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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 FOR THE FISCAL YEAR ENDED: APRIL 30, 2000

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE TRANSITION PERIOD FROM          TO

                         COMMISSION FILE NUMBER 000-32090

                             MCK COMMUNICATIONS, INC.
              (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      06-1555163
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)
       117 KENDRICK STREET, NEEDHAM, MA                            02494
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 454-6100

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.001
                                   PAR VALUE

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

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

     The aggregate market value of voting stock held by non-affiliates of the
registrant as of July 3, 2000, was approximately $192,724,130 based upon the
last sales price reported for such date on The Nasdaq National Market. For
purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the registrant, have been excluded in that such
persons may be deemed to be affiliates. This determination is not necessarily
conclusive.

     At July 3, 2000 the registrant had outstanding 19,835,612 shares of Common
Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A for the Registrant's 2000 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Annual Report
on Form 10-K

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                               TABLE OF CONTENTS

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                                                                             PAGE
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<S>  <C>       <C>                                                           <C>
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS...........................    2
PART I.....................................................................
     ITEM 1.   BUSINESS....................................................    2
     ITEM 2.   PROPERTIES..................................................   19
     ITEM 3.   LEGAL PROCEEDINGS...........................................   19
     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   19
PART II....................................................................
     ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS.........................................   20
     ITEM 6.   SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION.........   20
     ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS...................................   22
     ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   37
PART III...................................................................
     ITEM 9.   CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE........................................   37
     ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........   37
     ITEM 11.  EXECUTIVE COMPENSATION......................................   37
     ITEM 12.  SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
               OWNERS......................................................   37
     ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............   37
PART IV....................................................................
     ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
               8-K.........................................................   37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................  F-1
</TABLE>

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                INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 10-K contains certain forward-looking statements
(within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended) that involve
risks and uncertainties. Forward-looking statements include, without limitation,
statements containing the words "anticipates," "believes," "expects," "intends,"
"future" and words of similar import which express management's belief,
expectations or intentions regarding the future performance of MCK
Communications, Inc. and its subsidiaries (hereafter, collectively, "we," "us,"
"our," "MCK" or the "Company"). Actual results and the timing of certain events
could differ materially from those projected in the forward-looking statements
as a result of a number of factors. For a discussion of important factors that
could affect the Company's results, please refer to the Business section and to
the financial statement line item discussions and Factors Affecting Future
Operating Results and Stock Price set forth in Management's Discussion and
Analysis of Financial Condition and Results of Operations discussed elsewhere in
this Annual Report on Form 10-K.

                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

     MCK Communications is a leading provider of remote access products for
corporate telephone systems that enable corporations to extend the features and
applications of those systems, which are known as private branch exchanges or
PBXs, from the corporate office to remote branch offices and telecommuters over
geographically dispersed public and private data networks. PBX systems are the
most commonly used corporate telephone systems and deliver features such as
three- or four-digit internal dialing and call forwarding and applications such
as voicemail, automatic call distribution and interactive voice response. Our
EXTender products cost-effectively deliver a unified enterprise-wide voice
network by enabling the PBX to function as a corporate voice server that
transmits voice and PBX applications to remote locations over corporations'
existing data networks. In addition, our products reduce the total cost of
ownership by utilizing corporations' current investment in voice and data
equipment, and streamline network administration through the utilization of
industry standard network management techniques.

     On June 14, 2000 we acquired all the outstanding stock of DTI Holdings,
Inc. ("DTIH") and it's wholly owned subsidiary Digital Techniques, Inc. ("DTI")
in exchange for $24 million in cash, common stock, and assumed stock options.
DTI designs, manufactures, distributes and supports a comprehensive suite of
digital to analog recording gateways.

INDUSTRY BACKGROUND

     Most businesses today have deployed separate networks to support voice and
data communications. As the corporate world shifts from large, centralized
organizations to distributed workforces with multiple branch offices and a large
number of telecommuters, new demands are being placed on the traditionally
localized corporate communications networks. While data networks have evolved to
meet this challenge by offering high-speed remote data access and a high degree
of interoperability among data systems and components, corporate telephone
systems, or voice networks, have remained largely centralized and proprietary.
Consequently, branch offices and telecommuters do not have cost-effective access
to the features and applications of corporate telephone systems.

     This shift toward corporate decentralization results from a number of
factors. The competitive advantage of being located near key customers,
suppliers and partners and the competition for qualified employees are driving
corporations to open branch offices in numerous geographic locations. In order
to retain employees and comply with expanding environmental regulation,
corporations are also implementing large-scale telecommuting programs.

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     Because of decentralization, corporations are increasingly challenged by
the need to integrate voice and data networks across multiple locations.
Corporations depend on company-wide communication to ensure critical internal
collaboration, provide suitable levels of customer service and maintain
operational efficiency and productivity by sharing resources across all
locations. As the business environment becomes more competitive, a
unifiedcommunications network will become increasingly important. These factors
are driving demand for solutions that deliver an integrated network environment
with all the features and applications found at corporate headquarters to
distributed locations and employees.

  Corporate Data Networks

     Initially, data networks were built upon mainframe computers that served a
single office location, were accessible by a limited number of users and were
too costly for small organizations. Over the past 20 years, advances in computer
processing and networking technology have altered this centralized model to
deliver cost-effective, high-speed distributed data processing and
communications by using a client-server architecture. Corporations have been
able to deploy equipment from multiple vendors that is interoperable throughout
a local area network, or LAN, using multiple network protocols because of the
adoption of standard communication protocols, internetworking technologies, and
industry-standard system management platforms, as well as the use of open
architectures. These same developments have also facilitated widespread data
access through the deployment of remote access equipment capable of extending
the reach of data networks beyond corporate locations over public and private
networks to create wide area networks, or WANs.

     Today, branch offices and telecommuters access corporate data networks over
a variety of circuit-based networks that were designed for voice service. These
circuit-based networks are dedicated point-to-point connections that require
corporations to constantly maintain sufficient bandwidth to meet their maximum
communications requirements. The recent development of broadband technologies
has resulted in the deployment of new packet-based networks. These next
generation networks divide all types of data, including voice, into packets that
can be simultaneously transmitted and reassembled into their original form at
their final destination. As a result, these packet-based networks are more
efficient in their use of available bandwidth than traditional circuit-based
networks, thus minimizing network capacity constraints and management
requirements.

     As a result of the growing demand for high-bandwidth applications, such as
Internet and intranet access, a new generation of service providers is migrating
from existing circuit-based networks to packet-based networks. The ability of
packet-based networks to increase bandwidth availability and network efficiency,
lower operating costs and simplify network administration has led service
providers to make significant investments in packet-based networks in the public
communications infrastructure. Next generation telecommunications service
providers are creating new service offerings over private managed networks and
public networks, such as the Internet and are using new technologies, such as
Quality of Service, to offer both services over the same network. Widespread
access to corporate data networks, coupled with the deployment of new
packet-based networks, is enabling corporations to realize tremendous
productivity gains due to increased collaboration, internal communication and
sharing of resources. Examples of specific benefits include company-wide e-mail
capabilities, company-wide access to the files and applications that are run
from the corporate server and immediate access for remote workers.

  Corporate Voice Networks

     Large corporate telephone systems are generally based on circuit-based
networks and corporate telephone equipment known as private branch exchanges, or
PBXs. Given the mission critical nature of voice communications and related
applications, corporate telephone systems have been architected with numerous
built-in fault tolerant and redundancy features and are designed to deliver
99.999% up-time reliability. In

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addition to delivering reliable voice service, PBXs have the capability to serve
as the platform for more than 500 critical voice features and applications,
including:

     - voicemail systems;

     - unified messaging systems that create a single interface for accessing
       voicemail, e-mail and fax messages;

     - automatic call distribution systems;

     - auto-attendant systems;

     - call accounting software;

     - least-cost routing applications; and

     - interactive voice response systems.

The PBX is also responsible for delivering features and capabilities such as:

     - phone numbering plans;

     - three- or four-digit internal dialing;

     - call transferring, conferencing and forwarding; and

     - receptionist call screening.

     Despite the reliability and functionality of centralized circuit-based
voice networks, the features and applications of today's PBX-based corporate
telephone systems cannot be cost-effectively extended to small branch offices
and telecommuters. A number of factors have created this deficiency. Technical
limitations of these systems cause the quality of voice transmission to degrade
beyond a limited distance. In addition, the high cost associated with deploying
a PBX-based telephone system and its supported voice applications typically
makes them prohibitively expensive for small branch offices and telecommuters.
Accordingly, corporations seeking to extend voice applications to small branch
offices have the following voice options, all of which have significant
limitations:

     - Key Systems.  Key systems have functionality similar to PBXs but have
       been cost-effectively architected to service small office environments.
       Accordingly, they lack the full feature set and scalability of more
       expensive PBX-based corporate telephone systems. Key systems have limited
       interoperability with PBX systems, and consequently function as
       stand-alone voice systems with separate voice applications that create
       inefficiencies and network management complexities in a multi-office
       environment.

     - Centrex.  Centrex is a business telephone service that is offered by
       local telephone companies from their central offices. While Centrex
       offers many of the same features as PBXs, its effectiveness is
       constrained by phone companies' capacity, its lack of interoperability
       with PBXs, its geographic limitations and its reliance upon the local
       phone company for service and support. In addition, full-featured Centrex
       service for a small office can be a prohibitively expensive solution.

     - Off-Premises Extension.  An Off-Premises Extension is a dedicated
       telephone line that originates from a PBX and extends a subset of PBX
       features and applications to remote users. These offerings cannot support
       digital telephone sets, and require an expensive dedicated leased line or
       private network connection.

     - LAN and Windows NT PBXs.  Recently introduced solutions from data
       networking vendors, such as LAN and Windows NT-server based PBXs, lack
       the full feature set of traditional PBXs and have limited ability to
       network with the corporate PBX, thus also failing to give an enterprise a
       unified voice network.

The inability of these voice options to fully network with the PBX has caused
corporations to deploy separate voice networks for their branch offices and
telecommuters, limiting the effectiveness of corporate communica-
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tions and increasing the burden on systems administrators. In addition,
corporations seeking to extend voice applications to telecommuters presently
have no cost-effective, full-featured solutions.

  The Opportunity for PBX-based Remote Voice Access over Data Networks

     As business organizations decentralize, remote access to the corporate
communications network is becoming increasingly important. While data networks
have evolved to meet this critical business requirement, there is a need for a
suitable voice solution that cost-effectively utilizes the PBX and its features
and applications to offer corporate voice applications to small branch offices
and telecommuters. Furthermore, in order to lower costs and simplify network
administration, corporations are increasingly demanding that distributed voice
and data services be offered over the same centrally-managed corporate
communications infrastructure. This convergence of voice and data is made
possible by technology that can convert voice transmissions into packets of data
and advances in Quality of Service which enable the transmission of voice over
private managed data networks and public data networks, such as the Internet.
Accordingly, to deliver remote voice access over data networks, a solution
should be capable of packetizing voice and PBX signaling information,
information that is proprietary to each type of PBX system and is required to
interface with these systems in order to deliver the features and applications
supported by these systems. As a result of its reliability, the wide variety of
applications that it supports and the size of its installed base, PBXs are
pervasive in large, corporate enterprises and are likely to remain entrenched as
the central corporate system on which new voice applications are developed and
deployed. Thus, solutions for the remote voice marketplace must offer a
centrally-managed interface to proprietary PBX-based corporate telephone systems
and have the capability of packetizing and transmitting voice and PBX signaling
information over both traditional circuit-based data networks and emerging
packet networks.

THE MCK EXTENDER SOLUTION

     We develop and market products that enable enterprises to effectively
deliver all of the voice features and applications that exist at the corporate
office to branch offices and telecommuters. Our technology allows enterprises to
create a unified, enterprise-wide voice network by enabling the PBX to function
as a corporate voice server that transmits packetized voice and the signaling
information that is proprietary to each PBX to remote locations over existing
data networks. This signaling information is necessary to interface with each
type of PBX system to deliver the features and applications supported by these
systems. In addition, our products reduce the total cost of ownership by
allowing corporations to use their existing investments in voice and data
equipment, and streamline network administration through the utilization of
industry standard network management techniques.

     The following are the key attributes of our solution:

          Full-Featured Remote Voice Access.  Our EXTender solutions provide the
     features and applications of corporate telephone systems to branch office
     employees, telecommuters and remote call center agents over circuit and
     packet networks. Our solutions allow these remote workers to utilize PBX
     features such as three- or four-digit internal dialing, call transferring
     and conferencing, and PBX applications such as voicemail, unified messaging
     and automated call distribution. Extending these corporate voice
     applications to remote employees increases productivity, facilitates
     internal collaboration and delivers to external callers transparent access
     to all telephone extensions throughout a corporation.

          Digital Line Extension Technology.  The features and applications of
     the PBX reside on its digital line or user side. We have developed
     proprietary software and hardware interfaces that extract the voice and PBX
     signaling information from the user side of the PBX which is also known as
     the digital line side. Our products then packetize and transmit this
     information to our remote devices over existing data networks. Utilizing
     this captured information, our remote products mimic the digital line side
     of the PBX, thereby transparently connecting the user's digital telephone
     set to the corporate PBX. As a result of this product architecture and our
     experience in interfacing with the proprietary digital line or user side of
     most leading PBX vendors, our products enable corporations to deploy
     effective remote voice solutions without significant reconfigurations or
     upgrades to their existing PBX-based corporate telephone systems.

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     Similarly, our products enable branch offices and telecommuters to use
     their digital telephone sets and existing user interfaces to transparently
     access their corporate PBXs. Using our digital line extension technology,
     we are also working with a number of companies to enable digital telephone
     sets to interface with next generation corporate voice systems such as
     IP-PBXs and network-based PBXs. This digital line extension technology also
     enables us to terminate multiple types of telephone sets, including a
     variety of third-party digital telephone sets, analog telephone sets and
     IP-based telephone sets, off traditional PBX systems using MCK PBXgateway
     products.

          Packet Voice Architecture.  Our extensive experience in packetizing
     voice, PBX signaling information and voice applications enables us to
     deliver a complete remote voice solution over traditional circuit-based
     networks and emerging packet-based networks. Utilizing our proprietary
     Remote Voice Protocol, or RVP, software platform and our standardized
     hardware architecture, we packetize, compress, encode, transmit and decode
     voice over networks such as asynchronous transfer mode, or ATM, digital
     subscriber line, or DSL, fiber, frame relay, IP, integrated services
     digital network, or ISDN, leased line, T-1, fractional T-1 and traditional
     telephone networks. In addition to supporting RVP, we are adding support
     for a number of evolving industry standard voice protocols, including
     GR-303, H.323, SIP and MGCP, to enable our products to interface with next
     generation voice equipment located in both the enterprise and the network
     infrastructure of service providers. Our products enable next generation
     service providers such as the emerging digital subscriber line and cable
     network operators to provide MCK EXTender functionality as a value-added
     service offering to corporations for branch offices and telecommuters over
     public and private data networks.

          Lower Cost Solution.  Our products provide a cost-effective solution,
     lowering costs in the following areas:

        - Transmission.  Our products lower transmission costs by consolidating
          voice and data traffic over a single network, eliminating local loop
          service charges through toll bypass and enabling remote users to
          utilize volume-based, corporate long distance rates.

        - Management.  Our recently introduced products provide telecom managers
          the ability to centrally manage our remote devices using Telnet,
          hypertext mark-up language, or HTML, and simple network management
          protocol, or SNMP, with graphical user interfaces. Our customers can
          use these remote monitoring and diagnostic capabilities to solve
          problems on-line, thereby reducing the time and cost associated with
          dispatching a technician to a remote site.

        - Equipment.  Our products enable corporations to utilize their existing
          capital investment in PBX-based corporate telephone systems, voice
          applications and data networks, thereby eliminating the need to expend
          significant additional capital on disparate, incompatible solutions
          such as key systems.

        - Facilities.  Our products allow corporations to reduce physical
          facility costs and infrastructure investments by enabling employees to
          work effectively outside of corporate locations.

          Compatibility with Leading PBX Manufacturers.  We have worked with
     Alcatel, Lucent, NEC, Nortel Networks and Toshiba to develop interfaces
     between our RVP software platform and their primary PBX-based corporate
     telephone systems. These manufacturers have tested and validated in their
     labs that our RVP platform is interoperable with their primary PBX
     products, including 4400/4200 (Alcatel), DEFINITY (Lucent), NEAX
     1000/2000/2400 (NEC), Meridian (Nortel Networks), Norstar (Nortel Networks)
     and Strata DK (Toshiba) equipment.

STRATEGY

     Our strategy is to become the leading provider of solutions to enable the
delivery of business-quality voice over existing and next-generation networks.
Today, our business-quality remote voice solutions allow corporations to extend
the features and applications of the PBX over circuit and packet networks to
branch offices, remote workers and telecommuters. In addition, our products are
architected to enable next-generation service providers such as Telocity to
offer PBX Extension as a value-add service offering over DSL, cable,
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wireless and IP-based networks. Acting as pure packet processing engines, our
products are capable of adapting to the evolution occurring in voice
infrastructure by acting as the "bridge" between legacy voice equipment and
next-generation networks and applications.

     As the voice infrastructure evolves over the next five to ten years, we
believe that legacy PBXs will begin to be replaced with next-generation PBXs or
"network-hosted PBX" voice solutions utilizing the latest developments in
software-based switches located on the network outside of the corporations
premises. Concurrently, we envision associated voice applications migrating from
a proprietary and customer-supported model to a fully open, outsourced model.

     The following are the principle elements of our business strategy to become
the industry-standard bridge for voice networks and applications:

          Continue to offer PBX extension.  Corporations continue to invest in
     PBX infrastructures. To date, we have been providing remote voice solutions
     that deliver seamless voice calls and associated features and applications
     such as voice mail, unified messaging, call accounting and four-digit
     dialing over either circuit-switched (traditional telephone network) or
     packet-switched (data network) environments. For packet-based networks, our
     suite of EXTender products has been architected to work with virtually any
     network, including T1, xDSL, ATM and cable, using packet voice and Voice
     over IP protocols, and have been designed to accommodate the more complex
     requirements for delivering high-quality enterprise voice features.

          We offer a line of client products to interface with analog, ISDN,
     IDSL and IP networks. We also offer the PBXgateway, our corporate site
     solution that interfaces with the line side of the PBX. This product
     packetizes and transcodes voice and signaling, and supports
     business-quality voice applications to and from remote client devices. More
     than 150,000 EXTender ports are deployed today in many Fortune 5000
     companies including General Electric, United Airlines, Waterhouse
     Securities and Xerox.

          Work closely with broadband equipment vendors, next-generation service
     providers, ASPs and ISPs to deliver value-added applications and
     services.  We continue to invest significant resources into our
     relationships with service providers and are working with leading
     Competitive Local Exchange Carriers, or CLECs, managed service providers
     and Internet Service Providers, or ISPs, including Rhythms NetConnections,
     HarvardNet and Telocity, to deliver value-added services for integrated
     voice and data communications. We jointly developed a broadband product
     with Copper Mountain and are in the process of developing other product
     sets with Copper Mountain and other broadband equipment vendors. Our
     Certified Network Provider Program enables leading next-generation network
     providers to certify their networks for the PBX Extension application. Our
     Solution Provider Program enables leading next-generation network providers
     to offer value-added voice services such as PBX Extension alongside the
     services that they deploy for remote data applications. HarvardNet and
     Telocity, leading DSL Service Providers, were two of the first providers to
     join the program.

          Enable voice applications regardless of PBX or network.  As rich,
     full-featured voice applications transition from proprietary, closed
     networks to open protocols over converged next-generation networks, we
     believe our products will remain as the bridge between the proprietary,
     PBX-based voice infrastructure and these new applications, whether they
     reside at the enterprise or within the network. We recognize the inherent
     value in the PBX and its ability to deliver rich applications such as
     unified messaging, voice mail, interactive voice response and call
     recording, among others. As new and different applications emerge that are
     based on standards-based IP protocols, we plan to work to provide
     corporations with an effective migration path to enable the use of these
     new applications that are independent of the PBX, while preserving their
     investments in digital telephone sets, the traditional user interface.

          Endorse and drive the adoption of emerging IP-based and
     next-generation network protocols.  The adoption of open, standards-based
     technologies will facilitate the speed of next-generation network
     deployment. To address this, we are working with a number of regional and
     national organizations including the National Convergence Alliance, or NCA.
     In addition, to address the need for IP-enabled

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     products that work with any network, we are architecting our products to
     support the leading Internet Protocols including Media Gateway Control
     Protocol (MGCP) and Session Interface Protocol (SIP).

          Leverage our unique capability of set termination.  We plan to
     continue working to provide business users with ways to access new,
     feature-rich voice applications such as unified messaging, interactive
     voice response and call recording by using the digital set or IP phone set
     as the application user interface. By pushing delivery of the application
     away from the traditional PBX infrastructure, enterprise customers will be
     able to take advantage of the latest voice applications without having to
     retrain users or replace existing digital phone set equipment. In addition,
     enterprise customers will be able to take advantage of services offered by
     ASPs, which are delivering voice applications independent of the PBX,
     available at the push of a button from a digital set.

          Expand distribution, marketing and technology relationships.  We
     expect to continue establishing distribution, marketing and technology
     relationships with PBX vendors, service providers and distribution channel
     partners to further penetrate our target markets and develop our products.
     We have development, marketing and distribution relationships with Alcatel,
     Lucent, NEC and Toshiba and distribution relationships with Nortel Networks
     and its major channel partners such as Ameritech, Bell Canada, BellSouth,
     GTE and Williams Communications. We have also established a number of other
     important distribution channel relationships such as with SBC and Sprint
     North Supply. In addition to expanding our field sales and systems
     engineering forces, we expect to continue working with our channel partners
     to focus on major corporate accounts. Furthermore, we plan to continue
     building additional channels, both in the U.S. and international markets,
     to expand the distribution of our products.

          Continue to target Fortune 5000 corporations.  We intend to continue
     to focus our distribution strategies on Fortune 5000 corporations. These
     organizations have made substantial capital investments in their existing
     PBX-based telephone systems and have significant numbers of branch offices
     and telecommuters. Accordingly, these corporations have the most to gain
     from an integrated voice network. We are well positioned to target the
     Fortune 5000 market because our products interface with PBX systems from
     Alcatel, Lucent, NEC, Nortel Networks and Toshiba. We will work with our
     existing and new partners to increase the market opportunity for, and drive
     market acceptance of, our products.

TECHNOLOGY

     We have developed expertise in digital line extension and the packetization
of voice for transmission over data networks to address the technology
challenges of extending the features and applications of corporate telephone
systems to remote locations. Another key component of our technological
advantage is the highly flexible software and hardware architecture upon which
we build our remote voice solutions. We will continue to invest significant
resources to maintain and extend our technological advantage.

  Digital Line Extension Technology

     The rich features and applications of corporate telephone systems are
accessed through the proprietary user or digital line side of the PBX. These
line-side interfaces enable the delivery of the features and applications of
PBX-based corporate telephone systems to digital telephone sets. As a result of
our years of experience in working with major PBX manufacturers, we have gained
a significant understanding of these line-side interfaces and have developed
line-side software interfaces to a number of today's PBX-based corporate
telephone systems. In addition to our software interfaces, we have developed a
hardware subsystem capable of duplicating the electrical interfaces of Alcatel,
Lucent, NEC, Nortel Networks and Toshiba PBX systems. These line-side software
and hardware interfaces extract the voice and the PBX signaling information
required to interface with PBX systems and, using our RVP software platform,
packetize this voice and PBX signaling information for transmission over data
networks to our remote voice access products. We have developed messaging
software that transmits this voice and PBX signaling information from our remote
voice access products to the digital telephone sets of the PBX manufacturers
that we support, thereby transparently connecting these sets to the PBX.

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  Delivery of Packet Voice with Remote Voice Protocol

     To deliver voice over data networks, solutions must convert voice into
packet form and then transmit these voice packets alongside data packets.
Despite the advantages of simultaneous transmission of voice and data, there are
also a number of technological challenges to delivering voice over data networks
because audio quality can be distorted by jitter and latency associated with
congestion on the data network.

     Our proprietary software platform, RVP, packetizes, compresses and encodes
circuit voice and PBX signaling information for secure transmission over data
networks. We have implemented both industry standard and proprietary voice
prioritization and voice fragmentation techniques that use bandwidth efficiently
while also ensuring that delay sensitive voice packets are delivered with the
quality expected from voice. Much of this technology revolves around our core
expertise in developing software that runs on standard digital signal
processors, which are required for encoding voice for transmission over
bandwidth constrained networks. In particular, we have designed and implemented
the following software features in our products to improve the quality of packet
voice transmission, minimize system delay and jitter, and utilize bandwidth
efficiently:

     - Voice Compression.  We integrate a number of industry standard voice
       coding algorithms, including G.711, G.726, G.729A and G.723.1, that
       compress voice to reduce the total bandwidth required for transmission.

     - Echo Cancellation.  We deliver echoless voice by integrating industry
       standard acoustic echo cancellation technology, known as G.165, to which
       we have made proprietary enhancements.

     - Silence Detection.  Our proprietary silence detection technology
       eliminates unnecessary transmission of voice packets during the periods
       of silence that occur in normal conversation, freeing bandwidth for other
       uses.

     - Comfort Noise.  We incorporate technology that inserts comfort noise
       during periods of silence so that users do not inadvertently think that
       the phone call is no longer active.

     - Jitter Buffering Techniques.  Our products adapt to the real-time
       irregularities in network transmission and ensure all traffic reaches its
       endpoint at the appropriate time by introducing delay that is
       unrecognizable to the user.

     - Dual Tone Multi-Frequency Processing Technology.  Dual tone
       multi-frequency tones are generated by depressing buttons on digital
       telephone sets, enabling the digital telephone set to recognize dialed
       numbers used for outbound calls and for applications such as voicemail.
       Our proprietary technology improves the transmission of these tones over
       packet networks.

     We have significant experience in transmitting packet voice over both
low-speed, traditional telephone networks and higher speed, broadband networks.
We have developed network interfaces for the delivery of remote voice over
traditional telephone and integrated services digital network, or ISDN,
connections and have incorporated third-party network devices to support T-1,
leased line and frame relay networks. In addition, to deliver data alongside our
packet voice transmission, we have expertise in terminating dial-up networking
connections and bridging standard data traffic.

     In addition to supporting our proprietary protocol, RVP, we are adding
support for a number of evolving industry standard protocols, such as GR-303,
H.323, SIP and MGCP. This will enable our products to interface with next
generation enterprise voice systems and applications as well as terminate
IP-based telephone sets. Supporting these standard protocols will also enable
our products to interface with voice equipment and applications located in the
network infrastructure of next generation service providers and application
service providers.

  Remote Voice Product Architecture

     We develop our products using a combination of proprietary and commercial
hardware and software subsystems. Our product architecture enables these
subsystems to be configured and adapted in order to deliver a broad range of
enterprise voice product solutions, thereby minimizing product development
cycles

                                        9
<PAGE>   11

and maximizing manufacturing efficiency. Our products are fully compatible with
the large installed base of telephone systems from Alcatel, Lucent, NEC, Nortel
Networks and Toshiba, and require no design modifications or upgrades to these
systems or their respective digital telephone sets.

     We have designed a standard hardware architecture that serves as a common
platform for our software modules. We use industry standard digital signal
processors and programmable logic devices to build a standard hardware platform
that can be software modified to support different applications or telephone
systems without requiring a hardware change. We have also architected our
products with a variety of standard telephony and data network interfaces to
ensure that we can transmit packet voice over the multiple network environments
currently available.

     All of our products share a common software library of functional modules
that comprise our digital line interface software subsystem and our RVP software
platform. Our digital line interface software subsystem is responsible for the
interface to the proprietary software located on the digital line of the PBX.
This software subsystem has been designed to emulate a majority of the PBX-based
corporate telephone systems on the market today without requiring a change to
our hardware architecture. This flexible software architecture also enables us
to easily add software support for new PBX-based corporate telephone systems.
Our RVP software platform is responsible for packetizing voice and PBX signaling
information, as well as conditioning these voice packets for transmission over
data networks. RVP has been engineered to enable new features to be easily and
quickly introduced in parallel to its existing capabilities.

     All the software development for our IP EXTender 4000, EXTender 3200 for
IDSL, Branch Office EXTender 6000 and PBXgateway product lines runs on the
VxWorks real-time operating system from Wind River Systems. This industry
standard operating system provides our engineers with a standard development
environment in which to design new proprietary software applications and easily
incorporate third-party software applications. A standard development
environment such as VxWorks allows for the rapid prototyping and application
development necessary for our products that serve as platforms for future
applications.

PRODUCTS

     We have worked with Alcatel, Lucent, NEC, Nortel Networks and Toshiba to
develop interfaces between the proprietary software of these leading PBX vendors
and our RVP software platform and standard hardware architecture. We generally
enter into contracts with these PBX vendors which provide us access to their
proprietary software and grant us rights to develop, manufacture and sell
products which interface with each vendor's equipment. As a result of these
relationships, we have developed substantial expertise in understanding and
interfacing with these proprietary corporate telephone systems. These
manufacturers have tested and validated in their own labs that our RVP platform
is interoperable with a variety of their equipment. Currently, our EXTender
series of products is compatible with the following PBX systems: 4400/4200
(Alcatel); DEFINITY (Lucent); NEAX 1000/2000/2400 (NEC); Meridian (Nortel
Networks); Norstar (Nortel Networks); and Strata DK (Toshiba).

     The EXTender solution consists of the following component parts:

     - Customer Premise Equipment.  Single- or multi-user remote location client
       devices and a PC-based software solution that service branch offices,
       remote call centers and telecommuters; and

     - Corporate PBX Gateways.  Products located at the corporate location that
       extend voice traffic and PBX applications to our customer premise
       equipment devices.

     Our EXTender series of products enables corporations to provide the
functionality of corporate telephone systems and all of their supported
applications to users who traditionally have not had access to the corporate
telephone system and its voice applications because of the limitations of
current systems. Our products enable the PBX to act as a server that distributes
the features and applications of PBX-based corporate telephone systems to remote
locations over networks such as ATM, DSL, fiber, frame relay, IP, ISDN, leased
line, T-1, fractional T-1 and traditional telephone connections. Remote voice
users can utilize digital telephone sets identical to the sets deployed in the
corporate headquarters and access the corporate voice system for applications
such as voicemail, automated call distribution and interactive voice response,
and features such as
                                       10
<PAGE>   12

three- or four-digit internal dialing, conferencing and call forwarding. By
enabling all employees, regardless of location, to have access to the corporate
voice system, our EXTender solutions create a single, unified voice network.

  Customer Premise Equipment

     Our single-user product line enables telecommuters and remote call center
agents located in remote locations to connect to the corporate telephone system
and data network over public and private networks.

     - EXTender 100 for PC Clients.  The EXTender 100 for PC Clients is a
       PC-based solution that enables remote call center agents, telecommuters
       and mobile workers to access the most common features of corporate PBX
       systems without requiring a digital telephone set. To make voice calls
       using the corporate PBX, the remote or mobile worker uses a data
       connection between the MCK PBXgateway at the corporate PBX site and the
       EXTender 100 for PC Clients to send and receive the PBX signaling
       information that enables PBX functionality. Simultaneously, the remote or
       mobile worker uses an analog, cellular or IP phone as the voice transport
       device.

     - EXTender 1000+.  The EXTender 1000+ is a single-user device that supports
       both voice and data over a single traditional telephone line. The remote
       user's personal computer and full-featured digital telephone set plug
       into the product, which terminates and multiplexes voice and data over a
       single telephone line. The product contains a built-in, industry-standard
       56 kilobits per second, or Kbps, modem which enables the user to access
       the corporate data network and supports standard Windows-based, dial-up
       networking technology. The EXTender 1000+ unit is situated at the remote
       location and connects to either another EXTender 1000+ unit or a
       PBXtender gateway product located at the corporate PBX site. In the
       future, the EXTender 1000+ will also be able to connect to a PBXgateway
       product located at the corporate PBX site.

     - EXTender 3000.  The EXTender 3000 is a single-user device that supports
       both voice and data over an integrated services digital network, or ISDN,
       connection. An integrated services digital network connection is composed
       of two 64 Kbps channels that each can deliver a separate network
       connection. With its built-in network interface, the EXTender 3000
       enables the remote user to connect a digital telephone set and a personal
       computer into the EXTender 3000. The EXTender 3000 unit situated at the
       remote location is connected to either another EXTender 3000 unit or a
       PBXtender gateway product located at the corporate PBX site. In the
       future, the EXTender 3000 will also be able to connect to a PBXgateway
       product located at the corporate PBX site. There are three versions of
       the EXTender 3000:

     - EXTender 3000S and EXTender 3000T.  The EXTender 3000S and the EXTender
       3000T utilize a serial data connection and offer simultaneous voice and
       data multiplexed over one channel. The second channel is available for
       analog devices such as a fax, additional phone or a modem. The EXTender
       3000T uses standard Windows-based, dial-up networking technology to
       enable the user to set up a dial-up network connection to a remote access
       server at the corporate location.

     - EXTender 3000E.  The EXTender 3000E offers dedicated voice over one
       channel and a 64 Kbps Ethernet data connection on the second channel. The
       EXTender 3000E uses an Ethernet port and bridging technology to enable
       simultaneous voice and data network access capabilities. In addition,
       standard hardware compression technology is utilized to significantly
       enhance data throughput. When not used for Ethernet data, the second
       channel is available as an analog port, supporting a fax, additional
       phone or modem.

     - EXTender 3200 for IDSL.  The EXTender 3200 for IDSL is a single-user
       device that delivers voice and data over an integrated digital subscriber
       line, or IDSL, network connection. IDSL is a digital subscriber
       line-enabled integrated services digital network connection that combines
       both channels into one digital connection that can simultaneously
       transmit packet voice and data. The product was developed in conjunction
       with Copper Mountain and interoperates with its equipment located in the

                                       11
<PAGE>   13

       central offices of service providers that transmits voice and data
       traffic to and from end users. The EXTender 3200 for IDSL connects to a
       PBXgateway product located at the corporate site.

     - IP EXTender 4000.  The IP EXTender 4000 is a single-user product that
       delivers PBX voice over IP networks. The product requires an external
       network termination device and delivers IP-based voice over data
       networks. The IP EXTender 4000 connects to a PBXgateway product located
       at the corporate site.

      Our branch office product connects remote offices to the corporate
telephone system over data networks.

     - Branch Office EXTender 6000.  The Branch Office EXTender 6000 is a
       multi-user product that is available in both 8 and 12 port versions. Both
       versions are also available with an additional analog port, which
       provides local dialing capabilities and emergency 911 access. The product
       was constructed with standard 19-inch, rack-mountable hardware so a
       number of units can easily be deployed together to service larger remote
       offices. In addition, the product has dual external network interfaces
       that allow for multiple options and redundancy capability and transmits
       voice over a wide variety of data networks including ATM, DSL, fiber,
       frame relay, IP, ISDN, leased line, T-1 and fractional T-1 connections.
       The Branch Office EXTender 6000 can be centrally administered over a
       Telnet connection, an in-band RVP connection, or with SNMP or HTML
       interfaces. The product's ability to dynamically allocate bandwidth
       between multiple users allows for flexible configurations and bandwidth
       conservation. The Branch Office EXTender 6000 located at the remote
       office connects to our PBXgateway product located at the corporate PBX
       site.

  Corporate PBX Gateway Products

     Our PBX gateway products, located at the corporate PBX site, interface with
the line side of the PBX and create extensions of voice and PBX applications to
our customer premise equipment.

     - PBXtender.  The PBXtender is a high density PBX gateway product that can
       support up to 24 ports per chassis. The PBXtender currently supports our
       EXTender 1000+ and EXTender 3000 product lines. The PBXtender can be
       configured to support up to 12 line cards that may be mixed and matched
       to support up to 12 analog users or 24 integrated services digital
       network, or ISDN, users simultaneously. The product also has a
       Windows-based graphical user interface to enable remote management and
       diagnostics of our customer premise equipment.

     - PBXgateway.  The PBXgateway supports a range of our products, including
       both multi-user and single-user customer premise equipment, and is
       available in both 8 and 12 port versions. Depending upon the software
       version of the product, the PBXgateway will transmit voice over a wide
       variety of data networks including ATM, DSL, fiber, frame relay, IP,
       ISDN, leased line, T-1 and fractional T-1 connections.

          When the product is running the software version that supports
     traditional networks, the PBXgateway located at the corporate PBX site
     extends the functionality of the corporate PBX to a Branch Office EXTender
     6000 located at the remote office site. This product will transmit voice
     over ATM, fiber, frame relay, ISDN, leased line, T-1 or fractional T-1
     network connections.

          When the product is running the software version that supports
     IP-based networks, the PBXgateway extends the functionality of the
     corporate PBX to a variety of our multi-user and single-user IP products,
     including the Branch Office EXTender 6000, EXTender 3200 for IDSL, IP
     EXTender 4000 and the EXTender 100 for PC Clients. The PBXgateway can
     support up to 12 simultaneous users across any of these products over
     multiple types of broadband networks. The PBXgateway can be centrally
     administered over a Telnet connection, an in-band RVP connection, or with
     SNMP and HTML interfaces. As part of our strategy, we are positioning this
     product as a platform to deliver new applications and services to our
     customer premise equipment, utilizing both new software components.

                                       12
<PAGE>   14

  Other Products

     - Digital-to-Analog Recording Interface.  Our Digital-to-Analog Recording
       Interface converts digital voice from proprietary PBXs into a standard
       analog audio output so that voice calls can be recorded on any voice
       logger or recording device. We offer 3 configurations that support from 2
       to 48 lines, and are modular in nature, allowing for easy expansion to
       accommodate more users. Our Digital-to-Analog Recording Interface is
       compatible with the following voice systems: DEFINITY (Lucent); Meridian
       (Nortel Networks); Norstar (Nortel Networks); DMS Centrex (Nortel
       Networks); CallCenter (Aspect); NEAX (NEC); and HiCom (Siemens).

     - Telebridge.  The Telebridge series of products emulates digital PBX
       telephone sets and terminates calls, allowing computer telephony
       integration, or CTI, applications to interface with legacy PBX systems.

SALES AND MARKETING

     We primarily sell our products through an indirect distribution system that
includes the following channels: OEMs and private label partners, ILECs, systems
integrators and distributors, telecom and datacom VARs, and broadband service
providers. We support our sales channels with our own internal sales
professionals as well as marketing programs, educational programs, field
technical support and telephone technical support. At April 30, 2000, our sales
team was composed of a vice president of sales, 17 regional sales managers, 5
systems engineers, 7 channel sales managers and 2 sales administrators. Our
multi-channel strategy enables us to create end-user demand for our products and
services, and access corporate opportunities identified by our channel partners,
while also allowing the customers to choose the reseller that is most
appropriate for delivering those products and services to them. Our primary
distribution channels include:

<TABLE>
<S>                                        <C>
OEMs and Private Label Partners..........  Alcatel, Bell Canada, Dictaphone, Lucent,
                                           NEC, Toshiba
ILECs....................................  Ameritech, BellSouth, GTE, SBC
Systems Integrators and Distributors.....  Anixter, Dacon, Ingram Micro, Sprint
                                           North Supply, Williams Communications
Telecom and Datacom VARs.................  Northwest Extension, PB Exchange,
                                           Solunet, Stevens Communications,
                                           TeleCommute Solutions
Broadband Service Providers*.............  Digital Broadband Solutions, DSL.Net,
                                           HarvardNet, JATO Communications, MCI,
                                           Northpoint Communications, Rhythms
                                           NetConnections, Telocity, US West
</TABLE>

---------------
* Products in pre-release testing; channel under development

     Our regional sales managers provide support to all of the channels in their
geographic territory. They work closely with our channel partners, participating
in end-user briefings, proposals, product training sessions, end-user seminars,
trade shows and other demand generating activities. In addition, regional sales
managers are involved in generating and qualifying end-user leads that are
closed in partnership with our indirect channels. We have regional sales
managers located in Atlanta, Boston, Chicago, Dallas, New Jersey, New York, San
Francisco, Seattle, Calgary, Montreal, Toronto, and London.

     Our field-based systems engineers, located in Boston, Nashville, Newark,
Seattle and Calgary, provide our channels with technical training and perform
pre- and post-sale technical support for our channels and end-user customers.
All of our systems engineers have in-depth industry experience and product
expertise. They assist our channel partners with proposals, configurations,
requests for quotations and executive briefings, and perform other consultative
duties.

                                       13
<PAGE>   15

     Our channel sales managers work at a corporate level with all of our
largest channel partners in developing sales and marketing plans that are
implemented at the field levels. These channel sales managers are primarily
responsible for driving business through the Alcatel, Lucent, NEC, Nortel
Networks and Toshiba channels. They also work with our regional territory
managers on large sales opportunities and national accounts. We have channel
managers located in Boston and Texas.

     Our distribution channels are responsible for identifying potential
business customers, selling our products as part of complete solutions, and
installing and supporting the equipment at end-user sites. We generally
establish relationships with our most significant distribution channels through
written distribution agreements that provide pricing, discounts, and terms and
conditions under which they may purchase our products for resale. These
agreements are generally non-exclusive, may be terminated at will and do not
prevent our resellers from carrying competing lines or require our resellers to
attain specific sales levels. A number of our distribution channels resell our
products without written agreements, with terms determined on a purchase order
basis. We provide significant sales, marketing, training and technical support
to our channels.

     Sales outside of the United States accounted for 18.3% and 15.3% of sales
in fiscal year 1999 and 2000, respectively. We sell globally through Alcatel,
Lucent, NEC and Toshiba. In addition, we have a distribution arrangement with
Dacon Electronics plc for European sales of Nortel Networks-based products, as
well as distribution arrangements with over 10 other international distributors.

     We focus our marketing efforts on awareness generation, lead generation and
sales support activities. Our marketing audience includes existing and
prospective customers, channel partners, trade and business press, industry
analysts and others who are influential in the industry.

     We participate in over 20 trade shows annually, taking advantage of joint
marketing opportunities with our resellers and channel partners whenever
possible. Trade show efforts include shows in the telecommunications,
teleworking, CTI, networking, call center and service provider industries. We
participate in many seminars with our resellers, as well as all major PBX user
group events and industry-related conferences. We use direct marketing programs
to generate awareness and qualified leads. Many campaigns are executed in
conjunction with our resellers, customized with their messages and contact
information and then mailed to their prospect and customer lists. Our web site
serves as an information source for end users, prospects and channel partners,
as well as a lead generation tool and customer service resource. Additionally,
we dedicate significant marketing resources to public relations activities,
generation of product and partner press releases, speaking opportunities,
by-lined articles, product reviews, customer success stories and editorial
coverage.

     To support our sales channels, we prepare training materials,
presentations, collateral, cost-justification tools, case studies, product
configurations, fact sheets, product introduction kits and distributor success
guides. Our regional sales managers and systems engineers regularly visit our
reseller offices and conduct product and technical training. Our marketing
database and sales force automation system currently contains over 20,000
records that can be segmented and are marketed to regularly.

CUSTOMER SUPPORT

     A high level of customer support and service is critical to developing
long-term relationships with our major distribution channels and end-user
customers. The majority of our service and support activities are related to
installation support and initial network configuration issues. In North America,
we also offer a variety of comprehensive and flexible maintenance and support
programs including basic product warranty, installation services, 24 hours a
day, 7 days a week remote telephone support and onsite maintenance services. Our
products are architected with support in mind. For example, our branch products
are engineered with remote monitoring, management and diagnostic capabilities so
that problems can be diagnosed on-line, thereby reducing the time and costs
associated with dispatching a technician to a remote site.

     A number of our distribution partners support our products. These
distribution partners provide installation, onsite maintenance and telephone
support services to our end users. To complement this service infrastructure, we
have engaged Vital Network Services, an outsourced technical support and
customer services organization, to provide fee-based telephone support,
installation and onsite maintenance services. We

                                       14
<PAGE>   16

sell these services directly and indirectly to end users. To date, our revenues
attributable to customer service and support services have been immaterial. We
provide high-level, back-up technical support and engineering assistance for
both our distribution partners and Vital Network Services. We have established
strict escalation guidelines with both our distribution channels and Vital
Network Services to ensure that the appropriate technical resources and
management attention within our company are focused on problems that are not
solved in a timeframe commensurate with the problem's priority.

     At April 30, 2000, we employed 7 people in customer support. Although we
may augment our Needham, Massachusetts and Calgary, Alberta-based support staff,
we do not intend to recruit our own direct field service and support
organization.

CUSTOMERS

     We sell substantially all of our products through independent channel
partners. The following is a representative list of our indirect channel
partners who have purchased products from us during 12 months ending April 30,
2000:

<TABLE>
<S>                           <C>                           <C>
Alcatel                       Dictaphone                    Positron
Ameritech                     Frantel                       SBC
Anixter                       GTE                           Sprint North Supply
BC Tel                        Lucent                        Stevens Communications
Bell Canada                   Mitel                         Telecommute Solutions
BellSouth                     NEC                           Teleswitch
CCA                           Northwest Extension           Toshiba
Dacon Electronics             PB Exchange                   Williams Communications
</TABLE>

     For the fiscal year ended April 30, 1999, Lucent accounted for 46.7% of our
revenues, and our ten largest customers, including Lucent, accounted for 78.7%
of our revenues. For the fiscal year ended April 30, 2000, Lucent accounted for
45.6% of our revenues, and our 10 largest customers, including Lucent, accounted
for 76.1% of our revenues. No other customer represented over 10% of our
revenues in either period.

RESEARCH AND DEVELOPMENT

     To maintain our technology leadership position, we focus our research and
development efforts on improving the functionality and performance of our
existing products and designing new products that address customer needs and
changes in the marketplace. We have assembled a team of experienced hardware and
software engineers with capabilities in both networking and telecommunications.
Our engineering expertise includes significant understanding of:

     - the digital line or user side of proprietary PBX systems;

     - digital audio technology, such as echo cancellation and voice compression
       algorithms;

     - IP telephony;

     - data network and telephony interfaces; and

     - network diagnostic and management frameworks.

     At April 30, 2000, we employed 46 people in our engineering organization,
and intend to continue to expand all functional areas of the engineering
organization. We perform research and product development activities at our
principal offices in Needham, Massachusetts, as well as at our Calgary, Alberta
development facility.

     Our research and development process is driven by market demand. Product
development begins with a comprehensive functional product specification based
on input from all functional groups and levels within our company. In addition,
we value feedback from our end-user customers and distribution channel partners,
and have incorporated a significant amount of customer-requested functionality
to date. We are also active in

                                       15
<PAGE>   17

industry bodies and standards committees and utilize information from these
organizations in the product development process. Finally, we have maintained an
ongoing dialogue and established technology relationships with a number of PBX
manufacturers, internetworking vendors, broadband equipment suppliers and
service providers. We will continue to work with these companies to develop
products that meet specific market requirements.

     In addition to designing enhancements for our current products, we will
work to develop new remote voice products that extend the functionality of the
PBX across multiple networks, particularly broadband networks. Furthermore, we
plan to develop new software components for our universal hardware architecture
that expand the basic capabilities of our solutions to enable the delivery of
new applications and services. We are focusing development efforts on, among
other things, supporting additional PBX-based corporate telephone systems and
new network environments, developing additional software applications, expanding
the port density of our existing products and implementing additional network
management capabilities. Finally, we will continue to work with third-party
software and hardware manufacturers to establish interoperability between our
products and other important elements within common network environments.

PRODUCT VALIDATION LABORATORY

     Over the last year, we have hired the personnel and purchased the equipment
necessary to build our product validation laboratory. Of the 46 people in our
engineering organization, 9 are dedicated full time to our product validation
laboratory. At both our Needham, Massachusetts and Calgary, Alberta development
facilities, we have constructed state of the art laboratories with equipment
from such vendors as ADC Kentrox, Alcatel, Ascend, Cisco, Copper Mountain,
Flowpoint, IBM, Jetstream, Lucent, NEC, Netopia, Newbridge, Nortel Networks,
Packeteer, Paradyne and Toshiba.

     Our Calgary, Alberta facility system tests the EXTender product line and
validates our product's integration with the major PBX vendors that we support.
We conduct extensive product testing to ensure that our equipment meets the high
standards for voice quality and reliability associated with mission critical
systems such as PBXs. We also conduct extensive tests on the embedded systems
within our EXTender product line as well as on all the features and functions of
the EXTenders. Our Calgary facility also conducts tests that ensure that our
products are compatible with the PBXs and respective digital telephone sets of
manufacturers that we support.

     Our Needham, Massachusetts facility tests system interoperability. The
ability to deliver traffic within multiple network environments and to
interoperate with equipment from numerous vendors has become a key component to
the success of communications equipment companies. Because no communications
equipment product can be validated independently of the network within which it
operates or independently from the equipment with which it interfaces, this lab
conducts extensive tests of our product line operating within multiple network
environments and interacting with equipment from numerous equipment vendors. We
conduct extensive tests that measure device performance, quality of service and
voice prioritization within multiple network environments and across a range of
network conditions. Our facilities contain extensive telephony and data
equipment and network circuits to conduct these tests.

     By combining the capabilities of our two facilities, we have implemented a
product validation procedure that enables us to deliver high quality voice
equipment that works within multiple network environments, is compatible with
most widely deployed network equipment and is capable of adapting to a wide
range of network conditions. Furthermore, the engineers in our product
validation laboratory work continually with validation engineers at other
equipment companies in order to compile feedback and recommendations to improve
our products.

MANUFACTURING

     We outsource our manufacturing to three contract manufacturers. Celestica,
which is located in Exeter, New Hampshire and is ISO 9002 registered,
manufactures the Branch Office EXTender and PBXgateway products. They provide
full turnkey services, including material procurement, final assembly, testing,
shipment to our customers and warranty repair. Mack Technologies, located in
Westford, Massachusetts, manufactures
                                       16
<PAGE>   18

our Branch Office EXTender, PBXgateway products and our IP EXTender 4000 product
line. Electronic Manufacturing Group located in Calgary, Alberta manufactures
all of our other product lines. Electronic Manufacturing Group also provides us
with printed circuit assemblies. We are ISO 9001 registered and complete the
final assembly, testing and inspection of these printed circuit assemblies at
our Calgary, Alberta facility.

     We design and develop the key components, including printed circuit boards
and software, for all of our products. In addition, we determine the components
that are incorporated in our products and select the appropriate suppliers of
these components. We design the tests and specify the testing equipment for the
product testing performed at Celestica and at our facility in Calgary, Alberta.

     We use a rolling six-month forecast based upon anticipated product orders
to determine our material requirements. Lead times for the materials and
components that we order vary significantly and depend on factors such as
specific supplier, contract terms and demand for a component at a given time.
We, along with our contract manufacturers, may terminate our contracts without
cause at any time. At that time, the terminating party must honor all open
purchases.

COMPETITION

     We compete in a new, rapidly evolving and highly competitive and fragmented
industry that is subject to increasing product, market and technology changes
brought about by the introduction of new technologies, the deployment of
broadband networks and changes in the regulatory environment. We believe that
the main competitive factors in our market are the following:

     - technology partnerships, particularly with the major PBX manufacturers
       and service providers;

     - system reliability and performance;

     - sales and distribution capability;

     - price/performance characteristics;

     - access to third-party technology;

     - conformance to industry standards;

     - brand name recognition;

     - ease of deployment and use;

     - timeliness of product introductions;

     - product features and breadth;

     - customer relationships; and

     - technical support and service.

     We believe our success in competing with other manufacturers of
communications products depends primarily on:

     - our ability to enter into and maintain key technology and distribution
       relationships with third-party manufacturers, distributors, resellers and
       service providers in our market segment;

     - our engineering, marketing and sales skills;

     - the price, quality and reliability of our products; and

     - our delivery and service capabilities.

     Our principal and potential competitors include large telecommunications
manufacturers such as Nortel Networks and a number of other public and private
companies that are developing next generation network access products that
target the branch office and telecommuting marketplaces. We expect competition
to

                                       17
<PAGE>   19

intensify in the future and new competitors to emerge. Many of our competitors
are substantially larger than we are and have significantly greater financial,
sales and marketing, technical, manufacturing and other resources, more
established distribution channels and stronger relationships with service
providers. These competitors may be able to respond more rapidly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than we can.
Furthermore, we believe some of our competitors may offer aggressive sales
terms, including financing alternatives, which we might not be able to match.
These competitors may enter our existing or future markets with solutions that
may be less expensive, provide higher performance or additional features or be
introduced earlier than our solutions. Given the market opportunity, we also
expect that other companies may enter our market with better products and
technologies. If any technology that is competing with ours is more reliable,
has better quality, is less expensive or has other advantages over our
technology, then the demand for our products could decrease.

     We expect our competitors to continue to improve the performance of their
current products and introduce new products or new technologies. Successful new
product introductions or enhancements by our competitors could reduce the sales
or market acceptance of our products, perpetuate intense price competition or
make our products obsolete. To be competitive, we must continue to invest
significant resources in research and development, sales and marketing and
customer support. We cannot be sure that we will have sufficient resources to
make these investments or that we will be able to make the technological
advances necessary to be competitive.

     Increased competition is likely to result in price reductions, reduced
gross margins and loss of market share. Our failure to compete successfully
against current or future competitors could seriously harm our business,
financial condition and results of operations.

INTELLECTUAL PROPERTY

     Our success and ability to compete is dependent in part upon our
proprietary technology. We rely on a combination of copyright, trademark, trade
secret and other intellectual property law, nondisclosure agreements and other
protective measures to protect our proprietary rights. We also utilize
unpatented proprietary knowledge and trade secrets, and employ various methods
to protect our trade secrets and knowledge. We presently have no patents or
patent applications pending.

     We believe our intellectual property rights are significant and that the
loss of all or a substantial portion of such rights could have a material
adverse effect on our business, financial condition and results of operations.
There can be no assurance that our intellectual property protection measures
will be sufficient to prevent misappropriation of our technology. Some of our
contractual arrangements provide third parties with access to our source code
and other intellectual property upon the occurrence of specified events. Such
access could enable these third parties to use our intellectual property and
source code to develop and manufacture competing products, which would adversely
affect our performance and ability to compete. In addition, we cannot be certain
that others will not independently develop substantially equivalent intellectual
property, gain access to our trade secrets or intellectual property, or disclose
our intellectual property or trade secrets. Furthermore, the laws of many
foreign countries do not protect our intellectual property to the same extent as
the laws of the United States. From time to time, we may desire or be required
to renew or to obtain licenses from others in order to develop and market
commercially viable products effectively. There can be no assurances that any
necessary licenses will be available on reasonable terms, if at all.

     The communications industry is characterized by the existence of a large
number of patents and frequent claims and related litigation regarding patent
and other intellectual property rights. In particular, leading companies in the
communications markets have extensive patent portfolios. From time to time,
third parties may assert exclusive patent, copyright, trademark and other
intellectual property rights to technologies and related standards that are
important to us. We expect that we may increasingly be subject to infringement
claims as the number of products and competitors in the market for our
technology grows and the functionality of products overlaps. Although we have
not been a party to any litigation asserting claims that allege infringement of
intellectual property rights, we may be a party to litigation in the future. In
addition, third

                                       18
<PAGE>   20

parties may assert claims or initiate litigation against us or our
manufacturers, suppliers, OEMs, technology partners or customers alleging
infringement of their proprietary rights with respect to our existing or future
products.

     We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights to determine the scope and validity
of our proprietary rights. Any such claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel or require us to develop non-infringing technology or enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all.

EMPLOYEES

     At April 30, 2000, we had a total of 130 employees, of which 46 were in
research and development, 52 were in sales, marketing, business development and
customer support, 14 were in manufacturing and operations, and 18 were in
finance and administration. None of our employees is represented by a labor
union. We have not experienced any work stoppages and consider relations with
our employees to be good.

RECENT ACQUISITION

     On June 14, 2000, we acquired DTIH and its wholly owned subsidiary DTI for
$11.5 million in cash, 364,601 shares of common stock and assumed stock options.
DTI designs, manufactures, distributes and supports a comprehensive suite of
digital to analog recording products. Based in Allen, Texas, DTI has
approximately 50 employees and maintains a 20,000 square foot facility.
Consistent with our current manufacturing model, DTI's performs final assembly
and test of its products at the Texas facility.

ITEM 2.  PROPERTIES

     We currently lease approximately 33,000 square feet of space at our
headquarters in Needham, Massachusetts under a lease that expires in March 2007.
To accommodate our anticipated growth we have signed a lease which provides an
additional 15,000 square feet of adjoining office space commencing in the summer
of 2000 and expiring in March 2007. We have concurrently sub-let this space for
a term of 3 years to an unrelated third party and believe the additional space
will not impact our operating results until we occupy the space. We also lease
approximately 8,500 square feet at our development center in Calgary, Alberta
under a lease that expires in December 2000.

ITEM 3.  LEGAL PROCEEDINGS

     On May 3, 2000, Joan Lockhart, the Company's former Vice President of
Marketing, filed a complaint in Massachusetts State Court against the Company
(the "Complaint"). In the Complaint, entitled Joan Lockhart v. MCK
Communications, Inc., (Middlesex Superior Court), Ms. Lockhart asserts a claim
for breach of contract against the Company based on her allegations that the
Company failed to comply with the terms of her employment and certain restricted
stock and stock option agreements executed by and between the Company and Ms.
Lockhart. Ms. Lockhart seeks certain damages of approximately $30,000 in
severance pay as well as declaratory and injunctive relief, including the right
to purchase 33,309 shares of restricted stock and exercise certain stock
options. On June 5, 2000, the Company filed its answer denying the material
allegations of Ms. Lockhart's complaint. We are unable at this time to estimate
the probability of a favorable or unfavorable outcome or to estimate the amount
of any losses in the event of an unfavorable outcome.

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

     None.

                                       19
<PAGE>   21

                                    PART II

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

     MARKET PRICE FOR COMMON STOCK.  Our Common Stock began trading on the
NASDAQ National Market System under the symbol MCKC effective October 22, 1999.
Prior to that date, there was no public market for our Common Stock. The
following table sets forth for the periods indicated the high and low closing
prices for the Common Stock, as reported by NASDAQ:

<TABLE>
<CAPTION>
FISCAL QUARTER ENDED                                           HIGH       LOW
--------------------                                          -------   -------
<S>                                                           <C>       <C>
October 31, 1999 (from October 22, 1999)....................  $24.125   $16.375
January 31, 2000............................................    37.75    19.125
April 30, 2000..............................................   74.125     21.50
</TABLE>

     HOLDERS OF RECORD.  As of July 3, 2000, there were approximately 86 holders
of record of our common stock and 19,835,612 shares of Common Stock outstanding.

     DIVIDEND POLICY.  To date, the Company has not paid any cash dividends on
its Common Stock. The Company currently anticipates that it will retain any
available funds to finance the growth and operation of its business and does not
anticipate paying any cash dividends in the foreseeable future.

ITEM 6.  SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION

     The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and are qualified by reference to the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Report. The statement
of operations data set forth below for the years ended April 30, 1998, 1999 and
2000, and the balance sheet data at April 30, 1999, 2000, are derived from, and
are qualified by reference to, the audited Consolidated Financial Statements of
MCK Communications, Inc. included elsewhere herein. The statement of operations
data set forth below for the years ended April 30, 1996 and 1997 and the balance
sheet data at April 30, 1996, 1997 and 1998 are derived from audited
Consolidated Financial Statements of MCK Communications, Inc. not included
herein.

                                       20
<PAGE>   22

<TABLE>
<CAPTION>
                                                                   YEARS ENDED APRIL 30,
                                                -----------------------------------------------------------
                                                  1996        1997        1998         1999         2000
                                                ---------   ---------   ---------   ----------   ----------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                             <C>         <C>         <C>         <C>          <C>
OPERATIONS DATA:
Revenues......................................  $   5,339   $   5,921   $   7,876   $   14,270   $   25,082
Cost of goods sold............................      2,423       2,313       2,800        5,390        9,455
                                                ---------   ---------   ---------   ----------   ----------
Gross profit..................................      2,916       3,608       5,076        8,880       15,627
Operating expenses:
  Research and development (excluding
    amortization of stock based compensation
    of $0, $0, $0, $175 and $1,558 in 1996,
    1997, 1998, 1999 and 2000,
    respectively).............................        344         815       1,758        3,349        4,876
  Sales and marketing (excluding amortization
    of stock based compensation of $0, $0, $0,
    $110 and $1,853 in 1996, 1997, 1998, 1999
    and 2000, respectively)...................        576       1,145       2,191        3,888        7,817
  General and administrative (excluding
    amortization of stock based compensation
    of $0, $0, $0, $120 and $1,234 in 1996,
    1997, 1998, 1999 and 2000,
    respectively).............................        319         607       1,485        1,617        2,475
  Amortization of stock based compensation....         --          --          --          406        4,645
  Transaction-related charges.................         --         493          --           --
                                                ---------   ---------   ---------   ----------   ----------
         Total operating expenses.............      1,239       3,060       5,434        9,260       19,813
                                                ---------   ---------   ---------   ----------   ----------
Income (loss) from operations.................      1,677         548        (358)        (380)      (4,186)
Other income (expense)........................          7        (343)       (595)        (207)         758
                                                ---------   ---------   ---------   ----------   ----------
Income (loss) before provision for income
  taxes and dividends on redeemable preferred
  stock of subsidiary.........................      1,684         205        (953)        (587)      (3,428)
Provision for income taxes....................        652         302          --           --          100
Dividends on redeemable preferred stock of
  subsidiary..................................         --         133         160          197           97
                                                ---------   ---------   ---------   ----------   ----------
Net income (loss).............................  $   1,032   $    (230)  $  (1,113)  $     (784)  $   (3,625)
Dividends on redeemable preferred stock.......         --       1,011       1,220        1,966        1,285
                                                ---------   ---------   ---------   ----------   ----------
Net income (loss) applicable to common
  shares......................................  $   1,032   $  (1,241)  $  (2,333)  $   (2,750)  $   (4,910)
                                                =========   =========   =========   ==========   ==========
Basic and diluted net income (loss) per common
  share.......................................  $    0.33   $   (0.39)  $   (0.67)  $    (0.71)  $    (0.44)
Shares used in computing basic and diluted net
  income (loss) per common share..............  3,108,373   3,188,152   3,476,282    3,881,526   11,144,565
Pro forma basic and diluted loss per common
  share.......................................                                                        (0.31)
Shares used in computing pro forma basic and
  diluted loss per common share...............                                                   15,268,368
CONSOLIDATED BALANCE SHEET DATA:
  Cash and equivalents........................          1       3,228       1,867        3,285       75,724
  Working capital.............................        (97)      4,965       3,545        5,578       78,288
  Total assets................................      3,148       6,517       5,665        9,428       87,194
  Total stockholders' equity (deficit)........       (207)    (17,568)    (20,050)     (24,040)      80,946
</TABLE>

                                       21
<PAGE>   23

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

     The following discussion should be read in conjunction with our
consolidated financial statements and the related notes included elsewhere in
this prospectus.

OVERVIEW

     MCK Communications is a leading provider of products that enable
corporations to distribute the full range of features and applications of
corporate telephone systems to branch offices and telecommuters over data
networks. We market and distribute our products through an international network
of indirect resellers and equipment providers and, to a lesser extent, through
direct sales. We are headquartered in Needham, Massachusetts and have a
development center in Calgary, Canada.

     From our inception in 1989 through 1993, we were a small company based in
Calgary, Canada that designed and marketed a number of niche, voice products
targeted at the oil industry. Commencing in 1993, we altered our business focus
and began developing remote voice access products for corporate telephone
systems by using the technology derived from this initial business. These
efforts led to the development of our EXTender product line. During the period
from 1993 through 1995, our operating activities related primarily to
establishing a research and development organization, developing and testing
prototype designs, and developing OEM relationships. We shipped our first remote
voice access product, the EXTender 1000, in February 1995. In June 1996, Summit
Partners acquired a majority of our stock pursuant to a leveraged
recapitalization. In June 1997, we recruited a new chief executive officer and
moved our headquarters to Massachusetts. Since then we recruited the rest of our
management team, focused our research and development efforts on developing
additional remote voice access products and product enhancements, created a
product validation laboratory, built international indirect sales channels,
developed additional technology relationships, and established our sales,
marketing and customer support organizations. We began shipments of the EXTender
3000 and our multi user products, the PBXgateway and Branch Office EXTender
6000, in December 1997 and April 1999, respectively. In December 1999, we
released our IP enabled product suite for remote voice access over broadband
next generation networks such as DSL and cable.

     Through the fiscal year ended April 30, 1999, our revenues consisted
primarily of product sales of our single-user remote voice access products and,
to a lesser degree, our digital-to-analog converter products. In April 1999, we
released our first multi-user remote voice access products, the Branch Office
EXTender 6000 and the PBXgateway, and we are presently developing additional
remote voice access products that operate over broadband networks. For the
foreseeable future, we anticipate that substantially all of our revenues will be
attributable to sales of our remote voice access products, with sales of
digital-to-analog converters representing a decreasing percentage of our
revenues. Among our remote voice access products, we believe that the multi-
user products and next generation single-user products will represent a
substantial and increasing percentage of our revenues, while the sales of our
existing single-user products may decline as a percentage of our revenues. To
date we have generated minimal service and maintenance revenues. We do not
expect maintenance or service revenues to be a significant portion of our
revenues. Periodically, we have received non-recurring engineering fees,
although such fees have not been material to date. For the fiscal years ended
April 30, 1999 and 2000, Lucent accounted for approximately 46.7% and 45.6%,
respectively of our revenues.

     We recognize product revenues upon shipment to the customer. We routinely
analyze and establish, as necessary, reserves at the time of shipment for
product returns and allowances, which amounts, to date, have not been
significant. Service revenues are recognized as the services are performed.
Maintenance revenues are deferred and recognized over the period of the
contract.

     Our cost of goods sold consists primarily of purchased finished products
from Celestica and Mack Technologies and purchased subassemblies from EMG. We
incur additional costs to test and assemble these subassemblies for shipment to
our customers. Cost of goods sold also includes certain manufacturing overhead
costs, primarily facilities and related depreciation. In August 1999, we began
offering maintenance and support services to our distribution channels and end
users through Vital Network Services, a third-party support provider.

                                       22
<PAGE>   24

     Research and development expenses consist primarily of salaries and related
personnel costs and contract engineering, purchased software and prototype
expenses related to the design, development, enhancement and testing of our
products. As of April 30, 2000, all research and development costs have been
expensed as incurred. We intend to increase our investment in research and
development, which is critical to achieving our product objectives. We will also
increase our expenditures on our product validation laboratory to test the
interoperability of our products with corporate telephone systems and other
products. This competency is becoming increasingly critical to our business as
we develop additional products that function over data networks in conjunction
with third-party data equipment. We expect research and development expenses to
increase significantly in the future as we continue to develop new products and
enhance existing products.

     Sales and marketing expenses consist primarily of salaries, commissions and
related personnel expenses for those engaged in the sales, marketing and support
of products as well as related trade show, promotional and public relations
expenses. We primarily sell our products through an indirect distribution system
that includes the following channels: OEMs and private label partners, ILECs,
systems integrators and distributors, telecom and datacom VARs and broadband
service providers. Our sales force and marketing efforts are primarily directed
at developing brand awareness and supporting our indirect distribution channels.
We intend to pursue sales and marketing campaigns aggressively and increase our
sales force headcount and, therefore, expect these expenses to increase in the
future.

     General and administrative expenses consist primarily of salaries and
related personnel expenses for executive, accounting and administrative
personnel, professional fees and other general corporate expenses. As we add
personnel and incur additional costs related to the growth of our business, we
expect that general and administrative expenses will also increase.

     Stock based compensation expenses resulted from the granting of restricted
stock and stock options to employees and directors with exercise prices per
share determined to be below the deemed fair values per share for financial
reporting purposes of our common stock at dates of grant. The deferred
compensation is being amortized to expense in accordance with FASB
interpretation No. 28 over the vesting period of the individual options,
generally four years. In the fiscal year ended April 30, 1999, we recorded total
deferred stock compensation of $1.2 million and amortized $406,000. In addition,
we recorded total deferred stock compensation of $8.5 million in the fiscal year
ended April 30, 2000 and amortized $4.6 million in the same period. At April 30,
2000, deferred compensation to be amortized in future periods amounted to $4.6
million.

     Other (income) expense, net consists primarily of interest expense related
to our subordinated debt, offset by interest income, and foreign exchange gains
or losses related to the effects of the Canadian/U.S. exchange rate on
inter-company transactions.

                                       23
<PAGE>   25

RESULTS OF OPERATIONS

     The following table sets forth certain financial data for the periods
indicated as a percentage of revenues.

<TABLE>
<CAPTION>
                                                               YEARS ENDED APRIL 30,
                                                              -----------------------
                                                              1998     1999     2000
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Revenues....................................................  100.0%   100.0%   100.0%
Cost of goods sold..........................................   35.6     37.8     37.7
                                                              -----    -----    -----
Gross margin................................................   64.4     62.2     62.3
Operating expenses:
  Research and development..................................   22.3     23.5     19.4
  Sales and marketing.......................................   27.8     27.3     31.2
  General and administrative................................   18.9     11.3      9.9
  Amortization of stock based compensation..................     --      2.8     18.5
                                                              -----    -----    -----
          Total operating expenses..........................   69.0     64.9     79.0
                                                              -----    -----    -----
Loss from operations........................................    4.5      2.7     16.7
Other (income) expense, net.................................    7.6      1.5     (3.0)
                                                              -----    -----    -----
Loss before provision for income taxes and dividends on
  redeemable preferred stock of subsidiary..................   12.1      4.1     13.7
Provision for income taxes..................................     --       --      0.4
                                                              -----    -----    -----
Net loss before dividends on subsidiary redeemable preferred
  stock.....................................................   12.1%     4.1%    14.1%
                                                              =====    =====    =====
</TABLE>

  Fiscal years ended April 30, 1999 and 2000

     Revenues.  Revenues increased from $14.3 million for the fiscal year ended
April 30, 1999 to $25.1 million for the fiscal year ended April 30, 2000, an
increase of $10.8 million or 75.8%. This increase was primarily due to the
release of our first multi-user remote voice access product in April 1999, which
accounted for approximately $1.3 million or 9.1% of revenues in fiscal year 1999
and approximately $12.1 million or 48.3% in fiscal year 2000.

     Cost of goods sold.  Our cost of goods sold increased from $5.4 million for
the fiscal year ended April 30, 1999 to $9.5 million for the fiscal year ended
April 30, 2000, an increase of $4.1 million or 75.4%. This increase was
primarily related to the increase in volume of units shipped. Gross margin
increased from 62.2% for the fiscal year ended April 30, 1999 to 62.3% for the
fiscal year ended April 30, 2000. The slight increase in gross margin was
primarily attributable to the higher mix in revenues of our multi-user remote
voice access products, which have higher gross margins than our other products.
This was partially offset by increases in certain component costs such as flash
memory and pricing pressure in the market.

     Research and development.  Research and development expenses increased from
$3.3 million for the fiscal year ended April 30, 1999 to $4.9 million for the
fiscal year ended April 30, 2000, an increase of $1.5 million or 45.6%. This
increase was due primarily to increases in staffing, the development of
proto-type units for our EXTender 3200 for IDSL, IP EXTender 4000, 12 port
EXTender 6000, and 24 port Gateway product lines. For the fiscal year ended
April 30, 2000, research and development expenses decreased as a percentage of
revenues from 23.5% to 19.4% as a result of increased revenues.

     Sales and marketing.  Sales and marketing expenses increased from $3.9
million for the fiscal year ended April 30, 1999 to $7.8 million for the fiscal
year ended April 30, 2000, an increase of $3.9 million or 101.0%. This increase
was primarily due to increases in staffing of both sales and marketing personnel
and, to a lesser extent, increased marketing activities related to the
introduction of our first multi-user remote voice access product. For the fiscal
year ended April 30, 2000, sales and marketing expenses increased as a
percentage of revenues from 27.3% to 31.2% as newly hired sales personnel
generally do not achieve full productivity during their first two quarters with
us and as we have hired personnel to develop a broadband service provider
channel which, do date, has not generated meaningful revenue.

                                       24
<PAGE>   26

     General and administrative.  General and administrative expenses increased
from $1.6 million for the fiscal year ended April 30, 1999 to $2.5 million for
the fiscal year ended April 30, 2000, an increase of $858,000 or 53.1%. This
increase was primarily due to increases in staffing in our accounting and human
resources groups to support our growth and reporting requirements as a public
company, consulting costs relating to an upgrade of our enterprise resource
planning system to ensure its Year 2000 compliance and, to a lesser extent,
professional service costs. For the fiscal years ended April 30, 2000, general
and administrative expenses decreased as a percentage of revenues from 11.3% to
9.9% as a result of increased revenues.

     Amortization of stock based compensation.  In connection with the grant of
certain stock options to employees in the fiscal year ended April 30, 2000, we
recorded deferred compensation expense of $8.5 million. The amount recorded
represents the difference between the deemed fair value of the common stock for
financial reporting purposes and the exercise price of these options at the date
of grant. Deferred compensation is presented as a reduction of stockholders'
equity and is amortized over the vesting period of the applicable options,
generally four years. We expensed $4.6 million and $406,000 of deferred
stock-based compensation in the years ended April 30, 2000 and 1999,
respectively. The amortization of existing deferred stock-based compensation is
expected to impact our reported results of operations through the quarter ended
July 2003.

     Other income (expense), net.  Other income (expense), net improved from an
expense of $207,000 for the fiscal year ended April 30, 1999 to income of
$758,000 for the fiscal year ended April 30, 2000, an improvement of $965,000.
Interest expense, offset by interest income, improved from an expense of
$268,000 for the fiscal year ended April 30, 1999 to income of $794,000 for the
fiscal year ended April 30, 2000. This improvement was due to income earned on
invested cash and the repayment of our subordinated debt. Foreign exchange gains
for the fiscal year ended April 30, 1999 were $60,000 compared to a loss of
$20,000 for the fiscal year ended April 30, 2000.

  Fiscal years ended April 30, 1998 and 1999

     Revenues.  Revenues increased from $7.9 million for the fiscal year ended
April 30, 1998 to $14.3 million for the fiscal year ended April 30, 1999, an
increase of $6.4 million or 81.2%. This increase was due to an increased number
of units sold, which resulted from continued development of our existing
distribution channels, the addition of new distribution channels and the release
of our first multi-user product late in the fourth quarter of fiscal 1999.
Revenues from that multi-user product accounted for $1.3 million or 9.1% of
revenues.

     Cost of goods sold.  Cost of goods sold increased from $2.8 million for
fiscal 1998 to $5.4 million for fiscal 1999, an increase of $2.6 million or
92.5%. This increase was primarily related to the increase in volume of units
shipped. For fiscal 1998 and 1999, gross margin decreased from 64.4% to 62.2%.
The decrease in gross margin was primarily due to start-up costs associated with
adding a second contract manufacturer, increased manufacturing headcount and, to
a lesser extent, the write-off of obsolete inventory.

     Research and development.  Research and development expenses increased from
$1.8 million for fiscal 1998 to $3.3 million for fiscal 1999, an increase of
$1.6 million or 90.5%. This increase was due primarily to the hiring of a vice
president of engineering and additional engineers, the expansion of our product
validation facilities and staff and, to a lesser extent, related overhead costs.
For fiscal 1998 and 1999, research and development expenses increased as a
percentage of revenues from 22.3% to 23.5% as we hired new staff to develop our
first multi-user product that did not generate revenues until April 1999.

     Sales and marketing.  Sales and marketing expenses increased from $2.2
million for fiscal 1998 to $3.9 million for fiscal 1999, an increase of $1.7
million or 77.5%. This increase was primarily due to the hiring of sales and
marketing personnel and increased marketing activities. For fiscal 1998 and
1999, sales and marketing expenses decreased slightly as a percentage of
revenues from 27.8% to 27.3%.

     General and administrative.  General and administrative expenses increased
from $1.5 million for fiscal 1998 to $1.6 million for fiscal 1999, an increase
of $132,000 or 8.9%. This increase was primarily due to the hiring of new
accounting personnel and related expenses. For fiscal 1998 and 1999, general and
administrative expenses decreased as a percentage of revenues from 18.9% to
11.3%.

                                       25
<PAGE>   27

     Amortization of stock-based compensation.  In connection with the grant of
certain stock options to employees in the fiscal year ended April 30, 1999, we
recorded deferred compensation expense of $1.2 million. The amount recorded
represents the difference between the deemed fair value of the common stock for
financial reporting purposes and the exercise price of these options at the date
of grant. Deferred compensation is presented as a reduction of stockholders'
equity and is amortized over the vesting period of the applicable options,
generally four years. We expensed $406,000 and $0 of deferred stock-based
compensation in the years ended April 30, 1999 and 1998, respectively. The
amortization of existing deferred stock-based compensation is expected to impact
our reported results of operations through the quarter ended July 2003.

     Other expense, net.  Other expense, net decreased from $595,000 for fiscal
1998 to $207,000 for fiscal 1999, a decrease of $388,000 or 65.2%. Interest
expense, offset by interest income, decreased from $518,000 for fiscal 1998 to
$268,000 for fiscal 1999. This decrease was due to a reduction in the
outstanding amount of our subordinated debt from $5.0 million to $2.5 million in
July 1998. Foreign exchange losses were $77,000 in fiscal 1998 versus a gain of
$60,000 in fiscal 1999. The gain during 1999 was due to a weakening of the U.S.
dollar against the Canadian dollar.

LIQUIDITY AND CAPITAL RESOURCES

     Prior to our initial public offering, we financed our operations primarily
from the sale of preferred stock and debt financing arrangements, including a
bank line of credit, a subordinated debt offering and a capital equipment loan.
On October 22, 1999, we completed our initial public offering of common stock,
in which we sold 3.4 million shares of common stock at a price of $16.00 per
share. Proceeds from the offering, after offering expenses, were approximately
$49.5 million. In November 1999, the underwriters of the initial public offering
exercised their over-allotment option and purchased an additional 255,000 shares
of common stock from us at the offering price of $16.00. We received an
additional $3.8 million, net of underwriting discounts and commissions, in this
transaction. On April 7, 2000, we completed a follow on offering of common
stock, in which we sold 1.25 million shares of common stock and other
stockholders sold 1.5 million shares at a price of $40.00 per share. Proceeds
from the offering, after offering expenses, were approximately $47.1 million. We
did not receive any proceeds from the shares sold by other stockholders. As of
April 30, 2000, we had cash and equivalents and marketable securities of $75.7
million. This represents an increase of $72.4 million compared to April 30,
1999.

     We regularly invest excess funds in short-term money market funds,
commercial paper, and government and non-government debt securities. These
investments are designed to provide current income to the company without
exposing the principal to significant risk.

     We are currently in negotiations with a financial institution to execute a
$5.0 million revolving credit facility to replace a $2.0 million facility that
expired in April 2000. We expect the terms of the new facility to be
substantially the same as those contained in the expired line and will provide
for $5.0 million in unsecured borrowings at the prime rate.

     Net cash provided by operations was $1.3 million for the fiscal year ended
April 30, 2000. Cash provided by operations was primarily related to net income,
adjusted to exclude non cash stock based compensation charges and depreciation
of $1.9 million and an increase in accounts payable of $3.1 million and was
partially offset by an increase in accounts receivable of $1.7 million, prepaid
expenses of $1.1 million and inventory of $1.0 million. Net cash provided by
financing activities was $73.3 million for the fiscal year ended April 30, 2000.
Cash provided by financing activities was primarily due to $100.5 million of
proceeds raised in our initial public offering in October 1999 and our secondary
offering in April 2000. This was partially offset by mandatory redemption
payments to the holders of redeemable preferred stock of $24.8 million and a
reduction in subordinated debt of $2.5 million

     On June 14, 2000 we acquired all of the outstanding stock of DTIH and it's
wholly-owned subsidiary DTI for $11.5 million in cash, 364,601 shares of our
common stock and assumed stock options. The transaction will be accounted for as
a purchase.

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     We expect to experience growth in our working capital needs for the
foreseeable future in order to execute our business plan. We anticipate that
operating activities, as well as planned capital expenditures, will constitute a
material use of our cash resources. In addition, we may utilize cash resources
to fund acquisitions or investments in complementary businesses, technologies or
products. We believe that the net proceeds from this offering, together with our
current cash and equivalents, cash generated from operations and available
borrowings under our line of credit, will be sufficient to meet our anticipated
cash requirements for working capital and capital expenditures for at least the
next 12 months.

YEAR 2000 ISSUES

     In prior periods, we discussed the nature and progress of our plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $100,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.

     The majority of our products do not have time keeping capabilities and are
therefore, by default, Year 2000 compliant. Only our Branch Office EXTender 6000
and PBXgateway products have internal clocks, and we believe such product lines
are Year 2000 compliant. However, our products are generally integrated into
networks involving sophisticated hardware and software products provided by
other vendors. Each of our customers' solutions involves different combinations
of third-party products and we cannot evaluate whether all of the third party
products are Year 2000 compliant. We have not experienced nor do we expect any
significant Year 2000 problems to arise with our products. We have generally
represented to our indirect channel partners and end users that our products are
Year 2000 compliant, and if that turns out to be untrue, these parties may make
claims against us that may result in litigation or contract terminations.

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in Financial
Statements, which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the Commission. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We have not
assessed the impact, if any, of SAB 101 on our financial results.

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133, which is effective, as amended,
for all quarters in fiscal years beginning after June 15, 2000, establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments, as well as other hedging
activities. As we do not currently engage in derivative or hedging activities,
we do not expect the adoption of this standard to have a significant impact on
our consolidated financial statements.

DISCLOSURES ABOUT MARKET RISK

     Interest Rate Risk.  The Company's cash equivalents and marketable
securities primarily consist of interest sensitive securities with weighted
average maturities of less than six months. A 100 basis point decrease in
interest rates would not result in a material change in the fair value of these
investments due mainly to the short term nature of these investments. However, a
100 basis point decrease in interest rates would increase our net loss by
approximately $750,000.

     Foreign Currency Exchange Rate Risk.  We primarily sell our products in
U.S. dollars and therefore we are not generally exposed to foreign currency
exchange risk. However, our Canadian subsidiary sells products

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<PAGE>   29

to Canadian customers that it invoices in Canadian dollars. In the fiscal year
ended April 30, 1999, this revenue accounted for 11.8% of revenues and for the
fiscal year ended April 30, 2000 accounted for 11.5% of revenues. Transactions
with our Canadian subsidiary, whose functional currency is the Canadian dollar,
present us with foreign currency exchange risk. The principal transactions are
buying and selling of inventory. The intercompany balance is denominated in U.S.
dollars and changes in the foreign currency exchange rate result in foreign
currency gains and losses. Using the intercompany balance at April 30, 2000, a
10% strengthening of the U.S. dollar against the Canadian dollar would result in
a foreign currency transaction loss of $50,500.

     At April 30, 2000 we did not own any equity investments. Therefore, we did
not have any direct equity price risk.

FACTORS AFFECTING FUTURE OPERATING RESULTS AND STOCK PRICE

WE DERIVE ALMOST ALL OF OUR REVENUES FROM A SMALL NUMBER OF CUSTOMERS AND OUR
REVENUES MAY DECLINE SIGNIFICANTLY IF ANY MAJOR CUSTOMER CANCELS OR DELAYS A
PURCHASE OF OUR PRODUCTS

     We have historically derived the majority of our revenues from a small
number of customers, most of whom resell our products to end users. Our failure
to generate as much revenue as expected from these customers or the failure of
these customers, particularly Lucent, to purchase our products would seriously
harm our business. Furthermore, Lucent announced in March 2000 that it plans to
divest its PBX unit into a standalone business. It is unclear what impact this
may have on our relationship with Lucent or the new entity. For the fiscal year
ended April 30, 1999, Lucent accounted for 46.7% of our revenues, and our ten
largest customers, including Lucent, accounted for 78.7% of our revenues. For
the fiscal year ended April 30, 2000, Lucent accounted for 45.6% of our
revenues, and our 10 largest customers, including Lucent, accounted for 76.1% of
our revenues. None of these large customers is obligated to purchase additional
products or services. Accordingly, present and future customers may terminate
their purchasing arrangements with us or significantly reduce or delay their
orders. Any termination, change, reduction or delay in orders could seriously
harm our business, financial condition and results of operations. Accordingly,
unless and until we diversify and expand our customer base, our future success
will significantly depend upon the timing and size of future purchases by our
largest customers and, in particular:

     - the product requirements of these customers;

     - the financial and operational success of these customers; and

     - the success of the underlying products and services that our products
       support.

     The loss of any one of our major customers or the delay of significant
orders from such customers, even if only temporary, could reduce or delay our
recognition of revenues, harm our reputation in the industry and reduce our
ability to accurately predict cash flow, and, as a consequence, could seriously
harm our business, financial condition and results of operations.

OUR INABILITY TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH KEY PBX VENDORS WOULD
HARM OUR ABILITY TO SUSTAIN AND GROW OUR BUSINESS

     Our success will depend to a significant degree upon our relationships with
leading PBX vendors and their channel distribution partners. The systems sold by
these vendors account for approximately 65% of the U.S. market for corporate PBX
equipment sales, and approximately 99% of our revenues for the fiscal year ended
April 30, 2000 were attributable to products which interoperate with corporate
telephone systems offered by these vendors. We may not have access in the future
to the proprietary protocols for the major corporate telephone systems marketed
by those vendors, which access may be essential to ensure the continued
interoperability of our products. Moreover, we may not be able to develop
products that interoperate with the corporate telephone systems offered by other
vendors. Additionally, the standards for telephony equipment and data networks
are evolving and our products may not be compatible with any new technology
standards that may emerge. If we are unable to provide our customers with
interoperable solutions, they may make

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<PAGE>   30

purchases from vendors who provide the requisite product interoperability. This
could seriously harm our business, financial condition and results of
operations.

     In addition, we currently have varying distribution, marketing and
development arrangements with the PBX vendors noted above. These relationships
are not exclusive and there is no assurance that we will continue to enjoy the
support and cooperation that we have historically experienced from these parties
or their distribution channels. Moreover, it is possible that the PBX vendors
may seek to offer broader product lines and solutions that are competitive with
our products.

UNLESS WE ARE ABLE TO KEEP PACE WITH THE RAPIDLY CHANGING PRODUCT REQUIREMENTS
OF OUR CUSTOMERS, WE WILL NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS

     The telecommunications market is characterized by rapid technological
advances, evolving industry standards, changes in end-user requirements,
frequent new product introductions and evolving offerings by telecommunications
service providers. We believe our future success will largely depend on our
ability to anticipate or adapt to such changes and to offer, on a timely basis,
products that meet customer demands. Our customers could purchase competitive
products from other suppliers if we fail to produce technologically competitive
products in a cost-effective manner or on a timely basis. This may cause us to
be unable to sustain or grow our business.

INTENSE COMPETITION IN THE MARKET FOR REMOTE VOICE SOLUTIONS COULD PREVENT US
FROM INCREASING OR SUSTAINING REVENUE AND PREVENT US FROM ACHIEVING OR
SUSTAINING PROFITABILITY

     The market for remote voice solutions is highly competitive. Our inability
to compete effectively in this market would materially adversely affect our
revenues and future profitability. Many of our current and potential competitors
have significantly greater sales and marketing, technical, manufacturing,
financial and other resources, more established distribution channels and
stronger relationships with service providers. For instance, in June 1999 Nortel
Networks announced its intention to develop new products which will compete
directly with our products. Moreover, our competitors may foresee the course of
market developments more accurately than we do and could in the future develop
new technologies that compete with our products or even render our products
obsolete. Realizing and maintaining technological advantages over our
competitors will require a continued high level of investment in research and
development, sales and marketing and customer support. Due to the opportunities
in and the rapidly evolving nature of the market in which we compete, additional
competitors with significant market presence and financial resources, including
large communications equipment manufacturers, may enter our market, thereby
further intensifying competition. We may not have sufficient resources to
continue to make the investments or achieve the technological advances necessary
to compete successfully with existing competitors or new competitors.

     Increased competition is likely to result in price reductions, reduced
gross margins, longer sales cycles and loss of market share, any of which would
seriously harm our business and results of operations. We may not be able to
compete successfully against current or future competitors and these competitive
pressures may seriously harm our business.

FUTURE CONSOLIDATION IN THE COMMUNICATIONS EQUIPMENT INDUSTRY MAY INCREASE
COMPETITION THAT COULD HARM OUR BUSINESS

     The markets in which we compete are characterized by increasing
consolidation both within the communications sector and by companies combining
or acquiring communications assets. This consolidation creates uncertainty as to
the nature of our future competition. For instance, a relatively small
competitor which is acquired by a large telecommunications company would likely
have access to greater resources than us and would accordingly be a greater
competitive threat. We may not be able to compete successfully in an
increasingly consolidated industry. Increased competition and consolidation in
our industry could require that we reduce the prices of our products and may
result in our loss of market share, which would materially adversely affect our
business, financial condition and results of operations. Additionally, because
we are now, and may in the future be, dependent on strategic relationships with
third parties in our industry, such as

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<PAGE>   31

Lucent, any consolidation involving these parties could reduce the demand for
our products and otherwise harm our business prospects.

FLUCTUATIONS IN OUR QUARTERLY RESULTS COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO FALL

     Our quarterly operating results have varied in the past and are likely to
vary in the future. For example, over the last twelve fiscal quarters, our net
results of operations have ranged from a net loss of $443,000 to a net loss of
$2.0 million. It is possible that our revenues and operating results may be
below the expectations of securities analysts and investors in future quarters.
If we fail to meet or surpass the expectations of securities analysts or
investors, the market price of our common stock will most likely fall. A number
of factors could cause our quarterly results to fluctuate, including, but not
limited to:

     - the timing and amount of, or cancellation or rescheduling of, orders for
       our products, particularly large orders from our key customers;

     - our ability to develop, introduce, ship and support new products and
       product enhancements, and manage product transitions;

     - new product introductions and announcements, and reductions in the prices
       of products offered by our competitors;

     - our ability to sustain our technology relationships, particularly with
       the major PBX manufacturers and service providers;

     - availability and changes in the prices of components provided by third
       parties;

     - our ability to attain and maintain production volumes and quality levels
       for our products;

     - the mix of products sold and the mix of distribution channels through
       which they are sold;

     - fluctuations in demand for our products;

     - costs relating to possible acquisitions and integration of technologies
       or businesses;

     - telecommunications market conditions and economic conditions generally;

     - our ability to hire, train, integrate and retain new personnel; and

     - changes in the level of our operating expenses.

     Given that any one or more of these or other factors could have an adverse
effect on our business, the prediction of future quarterly results is difficult
and uncertain. In addition, some of our operating expenses are relatively fixed
in advance of any particular quarter. As a result, we may not be able to reduce
our operating costs in response to unanticipated reductions in our revenues or
the demand for our products.

OUR DEPENDENCE ON INDEPENDENT MANUFACTURERS AND SUPPLIERS COULD RESULT IN
PRODUCT DELIVERY DELAYS

     We currently use three independent manufacturers, Celestica, Electronic
Manufacturing Group and Mack Technologies, and added a fourth with the June 14,
2000 acquisition of DTI (OEM Worldwide) to manufacture all of our products. Our
reliance on independent manufacturers involves a number of risks, including the
absence of adequate capacity, the unavailability of or interruptions in access
to necessary manufacturing processes and reduced control over delivery
schedules. If our manufacturers are unable or unwilling to continue
manufacturing our products and components in required volumes, we will have to
identify acceptable alternative manufacturers, which could take in excess of six
months. Furthermore, the use of a new manufacturer may cause significant
interruptions in supply if the new manufacturer has difficulty manufacturing
products to our specifications. Further, the introduction of a new manufacturer
may increase the variance in the quality of our products. In addition, we rely
upon third-party suppliers of specialty components and intellectual property
used in our products. It is possible that a component needed to complete the
manufacture of our products may not be available to us at acceptable prices or
on a timely basis, if at all. For example, the demand for flash memory chips is
particularly strong and may lead to shortages for these

                                       30
<PAGE>   32

components of our products. Inadequate supplies of components, or the loss of
intellectual property rights, could affect our ability to deliver products to
our customers. Any significant interruption in the supply of our products would
result in the reduction of product sales to customers, which in turn could
permanently harm our reputation in the industry.

OUR ABILITY TO SUSTAIN OR GROW OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO
PROVIDE ADEQUATE CUSTOMER SUPPORT

     Our ability to continue to grow and to retain current and future customers
depends in part upon the quality of our customer support operations. We have
recently entered into an arrangement with a third-party customer support firm to
provide some of our customer support functions. Failure to offer adequate
customer support, either directly or through third parties, or failure to
properly integrate third-party services into our customer support framework
could materially and adversely affect our reputation and cause demand for our
products to decline.

IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, OUR REVENUES WILL DECREASE

     Market acceptance of our products is critical to our future success.
Factors that may affect the market acceptance of our products include:

     - continued market acceptance of PBX technology;

     - the performance, price and total cost of ownership of our products;

     - the availability and price of competing products and technologies; and

     - the efforts and success of our indirect distribution channels.

     Many of these factors are beyond our control. We may experience failure or
delays in market acceptance of our products. Failure of our existing or future
products to maintain and achieve meaningful levels of market acceptance would
reduce the amount of revenue we receive from the sale of our products.

BECAUSE SUBSTANTIALLY ALL OF OUR REVENUES ARE DERIVED FROM SALES OF A SMALL
NUMBER OF PRODUCTS, OUR FUTURE OPERATING RESULTS WILL BE DEPENDENT ON SALES OF
THESE PRODUCTS

     We currently derive substantially all of our revenues from our product
family of remote voice access equipment, and we expect that this concentration
will continue in the foreseeable future. The market may not continue to demand
our products, and we may not be successful in marketing any new or enhanced
products. Any reduction in the demand for our products or our failure to
successfully develop or market new or enhanced products could reduce the amount
of revenue we receive from the sale of our products and cause the price of our
common stock to decline. In addition, our branch office products have only
recently been introduced to the market, and we are expecting that these products
will account for a substantial portion of our revenues for the foreseeable
future. Factors that could affect sales of our products include:

     - the demand for remote access voice solutions;

     - the successful development, introduction and market acceptance of new and
       enhanced products that address customer requirements;

     - product introductions or announcements by our competitors;

     - price competition in our industry; and

     - technological change.

IF WE FAIL TO DEVELOP AND EXPAND OUR INDIRECT DISTRIBUTION CHANNELS, OUR
BUSINESS COULD SUFFER

     Our product distribution strategy focuses primarily on continuing to
develop and expand our indirect distribution channels, develop and maintain our
relationships with large PBX vendors, resellers and distributors,
telecommunications service providers and application service providers, and
expand our field sales
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organization. If we fail to develop and cultivate relationships with significant
indirect distribution channels, or if these distribution channels are not
successful in their sales efforts, our product sales may decrease and our
operating results may suffer. Many of our indirect distribution channels also
sell products that compete with our products, and none of our strategic or
reseller arrangements are exclusive. In addition, our operating results will
likely fluctuate significantly depending on the timing and amount of orders from
our indirect distribution channels. Our indirect distribution channels may not
market our products effectively or may cease to devote the resources necessary
to provide us with effective sales, marketing and technical support.

     In order to support and develop leads for our indirect distribution
channels, we plan to significantly expand our field sales staff. This internal
expansion may not be successfully completed. In addition, the cost of this
expansion may exceed the revenues generated and our expanded sales and support
staff may not be able to compete successfully against the significantly more
extensive and well-funded sales and marketing operations of many of our current
or potential competitors. Our inability to effectively develop and expand our
distribution channels or manage the expansion of our sales and support staff
would adversely affect our ability to grow and increase revenues.

OUR STOCK PRICE HAS BEEN, AND MAY CONTINUE TO BE, VOLATILE AND YOU MAY NOT BE
ABLE TO RESELL SHARES AT OR ABOVE THE OFFERING PRICE

     The trading price of our common stock has been, and may continue to be,
subject to wide fluctuations in response to factors such as:

     - actual or anticipated variations in quarterly operating results;

     - announcements of technological innovations;

     - general technology or economic trends;

     - revenues and operating results failing to meet or surpass the
       expectations of securities analysts or investors in any quarter;

     - changes in general market conditions;

     - changes in financial estimates by securities analysts;

     - announcements of significant acquisitions, strategic partnerships, joint
       ventures or capital commitments by us or our competitors;

     - additions or departures of key personnel;

     - the demand for our common stock;

     - the number of market makers for our common stock;

     - sales of a large number of shares of our common stock in the public
       market after this offering or the perception that such sales could occur;
       and

     - other events or factors, many of which are beyond our control.

     In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. These broad market and industry factors
may materially adversely affect the market price of our common stock, regardless
of our actual operating performance. In the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against such companies. Such
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources, which would reduce the amount of resources
and management time focused on growing our business and improving operating
results.

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SALES TO CUSTOMERS BASED OUTSIDE THE UNITED STATES HAVE HISTORICALLY ACCOUNTED
FOR A SIGNIFICANT PORTION OF OUR REVENUES, WHICH EXPOSES US TO RISKS INHERENT IN
INTERNATIONAL OPERATIONS

     International sales represented 15.3% of our revenues for the fiscal year
ended April 30, 2000, and 18.3% of our revenues for the year ended April 30,
1999. While we expect sales to international markets to increase as a percentage
of revenues in the future. International sales are subject to a number of risks,
including:

     - changes in foreign government regulations and communications standards;

     - export license requirements;

     - currency fluctuations, tariffs and taxes;

     - other trade barriers;

     - difficulty in collecting accounts receivable;

     - difficulty in managing foreign operations; and

     - political and economic instability.

     If the relative value of the U.S. dollar in comparison to the currency of
our foreign customers should increase, the resulting effective price increase of
our products to these foreign customers could result in decreased sales. In
addition, to the extent that general economic downturns impact our customers,
the ability of these customers to purchase our products could be adversely
affected. Payment cycles for international customers are typically longer than
those for customers in the United States. In addition, the foreign markets for
our products may develop more slowly than currently anticipated.

     We anticipate that our non-Canadian, foreign sales will generally be
invoiced in U.S. dollars, and we do not currently plan to engage in foreign
currency hedging transactions. As we expand our international operations,
however, we may allow payment in foreign currencies, and exposure to losses in
foreign currency transactions may increase. We may choose to limit any currency
exposure through the purchase of forward foreign exchange contracts or other
hedging strategies. Our future currency hedging strategies may not be
successful.

OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY ADVERSELY AFFECT
OUR ABILITY TO COMPETE

     Our success and ability to compete is dependent in part upon our
proprietary technology. Any infringement of our proprietary rights could result
in significant litigation costs, and any failure to adequately protect our
proprietary rights could result in our competitors offering similar products,
potentially resulting in loss of a competitive advantage and decreased revenues.
We rely on a combination of copyright, trademark, trade secret and other
intellectual property laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect our proprietary rights. We presently have
no patents. Despite our efforts to protect our proprietary rights, existing
copyright, trademark and trade secret laws afford only limited protection. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States. Attempts may be
made to copy or reverse engineer aspects of our products or to obtain and use
information that we regard as proprietary. Accordingly, we may not be able to
protect our proprietary rights against unauthorized third-party copying or use.
Furthermore, policing the unauthorized use of our products is difficult. Some of
our contractual arrangements provide third parties with access to our source
code and other intellectual property upon the occurrence of specified events.
Such access could enable these third parties to use our intellectual property
and source code to develop and manufacture competing products, which would
adversely affect our performance and ability to compete. Litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others. Such litigation could result in substantial costs and
diversion of resources and could seriously harm our future operating results.

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CLAIMS ALLEGING INFRINGEMENT OF A THIRD PARTY'S INTELLECTUAL PROPERTY COULD
RESULT IN SIGNIFICANT EXPENSE TO US AND RESULT IN OUR LOSS OF SIGNIFICANT RIGHTS

     The telecommunications industry is characterized by the existence of a
large number of patents and frequent litigation based on allegations of patent
infringement. From time to time, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to our business, and this risk may increase as the number of entrants
in our market increases and the functionality of our products is enhanced and
overlaps with the products of other companies. Any claims against us or any
purchaser or user of our products asserting that our products infringe or may
infringe proprietary rights of third parties, if determined adversely to us,
could have a material adverse effect on our business, financial condition or
results of operations. Any claims, with or without merit, could be time
consuming, result in costly litigation, divert the efforts of our technical and
management personnel, cause product shipment delays, disrupt our relationships
with our customers or require us to enter into royalty or licensing agreements,
any of which could have a material adverse effect upon our operating results.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. Legal action claiming patent infringement may be
commenced against us and we may not prevail in such litigation given the complex
technical issues and inherent uncertainties in patent litigation. In the event a
claim against us is successful and we cannot obtain a license to the relevant
technology on acceptable terms, license a substitute technology or redesign our
products to avoid infringement, our business, financial condition and results of
operations would be materially adversely affected.

IF OUR PRODUCTS CONTAIN DEFECTS, WE MAY BE SUBJECT TO SIGNIFICANT LIABILITY
CLAIMS FROM OUR CUSTOMERS AND THE END USERS OF OUR PRODUCTS AND INCUR
SIGNIFICANT UNEXPECTED EXPENSES AND LOST SALES

     Our products have in the past contained, and may in the future contain,
undetected or unresolved errors when first introduced or as new versions are
released. Despite extensive testing, errors, defects or failures may be found in
our current or future products or enhancements after commencement of commercial
shipments. If this happens, we may experience delay in or loss of market
acceptance and sales, certain product returns, diversion of development
resources, injury to our reputation or increased service and warranty costs, any
of which could seriously harm our business, financial condition and results of
operations. For example, minor software defects in our EXTender 3000E product
caused us to cease shipments of that product for approximately six weeks to
enable us to correct the defects. Moreover, because our products are designed to
provide critical communications services, we may receive significant liability
claims. Our agreements with customers typically contain provisions intended to
limit our exposure to liability claims. These limitations may not, however,
preclude all potential claims resulting from a defect in one of our products.
Although we maintain product liability insurance covering damages arising from
the implementation and use of our products, the terms of our insurance limit the
amount and types of damages that are covered and may not cover any claims sought
against us. Liability claims could require us to spend significant time and
money in litigation or to pay significant damages. As a result, any such claims,
whether or not successful, could seriously damage our reputation and our
business.

WE MAY HAVE DIFFICULTY IDENTIFYING THE SOURCE OF THE PROBLEM WHEN THERE IS A
PROBLEM IN A NETWORK WHICH MAY ADVERSELY AFFECT THE MARKET ACCEPTANCE OF OUR
PRODUCTS

     Our products must successfully integrate with products from other vendors,
such as traditional telephone systems. As a result, when problems occur in a
network, it may be difficult to identify the source of the problem. The
occurrence of hardware and software errors, whether caused by our products or
another vendor's products, may result in the delay or loss of market acceptance
of our products and any necessary revisions may force us to incur significant
expenses. The occurrence of some of these types of problems may seriously harm
our business, financial condition and results of operations.

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WE CONTINUE TO SIGNIFICANTLY EXPAND OUR OPERATIONS AND OUR FAILURE TO MANAGE
GROWTH COULD HARM OUR BUSINESS AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
AND FINANCIAL CONDITION

     We have significantly expanded our operations, including the number of our
employees, the breadth of our product offerings and the geographic scope of our
activities. At April 30, 2000, we employed 130 employees, and we expect the
number of our employees to increase significantly in the future. Further
significant expansion will likely be necessary to address potential growth in
our customer base and market opportunities. In addition, our senior management
team has been with us for less than three years. Any failure to manage growth
effectively could harm our business and adversely affect our financial condition
and operating results. We cannot assure you that we will be able to do any of
the following activities, which we believe are essential to successfully manage
the anticipated growth of our operations:

     - improve our existing and implement new operations, financial and
       management information controls, reporting systems and procedures;

     - hire, train and manage additional qualified personnel;

     - expand and upgrade our core technologies; and

     - effectively manage multiple relationships with our customers, suppliers
       and other third parties.

DIFFICULTIES AND FINANCIAL BURDENS ASSOCIATED WITH ACQUISITIONS COULD HARM OUR
BUSINESS AND FINANCIAL RESULTS

     On June 14, 2000, we acquired all of the outstanding stock of DTI Holdings,
Inc. and its wholly owned subsidiary Digital Techniques, Inc. Our product range
and customer base have increased in the recent past due in part to this
acquisition. This acquisition provided us with technologies to expand our
current line of remote voice access products. There can be no assurance that the
integration of all of the acquired technologies will be successful or will not
result in unforeseen difficulties which may absorb significant management
attention.

     In the future, we may acquire additional businesses or product lines. The
recently completed acquisition, or any future acquisition, may not produce the
revenue, earnings or business synergies that we anticipated, and an acquired
product, service or technology might not perform as expected. Prior to
completing an acquisition, however, it is difficult to determine if such
benefits can actually be realized. The process of integrating acquired companies
into our business may also result in unforeseen difficulties. Unforeseen
operating difficulties may absorb significant management attention, which we
might otherwise devote to our existing business. Also, the process may require
significant financial resources that we might otherwise allocate to other
activities, including the ongoing development or expansion of our existing
operations.

     If we pursue a future acquisition, our management could spend a significant
amount of time and effort identifying and completing the acquisition. To pay for
a future acquisition, we might use capital stock or cash. Alternatively, we
might borrow money from a bank or other lender. If we use capital stock, our
stockholders would experience dilution of their ownership interests. If we use
cash or debt financing, our financial liquidity will be reduced.

IF WE LOSE KEY PERSONNEL, WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE OUR
BUSINESS

     Our success depends to a significant degree upon the continued
contributions of our senior sales, engineering and management personnel, many of
whom perform important management functions and would be difficult to replace.
Specifically, we believe that our future success is highly dependent on Steven
J. Benson and other senior management personnel. Within the last year, we have
introduced several new products, and we have additional new products currently
in pre-release testing. The loss of the services of any key personnel,
particularly senior management and engineers, could seriously harm our business,
financial condition and results of operations, including our success in selling
our recently introduced products and introducing new products.

                                       35
<PAGE>   37

IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY,
WE MAY NOT BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES

     We have experienced growth in revenues and expansion of our operations,
which has placed significant demands on our management, engineering staff and
facilities. Continued growth will also require us to hire more engineering,
sales and administrative personnel. We may not be able to attract and retain the
necessary personnel to accomplish our business objectives and we may experience
constraints that will adversely affect our ability to satisfy customer demand in
a timely fashion or to support our customers and operations. We have at times
experienced, and continue to experience, difficulty in recruiting qualified
personnel. Recruiting qualified personnel is an intensely competitive and
time-consuming process. New sales personnel and marketing personnel will require
training and take time to achieve full productivity. In addition, the design and
installation of telephony solutions can be complex. Accordingly, we need highly
trained professional services and customer support personnel. We cannot be
certain that we will successfully attract and retain additional qualified
personnel. In addition, our key person life insurance policy, covering some of
our key employees, may be insufficient to cover the costs associated with the
loss of one of these employees.

IF WE OR OUR KEY SUPPLIERS OR CUSTOMERS FAIL TO BE YEAR 2000 COMPLIANT, OUR
BUSINESS MAY BE SEVERELY DISRUPTED AND OUR RESULTS OF OPERATIONS MAY BE
MATERIALLY ADVERSELY AFFECTED

     The Year 2000 problem creates a risk for us. Although most of our products
do not incorporate internal clocks, if our remaining products or our internal
computer systems do not correctly recognize date information, there could be an
adverse impact on our operations. The risk exists primarily in four areas:

     - potential warranty or other claims from our customers, which may result
       in significant expense to us;

     - failures of systems we use to run our business, which could disrupt our
       business operations;

     - failures of systems used by our suppliers and contract manufacturers,
       which could delay or affect the quality of our products;

     - customers may delay purchasing decisions until the impact of Year 2000 is
       more clearly understood, which could negatively impact our revenues; and

     - the potential for failures of our products, particularly our central
       office-based systems, due to Year 2000 problems associated with products
       manufactured by other equipment vendors used in conjunction with our
       products, which may require that we incur significant unexpected
       expenses.

We continue to evaluate our exposure in all of these areas.

     We have conducted a comprehensive inventory and evaluation of the
information systems used to run our business and have upgraded or replaced
systems which were identified as non-compliant. The cost of remediation for the
Year 2000 non-compliance issues identified were not material to our operating
results.

     We continue to work with our critical suppliers and contract manufacturers
to ensure that their operations and the products and services they provide are
Year 2000 compliant. Where practicable, we will attempt to mitigate our risks
with respect to the failure of our suppliers and contract manufacturers to be
prepared for any Year 2000 problems. However, failures remain a possibility and
could have a material adverse effect on our business, financial condition or
results of operations. For these reasons, the impact of customer claims could
have a material adverse effect on our business, financial condition or results
of operations.

CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME
OF DIRECTOR ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL

     Our executive officers, directors and principal stockholders and their
affiliates own a significant percentage of the outstanding shares of common
stock. These stockholders, if acting together, would be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions. This concentration of ownership could have the effect of delaying
or preventing a change in our control or otherwise discouraging a potential
acquiror

                                       36
<PAGE>   38

from attempting to obtain control of us, which in turn could have a material
adverse effect on the market price of the common stock or prevent our
stockholders from realizing a premium over the market prices for their shares of
common stock.

PROVISIONS OF DELAWARE LAW AND OF OUR CHARTER AND BY-LAWS MAY MAKE A TAKEOVER
MORE DIFFICULT

     Provisions in our certificate of incorporation and by-laws and in Delaware
corporate law may make it difficult and expensive for a third party to pursue a
tender offer, change in control or takeover attempt that is opposed by our
management. Public stockholders who might desire to participate in such a
transaction may not have an opportunity to do so, and the ability of public
stockholders to change our management could be substantially impeded by these
anti-takeover provisions. For example, we have a staggered board of directors
and the right under our charter documents to issue preferred stock without
further stockholder approval, which provisions could adversely affect the
holders of our common stock.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this item is incorporated by reference to the
Consolidated Financial Statements set forth on pages F-1 through F-17 hereof.

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

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item 10 concerning our directors and
officers is incorporated by reference to the information under the heading,
"Election of Directors -- Information Regarding the Nominees and Executive
Officers" in our 2000 Proxy Statement.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this Item 11 is incorporated by reference to
the information under the heading, "Compensation of Directors and Executive
Officers" in our 2000 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

     The information required by this Item 12 is incorporated by reference to
the information under the heading, "Security Ownership of Management and Certain
Beneficial Owners" in our 2000 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item 13 is incorporated by reference to
the information under the heading, "Certain Relationships and Related
Transactions" in our 2000 Proxy Statement.

                                    PART IV

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

(a)(1) Financial Statements

     1.  Report of Ernst & Young LLP, independent auditors (see page F-2
         hereof).

     2.  Consolidated Balance Sheets as of April 31, 1999 and 2000 (see page F-3
         hereof).

                                       37
<PAGE>   39

     3.  Consolidated Statements of Operations for the years ended April 30,
         1998, 1999 and 2000 (see page F-4 hereof).

     4.  Consolidated Statements of Common Stockholders' (Deficit) Equity for
         the years ended April 30, 1998, 1999 and 2000 (see page F-5 hereof).

     5.  Consolidated Statements of Cash Flows for the years ended April 30,
         1998, 1999 and 2000 (see page F-6 hereof).

     6.  Notes to Consolidated Financial Statements (see pages F-7 through F-17
         hereof).

(a)(2) Financial Statement Schedules.

     Schedules are not provided because of the absence of conditions under which
they are required or because the required information is shown in the financial
statements or notes thereto.

(a)(3) Exhibits.

     The following is a complete list of exhibits filed as part of this Form
10-K. Documents identified by footnotes are being filed herewith and, pursuant
to Rule 12b-32 of the General Rules and Regulations promulgated by the
Commission under the Securities Exchange Act of 1934 reference is made to such
documents as previously filed as exhibits with the Commission.

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<S>           <C>
 2.1 (1)      Stock and Note Purchase Agreement, dated as of June 27, 1996
              by and among the Registrant, MCK Telecommunications, Inc.,
              Cal Manz, Manz Developments, Inc. and the Investors named
              therein.
 2.2 (1)      Stock Purchase Agreement, dated as of July 16, 1998, by and
              among the Registrant, and the Purchasers named therein.
 2.3 (2)      Agreement and Plan of Merger, dated June 14, 2000, by and
              among the Registrant, Omni Acquisition Corporation, Troy
              Holdings International, Inc., DTI Holdings, Inc., Digital
              Techniques, Inc. and certain shareholders of DTI Holdings,
              Inc.
 3.1 (1)      Second Amended and Restated Certificate of Incorporation of
              the Registrant (Exhibit No. 3.3 of Registration Statement on
              Form S-1 (File No. 333-85821)).
 3.2 (1)      First Amended and Restated By-laws of the Registrant
              (Exhibit No. 3.5 of Registration Statement on Form S-1 (File
              No. 333-85821)).
 4.1 (1)      Specimen certificate for shares of common stock, $.001 par
              value, of the Registrant.
10.1 (1)      Amended and Restated Stockholders' Agreement, dated July 16,
              1998, among the Registrant and the stockholders named
              therein.
10.2 (1)      Amended and Restated Registration Rights Agreement, dated
              July 16, 1998, among the Registrant and the stockholders
              named therein.
10.3 (1)      Amended and Restated 1996 Stock Option Plan of the
              Registrant.
10.4 (3)      1999 Stock Option and Grant Plan of the Registrant.
10.5 (1)      Form of Stock Restriction Agreement for sale of restricted
              stock to executive officers (Exhibit No. 10.9 of
              Registration Statement on Form S-1 (File No. 333-85821)).
10.6 (1)      Form of Promissory Note for purchase of restricted stock by
              executive officers (Exhibit No. 10.10 of Registration
              Statement on Form S-1 (File No. 333-85821)).
10.7 (1)      Form of Pledge Agreement (Exhibit No. 10.11 of Registration
              Statement on Form S-1 (File No. 333-85821)).
10.8 (1)      Form of Promissory Note (Exhibit No. 10.12 of Registration
              Statement on Form S-1 (File No. 333-85821)).
</TABLE>

                                       38
<PAGE>   40

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<S>           <C>
10.9 (1)      Lease Agreement between Manz Developments, Inc. and MCK
              Telecommunications, Inc. dated January 1, 1996 (Exhibit No.
              10.13 of Registration Statement on Form S-1 (File No.
              333-85821)).
10.10 (1)     Agreement between the Registrant and Lucent Technologies,
              Inc. effective as of April 30, 1999 (Exhibit No. 10.15 of
              Registration Statement on Form S-1 (File No. 333-85821)).
10.11 (1)     Master Support Agreement between the Registrant and Vital
              Networks, Inc. dated June 28, 1999 (Exhibit No. 10.16 of
              Registration Statement on Form S-1 (File No. 333-85821)).
10.12 (1)     Amended and Restated Loan and Security Agreement between the
              Registrant and BankBoston, N.A. dated July 1999 (Exhibit No.
              10.17 of Registration Statement on Form S-1 (File No.
              333-85821)).
10.13 (4)     Lease Agreement by and between the Registrant and
              Wellsford/Whitehall Holdings, L.L.C. dated January 10, 2000.
10.13.1       First Amendment to Lease Agreement between the registrant
              and Wellsford/Whitehall Holdings, LLC dated May 25, 2000.
10.13.2       Second Amendment to Lease Agreement between the registrant
              and Wellsford/Whitehall Holdings, LLC dated May 31, 2000.
10.14         Lease Agreement by and between the Digital Techniques, Inc.
              and Armet Bethany Limited Partnership dated July 7, 1993, as
              amended April 21, 1995 and further amended December 14,
              1998.
21.1          Subsidiaries of the Registrant.
23.1          Consent of Ernst & Young LLP.
27.1          Financial Data Schedule.
</TABLE>

---------------
+  Confidential treatment obtained as to portions of this exhibit. The
   confidential information has been filed separately with the Securities and
   Exchange Commission.

(1) Incorporated by reference to identically numbered exhibits (unless otherwise
    indicated) filed in response to Item 16(a), "Exhibits," of the Registrant's
    Registration Statement on Form S-1, as amended (File No. 333-85821), which
    was declared effective on October 21, 1999.

(2) Incorporated by reference to Exhibit 2.1 filed with the Registrant's Report
    on Form 8-K dated June 28, 2000.

(3) Incorporated by reference to Exhibit 10.4 filed with the Registrant's
    Registration Statement on Form S-8 dated February 4, 2000.

(4) Incorporated by reference to Exhibit No. 10.18 of the Registrant's
    Registration Statement on Form S-1, as amended (File No. 333-96235)), which
    was declared effective on April 4, 2000.

(b) Reports on Form 8-K

     On June 28, 2000 we filed a Form 8-K reporting the acquisition of Digital
Techniques, Inc.

                                       39
<PAGE>   41

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1933, as amended, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
town of Needham, State of Massachusetts on the 31st day of July, 2000.

                                          MCK COMMUNICATIONS, INC.

                                          By:    /s/ STEVEN J. BENSON
                                          --------------------------------------
                                                     Steven J. Benson
                                          President and Chief Executive Officer

     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.

<TABLE>
<CAPTION>
                     SIGNATURE                                       TITLE                      DATE
                     ---------                                       -----                      ----
<C>                                                  <S>                                    <C>
               /s/ STEVEN J. BENSON                  President, Chief Executive Officer     July 31, 2000
---------------------------------------------------    and Director (Principal Executive
                 Steven J. Benson                      Officer)

                 /s/ PAUL K. ZURLO                   Chief Financial Officer (Principal     July 31, 2000
---------------------------------------------------    Financial Officer and Principal
                   Paul K. Zurlo                       Accounting Officer)

                /s/ CALVIN K. MANZ                   Director                               July 29, 2000
---------------------------------------------------
                  Calvin K. Manz

                /s/ JOHN B. LANDRY                   Director                               July 30, 2000
---------------------------------------------------
                  John B. Landry

                /s/ GREGORY M. AVIS                  Director                               July 27, 2000
---------------------------------------------------
                  Gregory M. Avis

              /s/ MICHAEL H. BALMUTH                 Director                               July 28, 2000
---------------------------------------------------
                Michael H. Balmuth

                 /s/ PAUL SEVERINO                   Director                               July 28, 2000
---------------------------------------------------
                   Paul Severino
</TABLE>

                                       40
<PAGE>   42

                         MCK COMMUNICATIONS, INC., INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Ernst & Young LLP, Independent Auditors...........  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Operations.......................  F-4
Consolidated Statements of Common Stockholders' (Deficit)
  Equity....................................................  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   43

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Stockholders
  MCK Communications, Inc.

     We have audited the accompanying consolidated balance sheets of MCK
Communications, Inc. (the Company) as of April 30, 2000 and 1999, and the
related consolidated statements of operations, common stockholders' (deficit)
equity and cash flows for each of the three years in the period ended April 30,
2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of April 30, 2000 and 1999 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
April 30, 2000, in conformity with accounting principles generally accepted in
the United States.

                                                  /s/ ERNST & YOUNG LLP

Boston, Massachusetts

May 31, 2000,
except for Note 16,
as to which the date
is June 14, 2000

                                       F-2
<PAGE>   44

                            MCK COMMUNICATIONS, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                       APRIL 30,
                                                              ----------------------------
                                                                  1999            2000
                                                              ------------    ------------
<S>                                                           <C>             <C>
ASSETS
Current assets:
  Cash and equivalents......................................  $  3,284,984    $ 55,844,365
  Marketable debt securities................................            --      19,879,364
  Accounts receivable (net of allowances of $179,560 and
     $154,064 at April 30, 1999 and 2000, respectively).....     3,350,389       5,018,173
  Inventory.................................................     1,493,641       2,497,802
  Prepaids and other current assets.........................       213,025       1,296,574
                                                              ------------    ------------
     Total current assets...................................     8,342,039      84,536,278
Fixed assets, net...........................................     1,054,561       2,306,182
Other assets................................................        31,843         351,878
                                                              ------------    ------------
Total assets................................................  $  9,428,443    $ 87,194,338
                                                              ============    ============
LIABILITIES AND COMMON STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
  Accounts payable..........................................  $  1,666,438    $  4,782,681
  Accrued liabilities.......................................       613,005         774,614
  Accrued compensation and benefits.........................       484,490         620,710
  Deferred revenue..........................................            --          70,659
                                                              ------------    ------------
     Total current liabilities..............................     2,763,933       6,248,664
Long-term debt..............................................     2,500,000              --
Redeemable preferred stock of subsidiary....................     2,490,280              --
Redeemable preferred stock..................................    21,010,759              --
Redeemable convertible preferred stock......................     4,703,751              --
Common stockholders' (deficit) equity:
Common stock, $.001 par value; authorized -- 25,000,000 at
  April 30, 1999 and 40,000,000 at April 30, 2000: issued
  and outstanding -- 5,300,183 shares at April 30, 1999 and
  19,357,369 shares at April 30, 2000.......................         5,300          19,357
Additional paid-in capital..................................     1,388,002     115,801,560
Accumulated deficit.........................................   (24,303,510)    (29,213,397)
Deferred compensation.......................................      (805,652)     (4,623,999)
Accumulated other comprehensive loss........................      (165,743)       (344,720)
Notes receivable from officers..............................      (158,677)       (693,127)
                                                              ------------    ------------
Total common stockholders' (deficit) equity.................   (24,040,280)     80,945,674
                                                              ------------    ------------
Total liabilities and common stockholders' (deficit)
  equity....................................................  $  9,428,443    $ 87,194,338
                                                              ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   45

                            MCK COMMUNICATIONS, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                YEARS ENDED APRIL 30,
                                                       ----------------------------------------
                                                          1998          1999           2000
                                                       ----------    -----------    -----------
<S>                                                    <C>           <C>            <C>
Revenues.............................................  $7,875,779    $14,269,603    $25,082,402
Cost of goods sold...................................   2,799,994      5,389,557      9,455,140
                                                       ----------    -----------    -----------
Gross profit.........................................   5,075,785      8,880,046     15,627,262
Operating expenses:
  Research and development (excluding amortization of
     stock based compensation of $0, $175,418, and
     $1,557,925 in 1998, 1999 and 2000,
     respectively)...................................   1,757,524      3,348,608      4,876,183
  Sales and marketing (excluding amortization of
     stock based compensation of $0, $110,405, and
     $1,852,866 in 1998, 1999 and 2000,
     respectively)...................................   2,191,182      3,888,537      7,817,048
  General and administrative (excluding amortization
     of stock based compensation of $0, $120,177, and
     $1,234,375 in 1998, 1999 and 2000,
     respectively)...................................   1,484,812      1,616,620      2,474,699
  Amortization of stock based compensation...........          --        406,000      4,645,166
                                                       ----------    -----------    -----------
          Total operating expenses...................   5,433,518      9,259,765     19,813,096
                                                       ----------    -----------    -----------
Loss from operations.................................     357,733        379,719      4,185,834
Other (income) expense:
  Interest expense...................................     663,121        397,969        183,101
  Interest income....................................    (144,888)      (130,339)      (976,929)
  Other (income) expense, net........................      77,217        (60,267)        35,980
                                                       ----------    -----------    -----------
          Total other (income) expense...............     595,450        207,363       (757,848)
                                                       ----------    -----------    -----------
Loss before provision for income taxes and dividends
  on redeemable preferred stock of subsidiary........     953,183        587,082      3,427,986
Provision for income taxes...........................          --             --        100,000
Dividends on redeemable preferred stock of
  subsidiary.........................................     160,000        196,947         96,563
                                                       ----------    -----------    -----------
Net loss.............................................   1,113,183        784,029      3,624,549
Dividends on redeemable preferred stock..............   1,220,000      1,965,921      1,285,338
                                                       ----------    -----------    -----------
Loss applicable to common stock......................  $2,333,183    $ 2,749,950    $ 4,909,887
                                                       ==========    ===========    ===========
Basic and diluted net loss per common share..........  $    (0.67)   $     (0.71)   $     (0.44)
                                                       ==========    ===========    ===========
Shares used in computing basic and diluted net loss
  per common share...................................   3,476,282      3,881,526     11,144,565
                                                       ==========    ===========    ===========
Pro forma basic and diluted loss per common share....                               $     (0.31)
Shares used in computing pro forma basic and diluted
  loss per common share..............................                                15,268,368
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   46

                            MCK COMMUNICATIONS, INC.

        CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
                                                           COMMON
                                                SHARES      STOCK                                                  ACCUMULATED
                              COMPREHENSIVE       OF         AT       ADDITIONAL                                      OTHER
                                 INCOME         COMMON       PAR       PAID-IN      ACCUMULATED      DEFERRED     COMPREHENSIVE
                                 (LOSS)         STOCK       VALUE      CAPITAL        DEFICIT      COMPENSATION      INCOME
                              -------------   ----------   -------   ------------   ------------   ------------   -------------
<S>                           <C>             <C>          <C>       <C>            <C>            <C>            <C>
Balance at April 30, 1997...                   3,323,302   $ 3,323   $      1,470   $(17,567,977)  $        --      $      --
Stock options exercised.....                     117,090       118          1,618             --            --             --
Sale of restricted stock....                   1,538,178     1,538        149,264             --            --             --
Foreign currency translation
 adjustment.................   $  (155,290)           --        --             --             --            --       (155,290)
Dividends on preferred
 stock......................                          --        --             --     (1,220,000)           --             --
Net loss....................    (1,113,183)           --        --             --     (1,113,183)           --             --
                               -----------    ----------   -------   ------------   ------------   -----------      ---------
Total comprehensive income
 (loss).....................   $(1,268,473)           --        --             --             --            --             --
                               ===========
Balance at April 30, 1998...                   4,978,570     4,979        152,352    (19,901,160)           --       (155,290)
Stock options exercised.....                     241,288       241         16,203             --            --             --
Sale of restricted stock....                     114,750       115         11,135             --            --             --
Cancellation of restricted
 stock......................                     (34,425)      (35)        (3,340)            --            --             --
Foreign currency translation
 adjustment.................   $   (10,453)           --        --             --             --            --        (10,453)
Deferred compensation.......                          --        --      1,211,652             --    (1,211,652)            --
Amortization of deferred
 compensation...............                          --        --             --             --       406,000             --
Dividends on preferred
 stock......................                          --        --             --     (1,965,921)           --             --
Issuance of preferred stock
 in exchange for redemption
 premium....................                          --        --             --     (1,652,400)           --             --
Net loss....................      (784,029)           --        --             --       (784,029)           --             --
                               -----------    ----------   -------   ------------   ------------   -----------      ---------
Total comprehensive income
 (loss).....................   $  (794,482)           --        --             --             --            --             --
                               ===========
Balance at April 30, 1999...                   5,300,183     5,300      1,388,002    (24,303,510)     (805,652)      (165,743)
Foreign currency translation
 adjustment.................   $  (150,905)           --        --             --             --            --       (150,905)
Unrealized loss on
 marketable securities......       (28,072)           --        --             --             --            --        (28,072)
Deferred compensation.......                          --        --      8,463,513             --    (8,463,513)            --
Amortization of deferred
 compensation...............                          --        --             --             --     4,645,166             --
Sale of restricted stock....                     397,800       398        687,102             --            --             --
Dividends on preferred
 stock......................                          --        --             --     (1,285,338)           --             --
Sale of common stock........                   4,935,600     4,936    100,408,413             --            --             --
Stock options exercised.....                     133,435       133         37,271             --   --.........             --
Conversion of Series B and D
 Preferred Stock............                   8,677,210     8,677      4,907,938             --            --             --
Cancellation of restricted
 stock......................                     (86,859)      (87)       (90,679)            --            --             --
Payment on notes
 receivable.................                          --        --             --             --            --             --
Net loss....................    (3,624,549)           --        --             --     (3,624,549)           --             --
                               -----------    ----------   -------   ------------   ------------   -----------      ---------
Total comprehensive income
 (loss).....................   $(3,803,526)           --        --             --             --            --             --
                               ===========
Balance at April 30, 2000...                  19,357,369   $19,357   $115,801,560   $(29,213,397)  $(4,623,999)     $(344,720)
                                              ==========   =======   ============   ============   ===========      =========

<CAPTION>
                                               TOTAL
                                NOTES         COMMON
                              RECEIVABLE   STOCKHOLDERS'
                                 FROM        (DEFICIT)
                               OFFICERS       EQUITY
                              ----------   -------------
<S>                           <C>          <C>
Balance at April 30, 1997...  $      --    $(17,563,184)
Stock options exercised.....         --           1,736
Sale of restricted stock....   (150,802)             --
Foreign currency translation
 adjustment.................         --        (155,290)
Dividends on preferred
 stock......................         --      (1,220,000)
Net loss....................         --      (1,113,183)
                              ---------    ------------
Total comprehensive income
 (loss).....................         --              --
Balance at April 30, 1998...   (150,802)    (20,049,921)
Stock options exercised.....         --          16,444
Sale of restricted stock....    (11,250)             --
Cancellation of restricted
 stock......................      3,375              --
Foreign currency translation
 adjustment.................         --         (10,453)
Deferred compensation.......         --              --
Amortization of deferred
 compensation...............         --         406,000
Dividends on preferred
 stock......................         --      (1,965,921)
Issuance of preferred stock
 in exchange for redemption
 premium....................         --      (1,652,400)
Net loss....................         --        (784,029)
                              ---------    ------------
Total comprehensive income
 (loss).....................         --              --
Balance at April 30, 1999...   (158,677)    (24,040,280)
Foreign currency translation
 adjustment.................         --        (150,905)
Unrealized loss on
 marketable securities......         --         (28,072)
Deferred compensation.......         --              --
Amortization of deferred
 compensation...............         --       4,645,166
Sale of restricted stock....   (687,500)             --
Dividends on preferred
 stock......................         --      (1,285,338)
Sale of common stock........         --     100,413,349
Stock options exercised.....         --          37,404
Conversion of Series B and D
 Preferred Stock............         --       4,916,615
Cancellation of restricted
 stock......................     90,766              --
Payment on notes
 receivable.................     62,284          62,284
Net loss....................         --      (3,624,549)
                              ---------    ------------
Total comprehensive income
 (loss).....................         --              --
Balance at April 30, 2000...  $(693,127)   $ 80,945,674
                              =========    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   47

                            MCK COMMUNICATIONS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               YEARS ENDED APRIL 30,
                                                     ------------------------------------------
                                                        1998           1999            2000
                                                     -----------    -----------    ------------
<S>                                                  <C>            <C>            <C>
Cash flow from operating activities:
  Net loss.........................................  $(1,113,183)   $  (784,029)   $ (3,624,549)
  Depreciation.....................................      215,342        378,977         821,528
  Amortization.....................................       15,000         15,000          15,000
  Stock based compensation.........................           --        406,000       4,645,166
  Deferred income taxes............................      (80,000)            --          33,133
  Dividends accrued on redeemable preferred stock
     of subsidiary.................................      160,000        196,947          96,563
  Change in operating assets and liabilities:
     Accounts receivable...........................     (846,047)    (1,457,353)     (1,667,784)
     Inventory.....................................      283,403       (736,895)     (1,004,161)
     Prepaids and other current assets.............      366,050         81,420      (1,083,549)
     Accounts payable..............................      357,431      1,181,424       3,116,243
     Accrued liabilities...........................      451,344        138,058         128,476
     Accrued compensation and benefits.............      272,666        178,404         136,220
     Deferred revenue..............................           --             --          70,659
     Other long-term assets........................           --             --        (335,035)
                                                     -----------    -----------    ------------
       Net cash (used) provided by operating
          activities...............................       82,006       (402,047)      1,347,910
Cash flows from investing activities:
  Purchase of fixed assets.........................     (565,526)      (675,650)     (1,964,736)
  Purchase of marketable securities................           --             --     (19,907,436)
                                                     -----------    -----------    ------------
       Net cash (used) by investing activities.....     (565,526)      (675,650)    (21,872,172)
Cash flows from financing activities:
  Proceeds from issuance of preferred stock, net of
     issuance costs................................           --      4,940,323              --
  Repayment of subordinated debt...................           --     (2,500,000)     (2,500,000)
  Redemption of preferred stock....................           --             --     (24,804,444)
  Increase (decrease) in short-term borrowings.....     (749,496)            --              --
  Issuance of common stock, net....................           --             --     100,610,001
  Proceeds from exercise of stock options..........        1,736         16,444          37,404
                                                     -----------    -----------    ------------
       Net cash provided (used) by financing
          activities...............................     (747,760)     2,456,767      73,342,961
Effect of exchange rate changes on cash............     (129,761)        38,701        (259,318)
                                                     -----------    -----------    ------------
Net increase (decrease) in cash....................   (1,361,041)     1,417,771      52,559,381
Cash and equivalents at beginning of period........    3,228,254      1,867,213       3,284,984
                                                     -----------    -----------    ------------
Cash and equivalents at end of period..............  $ 1,867,213    $ 3,284,984    $ 55,844,365
                                                     ===========    ===========    ============
Non-cash transactions:
  Dividends on non-subsidiary preferred stock......  $ 1,049,199    $ 1,782,309    $  1,285,338
  Sale of restricted stock, net of cancellations...      150,802          7,875         596,734
  Dividends to Manz Development, Inc...............      330,801        380,559         193,025
  Issuance of preferred stock in exchange for
     redemption premium............................           --      1,652,400              --
  Conversion of Series B and D redeemable preferred
     stock to common stock.........................           --             --       4,916,615
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>   48

                            MCK COMMUNICATIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FISCAL YEARS ENDED APRIL 30, 1998, 1999 AND 2000

1.  NATURE OF OPERATIONS

     MCK Communications, Inc. (MCK or the Company) develops and markets remote
voice access products that enable corporations to distribute the features and
applications of PBX systems to branch offices and telecommuters over data
networks. Sales are made to OEMs and private label partners, ILECs, systems
integrators and distributors, telecom and datacom VARs, and broadband service
providers. The Company operates in one business segment. In the fiscal years
ended 1998, 1999 and 2000, sales to one customer represented 46%, 47% and 46%,
respectively, of consolidated revenues.

2.  SIGNIFICANT ACCOUNTING POLICIES

  (a) Principles of Consolidation

     The consolidated financial statements include the accounts of MCK
Communications, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated.

  (b) Cash Equivalents

     Cash equivalents are defined as short-term, highly-liquid investments
having an original maturity of three months or less.

  (c) Inventory

     Inventory is valued at the lower of cost (first-in, first-out) or market.

  (d) Fixed Assets

     Fixed assets are stated at cost and depreciated on a straight-line basis
over the following estimated useful lives:

<TABLE>
<S>                                    <C>
Equipment............................  3 years
Furniture and fixtures...............  3 years
Purchased software...................  2 years
Leasehold improvements...............  The lesser of seven years or term of
                                       lease
</TABLE>

  (e) Fair Value of Financial Instruments

     The Company's cash, cash equivalents, marketabl debt securities, accounts
receivable, accounts payable and accrued liabilities are carried at cost, which
approximates fair value due to their relative short term to maturity.

  (f) Revenue Recognition

     Revenues from product sales to end users are recognized upon shipment. The
Company provides reserves for returns and warranty costs at the time revenue is
recognized. Returns and warranty costs have not been material.

     The Company recognizes service revenues as the service is provided and
maintenance revenues ratably over the contract period. Service revenues and
maintenance revenues have not been material.

  (g) Earnings per Share and Pro Forma Earnings per Share

     The Company has adopted the provisions of SFAS No. 128, Earnings Per Share.
SFAS 128 requires entities to present both basic earnings per share ("EPS") and
diluted EPS. Basic EPS excludes dilution and is

                                       F-7
<PAGE>   49
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

computed by dividing income (loss) available to common stockholders by the
weighted-average number of common shares outstanding of the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issued common stock were exercised or converted into common stock
or resulted in the issuance of common stock.

     Pro forma earnings per share is computed using the weighted average number
of common shares outstanding and assumes the conversion of the redeemable
convertible preferred stock at the later of May 1, 1998 or at the date of
issuance.

  (h) Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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. Significant estimates include the collectibility of accounts
receivable and the carrying value of inventory. Actual results could differ from
those estimates.

  (i) Translation of Foreign Currencies

     The functional currency for the Company's Canadian operations is the
Canadian dollar. The translation of Canadian dollars into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date, and for revenue and expense accounts using the
weighted-average exchange rate during the period. The gains or losses resulting
from such translation are reported in a separate component of stockholders'
deficit, which also includes exchange gains and losses on certain intercompany
balances of a long-term investment nature. Gains or losses resulting from
foreign currency transactions, which are included in results of operations, were
a loss of approximately $67,000 in 1998, a gain of approximately $56,000 in 1999
and a loss of $51,000 in 2000. The Company's Canadian subsidiary represented
approximately $4.8 million of total assets at April 30, 2000.

  (j) Income Taxes

     The Company provides deferred taxes to recognize temporary differences
between the financial and tax bases of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.

  (k) Comprehensive Income

     Comprehensive income includes all changes in equity during a period except
those resulting from investments by and distributions to owners.

  (l) Concentration of Credit Risk

     Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of cash equivalents and trade accounts
receivable. The Company invests its cash equivalents in deposits with financial
institutions with strong credit ratings. The Company sells its products to
customers in the telecommunications industry, primarily in the United States and
Canada. The Company performs periodic credit evaluations of its' customers
financial condition and collateral is generally not required. The Company
maintains reserves for potential credit losses and such losses have been within
management's expectations.

                                       F-8
<PAGE>   50
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Trade accounts receivable at April 30, 1999 and 2000 included approximately
$1,068,000 and $1,426,000, respectively, from one customer.

  (m) Investments

     The Company's investments consist primarily of commercial paper and money
market instruments with maturities of less than a year and are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized losses reported in other comprehensive income. Unrealized losses
relating to those available-for-sale securities were $28,072 at April 30, 2000.
Realized gains and losses and declines in value judged to be other-than
temporary on available-for-sale securities are included in investment income.
The cost of securities sold is based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are
included in investment income.

  (n) Reclassifications

     Certain prior year amounts have been reclassified to conform with current
year presentation.

  (o) Stock-Based Compensation

     The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25, no
compensation expense is recorded when the exercise price of the options granted
equals the market price of the underlying stock on the date of grant. The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No.
123).

3.  INVENTORY

     Inventory consisted of:

<TABLE>
<CAPTION>
                                                                     APRIL 30,
                                                              ------------------------
                                                                 1999          2000
                                                              ----------    ----------
<S>                                                           <C>           <C>
Raw materials...............................................  $  518,235    $  897,680
Work-in-process.............................................     780,584     1,309,150
Finished goods..............................................     194,822       290,972
                                                              ----------    ----------
                                                              $1,493,641    $2,497,802
                                                              ==========    ==========
</TABLE>

4.  FIXED ASSETS

     Fixed assets consisted of:

<TABLE>
<CAPTION>
                                                                     APRIL 30,
                                                             -------------------------
                                                                1999          2000
                                                             ----------    -----------
<S>                                                          <C>           <C>
Equipment..................................................  $1,054,588    $ 2,179,913
Purchased software.........................................     410,715        688,298
Leasehold improvements.....................................     269,339        662,815
Furniture and fixtures.....................................     231,644        399,996
                                                             ----------    -----------
                                                              1,966,286      3,931,022
Accumulated depreciation...................................    (911,725)    (1,624,840)
                                                             ----------    -----------
                                                             $1,054,561    $ 2,306,182
                                                             ==========    ===========
</TABLE>

                                       F-9
<PAGE>   51
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5.  CREDIT AGREEMENTS

     Revolving Credit Agreement.  During 1999 and 2000 the Company maintained a
revolving credit agreement that provided for borrowings up to the lesser of
$2,000,000 or 80% of qualifying accounts receivable. No amounts were outstanding
under this agreement during the year ended April 30, 1999 or 2000. The old
agreement charged interest at the bank's base and the debt was collateralized by
substantially all assets of the Company. The agreement expired in April 2000.

     Subordinated Debt.  The Company issued $5.0 million of 12.5% subordinated
promissory notes in connection with a recapitalization in June 1996. In July
1998, the Company completed a private placement (see Note 7), and repaid $2.5
million of the subordinated promissory notes. In October 1999, the Company
completed its Initial Public Offering (see Note 13) and repaid the remaining
$2.5 million in principal.

     The Company paid interest of approximately $375,000, $663,000, and $196,568
for the years ended April 30, 1998, 1999 and 2000, respectively.

6.  INCOME TAXES

     Pre-tax income (loss) is summarized by country as follows:

<TABLE>
<CAPTION>
                                                               APRIL 30,
                                                 -------------------------------------
                                                   1998         1999          2000
                                                 ---------    ---------    -----------
<S>                                              <C>          <C>          <C>
Canada.........................................  $(180,545)   $(195,394)   $ 1,190,099
United States..................................   (772,638)    (391,688)    (4,618,085)
                                                 ---------    ---------    -----------
          Total................................  $(953,183)   $(587,082)   $(3,427,986)
                                                 =========    =========    ===========
</TABLE>

     The provision (benefit) for income taxes consisted of:

<TABLE>
<CAPTION>
                                                                   APRIL 30,
                                                       ---------------------------------
                                                         1998        1999         2000
                                                       --------    ---------    --------
<S>                                                    <C>         <C>          <C>
Current:
Canada...............................................  $ 80,000      $  --      $     --
United States........................................        --         --        66,867
                                                       --------      -----      --------
                                                         80,000         --        66,867
Deferred:
Canada...............................................   (80,000)        --        33,133
                                                       --------      -----      --------
          Total......................................  $     --      $  --      $100,000
                                                       ========      =====      ========
</TABLE>

                                      F-10
<PAGE>   52
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The provision for income taxes differed from the amount computed by
applying the U.S. federal statutory rate as follows:

<TABLE>
<CAPTION>
                                                               APRIL 30,
                                                 -------------------------------------
                                                   1998         1999          2000
                                                 ---------    ---------    -----------
<S>                                              <C>          <C>          <C>
Income tax provision (benefit) at statutory
  rate.........................................  $(333,614)   $(205,479)   $(1,204,638)
Tax loss with no current benefit...............    330,104      187,943         68,440
Utilization of foreign net operating losses....         --           --       (136,087)
Foreign tax differential.......................    (16,290)     (12,214)       114,487
Non-deductible expenses........................     19,800       29,750      1,549,562
Tax credits....................................         --           --       (331,386)
State taxes, net of federal benefit............         --           --         14,494
Other, net.....................................         --           --         25,128
                                                 ---------    ---------    -----------
          Total................................  $      --    $      --    $   100,000
                                                 =========    =========    ===========
</TABLE>

     The components of the Company's deferred tax assets and liabilities are as
follows:

<TABLE>
<CAPTION>
                                                                    APRIL 30,
                                                              ----------------------
                                                                1999         2000
                                                              ---------    ---------
<S>                                                           <C>          <C>
Deferred tax assets:
Reserves and accruals.......................................  $ 198,000    $ 232,593
Depreciation................................................         --       54,746
Tax credits.................................................    299,000      155,006
Net operating loss carryforward.............................    190,100      173,457
                                                              ---------    ---------
          Total deferred tax assets.........................    687,100      615,802
                                                              ---------    ---------
Deferred tax liabilities:
Depreciation................................................    (18,000)          --
Other.......................................................    (10,000)    (157,395)
                                                              ---------    ---------
          Total deferred tax liabilities....................    (28,000)    (157,395)
                                                              ---------    ---------
Valuation allowance.........................................   (659,100)    (491,540)
                                                              ---------    ---------
Net deferred tax liabilities................................  $      --    $ (33,133)
                                                              =========    =========
</TABLE>

     The Company has incurred cumulative losses for the three year period ended
April 30, 2000. Consequently, the Company does not have an objective and
verifiable basis for concluding that it is more likely than not the Company will
generate taxable income in the foreseeable future. Accordingly, the Company has
provided a valuation allowance covering its net deferred tax asset.

     At April 30, 1999 and 2000, the Company had $299,000 and $19,249 of
Canadian investment tax credits earned as a result of government incentive
programs which expire in 2009 and 2010 respectively. At April 30, 2000 the
Company has $135,757 of United States research credits which begin to expire in
2018 and net operating loss carryforwards of $433,643 which expire in 2019. The
Company paid income taxes of $18,900, $912 and $874 in 1998, 1999 and 2000,
respectively.

7.  PREFERRED STOCK

     On July 16, 1998, the Company raised $5,000,000 through the private
placement of 28,505 shares of Series C Redeemable Preferred Stock and 1,672,354
shares of Series D Redeemable Convertible Preferred Stock. In connection with
the private placement, the Company eliminated the redemption premium that

                                      F-11
<PAGE>   53
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

would have been due under certain circumstances to the Series A preferred
stockholders in exchange for issuing 1,652,400 shares of Series A preferred
stock to the existing Series A preferred stockholders. This issuance of Series A
preferred stock was accounted for as a preferred stock dividend and the
liquidation value of the preferred stock ($1 per share) issued is reflected as a
charge to retained earnings. The Company used $2,500,000 of the proceeds to
repay a portion of the subordinated promissory notes and the balance of the
private placement proceeds was retained for working capital purposes.

     In connection with the Company's Initial Public Offering in October 1999,
the Company converted all of the Series B and D preferred stock into 8,677,210
shares of Common Stock and paid $24,804,444 to redeem all of the Series A, C and
E Redeemable Preferred Stock.

     Preferred stock consisted of:

<TABLE>
<CAPTION>
                                                               APRIL 30,
                                                              -----------
                                                                 1999
                                                              -----------
<S>                                                           <C>
Redeemable preferred stock:
  Series A redeemable preferred stock, 14,985,733 shares
     issued and outstanding (liquidation value of
     $14,985,733, plus accrued dividends of $3,373,199).....  $18,284,241
  Series C redeemable preferred stock, 28,505 shares issued
     and outstanding (liquidation value of $2,850,000 plus
     accrued dividends of $256,356).........................    2,726,518
  Series E redeemable preferred stock of subsidiary, no par
     value, 20,000 shares issued and outstanding
     (liquidation value of $2,000,000 plus accrued dividends
     of $490,280)...........................................    2,490,280
                                                              -----------
          Total.............................................  $23,501,039
                                                              ===========
Redeemable convertible preferred stock:
  Series B redeemable convertible preferred stock, 3,968,384
     shares issued and outstanding (liquidation value of
     $1,666,667 plus accrued dividends of $408,567).........  $ 2,075,234
  Series D redeemable convertible preferred stock, 1,672,354
     shares issued and outstanding (liquidation value of
     $2,500,000 plus accrued dividends of $158,356).........    2,628,517
                                                              -----------
          Total.............................................  $ 4,703,751
                                                              ===========
</TABLE>

     Each share of preferred stock accrued daily dividends on a cumulative basis
at a rate of 8% per annum on their respective liquidation values. Total accrued
and unpaid dividends at April 30, 1999 were $4,686,758. The Series A, C and D
preferred stock were recorded net of $74,691, $29,838 and $29,839 of issuance
costs, respectively. The Series E preferred stock represents redeemable
preferred stock in the Company's Canadian subsidiary. All of the Series E
preferred stock was owned by Manz Developments, Inc. (MDI).

8.  STOCK PLANS

     In June 1996, the Company adopted the 1996 Stock Option Plan (the 1996
Plan), which provides for the issuance of up to 1,959,081 shares of common stock
of the Company as either incentive stock options or non-qualified stock options.
The 1996 Plan is administered by the Compensation Committee of the Board of
Directors. Both incentive stock options and non-qualified stock options are
generally granted at the fair market value, although as disclosed herein,
certain options were granted below fair market value. Options granted under the
1996 Plan generally vest as to 25% of the underlying shares on the first
anniversary of the date of grant and ratably over the remaining thirty-six
months and expire five and ten years from date of grant for

                                      F-12
<PAGE>   54
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

incentive stock options and non-qualified stock options, respectively. At April
30, 2000, 124,680 shares were available for future grant. At April 30, 1998,
1999 and 2000, there were 327,971, 146,628 and 374,991 options exercisable under
the 1996 Plan, at a weighted average exercise price of $0,052, $0,046 and $0,152
per share, respectively.

     In August 1999, the Company adopted the 1999 Stock Option and Grant Plan
(the 1999 Plan). The 1999 Plan provides for the issuance of up to 3,060,000
shares of common stock of the Company as either incentive stock options or
non-qualified stock options. The 1999 Plan is administered by the Compensation
Committee of the Board of Directors. Options granted under the 1999 Plan
generally vest as to 23% of the underlying shares on the first anniversary of
the date of grant and ratably over the remaining twelve quarters and expire ten
years from the date of grant. At April 30, 2000, there were 28,450 options
exercisable under the 1999 Plan at a weighted average exercise price of $6.81
per share, and 2,063,492 shares were available for future grant.

     The following table summarizes option activity over the life of the 1996
Plan and 1999 Plan:

<TABLE>
<CAPTION>
                                                             OPTIONS      WEIGHTED AVERAGE
                                                           OUTSTANDING     EXERCISE PRICE
                                                           -----------    ----------------
<S>                                                        <C>            <C>
  Granted................................................     837,934         $  0.04
  Exercised..............................................    (214,928)         0.0007
  Canceled...............................................     (61,231)           0.10
                                                            ---------         -------
Outstanding at April 30, 1997............................     561,775            0.06
  Granted................................................     143,973            0.10
  Exercised..............................................    (117,091)           0.03
  Canceled...............................................    (118,085)           0.10
                                                            ---------         -------
Outstanding at April 30, 1998............................     470,571            0.07
  Granted................................................     762,768            0.12
  Exercised..............................................    (241,286)           0.07
  Canceled...............................................     (20,411)           0.10
                                                            ---------         -------
Outstanding at April 30, 1999............................     971,642            0.11
  Granted................................................   1,406,882           13.42
  Exercised..............................................    (133,435)           0.28
  Canceled...............................................    (120,922)           7.62
                                                            ---------         -------
Outstanding at April 30, 2000............................   2,124,167         $  8.57
                                                            =========         =======
</TABLE>

                                      F-13
<PAGE>   55
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table presents certain information about options outstanding
as of April 30, 2000:

<TABLE>
<CAPTION>
                                                                         WEIGHTED
                                                                         AVERAGE
                                  WEIGHTED AVERAGE       NUMBER OF    EXERCISE PRICE
                    NUMBER OF   REMAINING CONTRACTUAL     OPTIONS       OF OPTIONS
  EXERCISE PRICE     OPTIONS         LIFE (YRS.)        EXERCISABLE    EXERCISABLE
  --------------    ---------   ---------------------   -----------   --------------
<S>                 <C>         <C>                     <C>           <C>
     $ 0.0007          70,345           1.16               70,345        $ 0.0007
     $ 0.098          576,781           2.99              241,221           0.098
     $ 0.196          189,038           3.85               48,887           0.196
     $ 1.634          312,120           4.69               29,835           1.634
 $ 8.17 - $12.75      382,033           9.40               12,653          12.695
 $13.50 - $22.50      308,850           9.63                  500           16.00
$23.563 - $29.875     220,000           9.77                   --              --
$31.25 - $33.9375      65,000           9.93                   --              --
                    ---------                             -------        --------
                    2,124,167                             403,441        $0.62800
</TABLE>

     The weighted-average exercise price of stock options granted are as
follows:

<TABLE>
<CAPTION>
                                                             1998     1999      2000
                                                            ------    -----    ------
<S>                                                         <C>       <C>      <C>
Exercise price less than fair value of common stock.......  $   --    $0.12    $ 6.43
Exercise price equals fair value of common stock..........   0.098       --     23.25
</TABLE>

     The Company recorded deferred compensation charges of $1,211,652 and
$8,463,514 related to stock options and restricted stock granted below market
exercise prices during the fiscal year ended April 30, 1999 and 2000,
respectively. The deferred compensation is being amortized to expense over the
vesting period of the individual options, generally four years. SFAS No. 123
requires the Company to disclose, on a pro forma basis, the effect on net income
(loss) as if the Company had recorded compensation expense for its stock-based
compensation plans based on the fair value of the awards. On a pro forma basis,
loss applicable to common stock for 2000, 1999 and 1998 would have been
approximately $5,619,000, $2,799,000, $2,334,000, respectively. Loss per common
share would have been approximately $0.50, $0.72, and $0.67, for the years ended
April 30, 2000, 1999 and 1998, respectively.

     The pro forma effect in 1998, 1999 and 2000 of expensing the estimated fair
value of stock options is not necessarily representative of the effects on
reported net income for future years due to such factors as the vesting period
of the stock options and the potential for issuance of additional stock options
in future years.

     The fair market value for these options was estimated at the date of grant
using the minimum value method prior to our Initial Public Offering on October
22, 1999 and the Black-Scholes model thereafter using the following
weighted-average assumptions for options granted in 1998 and 1999 and 2000:
risk-free interest rate of 4.5%, 5.0% and 6.5%; a weighted-average expected life
of the option of between five and six years; expected volatility of 1.2
(Black-Scholes only); and no dividends.

     The weighted-average fair value of stock options granted are as follows:

<TABLE>
<CAPTION>
                                                             1998     1999      2000
                                                             -----    -----    ------
<S>                                                          <C>      <C>      <C>
Fair value of stock options where exercise price less than
  fair value of common stock...............................  $  --    $0.45    $ 9.64
Fair value of stock options where exercise exercise price
  equals fair value of common stock........................   0.02       --     19.91
</TABLE>

The weighted average remaining contractual life for those stock options
outstanding at April 30, 2000 was 6.3 years.

     The Company issued 22,950 shares of restricted common stock at $3.27 per
share which was less than the fair value at September 1999, 374,850 shares of
restricted common stock at $1.63 per share which was less

                                      F-14
<PAGE>   56
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

than fair value at July 1999, 114,750 shares of restricted common stock having a
fair value of $0.098 per share in June 1998 and 1,538,178 shares of restricted
common stock having a fair value of $0.098 per share in January 1998 to certain
executives and a member of the Board of Directors in exchange for promissory
notes totaling $849,552. The promissory notes are non-interest bearing to
employees insofar as the Company is required to reimburse the employees for any
interest on the promissory notes that is payable to the Company. The face value
of the promissory notes approximate their fair market value. Upon termination
for any reason other than for cause or in the event of the merger, consolidation
or sale of substantially all of the Company's assets or voting securities, the
Company must repurchase all the non-vested restricted stock of the executives at
the original issue price. If an executive is terminated for cause, the Company
must repurchase such executive's vested and non-vested restricted stock.

     The Company has a right of first refusal prior to any transfer of
restricted stock. The restricted stock generally vests over four years and the
promissory notes have a five-year maturity. The outstanding balance of the
promissory notes at April 30, 1999 and 2000 is $158,677 and $693,127,
respectively.

     At April 30, 2000, the Company had reserved 4,312,339 shares of common
stock for issuance under the 1996 and 1999 Stock Option plans.

9.  EMPLOYEE SAVINGS PLANS

     The Company maintains a retirement savings plan under section 401(k) of the
Internal Revenue Code. The plan covers substantially all U.S. employees and
allows participants to defer a portion of their annual compensation on a pre-tax
basis. The Company also maintains a Registered Retirement Savings Plan for its
Canadian employees which allows participants to defer a portion of their annual
compensation on a pre-tax basis. The Company made no contributions to either
plan during 1998, 1999 or 2000.

10.  COMMITMENTS AND CONTINGENCIES

     The Company leases office space in the United States and Canada under
non-cancelable operating leases. The Company's Canadian facility is leased from
Manz Developments, Inc., a related party. Rent expense under this arrangement
was approximately $96,000, $99,000 and $105,000 in 1998, 1999 and 2000
respectively. Total rent expense under all operating leases for 1998, 1999 and
2000 was approximately $264,000, $333,000 and $478,000, respectively. At April
30, 2000, future minimum lease commitments were approximately $1,028,000 in
2001, $957,000 in 2002, $943,000 in 2003, $1,256,000 in 2004, $1,421,000 in 2005
and $2,637,000 thereafter.

                                      F-15
<PAGE>   57
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  EARNINGS PER SHARE AND PRO FORMA EARNINGS PER SHARE

     The calculations of earnings per share are as follows:

<TABLE>
<CAPTION>
                                                                                        PRO FORMA
                                                                                       YEAR ENDED
                                                                                        APRIL 30,
                                                     YEARS ENDED APRIL 30,             (UNAUDITED)
                                            ---------------------------------------    -----------
                                               1998          1999          2000           2000
                                            -----------   -----------   -----------    -----------
<S>                                         <C>           <C>           <C>            <C>
Numerator:
  Net loss................................  $(1,113,183)  $  (784,029)  $(3,624,549)   $(3,624,549)
  Dividends on preferred stock............    1,220,000     1,965,921     1,285,338      1,102,313(1)
                                            -----------   -----------   -----------    -----------
  Numerator for basic and diluted earnings
     per share-income available to common
     stockholders.........................  $(2,333,138)  $(2,749,950)  $(4,909,887)   $(4,726,862)
                                            ===========   ===========   ===========    ===========
Denominator:
  Denominator for basic and diluted
     earnings per
     share -- weighted-average shares.....    3,476,282     3,881,526    11,144,565     15,268,368(2)
                                            ===========   ===========   ===========    ===========
Basic and diluted earnings (loss) per
  share...................................  $     (0.67)  $     (0.71)  $     (0.44)   $     (0.31)
                                            ===========   ===========   ===========    ===========
</TABLE>

---------------
(1) Excludes dividends on redeemable convertible preferred stock.

(2) Includes common shares issued upon conversion of redeemable convertible
    preferred stock.

     The following potential common shares have been excluded from the
computation of diluted net loss per share for all periods presented because the
effect would have been anti-dilutive (in thousands):

<TABLE>
<CAPTION>
                                                               YEAR ENDED APRIL 30,
                                                             ------------------------
                                                             1998      1999     2000
                                                             -----    ------    -----
<S>                                                          <C>      <C>       <C>
Shares issuable under stock options........................    471       972    2,124
                                                             =====    ======    =====
Shares of nonvested restricted stock.......................  1,429     1,119      873
                                                             =====    ======    =====
Shares potentially issuable upon conversion of Series B and
  D preferred stock........................................  8,565    14,413       --
                                                             =====    ======    =====
</TABLE>

12.  VALUATION AND QUALIFYING ACCOUNTS

     Accounts Receivable Reserves and Allowances:

<TABLE>
<CAPTION>
                                                           ADDITIONS
                                             BALANCE AT    CHARGED TO    DEDUCTIONS
                                            BEGINNING OF     INCOME     (PRINCIPALLY  BALANCE AT
PERIOD                                          YEAR       STATEMENT    WRITE-OFFS)   END OF YEAR
------                                      ------------   ----------   ------------  -----------
<S>                                         <C>            <C>          <C>           <C>
Year ended April 30, 1998.................    $ 47,178      $165,252     $ (62,430)    $150,000
Year ended April 30, 1999.................    $150,000      $112,418     $ (82,858)    $179,560
Year ended April 30, 2000.................    $179,560      $ 80,838     $(106,334)    $154,064
</TABLE>

13.  INITIAL PUBLIC OFFERING AND FOLLOW ON OFFERING

     The Company completed its Initial Public Offering of 3,400,000 shares of
common stock in October 1999 raising approximately $49.5 million, net of
offering and distribution costs. MCK Communications, Inc. is listed on the
NASDAQ National Market under the symbol "MCKC."

                                      F-16
<PAGE>   58
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Upon completion of the Initial Public Offering, the Company redeemed
14,985,733, 28,505, and 20,000 shares of Series A, Series C and Series E
Redeemable Preferred Stock, respectively. The aggregate redemption price for the
Series A, Series C and Series E preferred stock was $19,070,164, $3,147,487 and
$2,586,793, respectively. In addition, 3,968,384 shares of Series B Redeemable
Preferred Stock were converted into 6,102,195 shares of the Company's common
stock and 1,672,354 shares of Series D Redeemable Preferred Stock were converted
into 2,575,015 shares of the Company's common stock.

     On November 22, 1999, the underwriters of the Initial Public Offering
exercised their over-allotment option and purchased an additional 255,000 shares
of the Company's common stock at the offering price of $16.00. The Company
received an additional $3,794,400, net of underwriting discounts and
commissions, in this transaction. Additionally, certain stockholders sold
255,000 shares of their stock in the Company. The Company did not receive any
proceeds on such sales by its stockholders.

     On April 7, 2000, the Company completed a follow-on Public Offering of
2,750,000 shares of common stock, 1,250,000 of which were sold by the Company
and 1,500,000 of which were sold by certain stockholders. The Company received
approximately $47.1 million, net of offering and distribution costs. The Company
did not receive any proceeds on the sale of shares by its stockholders.

14.  LEGAL PROCEEDINGS

     On May 3, 2000, Joan Lockhart, the Company's former Vice President of
Marketing, filed a Complaint in Massachusetts State Court against the Company
(The "Complaint"). In the Complaint, entitled Joan Lockhart v. MCK
Communications, Inc., (Middlesex Superior Court), Ms. Lockhart asserts a claim
for breach of contract against the Company based on her allegations that the
Company failed to comply with the terms of her employment and certain restricted
stock and stock option agreements executed by and between the Company and Ms.
Lockhart. Ms. Lockhart seeks damages as well as declaratory and injunctive
relief, including the right to purchase restricted stock and exercise stock
options. On June 5, 2000, the Company filed its answer denying the material
allegations of Ms. Lockhart's complaint. We are unable at this time to estimate
the probability of a favorable or unfavorable outcome or to estimate the amount
of any losses in the event of an unfavorable outcome.

15.  SEGMENTS

     Information about the Company's revenue and long-lived assets by geographic
area is as follows:

<TABLE>
<CAPTION>
                                                                         APRIL 30,
                                                           --------------------------------------
                                                              1998         1999          2000
                                                           ----------   -----------   -----------
<S>                                                        <C>          <C>           <C>
Revenues from external customers:
United States............................................  $4,885,163   $11,653,200   $21,257,032
Canada...................................................   2,124,280     1,664,715     2,892,278
Rest of world............................................     866,336       951,688       933,092
                                                           ----------   -----------   -----------
     Total...............................................  $7,875,779   $14,269,603   $25,082,402
                                                           ----------   -----------   -----------
</TABLE>

<TABLE>
<CAPTION>
                                                                     APRIL 30,
                                                              -----------------------
                                                                 1999         2000
                                                              ----------   ----------
<S>                                                           <C>          <C>
Long-lived assets:
United States...............................................  $  599,893   $2,017,744
Canada......................................................     486,511      640,316
                                                              ----------   ----------
     Total..................................................  $1,086,404   $2,658,060
                                                              ==========   ==========
</TABLE>

                                      F-17
<PAGE>   59
                            MCK COMMUNICATIONS, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16.  SUBSEQUENT EVENTS

     On June 14, 2000 the Company acquired all of the outstanding stock of DTI
Holdings, Inc. and its wholly owned subsidiary Digital Techniques, Inc. for
$11.5 million in cash, 364,601 shares of common stock and assumed stock options.
The transaction will be accounted for as a purchase.

                                      F-18
<PAGE>   60

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<S>           <C>
 2.1 (1)      Stock and Note Purchase Agreement, dated as of June 27, 1996
              by and among the Registrant, MCK Telecommunications, Inc.,
              Cal Manz, Manz Developments, Inc. and the Investors named
              therein.
 2.2 (1)      Stock Purchase Agreement, dated as of July 16, 1998, by and
              among the Registrant, and the Purchasers named therein.
 2.3 (2)      Agreement and Plan of Merger, dated June 14, 2000, by and
              among the Registrant, Omni Acquisition Corporation, Troy
              Holdings International, Inc., DTI Holdings, Inc., Digital
              Techniques, Inc. and certain shareholders of DTI Holdings,
              Inc.
 3.1 (1)      Second Amended and Restated Certificate of Incorporation of
              the Registrant (Exhibit No. 3.3 of Registration Statement on
              Form S-1 (File No. 333-85821)).
 3.2 (1)      First Amended and Restated By-laws of the Registrant
              (Exhibit No. 3.5 of Registration Statement on Form S-1 (File
              No. 333-85821)).
 4.1 (1)      Specimen certificate for shares of common stock, $.001 par
              value, of the Registrant.
10.1 (1)      Amended and Restated Stockholders' Agreement, dated July 16,
              1998, among the Registrant and the stockholders named
              therein.
10.2 (1)      Amended and Restated Registration Rights Agreement, dated
              July 16, 1998, among the Registrant and the stockholders
              named therein.
10.3 (1)      Amended and Restated 1996 Stock Option Plan of the
              Registrant.
10.4 (3)      1999 Stock Option and Grant Plan of the Registrant.
10.5 (1)      Form of Stock Restriction Agreement for sale of restricted
              stock to executive officers (Exhibit No. 10.9 of
              Registration Statement on Form S-1 (File No. 333-85821)).
10.6 (1)      Form of Promissory Note for purchase of restricted stock by
              executive officers (Exhibit No. 10.10 of Registration
              Statement on Form S-1 (File No. 333-85821)).
10.7 (1)      Form of Pledge Agreement (Exhibit No. 10.11 of Registration
              Statement on Form S-1 (File No. 333-85821)).
10.8 (1)      Form of Promissory Note (Exhibit No. 10.12 of Registration
              Statement on Form S-1 (File No. 333-85821)).
10.9 (1)      Lease Agreement between Manz Developments, Inc. and MCK
              Telecommunications, Inc. dated January 1, 1996 (Exhibit No.
              10.13 of Registration Statement on Form S-1 (File No.
              333-85821)).
10.10 (1)     Agreement between the Registrant and Lucent Technologies,
              Inc. effective as of April 30, 1999 (Exhibit No. 10.15 of
              Registration Statement on Form S-1 (File No. 333-85821)).
10.11 (1)     Master Support Agreement between the Registrant and Vital
              Networks, Inc. dated June 28, 1999 (Exhibit No. 10.16 of
              Registration Statement on Form S-1 (File No. 333-85821)).
10.12 (1)     Amended and Restated Loan and Security Agreement between the
              Registrant and BankBoston, N.A. dated July 1999 (Exhibit No.
              10.17 of Registration Statement on Form S-1 (File No.
              333-85821)).
10.13 (4)     Lease Agreement by and between the Registrant and
              Wellsford/Whitehall Holdings, L.L.C. dated January 10, 2000.
10.13.1       First Amendment to Lease Agreement between the registrant
              and Wellsford/Whitehall Holdings, LLC dated May 25, 2000.
10.13.2       Second Amendment to Lease Agreement between the registrant
              and Wellsford/Whitehall Holdings, LLC dated May 31, 2000.
10.14         Lease Agreement by and between the Digital Techniques, Inc.
              and Armet Bethany Limited Partnership dated July 7, 1993, as
              amended April 21, 1995 and further amended December 14,
              1998.
</TABLE>
<PAGE>   61

<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<S>           <C>
21.1          Subsidiaries of the Registrant.
23.1          Consent of Ernst & Young LLP.
27.1          Financial Data Schedule.
</TABLE>

---------------
+  Confidential treatment obtained as to portions of this exhibit. The
   confidential information has been filed separately with the Securities and
   Exchange Commission.

(1) Incorporated by reference to identically numbered exhibits (unless otherwise
    indicated) filed in response to Item 16(a), "Exhibits," of the Registrant's
    Registration Statement on Form S-1, as amended (File No. 333-85821), which
    was declared effective on October 21, 1999.

(2) Incorporated by reference to Exhibit 2.1 filed with the Registrant's Report
    on Form 8-K dated June 28, 2000.

(3) Incorporated by reference to Exhibit 10.4 filed with the Registrant's
    Registration Statement on Form S-8 dated February 4, 2000.

(4) Incorporated by reference to Exhibit No. 10.18 of the Registrant's
    Registration Statement on Form S-1, as amended (File No. 333-96235)), which
    was declared effective on April 4, 2000.