SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-KSB

                            ANNUAL REPORT PURSUANT TO
           SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1997     Commission File Number 333-12979

                                 VOICENET, INC.
           (Name of small business issuer as specified in its charter)

          DELAWARE                                              13-3896031
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

300 Park Avenue, 17th Floor, New York, NY                         10022
(Address of principal executive offices)                        (Zip Code)

Issuer's telephone number, including area code:  (212) 572-4861

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

Securities registered under Section 12(g) of the Exchange Act:  None

                          Common Stock, $.01 par value

     Check whether the Issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the Exchange  Act during the  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.

YES _X_      NO ___

     Check  if  disclosure  of  delinquent  filers  in  response  to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X].

     State Issuer's revenues for its most recent fiscal year:  0

     As of December 31, 1997: (a) 3,261,550  Common Shares,  $.01 par value,  of
the registrant were outstanding;  (b)  approximately  564,050 Common Shares were
held by non-affiliates;  and (c) the aggregate market value of the Common Shares
held by non-affiliates  was $4,794,425 based on the last sale of $8.50 per share
on March 30, 1998.


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                                     PART I

     This  Annual  Report on Form  10-KSB  contains  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,  or
Section 21 E of the Securities  Exchange Act of 1934, as amended,  or subsequent
expansions or replacements of such sections,  including information with respect
to the  Company's  plans and strategy for its business.  For this  purpose,  any
statements  contained  herein that are not statements of historical  fact may be
deemed to be  forward-looking  statements.  Without limiting the foregoing,  the
words "believes,"  "anticipates,"  "plans,"  "estimates," "feels," "expects" and
similar expressions are intended to identify forward-looking  statements.  There
are a number  of  important  factors  that  could  cause  actual  events  or the
Company's  actual  results to differ  materially  from those  indicated  by such
forward-looking statements. These factors include, without limitation, those set
forth below under the caption "Factors That May Affect Future Results"  included
under  "Management's  Discussion and Analysis of Financial Condition and Results
of Operations" in Part II of this Annual Report on Form 10-KSB.

Item 1. Description of Business

     General

     Voicenet, Inc. (the "Company" or "Voicenet"),  a Delaware corporation,  was
established  on  April 2,  1996  for the  marketing  and  distribution  of large
vocabulary,   continuous  speech,  recognition  systems  and  of  digital  audio
reporting,    transcription,    storage,   archiving   and   retrieval   systems
(collectively,  the  "Voice  Systems").  The  products  and  technologies  to be
marketed by the Company are the result of research and development  conducted by
Voicenet  (Aust) Ltd. ( formerly  Southern  Group  Limited)  ("VNA") and Philips
Electronics,  N.V. ("Philips").  VNA is a publicly owned Australian  corporation
listed on the Australian Stock Exchange.  Philips is a multinational corporation
based in the  Netherlands  which has been in the  forefront of the dictation and
recording markets world-wide.

     The Company acquired from VNA pursuant to a Technology  Transfer  Agreement
dated as of August 1, 1996 (the "Technology  Transfer  Agreement") the exclusive
rights for the North,  Central and South American  markets (the  "Territory") to
the latest  version of the  technology  developed  by VNA  relating to the voice
products and the Voice Systems,  including the right to  manufacture  and market
VNA's latest  version of (i) digital  audio  recording,  archiving and retrieval
systems known as COURTSCRIPT(TM) for the court recording industry  (collectively
the  "Court  Reporting  Systems");  (ii)  large  vocabulary,  continuous  speech
recognition  systems  for  the  medical  industry  known  as  RADTALK(TM),   and
PSYCHTALK(TM) (collectively the "Medical Systems"); (iii) digital audio products
and  technologies  for the  broadcasting  industry;  and (iv) VNA's  current and
future digital voice-to-text audio products developed to exploit the markets for
continuous,   speech   recognition   and  automatic   transcription   technology
(collectively, the "Technology").

     Pursuant to the terms of the Technology Transfer Agreement, VNA transferred
the  Technology  and related  rights to the Company  for the  purchase  price of
$4,500,000.  The Company paid the purchase price by issuing its Promissory  Note
in the amount of  $4,500,000.  Pursuant to an amendment to the  Promissory  Note
dated  September 25, 1997, the Company and VNA agreed that the  Promissory  Note
may be converted into Common Stock of the Company at a conversion price of $8.00
per share.  VNA elected to exercise that conversion  option and was consequently
issued 562,500 registered shares of


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common stock of the Company. VNA therefore,  holds a controlling interest in the
Company.  Additionally  the Company's  President and Chief Executive  Officer is
also the Managing  Director and Chief  Executive  of VNA.  See  "Description  of
Business--Technology Transfer Agreement; "Management."

     The  Technology  and products  acquired by the Company under the Technology
Transfer  Agreement  embrace  two main voice  technologies:  (i)  digital  voice
compression, storage and retrieval, and (ii) speech recognition.

     Philips  developed a large  vocabulary  (64,000 word capacity),  continuous
speech  recognition  engine (the "Philips Engine") which can process speech from
normal parlance.  VNA is the developer of proprietary digital audio compression,
storage and retrieval systems and speech recognition  systems and software which
incorporate  the  Philips  Engine.  In  April  and  October,  1996,  VNA  signed
technology  licensing and  development  agreements  with Philips for the product
recognition system using the Philips Engine.

     In August 1997,  Philips and the Company  signed an agreement for the joint
development of the U.S. market for the Company's speech recognition products.

     The Company's objective is to become a leader in the marketing of the Voice
Systems.  The Company's strategy is to (i) establish a sales force to market the
Court Reporting Systems to court administrators,  (ii) obtain marketing partners
and distributors which already have a significant  presence in the field for the
marketing of its Medical Systems to hospitals, physicians and physician practice
management  groups and (iii) obtain  marketing  partners and  licensees  for the
sales and  distribution of its voice systems to other  applications and field of
use.

     The Company has signed a trade  services  agreement with the Columbus Group
for the marketing,  sales and licensing of Voicenet's technologies and products.
The Arlington,  Virginia based company will market  Voicenet's  technologies  in
North America  including its suite of  dictation-orientated  products  utilizing
high-vocabulary  natural  continuous  speech and its digital audio recording and
transcription products.

     Particular  marketing  emphasis  will  be  placed  on a range  of  Voicenet
products,  including  COURTSCRIPT(TM)  a  digital  audio  recording,  archiving,
retrieval and  transcription  system for the court industry and  high-vocabulary
continuous speech  recognition  recording,  transcription and archiving suite of
systems.

     RADTALK(TM) a system for radiology practitioners, is currently installed in
a number of leading  Australian  hospitals and is creating  interest  within the
U.S. radiology community, while COURTSCRIPT(TM), a digital audio court recording
and  transcription  system, is either in use or being tested in a growing number
of countries, including the United States, Canada, Hong Kong and Australia.

     The Columbus Group has achieved  considerable  success as an  international
professional  services firm, providing marketing support to a number of U.S. and
foreign firms through its Washington based staff and an international network of
offices and associates. The group provides services in a number of strategically
important  areas,  including   telecommunications  and  information  technology,
financial   services,   health  care   management,   government   marketing  and
contracting.



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     The Company is in the  development  stage and its operations are subject to
all the problems, expenses, delays and other risks inherent in the establishment
of a new business enterprise, as well as the problems inherent in developing and
marketing  a new  product/service  and  in  establishing  a  name  and  business
reputation. The likelihood of the success of the Company must also be considered
in  connection  with the rapidly and  continually  changing  technology  and the
competitive  environment  in which the  Company  will  operate.  There can be no
assurance that the Company's operations will result in its becoming or remaining
economically  viable.  Shareholders  should  be aware of the  problems,  delays,
expenses and  difficulties  encountered  by any company in a development  stage,
many of which may be beyond the Company's  control.  These include,  but are not
limited to,  organization  and hiring of sales,  administrative  and  management
personnel,  lack of customer  acceptance  of the Company's  products,  sales and
marketing problems, intense competition, product quality control, and inadequate
financial  resources.  The Company has had no revenues  from  operations to date
and,  because it is just beginning to enter the commercial  stage, it may likely
sustain operating losses for an indeterminate  time period.  Since its inception
in April 1996,  the Company  has  devoted  substantially  all of its efforts and
resources to raising  capital  through an initial public  offering of its common
stock.  During the year ended  December  31,  1997,  the  Company  generated  an
accumulated deficit of $615,330 and has a total accumulated deficit of $616,055.

     The Company has no revenues from  continuing  operations in the year ending
December  31, 1997.  The Company has incurred net losses since its  inception in
1996. The Company's  losses incurred since  inception have resulted  principally
from legal, accounting,  printing, marketing and travel expenditures incurred in
pursuing  its capital  raising  activities,  and to a lesser  extent early stage
product  marketing  expenses.  The Company  expects to incur operating costs and
possible losses  therefrom over the next several years due primarily to expanded
sales and  marketing  efforts,  including  the  establishment  of product  sales
office,  the  staffing  of  such  office  with  marketing,   administrative  and
management  personnel,  and travel and related business  entertainment  expenses
incurred  by the  sales  personnel  as they  seek  potential  customers  for the
Company's  products.  There can be no  assurance of when and whether the Company
will generate  revenues or become  profitable on a sustained  basis,  if at all.
Although  the  Company  anticipates  sales to commence  in 1998,  the  Company's
results of  operations  may vary  significantly  from  quarter to quarter due to
timing of payments and other factors.  The timing of the Company's revenues,  if
any,  may not  match the  timing  of  associated  product  development  of other
expenses.

     The  Company's  ability to achieve sales and increase its levels of revenue
will  depend  upon its  ability  to  secure  capital  financing  and to sell the
Company's  products.  The Company's ability to generate  significant revenue and
become  profitable  is  dependent  in  large  part  on its  commercializing  the
Company's lead product,  the CourtScript system for digital recording of courts.
There can be no  assurance  that the  operations  of the Company  will  generate
significant revenue or will ever be profitable.

Business Strategy

     The Company's objective is to become a leader in the marketing of the Voice
Systems.   Implementing   the  Company's   strategies   involves  the  following
activities:

     o    Emphasize large  vocabulary,  continuous  speech  recognition  systems
          product  line.   The  Company   intends  to  emphasize  the  continued
          development of its state-of-the-art high



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          vocabulary,  continuous speech recognition systems product line, which
          product line  management  anticipates  will lead to the development of
          new products and product  enhancements.  Examples of such products are
          the Company's soon to be released third  generation of Court Reporting
          System and first generation of a Medical  Recordkeeping  System in the
          Territory, a high vocabulary, continuous speech recognition system for
          the medical industry which has completed commercial installations.

     o    Target and Expand  Court  Reporting  Market.  The  Company  intends to
          establish  a sales  force to market  its Court  Reporting  Systems  to
          legislative bodies and  administrative  agencies within the Territory.
          VNA has  tested  its Court  Reporting  Systems  in courts  within  the
          Territory and has  experienced  positive  results and  inquiries  from
          governments  that  have  heard  about  the  Court  Reporting  Systems.
          Management  believes  that use of the  Court  Reporting  Systems  will
          result in lower costs and more efficient and accurate court reporting.

     o    Pursue Market Through Marketing Partner and Distributor Relationships.
          The  Company  intends  to  market  some of its  products,  such as the
          Medical  Systems,  within the  Territory  by entering  into  strategic
          distribution agreements.  The Company believes that systems like those
          developed by the Company have not been  previously  available to users
          distributors may reach.

     o    Further Develop Strategic Alliances.  The Company will support most of
          its  internal   development  and  marketing   efforts  with  strategic
          alliances.  To date, the Company has established  significant  product
          development  relationships  with VNA and directly  with  Philips.  The
          Company  believes  that its  collaborative  relationships  with  these
          companies  will expand the breath of  opportunities  for the Company's
          technology. The Company intends to continue to enhance the established
          strategic  alliances  and it believes the  relationships  will further
          enhance the Company's development and marketing efforts.

Voicenet (Aust) Ltd. and Development of the Technology

     VNA is a research and  development  company  that focuses on digital  audio
applications. In 1989, VNA developed one of the world's first digital audio mass
storage system ("DAMS(TM)) for the broadcasting  industry. The system permitted,
for the first time, the facility for radio  broadcasters to digitally store, and
instantaneously  access  from a  simple  in-studio  system  control  panel,  all
broadcast material from archives which could be saved on hard disk or CD Rom.

     In 1992,  VNA was  commissioned  by a division  of the  Australian  Federal
Attorney  General's  department  to  develop a  digital  system  for  recording,
reporting and archiving court proceedings. The result of that commission was the
development of a system code named DART(TM).  On completion and sale to Auscript
of the DART",  VNA continued to research and develop the  application,  and with
the  assistance  of the  Los  Angeles  County  Superior  Court  Division,  which
permitted  the use of four of its  courts  as a test  site  for a  twelve  month
period,  completed an earlier version of the Court  Reporting  System of digital
audio recording and transcription. Earlier versions of the system have been sold
by VNA to courts in Canberra (the Australian Capital Territory), Hong Kong, and,
by a  non-exclusive  licensee in North America,  Karri  Technologies  Corp.,  in
Pennsylvania,  California and Maryland.  Newer  versions of the Court  Reporting
System are currently being marketed by VNA and others in various other countries
around the world.  While Karri  Technologies  Corp.  has  non-exclusive  license
rights to use certain components of the earlier version of the System and to use
the name in COURTSMART(TM) in connection



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therewith in North America, VNA's subsidiary KTI ceased operation in 1994 in the
United States. The Company anticipates that its newer version of Court Reporting
Systems, some of which will incorporate  continuous,  voice-to-text ability, may
be also marketed under the names COURTSCRIPT(TM) AND VOICESCRIPT(TM).

     VNA has signed technology licensing agreements with Philips for the product
development,   marketing  and  distribution  of  its  continuous  speech,  large
vocabulary  recognition  system.  Although  there can be no assurance,  advances
facilitated  by  an  amalgamation  of  the  large  vocabulary  continuous  voice
recognition  digital  technology  applications  developed by VNA are expected by
management  to have a  significant  impact  on the  interactivity  aspect of the
computer  industry,  where continuous large vocabulary  speech can be processed,
transcribed,  stored and printed. Both the audio and transcribed material can be
archived  and  retrieved on and from the same  storage  medium in a  synchronous
manner.

Technical Summary of Court Reporting System and Continuous
Speech Recognition Engine and Medical Recordkeeping System

     The  Technology  and products  acquired by the Company under the Technology
Transfer   Agreement  embrace  two  main  voice   technologies:   digital  audio
compression/transmission and speech recognition.

     The  proprietary  hardware and software  utilized in VNA's Court  Reporting
System  has  been  designed,   developed  and   manufactured   by  VNA  and  its
subsidiaries. The system currently operates over a Microsoft(TM) network.

     The second  generation of the Court Reporting System that is being acquired
by the Company will include an encoder card that will make the external analogue
mixer  redundant as the encoder card will input directly 16 channels of analogue
audio,  perform AGC, mix the audio into 4 channels and digitize with a choice of
using either ADPCM or MPEG for  compression  facilitating  audio quality ranging
from voice grade to broadcast grade as required.  The new encoder card will also
have an in-built wide area network ("WAN") capability.

     The main  barrier for  processing  speech  continuously  has been  computer
processing  power.  Even with rapid  developments  in personal  computer  ("PC")
technology,  management  believes  that  not even the  currently  fastest  Intel
Pentium(TM)  microprocessor  can process speech  continuously.  Hence, a special
accelerator  board has  recently  been  developed  by  Philips to  increase  the
processing  of continuous  speech by  approximately  ten fold,  which along with
proprietary  software embodies the Philips Engine.  The methodology  embraced in
utilizing  this  continuous  speech  recognition  technology  is heavily  speech
context  orientated.  The reason is that to process  continuous  speech, you not
only need  acoustical  models  for  comparison  computation,  but a  statistical
language  model that can calculate  the  probability  of word  sequences in this
context.  This is an integral part of achieving high speech  recognition  rates.
The Philips  Engine  performs  these  comparisons  by using feature  vectors.  A
feature vector is a mathematical  representation  of phonemes (the smallest unit
of speech)  that is created  from the input  speech to compare with a library of
feature  vectors to identify the correct  interpretation  with the aid of Hidden
Markov Modelling.  The accelerator board acts a pre-processor (i.e., it performs
the  computationally  intensive numerical  calculations).  The board's principal
function is to compare feature vectors created from the



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input  speech with the feature  vectors in the known  context  (vocabulary)  and
output the required distance value between the vectors for the voice recognition
engine to process quickly, without this initial computational overhead.

Industry Comparison of Technology

     VNA's technology  licensing agreement with Philips for product development,
integration,  marketing  and  distribution,  and in  turn  the  transfer  of the
Technology from VNA under the Technology  Transfer Agreement to the Company,  is
for its large vocabulary,  continuous speech recognition systems.  This is to be
distinguished  from speech  technology that has been available for several years
in various limited  applications,  which have had two major limitations (i) that
the speech  recognition  systems could only facilitate  "discrete" speech (i.e.,
distinct  pauses are  required  between  the words  spoken for the  computer  to
recognize the individual words) and (ii) speaker  dependence  whereby there is a
requirement  for each  individual  user to train or custom program the system to
ensure an acceptable level of recognition of the speaker's voice. These previous
limitations have made the adoption of the speech recognized  technology slow and
isolated in use.

     Because there are many voice recognition ("VR") technology providers in the
market  today,  it is important to compare  these other systems to the Company's
technology.  The three  principal  bases  typically used the VR industry are (i)
continuous versus discrete speech; (ii) large versus small vocabulary; and (iii)
speaker dependent versus speaker  independent.  There is a relationship  between
the size of the vocabulary which determines the effectiveness of its recognition
factor,  i.e. the smaller the  vocabulary,  the easier it is for recognition and
conversely,  the  larger the  vocabulary,  the more  difficult  it is to achieve
recognition.

     The  specific  use  contexts  can  also be  broken  down  into  three  main
categories:  (i) dictation,  (ii) telephony,  and (iii) "command & control." The
Company intends to operate in a dictation context.  Each use context needs to be
benchmarked  in a manner  consistent  with the baselines set for the  applicable
use,  (e.g.,  the baseline for large  vocabulary in the telephony  context means
2,000  words).  It is not  uncommon  for  telephony  or  "command & control"  VR
developers  to provide a  "continuous  speech"  facility  because  they are used
solely  for  small  vocabularies  which  address  basic  telephony   application
interaction  (i.e.  continuous  digit  recognition  for credit  card  details or
limited  phrases  for  action  commands  such  as  phone  number   retrieval  or
progressive information steps).

     However,  in the dictation  context the baseline for "large  vocabulary" is
considered to be greater than 20,000 words.  Moreover,  a continuous  and active
large vocabulary  dictation  context is even more technically  challenging.  The
speech  recognition  technology  to be  marketed  by the  Company  is  the  only
technology  in the  dictation  context  which  can  process  very  large  active
vocabulary  (64,000  words) with  continuous  voice  recognition  in a dictation
context.  IBM has recently introduced a continuous voice recognition system with
a reported vocabulary of 20,000 words for the medical recordkeeping industry.

Development and Use of the COURTSMART(TM) Court Reporting System

     The earlier  version of the court  reporting  system was  developed and was
installed as a test site, in December  1993 in a courtroom  operated for the Los
Angeles County  Superior Court  Division.  During that period,  the  information
received from the Los Angeles Superior Court  administration on the operation of
the system was  instrumental  in determining  the final  characteristics  of the
subsequent versions of the



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system.

     The court  reporting  system using computer and other shelf and proprietary
hardware with proprietary software,  operates as follows: (1) microphones within
the  courtroom  are combined and  processed  with other  relevant  communication
channels  and employ  automation  and control  techniques  that  normally do not
require a local  operator  to be in  attendance;  (2)  speech  is then  recorded
directly to a combination of digital storage media which provide the optimum mix
of both instant  access and archived  storage in a secure and efficient  manner.
During this process several levels of automated "tagging" are available, to both
users  and  operators  so that  sections  of text can be  readily  recalled  and
identified at a later time; and (3) the voice recordings once stored  digitally,
are made  available in rapidly  accessible  and reusable  format through a local
network,  to  any  number  of  workstations  for  transcription  purposes.  Each
workstation can take any part of any recording and in any required  length.  The
text thus produced using any one of several popular word processing packages, is
then  automatically  merged and stored in association  with the voice recording.
The  network  can then at any time  print  text,  replay  the  audio or  archive
material in any required format. Non-active material is archived to DDS (Digital
Data Storage) tape or CD-ROM  providing  storage  densities far greater than any
analogue system, and can be easily reloaded at any subsequent time.

     The  Company  believes  that its  version  of the  Court  Reporting  System
introduces  three major  advances  over  traditional  systems:  the first is the
delivery of recorded audio direct from the court to the  transcription  operator
via computer network negating all physical handling of recordings  (present tape
based systems are labor  intensive);  the second is the ability to tag direct to
incoming audio providing  Transcription  Staff with fault free  recognition of a
particular  speaker;  and the  third is the  ability  to  search  many  hours of
recorded audio rapidly (random access), based on the permanently stored time and
date stamp or text tag attached to each one second of audio.

     All facilities provided by the latest version of the Court Reporting System
are  aimed  at   increasing   the  overall   efficiency  of  the  recording  and
transcription operation, thus ultimately,  being reflected in a reduction in the
cost per page of transcript generated.

Marketing

     Court Reporting

     Court reporting is the verbatim  transcription  of the spoken work into the
written word, generally from sworn legal testimony. The industry is divided into
two distinct  sectors -- the recording of  proceedings  in court,  or "official"
court  reporting,  and all other court  reporting.  Official court  reporting is
performed by civil servant court  reporters  employed by  municipal,  state,  or
federal courts.  All other court reporting is performed outside the courtroom by
free-lance court  reporters,  who may be either  self-employed,  or employees of
independent contractors affiliated with a court reporting agency.

     Although there are no independently verified statistics with respect to the
number  of court  reporters,  there  are  approximately  20,000  members  of the
National Court Reporting  Association  "NACRA"),  the only national professional
association  in the industry,  and an additional  13,000  student  members.  The
Company  estimates that there are  approximately  40,000 court  reporters in the
United States.



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     Court  reporting  requires  trained  professional  capable of  transcribing
speech usually by steno type machine, which generally approximates 200 words per
minute,  using  shorthand  symbols.  The shorthand notes are translated from the
paper or magnetic medium, then edited to produce a final transcript.

     The Company intends to market and distribute the COURTSCRIPT(TM)  system to
courts initially.  It can be anticipated,  however, that court reporters,  which
are generally unionized  government  employees,  may resist the introduction and
implementation of electronic court reporting  systems.  Although there can be no
assurance,  the  Company  believes,  however,  that the cost and  benefit of its
system in comparison to court  reporters will convince court  administrators  to
begin using its Court Reporting Systems.  The Company also intends to market its
Court Reporting Systems to parliamentary and legislative bodies. The Company may
use the name VOICESCRIPT(TM) in connection with such systems.

Marketing Strategy

     The  Company  plans to seek  ongoing  relationship  with a  distributor  or
distributors  that have a strong  foothold in the medical  marketplace to market
the Medical Systems. The Company's initial focus for the distributors will be on
major hospitals and medical centers within the Territory.

     The Company plans to market the Court Reporting Systems by appointing up to
eleven  sales  representatives  for the  United  States,  who  will  operate  as
independent  contractors  and primarily be  compensated  on a commission  basis,
which represents one for each of the eleven Federal Court Circuits.  The Company
intends to appoint sales  representatives  for the circuits after the completion
of this  offering at the rate of one per month.  The Company  intends to appoint
three sales  representatives  for Canada,  covering  the  provinces  of Ontario,
Quebec and British Columbia. The first of these has been appointed.

     The Company has had marketing  material  prepared by an advertising  agency
including a professional  video of approximately 7 minutes duration which covers
(a) the  existing  court  system;  (b)  cost  benefit  analysis;  (c) the  Court
Reporting System; and (d) how its Court Reporting System functions.

     Pursuant to the Company's  agreement  with VNA, all potential and executory
contracts  being  negotiated by VNA within North America will be  transferred to
the Company.

Competition

     Competition in the continuous speech recognition  systems and digital audio
technology   market  is  intense.   The  Company  believes  that  its  principal
competitors in the field of voice  recognition  are IBM, AT&T,  Microsoft,  Kurz
Weil, Philips  Electronics,  N.V., Dragon Systems,  Inc.,  Kolvox,  Fonix, Voice
Control Systems, Inc., Voice Processing Corporation, Lernout & Hauspie, Inc. and
Karrit Technologies  Corp., one of VNA's non-exclusive  licensees of the earlier
version of certain components of the system



                                       9
<PAGE>


which  has the  non-exclusive  right  to also  use the  name  COURTSMART(TM)  in
connection with such components in North America. In particular,  IBM and Dragon
Systems have recently introduced voice recognition systems which have continuous
voice recognition abilities and large vocabulary.  Further, although the Company
will have the exclusive  right to the Technology  from VNA, the Company does not
have the exclusive  right to the Philips Engine in its Territory.  Consequently,
it is possible that Philips or another Philips licensee could develop a combined
product  similar to VNA's  voice  system and  Technology  and market  such voice
recognition  product in the areas  encompassed  by the Company's  Territory from
VNA.  Lernout & Hauspie is involved in "command and  control"  aspects of speech
recognition within a sentence and based on small vocabulary:  the Dragon Dictate
system has a large vocabulary  capacity.  Voice Control Systems,  Inc. and Voice
Processing  Corporation seem to be principally involved in speech recognition in
telephony  applications  such as voice  verification  over  telephone  fields of
"command and control,"  continuous digit recognition and  alpha-numerics.  There
can be no guarantee  that these  companies or other new entrants into the market
segments or similar  technologies will not succeed in developing similar or more
effective competitive products or technologies.

     Many of the Company's  competitors  are large  established  companies  with
greater resources, greater marketing and operating experience,  greater research
and development and greater production capabilities than those of the Company.

     The  Company's  competitive  position  will also depend upon its ability to
attract and retain qualified  personnel,  obtain patent  protection or otherwise
develop  proprietary  products or processes and secure sufficient  resources for
the  marketing and  servicing of its  products.  There is no assurance  that the
Company will be able to compete successfully.

Technology Transfer Agreement

     The  Company  has  acquired  from VNA  pursuant  to a  Technology  Transfer
Agreement dated as of August 1, 1996 the exclusive rights for the North, Central
and South American  markets to the  Technology  developed by VNA relating to the
voice  products and the digital audio  reporting,  transcription,  archiving and
retrieval  systems,  including  the right to  manufacture  and market the latest
version of digital  audio  reporting,  transcription,  archiving  and  retrieval
systems for the court recording  industry;  high  vocabulary;  continuous  voice
recognition and digital voice-to-text  recording;  storage and retrieval for the
medical  industry;  digital audio products and technologies for the broadcasting
industry;  and the digital audio  products  developed to exploit the markets for
continuous speech recognition and automatic transcription  technology.  Pursuant
to  the  terms  of  the  Technology  Transfer  Agreement,  VNA  transferred  the
Technology and related  rights for the purchase  price of $4,500,000,  which was
paid by the Company  issuing its  non-interest  bearing  Promissory Note in such
amount.  The note has been  altered to be payable as follows:  (a) $2.5  million
upon the earlier of March 31, 1998 or the  successful  closing of the  Company's
offering,  (b) $1 million  upon the first  signed  installation  contract  for a
COURTSMART(TM)  system  in the  United  States  of at least  $30,000  and (c) $1
million on March 31, 1998. By amendment to the Promissory  Note dated  September
25, 1997, the Company and VNA agreed that the  Promissory  Note may be converted
into Common Stock of the Company at a conversion price of $8.00 per share.  That
Promissory  Note has been converted and upon  conversion of the promissory  Note
and  issuance of the 562,500 to the Selling  Stockholder,  VNA, the $4.5 million
obligation has been satisfied in full.

     The  Company  commissioned  Gorey &  Sinclair,  an  independent  Australian
chartered accounting



                                       10
<PAGE>


firm to prepare a valuation  report of the latest version of the  COURTSMART(TM)
system in the United  States.  In the  opinion of Gorey &  Sinclair,  based upon
certain  assumptions,  the  COURTSMART(TM)  system for the  United  States has a
potential   value   between   $23.7   million   and  $32   million   upon   full
commercialization.  The Company relied on this report as its primarily basis for
determining the purchase price of the Technology from VNA. The report by Gorey &
Sinclair  is  necessarily  based  upon a number of  estimates,  assumptions  and
forecasts that,  while they are considered  reasonable by the Company,  assuming
the  Company has  adequate  financing,  are  inherently  subject to  significant
material  business,  economic,  and competitive  uncertainties and contingencies
which are beyond the control of the Company,  and upon  assumptions with respect
to future sales which may never develop. Accordingly,  there can be no assurance
that these  results  will be  archived  or that the value  estimated  by Gorey &
Sinclair will ever be realized. The prospective financial valuation presented in
the Gorey & Sinclair report will vary from actual results,  and these variations
may be  material.  The  inclusion  of such  information  in the Gorey & Sinclair
report  should not be regarded as a  representation  by the Company or any other
person that these results or estimates  will be ever  obtained.  It is merely an
estimation of potential if the underlying assumptions are realized.  Prospective
investors  in the  offering are  cautioned  not to place undue  reliance on this
information.

Manufacturing and Supply of Products

     The Company has no  manufacturing  facilities and relies upon VNA and other
contract  manufacturers  to manufacture  its proposed  products.  Except for one
small  hardware  component  and two software  components,  all of the  remaining
components utilized in the latest version of the Court Reporting Systems and the
Medical  Recordkeeping  Systems, are readily available and can be purchased from
numerous sources in the United States and abroad. The one hardware component and
the two software components that contain the proprietary technology developed by
VNA which  incorporates  the Philips  Engine will be acquired  from VNA. VNA has
agreed to manufacture the one hardware component and the two software components
of the system in  Australia  and sell them to the Company at prices  which shall
not be greater than the prices at which VNA sells the components to unaffiliated
parties, less a minimum discount of 10%.

Intellectual Property

     The Company does not own any patents,  trademarks or trade  secrets.  Under
the Technology  Transfer  Agreement for the court  reporting  system and related
technology,  the Company is granted the exclusive right to manufacture,  market,
sell and  distribute  the latest  version of the system and other  digital voice
systems  developed  by VNA in North,  Central  and  South  America  under  VNA's
trademarks. VNA developed the systems, and has copyrighted the computer software
used in the  Court  Reporting  System  and it has  applied  for a patent  on the
hardware component that it developed. Pending the issuance of any patents, which
cannot be assured, VNA intends to rely on unpatented  proprietary technology and
technical know-how. Accordingly, because the Company will only receive under the
Technology Transfer Agreement such intellectual  property rights as may be owned
by VNA, the Company will similarly rely on unpatented proprietary technology and
technical know-how.  Philip owns and has patented the technology  comprising the
Philips Engine. VNA is a licensee of the Philips Engine. The Company's composite
product  which is VNA's  patented  and  proprietary  digital  cardio  recording,
storage,  archiving and retrieval technology integrated with the Philips Engine.
The Company does not have an exclusive  right from Philips to the Philips Engine
in the Territory.  No assurance can be given that others will not  independently
develop  substantially  equivalent  technology,   knowledge  and  techniques  or
otherwise gain



                                       11
<PAGE>


access to VNA's technology, or use the Philips Engine to make a similar product,
or  that  VNA or the  Company  can  meaningfully  protect  its  rights  in  such
unpatented proprietary technology or know-how.

     The Company's  principal  business address is 300 Park Avenue,  17th Floor,
New York, New York 10022, and its telephone number is (212) 572-4861.

Item 2. Properties

     The Company  leases  approximately  110 square feet of office  space at 300
Park Avenue,  New York, NY on a  month-to-month  basis at the rate of $1,600 per
month.

Item 3. Legal Proceedings

     The Company is not aware of any other material  pending or threatened legal
proceedings against the Company or its officers and directors.

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

     There were no matters  submitted to a vote of the  security  holders in the
fourth quarter of 1997.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

     (a)  Market Information

     There is currently a limited public trading market for the Company's Common
Stock.  There are currently 2 market-makers  for the Company's Common Stock. The
Common Stock has traded on a limited  basis on the OTC Bulletin  Board under the
symbol "VNET" since January 5, 1998.  The stock  register and transfer agent for
the Company is American Stock Transfer & Trust Company, New York, New York.

     (b)  Holders of Common Stock

                                          Approximate Number of
          Title of Class                  Record Holders as of December 31, 1997
          --------------                  --------------------------------------

          Common Stock, $.01 par value                  30

     A number of shares are held by record by brokerage and other  institutional
firms for their customers.

     (c)  Dividends

     The Company has never declared or paid a cash dividend on its common stock,
and it is anticipated  that the Company will continue to retain its earnings for
use in its  business  and not pay cash  dividends.  Declaration  and  payment of
dividends are within the discretion of the Company's  Board of Directors,  which
will review such dividend policy from time to time.



                                       12
<PAGE>


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

     Results of  operations  for the  period  commencing  April 2, 1996  through
December 31, 1997 (the "1997 Period"); compared with the period commencing April
2, 1996 through December 31, 1996 (the "1996 Period").

     Net losses increased from $725 for the 1996 Period to $615,330 for the 1997
Period.  The  Company had no revenue or  operating  income for the 1996 and 1997
Periods from continuing  operations.  The Company had interest income of $38,372
for the 1997 Period and $106 in the 1996 Period.  Total general,  administrative
and development expenses were $653,702 for the 1997 Period in comparison to $831
for the 1996 Period an increase of 652,871.

     At December 31, 1996,  the Company had total assets of  $4,623,324,  and at
December 31, 1997,  the Company had total assets of  $5,424,499,  an increase of
$801,175. At December 31, 1996, the Company had total liabilities of $4,599,029,
and at  December  31, 1997 the Company had total  liabilities  of  $455,267.  At
December 31, 1997 the Company had an total stockholders  equity of $4,969,232 in
comparison to a total stockholders'  equity of $24,295 at the comparable date in
1996.

     The  Company had  working  capital as of  December  31, 1997 of $465,332 in
comparison  to negative  working  capital of $4,590,059 as of December 31, 1996.
The  Company  had an  accumulated  deficit of $725 as of  December  31,  1996 in
comparison  to an  accumulated  deficit of $616,055 at December 31, 1997 period.
The  increase in the  accumulated  deficit is  primarily  related to  continuing
operating costs without any operating income.  For the 1997 Period the Company's
cash  requirements  were  satisfied  from the cash reserves in its operating and
investment  accounts and from  unsecured  loans made by the  Company's  majority
shareholder, VNA, which totalled $312,624 at December 31, 1997.

     On November 5, 1997, the Company  successfully  completed an initial public
offering of its common stock. In the public  offering,  562,500 shares of common
stock were issued to VNA at a conversion price of $8.00 per share in payment and
satisfaction  of a $4.5 million  promissory  note which the Company had executed
and  delivered  to VNA in  August,  1996  pursuant  to the  purchase  of digital
technology from VNA under a Technology  Purchase Agreement dated August 1, 1996,
and 188,250 shares of common stock were sold to new shareholders at the price of
$8.00 per share.  After the underwriters  selling  commission and discount,  the
Company had net proceeds of  approximately  $973,867.  In addition,  the Company
incurred  approximately  $532,133 in  transaction  costs in connection  with the
offering,  including  filing fees,  attorney fees,  accountants  fees,  printing
costs, transfer agent's fees, travel expenses and other costs and expenses.

                         LIQUIDITY AND CAPITAL RESOURCES

     The Company does not  currently  possess a bank source of financing and has
not had any revenues. The Company cannot be certain that its existing sources of
cash will be adequate to meet its



                                       13
<PAGE>


liquidity  requirements.  Therefore,  the Company is  considering  the following
options to meet its liquidity requirements:

          (a)  attempting to raise  additional  funds through the sale of equity
     securities to persons or entities who are not presently stockholders of the
     Company;

          (b) attempting to obtain a bank line of credit; and

          (c) should insufficient funds be available from the foregoing sources,
     reducing the Company's present rate of expenditures  which might materially
     adversely affect the ability of the Company to produce competitive products
     and services and to market them effectively.

     The Company believes that its existing cash and cash  equivalents  together
with the  approximately  $1 million of net proceeds after offering  expenses and
costs resulting from the closing of its initial public  offering,  excluding any
potential  cash flow from  operating  revenue,  will be  sufficient  to meet its
operating expenses and capital  expenditures  requirements for at least the next
12 months. The Company's future capital  requirements,  however,  will depend on
numerous factors,  including (i) the effectiveness of product  commercialization
activities and marketing activities,  including the creation and progress of its
sales and marketing operations,  (ii) the effect of competing  technological and
market  developments,  from  competitors  that have greater  resources  than the
Company. However, if operating expenses are higher than expected or if cash flow
from  operations is lower than  anticipated,  there can be no assurance that the
Company will have sufficient capital resources to be able to continue as a going
concern after such twelve month  period.  Therefore,  the  Company's  ability to
continue  in  business  as a going  concern  depends  upon its  ability  to sell
products,  to generate fees from the sale of its services, to conserve liquidity
by getting marketing and other priorities and reducing  expenditures,  to obtain
bank  financing  and  to  obtain   additional  funds  through  offering  of  its
securities.  The  Company's  ability to obtain funds  through an offering of its
debt  securities  is limited by its lack of revenue.  In any event,  there is no
assurance that any expenditure reductions, financings or other measures that the
Company  may be able to  effect  will  enable  it to meet  its  working  capital
requirements.

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

     Statements  included  in this  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of  Operations"  Section,  in other sections of
this Annual Report on Form 10-KSB including, without limitation the "Description
of Business"  Section in Part I, and in prior and future  filings by the Company
with the Securities and Exchange Commission, in the Company's press releases and
in oral statements  made with the approval of an authorized  executive which are
not historical or current facts are  "forward-looking  statements" made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 and are subject to certain risks and uncertainties  that could cause actual
results to differ materially from those presently anticipated or projected.  The
Company  wishes to  caution  readers  not to place  undue  reliance  on any such
forward-looking statements, which speak only as of the



                                       14
<PAGE>


date made. The following  important  factors,  among others,  in some cases have
affected and in the future could affect the Company's  actual  results and could
cause  the  Company's  actual  financial  and  operating  performance  to differ
materially  from  that  expressed  in  any  expressed  in  any   forward-looking
statement:

New Venture -- No Operating History

     Voicenet,  Inc. is a development  stage company,  incorporated  on April 2,
1996 in the State of Delaware.  Its proposed  operations  are subject to all the
problems,  expenses,  delays and other risks inherent in the  establishment of a
new business  enterprise without an operating  history,  as well as the problems
inherent in developing and marketing a new product/service and in establishing a
name and business reputation.  The likelihood of the success of the Company must
also be  considered  in  connection  with the rapidly and  continually  changing
technology  and the  competitive  environment in which the Company will operate.
There can be no  assurance  that the  Company's  operations  will  result in its
becoming or remaining  economically viable. The Company may experience problems,
delays,  expenses and  difficulties  typically  encountered  by any company in a
developmental  stage, many of which may be beyond the Company's  control.  These
include, but are not limited to, unanticipated regulatory compliance,  marketing
problems and intense competition that may exceed current estimates.  The Company
has had no  revenues  to date  and,  as a result of the  start-up  nature of the
Company's  business and the fact that it has not yet commenced  operations,  the
Company will likely sustain  operating losses for an indeterminate  time period.
Unless the Company is able to generate revenues or obtain financing through some
means in the near future, the operations of the Company in its development phase
may raise doubt about the ability of the Company to continue as a going  concern
after such twelve month period. There can be no assurance that the operations of
the Company will ever be competitive or profitable.

Possible Need for Additional Financing

     The  Company  anticipates  that  its  existing  capital  resources  will be
padequate  to satisfy  its  current  capital  requirement  for at least the next
twelve months.  Thereafter,  the Company may in the future determine,  depending
upon the  opportunities  available  to it,  to seek  additional  debt or  equity
financing  to fund the cost of  continuing  expansion.  To the  extent  that the
Company  obtains  equity  financing  or  finances  an  acquisition  with  equity
securities,  any such issuance of equity  securities could result in dilution to
the interests of the Company's  stockholders.  Additionally,  to the extent that
the  Company  incurs  additional  indebtedness  or  issues  debt  securities  in
connection with an acquisition,  the Company will be subject to risks associated
with incurring  substantial  additional  indebtedness  including the possibility
that cash flow may be  insufficient  to pay  principal  and interest on any such
indebtedness.  There  can be no  assurance  that  additional  financing  will be
available to the Company on acceptable terms, or at all.

Early Stage of Market Development

     The speech technology market is at a relatively early stage of development.
To date, the speech  technology  products that will be manufactured and marketed
by the Company have only been incorporated in commercially available products on
a limited basis.  Acceptance of these technologies on a commercial basis will be
dependent upon the development of the speech technology markets, the performance
and price of the  Company's  products and customer  reaction to these  products.
There can be no assurance that the speech technology market will develop further
or  that  the  Company's   products  will  achieve  any  or  significant  market
acceptance. See "Description of Business--Industry Comparison of Technology."



                                       15
<PAGE>


Dependence on Acceptance by Court Administrators

     Sales of the  Company's  Court  Reporting  System  products on a commercial
basis will be substantially  dependent on acceptance by the court community.  It
is anticipated  that court  reporters which are generally  unionized  government
employees will resist the  introduction and  implementation  of electronic court
reporting  systems such as  COURTSCRIPT(TM).  There can be no assurance that the
Company's proposed Court Reporting System products will be accepted in the court
community,  and the  Company is unable to  estimate  the length of time it would
take to gain such acceptance. See "Description of Business."

Uncertainty of Market Acceptance -- Lack of Marketing Arrangements

     The Company has only recently commenced  significant  marketing activities,
primarily  through  instituting  trade  agreements,   and  the  distribution  of
promotional  materials.  Achieving market acceptance for the Company's  products
will require  substantial  marketing  efforts and the expenditure of significant
funds.  There  is no  assurance  that  the  Company  will be able  to  create  a
successful  marketing  program,  or that the Company's products can be sold in a
manner  that will  permit the Company to achieve  long range  profitability,  if
ever. See "Description of Business."

Limitations of Scope for the Company's Product Line

     The Company  intends to engage in the marketing and  distribution of speech
recognition  systems and of Court  Reporting  Systems and Medical  Systems.  The
Company's success will be totally dependent on its ability to market its product
line. The Company's  current plans do not include any other potential sources of
revenue. See "Description of Business."

Possible Product Obsolescence

     The Company expects technological  developments to continue at a rapid pace
in the computer  and  communications  industries,  and there can be no assurance
that  technological  developments will not cause the Company's  Technology to be
rendered obsolete.  The Company's future success, if any, will be dependent upon
its  ability to remain  competitive  with others  involved  in the  development,
manufacture  and  marketing  of similar  products and  technologies  through its
continued  capability  to design high quality  products in a cost  efficient and
timely  manner,  of  which  there  can  be no  assurance.  See  "Description  of
Business."

No  Assurance  as  to  Protection  of  Intellectual   Property;   Dependence  on
Intellectual Property

     Patents  have been  applied for by VNA in  relation to the court  reporting
system and its components.  No patents have, as yet, been issued.  However,  the
Company's  ability to compete  effectively with other companies will depend,  in
part, on its ability to maintain the proprietary nature of its technologies. The
Company also intends to rely on unpatented proprietary information and know-how,
and there can be no assurance that others will not develop such  information and
know-how  independently or otherwise obtain access to the Company's  technology.
Also, no assurance  can be given that the  Company's  products will not infringe
upon the  patents  of  others,  licenses  to which may not be  available  to the
Company.  The computer software source codes which are essential elements of the
Company's



                                       16
<PAGE>


products,  are  proprietary  trade  secrets  of the  Company.  The  Company  has
attempted to protect the proprietary  nature of this technology by reliance upon
copyright  laws,  patents  applied for, and  contractual  arrangements  with its
employees and customers,  although it is questionable  whether computer software
and  technology can be adequately  protected by such means.  In the event of any
misappropriation,  the Company may be without an effective  legal remedy.  There
can be no  assurance  that the  Company's  competitors  will  not  independently
develop comparable or superior  technologies.  In the future,  third parties may
assert that the Company's or its licensor's  products infringe their proprietary
rights.  Should  litigation  with  respect  to any such  claims  commence,  such
litigation could be extremely  expensive and time consuming and could materially
and  adversely  affect the  Company's  results of  operations  regardless of the
outcome of the  litigation.  There can be no assurance that VNA will defend,  or
will be in a financial  position to defend against third party  infringements on
their  proprietary   rights.   See  "Description  of  Business  --  Intellectual
Property."

Dependence Upon Key Personnel and Possible Conflict of Interest

     The  success  of the  Company  is  substantially  dependent  upon  existing
management,  all of whom  devote  only a portion of their  time to the  Company.
These  individuals  may have  conflicts  between their  responsibilities  to the
Company and to other entities with which they are  affiliated.  The directors or
affiliates of the Company may in the future seek to exploit  opportunities which
the Company is not able to undertake because of limited capital. Frank Carr, the
President,  Chief Executive Officer and Chief Financial Officer will devote only
a portion of his time to the Company as set forth in his  Employment  Agreement.
Mr. Carr is also the Managing Director and Chief Executive Officer of VNA, which
is the  transferor of the  Technology,  and the payee of  $4,500,000  Promissory
Note. Mr. Carr's  employment  agreement with the Company having an annual salary
of $180,000, was to have commenced upon the closing of the offering. The loss of
the services of Mr. Carr,  as well as other key  personnel,  or any inability to
attract and retain  qualified  personnel,  may  adversely  affect the  Company's
business.  The Company has not applied for key man life insurance on the life of
Frank Carr and does not intend  to. See  "Management."  Because of the nature of
its  business,  the Company  will be  dependent  upon its ability to attract and
retain   qualified   personnel,   including   competition  from  companies  with
substantially greater resources than the Company. There is no assurance that the
Company will successfully recruit or retain personnel of the requisite technical
caliber or in adequate numbers to enable it to conduct its business as proposed.
Mr. Carr may also have  conflicts  of interest if a dispute  were to arise under
the Technology  Transfer  Agreement.  See  "Management -- Potential  Conflict of
Interest."

Initial Reliance on Sole Manufacturer and Supplier

     The  Company  does  not own or  operate  any  manufacturing  or  production
facilities.  VNA, an Australian company which owns 80% of the Company, causes or
provides  for the  manufacturing  of three of the  components  required  for the
operation  of the Voice  Systems,  including  the Court  Reporting  Systems  and
Medical Systems.  Should VNA terminate its relationship with the Company,  there
can be no assurance  that the Company  could obtain a  satisfactory  arrangement
with another  manufacturer on the same terms,  i.e., price and credit terms. See
"Description of Business -- Technology Transfer Agreement."

No Feasibility and Marketing Studies

     The  Company's  planned  commencement  of  operations  is being  undertaken
primarily on the basis



                                       17
<PAGE>


of management's evaluation of market potential regarding its proposed operations
in North, Central and South America.

Product Development and Integration

     The development of the Company's technology for its customers has required,
and will  continue  to  require,  significant  technical  innovations.  Once the
Company  has  products   such  as  the  Court   Reporting   Systems  or  Medical
Recordkeeping  Systems, the Company must adapt that product to meet the specific
requirements  of  the  customer  hardware  or  software  in  which  it  is to be
integrated.  There can be no assurance  that the Company will be  successful  in
developing new products or enhancing the  performance  of its existing  products
for customer use on a timely basis or within budget, if at all. Any such failure
could materially and adversely affect the Company's  technology and its business
and prospects.

Management of Changing Business

     Due to the level of technical and marketing  expertise necessary to support
its  anticipated  new  customers,  the Company  must  attract and retain  highly
qualified and well-trained personnel. There are a limited number of persons with
the requisite skills to serve in these positions, and it may become increasingly
difficult for the Company to hire such personnel. There can be no assurance that
the Company will be able to have such personnel,  and if so, on favorable terms.
The Company's expansion may also significantly strain the Company's  management,
financial  and other  resources.  The  Company  believes  that  improvements  in
management and  operational  controls and  operations,  financial and management
information  systems are needed to manage future  growth,  should it occur.  The
failure to implement such improvements could have a material adverse effect upon
the Company. See "Management.

Products Reliability

     Most  applications  incorporating  the  Company's  technologies  are  being
developed or have only  recently been  introduced to the market.  As a result of
the limited  period of use and the  controlled  environment in which most of the
Company's  technologies  have  been  tested  and used to date,  there  can be no
assurance  that  they  will  meet  their  performance  specifications  under all
conditions or for all applications. If any of the Company's technologies fail to
meet such  expectations,  the Company may be required to enhance or improve that
technology,  and there can be no assurance  that the Company would be able to do
so on a timely basis, if at all. Any significant reliability problems could have
material adverse effect on the Company's business and prospects.

Rapid Technological Change

     The market for speech technology  products has been  characterized by rapid
technological  change,  frequent  product  introductions  and evolving  industry
requirements.  The Company  believes  that these trends will  continue  into the
foreseeable future. The Company's success will depend,  among the other matters,
upon its ability to enhance its existing products being acquired pursuant to the
Technology Transfer Agreement and to successfully develop new products that meet
increasing  customer  requirements and gain market  acceptance.  Achieving these
goals will require  continued  substantial  investment by the Company in product
development and marketing.  There can be no assurance that the Company will have



                                       18
<PAGE>


sufficient  resources  to make  these  investments,  that  the  Company  will be
successful in developing product enhancements or new products on a timely basis,
if at all,  or that  the  Company  will be  able to  successfully  market  these
enhancements and new products once developed. Further, there can be no assurance
that the  Company's  products  will not be  rendered  obsolete  by new  industry
standards  or  changing  technology.   See  "Description  of  Business--Industry
Comparison of Technology."

Products Liability and Other Claims

     The  Company  may be subject to  substantial  products  liability  costs if
claims arise out of problems associated with the Company's products. The Company
will seek to maintain products liability coverage for the benefit of the Company
to protect the Company against such  liabilities,  but there can be no assurance
that such  arrangements  can be made, or if made,  will be effective to insulate
the assets of the company from such claims. The Company will attempt to maintain
insurance against such  contingencies,  in scope and amount which it believes to
be  adequate;  prior to selling  its first  products.  However,  there can be no
assurance  that  such  product  liability  insurance  will be  available,  or if
available, that it will adequately insure against such claim.

Competition

     Competition in the continuous speech, voice recognition systems and digital
audio  technology  market is intense.  The Company faces  competition  from many
companies in the United States and abroad, including a number of large companies
and firms specialized in the development and production of systems.  Most of the
Company's  competitors have substantially  greater resources,  greater operating
experience,  greater  research and  development and marketing  capabilities  and
greater  production  capabilities  than  those of the  Company.  There can be no
assurance  that the Company's  competitors  will not develop  voice  recognition
technologies  and products that are more  effective or less  expensive  than the
Company's or which would render the Company's  technology and products  obsolete
and noncompetitive.

     Although the Company is of the opinion that the speech recognition  systems
and VNA's latest revision of the Court Reporting Systems and Medical Systems are
at the forefront of their  respective  fields at the present  time,  there is no
assurance that other  companies with greater  resources than the Company may not
enter the field.  The speech  technology  markets are extremely  competitive and
rapidly  changing.  A number of companies have already developed or are expected
to develop  speech  technology  products  that will compete  with the  Company's
products in North America. In particular,  International Business Machines Corp.
("IBM")  ha  recently   introduced  a  speech  recognition  system  for  medical
applications  which has continuous  voice  recognition  abilities and a reported
20,000 word vocabulary.  Another such company,  Karri  Technologies  Corp., is a
licensee of VNA of the earlier version of certain  components of  COURTSMART(TM)
in  North  America,  which  also  has the  non-exclusive  right  to use the name
COURTSMART(TM) in connection with those components in North America.  Many other
competitors and potential  competitors,  including AT&T,  Apple Computer,  Inc.,
IBM,  Microsoft  Corporation,  NEC  Corp.,  Dictaphone,   Philips,  N.V.,  Texas
Instruments  Incorporated  and  Lernout and  Hauspie,  Inc.  have  substantially
greater resources than the Company. The Company also competes with other smaller
companies which have developed  advanced speech  technology  products.  Further,
although the Company will have the exclusive right to the Technology from VNA in
the Company's  Territory,  the Company does not have the exclusive  right to the
Philips Engine in such Territory.  Consequently,  it is possible that Philips or
another Philips licensee could develop a combined product similar to VNA's Voice
System  Technology  and  market  such  voice  recognition  product  in the areas
encompassed by the Company's



                                       19
<PAGE>


Territory  from  VNA.  In  addition,  current  and  potential  competitors  have
established or may establish cooperative  relationships among themselves or with
other parties to increase the abilities of their speech  technology  products to
address the needs of the Company's  prospective  customers.  Accordingly,  it is
possible that new  competitors  or alliances  among  competitors  may emerge and
rapidly acquire significant market share. There is no assurance that the Company
will be able to compete successfully.

General Economic Conditions

     The operations of the Company are subject to general  economic  conditions,
particularly  relating to government agency spending and payment practices.  The
risks would include  governmental  appropriations  and budgeting,  any potential
restrictions imposed by governmental authorities,  changes in federal, state, or
local  tax laws  applicable  to the  Company,  availability  of  skilled  labor,
availability of capital for future needs, purchasing habits and trends, etc. The
Company  may not  have  sufficient  capitalization  to  survive  lack of  market
acceptance and economic exigencies in general.

Issuance of Additional Shares

     The Company is currently  authorized  to issue up to a total of  10,000,000
shares of Common  Stock and  1,000,000  shares  of  preferred  stock.  There are
currently 3,261,550 shares of Common Stock outstanding.

     The Company's  Board of Directors is authorized to issue preferred stock in
one  or  more  series  and  to fix  the  voting  powers  and  the  designations,
preferences   and  relative,   participating,   optional  or  other  rights  and
restrictions  thereof.  Accordingly,  the Company may further  issue a series of
preferred  stock in the future that will have  preference  over the Common Stock
with  respect to the  payment  of  dividends  and  proceeds  from the  Company's
liquidation,  dissolution  or winding up or having voting or  conversion  rights
which could  adversely  affect the voting power and percentage  ownership of the
holders  of  the  Common  Stock.   The  Company  has  no  plans,   arrangements,
understandings or commitments to issue any preferred stock. However, the ability
of the Company to issue such additional  shares and the possible exercise of the
Representative's  Warrants may prove to be a hindrance to future  financings  by
the Company  since the holders of such Warrants may be expected to exercise them
at a time when the Company would otherwise be able to obtain  additional  equity
capital on terms more favorable to the Company.  Also,  rights granted to future
holders of preferred  stock could be used to restrict the  Company's  ability to
merge with,  or sell its assets to, a third party,  and the ability of the Board
of  Directors  to issue  preferred  stock could  discourage,  delay or prevent a
takeover  of the  Company,  thereby  preserving  control  of the  Company by the
current shareholders. See "Description of Securities--Preferred Stock."

Shares Eligible for Future Sale

     All of the 2,500,000  shares of Common Stock  outstanding as of the date of
the Prospectus  filed with the Securities and Exchange  Commission on October 7,
1997  are  "restricted  securities,"  as that  term is  defined  under  Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
All of such shares  became  eligible for resale under Rule 144 in April 1997. In
general,   under  Rule  144,  subject  to  the  satisfaction  of  certain  other
conditions,  a person (or persons whose shares are aggregated under the terms of
Rule 144),  including  an affiliate  of the  Company,  who has owned  restricted
shares of Common Stock  beneficially for at least one year, is entitled to sell,
within  any  three-month  period,  a number of shares  that does not  exceed the
greater of 1% of the total number of outstanding



                                       20
<PAGE>


shares of the same class,  or the average  weekly  trading  volume of the Common
Stock during the four  calendar  weeks  preceding  the sale,  as reported by all
national  securities  exchanges on which the Common  Stock is traded  and/or the
automated  quotation  system  of a  registered  securities  association,  or  an
approved consolidated transaction reporting system. A person who has not been an
affiliate of the Company for at least the three months immediately preceding the
sale and who has  beneficially  owned  shares of  Common  Stock for at least two
years is  entitled  to sell such  shares  under Rule 144  without  regard to the
volume limitations  described above. No prediction can be made as to the effect,
if any, that sales of shares of Common Stock or the  availability  of shares for
sale  will  have  on the  market  prices  prevailing  from  time  to  time.  The
possibility that  substantial  amounts of Common Stock may be sold in the public
market in the future  may  adversely  affect  prevailing  market  prices for the
Common Stock and could impair the Company's ability to raise capital through the
sale of its equity securities. See "Shares Eligible for Future Sale."

Anti-takeover Provisions

     Certain  provisions of Delaware law, the Certificate of  Incorporation  and
the  Company's  By-laws,  as amended (the  "By-laws"),  could have the effect of
making it more  difficult  for a third party to acquire,  or of  discouraging  a
third party from attempting to acquire, control of the Company. These provisions
and the prohibition against certain business  combinations could have the effect
of  delaying,  deferring  or  preventing  a change in control or the  removal of
existing management of the Company. See "Description of Securities."

Service of Process in Australia

     Certain of the Company's officers and directors are residents of Australia,
and VNA Group Limited, the transferor of the Technology, is incorporated and has
its principal  place of business under the laws of Australia.  Consequently,  it
might be difficult  for  investors  or the Company to effect  service of process
within the United States upon such persons, or to enforce against them judgments
obtained in United States courts predicated upon the civil liability  provisions
of the  Securities  Act,  or any  other  U.S.  or  individual  state's  laws  or
regulations.  There is also  substantially  doubt  whether  an  action  could be
brought in Australia in the first instance on the basis of liability  predicated
upon such law.

Risks of Low Priced Securities

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



                                       21
<PAGE>

Company's most recent financial  statement for the year ended December 31, 1997,
the Company is excluded from the  definition of a "penny stock" based on its net
tangible  assets being over $2 million at that date.  If the Common Stock become
subject to the penny stock rules,  owners of the Company's common stock may find
it more difficult to sell their shares.

Absence of Dividends

     The Company has never  declared or paid cash  dividends on its Common Stock
and does not anticipate  paying cash dividends in the  foreseeable  future.  The
Company  currently  intends  to  retain  future  earnings,  if any,  to fund the
development and growth of its business.

Item 7. Financial Statements

     The Company's financial statements for the fiscal years ending December 31,
1997, and 1996 are included herein and consist of:

     Balance Sheet (1997 and 1996)                                     F-2
     Statement of Operations and Deficit                               F-4
     Consolidated Statement of Stockholders' Equity (Deficit)          F-5
     Statement of Cash Flows                                           F-6
     Notes to Consolidated Financial Statements                        F-8
                                                              

Item  8.  Changes  In And  Disagreements  With  Accountants  On  Accounting  And
          financial Disclosure

     There  have  been  no  changes  in  or  reported   disagreements  with  the
accountants  on any matter of  accounting  principles,  practices  or  financial
statement disclosure.

                                    PART III

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

     The  following  table  sets  forth  information  concerning  the  executive
officers, directors and key employees of the Company:

     (a) The  directors  of the Company as of December 31, 1997 are set forth in
the following table:

                                   Year First Elected As
       Name                Age     Director                Directorship Held
       ----                ---     --------                -----------------
     James Sim             76      1997                    Chairman of the Board
     Frank Carr            49      1997                    Director
     William J. Potter     48      1997                    Director



                                       22
<PAGE>


     Each  Director  is elected for a period of one year and  thereafter  serves
until his successor is duly elected by the stockholders.

     As at March 18, 1998, the resignation,  because of deteriorating health, of
the  Chairman,  Mr. James Sim, was accepted by the Board.  At that date Mr. Carr
was appointed Chairman of the Board.

     On March 18,  1998,  Mr.  Christopher  John  Brown,  CPA,  was  appointed a
Director of the Company.

     On March 18, 1998, Mr. Howard Messer,  CPA, was appointed  Chief  Financial
Officer of the Company.

     (b) The  current  executive  officers  of the  Company are set forth in the
following table:

                                  Year First
Name                       Age    Elected into Office    Office Held
----                       ---    -------------------    -----------
Frank Carr                 49     1997                   Chairman, President, 
                                                         Chief Executive Officer

Howard Messer              45     1998                   Chief Financial Officer

Jason Beever               27     1997                   Vice President, 
                                                         Speech Technologies

William J. Potter          48     1997                   Secretary & Director

Christopher J. Brown       40     1998                   Director
                                                   

     Except  for its  agreement  with Mr.  Carr,  there are no other  employment
contracts with the executive  officers.  Officers serve at the will of the Board
of Directors.

     (c) The  following  persons are  considered a  significant  employee of the
Company:


     Frank Carr,  Chairman,  President and Chief Executive Officer. Mr. Carr has
been a director,  President and Chief Executive Officer of the Company since its
inception  in 1996.  He has been the Chief  Executive  Officer  of VNA, a public
company listed on the Australia Stock Exchange Limited, for 5 years. He has been
involved  in  company  management  and  direction  for 25 years  and in 1986 was
jointly awarded the Australian  Business  Entrepreneur of the Year Award for his
work in establishing  and developing a waste disposal  business and, in the same
year, his company was awarded the marketing  award by the  Australian  Marketing
Institute.  Mr. Carr was elected to  Fellowship of the Institute of Directors in
the U.K. in 1981 and to Fellowship of the Australian  Institute of Management in
1986.

     James Sim,  Chairman of the Board. Mr. Sim has been the Company's  Chairman
of the Board  since 1996.  Mr. Sim has spent his career in banking,  retiring as
Director and General Manager (Area North) and a member of the court of Directors
of the Bank of  Ireland.  Since his  retirement,  he has been  appointed  by the
British  Government as its  representative  to the board of directors of several
companies,  including that of Short Bros. Aircraft. He was the Founding Chairman
of the Northern Island Co-



                                       23
<PAGE>


Ownership Housing Association ("NICHA"). NICHA is an initiative of Her Majesty's
Government,  funded  by the  British  Department  of the  Environment,  by which
families  are  assisted  to  purchase  their own homes in a part  buy/part  rent
scheme.  In the 15 years of its  operation it has provided  funding in excess of
US$1 billion.  He was also  Vice-Chairman  of the Progressive  Building  Society
(assets in excess of US$500m). He is a Member of the Institute of Bankers in the
United Kingdom and a Fellow of the Institute of Directors.

     Jason Beever, Vice President, Speech Technologies. Mr. Beever has been Vice
President,  Speech  Technologies  of the Company  since 1996.  Mr. Beever is VNA
Group's General Manager for its speech  recognition  products and  technologies.
Formerly a computer programmer,  he has for three years been responsible for the
successful development, marketing and sale of such products; systems integration
of voice recognition products; and the design, development and implementation of
interactive   voice  response  systems.   He  has  most  recently   completed  a
certification  program on the large vocabulary continuous speech technology with
Philips Dictation Systems at Vienna,  Austria.  Mr. Beever graduated from Curtin
University of Technology in Western  Australia with a Bachelor of Science degree
in computer science and marketing.

     William J. Potter,  Secretary and Director.  Mr. Potter has been  Secretary
and a Director  of the  Company  since  1996.  Mr.  Potter is  president  of the
Ridgewood  Group  International,  Inc., a New York based  investment  bank,  and
Ridgewood  Capital  Funding,  Inc., a NASD  securities  broker-dealer.  Prior to
establishing  and owning the  Ridgewood  Capital  Funding,  Inc.  and  Ridgewood
Partners,  Ltd. in 1989,  Mr.  Potter was Managing  Director  for  International
Investment  Banking  at   Prudential-Bache   Securities  Inc.  and  Director  of
Prudential-Bache  Securities  Canada Ltd. He was  previously a senior  executive
with  Barclays  Bank PLC,  and Toronto  Dominion  Bank.  Mr.  Potter  received a
Bachelor  of Arts  degree  from  Colgate  University  and a Master  of  Business
Administration from the Harvard Business School.

     Christopher J. Brown,  Director.  Mr. Brown was appointed Company Secretary
of Voicenet  (Aust)  Ltd. in August of 1995 and to the Board of Voicenet  (Aust)
Ltd. in July of 1997. In his role as Company  Secretary he is actively  involved
on a daily basis in the operations and direction of the Company.  Mr. Brown is a
principal  of a  leading  Australian  accounting  firm,  William  Buck.  He  has
extensive  experience in the field of strategic planning,  corporate  marketing,
international  tax planning  and  technology  transfer.  He received his Masters
degree in Business  Administration from Curtin University of Technology in Perth
and is, among his other pursuits,  currently completing doctorate studies in the
field of intellectual  property and international  technology transfer.  He is a
member  of  the  Australian  Society  of  CPA's,  the  Australian  Institute  of
Management Consultants and the World Institute of Management Consultants.

     Howard Messer, Chief Financial Officer. Howard Messer is a CPA in the State
of New Jersey.  Since March of 1994,  Mr.  Messer  served as Vice  President  of
Finance of Compuflex  Systems,  Inc. and was instrumental in its acquisition and
pooling of interests between it and Intec Overseas Software Limited. During that
period Compuflex  combined revenues grew at an annual rate of 50% per annum, Mr.
Messer  assisted  the company in its  acquisition  of debt  financing  and, as a
result of his  business  plan,  in July 1997,  Compuflex  was  acquired in a $12
million stock purchase agreement. He is a graduate of the University of Virginia
with a B.S.  Commerce  degree  and began his  professional  career  with  Arthur
Andersen & Co. Mr. Messer left Arthur Andersen as an audit manager.



                                       24
<PAGE>


Remuneration

     Directors  shall receive a fee of $10,000 per year per director for serving
in such capacity.  Additionally,  each director has received  options to acquire
50,000 shares of Common Stock for a price of $1.00 per share, exercisable over a
period of five years,  which  options shall vest after 12 months of service as a
director ("Directors' Options").

     The Company  has  retained  Frank Carr as its  President,  Chief  Executive
Officer  under  remuneration  contract at a fee of $180,000 per year for a three
year term which commenced in October 1997.

     The Company had retained Ridgewood Group International,  Ltd., of which Mr.
William J. Potter, a Director and Secretary of the Company, is President and the
major  shareholder,  as management advisor to the Company at a fee of $8,000 per
month for a three  year term  which  commenced  November,  1997.  However,  that
contract was  terminated by mutual  consent with effect from March 1, 1998.  Mr.
Potter,  while he remains  Company  Secretary,  will receive a  remuneration  of
$2,000 per month.

     Except as set forth above, no director or executive  officer of the Company
is  currently  a  director  with any other  Company  with a class of  securities
registered  pursuant  to  Section  12 of  the  Exchange  Act or  subject  to the
requirements of Section 15(d) of such act or any investment  company  registered
under the Investment Company Act of 1940.

Election of Directors and Officers; Committees

     The  Company's  bylaws  provide for a Board of Directors  consisting of not
less than  three nor more than nine  members  who are  elected  annually  by the
shareholders.  The officers of the Company are elected by the Board of Directors
from time to time.

     The Company  currently has no committees of its Board of Directors,  but it
is  anticipated  that  standing  audit  and  compensation   committees  will  be
established   following  the  offering.  It  is  expected  that  the  audit  and
compensation  committees  will consist of three members of the Board, a majority
of whom are not otherwise affiliated with the Company as officers or employers.

Employment Arrangements

     The Company  has  retained  Frank Carr as its  President,  Chief  Executive
Officer under a remuneration  contract at a fee of $180,000 per year for a three
year term which commenced in October 1997.

     (d) Family Relationships

     No family relationships exist among the executive officers of the company.

Item 9. Executive Compensation

                           SUMMARY COMPENSATION TABLE

     No executive officer received compensation,  annual salary, and bonus which
exceeded



                                       25
<PAGE>


$100,000 in any of the fiscal years ended December 31, 1996 and 1997.

Item 11. Security Ownership of Certain Beneficial Owners and Management

     The following  table  identifies each person known to the Company to be the
beneficial owner of more than five percent of the Company's  Common Stock,  each
director  of the  Company  and all  directors  and  officers of the Company as a
group,  and sets  forth  the  number of shares  of the  Company's  Common  Stock
beneficially  owned by each such person and such group and the percentage of the
shares of the Company's  outstanding  Common Stock owned by each such person and
such group.  In all cases,  the named person  individually  or together with his
spouse has sole voting power and sole investment power over the securities.

     (a) As of the December 31, 1997, five persons owned of record or were known
by the Company to own  beneficially  more than five  percent  (5%) of the Common
Stock outstanding.

     (b) The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership  (determined  in accordance  with  Securities and Exchange
Commission  Rule 13d-3  Securities  Exchange Act of 1934) of common stock of the
Company as of December 31, 1997, by: (i) each person who is known by the Company
to own beneficially more than 5% of the outstanding shares of common stock; (ii)
each of the  Company's  directors;  and (iii) all officers and  directors of the
Company's as a group:

Name and Address of                Amount and Nature of
Beneficial Owner                   Beneficial Ownership (2)     Percent of Class
-------------------                ------------------------     ----------------

Voicenet (Aust) Ltd.(1)
72 Kings Park Road
West Perth, Australia 6005              2,597,500                    79.6%
                                      
Frank Carr(1)                         
72 Kings Park Road                    
West Perth, Australia 6005                  0                           0%
                                      
James Sim                             
20 Trench Road                        
Comber, Northern Ireland                    0                           0%
                                      
William J. Potter(3)                  
380 Lexington Avenue                  
New York, NY  10138                       100,000                    2.67%
                                      
Quarten Holdings, Ltd.                    290,000                     8.9%
George Street                         
Caymen Islands                        
                                      
F.D. Costa(4)                             290,000                     8.9%
                                      
All Officers and Directors            
as a group (2 persons)                    437,675                    13.4%

----------



                                       26
<PAGE>


(1)  Reflects shares  indirectly  owned by Mr. Frank Carr who owns a majority of
     the shares in a private  corporation which owns approximately 11% of VNA, a
     publicly owned Australian  corporation.  Mr. Carr is also Managing Director
     and Chief  Executive  Officer of VNA.  Mr. Carr does not  directly  own any
     shares of the Company.  By reason of his interest in and ability to control
     VNA, he will be able to elect all of the directors  and  otherwise  control
     the Company.

(2)  Includes the issuance of 562,500 shares to VNA upon  conversion of the $4.5
     million Promissory Note.

(3)  Mr. Potter,  a Director of the Company,  beneficially  owns these shares as
     the President and majority  shareholder of Ridgewood  Group  International,
     Inc. which directly owns 100,000 shares of the Company's common stock.

(4)  Includes 290,000 shares owned by Quartern  Holdings,  Ltd., Mr. Costa is an
     officer, director and principal shareholder of Quartern Holdings, Ltd., and
     through such  position is an indirect  Beneficial  owner of the  designated
     shares of the Company.

(5)  Unless  otherwise noted, the Company believes that each person named in the
     table has sole voting and  investment  power with  respect to all shares of
     common stock beneficially owned by him or it.

Item 13. Certain Relationships and Related Transactions

     (a) All of the  shareholders  existing at the date of  registration  of the
Prospectus  of the Company  acquired  the  outstanding  2,500,000  shares of the
Company's common stock for $.01 per Share.

     In connection  with the acquisition of the Technology from VNA, the Company
agreed to pay VNA $4,500,000.  This obligation is evidenced by a Promissory Note
in the  amount  of  $4,500,000,  which  bears no  interest,  secured  by a first
security  interest  collateral  pledge of the Technology to VNA. By amendment to
the  Promissory  Note dated  September 25, 1997, the Company and VNA agreed that
the  Promissory  Note may be  converted  into  Common  Stock of the Company at a
conversion  price of $8.00 per share.  Upon  conversion of the Promissory  Note,
562,500  additional  shares will be issued to VNA, the Selling  Stockholder,  in
satisfaction of the Company's $4.5 million  obligation.  VNA elected to exercise
its right of conversion and 562,500 shares of common stock were issued to VNA.

     The Company had entered into a one year oral agreement with Ridgewood Group
International,  Inc.  for its office  space and  various  associated  office and
administrative services, including telephones,  postage, fax, courier, beverage;
accounting personnel; and other miscellaneous overhead expenses, at 105% of cost
to Ridgewood,  payable monthly. Payments vary from month to month, but currently
are approximately $3,000. That agreement was terminated in December 1997.

     (b) Except as above  described,  there have been no business  relationships
with directors or nominees for director of the Company since January 1, 1997.

     (c) At December 31, 1997,  no officers or  directors  were  indebted to the
Company.

     (d) See 7(b) above.

     (e) Reports on Form 8-K

     The Company  filed no report on Form 8-K for the year ending  December  31,
1997.


                                       27
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                                    CONTENTS

                                                                            Page
                                                                            ----

REPORT OF INDEPENDENT CERTIFIED
  PUBLIC ACCOUNTANTS                                                         F-1

FINANCIAL STATEMENTS

  Balance Sheets                                                           F-2-3
  Statements of Operations                                                   F-4
  Statements of Stockholders' Equity                                         F-5
  Statements of Cash Flows                                                 F-6-7


NOTES TO FINANCIAL STATEMENTS                                             F-8-12


<PAGE>


To the Board of Directors of
Voicenet, Inc.

We have audited the accompanying balance sheets of Voicenet, Inc. (a development
stage company) as of December 31, 1997 and 1996,  and the related  statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
1997 and for the period  April 2, 1996  (inception)  through  December 31, 1996.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Voicenet,  Inc. as of December
31, 1997 and 1996,  and the results of its operations and its cash flows for the
year  ended  December  31,  1997 and for the  period  April 2, 1996  (inception)
through  December 31, 1996, in conformity  with  generally  accepted  accounting
principles.



New York, New York
March 13, 1998


                                       F-1

<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                                 BALANCE SHEETS

                           December 31, 1997 and 1996


                                     ASSETS


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

CURRENT ASSETS
 Cash and cash equivalents                         $  909,217         $    8,970
 Prepaid expenses                                      11,382                -0-
                                                   ----------         ----------

       Total Current Assets                           920,599              8,970
                                                   ----------         ----------
OTHER ASSETS
 Deferred offering costs                                  -0-            112,654
 Organization costs, net                                1,300              1,700
 Intangible asset                                   4,500,000          4,500,000
 Security deposit                                       2,600                -0-
                                                   ----------         ----------
       Total Other Assets                           4,503,900          4,614,354
                                                   ----------         ----------

       TOTAL ASSETS                                $5,424,499         $4,623,324
                                                   ==========         ==========


                                                                               
The accompanying notes are an integral part of these financial statements.


                                       F-2
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                                 BALANCE SHEETS

                           December 31, 1997 and 1996


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                         1997            1996
                                                      -----------    -----------
<S>                                                   <C>            <C>        
CURRENT LIABILITIES
Accounts payable                                      $   138,643    $    74,029
 Due to Voicenet (Aust) Ltd.                              312,624         25,000
 Due to related party                                       4,000            -0-
 Note payable, Voicenet (Aust) Ltd.                           -0-      4,500,000
                                                      -----------    -----------

   TOTAL LIABILITIES                                      455,267      4,599,029

STOCKHOLDERS' EQUITY
 Preferred stock, $.01 par value, 1,000,000 shares
  authorized, no shares issued and outstanding                -0-            -0-
 Common stock, $.01 par value, 10,000,000 shares
  authorized, 3,261,550 and 2,500,000 shares issued
  and outstanding in 1997 and 1996, respectively           32,616         25,000
 Additional paid-in-capital                             5,552,671             20
 Deficit accumulated during the development stage        (616,055)          (725)
                                                      -----------    -----------

   TOTAL STOCKHOLDERS' EQUITY                           4,969,232         24,295
                                                      -----------    -----------

    TOTAL LIABILITIES AND
      STOCKHOLDERS' EQUITY                            $ 5,424,499    $ 4,623,324
                                                      ===========    ===========
</TABLE>


                                                                               
The accompanying notes are an integral part of these financial statements.



                                       F-3
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS

                    For the Year Ended December 31, 1997 and
       For the Period April 2, 1996 (Inception) Through December 31, 1996

<TABLE>
<CAPTION>
                                                        For the Period  For the Period
                                                         April 2, 1996   April 2, 1996
                                                          (Inception)     (Inception)
                                                            through        through
                                                          December 31,   December 31,
                                               1997           1996           1997
                                            -----------   ------------- --------------
<S>                                         <C>            <C>           <C>         

INTEREST INCOME                             $    38,372    $      106    $    38,478
                                            -----------    ----------    -----------
EXPENSES
 Insurance                                        4,377           -0-          4,377
 Professional fees                              307,996           -0-        307,996
 Officer's salary                                31,196           -0-         31,196
 Travel and promotion                           264,921           -0-        264,921
 Office expense                                  21,246           -0-         21,246
 Fees and licenses                                1,511           -0-          1,511
 Rent                                             5,835           -0-          5,835
 Amortization                                       400           300            700
 State and City franchise taxes                  15,092           528         15,620
 Bank charges                                     1,128             3          1,131
                                            -----------    ----------    -----------

     TOTAL EXPENSES                             653,702           831        654,533
                                            -----------    ----------    -----------

     NET LOSS                               $  (615,330)   $     (725)   $  (616,055)
                                            ===========    ==========    ===========

    Net Loss Per Share, Basic and Diluted   $     (0.23)   $     0.00

Weighted average number of common shares
 outstanding during the periods               2,619,327     2,500,000
</TABLE>

                                                                               
The accompanying notes are an integral part of these financial statements.


                                       F-4
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                       STATEMENTS OF STOCKHOLDERS' EQUITY

                    For the Year Ended December 31, 1997 and
       For the Period April 2, 1996 (Inception) Through December 31, 1996

<TABLE>
<CAPTION>
                                                                                          Additional   Deficit Accumulated          
                                                                    Common Stock           Paid-in        during the                
                                                                Shares         Amount      Capital      Development Stage    Total
                                                                ------         ------      -------      -----------------    -----
<S>                                                           <C>          <C>            <C>            <C>            <C>        
Initial issuance of shares                                        1,000    $         1    $    25,019          $ -0-    $    25,020

Stock split                                                   2,499,000         24,999        (24,999)                          -0-

Net loss for the period April 2, 1996 (inception)
   through December 31, 1996                                                                                    (725)          (725)
                                                             -----------    -----------    -----------    -----------   -----------

Balance - December 31, 1996                                   2,500,000         25,000             20           (725)        24,295

Issuance of shares in connection with the initial
   public offering, net of offering costs                       188,250          1,883        971,984                       973,867

Issuance of shares on December 30, 1997                          10,800            108         86,292                        86,400

Conversion of debt to common shares                             562,500          5,625      4,494,375                     4,500,000

Net loss for the year ended December 31, 1997                                                               (615,330)      (615,330)
                                                            -----------    -----------    -----------    -----------    -----------
Balance - December 31, 1997                                   3,261,550    $    32,616    $ 5,552,671    $  (616,055)   $ 4,969,232
                                                            ===========    ===========    ===========    ===========    ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       F-5
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                            STATEMENTS OF CASH FLOWS

                    For the Year Ended December 31, 1997 and
       For the Period April 2, 1996 (Inception) Through December 31, 1996

<TABLE>
<CAPTION>
                                                                                                 April 2, 1996        April 2, 1996
                                                                                                 (Inception)           (Inception)
                                                                                                   through               through
                                                                                                 December 31,          December 31,
                                                                               1997                  1996                  1997
                                                                            -----------          ------------          ------------
<S>                                                                         <C>                   <C>                   <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                                                   $  (615,330)          $      (725)          $  (616,055)
 Adjustments to reconcile net loss to net cash
  provided by operating activities:
   Amortization expense                                                             400                   300                   700
   Increase in prepaid expenses                                                 (11,382)                  -0-               (11,382)
   Increase in accounts payable                                                  64,614                74,029               138,643
   Increase in security deposit                                                  (2,600)                  -0-                (2,600)
                                                                            -----------           -----------           -----------
     TOTAL ADJUSTMENTS                                                           51,032                74,329               125,361
                                                                            -----------           -----------           -----------
     NET CASH PROVIDED BY (USED IN)
     OPERATING ACTIVITIES                                                      (564,298)               73,604              (490,694)
                                                                            -----------           -----------           -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
  Payments for organization costs                                                   -0-                (2,000)               (2,000)

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of stock                                             1,172,921                25,020             1,197,941
  Net advances from parent company                                              287,624                25,000               312,624
  Net advances, from related party                                                4,000                   -0-                 4,000
  Payments for deferred offering costs                                              -0-              (112,654)             (112,654)
                                                                            -----------           -----------           -----------

     NET CASH PROVIDED BY (USED IN)
      FINANCING ACTIVITIES                                                    1,464,545               (62,634)            1,401,911
                                                                            -----------           -----------           -----------

      NET INCREASE IN CASH AND CASH                                             900,247                 8,970               909,217
       EQUIVALENTS

CASH AND CASH EQUIVALENTS-Beginning                                               8,970                   -0-                   -0-
                                                                            -----------           -----------           -----------

CASH AND CASH EQUIVALENTS-Ending                                            $   909,217           $     8,970           $   909,217
                                                                            ===========           ===========           ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       F-6
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                       STATEMENTS OF CASH FLOWS, Continued

                    For the Year Ended December 31, 1997 and
       For the Period April 2, 1996 (Inception) Through December 31, 1996


                SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                        April 2, 1996  April 2, 1996
                                                                        (Inception)     (Inception)
                                                                          through        through
                                                                         December 31,   December 31,
                                                            1997           1996            1997
                                                        ------------    ------------    ------------
<S>                                                      <C>           <C>           <C>
Cash paid during the periods for:

      Income taxes                                       $    3,329                  $    3,329

Noncash investment and financing activities:

      Purchase of technology from Voicenet (Aust)
      Ltd. in exchange of a note payable                               $4,500,000    $4,500,000

      Conversion of note payable, Voicenet (Aust) Ltd.   $4,500,000                  $4,500,000
      to equity

      Deferred offering costs directly attributable to
      issuance of stock                                  $  112,654                  $  112,654
</TABLE>

                                                                   
   The accompanying notes are an integral part of these financial statements.


                                       F-7
<PAGE>

                                 VOICENET, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - Summary of Significant Accounting Policies

     Nature of Business

     Voicenet, Inc. (the "Company"), a Delaware corporation, was incorporated on
     April  2,  1996.  The  Company  was   established  for  the  marketing  and
     distribution  of  continuous  speech and voice  recognition  systems and of
     digital audio reporting, transcription,  archiving and retrieval systems in
     North  America,  Central  America  and South  America.  The Company has not
     commenced  operations  and is  considered a  development  stage  company in
     accordance  with  Statement of Financial  Accounting  Standards  No. 7. The
     Company is  majority-owned  (80%) by Voicenet (Aust) Ltd. formerly known as
     Southern Group Limited, an Australian company.

     Successful  operations  are  subject  to  certain  risks and  uncertainties
     including,  among  others,  the  Company's  proposed  operations  which are
     subject to all the problems,  expenses,  delays and other risks inherent in
     developing  and  marketing  a new  product/service,  actual  and  potential
     competition by entities with greater  financial  resources,  experience and
     market presence than the Company. Further risks and uncertainties relate to
     technological  advancements,  the regulatory environment and the ability of
     the  Company  to  generate  sufficient  revenue  and obtain  financing  and
     additional equity.

     Net Loss Per  Share

     Net loss per share is  computed  based on the  weighted  average  number of
     shares of common stock outstanding for the year ended December 31, 1997 and
     for the  period  April 2,  1996  (inception)  through  December  31,  1996.
     Pursuant to the  Securities  and  Exchange  Commission's  Staff  Accounting
     Bulletins,  common  stock  issued at prices  below the  anticipated  public
     offering  price during the 12-month  period prior to the Offering have been
     included  in the  calculation  as if they were  outstanding  for the entire
     period presented.

     In February 1997, the Financial  Accounting  Standards  Board (FASB) issued
     Statement of Financial  Accounting  Standards No. 128, "Earnings Per Share"
     ("SFAS 128"),  which is required to be adopted  beginning  with the quarter
     ended December 31, 1997. At December 31, 1997, the Company adopted SFAS 128
     which eliminates the presentation of primary and fully diluted earnings per
     share  ("EPS") and  requires  the  presentation  of basic and diluted  EPS.
     Common stock  equivalents have been excluded from  weighted-average  shares
     for the year ended December 31, 1997 as inclusion  would be  anti-dilutive.
     All prior periods have been  restated to conform to the new  pronouncement.
     The impact of adopting SFAS 128 was not material.

     Organization Costs

     Organization  costs have been capitalized and are being amortized over five
     years using the straight-line method.


                                       F-8
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - Summary of Significant Accounting Policies, continued

     Intangible Asset

     The  intangible  asset  related  to the  purchase  of  technology  will  be
     amortized  using the  straight-line  method  over  twenty-five  (25)  years
     commencing when the Company begins generating revenue.

     Statement of Cash Flows

     For purposes of the  statement  of cash flows,  the Company  considers  all
     highly liquid investments purchased with a maturity of three months or less
     to be cash equivalents.

     The Company has cash balances in banks in excess of maximum amounts insured
     by FDIC at December 31, 1997.

     Income Taxes

     Income taxes are provided for the tax effects of  transactions  reported in
     the financial statements and consist of taxes currently due.

     Stock Options

     In October 1995,  the Financial  Accounting  Standards  Board (FASB) issued
     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
     Stock-Based  Compensation" ("SFAS 123"). SFAS requires compensation expense
     to be  recorded  (I) using the fair  value  method or (ii)  using  existing
     accounting rules prescribed by Accounting  Principles Board Opinion No. 25,
     "Accounting  for  Stock  Issued  to  Employees"   ("APB  25")  and  related
     interpretations  with pro forma  disclosure of what net income and earnings
     per share  would have been had the Company  adopted the fair value  method.
     The Company intends to continue to account for its stock based compensation
     plans in accordance with the provisions of APB 25. Had the Company selected
     to recognize  compensation  costs based on fair value of the options at the
     date of grant as prescribed by SFAS 123, there would be no material  effect
     from that recognized  under APB 25 for the year ended December 31, 1997 and
     the period April 2, 1996 (inception) through December 31, 1996.

     Use of Estimates in the Financial Statements

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

     Fair Value of Financial Instruments

     The Company's financial  instruments include cash and accounts payable. Due
     to the  short-term  nature of these  instruments,  the fair  value of these
     instruments  approximate  their  recorded  value.  The  Company  has  other
     liabilities which it believes is stated at estimated fair market value.


                                       F-9
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

NOTE 2 - Stockholders' Equity

     At inception, the Company authorized 3,000 shares of $.001 par value common
     stock and issued 1,000 of these shares for $25,000.

     On September 15, 1996 the Company increased its number of authorized Common
     Shares to 10,000,000  and changed its par value of these shares to $.01 per
     share. In addition,  the Company authorized 1,000,000 shares of blank check
     Preferred Stock, par value $.01 per share with such  designations,  powers,
     preferences,  rights,  qualifications,  limitations and restrictions and in
     such series as the Company, subject to the State of Delaware, may determine
     from time to time.

     On  September  15, 1996 the board of  directors  of the Company  declared a
     2,500-for-1  stock split.  The financial  statements  have been adjusted to
     reflect this transaction.

     During  1997,  the Company  offered to sell as part of the  initial  public
     offering  ("IPO") a minimum  of 187,500  shares and a maximum of  1,875,000
     shares at a public offering price of $8.00 per share. The IPO was completed
     on November 5, 1997,  whereby 562,500 shares were issued to Voicenet (Aust)
     Ltd. at a price of $8.00 per share in full satisfaction of the $4.5 million
     obligation of the Company under the  Promissory  Note (see Note 4). 188,250
     shares of common stock were sold to the public at $8.00 per share.  The net
     proceeds  form  the sale of the  common  stock to the  public  amounted  to
     $973,867,  net of direct  related costs of $532,133.  On December 30, 1997,
     the  Company  sold an  additional  10,800  shares of its  common  stock for
     $86,400.  In  accordance  with  the  amended  underwriting  agreement,  the
     underwriter  has been issued warrants to purchase 11,250 shares of stock at
     an exercise price of $11.20 per share.  The warrants  expire on October 31,
     2002 and no warrants have been exercised as of the balance sheet date.

NOTE 3 - Stock Option Plan

     In 1996 the Company adopted a Non-Qualified Stock Option Plan (the "Plan").
     An aggregate of 500,000  shares of Common Stock are authorized for issuance
     under the Plan. The Plan provides that incentive and non-qualified  options
     may be granted to officers and directors and consultants to the Company for
     the purpose of  providing  an  incentive  to those  persons to work for the
     Company.  Options granted under the plan are exercisable for a period of up
     to ten years from the date of grant.  In  addition,  the  Company  will not
     grant a  non-qualified  option with an exercise  price less than 85% of the
     fair market value of the underlying  Common Stock on the date of the grant.
     As of December 31, 1997, no options have been issued by the Company.


                                      F-10
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

NOTE 4 - Purchase of Technology

     On August 1, 1996 the Company entered into a Technology  Sales and Purchase
     Agreement (the "Technology Agreement") with Voicenet (Aust) Ltd. to acquire
     certain  exclusive  rights and ownership  with respect to the  development,
     use,  marketing,  sales and  distribution  of a continuous  computer  based
     digital voice compression,  recognition and recording technology.  The term
     of the agreement is for the longer of twenty-five (25) years or the life of
     any patents  and  extensions  granted  under the patent  applications.  The
     rights  acquired  are for  territories  including  North  America,  Central
     America and South  America.  These  rights were  originally  purchased  for
     $4,500,000 in the form of a  noninterest-bearing  promissory note. The note
     was  converted  into 562,500  shares of the  Company's  common stock with a
     conversion  price of $8.00 per share in conjunction with the initial public
     offering (see Note 2).

NOTE 5 - Due to Voicenet (Aust) Ltd.

     The Company received advances from Voicenet (Aust) Ltd. and Voicenet (Aust)
     Ltd. incurred expenses on behalf of the Company for start-up purposes which
     have been expensed in the financial statements. The balance due to Voicenet
     (Aust)  Ltd.  at  December  31,  1997 and 1996 was  $312,624  and  $25,000,
     respectively. Such amounts are noninterest-bearing and due on demand.

NOTE 6 - Income Taxes

     The Company has no taxable  income to date;  therefore,  no  provision  for
     federal income taxes has been made.  The minimum state and local  franchise
     taxes have been provided in the accompanying financial statements.

     The Company  recognized  deferred tax assets of $240,000 in connection with
     net operating  loss carry  forwards.  A valuation  allowance is required if
     based on the weight of evidence available,  it is more likely than not that
     some  portion or all of the  deferred  asset will not be  realized.  It was
     concluded that a valuation allowance was appropriate for the full amount of
     the deferred tax asset at December 31, 1997.

     Operating  loss  carry  forwards  which may  provide  future  tax  benefits
     approximate   $615,000  at  December  31,  1997.   These   operating   loss
     carryforwards expire through the year 2112.


                                      F-11
<PAGE>


                                 VOICENET, INC.
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

NOTE 7 - Related Party Transaction

     The Company has retained Ridgewood Group  International Ltd.  ("Ridgewood")
     for various advisory  services since inception.  Ridgewood is a shareholder
     in  Voicenet,  Inc.  and a principal of Ridgewood is also a director of the
     Company.  The Company paid Ridgewood  $48,640 and $12,000 in 1997 and 1996,
     respectively.  

NOTE 8 - Commitments

     Lease Agreement

     The Company  rents its office  premises on a month to month basis without a
     formal lease agreement. Rent expense was $5,835 and $-0- for 1997 and 1996,
     respectively.

     Employment Agreements

     On  November  5, 1997,  the Company  entered  into a three year  employment
     agreement  with an officer of the Company  whereby  the Company  will pay a
     salary of $180,000 per annum plus direct expenses.  Salary expense relating
     to this agreement was $31,196 and $-0- for 1997 and 1996, respectively.

NOTE 9 - Subsequent Event

     On  February  1,  1998  the  Company  entered  into a one  year  consulting
     agreement with IPAC, Inc.  ("IPAC"),  whereby IPAC will provide  consulting
     and product  development  services for a monthly fee of $10,000 plus direct
     expenses.

                                      F-12
<PAGE>



                                   SIGNATURES

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

                                    VOICENET, INC.


                                    By: /s/ Frank Carr
                                       -----------------------------------------
                                         Frank Carr, Chairman and 
                                         Chief Executive Officer


                                    Date: April 14, 1998

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

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


/s/ Frank Carr
-------------------------  President, Chief Executive Officer     April 14, 1998
Frank Carr                 Director, Principal Executive Officer

/s/ Howard Messer
-------------------------  Chief Financial Officer                April 14, 1998
Howard Messer              Principal Accounting Officer

/s/ William J. Potter
-------------------------  Director                               April 14, 1998
William J. Potter

/s/ Christopher J. Brown
-------------------------  Director                               April 14, 1998
Christopher J. Brown



                                       28