ---------------       ---------------      ----------------

 Gross profit                                                  34,238                26,804               17,883
                                                         ---------------       ---------------      ----------------

Operating expenses:
  Selling                                                       8,764                 6,823                5,323
  Product development and engineering                           6,226                 4,563                3,970
  General and administrative                                    4,439                 3,355                2,305
                                                         ---------------       ---------------      ----------------
Total operating expenses                                       19,429                14,741               11,598
                                                         ---------------       ---------------      ----------------

Operating income                                               14,809                12,063                6,285

   Interest income-net                                           (443)                 (587)                (104)

                                                         ---------------       ---------------      ----------------
Income before income taxes                                     15,252                12,650                6,389

Income tax expense                                              5,504                 5,060                2,588
                                                         ---------------       ---------------      ----------------

  Net income                                                    9,748                 7,590                3,801

  Preferred stock dividends                                        --                    --                 (148)
                                                         ---------------       ---------------      ----------------

  Net income applicable to common stockholders           $      9,748           $     7,590          $     3,653
                                                         ===============       ===============      ================

  Net income per common share                            $        .63           $       .49          $       .26
                                                         ===============       ===============      ================

Weighted average common and
   common equivalent shares                                    15,480                15,440               13,868
                                                         ===============       ===============      ================
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       22
<PAGE>   23

Coherent Communications Systems Corporation

Coherent Communications Systems Corporation

                 Consolidated Statements of Stockholders' Equity
                  Years ended December 31, 1996, 1995 and 1994
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                Retained              Total
                                                    Common Stock               Additional       Earnings           Stockholders'
                                              Shares        Amount           Paid in Capital    (Deficit)              Equity
<S>                                          <C>           <C>               <C>               <C>                 <C>

Balance - December 31, 1993                    14,154          $142              $2,325               -              $2,467

Net income                                          -             -                   -          $3,801               3,801
Dividends on preferred stock                        -             -                   -            (148)               (148)
Net proceeds from public stock offering         1,600            16               3,728               -               3,744
Shares contributed by Safeguard                (2,820)          (28)                 28               -                   -
Exercise of employee stock options                812             8                 519               -                 527
                                             --------      --------            --------        --------            --------
Balance - December 31, 1994                    13,746           138               6,600           3,653              10,391

Net income                                          -             -                 -             7,590               7,590
Tax benefit of non-qualified options                -             -               1,540               -               1,540
Exercise of employee stock options                987             9                 918               -                 927
                                             --------      --------            --------        --------            --------
Balance - December 31, 1995                    14,733           147               9,058          11,243              20,448

Net income                                          -             -                 -             9,748               9,748
Tax benefit of non-qualified options                -             -                 984               -                 984
Exercise of employee stock options                395             4                 615               -                 619
                                             --------      --------            --------        --------            --------

Balance - December 31, 1996                    15,128          $151             $10,657         $20,991             $31,799
                                             ========      ========            ========        ========            ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       23
<PAGE>   24

Coherent Communications Systems Corporation

                      Consolidated Statements of Cash Flows
                  Years ended December 31, 1996, 1995 and 1994
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                  1996               1995                1994
                                                                ----------        -----------         -----------
<S>                                                             <C>               <C>                 <C>

Operating activities
     Net income                                                   $9,748            $7,590              $3,801
     Adjustments to reconcile net income to cash
       provided by operating activities:
         Depreciation and amortization                             1,332               792                 960
         Increase in deferred income taxes                          (182)              (92)               (146)
     Changes in working capital items:
         Receivables                                              (1,997)           (3,826)             (1,074)
         Inventories                                                (532)             (441)             (1,068)
         Other current assets                                        716             --                   (387)
         Accounts payable                                           (129)              242                 259
         Accrued expenses                                            (32)              488                 446
         Income taxes payable                                        711               472                 816
                                                                ----------        -----------         -----------

     Cash provided by operating activities                         9,635             5,225               3,607
                                                                ----------        -----------         -----------

Investing activities
         Purchase of short term investments                       (7,518)            --                   --
         Purchase of TTI, net of cash                              --               (1,400)               --
         Increases in notes receivable - related parties           --               (6,250)             (4,475)
         Payments received on note receivable - related
         parties                                                   7,125             4,270               1,437
         Increase in long-term note receivable                     --               (1,000)               --
         Expenditures for property, plant and equipment           (1,997)           (1,433)               (761)
                                                                ----------        -----------         -----------

     Cash provided by (used in) investing activities              (2,390)           (5,813)             (3,799)
                                                                ----------        -----------         -----------

Financing activities
         Net proceeds from issuance of common stock                --                 --                 3,744
         Exercise of stock options and related tax benefit         1,603             2,467                 107
         Debt repayments to related party                         (2,000)           (1,000)             (1,461)
         Debt repayment related to TTI purchase                     (949)             --                  --
         Preferred dividends                                       --                 --                  (148)
                                                                ----------        -----------         -----------

     Cash provided by (used in) financing activities              (1,346)            1,467               2,242
                                                                ----------        -----------         -----------

     Increase in cash                                              5,899               879               2,050

Cash and cash equivalents- beginning of year                       3,352             2,473                 423
                                                                ----------        -----------         -----------

Cash and cash equivalents- end of year                            $9,251            $3,352              $2,473
                                                                ==========        ===========         ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       24
<PAGE>   25

Coherent Communications Systems Corporation

                   Notes to Consolidated Financial Statements
                        December 31, 1996, 1995 and 1994


[1]  Business of the Company

     Coherent Communications Systems Corporation, a Delaware corporation
("Coherent" or "the Company"), develops, manufactures and markets voice
enhancement products for wireless (including digital cellular), satellite-based
and wireline telecommunications systems throughout the world. Coherent's
principal products are transmission products and teleconference products. The
Company's transmission and teleconference products utilize a proprietary high
speed RISC microchip along with its proprietary echo cancellation software to
enhance the quality of voice communications during a telephone call. The
Company's products are compatible with domestic and foreign telecommunications
systems.

     The Company's products are marketed worldwide and its customers consist
primarily of public telephone companies and large publicly-held corporations.
Two corporations accounted for 23% and 34% of the December 31, 1996 and 1995
accounts receivable balance, respectively.

     One customer accounted for 12%, 18% and 11% of net sales for 1996, 1995 and
1994, respectively. A different customer accounted for approximately 12% of 1995
net sales.

[2]  Summary of Significant Accounting Policies

Principles of Consolidation

     The consolidated financial statements include the accounts of Coherent
Communications Systems Corporation and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.

Fair Value of Financial Instruments

     The carrying value of all financial instruments approximates fair value.

Use of  Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual amounts are not expected to differ materially from
those estimates.

Inventories

     Inventories are stated at the lower of standard cost, which approximates
actual cost (FIFO basis), or market. The components of inventory at December 31,
1996 and 1995 are as follows: raw materials of $2,263,000 and $1,924,000,
work-in process of $786,000 and $738,000 and finished goods of $252,000 and
$107,000, respectively.

Property, Plant and Equipment

     Property, plant and equipment are depreciated on a straight-line basis
based on the estimated useful lives of the assets (building and leasehold
improvements - 5 to 13 years, machinery and equipment - 3 to 7 years, and
furniture and fixtures -8 years).


                                       25
<PAGE>   26

Coherent Communications Systems Corporation

              Notes to Consolidated Financial Statements, Continued

Goodwill

     The goodwill associated with the purchased assets and technology of
Teleconferencing Technologies, Inc. (Note 3) is being amortized over a period of
seven years. During 1996, $224,000 was recorded as amortization on the purchase.
The Company assesses the recoverability of such excess costs based upon the
undiscounted anticipated future cash flows of the business acquired.

Revenue Recognition and Warranty Expenses

     Sales revenue is generally recognized as products are shipped and invoiced
which in certain cases requires prior customer acceptance of the product.
Warranty expenses are accrued at the time of sale based upon the Company's
estimated cost to repair expected returns of products.

Cash, Cash Equivalents and Short-term Investments

     The Company considers temporary cash investments with original maturities
of three months or less at the time of purchase to be cash equivalents. Short
term investments consist of U.S. Government Agency bonds due within one year.
The market value of these securities at year end approximate their amortized
cost. The Company has classified its short term investments as held-to-maturity
and adjusts the carrying amount for the amortization or accretion of premiums or
discounts. A decline in the market value of any held-to-maturity security below
cost that is deemed to be other than temporary results in a reduction in
carrying amount to fair value. The impairment is charged to earnings and a new
cost basis for the security is established.

     In 1996, 1995 and 1994, the Company paid $3,975,000, $3,136,000 and
$2,062,000, respectively in income taxes and $123,000, $124,000 and $75,000 in
interest, respectively.

     In 1995, the remaining balance of $949,000 due in connection with the
purchase of assets and technology described in Note 3, was treated as a non-cash
financing activity. The balance of this debt was paid during 1996. During 1994,
non-cash financing activities included the redemption of the convertible
preferred stock in exchange for a $4 million note payable to Safeguard
Scientifics, Inc. ("Safeguard") and a loan to an officer of the Company for
$420,000 for the exercise of stock options.

Income Taxes

     Income taxes are accounted for using the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities. Under this method, the effect on deferred taxes of a subsequent
change in tax rates is recognized in income in the period that includes the
enactment date. Income tax expense is reduced by allowable tax credits using the
flow-through method.


                                       26
<PAGE>   27

Coherent Communications Systems Corporation

              Notes to Consolidated Financial Statements, Continued

Net Income Per Common Share

     Net income per share is computed by dividing net income applicable to
common stockholders by the weighted average number of common and common
equivalent shares outstanding. Weighted average common and common equivalent
shares include common shares and stock options using the treasury stock method.
For 1994, weighted average common and common equivalents shares have been
reduced for the contribution of 2,820,850 shares of common stock by Safeguard to
the capital of the Company.

Stock Based Compensation

     In 1996, the Company adopted Financial Accounting Standards Board No. 123,
" Accounting for Stock-Based Compensation", which gives companies the option to
adopt the fair value method for expense recognition of employee stock options or
to continue to account for stock options and stock based awards using the
intrinsic value method as outlined under Accounting Principles Board Opinion No.
25, " Accounting for Stock Issued to Employees" ("APB25") and to make pro forma
disclosures of net income and net income per share as if the fair value method
had been applied. The Company has elected to continue to apply APB 25 for future
stock options and stock based awards and has disclosed proforma net income and
net income per share as if the fair value method had been applied.

Deficit Elimination

     The Company's Board of Directors, with the consent of the stockholders,
approved a quasi-reorganization of the Company effective December 31, 1993. As
part of the quasi-reorganization, the deficit in retained earnings of
$13,643,500 was reclassified to additional paid-in capital.

[3]  Acquisition

         On October 25, 1995, the Company acquired substantially all of the
assets, technology and certain liabilities of Teleconferencing Technologies,
Inc. and its Canadian affiliate (collectively, "TTI"). In exchange, the Company
agreed to pay $1,500,000 in cash, of which $450,000 was paid at closing,
$350,000 was paid upon the completion of the documentation of certain technology
and $700,000 plus accrued interest was paid one year from the closing date. The
assumed liabilities were paid at closing. The transaction was accounted for
using the purchase method. Accordingly, the purchase price was allocated to
assets acquired based on their estimated fair values resulting in approximately
$1.5 million of costs in excess of net assets. The results of operations of the
business acquired prior to its acquisition are not material to the Company.

         The Company has agreed to pay TTI royalties on the sale of audio
teleconferencing bridge products for the four years after the closing as
follows: first year, 10%; second year 8%; third year, 6%; and fourth year, 4%.
Royalty payments of $22,000 were paid during 1996 and are paid on cash receipts
related to the sales.

[4]  Related Party Transactions

     Prior to the Company's initial public offering in 1994, the Company was a
99.6% owned subsidiary of Safeguard. Safeguard has a 32% interest in the Company
at December 31,1996.


                                       27
<PAGE>   28

Coherent Communications Systems Corporation

              Notes to Consolidated Financial Statements, Continued

     During 1993, Safeguard and the Company entered into an agreement whereby
the Company would lend to Safeguard a portion of its excess cash and receive a
negotiated interest rate which was higher than the rate the Company might
realize by independently investing the funds, but which was less than
Safeguard's cost of funds. Under this agreement, Safeguard borrowed $2.4 million
and $3.1 million in 1995 and 1994, respectively, from the Company. All amounts
were repaid in 1996 and it is not expected that additional borrowings will take
place.

     The Company is party to an administrative services agreement with
Safeguard, which was renewed December 1, 1993 for five years, whereby Safeguard
provides the Company with day-to-day business and organizational strategy,
financial and investment management, and merchant and investment banking
services. The agreement provides for the payment on a monthly basis of an
administrative service fee, calculated on a sliding scale ranging from 1-1/2%-
1%, of net revenues of the Company. For 1996, 1995 and 1994, the management fee
incurred amounted to $717,000, $613,000, and $357,000, respectively, and is
included in general and administrative expenses in the accompanying consolidated
statements of income. Management believes that the method used to allocate costs
to the Company and the amount of such costs are reasonable based upon the
services provided.

In connection with the initial public offering, 400,000 shares of the Company's
Series A Redeemable Convertible Preferred Stock owned by Safeguard were redeemed
by the Company, for a $4,000,000 note payable, which was due in four $1,000,000
installments. The offering proceeds of $1,000,000 was used to pay the initial
installment. The second installment was paid in June of 1995 and the remaining
two installments were paid in full by September 1996.

     During 1994, the Company invested $25,000 in an Australian based
distribution company for a 25% interest which is included in other assets. The
Company has granted the distributor exclusive distribution rights for
teleconferencing products in Australia. Sales to the affiliate accounted for
approximately $1,190,000, $572,000 and $1,181,000 of the Company's 1996, 1995
and 1994 net sales, respectively, and $62,000 and $67,000 of the Company's
accounts receivable balance as of December 31, 1996 and 1995, respectively.

[5]  Leases

         The Company occupies premises under long-term operating lease
arrangements expiring at various dates through January 2000. The leases provide
for escalation charges based upon changes in the consumer price index or a
preset cost increase factor. Also, the Company is required to pay certain
executory costs including taxes and insurance. The Company has terminated the
lease agreement of the existing Virginia facility and is not subject to
significant cancellation charges. The Company has completed a new lease
agreement for a facility for which annual rent is expected to be about $882,000
per year. Future minimum lease payments under these and other operating leases
for the succeeding five years are: $956,000- 1997; $1,122,000- 1998; $1,175,000-
1999; $906,000- 2000, $882,000- 2001.

     Rent expense was $751,000, $676,000 and $625,000 in 1996, 1995 and 1994,
respectively. The Company is guarantor of the landlord's mortgage totaling
$141,500 at December 31, 1996, on the space leased in Hauppauge, New York.

[6]  Stockholders' Equity

Initial Public Offering

     On June 16, 1994, the Company completed an initial public stock offering
for the sale of 1,600,000 shares of its common stock at a price of $2.50 per
share. The proceeds of $3,743,600 were net of underwriting fees and expenses of
$256,400. In connection with the offering, the Company redeemed its outstanding
convertible preferred stock discussed in Note 4 in exchange for a $4,000,000
note payable to Safeguard. In addition, Safeguard contributed 2,820,850 shares
of common stock to the Company.


                                       28
<PAGE>   29

Coherent Communications Systems Corporation

              Notes to Consolidated Financial Statements, Continued

Stock Options

     The Company has adopted the following stock option plans: the 1982 Amended
and Restated Stock Option Plan ("the 1982 Plan") and the 1993 Equity
Compensation Plan ("the 1993 Plan" and together with the 1982 Plan, "the
Plans"). The 1982 Plan provides for the issuance of a maximum of 2,500,000
shares of Common Stock. Options to purchase approximately 224,000 shares remain
outstanding under the 1982 Plan. No further awards may be made under the 1982
Plan. The 1993 Plan provides for the issuance of a maximum of 1,500,000 shares
of Common Stock pursuant to the grant of ISOs, NQSOs, Stock Appreciation Rights
(SARs), restricted stock awards and grants to employees, non employee directors
and consultants of the Company and its subsidiary. The Plans are administered by
the Compensation Committee of the Board of Directors (the "Committee"). As of
December 31, 1996, the Committee has only granted to its employees and directors
ISOs and NQSOs under the Plans with terms that typically provide for vesting
over a four or five year period, an expiration date seven years after the date
of the grant and a per share exercise price equal to the fair market value of a
share of Common Stock on the date of grant.

     The Company applies APB 25 and related interpretations in accounting for
its various stock option plans. Had compensation cost been recognized consistent
with SFAS 123, the Company's consolidated net income would have been reduced to
$9,538,000 and $7,516,000, respectively, in 1996 and 1995. There was no material
impact on earnings per share.

     The per share weighted-average value of stock options issues by the Company
during 1996 and 1995 was $12.27 and $12.50, respectively, on the date of grant.
In 1996 and 1995, the assumptions of no dividends, expected volatility of 55%,
and an average expected life of 6 years were used by the Company in determining
the fair value of the stock options granted using the Black Scholes
option-pricing model. In addition, the calculations assumed a risk-free interest
rate of 5.9% to 6.6% in 1996 and 5.5% to 6.1% in 1995.

     A summary of the stock options activity is as follows:

<TABLE>
<CAPTION>
                                             1996                        1995                         1994
                                   --------------------------  --------------------------   -------------------------
                                                  Weighted                    Weighted                    Weighted
                                                   Average                     Average                     Average
                                                  Exercise                    Exercise                    Exercise
                                      Shares        Price         Shares        Price         Shares        Price
                                   ------------- ------------  ------------- ------------   ------------ ------------
                                   (000's omitted except per share amounts)
<S>                                <C>           <C>           <C>           <C>            <C>          <C>
Outstanding at beginning of year        950      $   3.27         1,940      $   1.36          2,530     $   0.96
Options granted                         232         20.84            76         21.38            331         2.68
Options exercised                      (389)         1.57          (977)         0.94           (802)        0.65
Options canceled                        (36)        19.37           (89)         2.57           (119)        1.83
                                   --------      --------      --------      --------       --------     --------

Outstanding at end of year              757       $  8.79           950      $   3.27          1,940     $   1.36
                                   --------                    --------                     --------     --------

Options exercisable at year-end         148                         274                         969
Shares available for future grant       718                         915                         957
</TABLE>

     Approximately 485,000 of the options outstanding range in exercise price
from $.60 to $4.00 with a weighted average remaining contractual life of 3.5
years and a weighted average exercise price of $1.97. Options for 136,000 shares
are currently exercisable with a weighted average exercise price of $1.44. The
remaining 272,000 options outstanding range in exercise price from $12.38 to
$28.00 with a weighted average remaining contractual life of 6.7 years and a
weighted average exercise price of $20.98. Options for 12,000 shares are
currently exercisable with a weighted average exercise price of $20.75.


                                       29
<PAGE>   30

Coherent Communications Systems Corporation

              Notes to Consolidated Financial Statements, Continued

[7]  Financing Arrangements

     The Company has a $10,000,000 uncommitted, unused line of credit with a
bank that expires in June 1997, unless renegotiated. Borrowings under the line
of credit bear interest at the bank's prime rate and are collateralized by
accounts receivable of the Company. In 1996 and 1995, no amounts were
outstanding under the line of credit.

[8]  Income Taxes

     The provision for taxes on income at December 31 is comprised of:

<TABLE>
<CAPTION>
                                                                 (000's omitted)
                                                              1996               1995             1994
                                                         --------------      ------------     -------------
<S>                                                      <C>                 <C>              <C>
        Current
             Federal                                     $     5,289         $     4,546      $     2,345
             State                                               397                 606              389
                                                         ------------        ------------     -------------
                                                               5,686               5,152            2,734
                                                         --------------      ------------     -------------
        Deferred
             Federal                                            (174)                (74)            (134)
             State                                                (8)                (18)             (12)
                                                         --------------      ------------     -------------
                                                                (182)                (92)            (146)
                                                         --------------      ------------     -------------

                                                         $     5,504         $     5,060      $     2,588
                                                         ==============      ============     =============
</TABLE>

A reconciliation of the effective tax rate to the Federal statutory rate
follows:


<TABLE>
<CAPTION>
                                                                    (000's omitted)
                                                              1996               1995              1994
                                                         --------------     -------------     --------------
<S>                                                      <C>                 <C>              <C>
     Statutory tax provision                             $     5,186        $     4,301       $      2,172
     Increase (decrease) in taxes resulting from:
       State taxes, net of federal benefits                      262                387                254
       Other                                                      56                372                162
                                                         --------------     -------------     --------------
                                                         $     5,504        $     5,060       $      2,588
                                                         ==============     =============     ==============
</TABLE>

The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995 are presented below:

<TABLE>
<CAPTION>
                                                                                    (000's omitted)
                                                                                1996               1995
                                                                           ---------------     --------------
<S>                                                                        <C>                 <C>
     Deferred tax assets:
       Accounts receivable allowances                                      $          258      $         180
       Inventory                                                                      244                195
       Goodwill amortization                                                           45                  -
                                                                           ===============     ==============
                                                                           $          547      $         375
                                                                           ===============     ==============
     Deferred tax liabilities:
       Accelerated depreciation                                                      (167)              (177)
                                                                           ===============     ==============
                                                                           $         (167)     $        (177)
                                                                           ===============     ==============
</TABLE>

Management of the Company believes that it is more likely than not that net
deferred tax assets will be realized through future taxable earnings or
alternative tax strategies.


                                       30
<PAGE>   31

Coherent Communications Systems Corporation

              Notes to Consolidated Financial Statements, Continued


[9]  Savings Plan

     The Company has a 401(k) Profit Sharing Plan for the benefit of eligible
employees who may contribute up to 15% of eligible base compensation to the
plan. During 1996 the company matched dollar for dollar the first 4% of
employees contributions and one half of the next 2% of contributions. In 1995
and 1994, the Company matched one half of the first 6% of the employees'
contributions. The Company contributed $545,000, $394,000 and $361,000 in 1996,
1995 and 1994, respectively.

[10] Other Assets and Accrued Expenses

     During 1995 and 1994, the Company loaned $1,400,000 to Seattle Silicon,
Inc., a chip supplier to the Company. In June 1996, the Company exercised its
Warrants to purchase 1,380,304 (as adjusted for stock split) shares of Seattle
Silicon, using a $1,000,000 note due from Seattle Silicon to fund the purchase.
This investment (included in other assets) is accounted for on the cost basis.
The Company renegotiated the remaining $400,000 note from Seattle Silicon (dated
July 14,1994) to defer payment until June 30, 1997. The interest accruing on the
$400,000 note, at 7%, is paid to the Company monthly. The Company owns
approximately 12% of Seattle Silicon and may convert the remaining $400,000 note
into additional 10 % interest in Seattle Silicon.

     Accrued expenses at December 31, 1996 and 1995 include the following:

                                                     (000's omitted)
                                             ---------------------------------
                                                 1996               1995
                                             --------------     --------------
     Employee benefits                       $       242        $        201
     Accrued bonus and profit sharing                730               1,016
     Accrued commissions                             193                 103
     Accrued professional fees                       155                 319
     Accrued warranty reserves                       337                 420
     Miscellaneous other                           1,018                 648
                                             --------------     --------------
                                             $     2,675        $      2,707
                                             ==============     ==============

[11] Contingencies

     The Company is involved in various legal actions incidental to the normal
conduct of its business. Management does not believe that the ultimate
resolution of these actions will have a material adverse affect on the Company's
consolidated financial position.

[12] Export Sales

     Marketing in foreign countries is accomplished through independent sales
representatives paid on a commission basis and through a sales office in
England, Japan and Singapore. Export sales accounted for 69%, 75% and 71% of the
Company's net sales in 1996, 1995 and 1994, respectively. Sales are principally
denominated in U.S. dollars. During 1996, 1995 and 1994, net sales into Europe,
Africa and the Middle East contributed 42%, 51% and 50%; net sales into
Asia/Pacific contributed 18%, 20% and 10%; and net sales into other foreign
countries accounted for 9%, 4% and 11%, respectively.


                                       31
<PAGE>   32

Coherent Communications Systems Corporation

                        Quarterly Information (unaudited)
                     (in thousands except per share amounts)

<TABLE>
<CAPTION>
1996, Quarter Ended                         March 31             June 30          September 30          December 31
                                          --------------     --------------     -----------------    ----------------
<S>                                       <C>                <C>                <C>                  <C>
Net Sales                                 $   11,109         $    13,165        $     14,102         $     16,055
Gross Profit                                   7,022               8,361               8,874                9,981
Net Income                                     2,118               2,280               2,445                2,905
EPS                                       $     0.14         $      0.15        $       0.16         $       0.19

1995, Quarter Ended                         March 31             June 30          September 30          December 31
                                          --------------     --------------     -----------------    ----------------

Net Sales                                 $    9,780         $    11,001        $     11,018         $     12,030
Gross Profit                                   5,965               6,701               6,612                7,526
Net Income                                     1,645               1,816               1,864                2,265
EPS                                       $     0.11         $      0.12        $       0.12         $       0.15
</TABLE>

    Earnings per share calculations for each of the quarters are based on the
    weighted average number of shares outstanding in each period. Therefore, the
    sum of the quarters does not necessarily equal the year to date earnings per
    share.


                                       32
<PAGE>   33

Coherent Communications Systems Corporation

                 Schedule II - Valuation and Qualifying Accounts For the Years
              Ended December 31, 1996, 1995 and 1994



<TABLE>
<CAPTION>
                                                Balance at          Charged to
       Description                             beginning of         costs and                            Balance at
                                                   year              expenses         Deductions        end of year
                                             -----------------    ---------------   ---------------    ---------------
<S>                                          <C>                  <C>               <C>                <C>
       1994:

       Allowance for doubtful accounts        $    232,300         $   110,000     $       --           $  342,300

       1995:

       Allowance for doubtful accounts        $    342,300         $   156,700     $   (50,000)         $  449,000

       1996:

       Allowance for doubtful accounts        $    449,000         $   235,200     $       --           $  684,200
</TABLE>


                                       33
<PAGE>   34

Coherent Communications Systems Corporation

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

         None.

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information concerning the directors of the Company is set forth in
the Proxy Statement to be delivered to stockholders in connection with the
Company's Annual Meeting of Stockholders to be held on May 15, 1997 (the "Proxy
Statement"), which information is incorporated herein by reference. The name,
age and position of each executive officer of the Company is set forth under
"Executive Officers of the Registrant" in Part I of this report, which
information is incorporated herein by reference.

ITEM 11.          EXECUTIVE COMPENSATION

         The information concerning executive compensation and transactions with
management is set forth in the Proxy Statement, which information is
incorporated herein by reference.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information concerning security ownership of certain beneficial
owners and management is set forth in the Proxy Statement, which information is
incorporated herein by reference.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information concerning relationships and related transactions is
set forth in the Proxy Statement, which information is incorporated herein by
reference.


                                       34
<PAGE>   35

Coherent Communications Systems Corporation

                                     Part IV

ITEM     14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)
         The following documents are filed as part of this Annual Report on Form
         10-K:

         1.   Consolidated Financial Statements:
              The consolidated financial statements filed as a part of this
              report are listed in the "Index to Consolidated Financial
              Statements and Financial Statement Schedule" at Item 8.

         2.   Consolidated Financial Statement Schedule:
              The consolidated financial statement schedule filed as part of
              this report is listed in the "Index to Consolidated Financial
              Statements and Financial Statement Schedule" at Item 8.

              Schedules other than those listed on the accompanying Index to
              Consolidated Financial Statements and Financial Statement Schedule
              are omitted for the reason that they are either not required, not
              applicable, or the required information is included in the
              consolidated financial statements or notes thereto.

         (b)  Reports on Form 8-K     None.

         (c)  Exhibits:

              The following is a list of exhibits required by Item 601 of
              Regulation S-K filed as part of this report. Where so indicated by
              footnote, exhibits which were previously filed are incorporated by
              reference. Exhibits incorporated by reference, the location of the
              exhibit in the previous filing is indicated in parentheses. All
              other exhibits are being filed with this report.

       Exhibit No.                         Description

            3(i)  -   Certificate of Incorporation of the Company, as amended by
                      a Certificate of Amendment.(3)
                      (Exhibit 3.1(i))

           3(ii)  -   By-laws of the Company as amended.(5)(Exhibit 3(ii))

             4.1  -   Specimen stock certificate representing the Common
                      Stock.(3)(Exhibit 4.1) 10.1 - Administrative Services
                      Agreement dated as of December 1, 1993, between the
                      Company and Safeguard Scientifics, Inc.(3)(Exhibit 10.1)

            10.2  -   Asset Purchase Agreement dated as of March 18, 1987
                      between COMSAT Telesystems, Inc.  and the Company.(1)
                      (Exhibit 10.2)

           *10.3  -   1982 Stock Option Plan.(1)(Exhibit 10.3) *10.4 - 1993
                      Equity Compensation Plan, as amended and restated.

         *10.4.1  -   Stock Ownership Plan(5)(Exhibit 10.4.1)

          10.4.2  -   Compensation Plan for Outside Directors

           *10.5  -   Form of Non-Qualified Stock Option Agreement of the
                      Company for Employees.(2)(Exhibit 10.5) *10.6 - Form of
                      Non-Qualified Stock Option Agreement of the Company for
                      Directors.(2)(Exhibit 10.6)

           *10.7  -   Form of Incentive Stock Option Agreement of the Company
                      for Employees.(2)(Exhibit 10.7)

            10.8  -   Lease dated as of February 1, 1980, as amended, between
                      LE-AX Corp.  and the Company, for the property at
                      60 Commerce Drive, Hauppauge, New York.(1)(Exhibit 10.8)


                                       35
<PAGE>   36

Coherent Communications Systems Corporation

Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K

         (c)  Exhibits (continued):

           10.9.1 -   Lease dated as of July 31, 1992 between Linpro Lansdowne
                      Two Limited Partnership and the Company, for the property
                      at 44084 Riverside Parkway, Leesburg, Virginia.(1)(Exhibit
                      10.9.1)

           10.9.2 -   Sublease dated as of August 1993 between G.D.  Searle &
                      Co.  and the Company, for the property at 44084 Riverside
                      Parkway, Leesburg, Virginia.(1)(Exhibit 10.9.2)

           10.9.3 -   Lease dated August 9, 1996 by and between Opus East,,
                      L.L.C., Landlord, and the Company for the premises located
                      in Loudon County, Virginia known as University Center.

            10.10 -   Lease dated as of October 15, 1990 between Kibswell
                      Holdings Limited and the Company, for the property at Unit
                      B The Quadrant, Barton Lane, Abingdon,
                      England.(1)(Exchange 10.10)

            10.11 -   Tax Agreement dated January 1, 1983 between Safeguard
                      Scientifics, Inc.  and the Company.(1)(Exhibit 10.11)

           *10.12 -   Severance and Non-Competition Agreement dated as of
                      February 10, 1994 between Daniel McGinnis and the Company.
                      (1)(Exhibit 10.12)

            10.13 -   Form of Demand Promissory Note of Safeguard Scientifics,
                      Inc., dated April 2, 1993, payable to the Company, as
                      amended by letter Agreement dated January 12,
                      1994.(1)(Exhibit 10.13)

            10.14 -   Form of Promissory Note of the Company payable to
                      Safeguard Scientifics, Inc.  with respect to the
                      redemption of redeemable convertible preferred stock.(3)
                      (Exhibit 10.14)

            10.15 -   Supply and License Agreement dated February 7, 1992,
                      between the Company and TRT Telecommunications
                      Radioelectriques et Telephoniques.(1)(Exhibit 10.15)

            10.16 -   International Distribution Agreement dated as of January
                      2, 1992 between the Company and Cohpac Communications
                      Systems Pty Limited.(1)(Exhibit 10.16)

            10.17 -   North America Value Added Reseller Agreement dated as of
                      December 7, 1992 between the Company and Wandel &
                      Goltermann Inc.(1)(Exhibit 10.17)

           *10.18 -  Management Incentive Compensation Plan, as adopted by the
                     Company.(2)(Exhibit 10.18) 10.19 - License Agreement,
                     effective as of June 1, 1994, between the Company and
                     Systems Technology Associates, Inc.  (3)(Exhibit 10.19)

            10.20 -  Value Added Reseller Agreement dated December 31, 1992 as
                     amended June 13, 1995 between the Company and Nokia
                     Telecommunications Oy(5)(Exhibit 10.21)**

            10.21 -  Memorandum of Understanding dated February 27,1997 between
                     the Company and Nokia Telecommunications Oy**

             11.0 -  Computation of net income per share.


                                       36
<PAGE>   37

Coherent Communications Systems Corporation

Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K

         (c)  Exhibits (continued):


             21.0  -  Subsidiaries of registrant.

             23.0  -  Consent of KPMG Peat Marwick LLP

             27.0  -  Financial Data Schedule.

----------------
(1) Filed on March 31, 1994 as an exhibit to the Company's Registration
Statement on Form S-1 (No.33-77160) and incorporated by reference.

(2) Filed on May 24, 1994 as an exhibit to the Company's Registration Statement
on Form S-1 Amendment #1 (No.33-77160) and incorporated by reference.

(3) Filed on June 10, 1994 as an exhibit to the Company's Registration Statement
on Form S-1 Amendment #2 (No.33-77160) and incorporated by reference.

(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated by reference.

(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated by reference.

*   Management contract or compensatory plan or arrangement.

**  Confidential portions of the exhibit have been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a request for
    confidential treatment.


                                       37
<PAGE>   38

Coherent Communications Systems Corporation

    SIGNATURES

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


                                    COHERENT COMMUNICATIONS SYSTEMS CORPORATION


                                    By:   /s/ Charles A. Root
                                       -----------------------------------------
                                              Charles A.  Root,
                                       Chairman of the Board of Directors

                                    Date:  March 28,1997


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature             Title(s)                                    Date
              ---------             --------                                    ----
<S>                                 <C>                                         <C>
                                                                                March 28,1997
/ s/ Charles A. Root                Chairman of the Board of Directors
----------------------------
Charles A.  Root

/ s/ Daniel L. McGinnis             Chief Executive Officer and Director        March 28,1997
----------------------------        (Principal Executive Officer)
Daniel L.  McGinnis
                                                                                March 28,1997
/s/ David L. Powell                 President and Chief Operating Officer
----------------------------
David L.  Powell

/s/ Michael P. Gendron              Vice President, Chief Financial Officer     March 28,1997
----------------------------        (Principal Financial and Accounting
Michael P.  Gendron                 Officer)

/s/ Lawrence J. Gallick             Director                                    March 28,1997
----------------------------
Lawrence J.  Gallick

/s/ Delbert W. Johnson              Director                                    March 28,1997
----------------------------
Delbert W.  Johnson

/s/ Warren V. Musser                Director                                    March 28,1997
----------------------------
Warren V.  Musser

/s/ Charles M. Skibo                Director                                    March 28,1997
----------------------------
Charles M.  Skibo

/s/ Ernst Volgenau                  Director                                    March 28,1997
----------------------------
Ernst Volgenau
</TABLE>


                                       38
<PAGE>   39

Coherent Communications Systems Corporation

                                  EXHIBIT INDEX

The following is a list of exhibits required by Item 601 of Regulation S-K filed
as part of this Report. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous filing is indicated in
parentheses. The page numbers listed refer to the page numbers where such
exhibits are located using the sequential numbering system specified by Rule
0-3.


     Exhibit No.                           Description

            3(i)   - Certificate of Incorporation of the Company, as amended by
                     a Certificate of Amendment.(3) (Exhibit 3.1(i))

           3(ii)  -   By-laws of the Company as amended.(5)(Exhibit 3(ii))

             4.1   - Specimen stock certificate representing the Common
                     Stock.(3)(Exhibit 4.1) 
 
            10.1   - Administrative Services Agreement dated as of December 1,
                     1993, between the Company and Safeguard Scientifics, 
                     Inc.(3)(Exhibit 10.1)

            10.2   - Asset Purchase Agreement dated as of March 18, 1987 between
                     COMSAT Telesystems, Inc. and the Company.(1)(Exhibit 10.2)

           *10.3   - 1982 Stock Option Plan.(1)(Exhibit 10.3) *10.4  - 1993 
                     Equity Compensation Plan, as amended and restated.

         *10.4.1   - Stock Ownership Plan(5)(Exhibit 10.4.1)

          10.4.2   - Compensation Plan for Outside Directors

           *10.5  -  Form of Non-Qualified Stock Option Agreement of the Company
                     for Employees.(2)(Exhibit 10.5)

           *10.6  -  Form of Non-Qualified Stock Option Agreement of the Company
                     for Directors.(2)(Exhibit 10.6)

           *10.7  -  Form of Incentive Stock Option Agreement of the Company for
                     Employees.(2)(Exhibit 10.7)

            10.8  -  Lease dated as of February 1, 1980, as amended, between
                     LE-AX Corp. and the Company, for the property at 60
                     Commerce Drive, Hauppauge, New York.(1)(Exhibit 10.8)

          10.9.1  -  Lease dated as of July 31, 1992 between Linpro Lansdowne
                     Two Limited Partnership and the Company, for the property
                     at 44084 Riverside Parkway, Leesburg, Virginia.(1)(Exhibit
                     10.9.1)

          10.9.2  -  Sublease dated as of August 1993 between G.D. Searle & Co.
                     and the Company, for the property at 44084 Riverside
                     Parkway, Leesburg, Virginia.(1)(Exhibit 10.9.2)

          10.9.3  -  Lease dated August 9, 1996 by and between Opus East,
                     L.L.C., Landlord, and the Company, for the premises located
                     in Loudon County, Virginia known as University Center.

           10.10  -  Lease dated as of October 15, 1990 between Kibswell
                     Holdings Limited and the Company, for the property at Unit
                     B The Quadrant, Barton Lane, Abingdon, England.(1)(Exchange
                     10.10)

           10.11  -  Tax Agreement dated January 1, 1983 between Safeguard
                     Scientifics, Inc.  and the Company.(1)(Exhibit 10.11)

          *10.12  -  Severance and Non-Competition Agreement dated as of
                     February 10, 1994 between Daniel McGinnis and the Company.
                     (1)(Exhibit 10.12)


                                       39
<PAGE>   40

Coherent Communications Systems Corporation

           10.13  -  Form of Demand Promissory Note of Safeguard Scientifics,
                     Inc., dated April 2, 1993, payable to the Company, as
                     amended by letter Agreement dated January 12, 1994.(1)
                     (Exhibit 10.13)

           10.14  -  Form of Promissory Note of the Company payable to Safeguard
                     Scientifics, Inc.  with respect to the redemption of
                     redeemable convertible preferred stock.(3)(Exhibit 10.14)

           10.15  -  Supply and License Agreement dated February 7, 1992,
                     between the Company and TRT Telecommunications
                     Radioelectriques et Telephoniques.(1)(Exhibit 10.15)

           10.16  -  International Distribution Agreement dated as of January
                     2, 1992 between the Company and Cohpac Communications
                     Systems Pty Limited.(1)(Exhibit 10.16)

           10.17  -  North America Value Added Reseller Agreement dated as of
                     December 7, 1992 between the Company and Wandel &
                     Goltermann Inc.(1)(Exhibit 10.17)

          *10.18  -  Management Incentive Compensation Plan, as adopted by the
                     Company.(2)(Exhibit 10.18) 10.19 - License Agreement,
                     effective as of June 1, 1994, between the Company and
                     Systems Technology Associates, Inc.  (3)(Exhibit 10.19)

           10.20  -  Value Added Reseller Agreement dated December 31, 1992 as
                     amended June 13, 1995 between the Company and Nokia
                     Telecommunications Oy (5)(Exhibit 10.21)**

           10.21  -  Memorandum of Understanding dated February 27,1997 between
                     the Company and Nokia Telecommunications Oy**

            11.0  -  Computation of net income per share.

            21.0  -  Subsidiaries of registrant.

            23.0  -  Consent of KPMG Peat Marwick LLP

            27.0  -  Financial Data Schedule

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

(1) Filed on March 31, 1994 as an exhibit to the Company's Registration
    Statement on Form S-1 (No.33-77160) and incorporated by reference.

(2) Filed on May 24, 1994 as an exhibit to the Company's Registration Statement
on Form S-1 Amendment #1 (No.33-77160) and incorporated by reference.

(3) Filed on June 10, 1994 as an exhibit to the Company's Registration Statement
on Form S-1 Amendment #2 (No.33-77160) and incorporated by reference.

(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 and incorporated by reference.

(5) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated by reference.

*   Management contract or compensatory plan or arrangement.

**  Confidential portions of the exhibit have been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a request for
    confidential treatment.


                                       40