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Applied Computer Technology Inc – ‘SB-2’ on 2/17/98

As of: Tuesday, 2/17/98 · Accession #: 1004878-98-12 · File #: 333-46379

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/17/98  Applied Computer Technology Inc   SB-2                   5:187K                                   Hart & Hart LLC/FA

Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: SB-2        Registration of Securities by a Small-Business        74    340K 
                          Issuer                                                 
 2: EX-5        Opinion re: Legality                                   1      6K 
 3: EX-23       Consent of Experts or Counsel                          1      5K 
 4: EX-23       Consent of Experts or Counsel                          1      6K 
 5: EX-23       Consent of Experts or Counsel                          1      5K

SB-2 — Registration of Securities by a Small-Business Issuer
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Business Centers Comparative Share Data Consolidated Balance Sheet Consolidated Statement of Stockholders' Equity Consolidated Statements of Cash Flows Consolidated Statements of Operations Description of Securities Directors and Executive Officers Exhibits Indemnification of Directors and Officers Management Management's Discussion and Analysis of Financial Condition and Results of Operations Market Information Notes to Consolidated Financial Statements Offering, The Other Expenses of Issuance and Distribution Preferred Stock Principal Shareholders Proprietary Rights Recent Sales of Unregistered Securities Registration Statement Risk Factors Selected Financial Data Selling Shareholder Stock Option and Bonus Plans The Offering Undertakings Warrants
1	1st Page - Filing Submission
"	Registration Statement
8	The Offering
9	Risk Factors
15	Comparative Share Data
18	Market Information
"	Selected Financial Data
20	Management's Discussion and Analysis of Financial Condition and Results of Operations
30	Business Centers
31	Proprietary Rights
32	Management
"	Directors and Executive Officers
35	Stock Option and Bonus Plans
40	Principal Shareholders
41	Selling Shareholder
43	Description of Securities
"	Preferred Stock
44	Warrants
49	Consolidated Balance Sheet
50	Consolidated Statements of Operations
51	Consolidated Statement of Stockholders' Equity
52	Notes to Consolidated Financial Statements
"	Consolidated Statements of Cash Flows
66	Item 24. Indemnification of Directors and Officers
"	Item 25. Other Expenses of Issuance and Distribution
67	Item 26. Recent Sales of Unregistered Securities
68	Item 27. Exhibits
70	Item 28. Undertakings

SB-2 1st Page of 74 TOC ↑Top Previous Next ↓Bottom Just 1st
 
           As filed with the Securities and Exchange Commission on ____, 1998.

                                               Registration No._________

 U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM SB-2

REGISTRATION STATEMENT  
 Under
THE SECURITIES ACT OF 1933

 APPLIED COMPUTER TECHNOLOGY, INC.
(Name of small business issuer in its charter)

Colorado                      5734                    84-1164570
(State or other jurisdiction    (Primary Standard           (I.R.S.Employer     
of incorporation or              Industrial             Identification No.) 
organization)             Classification Code)                        

 2573 Midpoint Drive
Fort Collins, Colorado 80525
           Telephone: 970/490-1849
(Address and telephone number of principal executive offices) 

Wiley E. Prentice, Jr.  
 2573 Midpoint Drive
Fort Collins, Colorado 80525
           Telephone: 970/490-1849
(Name, address and telephone number of agent for service) 

 2573 Midpoint Drive
Fort Collins, Colorado 80525
(Address of Principal Place of Business or
 Intended Principal Place of Business)

Copies to:  
William T. Hart, Esq. 
 Hart & Trinen
1624 Washington Street  
Denver, Colorado 80203  
 Telephone: 303/839-0061

Approximate date of commencement of proposed sale to public:                    
As soon as practicable after the Registration Statement becomes effective       

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the  Securities  Act  registration  statement  number of the  earlier  effective
registration statement for the same offering. [ ]                               

If this Form is a  post-effective  amendment filed pursuant to Rule 462(c) under
the  Securities  Act,  check  the  following  box and  list the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the same offering. [ ]                                                      

If delivery of the prospectus is expected to be made pursuant to Rule 434,      
please check the following box.  [  ]                                           

SB-2 2nd Page of 74 TOC 1st Previous Next ↓Bottom Just 2nd
 CALCULATION OF REGISTRATION FEE

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

                    Proposed        Proposed
Title of Each Class      Amount     Maximum Offer-  Maximum Aggre-   Amount of  
of Securities to be      to be      ing Price Per   gate Offering    Registra-  
Registered             Registered     Unit (1)        Price (1)      tion Fee   
------------------------------------------------------------------------------- 

Common Stock (2)          360,000       $2.50           $900,000       $266     

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

Total                     360,000                       $900,000       $266     
------------------------------------------------------------------------------- 

(1)  Estimated  solely  for the  purpose of  calculating  the  registration  fee
pursuant to Rule 457(c).                                                        

(2)  Shares  are  offered  by the  Selling  Shareholder.  Pursuant  to Rule 416,
includes such indeterminate  number of additional  securities as may be required
for issuance on  conversion  of the Series A Preferred  Stock and as a result of
any adjustment in the number of securities issuable on such conversion by reason
of the anti-dilution provisions of the Series A Preferred Stock.                

         The Registrant hereby amends this  Registration  Statement on such date
or dates as may be necessary to delay its  effective  date until the  Registrant
shall file a further amendment which specifically  states that this Registration
Statement shall  thereafter  become effective in accordance with Section 8(a) of
the  Securities  Act of 1933 or until the  Registration  Statement  shall become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.                                                                  

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 APPLIED COMPUTER TECHNOLOGY, INC.

Cross Reference Sheet between Items of Form SB-2  
and Prospectus  

Item in Form SB-2                                Location in Prospectus 
-----------------                               ------------------------
1.  Front of Registration Statement and                                         
 Outside Front Cover of Prospectus       Facing  Page; Outside Front Cover
            Page

2.  Inside Front and Outside Back                                               
   Cover Pages of Prospectus               Inside  Front Cover  Page;  Outside
                       Back Cover Page

3.  Summary Information and Risk Factors    Prospectus Summary; Risk Factors    

4.  Use of Proceeds                         Prospectus Summary                  

5.  Determination of Offering Price         Selling Shareholder                 

6.  Dilution                                Comparative Share Data              

7.  Selling Security Holders                Selling Shareholder.                

8.  Plan of Distribution                    Selling Shareholder                 

9.  Legal Proceedings                       Not Applicable                      

10. Directors, Executive Officers,                                              
Promoters and Control Persons           Management                      

11. Security Ownership of Certain                                               
Beneficial Owners and Management        Principal Shareholders          

12. Description of Securities               Description of Securities           

13. Interest of Named Experts and Counsel   Legal Matters; Experts              

14. Disclosure of Commission Position                                           
on Indemnification for Securities                                       
   Act Liabilities                         Management-Limitation  of Liability
                           and Indemnification

15. Organization Within Last Five Years     Business; Certain Transactions      

16. Description of Business                 Prospectus Summary; Business        

17. Management's Discussion and Analysis                                        
    or Plan of Operation                    Management's Discussion and Analysis
                                          of Financial Condition and Results
                      of Operations.

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Item in Form SB-2                                Location in Prospectus 
-----------------                               ------------------------

18. Description of Property                 Business                            

19. Certain Relationships and Related                                           
Transactions                            Certain Transactions.           

20. Market For Common Stock and                                                 
Related Shareholder Matters             Market Information              

21. Executive Compensation                  Management - Executive Compensation.

22. Financial Statements                    Financial Statements.               

23. Changes In and Disagreements With                                           
Accountants on Accounting and                                           
Financial Disclosure                    Experts.                        

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 APPLIED COMPUTER TECHNOLOGY, INC.

Common Stock  

         This  Prospectus  relates to the sale of shares of the Common  Stock of
Applied Computer Technology, Inc. (the "Company") by the holder of the Company's
Series A Preferred Stock (the  "Preferred  Stock") if and when the holder of the
Preferred  Stock  elects to  convert  the  Preferred  Stock  into  shares of the
Company's  Common Stock. The holder of the Preferred Stock may resell the shares
it receives upon conversion  from time to time in the public market.  The holder
of the Preferred Stock, to the extent it coverts the Preferred Stock into shares
of Common Stock and receives  shares of the Company's  Common Stock, is referred
to in this Prospectus as the "Selling Shareholder".                             

         The Selling  Shareholder has advised the Company that it will offer the
shares through  broker/dealers at market prices with customary commissions being
paid by the Selling Shareholder.  The costs of registering the shares offered by
the Selling  Shareholder are being paid by the Company.  The Selling Shareholder
will pay all other costs of the sale of the shares  offered by this  prospectus.
The Company  will not receive  any  proceeds  from the sale of the shares by the
Selling Shareholder.                                                            

         The Common Stock and Warrants are listed on the Nasdaq  SmallCap Market
under the trading symbols ACTI and ACTIW, respectively, and on the Pacific Stock
Exchange under the symbols ABZ and ABZW, respectively.                          

        On February  , 1998 the closing  prices of the Company's  Common Stock
and  Warrants  on  the  NASDAQ  System  were  $____and $____,  respectively. See
"Market Information".                                                           

These Securities involve a high degree of risk and immediate  
substantial dilution. See "Risk Factors" and "Dilution".  

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES  
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE  
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION 
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.  
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 

     The date of this Prospectus is_________, 1998

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         Applied  Computer  Technology  and  the  stylized  handprint  logo  are
registered  trademarks and service marks of Applied  Computer  Technology,  Inc.
This prospectus also contains trademarks and service marks of other companies.  

 AVAILABLE INFORMATION

         The  Company  is  subject  to  the  informational  requirements  of the
Securities Exchange Act of l934 and in accordance  therewith is required to file
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission").  Copies of any such reports, proxy statements and
other information filed by the Company can be inspected and copied at the public
reference facility  maintained by the Commission at Room 1024, 450 Fifth Street,
N.W.,  Washington,  D.C. and at the Commission's Regional offices in New York (7
World  Trade  Center,  Suite  1300,  New  York,  New  York  10048)  and  Chicago
(Northwestern  Atrium  Center,  500 West Madison  Street,  Suite 1400,  Chicago,
Illinois  60661-2511).  Certain  information  concerning  the  Company  is  also
available at the Internet Web Site  maintained  by the  Securities  and Exchange
Commission at  www.sec.gov.  The Company's  securities are listed on the Pacific
Stock Exchange and copies of the reports, proxy statements and other information
filed with the  Commission  can be  inspected at such  exchange.  Copies of such
material can be obtained from the Public Reference  Section of the Commission at
its office in Washington,  D.C. 20549 at prescribed rates. The Company has filed
with the  Commission a  Registration  Statement on Form SB-2  (together with all
amendments  and  exhibits  thereto,  the  "Registration  Statement")  under  the
Securities  Act of 1933, as amended (the "Act"),  with respect to the Securities
offered  by  this  Prospectus.  This  Prospectus  does  not  contain  all of the
information set forth in the Registration Statement,  certain parts of which are
omitted in accordance  with the rules and  regulations  of the  Commission.  For
further information, reference is made to the Registration Statement.           

         The  Company   intends  to  furnish  annual  reports  to   shareholders
containing  audited  financial  statements,  quarterly  reports  and such  other
periodic  reports as it may determine to be appropriate or as may be required by
law.                                                                            

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PROSPECTUS SUMMARY  

         The following summary is qualified in its entirety by the more detailed
information and Financial  Statements and Notes thereto  appearing else where in
this Prospectus.                                                                

 The Company

         The Company  markets,  installs,  services and  supports  microcomputer
systems  ("PCs") and related  peripheral  products  principally  for use by busi
nesses and large institutional customers active in the corporate, government and
retail markets.  The Company provides a broad range of  microcomputer  pro ducts
and  services  including  hardware,   software,   system  design,   engineering,
consulting,  maintenance and training. Management estimates that over 90% of the
Company's  microcomputer  sales  are  accounted  for by  customer  PCs which are
assembled by the Company under its own brand name, with remaining  microcomputer
sales accounted for by well-known  national brands including  Compaq,  Apple and
IBM. The Company also markets and  installs  operating  systems and  application
software  developed by Microsoft  Corporation,  Novell,  Inc. and other software
developers.                                                                     

         The Company services its customer base,  which is located  primarily in
the States of Colorado  and  Wyoming,  from its  headquarters  and six  business
centers  ("Business  Centers") in central and northern  Colorado.  The Company's
current customers include Colorado State University, Ball Aerospace Corporation,
the University of Colorado,  Metropolitan State College, University of Oklahoma,
the U.S.  Military  Academy,  the U.S.  Air Force  Academy,  and the U.S.  Naval
Academy.                                                                        

         The Company sells custom configured systems and network  installations,
which  generally  carry  higher  gross  profit  percentages  than  the  sale  of
previously assembled microcomputers.  The Company also sells hardware,  software
and  services  for custom  configured  microcomputer  systems and  networks as a
single "system" in order to differentiate itself from certain of its competitors
which strictly provide hardware or hardware and software. The Company's Business
Centers provide a variety of  installation,  training and support services which
the Company intends to expand both in its present  Business  Centers and through
the  addition of two new  Business  Centers.  The  Company  plans to continue to
implement  its  strategy of bundling  hardware,  software  and  services  and to
continue its  penetration  into  network  sales and  installations.  The Company
assembles  custom  PCs,  as opposed to selling  nationally  known  microcomputer
brands, in order to realize higher gross profits associated with the sale of the
Company's  own brand of  microcomputers  versus  brands  produced by  well-known
manufacturers. See "Business".                                                  

         The Company  completed its initial public  offering in October 1995. In
this offering,  the Company sold  1,150,000  Units at a price of $3.60 per Unit.
Each Unit consisted of one share of Common Stock and one Warrant.               

         The Company was incorporated in Colorado in January l989. Its principle
executive  offices are located at 2537 Midpoint  Drive,  Fort Collins,  Colorado
80525, and its telephone number is (303) 490-l849. Unless the                   

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context  otherwise  requires,  references in this Prospectus to the "Company" or
"Applied Computer Technology" refer to Applied Computer Technology, Inc.        

The Offering  

Securities  offered ........  Shares of Common Stock are offered for public sale
                              by the holder of the Company's  Series A Preferred
                         Stock if and when the holder of the Preferred
                            Stock elects to convert the Preferred Stock into
                     shares of the Company's Common Stock. See
  "Selling Shareholder".

Common Stock  outstanding...  As of January 31, 1998, the Company had 3,188,662 
                          shares of Common Stock issued and outstanding.
                         Assuming all shares of the Series A Preferred
                            Stock are converted  into 360,000  shares of the
                         Company's Common Stock (assuming a conversion
                             price of $2.50 per share) there will be 3,548,662
                          shares of Common Stock issued and outstanding.
                             The number of outstanding shares before and after
                        this Offering does not give effect to shares
                        which may be issued upon the exercise and/or
                    conversion of options, warrants or other
                            convertible securitites previously issued by the
Company.            
See "Comparative Share Data".                                                   

Trading symbols:               Nasdaq          Pacific Stock Exchange           
                    ------          ----------------------
Common Stock                 ACTI                      ABZ                  
Warrants                     ACTIW                     ABZW                 

Summary Financial Data  
 (in thousands, except per share data)

                              Years Ended                Nine Months
                                   December 31,            Ended September 30,
Statements of Operations      1994      1995      1996       1996       1997    
                          ----      ----      ----       ----       ----
Data:                                                                       

Sales and service revenues  $11,734   $19,058   $20,239    $16,343    $22,339   
Gross profit                  1,746     2,902     3,155      3,196      1,284   
Income (loss) from oper-                                                        
ations                       (119)      925    (1,289)       731     (2,393)
Net income (loss)              (196)      535    (1,342)       453     (2,784)  
Net income (loss) per share(1) (.06)     (.24)     (.44)      (.14)     (.91)   
Weighted average shares                                                         
outstanding                 2,097     2,124     3,042      3,339      3,059 

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                                      December 31, 1996     September 30, 1997
Balance Sheet Data:                    -----------------     ------------------ 

Current Assets                               $6,868              $6,910         
Current Liabilities                           5,627               8,448         
Working capital                               1,241              (1,538)        
Total assets                                  8,873               9,315         
Total liabilities                             5,864               9,090         
Shareholders' equity                          3,009                 225         

(1)  Computed on a pro forma basis for fiscal l994 to give effect to federal and
state income taxes. See "Selected Financial Data".                              

RISK FACTORS  

         In evaluating  the Company's  business,  prospective  investors  should
consider  carefully  the  following  risk  factors  in  addition  to  the  other
information presented in this Prospectus.                                       

History of Losses, Variability in Quarterly Operating Results.                  

     During the year ended December 30, 1996, and the nine months ending
September 30, 1997 the Company suffered losses of $1,342,000 and $2,784,000     
respectively.  The Company has suffered continuing losses during the quarter    
ending December 31, 1997 and during January 1998.  There can be no assurance    
that the Company's operations will ever be  profitable.  The Company may        
experience significant fluctuations in future operating results due to a number 
of factors including, among others, the size and timing of customer orders,     
delays in product enhancements and new product introductions by the Company's   
suppliers, quality control difficulties, market acceptance of new products      
introduced by the Company's suppliers, product returns, customer order deferrals
in anticipation of new products or enhancements, reduction in demand for        
existing products as a result of new product introductions, and pricing trends  
in the microcomputer and peripheral markets in which the Company is active.     
The impact of any of these factors could cause operating results to decline     
significantly from prior periods. The Company's business is also seasonal to a  
certain extent. The Company's revenues in the first and second quarters are     
typically lower than during the other two quarters of each year.  Sales and     
service revenues for each quarter depends substantially on orders received and  
delivered in that quarter.  The  Company's operating expenses are based in part 
on its estimate of future revenues and, accordingly, the Company may be unable  
to adjust spending in a timely manner to compensate for a shortfall in revenues.
Any significant decrease in customer orders for any reason would have an        
immediate adverse impact on the Company's operating results and its ability to  
maintain profitability.  See "Management's Discussion and Analysis of Financial 
Condition and Results of Operations" and "Business."                            

Offering Proceeds, Need for Additional Capital                                  

        The Company will not receive any proceeds  from the sale of the shares
by the Selling  Shareholder.  See "Selling Shareholder".  Losses during 1996    
and the nine months ended September 30, 1997 have caused liquidity problems     

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for the Company. To fund its operations,  the Company could be required to raise
additional  capital.  There can be no  assurance  the Company will be capable of
raising  additional  capital or that the terms upon which such  capital  will be
available to the Company will be acceptable.                                    

Dependence on Hardware Sales                                                    

         The  Company's  sales are derived from the  corporate,  government  and
retail  markets  for  microcomputer  systems  and  peripherals.   The  Company's
customers  in  the  corporate  and  government   markets  are  generally   large
institutions which purchase microcomputer systems and peripherals in significant
quantities. These customers in many cases will solicit bids from the Company and
its  competitors and pricing is frequently one of the most  significant  factors
considered by the customers in their purchase decision. Gross profit percentages
generated from the sale of microcomputer systems and peripherals are customarily
less than the gross profit  percentages  generated by sales of network  systems,
upgrades and maintenance, training, and system design and engineering. Because a
number of the  Company's  customers  enter into  contracts  for the  purchase of
hardware, networking, upgrades and maintenance,  training, and system design and
engineering on a combined  basis,  the Company is unable to calculate  precisely
the percentage of revenues  attributable to each of these  activities.  Although
the Company plans to continue to expand its  networking,  maintenance,  training
and system design and  engineering  activities,  the Company will continue to be
substantially   dependent  on  hardware  sales  of  microcomputer   systems  and
peripherals  to its customers in the corporate,  government and retail  markets.
There can be no assurance the Company will be successful in increasing its gross
profit percentages by deriving  additional  revenues from non-hardware sales. To
the extent the Company  remains  dependent on hardware  sales,  the Company will
continue to  generate  lower gross  profit than that  attributable  to the other
activities in which the Company is engaged. See "Business."                     

Competition                                                                     

         Competition in the sale of  microcomputers  and  peripherals is intense
and characterized by rapid technological  advances,  evolving industry standards
and  technological  obsolescence.  A number  of  companies  offer  microcomputer
products and  peripherals  identical  or similar to the  Company's  products.  A
majority of the Company's existing competitors, as well as a number of potential
competitors,  have larger  technical and service  staffs,  more  established and
larger marketing and sales  organizations,  and significantly  greater financial
resources  than  the  Company.  A  number  of the  Company's  competitors  carry
identical or similar products to those sold by the Company.  Moreover, there are
no  proprietary  barriers to entry that would prevent the Company's  competitors
from selling competing products in the Company's  markets.  The Company believes
that the  principal  competitive  factors in the market for  microcomputers  and
peripherals  include price,  service and support,  brand availability and market
presence.  Although the Company believes that it competes favorably with respect
to  certain of these  factors  in its  markets,  there can be no  assurance  the
Company will be successful in competing in its existing market or in new markets
the Company may enter. See "Business Competition."                              

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Dependence on Suppliers                                                         

         The Company has no proprietary  manufacturing  operations and purchases
microcomputers  and peripherals  from a number of suppliers.  In those instances
where the Company  assembles  microcomputers  on an in-house basis,  the Company
purchases manufactured components from third-party suppliers. The Company has no
supply  contracts or  agreements  with its  suppliers  other than three  pricing
agreements with a software  supplier.  These agreements do not grant the Company
any  exclusive  rights to software  and do not assure the Company  will  receive
software as required. As such, the Company is vulnerable to limits in supply and
pricing and product changes by these  suppliers.  Although  management  believes
that such changes could be  accommodated  by the Company,  they may  necessitate
changes in the Company's design of its  microcomputers or assembly methods,  and
the Company could  experience  temporary delays or interruptions in supply while
such changes are incorporated. Further, the Company could also experience delays
or  interruptions  in supply in the event the  Company is required to find a new
supplier for any of its commonly used components.  Although the Company believes
there are a number of alternate  suppliers for components and finished  products
now  purchased  by it,  there  can be no  assurance  the  Company  could  obtain
components  or  finished  products  from  alternate  suppliers  in the  event of
industry-wide price increases or component shortages. In addition,  there can be
no assurance the Company's  current  suppliers will not alter their pricing in a
manner  adverse to the  Company.  Although  the  Company  uses a  "just-in-time"
inventory   management  system  for  components  and  finished  products  (which
decreases prices of components,  microcomputers and peripherals and to limit the
risk of inventory  obsolescence),  price  increases in the component or finished
product  markets  in which the  Company  is  active,  or  component  or  product
shortages,  could cause the Company to be unable to fulfill its  commitments  to
customers or may adversely  affect the Company's  gross profit  percentage.  See
"Business."                                                                     

Customer Concentration                                                          

    The Company  anticipates that a significant portion of its sales and service
revenues  will be the  result of sales to a limited  number  of  customers,  the
identity  of which may vary  from year to year.  During  the nine  months  ended
September 30, 1997, three customers  accounted for 36.5% of the Company's sales.
To the extent  the  Company  continues  to depend  upon a limited  number of key
customers  for a  material  percentage  of its sales and  service  revenues  and
accounts receivable, the loss of one or more of such significant customers could
materially adversely affect the Company's results of operations.                

Dependence on Sales to Entities with Long Sales Cycles                          

         During the nine months  ended  September  30, 1997 the Company  derived
approximately   80%  of  its  sales  and  service  revenues  from  purchases  by
educational  and  government   entities.   These  entities  include  businesses,
colleges,  municipalities,  state or local quasi-governmental entities and state
and local governments.  Purchases by government entities are often characterized
by bidding and contracting procedures which may place significant demands on the
Company's administrative and sales personnel.                                   

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Although the Company's status as a non-exclusive approved vendor to the State of
Colorado has simplified some of the bidding procedures to state-funded  colleges
and governmental  entities,  there can be no assurance the Company will continue
to remain an approved vendor by the State of Colorado. Loss of this approval for
any reason could materially adversely impact the Company's sales to state-funded
universities and governmental entities. Once awarded,  contracts with government
entities may also be subject to payment  and/or funding  delays.  The ability of
state-funded  entities  to purchase  the  products  offered by the Company  will
depend on the financial  condition and budgetary  constraints  of the particular
entity, as well as the continued availability of government funds.              

         Sales to the Company's  government and  quasi-government  customers are
characterized  by a lengthy sales cycle which typically  extends for a period of
from six to 12 months.  The sales cycle  typically  commences  with the customer
preparing  a request  for  proposal  or bid  quotation  which is directed to the
Company and others.  The sales cycle  typically  ends on placement of a purchase
order or execution  of a contract.  The length of the sales cycle is affected by
such  factors as  budgetary  purchasing  cycles,  availability  of funding  from
federal,  state  and  other  sources,  and  the  customer's  assessment  of  its
automation  requirements.  Many of these  factors are, and will  continue to be,
outside of the Company's control. The Company's results of operations have been,
and will continue to be,  impacted by the length of sales cycle to the Company's
educational and government customers. See "Business."                           

Dependence on Key Personnel.                                                    

         The Company's success depends to a significant  extent on its executive
officers.  The loss of any of these officers would have an adverse effect on the
Company,  although the Company believes that the loss of Mr. Prentice's services
would be most significant. The Company maintains key-man life insurance policies
on the lives of Mr.  Prentice and Ms.  Koehler in the amounts of $1,000,000  and
$100,000,  respectively.  The  proceeds  of these life  insurance  policies  are
currently  pledged as  collateral  against  the  Company's  bank line of credit.
Although the Company has employment  agreements  with Mr.  Prentice and, and Ms.
Koehler, the agreements do not assure the Company the continued services of such
officers  and Ms.  Koehler  is only  obligated  to devote 60% of her time to the
Company's  business.  The  success  of the  Company is also  dependent  upon its
ability to attract and retain highly qualified service and technical  personnel,
competition  for whom is intense.  There can be no assurance the Company will be
able to recruit and retain  such  personnel.  See  "Management  - Directors  and
Executive Officers."                                                            

Reliance on Financing Arrangements                                              

         In October 1997 the Company  established an accounts receivable line of
credit  with a bank under  which the  Company  may borrow up to 85% of  approved
sales.  As of December 31, 1997 the Company has borrowed  $900,000  against this
line of credit.  The line of credit bears interest at the rate of 1.5% per month
and is repayable on demand.  The Company is dependent on amounts available under
this line of credit to address  its  liquidity  requirements.  If for any reason
this line of  credit  were  declared  payable  by the bank  (such as an event of
default), the Company"s liquidity would be materially and                       

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adversely  affected.  There  can be no  assurance  the  Company  could  identify
alternate sources of financing in such event or, if identified, that the cost of
such financing would be acceptable to the Company.                              

Absence of Proprietary Rights                                                   

         Neither the Company nor any of its directors,  officers or shareholders
own any patents or patent rights  respecting  products  marketed by the Company.
The  Company  has  entered  into a  license  agreement  with one of its  largest
suppliers which provides the Company with certain limited rights of reproduction
and usage of  trademarks  and  service  marks  owned by the  supplier.  With the
exception of these limited,  non-exclusive rights of usage and the Company"s own
trademarks  and service  marks,  the Company has no exclusive  or  non-exclusive
proprietary rights. See "Business - Proprietary Rights."                        

Control by Existing Shareholders                                                

         Following  this  offering  (and  assuming  all  shares of the  Series A
Preferred  Stock are  converted  into  shares of common  stock),  the  Company's
executive officers, directors and principal shareholders will, in the aggregate,
beneficially own approximately 41% of the Company's outstanding shares of Common
Stock. These shareholders,  if acting together, would likely be able effectively
to control most matters  requiring  approval by the shareholders of the Company,
including the election of a majority of the directors. The voting power of these
shareholders  under certain  circumstances  could have the effect of delaying or
preventing a change in control of the Company.  See  "Management" and "Principal
Shareholders".                                                                  

Public Market Price Fluctuations                                                

         Although the  Company's  Common Stock and Warrants  trade on the Nasdaq
SmallCap Market and the Pacific Stock  Exchange,  there can be no assurance that
an  active  trading  market  will  continue  or that  the  market  price of such
securities  will not decline.  There can be no  assurance  that the Company will
maintain its Nasdaq and Pacific Stock Exchange  listings for the Common Stock or
Warrants.  Factors  such as  quarterly  fluctuations  in results of  operations,
announcements  of  new  products  or  product   enhancements  by  the  Company's
suppliers,  market  conditions  specific  to the  microcomputer  segment  of the
computer industry or market conditions in general, may cause the market price of
the Company's securities to fluctuate,  perhaps  substantially.  In addition, in
recent  years the stock  market  has  experienced  significant  price and volume
fluctuations.  These  fluctuations,  which are often  unrelated to the operating
performance of specific  companies,  have had a substantial effect on the market
price for many technology and small  capitalization  companies.  Factors such as
those  cited  above,  as well as other  factors  which may be  unrelated  to the
operating  performance  of the Company,  may affect  adversely  the price of the
Company's securities. See "Market Information."                                 

Shares Eligible for Future Sale                                                 

         Sales of a substantial  number of shares of the Company's  Common Stock
in the public market following this offering could adversely affect the market  

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price of the  Company's  Common  Stock.  As of January  31, 1998 the Company had
3,188,662  shares of Common Stock issued and outstanding.  Substantially  all of
such shares are available for sale in the public market.  Upon the completion of
this  offering  (and  assuming  all shares of the Series A  Preferred  Stock are
converted  into shares of common stock) the 360,000  shares  offered by means of
this  Prospectus  will be freely  tradeable.  In November 1997, the Company sold
1,500 shares of its Series B Preferred Stock,  plus 82,192 Common Stock Purchase
Warrants,  to a foreign  investor for $1,500,000.  The number of shares issuable
upon the  conversion of each Series B Preferred  Share is determined by dividing
$l,000 by the lower of (i) $3.65,  or (ii) 75% of the average  closing bid price
of the Company's common stock on the five trading days preceeding the conversion
date.                                                                           

         No predictions can be made as to the effect,  if any, that future sales
of shares  issuable  upon the  conversion  of the Series A or Series B Preferred
Stock,  or the  availability  of shares for future sale, will have on the market
price  of the  Company's  Common  Stock  or  Warrants.  Nevertheless,  sales  of
substantial  amounts  of Common  Stock,  or the  perception  that such sales may
occur,  could have a material adverse effect on prevailing  market prices of the
Common Stock and Warrants.                                                      

Stock Issuable Pursuant to Options and Warrants                                 

         At the date of this  Prospectus,  the  Company has  reserved  1,851,788
shares of Common Stock for issuance upon the exercise of outstanding options and
warrants, including the Warrants sold in the Company's 1995 public offering. The
exercise  prices of the options and warrants  presently  outstanding  range from
$2.00 per  share to $4.93  per  share.  During  the  terms of these  outstanding
options and  warrants,  the holders are given the  opportunity  to profit from a
rise in the market price of the Common Stock,  and their exercise may dilute the
book value per share of Common Stock.  The existence of the options and warrants
may affect adversely the terms on which the Company may obtain additional equity
financing.  Moreover, the holders are likely to exercise their rights to acquire
Common  Stock at a time  when the  Company  would  otherwise  be able to  obtain
capital on terms more favorable  than could be obtained  through the exercise of
such securities. See "Comparative Share Data".                                  

Absence of Dividends                                                            

         The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable  future. The Company intends to retain profits, if any,
to fund growth and expansion.                                                   

Issuance of Preferred Stock                                                     

         The Company"s  Articles of Incorporation  authorize the Company"s Board
of Directors to issue up to 5,000,000  shares of Preferred Stock. The provisions
in the Company's Articles of Incorporation relating to the Preferred Stock would
allow the Company"s  directors to issue  Preferred Stock with multiple votes per
share and dividends rights which would have priority                            

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over any dividends paid with respect to the Company"s Common Stock. The issuance
of Preferred Stock with such rights may make the removal of management difficult
even if such removal would be considered  beneficial to shareholders  generally,
and will have the  effect  of  limiting  shareholder  participation  in  certain
transactions  such as  mergers  or tender  offers if such  transactions  are not
favored by incumbent management.                                                

COMPARATIVE SHARE DATA  

         As of December 31, 1997, the present  shareholders of the Company owned
3,085,243 shares of Common Stock, which had an estimated net tangible book value
of  approximately   $0.18  per  share.  The  following  table   illustrates  the
comparative  stock  ownership of the present  shareholders  of the  Company,  as
compared to the  investors in this  Offering,  assuming  all shares  offered are
sold.                                                                           

                                                  Number of         Note
                                                       Shares        Reference
                                                     ---------       ---------
Shares outstanding on December 31, 1998               3,188,662                 

Shares issued during January 1998 upon conversion                               
of shares of Series B Preferred Stock (98,419) and                              
exercise of options (5,000)                             103,419                 

Shares outstanding as of January 31, 1998 (1)         3,188,662                 

Shares to be issued upon conversion of                                          
Series A Preferred Stock, assuming                                              
conversion price of $2.50 per share                     360,000            A    
                                       -------

Shares outstanding (pro forma basis)  (1)             3,548,662                 
                                     =========

Net tangible book value per share as of December                                
31,1997 (2)                                               $0.18                 

Equity ownership by present shareholders                                        
after this offering                                       90%                   

Equity ownership by investors in this Offering            10%                   

(1)  Amount  excludes  shares  which  may be  issued  upon the  exercise  and/or
conversion  of options,  warrants and other  convertible  securities  previously
issued by the Company. See table below.                                         

(2) In January 1998 the Company incurred additional losses.  Futhermore, the net
tangible  book value as of December  31, 1997 as  presented  above is based upon
preliminary  year-end  balances which may change as a result of further analysis
by the Company.  Therefore,  the net tangible book value of the Company's common
stock will most likely further decrease subsequent to year-end.                 

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         The purchasers of the securities offered by this Prospectus will suffer
an immediate  dilution if the price paid for the  securities  offered is greater
than the net tangible book value of the Company's Common Stock.                 

         "Net tangible  book value" is the amount that results from  subtracting
the  total  liabilities  and  intangible  assets of the  Company  from its total
assets.  "Dilution" is the difference  between the public offering price and the
net tangible  book value of the  Company's  shares of Common  Stock  immediately
after the Offering.                                                             

Other Shares Which May Be Issued:                                               

         The following  table lists  additional  shares of the Company's  Common
Stock which may be issued as the result of the exercise of outstanding  options,
warrants or the  conversion of other  securities  issued by the Company.  If the
options  and  warrants  described  below are  exercised,  there  will be further
dilution to investors in this offering.                                         

                                 Number of            Note
                                     Shares          Reference
                                    ----------        ----------
Shares issuable upon conversion of                                              
Series B Preferred Stock, assuming                                              
conversion price of $2.00                    675,000                B           

Shares issuable upon exercise of                                                
warrants held by holders of the                                                 
Company's Series B Preferred Stock            82,192                B           

Shares issuable upon exercise of                                                
warrants issued to Selling Agent,                                               
or its assigns, in connection with                                              
the sale of the Company's Series B                                              
Preferred Stock                               41,096                C           

Shares issuable upon exercise of                                                
warrants sold in Company's 1995                                                 
Public Offering                              575,000                D           

Shares issuable upon exercise of                                                
warrants sold to Selling Agent/                                                 
Underwriter in connection with                                                  
Company's 1995 Private and                                                      
Public Offerings                             150,000                E           

Shares issuable upon exercise of                                                
options and warrants granted to Company's                                       
officers, directors, employees, and                                             
consultants                                  328,500                F           

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         A. In November  1997, the Company sold 900 shares of Series A Preferred
Stock to a supplier of the Company for $900,000. Payment for the shares was made
by the vendor cancelling $900,000 of payables owed by the Company to the vendor.
At the option of the  holder of the Series A  Preferred  Shares,  the  Preferred
Shares may be converted  into shares of the Company's  common stock on the basis
of one share of  Preferred  Stock for shares of Common  Stock equal in number to
the amount  determined  by dividing  $1,000 by the Average  Closing Price of the
Corporation's  Common Stock over the five-day  trading  period ending on the day
prior to the conversion of the Preferred Stock. The conversion price however may
not be less than  $1.00 per share or more than  $3.00 per  share.  The shares of
common stock issuable upon the  conversion of the Series A Preferred  Shares are
being  offered  to  the  public  by  means  of  this  prospectus.  See  "Selling
Shareholder".                                                                   

         B. On November 24, 1997,  the Company sold 1,500 shares of its Series B
Preferred  Stock,  plus 82,192  Common  Stock  Purchase  Warrants,  to a foreign
investor for  $1,500,000.  The number of shares  issuable upon the conversion of
each  Series B Preferred  Share is to be  determined  by dividing  $l,000 by the
lower  of (i)  $3.65,  or (ii)  75% of the  average  closing  bid  price  of the
Company's  common stock on the five trading days preceeding the conversion date.
Notwithstanding  the above,  no more than 150 Series B  Preferred  Shares may be
converted in any one calender  week.  Under certain  conditions  the Company may
redeem  all or part of the  Series B  Preferred  shares at a price of $1,150 per
share.  Each Warrant  allows the holder to purchase  one share of the  Company's
common stock for $4.02 at any time prior to November  21, 2000.  The sale of the
Series B Preferred  Stock and Warrants was made in reliance upon Regulation S of
the Securities and Exchange Commission. As of January 31, 1998 150 shares of the
Series B Preferred  Stock had been converted into 98,419 shares of the Company's
Common Stock.                                                                   

         C. In  connection  with the  Company's  December  1997 sale of Series B
Preferred  Shares and Warrants,  the Sales Agent for such  offering,  received a
commission plus warrants to purchase 41,096 shares of the Company's Common Stock
(the "Sales Agent  Warrants").  The Sales Agent  Warrants are  exercisable  at a
price of 4.02 per share at any time prior to November 21, 2000.                 

         D. Up to 575,000  shares of Common Stock are issuable upon the exercise
of Common Stock purchase warrants (the "Warrants") which were sold to the public
in the  Company's  October  1995  public  offering  as a Unit,  with  each  Unit
consisting  of one share of Common Stock and one Warrant.  Two Warrants  entitle
the holder to purchase,  at any time prior to October 26, 1998, one share of the
Company's  Common  Stock at a price of $4.50  per  share.  See  "Description  of
Securities".                                                                    

         E. In June 1995,  the Company  issued to a Selling  Agent,  warrants to
purchase  40,000  shares of Common  Stock,  which are  exercisable  at $4.68 per
share, in partial  consideration  for the Selling Agent serving as the placement
agent for the Company's 1995 Private  Offering.  In connection  with its October
1995  public  offering,  the  Company,  for nominal  consideration,  sold to the
Selling Agent (who was the underwriter the public offering) warrants to purchase
110,000 shares of Common Stock at $4.55 per share. The foregoing warrants expire
on October 25, 2000.                                                            

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F.   See "Management - Stock Option and Bonus Plans".         

MARKET INFORMATION  

         As of January 31, 1998, there were approximately 500 beneficial holders
of the  Company's  Common Stock and  Warrants.  The  Company's  Common Stock and
Warrants are traded on the National  Association of Securities Dealers Automatic
Quotation ("NASDAQ") System and the Pacific Stock Exchange.  Set forth below are
the range of high and low bid quotations  for the periods  indicated as reported
by NASDAQ. The market quotations  reflect  inter-dealer  prices,  without retail
mark-up,  mark-down or  commissions  and may not  necessarily  represent  actual
transactions.                                                                   

Quarter                                                       
Ending                        Common Stock        Warrants    
--------                      ------------        --------    
                           High     Low         High     Low
                           ----     ---         ----     ---
 12/31/95 (1)                $4.50    $4.31       $0.88    $0.63

 03/31/96                    $5.63    $5.00       $1.06    $0.69
 06/30/96                    $5.63    $3.88       $1.06    $0.56
 09/30/96                    $5.00    $4.25       $0.82    $0.82
 12/31/96                    $5.44    $3.50       $1.00    $0.38

 03/31/97                    $4.06    $2.62       $0.50    $0.25
 06/30/97                    $3.43    $1.75       $0.25    $0.12
 09/30/97                    $8.06    $1.50       $1.62    $0.06
 12/31/97                    $5.25    $2.25       $0.81    $0.37

(1) The Company's Common Stock and Warrants began trading on October 26, 1995.  

         Holders of Common Stock are  entitled to receive such  dividends as may
be declared by the Board of Directors  out of funds legally  available  therefor
and, in the event of liquidation,  to share pro rata in any  distribution of the
Company's  assets after  payment of  liabilities.  The Board of Directors is not
obligated to declare a dividend.  The Company has not paid any dividends and the
Company does not have any current  plans to pay any  dividends.  Pursuant to the
terms of a loan  agreement  with a bank,  the Company may not pay any  dividends
without the consent of the bank.  See Note 4 to the Company's  December 31, 1996
financial statements.                                                           

 SELECTED FINANCIAL DATA

         The following  selected  financial  data should be read in  conjunction
with the Financial  Statements and related Notes thereto appearing  elsewhere in
this Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of  Operations."  The selected  financial data provided below is not
necessarily  indicative  of  the  future  results  of  operations  or  financial
performance of the Company.                                                     

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                                        Years ended      Nine months ended
                                      December 31,       September 30,
                                     ----------------    -----------------
                                   1995         1996     1996     1997
                                 --------     -------- --------  -----
Statements of Operations Data:          (in thousands, except per share data)   

Sales and service revenues            $19,058      $20,239  $16,343   $22,339   
Cost of goods sold                     16,156       17,084   13,147    21,055   
                                   -------      -------  -------   -------
Gross profit                            2,902        3,155    3,196     1,284   
Operating expenses                      1,977        4,444    2,465     3,677   
                                   -------      -------  -------   -------
Income (loss) from operations             925       (1,289)      31    (2,393)  
Other income (expense), net              (194)        (228)     (81)     (391)  
Income tax (expense) benefit             (184)         175     (197)       --   
                                   -------      -------  -------   -------
Net income (loss)                     $   546      $(1,342) $   453   $(2,784)  
                                   =======      =======  =======   =======
Net income (loss) per share             $0.25       $(0.44)   $0.14    $(0.91)  
                                      =====       =======   =====    =======

Pro forma information(1):                                                       
Historical earnings (loss)                                                      
before income taxes                  $   731           --                 --  
Pro forma income taxes (benefit)          196           --                 --   
   -------
Pro forma net income (loss)           $   535           --                 --   
   -------
Pro forma net income (loss) per share   $0.24           --                 --   
     -----
Shares used in computing earnings                                               
(loss) per share                      2,124        3,042    3,339     3,058 

         From inception  through June 2, 1995, the Company elected to be treated
for federal and state income tax purposes as an S Corporation under the Internal
Revenue Code and comparable state tax laws. As a result,  the Company/s earnings
from that date until June 2, 1995 had been taxed, with certain  exceptions,  for
federal and state income tax  purposes  directly to the  Company's  shareholders
rather than to the Company. Due to the Company's status as an S Corporation, the
Company's financial statements do not contain a provision for income tax expense
for operations prior to June 2, 1995. The financial statements include pro forma
calculations  which assume the Company was subject to normal corporate tax rates
during the periods  presented.  Income  earned by the Company after June 2, 1995
will be subject to normal corporate income tax. See Note 5 of Notes to Financial
Statements.                                                                     

                                      December 31, 1996     September 30, 1997
                                       ------------------    -------------------
                                  (In Thousands)
Balance Sheet Data:                                                             

Current Assets                               $6,868              $6,910         
Current Liabilities                           5,627               8,448         
Working capital                               1,241              (1,538)        
Total assets                                  8,873               9,315         
Total liabilities                             5,864               9,090         
Shareholders' equity                          3,009                 225         

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
 AND RESULTS OF OPERATIONS

General                                                                         

         Revenues from product and system sales are recognized when title to the
product or system passes to the customer.  Revenues from maintenance  agreements
are recognized ratably over the term of the maintenance agreement.              

         The  Company  may  experience  significant  fluctuations  in  quarterly
operating results due to a number of factors  including,  among others, the size
and timing of customer orders.                                                  

         The  Company  has  suffered  significant  losses  during the year ended
December 31, 1996 and the nine months ended  September  30, 1997. In April 1997,
Management  began a  focused  program  to  return  the  Company  to a  state  to
profitability.  Management is  disappointed by results for the nine months ended
September  30, 1997 but it is  encourged  by the  results of the third  quarter.
Management  believes  that its programs  and  initiatives  are showing  signs of
success and intends to continue  corrective actions. As a means to regain margin
on  products  sold,  the  customer  bid/product  pricing  process has come under
increased  scrutiny as the  Company  refocuses  its  efforts to assure  adequate
margin on  current  and  future  orders.  Concurrently,  the  Company's  product
offerings  are being  evaluated  to develop a product mix which  supports  gross
margin goals.  The Company  continues to review and improve  inventory  methods.
Additionally,  the Company has contracted for outside services to improve system
controls and accuracy of the inventory accounting.  During the second quarter of
1997, the Company  appointed a Chief Financial Officer to assist in implementing
these improvements. While the Company believes that these activites will improve
its  overall  margins,  there  can  be no  assurance  that  these  efforts  will
successfully regain margin on products sold.                                    

         Indirect service labor and overhead spending has been analyzed, and the
individual  service  groups  have been  tasked  to  improve  billable  hours for
services rendered and to improve their  contribution to the Company's  earnings.
Job positions in all areas of the Company have been evaluated,  resulting in the
elimination of multiple positions and analysis on all positions  continues.  The
Company has curtailed its investments in the expansion of its training business,
reducing   unabsorbed   training   expenses.   Additional  Selling  General  and
Administrative  expense  reductions have been indentified and  implemented,  and
results  will  continue to be  reviewed  in an effort to control  organizational
spending and to improve organizational financial performance. Whereas management
believes that this analysis and these  activities  will facilitate a return to a
state of operational profitability,  there can be no guarantees that the Company
will be successful in this endeavor.                                            

Results of Operations                                                           

Nine Months Ended September 30, 1997                                            

     The Company's adjusted gross margin on sales dropped by 3.5% as the

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result of an unexpected physical inventory adjustment of $746,000.  The majority
of this adjustment  appeared in the second quarter, at which time efforts ensued
to research and correct the  situation.  Management's  efforts  during the third
quarter have proven productive,  and the inventory  adjustment for third quarter
was  sufficiently  less  than  the  second  quarter  adjustment.   Nevertheless,
Management is  disappointed  that any  adjustments  are  necessary,  and efforts
continue to improve the inventory systems and procedures. There can, however, be
no assurance that these actions will prove successful.                          

         Another  contributer to the reduced gross profit margin was an increase
in cost of materials and overhead  from 77.7% for the similar  period in 1996 to
85.9%.  Of  this  increase,  approximately  70% is  attributable  to  additional
overhead and warranty costs over the prior year period. Management believes that
the  decline  in margin is  further  attributable  to a loss of focus on product
pricing  compared  to actual  inventory  cost and a reduction  in the  Company's
ability  to  purchase  economically  due to  cash  constraints.  Management  has
initiated programs to regain focus on product pricing and to improve its working
capital.  There can, however,  be no assurance that Management will be succesful
in improving the Company's margin.                                              

         Sale  and  Marketing  expenses  rose  in  line  with  increased  sales.
Contributing  to the net increase of $393,000  over the same period in 1996 were
increases in advertising,  depreciation,  and wage expenses. Sales and Marketing
expenses  were 3.3% of third  quarter sales as opposed to 15.7% of sales for the
six  months  ended June 30,  1997.  General  and  administrative  expenses  also
decreased  0.5% as a percentage  of sales,  resulting in an overall  increase to
$1,348,000  from the same period in 1996.  Contributing  to this net increase of
$276,000 were increases in legal, telephone,  and depreciation and ammortization
costs.  General and administrative  expenses were 3.4% of sales third quarter as
opposed  to 10.4% of sales for the six  months  ended  June 30,  1997.  Internet
access costs for the Company's  internet  subsidiary were $543,000 for this nine
month period versus $0 for the similiar period in 1996.                         

         Unabsorbed costs for the Company's  networking,  training,  and service
activities  were  approxiamately  $1,112,000 for the nine months ended September
30, 1997  versus  $485,000  from the same  period in the prior year.  Unabsorbed
third  quarter  costs were  $264,000 as  compared to an average of $424,000  per
quarter  for the six months  ended June 30,  1997.  All three of these areas are
being evaluated by the Company on a continuing basis for improving  contribution
and/or elimination of noncontributing costs.                                    

         WEBAccess,  the Company's internet subsidiary,  continues to operate at
below breakeven. The Company plans to focus resources to increase its subscriber
base to near breakeven by year-end. Unused capacity available for subscriber use
is  approximately  60%. The Company intends to use its internet  capabilities to
sell  internet  access and hosting  services to  Corporate,  Government  and end
users,  but there can be no  assurances  that the Company will be  successful in
taking WEBAccess to a state of operational profitablility.                      

Year Ended December 31, 1996                                                    

     The Company recorded a net loss of ($1,342,000) in 1996 as compared

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to a net profit of  $535,000 in 1995.  Contributing  to this loss were less than
expected  revenues as well as several large  one-time  start-up and  development
expenses including (i) costs associated with the opening of the Business Centers
in the Tabor Center and the Denver Tech Center;  (iii) expenses  incurred in the
redevelopment of the Company's image and the generation of associated  marketing
materials and (iv) costs involved in the  development of the Company's  internal
information  systems.  Investment  in these  areas  continued  through the first
quarter of 1997 and the  Company  expects to incur  further  losses  during this
quarter.  Although  there  can be no  assurance  that  there  will not be future
expenses  in  these  areas,  the  Company  believes  that  these  start  up  and
development efforts were materially complete as of March 31, 1997.              

         Sales and service  revenues,  although  greater than fiscal 1995,  were
less  than   expected,   primarily  as  the  result  of  the  long  sales  cycle
traditionally  experienced with sales to corporate and institutional  customers.
These  customers  may take many months to open  accounts,  however,  the Company
believes the opportunity for continuing  business with customers of this profile
is  significant.  Although there can be no assurance  that these  customers will
choose to purchase  products  and services  from the Company or that  continuing
business opportunities will be realized,  several new customers,  including NASA
in Houston and the U.S.  Naval  Academy in  Annapolis,  have  placed  orders for
delivery in 1997.                                                               

         The  Company's  expansion  of its  sales  force did not  contribute  as
expected   during  the  fourth  quarter  of  1996.   There  were   disappointing
industry-wide  sales for the PC  industry  in the retail  segment as well as the
Company's  targeted  SOHO  (Small  Office/Home  Office)  business  in the fourth
quarter  of 1996.  The  Company  attributes  the slow  fourth  quarter  sales to
anticipation of the Intel MMX technology, which was not released until the first
quarter of 1997.  Since the  Company did not meet its targets in the SOHO market
and did not direct sufficient  resources into the corporate  market,  during the
first quarter of 1997 the Company scaled down its efforts in the SOHO market and
redirected resources towards the generation of corporate business.              

         In addition,  the Company's expansion efforts in the Denver marketplace
were delayed due to construction and other delays associated with the opening of
its Tabor Center and Denver Tech Business  Centers.  These  centers,  originally
slated for August and October  openings,  did not open until  November  1996 and
February 1997  respectively,  and the sales  expected from these centers in 1996
were not relized.                                                               

         Notwithstanding  the above, sales in the Company's  traditional markets
continued  to be strong.  During  March 1997,  the  Company  was awarded  annual
contracts with the United States Military,  the United States Air Force, and the
United States Naval Acedemies for delivery of PC's to the United States Military
and Air Force  Acadimies  in 1995 and in 1996,  1997 is the first  year that the
Company has been awarded this contract for the United States Naval Academy.  All
three  contracts are scheduled for delivery in August 1997.  Gross  revenues for
these contracts will be approximately $7,500,000.                               

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         Sales and  marketing  expenses  increased by  $1,748,000 in 1996 as the
Company made significant  investments in 1996 to upgrade its corporate image and
recruite and train new sales staff.  These investments  included (i) opening two
new Business  Centers in Denver;  (ii) upscaling  existing  Business  Centers in
Boulder, Ft. Collins, and Colorado Springs; (iii) recruiting and training staff;
(iv)  developing  an updated  Company  logo;  and (v)  designing,  printing  and
distributing  Company  marketing  pieces  and  advertising.  The  upgrade of the
corporate  image was designed to enable the Company to be made  appealing to the
Company's  target market segment of professional  services buyers and other high
margin products  segment of  professional  services buyers and other high margin
products and services. The new sales personnel were hired to develop and produce
marketing  materials,  oversee  the design  and  construction  of the  Company's
Business  Centers,  introduce the Company's  products and services to new market
segments,  service the Company's  existing client base, and to otherwise  expand
the Company's marketshare in Denver and other areas. Expenditures in these areas
contined through the first quarter of 1997.                                     

         General and administative expenses increased by $226,000 largely as the
result of expenses  incurred in designing and installing the Company's  internal
communications  and  information  systems.  The funds invested by the Company in
this project  included the  installation of  enterprise-wide  telephone and wide
data network (WAN)  systems.  These systems were installed to enable the Company
to improve internal  communications,  upgrade  management  information  systems,
improve  customer  service and productivity and enable the Company to service an
expanding customer profile.  Company personnel were used for much of the design,
development,  and installation of these systems. Additional increases in general
and  administrative  expenses included  investor  relations and compliance costs
associated with the Company's status as a public entity.                        

         The  Company  spent  $493,000  in 1996 to develop an  Internet  service
division in Ft. Collins,  Boulder, Denver, and Colorado Springs. During 1996 the
Company also aquired two Internet Service  Providers  (ISP's) in Ft. Collins and
Colorado Springs. These funds were spent to (i) develop a working business model
to market  internet  services  to the  Company's  clientele;  (ii)  develop  and
configure  internal  syatems to support an internet user base, track and monitor
the client  database,  and bill  customers for services;  (iii) develop  pricing
models,  promotional  literature,  and establish a regional  presence;  and (iv)
market the Company's  services to customers.  The Internet  service division was
formed to enable the Company to expand the services offered to its customers and
to position  the Company to take  advantage  of the growing  demand for internet
access and internet  web site  services.  As of March 31, 1997,  the Company had
approxiamately 1,500 customers using its Internet services.                     

Year Ended December 31, 1995                                                    

         The Company  reported net income of $535,000  during 1995 compared to a
loss of  $132,000  during  1994.  Sales  and  service  revenues  increased  from
$11,734,000  in 1994  to  $19,058,000  in  1995  primarily  as a  result  of (i)
contracts  with the  Army  and Air  Force to  supply  PCs to the  United  States
Military and Air Force Academies for the 1995 freshman classes and (ii) the     

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Company's  increased merketing of custom configured computer sustems and network
installations. The gross profit margin for 1995 increased to 15.2% from 14.9% in
1994 due to the better  pricing  available to the Company with larger volumes of
purchasing and the increased margin on services.                                

 Liquidity and Capital Resources

         During the quarter ending  December 31, 1995,  the Company  completed a
public offering  whereby is sold 1,150,000  shares of common stock and 1,150,000
common stock  purchase  warrants.  The net proceeds to the Company from the 1995
offering, after payment of underwriting commissions and other offering expenses,
were approximately  $3,313,000.  Through other private offerings of common stock
which  were  completed  prior to the  public  offering,  the  Company  raised an
additional  $449,000 in 1995. These offerings were the Company's  primary source
of cash flows from financing  activities in l995. In l996, the Company's primary
source of cash from financing  activities  was net  borrowings  under its credit
line of $1,959,000, which was almost fully extended at December 31, 1996, except
for amounts  available  under a  $2,500,000  special  credit line for  financing
receivables from major accounts.                                                

         In 1996,  the Company  incurred a loss of  $1,342,000  and used cash of
$1,395,000 for equipment purchases, (in 1995, equipment acquisitions amounted to
$559,000.) Due in part to the foregoing, the Company's working capital decreased
from $4,084,000 at December 31, 1995 to $1,241,000 at December 31, 1996.        

         Cash used in  operating  activities  was  $1,285,000  in 1996 which was
primarily the result of the loss from  operations  with  substantial  offsetting
increases  in  inventories  and  accounts  payable.  In 1995,  the Company  used
$968,000 of cash in  operations  which was the result of  increases  in accounts
receivable and inventories and payment of accounts payable.                     

         During the nine months ended September 30, 1997, the Company incurred a
loss of $2,784,000 and used cash of $693,000 for equipment purchases.  Cash used
in operating  activities was $574,000 which was primarily the result of the loss
from  operations  with  substantial  offsetting  increases  in  inventories  and
accounts  payable.  Due in part to the foregoing,  the Company's working capital
decreased from  $1,241,000 at December 31, 1996 to $(1,538,000) at September 30,
1997.                                                                           

         As a result of lower than  anticipated  sales,  the Company  incurred a
loss in the fourth  quarter  of 1997 and in  January  1998.  These  losses  have
continued  to impact the  Company's  liquidity.  The Company is  continuing  its
effort to raise  additional  working  capital  through  the  issuance  of equity
securities. Continuing losses would cause significant liquidity problems and may
ultimately impact the Company's ability to continue future operations.          

         In October 1997,  the Company  refinanced  its bank debt.  The interest
rate on the  new  loan is  18%,  which  is  higher  than  the  interest  rate of
approximately 14-15% on the Company's old line of credit. The Company intends to
review its financial needs in 1998 and restructure its bank debt in an effort to
obtain a lower interest rate. However, the Company's ability to                 

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restructure its bank debt will be dependent upon the financial condition of the 
Company and its operating performance.                                          

        The Company's  principal  sources of liquidity for operations  are its
cash, and cash  generated  from the  collection of  receivables  and the sale of
inventory.  Cash  generated  from these  sources is expected to be sufficient to
meet the Company's capital  requirements  during 1997. However, if cash from the
collections of accounts receivable, the sale of products, and any debt financing
are insufficient, or if working capital requirements are greater than           
anticipated,  the Company could be required to raise additional capital.  There 
can be no assurance the Company will be capable of raising additional capital or
that the terms upon which such  capital will be available to the Company will be
acceptable.                                                                     

         In November  1997,  the  Company  sold 900 shares of Series A Preferred
Stock to a supplier of the Company for $900,000. Payment for the shares was made
by the vendor cancelling $900,000 of payables owed by the Company to the vendor.
Also in November  1997,  the Company sold 1,500 shares of its Series B Preferred
Stock,  plus 82,192 Common Stock Purchase  Warrants,  to a foreign  investor for
$1,500,000.  The number of shares  issuable upon the conversion of each Series B
Preferred  Share is to be  determined  by  dividing  $l,000  by the lower of (i)
$3.65,  or (ii) 75% of the  average  closing bid price of the  Company's  common
stock on the five trading days preceeding the conversion  date. Since the common
stock issuable upon the conversion of the Series B Preferred Stock may be issued
at a  discount  from  the  market  price  of the  Company's  common  stock,  the
Securities  and  Exchange   Commission  requires  that  the  estimated  discount
($500,000)  be reflected in the Company's  financial  statements as a "preferred
stock  dividend".  Although this "preferred stock dividend" will not involve the
payment of cash, the amount of this "dividend" (i.e. $500,000) will increase the
Company's Loss Per Common Share.                                                

         See  "Comparative  Share Data" for further  information  concerning the
terms of the Company's Series A and Series B Preferred Stock.                   

         Although the Company has reduced its overhead during 1997, there can be
no  assurance  that the Company can  generate  profits and other  actions may be
required by management. Management however, believes the actions taken to reduce
overhead and increase  revenues  will enable the Company to continue  operations
through 1998.                                                                   

         To improve  the  Company's  liquidity,  the Company is  continuing  its
efforts to increase  sales,  reduce its costs,  improve gross profit margins and
raise additional capital.  The Company's future is dependent upon its success in
these areas.                                                                    

         The Company's  operations are seasonal to a certain degree,  with sales
and service  revenues  generally higher in the third and fourth quarters of each
year  as  opposed  to  the  first  two  quarters.   Management  attributes  this
seasonality to purchases made prior to  commencement  of the school year,  sales
attributable  to the Christmas  holiday and budgetary  purchasing  cycles of its
corporate and government customers.                                             

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 DESCRIPTION OF BUSINESS

General                                                                         

         The Company  markets,  installs,  services and  supports  microcomputer
systems and related  peripheral  products  principally  for use by business  and
large institutional  customers in the corporate,  government and retail markets.
The  Company  provides a broad  range of  microcomputer  products  and  services
including  hardware,  software,  system  design,  consulting,   maintenance  and
training, as well as internet access and related services. The Company assembles
custom  PCs and  peripheral  hardware  under  its own  brand  name  and  markets
well-known  national brands  including  Compaq,  Apple and IBM. The Company also
markets and installs  operating systems and applications  software  developed by
Microsoft  Coporation,  Novell, Inc. and other software developers.  In 1997 the
Company was awarded  contracts  to supply  microcomputers  to the United  States
Military  Academy in West  Point,  the Air Force  Academy in  Colorado  Springs,
Colorado, and the United States Naval Academy in Annapolis, Maryland. The amount
of  the  contracts  for  these  three  Military   Academies  was   approximately
$7,500,000.  The Company's  current customers include Colorado State University,
Ball  Aerospace  Corporation,  the  University of Colorado,  Metropolitan  State
College,  University  of Oklahoma,  U.S.  Military  Academy,  the U.S. Air Force
Academy and the U.S.  Naval  Academy.  Management  estimates the Company and its
predecessors,  which from 1986 to 1991 carried on the business now  conducted by
the Company, have sold over 50,000 microcomputers.                              

         The  microcomputer  products  segment  of  the  computer  industry  was
characterized  in its early  development by stand alone personal  computers with
limited  capabilities.  Advances in  semiconductor  technology  were the driving
force behind significant upgrades in the capabilities of microcomputer products,
which in turn  resulted  in a wider range of  software  applications  which were
suitable for use on microcomputers. This expansion in microcomputer capabilities
has been  accompanied  by significant  price  reductions in  microcomputers  and
peripheral   products  as  the  cost  of  semiconductor  chips  has  fallen  and
manufacturing efficiencies have been realized.                                  

         The growth in the  microcomputer  industry  is also the result of local
and wide area networks which permit a wide distribution of applications software
and databases throughout a business or other organization,  the use of a variety
of different  hardware and software  products  from location to location or even
user to user, and the flexible addition or deletion of software applications. In
most  cases,   hardware  and  software   products   produced  by  a  variety  of
manufacturers can be used interchangeably in PCs.                               

         The  Company's   customers  are   increasingly   turning  to  networked
microcomputer  systems with prepackaged  software for their  requirements.  This
trend  allows the  Company to provide  system-wide  solutions,  incorporating  a
variety of microcomputer products and services, to its customers.               

         The  microcomputer  products segment of the computer industry is highly
competitive. A number of computer resellers which compete with the Company      

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with  respect  to some or all of the  products  or  services  offered by it have
experienced  downturns  in  operating  results  due in  part,  in the  Company's
opinion,  to  excessive  competition.   Because  of  an  industry  trend  toward
decreasing  prices for microcomputer  products and peripherals,  the Company has
adopted a "just in time" inventory  management system. The Company believes that
by selling various microcomputer products,  peripherals and services as a single
system,  the Company is able to charge  higher  prices and  thereby  earn higher
gross profits than those attributable to hardware sales alone.                  

Products and Services                                                           

         The Company provides turnkey solutions  designed to meet its customers'
information  system  requirements.  Systems typically include  microcomputer and
networking hardware,  peripheral equipment,  operating system software,  network
system software and application software.  The Company also derives a portion of
its sales and  service  revenues  from  installation,  integration,  consulting,
upgrades, maintenance and training.                                             

         The Company  believes that its customers  have, and will  continue,  to
utilize  computer  networks to allow a wider  distribution  of  information  and
applications. The Company offers network hardware and software to its customers,
providing  support and maintenance for network systems,  and focusing certain of
its  marketing  and sales  resources on  developing  customers  with  networking
requirements.                                                                   

         Hardware.  The Company's  microcomputer  systems are  customarily  sold
using components and peripherals provided by the Company's  suppliers.  Hardware
included in these systems may include, among other items, personal computers and
PC  workstations  (including  monitors,  disk  drives and  memory),  peripherals
including modems, printers and scanners,  network file servers, hard disks, tape
drives, power supplies, printers, high speed modems, network interface cards and
cabling.  The Company assembles its microcomputer  systems using products from a
number of manufacturers.  In addition to branded computer products,  the Company
purchases components from a number of suppliers from which the Company assembles
microcomputers which bear the Company's brand name and logo.                    

         The  Company  believes  that  its  customers  have  accepted  assembled
microcomputers  using the Company's  brand name, as opposed to national  brands,
due  to  the   increasingly   common   performance   characteristics   of   most
microcomputers.  The Company  intends to  continue  to provide  custom-assembled
microcomputers  to its customers,  both as a means of servicing each  customer's
particular  automation  requirements as well as achieving  significantly  higher
margins than those associated with mass produced national brand microcomputers. 

         Because  the Company is  frequently  able to source  microcomputers  or
components from different  suppliers,  the Company has generally not experienced
delays in obtaining  hardware to satisfy customer  orders.  Although the Company
believes   microcomputers   and  components  are  available  from  a  number  of
alternative  suppliers,  any significant  interruption in delivery of such items
could have a material adverse effect on the Company's operations.               

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         Software.  The Company purchases complete software programs,  including
operating systems,  application software and networking software, from a variety
of vendors.  The vast  majority of  operating  systems  installed by the Company
operate  through the  DOS/Windows  environment.  The Company has also  installed
Novell,  UNIX and NT Network operating  systems.  Operating systems installed by
the Company  typically  allow  customers  to migrate to  different  hardware and
software  technologies  and to upgrade to new releases of application  software.
The Company has  established  reseller and support  agreements  with two leading
software  development  firms.  The agreement with one software  development firm
contains minimum royalty  obligations payable by the Company through 1998 which,
if not met, entitle the software  development firm to increase prices charged to
the Company for software.                                                       

         Services.  The Company  offers a full  complement of services which are
designed to meet the Company's  goals of providing  the turnkey  solution to the
customers' information requirements. The services offered by the Company include
implementation,  consulting,  training, system integration and support, internet
access and service, maintenance and customer service.                           

         Customers  are  offered a variety of  consulting  services to assist in
effectively implementing and deploying the information solution developed by the
Company.  Services  offered  include a variety of  site-specific  technical  and
consulting  services  to  assist  in all  phases  of  installation,  as  well as
integration of hardware and software with the customer's other automated systems
and  devices.   Training  services  provide  the  customers'  personnel  with  a
formalized  education program to ensure that their  applications are implemented
and utilized in an  efficient  and  cost-effective  manner.  Customers  are also
offered a variety of software installation,  technical support and user training
services,  both  on-site  and  in the  Company's  Business  Centers.  Customized
education and training programs are also available to meet a customer's specific
need.                                                                           

         The Company's  customer service program provides customers with ongoing
hardware and software  maintenance  and hotline  telephone  support.  Agreements
which  provide  for  upgrades  maintain  the  customers'  hardware,  software or
documentation  to the  then-current  standard  release  level  supported  by the
Company.  Where  contracted  for  separately,  maintenance  services  are billed
monthly in advance and implementation and consulting services are billed monthly
as incurred.                                                                    

Sales and Marketing                                                             

         The Company's  products and services are marketed and sold  principally
on a direct basis by the Company's sales and marketing personnel.  As of January
31,  1998 the  Company  had  twelve  full-time  employees  engaged  in sales and
marketing   activities,   including   representatives   serving  the  corporate,
government  and  retail  markets  and  in-house  sales  associates.   The  sales
representatives are compensated using a combination of salary and commissions.  

         The other principal means by which the Company markets its products and
services is through its Business Centers.  Each Business Center is designed as a
showroom with key demonstration models, but stocks relatively                   

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little  inventory.  Orders  received  at  the  Company's  Business  Centers  are
transmitted  to the  Company's  headquarters,  where  products  are  ordered  or
assembled for delivery to the Business Center.  Although the Company has adopted
a "just in time" inventory management system, the Company has been successful in
delivering  products  ordered by its Business  Centers in an average of 10 to 14
days. If required,  the Company can have components or microcomputers  delivered
by overnight  delivery,  at an additional charge to the customer,  and generally
fill an order in three to five days.                                            

         The Company's  customer base principally  consists of various corporate
and  government  entities.  During  1996,  approximately  65% of  the  Company's
revenues were the result of sales to government  and  educational  institutions,
20% to commercial accounts, and 15% to retail customers,  although a significant
amount of these  retail sales were to smaller  businesses.  The  Company's  four
largest customers during 1996 and their respective  percentage of gross revenues
were: U.S. Air Force Academy - 16%; Ball Aerospace - 10%; U.S.  Military Academy
- 15%; and Colorado  State  University  - 7%. The Company  anticipates  that its
sales to the Departments of the Army, Air Force,  and Navy will each account for
in excess of 10% of the Company's sales and service revenues in 1997.           

        Sales  to  the  Company's   government  customers  in  particular  are
characterized  by a lengthy  sales cycle which  generally  extends for a period 
from  six  to  12  months.   Purchases   by   government   entities  are  often 
characterized   by  bidding  and   contracting   procedures   which  may  place 
significant  demands on the Company's  administrative and sales personnel.  See 
"Risk Factors."                                                                 

         The Company's  marketing efforts are designed to increase awareness and
demand for its products  and services  from its  customer  base.  The  Company's
marketing  activities combine media advertising in regional  newspapers,  direct
mail  advertising,  participation  in four industry  trade shows each year,  and
sponsorship of local sporting events. The Company also receives sales leads from
its hardware and software  suppliers,  customers and various firms active in the
microcomputer industry.                                                         

         The Company offers installation,  upgrades,  maintenance,  training and
technical  support to its customers and estimates that  approximately 75% of its
customers  purchase one or more of these  services  from the Company  within one
year of purchase of hardware.                                                   

         The Company sells its computer  systems at prices which are  comparable
to competitor"s systems having similar features.  The Company sets its rates for
service,  repair and training so as to be  comparable  with the rates charged by
competitors.  The Company believes that its pricing policy allows the Company to
differentiate itself from competitors on the basis of service.                  

         Because the Company ships  microcomputer  products and software shortly
after  receipt of an order,  the Company  typically  does not have a significant
backlog of unfilled  orders,  and  revenues  in any  quarter  are  substantially
dependent on orders received and delivered in that quarter. However, the Company
from time to time experiences higher than normal backlog depending on           

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factors such as the configuration of the microcomputer systems ordered, the size
of orders received and availability of hardware or software from suppliers.     

         As  of  January  31,  1998,   the  Company  had  a  sales   backlog  of
approximately $292,000.                                                         

Business Centers                                                                

         The Company  believes  that the  Business  Centers  establish  customer
recognition of the Company,  its products and services and provide the Company a
venue through which higher margin services can be provided to its customer base.
The Company also utilizes its Business  Centers as a sales and marketing tool to
identify and provide services to its corporate and government customers.        

         The following  table provides  information  concerning the location and
services offered by the Company's Business Centers:                             

               Current
                Services      Monthly          Lease
Location                   Offered       Rental(1)      Termination       
-------------------           --------      ---------      -----------          
2573 Midpoint Dr.              (2)(3)       $10,650              01/00          
Fort Collins, Colorado                                                          

2601 Midpoint Dr.              (4)          $15,114              12/02          
Fort Collins, Colorado                                                          

One Tabor Center               (3)          $ 5,092              09/01          
1200 17th St.                                                                   
Denver, Colorado                                                                

5975 N. Academy Blvd.          (3)           $2,312              08/97          
Colorado Springs, Colorado                                                      

6501 E. Belleview Ave.         (3)          $12,895              12/01          
Suites 110 and l20                                                              
Englewood, CO  80lll                                                            

1640 Range Street              (3)          $ 2,600              07/00          
Boulder, Colorado                                                               

(1) Base rent plus common area and maintenance  fees,  excluding taxes. (2) This
facility includes the Company's  Executive  Offices,  Computer Assembly Facility
and Service Center. (3) Sales, technical service, repairs and training services.
(4)  Manufacturing  and storage facility used by the Company when  manufacturing
requirements  exceed  the  capacity  of the  Company's  main  computer  assembly
facility.                                                                       

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         The Company expects that its existing executive and assembly facilities
will be adequate for the Company's  needs for the foreseeable  future.  However,
should the Company require  additional space for assembly of microcomputers  for
large contracts,  the Company believes additional  facilities are available near
the Company's existing headquarters at a cost comparable to that now paid.      

Suppliers                                                                       

         The Company purchases  microcomputers,  software and components used in
the  assembly of its own brand of  microcomputers  from outside  suppliers.  The
Company has no long term agreements with its suppliers with respect to the price
or supply of components or peripherals purchased by the Company.                

         The Company is an  authorized  reseller of network  operating  software
developed by Microsoft  and Novell.  The  agreements  with  Microsoft and Novell
authorizes  the  Company  to sell  and  support  Microsoft  and  Novell  network
operating  software.  These agreements  obligate Microsoft and Novell to provide
the Company with sales leads, technical support,  introductory product releases,
product promotion  literature and technical  documentation and may be terminated
by either party without cause on 30 days notice.                                

Proprietary Rights                                                              

         Neither the Company nor any of its directors,  officers or shareholders
own any patents or patent rights  respecting  products  marketed by the Company.
The Company holds license agreements with one supplier which grant the Company a
limited, non-exclusive license to use the trademarks, service marks and logos of
such supplier in the  promotion of the software  provided by the supplier to the
Company.  The Company has registered its Applied  Computer  Technology name as a
trademark and service mark, and has registered the stylized handprint logo, as a
trademark and service marks with the United States Patent and Trademark  Office.
The Company intends to maintain the integrity of its service marks,  trade names
and trademarks against  unauthorized use and to protect against infringement and
unfair competition where circumstances  warrant. The Company is not aware of any
currently infringing uses.                                                      

Competition                                                                     

         The  microcomputer  segment  of  the  computer  industry  is  intensely
competitive  and is  characterized  by rapid  technological  advances,  evolving
industry standards and technological obsolescence. Many of the Company's current
competitors  have  longer  operating   histories  and  have  greater  financial,
technical,  sales,  marketing and other resources than the Company. In addition,
there are a number of large,  well-capitalized  firms that  could,  should  they
choose to do so,  market  microcomputer  hardware,  peripherals  and software in
direct  competition  with the Company.  The Company  believes that the principal
competitive  factors in the market for  microcomputer  products  include  price,
service  and  support,  ease of use and the  ability  to  integrate  with  other
technologies,  brand  availability  and market presence.  The Company  currently
views Compucom, Entex and Lewan Associates as its principal                     

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competition  in the  microcomputer  market in which the  Company is active.  The
Company also competes to a lesser extent with a number of value added resellers,
computer  retailers,  electronic  specialty  stores and mail order  distributors
active  in the  microcomputer  hardware  or  software  markets.  There can be no
assurance  the  Company  will  be  able  to  compete  successfully  against  its
competitors  or that the  competitive  pressures  faced by the Company  will not
adversely affect its financial performance.                                     

Internet Services                                                               

         In October 1996,  the Company  began  offering  internet  access to the
Company's customers and the general public. As an Internet Service Provider, the
Company  provides  Internet  access  to  persons  wishing  to  view  and/or  use
information  stored on the  Internet.  Persons  using the Company  for  Internet
access have  unlimited  E-Mail usage  through the  Internet.  In  addition,  the
Company offers World Wide Web ("Web") sites (one or more pages of information on
the Internet) to businesses that want to advertise their products or services on
the Web. For an additional  fee, the Company helps these  businesses  create and
design the pages for their Web site.  Customers can establish  initial access to
the Internet  using the Company's  dial-up  service and standard  analog modems.
Basic service includes unlimited usage for  non-commercial  purposes and E-Mail.
Customers can obtain additional E-Mail names (so that family members can receive
E-mail  addressed to them)  without  incurring the full expense of an additional
account.  Each  personal  account also  includes,  at no extra  charge,  10Mb of
storage space for Web documents.                                                

         The  Company  believes  that its  primary  source of  Internet  related
revenues will be fees from providing  Internet  access and Web  maintenance  and
design services for businesses.                                                 

Employees                                                                       

         The  Company  employed  61 persons as of January  31,  1998.  Of these,
twelve were employed in administration, nine in assembly and shipping, twelve in
sales  and  marketing  and  twenty-eight  in  support,  services,  training  and
technical  support.  The Company's  employees are not covered by any  collective
bargaining  agreements.  The Company  believes  that its employee  relations are
good.                                                                           

MANAGEMENT  

Directors and Executive Officers                                                

         The  following  table  sets  forth  information  as of the date of this
prospectus regarding the directors and executive officers of the Company:       

Name              Age                      Position   
------            -----                    ----------   
   Wiley E. Prentice, Jr.     34        President,  Chief Executive  Officer
                and Director
   Cynthia E. Koehler         33        Executive Vice President,  Secretary
                and Director

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Name              Age                      Position   
------            -----                    ----------   
   Daniel T. Radford          46        Vice  President  of  Finance - Chief
                     Financial Officer
J. Roger Moody             64        Director                         

         Officers are  appointed by and serve at the  discretion of the Board of
Directors.  Each  director  holds  office  until  the  next  annual  meeting  of
shareholders  or until a successor has been duly elected and  qualified.  All of
the Company's  officers  devote their  full-time to the  Company's  business and
affairs.                                                                        

        Wiley E. Prentice,  Jr. is the founder of the Company and has been the
President,   Chief  Executive  Officer  and  a  director  since  the  Company's 
inception.  Mr.  Prentice also served as Treasurer  from  inception to February 
1995.  Mr.  Prentice's   principal   responsibilities   now  include  strategic 
planning,  vendor relationships,  and sales and marketing activities.  In 1986, 
Mr. Prentice formed Applied Computer Technology, a Colorado sole proprietorship 
which until 1989  conducted  the  business  now engaged in by the  Company.  In 
1989, Mr. Prentice co-founded Applied Computer  Technology,  a Colorado general 
partnership,  which  continued  the business of the sole  proprietorship  until 
1991, at which time the assets of the partnership were acquired by the Company. 

        Cynthia E. Koehler has been Executive Vice President,  Secretary and a
director  of  the  Company  since  its  inception.   Ms.  Koehler's   principal 
responsibilities  include human  resources,  corporate policy and practices and 
logistics.  Ms.  Koehler  also  co-founded  Applied  Computer  Technology,  the 
general  partnership  which from 1989 through 1991  conducted  the business now 
engaged  in by the  Company.  Ms.  Koehler  received  her  Bachelor  of Science 
degree in computer science from Colorado State University in 1987.              

         Daniel T. Radford has been the Company's  Vice President of Finance and
Chief  Financial  Officer  since June 1997.  From 1994 through 1997 Mr.  Radford
served as chief financial officer of Brite-Line Industries, Inc., a manufacturer
of highway marking  products.  From 1992 to 1993 Mr. Radford was chief financial
officer  of  Waveframe   Corporation,   a  digital  sound  recording   equipment
manufacturer.  Mr.  Radford  obtained a Master of Business  Administration  from
Chapman  College,  Syracuse,  New York,  in 1988,  and a Bachelor  of Science in
Business Administration from Syracuse University,  Syracuse, New York. He earned
his CPA and CMA from the State of New York.                                     

         J. Roger Moody has been a director of the Company since July 1995.  Mr.
Moody has been an independent business consultant since 1994 providing advice in
the areas of marketing and operations to development stage companies.  From 1991
to 1994, Mr. Moody served as president,  chief executive  officer and a director
of Data Switch Corp., a publicly traded manufacturer of computer products.  From
1986 to 1991,  Mr.  Moody served as  president,  chief  executive  officer and a
director of Coordination  Technology,  Inc., Trumbull,  Connecticut,  a software
development and marketing  company.  From 1985 to 1986, he was president,  chief
executive  officer and a director of InfoCenter  Software,  Inc., New Paltz, New
York, a software development and marketing                                      

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company.  From 1983 to 1984, he was  president,  chief  executive  officer and a
director of U.S. Satellite Systems, Inc., New York, New York, a satellite design
and  production  company.  From 1981 to 1983, he was a vice president of CBS and
between  1974 to 1981,  a vice  president  of AT&T.  From 1959 to 1972,  he held
various sales and management positions with IBM. Mr. Moody received his Bachelor
of Science degree in electrical engineering from Columbia University in 1958 and
his Master of Business  Administration degree from the University of Michigan in
1959.                                                                           

Executive Compensation                                                          

           The following table sets forth the annual and long-term  compensation
for services in all capacities to the Company for the three years ended December
31, 1996 of Wiley E. Prentice, Jr., the President and Chief Executive Officer of
the Company  (the "Named  Officer"),  and any other  officers of the Company who
received  annual  salary and bonus  exceeding  $100,000  during such  three-year
period.                                                                         
                               Long-term
 Name and                 Annual compensation  compensation    All other
Principal Position      Year   Salary     Bonus       awards     Compensation(1)
-------------------     ----  -------     -----    ------------  ---------------
Wiley E. Prentice, Jr.  1996   $71,910      -0-         --           $ --       
President and Chief     1995   $44,263      -0-         --           $ --       
Executive Officer       1994   $36,994      -0-         --           $ --       

(1) Excludes personal use of a Company-furnished  automobile valued at less than
$l,000 and car allowance of $l,800.                                             

         During the period  covered by the above table,  no shares of restricted
stock were issued as  compensation  for  services  to the persons  listed in the
table. As of December 31, 1997, the number of shares of the Company's restricted
common stock,  owned by the officer included in the table, and the value of such
shares at such date,  based upon the market price of the Company's  common stock
were:                                                                           

Name                              Shares                        Value           
----                              ------                        -----           
Wiley E. Prentice, Jr.          1,065,000                    $2,396,250         

         Dividends  may be paid on  shares  of  restricted  stock  owned  by the
Company's  officers  and  directors,  although  the  Company has no plans to pay
dividends.                                                                      

         No employee of the Company receives any additional compensation for his
or her services as a director.  Non-management  directors  receive a retainer of
$500 per month  plus  $1,000 per  meeting  attended.  Additionally,  each of the
non-management directors received a grant of 10,000 options exercisable at $2.00
per share which vest 25% on grant and 25%  following  each year of service.  The
Company has also agreed to grant each of the non-management directors options to
acquire 10,000 shares of the Company's Common Stock on the first  anniversary of
service  and  options to  acquire  10,000  shares of Common  Stock on the second
anniversary  of service.  These options will be granted at market value and will
vest at the rate of 25% per year.                                               

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The Board of Directors has also authorized payment of reasonable travel or other
out-of-pocket  expenses  incurred  by  non-management   directors  in  attending
meetings of the Board of Directors.                                             

         The Company has no retirement,  pension or profit  sharing  program for
the  benefit of its  directors,  officers or other  employees,  but the Board of
Directors may recommend one or more such programs for adoption in the future.   

         Employment   Agreements.   The  Company  has  entered  into  employment
agreements with Mr.  Prentice and Ms.  Koehler.  The agreement with Mr. Prentice
requires  Mr.  Prentice to devote his full  business  time to the  Company.  The
agreement with Ms. Koehler requires Ms. Koehler to devote 60% of her time to the
Company's business.  Each employment  agreement may be terminated by the Company
for "cause" (as defined in the  agreements).  The Company has also  entered into
agreements  with Mr.  Prentice and Ms. Koehler which prohibit the executive from
directly competing with the Company for one year within a 50 mile radius of Fort
Collins,  Colorado  following  termination of the  agreement.  Pursuant to their
employment  agreements,  Mr. Prentice and Ms. Koehler receive annual salaries of
$80,000 and  $60,000,  respectively,  with  scheduled  minimum  increases  of 5%
annually.  Each of the officers may also receive such bonuses or compensation as
may be awarded by the Board of  Directors.  The  employment  agreement  with Mr.
Prentice  extends  through  March  2000 and the  employment  agreement  with Ms.
Koehler extends  through March 1998,  subject to the right on the part of either
the Company or the executive to terminate the  employment  agreement at any time
upon 30 days written notice.                                                    

Stock Option and Bonus Plans                                                    

         The Company has an Incentive Stock Option Plan, a  Non-Qualified  Stock
Option  Plan and a Stock  Bonus  Plan.  A  summary  description  of these  Plans
follows. In some cases these Plans are collectively referred to as the "Plans". 

         Incentive Stock Option Plan. The Incentive Stock Option Plan authorizes
the issuance of up to 600,000  shares of the  Company's  Common Stock to persons
that exercise options granted  pursuant to the Plan. Only Company  employees may
be granted options pursuant to the Incentive Stock Option Plan.                 

         To be classified as incentive stock options under the Internal  Revenue
Code,  options  granted  pursuant  to the Plans must be  exercised  prior to the
following dates:                                                                

         (a) The  expiration  of three  months after the date on which an option
holder's  employment by the Company is terminated (except if such termination is
due to the death or permanent and total disability);                            

         (b) The  expiration  of 12  months  after  the date on which an  option
holder's employment by the Company is terminated,  if such termination is due to
the Employee's permanent and total disability;                                  

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         (c) In the event of an option holder's death while in the employ of the
Company,  his  executors or  administrators  may  exercise,  within three months
following  the  date  of his  death,  the  option  as to any of the  shares  not
previously exercised;                                                           

         The total fair market value of the shares of Common  Stock  (determined
at the time of the grant of the  option) for which any  employee  may be granted
options  which  are  first  exercisable  in any  calendar  year  may not  exceed
$100,000.                                                                       

         Options  may not be  exercised  until  one year  following  the date of
grant.  Options  granted to an employee  then owning more than 10% of the Common
Stock of the Company may not be  exercisable  by its terms after five years from
the date of grant.  Any other  option  granted  pursuant  to the Plan may not be
exercisable by its terms after ten years from the date of grant.                

         The  purchase  price  per share of Common  Stock  purchasable  under an
option is  determined  by the  Committee but cannot be less than the fair market
value of the Common Stock on the date of the grant of the option (or 110% of the
fair market value in the case of a person  owning more than 10% of the Company's
outstanding shares).                                                            

         Non-Qualified  Stock Option Plan. The  Non-Qualified  Stock Option Plan
collectively  authorizes  the issuance of up to 600,000  shares of the Company's
Common Stock to persons that exercise options granted pursuant to the Plans. The
Company's employees,  directors, officers, consultants and advisors are eligible
to be granted  options  pursuant to the Plans,  provided  however that bona fide
services must be rendered by such consultants or advisors and such services must
not be in connection  with the offer or sale of securities in a  capital-raising
transaction. The option exercise price is determined by the Committee but cannot
be less than the  market  price of the  Company's  Common  Stock on the date the
option is granted.                                                              

         Stock Bonus Plan.  Up to 200,000  shares of Common Stock may be granted
under the Stock Bonus Plan.  Such shares may  consist,  in whole or in part,  of
authorized but unissued shares, or treasury shares.  Under the Stock Bonus Plan,
the  Company's  employees,  directors,  officers,  consultants  and advisors are
eligible to receive a grant of the Company's shares,  provided however that bona
fide services must be rendered by consultants or advisors and such services must
not be in connection  with the offer or sale of securities in a  capital-raising
transaction.                                                                    

         Other  Information  Regarding the Plans.  The Plans are administered by
the Company's Compensation Committee ("the Committee"),  each member of which is
a director of the Company.  The members of the  Committee  were  selected by the
Company's  Board of  Directors  and serve for a one-year  tenure and until their
successors are elected.  A member of the Committee may be removed at any time by
action of the Board of Directors. Any vacancies which may occur on the Committee
will be filled by the  Board of  Directors.  The  Committee  is vested  with the
authority  to  interpret   the   provisions  of  the  Plans  and  supervise  the
administration  of the Plans. In addition,  the Committee is empowered to select
those persons to whom shares or options are                                     

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to be  granted,  to  determine  the number of shares  subject to each grant of a
stock bonus or an option and to determine when, and upon what conditions, shares
or  options  granted  under  the Plans  will vest or  otherwise  be  subject  to
forfeiture and cancellation.                                                    

         In the discretion of the Committee,  any option granted pursuant to the
Plans may include installment  exercise terms such that the option becomes fully
exercisable  in  a  series  of  cumulating  portions.  The  Committee  may  also
accelerate  the date upon which any option (or any part of any options) is first
exercisable.  Any shares issued pursuant to the Stock Bonus Plan and any options
granted pursuant to the Incentive Stock Option Plan or the  Non-Qualified  Stock
Option Plan will be  forfeited  if the  "vesting"  schedule  established  by the
Committee  administering  the Plan at the time of the grant is not met. For this
purpose,  vesting  means the period  during  which the  employee  must remain an
employee  of the  Company  or the  period of time a  non-employee  must  provide
services to the Company.  At the time an employee ceases working for the Company
(or at the time a non-employee ceases to perform services for the Company),  any
shares or options  not fully  vested will be  forfeited  and  cancelled.  At the
discretion  of the Committee  payment for the shares of Common Stock  underlying
options may be paid through the delivery of shares of the Company's Common Stock
having an aggregate  fair market value equal to the option price,  provided such
shares have been owned by the option  holder for at least one year prior to such
exercise. A combination of cash and shares of Common Stock may also be permitted
at the discretion of the Committee.                                             

         Options are generally  non-transferable except upon death of the option
holder.  Shares  issued  pursuant to the Stock Bonus Plan will  generally not be
transferable  until the  person  receiving  the  shares  satisfies  the  vesting
requirements imposed by the Committee when the shares were issued.              

         The Board of Directors of the Company may at any time, and from time to
time, amend,  terminate,  or suspend one or more of the Plans in any manner they
deem appropriate,  provided that such amendment,  termination or suspension will
not  adversely  affect rights or  obligations  with respect to shares or options
previously  granted.  The  Board  of  Directors  may  not,  without  shareholder
approval:  make any  amendment  which would  materially  modify the  eligibility
requirements  for the Plans;  increase or decrease the total number of shares of
Common  Stock which may be issued  pursuant to the Plans except in the case of a
reclassification  of the Company's capital stock or a consolidation or merger of
the Company;  reduce the minimum  option price per share;  extend the period for
granting options;  or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.                      

         Summary.  The following sets forth certain  information,  as of January
31, 1998, concerning the stock options and stock bonuses granted by the Company.
Each option  represents the right to purchase one share of the Company's  Common
Stock.                                                                          

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                    Total          Shares       Shares       Remaining
                    Shares      Reserved for    Issued        Options/
                      Reserved     Outstanding     as Stock     Bonus Shares
Name of Plan           Under Plan      Options         Bonus      Under Plan    
------------           ----------    ------------    --------     ------------  
Incentive Stock                                                                 
Option Plan              600,000         328,500           --       232,784   
Non-Qualified Stock                                                             
Option Plan              600,000              --           --       600,000   
Stock Bonus Plan          200,000             N/A           --       200,000    

Limitation of Liability and Indemnification                                     

         The Company's Articles of Incorporation  provide no director shall have
liability to the Company or its  shareholders for monetary damages for breach of
fiduciary  duty as a  director.  This  provision  does  not  eliminate  or limit
liability for breach of duty of loyalty,  acts or omissions not in good faith or
which  involve  intentional  misconduct  or a knowing  violation  of law or acts
specified  by the Colorado  Business  Corporation  Act.  The  Colorado  Business
Corporation  Act  provides  that a  corporation  may  limit the  liability  of a
director  for damages to the  corporation  or its  shareholders  resulting  from
conduct of the director other than (i) acts or omissions which the director knew
or believed  were  clearly in conflict  with the best  interests of the Company,
(ii) unlawful payment of dividends and certain other distributions, or (iii) for
any transaction from which the director derived an improper,  personal  benefit.
The Company's Articles of Incorporation also provide that no officer or director
shall be  personally  liable for any injury  arising out of an  employee's  tort
unless such officer or director (i) was personally  involved in the situation or
(ii) committed a criminal offense.                                              

         The Company's  Articles of  Incorporation  provide that the Company may
indemnify its officers and directors, to the fullest extent permitted by law. In
general,  the  Colorado  Business  Corporation  Act  permits  a  corporation  to
indemnify its officers and directors  provided they have acted in good faith and
with  the  reasonable  belief  that  their  conduct  was in the  Company's  best
interests.  The Company believes such  indemnification  is sufficiently broad to
permit indemnification under certain circumstances for liabilities arising under
the  Securities  Act of 1933,  as amended (the "Act").  At present,  there is no
pending litigation or proceeding  involving any director,  officer,  employee or
agent of the Company where  indemnification  will be required or permitted.  The
Company is not aware of any threatened litigation or proceeding which may result
in a claim for such indemnification.                                            

         Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions,  or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange  Commission,  such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable. 

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CERTAIN TRANSACTIONS  

         Mr.  Prentice  and Ms.  Koehler are the  officers,  directors  and sole
shareholders  of Managed Care  Technologies,  Inc., and are the sole partners of
Medical Information Systems (collectively  "MCTI"). MCTI was formerly engaged in
the development and marketing of software designed to assist managed health care
organizations in the analysis and control of health care costs.                 

         From time to time, the Company made advances to MCTI for use by MCTI as
working  capital.  In June  1995,  the  Company  and  MCTI  entered  into a loan
agreement (the "Loan Agreement") which,  commencing January 31, 1996,  obligated
MCTI to make  payments of  principal  and  interest  which was to increase  from
$5,000 per month in the initial  year of  repayment,  to $7,500 per month in the
second  year and  $10,000 per month  thereafter  until all  amounts  owed to the
Company were paid.  The Loan Agreement  provided that all amounts  borrowed from
the  Company  would bear  interest at the rate of 10% per annum.  As  additional
consideration  for the advances  received from the Company,  the Loan  Agreement
provided  that MCTI would pay to the Company a  percentage  of its future  gross
revenues.  The advances made by the Company to MCTI were not  collateralized  by
any assets of MCTI, but were personally  guaranteed,  jointly and severally,  by
Mr.  Prentice  and Ms.  Koehler.  MCTI had a minimal net worth and had  incurred
losses since its inception.                                                     

         Although the amount owed by MCTI to the Company was a legal  obligation
of MCTI, for financial statement purposes the amounts advanced by the Company to
MCTI  prior to  December  3l,  l995 have been shown as  dividends,  and not as a
receivable from MCTI. In 1995 the Company  deducted the receivable from MCTI for
federal income tax purposes.                                                    

         In December l995 the Company agreed to forgive the amounts then owed to
the Company by MCTI  (approximately  $22l,000,  including  accrued  interest) in
return for the surrender by Mr.  Prentice of options to purchase  l50,000 shares
of the Company's common stock at a price of $0.75 per share and the surrender by
Ms. Koehler of options to purchase  50,000 shares of the Company's  common stock
at a price of $0.75 per share.                                                  

         Between January 1, 1996 and December 3l, 1996, the Company paid certain
payroll and other  expenses on behalf of MCTI.  As of December 3l,  l996,  these
advances totaled  approximately  $36,000 and are shown on the Company's  balance
sheet at December 3l, l996 as receivables from related  parties.  These advances
are  unsecured,  non-interest  bearing,  and are due on  demand.  Subsequent  to
December 31, 1996 MCTI paid the Company  $10,000,  reducing  this  receivable to
approximately $26,000.                                                          

        During 1996 and 1997, the Company  collectively  loaned  approximately
$98,000 to Mr.  Prentice and to Ms.  Koehler.  These  advances  are  unsecured, 
non-interest bearing, and are due on demand.                                    

         The Company has not sought or received any independent determination as
to the fairness and  reasonableness  of the terms of the transactions  discussed
above.  There is an inherent conflict of interest in transactions  involving the
Company and its officers, directors and/or affiliates due to the                

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inability of such officers, directors and affiliates to provide the Company with
independent judgment with respect to such transactions.  The Company has adopted
a  policy  that  future  transactions  between  the  Company  and its  officers,
directors and 5% or more  shareholders  are subject to approval by a majority of
the directors of the Company. Although any such future transactions will only be
approved if, in the opinion of the  disinterested  directors,  such transactions
will be on terms no less  favorable  than could be  obtained  from  unaffiliated
parties,  the Company will  nevertheless  be adversely  affected by transactions
which ultimately are not favorable to the Company.                              

PRINCIPAL SHAREHOLDERS  

         The following table sets forth certain information regarding beneficial
ownership of the Company's  Common Stock as of the date of this  Prospectus,  by
(i) each person who is known by the Company to own beneficially  more than 5% of
the Company's  outstanding  Common Stock,  (ii) each of the Company's  executive
officers and  directors,  and (iii) all  executive  officers and  directors as a
group.  Shares not  outstanding but deemed  beneficially  owned by virtue of the
right of an individual to acquire them within 60 days are treated as outstanding
only when  determining  the amount and  percentage of Common Stock owned by such
individual.  Each person has sole voting and sole investment  power with respect
to the shares shown except as noted.                                            

 Shares beneficially
                          owned prior to offering       Percentage owned
Name and Address                Number        Percent       after offering(3)   
----------------              ---------       -------       -----------------   
Wiley E. Prentice, Jr.       1,060,000 (1)       33%             30%            
2573 Midpoint Drive                                                             
Fort Collins, CO  80525                                                         

Cynthia E. Koehler             355,000 (1)       11%             10%            
2573 Midpoint Drive                                                             
Fort Collins, CO  80525                                                         

Daniel T. Radford                   --           --              --             
2573 Midpoint Drive                                                             
Fort Collins, CO  80525                                                         

J. Roger Moody                  47,500 (2)        1.5%           41.3%          
7319 East Black Rock Road                                                       
Scottsdale, AZ 85255                                                            

All directors and officers                                                      
as a group (four persons)   1,462,500 (2)       46%             41.3%         

*    Less than one percent.                                                     

(1) Includes  shares of Common  Stock  currently  held in an escrow  account and
subject to release on or before  December  31,  2002.  For  further  information
regarding the terms of such escrow, see the information set forth below.        

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(2) Includes  options which  currently allow for the purchase of 7,500 shares of
the Company's Common Stock.                                                     

(3)  Assumes  all  shares of the Series A  Preferred  Stock are  converted  into
360,000  shares of the Company's  common stock.  Excludes  shares  issuable upon
exercise or  conversion  of warrants,  options or other  convertible  securities
issued by the Company. See "Comparative Share Data".                            

         In September  1995, Mr. Prentice and Ms. Koehler entered into an escrow
agreement (the "Escrow  Agreement")  with U.S. Escrow  Services,  Inc.,  Denver,
Colorado, pursuant to which 330,000 shares of Common Stock owned by Mr. Prentice
and 110,000  shares of Common Stock owned by Ms.  Koehler  were  deposited in an
escrow account (the "Escrow Account").  The Common Stock deposited in the Escrow
Account is subject to release as follows:  (i) in the event the Company achieves
earnings per share equal to or exceeding $.23 in the fiscal year ending December
31, 1995, Mr. Prentice and Ms. Koehler will have released to them 150,000 shares
and 50,000 shares, respectively; (ii) in the event the Company achieves earnings
per share of $.30 in the fiscal year ending  December 31, 1996, Mr. Prentice and
Ms.  Koehler  will have  released  to them  255,000  shares and  85,000  shares,
respectively; and (iii) in the event the Company achieves the earnings per share
benchmarks in both 1995 and 1996,  all of the shares in the Escrow  Account will
be released to Mr. Prentice and Ms.  Koehler.  In the event any of the foregoing
benchmarks are not reached by the Company for the specified period, the escrowed
shares of Common  Stock not  subject to release  will be  returned by the escrow
agent to Mr. Prentice and Ms. Koehler on December 31, 2002. The determination of
earnings per share will be made in accordance with generally accepted accounting
principles  (excluding  outstanding options and warrants) and will be based upon
the audited financial statements of the Company prepared by its certified public
accountants.  The  Company had  earnings of $0.24 per share (on a fully  diluted
basis) in 1995 and as a result,  150,000 of Mr.  Prentice's shares and 50,000 of
Ms. Koehler's shares were released from escrow.                                 

 SELLING SHAREHOLDER

         In  November  1997 the  Company  sold 900 shares of Series A  Preferred
Stock to a supplier of the Company for $900,000. Payment for the shares was made
by the vendor cancelling $900,000 of payables owed by the Company to the vendor.
At the holder's option,  the Preferred Shares are convertible from time to time,
in whole or in part,  into shares of the  Company's  Common  Stock upon  certain
terms. See "Comparative  Share Data". The shares issuable upon the conversion of
the Series D Preferred  Shares are being  offered to the public by means of this
Prospectus.                                                                     

         The  holder of the  Preferred  Shares,  to the extent it  converts  the
Preferred  Shares into shares of Common Stock, is referred to in this Prospectus
as the "Selling Shareholder". The Company will not receive any proceeds from the
sale of the shares by the Selling Shareholder.                                  

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Shares
 Which
May Be
  Acquired
              Upon Con-      Share
                             version of     Shares to     Owner-
            Shares         Series A       be Sold       ship
Selling              Presently       Preferred      in this       After         
Shareholder            Owned         Shares (1)     Offering (2)  Offering      
----------------     -------         ----------     ------------  --------      

Televideo Systems,      --              360,000          360,000       --       
Inc.                                                                        

(1)  Represents  shares  issuable upon the  conversion of the Series A Preferred
Stock assuming  conversion price of $2.50 per share. The actual number of shares
to be issued upon the  conversion  of the Series A Preferred  Shares will depend
upon the price of the  Company's  Common  Stock at the time of  conversion.  See
"Comparative Share Data".                                                       

(2)  Assumes  all  shares  owned,  or  which  may be  acquired,  by the  Selling
Shareholder, are sold to the public by means of this Prospectus.                

         Manner  of Sale.  The  shares of Common  Stock  owned,  or which may be
acquired,  by the Selling  Shareholder  may be offered and sold by means of this
Prospectus from time to time as market conditions permit in the over-the-counter
market,  or otherwise,  at prices and terms then prevailing or at prices related
to the then-current  market price, or in negotiated  transactions.  These shares
may be sold by one or more of the following methods,  without limitation:  (a) a
block  trade in which a broker or dealer so  engaged  will  attempt  to sell the
shares as agent but may  position and resell a portion of the block as principal
to facilitate the transaction;  (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c)  ordinary  brokerage  transactions  and  transactions  in which  the  borker
solicits  purchasers;  and (d)  face-to-face  transactions  between  sellers and
purchasers  without a  broker/dealer.  In  effecting  sales,  brokers or dealers
engaged by the Selling  Shareholder  may arrange for other brokers or dealers to
participate.  Such brokers or dealers may receive  commissions or discounts from
the Selling Shareholder in amounts to be negotiated.                            

         The Selling  Shareholder and any  broker/dealers  who act in connection
with the sale of the Shares hereunder may be deemed to be "underwriters"  within
the meaning of  ss.2(11) of the  Securities  Acts of 1933,  and any  commissions
received  by them and profit on any resale of the Shares as  principal  might be
deemed to be underwriting  discounts and  commissions  under the Securities Act.
The Company has agreed to indemnify the Selling  Shareholder  and any securities
broker/dealers who may be deemed to be underwriters against certain liabilities,
including liabilities under the Securities Act as underwriters or otherwise.    

 The Company has advised the Selling Shareholder that it and any

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securities   broker/dealers  or  others  who  may  be  deemed  to  be  statutory
underwriters will be subject to the Prospectus  delivery  requirements under the
Securities  Act of 1933.  The Company has also  advised the Selling  Shareholder
that in the  event  of a  "distribution"  of the  shares  owned  by the  Selling
Shareholder,  such Selling  Shareholder,  any "affiliated  purchasers",  and any
broker/dealer  or other  person who  participates  in such  distribution  may be
subject to Rule 102 under the Securities Exchange Act of 1934 ("1934 Act") until
their  participation  in that  distribution is completed.  A  "distribution"  is
defined in Rule 102 as an offering of  securities  "that is  distinguished  from
ordinary trading  transactions by the magnitude of the offering and the presence
of special  selling efforts and selling  methods".  The Company has also advised
the  Selling  Shareholder  that  Rule  102  under  the 1934  Act  prohibits  any
"stabilizing bid" or "stabilizing  purchase" for the purpose of pegging,  fixing
or stabilizing  the price of the Common Stock in connection  with this offering.
Rule 101 makes it unlawful for any person who is participating in a distribution
to bid  for or  purchase  stock  of the  same  class  as is the  subject  of the
distribution.                                                                   

 DESCRIPTION OF SECURITIES

         The  authorized  capital  stock of the Company  consists of  25,000,000
shares  of  Common  Stock,  no par  value per  share,  and  5,000,000  shares of
Preferred Stock, no par value per share.                                        

Common Stock                                                                    

         The  holders of Common  Stock are  entitled  to one vote for each share
held of record on all matters submitted to a vote of shareholders. The Company's
Articles of  Incorporation  deny  cumulative  voting  rights in the  election of
directors.  Accordingly,  holders  of a majority  of the shares of Common  Stock
entitled to vote in any  election of  directors  may elect all of the  directors
standing for  election.  Subject to  preferences  that may be  applicable to any
outstanding  Preferred  Stock,  holders of Common  Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally  available   therefor.   See  "Dividend  Policy."  In  the  event  of  a
liquidation,  dissolution or winding up of the Company,  holders of Common Stock
are  entitled  to  share  ratably  in the  assets  remaining  after  payment  of
liabilities and the liquidation  preference of any outstanding  Preferred Stock.
Holders of Common Stock have no preemptive, conversion or redemption rights. All
of the outstanding shares of Common Stock are, and the shares to be sold in this
offering when issued and paid for will be, fully paid and non-assessable.       

Preferred Stock                                                                 

         The Board of Directors has the authority,  without further  shareholder
approval,  to issue up to 5,000,000  shares of Preferred Stock from time to time
in one or more series,  to establish the number of shares to be included in each
such series, and to fix the designation,  powers,  preferences and rights of the
shares of each such series and the  qualifications,  limitations or restrictions
thereof.  The  issuance  of  Preferred  Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of                  

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Preferred  Stock could decrease the amount of earnings and assets  available for
distribution to the holders of Common Stock,  if any, or could adversely  affect
the rights and powers,  including  voting  rights,  of the holders of the Common
Stock.  In  certain  circumstances,  such  issuances  could  have the  effect of
decreasing the market price of the Common Stock.                                

         See "Comparative  Share Data" for information  concerning the Company's
Series A and Series B Preferred Stock.                                          

Warrants                                                                        

         Up to 575,000  shares of Common Stock are issuable upon the exercise of
Common Stock purchase warrants (the "Warrants") which were sold to the public in
the Company's October 1995 public offering.  Every two Warrants will entitle the
holder to purchase one share of Common  Stock at an exercise  price of $4.50 per
share at any time prior to October 26, 1998, subject to the Company's redemption
rights  described  below. The Warrants will be issued pursuant to the terms of a
Warrant Agreement  between the Company and American  Securities  Transfer,  Inc.
(the "Warrant Agent").                                                          

         The  Warrant  exercise  price and the number of shares of Common  Stock
purchasable upon exercise of the Warrants are subject to adjustment in the event
of, among other events, a stock dividend on, or a subdivision,  recapitalization
or  reorganization  of, the Common  Stock,  the merger or  consolidation  of the
Company with or into another  corporation or business  entity or sales of Common
Stock at a price below the Common  Stock  market  price or the Warrant  exercise
price (excluding exercise of options issued under stock option plans).          

         The Company,  in its discretion,  may redeem outstanding  Warrants,  in
whole but not in part,  upon not less than 30 days'  notice,  at a price of $.03
per Warrant,  provided  that the closing bid price of the Common Stock equals or
exceeds $5.60 for 20 consecutive  trading days immediately prior to such notice.
The notice must be given within five business  days of the  conclusion of the 20
day trading period.  In the event the Company  exercises its right to redeem the
Warrants,  the Warrants will be  exercisable  until the close of business on the
date fixed for  redemption in such notice.  If any Warrant called for redemption
is not  exercised by such time, it will cease to be  exercisable  and the holder
thereof will be entitled only to the redemption  price.  Warrant  holders should
presume that the Company will redeem the Warrants if the criteria for redemption
are met.                                                                        

         The Company must have on file a current registration statement with the
Securities and Exchange Commission pertaining to the Common Stock underlying the
Warrants  in order for a holder to  exercise  the  Warrants  or in order for the
Warrants to be redeemed by the Company.  The shares underlying the Warrants must
also be registered or qualified for sale under the securities  laws of the state
in which the Warrant holder resides. The Company intends to use its best efforts
to keep the Registration  Statement  incorporating this Prospectus current,  but
there  can be no  assurance  that  such  Registration  Statement  (or any  other
registration  statement  filed by the Company  covering  shares  underlying  the
Warrants) can be kept current. In the                                           

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event the  Registration  Statement  covering the underlying  Common Stock is not
kept current,  or if the Common Stock  underlying the Warrants is not registered
or  qualified  for sale in the  state in which a  Warrant  holder  resides,  the
Warrants may be deprived of any value.                                          

         Subject to the foregoing, the Warrants may be exercised by surrendering
properly  endorsed  certificates  therefor to the Warrant Agent  accompanied  by
payment in full of the exercise price for each share of Common Stock as to which
the Warrants are being  exercised  and any  applicable  transfer or other taxes.
Payment of the  exercise  price of Warrants  may be made by  tendering  cash,  a
personal check or a cashier's check only.                                       

         The Company is not  required to issue any  fractional  shares of Common
Stock upon the  exercise  of  Warrants  or upon the  occurrence  of  adjustments
pursuant  to  anti-dilution  provisions.  The  Company  will pay to  holders  of
fractional  interests  an  amount  equal  to the cash  value of such  fractional
interests based upon the then-current market price of a share of Common Stock.  

        The  subsequent  sale in the public  market of shares of the Company's
Common Stock,  including  the shares  offered by the Selling  Shareholder,  may 
depress the price for the Company's Common Stock.  See "Selling Shareholder."   

Transfer Agent and Registrar                                                    

         The transfer  agent and registrar  for the  Company's  Common Stock and
Warrants is American Securities Transfer, Inc., Denver, Colorado.               

 LEGAL MATTERS

         The  validity  of the  securities  offered  will be passed upon for the
Company by Hart & Trinen, Denver, Colorado.                                     

 EXPERTS

         The financial  statements of the Company at December 31, 1995,  and for
the year ended December 31, 1995 appearing in this  Prospectus and  Registration
Statement,  have been  audited by Brock and  Company,  CPAs,  P.C.,  independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement,  and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.          

         The financial  statements of the Company at December 31, 1996,  and for
the year ended December 31, 1996 appearing in this  Prospectus and  Registration
Statement,  have been audited by Hein + Associates LLP independent  auditors, as
set  forth  in  their  report  thereon  appearing  elsewhere  herein  and in the
Registra-  tion  Statement,  and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.          

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INDEX TO FINANCIAL STATEMENTS                                       

                                                                      PAGE
                                                                      ------
Independent Auditors' Reports.........................................   F-2    

Consolidated Balance Sheet - December 31, 1996.......................    F-4    

Consolidated Statements of Operations - For the Years Ended                     
December 31, 1996 and 1995 ..........................................    F-5    

Consolidated  Statement of Stockholders' Equity - For the Period                
from January 1, 1995 through December 31, 1996........................   F-6    

Consolidated  Statements  of Cash Flows - For the Years Ended                   
December 31, 1996 and 1995...........................................    F-7    

Notes to Consolidated Financial Statements...........................    F-8    

Balance Sheets as of  September 30, 1997 and December 31, 1996                  
(unaudited)..........................................................    F-17   

Statements of Operations for the Three & Nine Months Ended September 30,        
1997 and 1996 (unaudited)...........................................     F-18   

Statements of Cash Flows for the Nine Months Ended September 30, 1997 and       
1996 (unaudited)....................................................     F-19   

Notes to the Financial Statements (unadudited)                                  
................................................................         F-20 

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INDEPENDENT AUDITOR'S REPORT  

Board of Directors                                                              
Applied Computer Technology, Inc.                                               
Fort Collins, Colorado                                                          

We have audited the accompanying  consolidated balance sheet of Applied Computer
Technology,  Inc. and  subsidiaries  as of December  31,  1996,  and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the year then ended.  These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.                                        

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Applied Computer
Technology,  Inc. and  subsidiaries  as of December 31, 1996, and the results of
their  operations  and their cash flows for the year then ended,  in  conformity
with generally accepted accounting principles.                                  

HEIN + ASSOCIATES LLP                                                           

Denver, Colorado                                                                
April 11, 1997                                                                  

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INDEPENDENT AUDITOR'S REPORT  

Board of Directors                                                              
Applied Computer Technology, Inc.                                               
Fort Collins, Colorado                                                          

We have audited the balance sheet (not  separately  included  herein) of Applied
Computer Technology, Inc. as of December 31, 1995, and the related statements of
operations,  stockholders' equity, and cash flows for the year then ended. These
financial  statements are the responsibility of the  Corporations's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.                                                                   

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Applied Computer  Technology,
Inc. as of December 31,  1995,  and the results of its  operations  and its cash
flows for the year then ended, in conformity with generally accepted  accounting
principles.                                                                     

Brock and Company, P.C.                                                         

Fort Collins, Colorado                                                          
April 25, 1996                                                                  

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APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES  

CONSOLIDATED BALANCE SHEET  
DECEMBER 31, 1996   

ASSETS
------
CURRENT ASSETS:                                                             
     Cash                                                          $     710,000
Receivables:                                                          
        Trade, less allowance for doubtful accounts of $30,000         1,700,000
        Income taxes                                                     280,000
        Related party                                                     36,000
        Other                                                            433,000
     Inventories                                                       3,381,000
     Prepaid expenses                                                    205,000
     Other                                                               123,000
                                                                   -------------
                    Total current assets                               6,868,000

  PROPERTY AND EQUIPMENT, at cost, net                                 1,769,000

  INTANGIBLE ASSETS, net                                                 166,000

  OTHER ASSETS                                                            70,000
                                                                         -------
TOTAL ASSETS                                                        $8,873,000  
                                                                      ==========
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:                                                        
        Current portion of long-term debt                          $     571,000
        Note payable                                                   1,959,000
        Accounts payable                                               2,752,000
        Accrued liabilities                                              345,000
                                                                   -------------
                    Total current liabilities                          5,627,000

  LONG-TERM DEBT                                                         237,000

COMMITMENTS AND CONTINGENCIES (Notes 2 and 6)                               

STOCKHOLDERS' EQUITY:                                                       
   Preferred stock - no par value; 5,000,000 shares                       --
authorized; no shares issued                                      
     Common stock, no par value; 25,000,000 shares authorized;         4,139,000
3,063,127 shares issued and outstanding                           
Accumulated deficit                                                   
                                                                     (1,130,000)
                   Total stockholders' equity                        ---------
                                                                     3,009,000
                                                                     ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $        
                                                                     8,873,000
                                                                     =========
The accompanying notes are an integral part of this financial statement.    

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  APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF OPERATIONS

                                                YEARS ENDED DECEMBER 31,

                                                     1996             1995
                                               ------------     ----------

NET REVENUES                                    $20,239,000      $19,058,000

      Cost of goods sold                         17,084,000       16,156,000
                                                 ----------       ----------

GROSS PROFIT                                      3,155,000        2,902,000
                                                 ----------       ----------

OPERATING EXPENSES:                                                         
      Marketing and selling                       2,410,000          662,000
      General and administrative                  1,541,000        1,315,000
      Internet access cost                          493,000               --
                                                  ---------       ----------
                    Total operating expenses      4,444,000        1,977,000
                                                  ---------       ----------
INCOME (LOSS) FROM OPERATIONS                                               
                                                 (1,289,000)         925,000
                                                  ----------      ----------
OTHER INCOME (EXPENSE):                                                     
      Other (expense) income                        (53,000)          72,000
       Interest expense                             (175,000)        (266,000)
                                                   ----------      -----------

                   Net other income (expense)       (228,000)        (194,000)
                                                   ----------      -----------
INCOME (LOSS) BEFORE INCOME TAXES                (1,517,000)         731,000

      Income tax expense (benefit)                 (175,000)         185,000
                                                   ----------      -----------

NET INCOME (LOSS)                               $(1,342,000)      $  546,000
                                                  ===========      ===========

PRO FORMA INFORMATION:                                                      
      Net income (loss) before income taxes                       $  731,000
      Income tax expense (benefit)                                   196,000
                                                                 -----------

PRO FORMA NET INCOME (LOSS)                                      $   535,000
                                                                 ===========

NET INCOME (LOSS) PER COMMON SHARE              $       (.44)    $      .25 
                                                ==============   ===========

PRO FORMA NET INCOME (LOSS) PER SHARE                            $      .24 
                                                                 ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                                      
                                                     3,042,000     2,124,000
                                                ==============   ===========

  The accompanying notes are an integral part of this financial statement.

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  APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES

  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
 FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH DECEMBER 31, 1996

                                                                [Download Table]

                                               COMMON STOCK        ACCUMULATED  
                                               ------------                     
                                           SHARES       AMOUNT        DEFICIT   
                                           ------       ------      ----------  
                                                                                
BALANCES, January 1, 1995                  1,420,000     $229,000     $(149,000)

   Dividends                                      --           --       (43,000)

   Common stock issued for services           20,000        5,000            -- 

   Common stock and common stock             400,000      388,000            -- 
    warrants issued in private                                                  
    placement offering, less offering                                           
    costs of $112,000                                                           

   Conversion of Subchapter S retained            --      142,000      (142,000)
    earnings to common stock                                                    

   Common stock issued for cash               50,000       62,000            -- 

   Common stock and common stock           1,150,000    3,313,000            -- 
    warrants issued in a public                                                 
    offering, less offering costs of                                            
    $827,000                                                                    

Net income for the year ended                                           546,000 
                                        ------------  -----------  ------------ 
   December 31, 1995                                                            

BALANCES, December 31, 1995                3,040,000    4,139,000       212,000 

   Exercise of options                        40,000       80,000        80,000 
   Surrender of shares                       (16,873)     (80,000)      (80,000)
   Net loss for the year ended                                                  
    December 31, 1996                             --           --    (1,342,000)
                                              ------        ------   ---------- 

BALANCES, December 31, 1996              $ 3,063,127  $ 4,139,000    (1,130,000)

                                           =========    =========    ========== 


  The accompanying notes are an integral part of this financial statement.

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  APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                [Download Table]

                                                           FOR THE YEARS ENDED      
                                                                DECEMBER 31,        
                                                             1996         1995      
                                                            ------       ------     
                                                                                    

CASH FLOWS FROM OPERATING ACTIVITIES:                                               
   Net income (loss)                                     $(1,342,000)    $546,000   
   Adjustments to reconcile net income (loss) to net                                
     cash used in operating activities:                                             
        Depreciation and amortization                        274,000      148,000   
        Loss on disposal                                      68,000           --   
        Deferred taxes                                      (22,000)       22,000   
        Other                                                     --       16,000   
   Increase (decrease) from changes in assets and liabilities:                      
        Accounts receivable                                (364,000)    (973,000)   
        Inventories                                      (1,809,000)    (310,000)   
        Prepaid expenses and other current assets          (317,000)     (94,000)   
        Income tax refund receivable                       (133,000)    (156,000)   
        Accounts payable and other current liabilities    2,270,000     (225,000)   
        Customer deposits                                   (53,000)      (8,000)   
        Accrued liabilities and other current                                       
        liabilities                                         143,000       66,000    
                                                         ----------    ---------    
          Net cash used in operating activities          (1,285,000)    (968,000)   
                                                         ----------    ---------    
CASH FLOWS FROM INVESTING ACTIVITY -                                                
   Property and equipment acquisitions                   (1,395,000)    (559,000)   

CASH FLOWS FROM FINANCING ACTIVITIES:                                               
   Bank overdraft                                                 --    (590,000)   
   Net long-term borrowings                                 (21,000)     (87,000)   
   Net short-term borrowings                               1,959,000    (241,000)   
   Obligations under capital leases                          175,000      (1,000)   
   Dividend payments                                              --     (43,000)   
   Net proceeds from the issuance of common stock and                               
   common stock warrants                                      --       3,762,000    
                                                              ------    --------    
           Net cash provided by financing activities       2,113,000   2,800,000    

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS        (567,000)  1,273,000    

CASH AND CASH EQUIVALENTS, at beginning of year            1,277,000       4,000    
                                                         ----------    ---------    

CASH AND CASH EQUIVALENTS, at end of year                 $  710,000 $ 1,277,000    
                                                          ========== ===========    

SUPPLEMENTAL CASH FLOW INFORMATION:                                                 
Non-cash items:                                                                     
Purchase of equipment for notes and capital leases        $  253,000 $    55,000    
                                                          ========== ===========    
Sale of equipment for notes                              $       --  $    16,000    
                                                         =========== ===========   =

Issuance of common stock under option for common         $    80,000  $       --    
stock surrendered                                        =========== ===========    

Cash paid (received) for:                                                           
Interest                                                  $  150,000  $  268,000    
                                                          =========== ==========    

Income taxes                                              $  (25,000) $  319,000    
                                                          =========== ==========    

The accompanying notes are an integral part of this financial statement.        

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APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                               

     Nature of Operations - Applied  Computer  Technology,  Inc. (the "Company")
     principally  assembles  and  distributes  personal  computers  and  related
     products  and  services  to  customers   throughout   the  United   States.
     Additionally,  the Company  has six retail and  training  locations  within
     Colorado.  During 1996,  the Company also expended  substantial  amounts in
establishing the infrastructure to become an Internet provider.       

     Principles of  Consolidation - In 1996, the Company  established two wholly
     owned  subsidiaries,  ACT Far East Limited and ACTNET,  Inc. The  financial
     statements  include the accounts of the Company and its  subsidiaries.  All
     intercompany   balances   and   transactions   have  been   eliminated   in
consolidation.                                                        

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

     Cash Equivalents - For purposes of the statement of cash flows, the Company
     considers all highly  liquid debt  investments  purchased  with an original
maturity of three months or less to be cash equivalents.              

     Inventories - Inventories  consist  principally of component  parts and are
     recorded at the lower of cost (using the first-in, first-out (FIFO) method)
     or  market.  Inventories,  net  of  obsolescence  reserve,  consist  of the
following at December 31:                                             
                                                   1996         1995
                                                   ------       ------
        Computer components, peripherals and        $ 3,172,000  $ 1,339,000
software                                                    
        Work-in-process                                      --      104,000
Completed computer systems                                  
                                                    209,000       --
                                                    -----------  -----------
                                                    $ 3,381,000  $ 1,443,000
                                                    ===========  ===========

     Property and  Equipment - Property and  equipment  are stated at cost.  The
     Company capitalizes costs associated with major  improvements.  These costs
     include  payroll  costs  associated  with  software  developed for internal
     communication and information systems and to provide Internet access to its
customers (see Note 3).                                               

     The Company provides for depreciation of equipment using the  straight-line
     method over the  estimated  useful lives of the assets which are  generally
     five years for computer and promotion  equipment  and  vehicles,  and seven
     years for office equipment.  Leasehold  improvements are amortized over the
life of the leases.                                                   

     Deferred  Start-up  Costs -  During  1996,  the  Company  deferred  certain
     start-up costs associated with the opening of new stores and implementing a
     related  marketing  plan as well as  establishing  the  infrastructure  for
     providing  Internet  access  services.  The Company  policy was to amortize
     these costs over twelve  months.  The Company has  subsequently  determined
     that such  amortization  period  should be the  lesser of twelve  months or
     until its fiscal year-end. This has resulted in a fourth quarter adjustment
     to expense  $131,000 of net costs  capitalized  as of the third  quarter in
excess of the revised policy.                                         

     Intangible  Assets - These costs  primarily  represent the  acquisition  in
     December 1996 from third parties of certain customer bases. These customers
     are utilizing the Company's  Internet  access  services.  The cost of these
acquisitions will be amortized over five years.                       

     Impairment of Long-Lived  Assets - In 1996, the Company  adopted  Financial
     Accounting  Standards  Board  Statement  121  (FAS  121),   "Impairment  of
     Long-Lived Assets." In the event that facts and circumstances indicate that
     the cost of  assets or other  assets  may be  impaired,  an  evaluation  of
     recoverability  would be  performed.  If an  evaluation  is  required,  the
     estimated future undiscounted cash flows associated with the asset would be
     compared to the asset's  carrying  amount to determine  if a write-down  to

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     market value or discounted cash flow value is required. Adoption of FAS 121
had no effect on the December 31, 1996 financial statements.          

     Fair  Value of  Financial  Instruments  - The  estimated  fair  values  for
     financial  instruments  are determined at discrete  points in time based on
     relevant market  information.  These estimates  involve  uncertainties  and
     cannot be determined with precision.  The carrying amounts of the Company's
 current assets and liabilities are estimated to approximate fair value.

     Stock-Based  Compensation  - In 1996,  the  Company  adopted  Statement  of
     Financial  Accounting   Standards  No.  123  (FAS  123),   "Accounting  for
     Stock-Based  Compensation." The Statement defined a fair value based method
     of  accounting  for stock  options or similar  equity  instrument.  FAS 123
     allows an entity to  continue  to measure  compensation  cost for  employee
     stock option  plans using the  intrinsic  value based method of  accounting
     prescribed by Accounting  Principles  Board Opinion (APB) No. 25, which was
     elected by the  Company.  Accordingly,  the Company  must make  certain pro
     forma  disclosures  as if the fair value based method had been applied (see
Note 7). The adoption of FAS 123 had no effect on net loss.           

     Revenue  Recognition  - The Company  recognizes  revenues  from product and
     system  sales when title  passes to the  customer.  Revenues  from  service
     agreements  are  recognized  ratably  over  the  terms  of the  agreements.
     Revenues  from  performance  contracts  are  recognized  on  the  completed
contract method.                                                      

     Warranty - The Company provides a warranty to its customers and the related
     costs  are  recorded  at the time of sale.  Future  warranty  costs are not
     considered  significant to the financial  statements as most warranty work,
if any, is generally performed shortly after the sale.                

     Advertising  -  Advertising  costs are  charged to  operations  in the year
     incurred.  The  Company  incurred  advertising  expenses  of  $435,000  and
$178,000 in 1996 and 1995, respectively.                              

     Income Taxes - During June 1995, the Company  terminated its election under
     Subchapter S of the  Internal  Revenue  Code.  Pro forma net income and net
     income per common  share have been  reflected in the  financial  statements
     assuming  the  Company had been taxed under  Subchapter  C of the  Internal
     Revenue  Code for Federal and state income tax purposes for the full fiscal
year in 1995.                                                         

     Commencing in the second quarter of 1995, the Company  recognized  deferred
     tax assets and  liabilities  for future tax  consequences  attributable  to
     differences  between the financial  statement  carrying amounts of existing
     assets and liabilities and their respective tax basis.  Deferred tax assets
     and  liabilities  are measured using enacted tax rates expected to apply to
     taxable  income  in the  years in which  those  temporary  differences  are
     expected to be recovered or settled.  The effect on deferred tax assets and
     liabilities  of a change in tax rates is recognized in income in the period
that includes the enactment date.                                     

     Net Income  (Loss) Per Common Share - Pursuant to  Securities  and Exchange
     Commission  Staff Accounting  Bulletins,  common shares issued prior to the
     Company's  initial public offering,  at prices less than the initial public
     offering  price,  plus the  number of  common  equivalent  shares  issuable
     pursuant to stock  options  granted at prices less than the initial  public
     offering price, using the treasury stock method,  have been included in the
     number of shares used in the calculation of net income per share in 1995 as
     if they were outstanding for the entire period. Net loss per share for 1996
     was calculated based upon the weighted average shares  outstanding.  Common
     stock  equivalents  were  not  considered  in  1996  as  their  effect  was
antidilutive.                                                         

     Reclassification - Certain reclassifications have been made to conform 1995
     financial statements to the presentation in 1996. The reclassifications had
no effect on net income.                                              

2.  LIQUIDITY AND LOSSES INCURRED IN 1996 OPERATIONS:                         

     In 1996,  the Company  incurred a loss of  $1,342,000  and expects to incur
     additional losses in the first quarter of 1997. These losses have adversely
     impacted the Company's working capital.  Should losses continue, they would

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     cause  significant   liquidity  problems  and  may  ultimately  impact  the
     Company's  ability  to  continue  future  operations.  Furthermore,  as  of
     December 31, 1996, the Company was not in compliance with certain reporting
   and other covenants of its debt agreement with its financial institution.

     Subsequent  to  year-end,  the  Company has taken  action to  decrease  its
     overhead and has been successful in bidding additional contracts for future
     sales. In addition,  as of December 31, 1996, the Company has $1,241,000 of
     working  capital  and  $3,009,000  of  equity.  Also  included  in  current
     liabilities, and thereby reducing working capital is approximately $413,000
     of debt which is  scheduled  to be paid after  1997,  but is  recorded as a
     current  liability due to the "payment on demand" feature included in a new
     note payable refinanced during 1996. The Company further intends to improve
     its relationship with its financial institution and while formal waivers of
     the debt covenant  violations have not yet been received,  the Company does
     believe such waivers will  ultimately be approved and the notes will not be
     called.  In  addition,  management  believes  that certain  start-up  costs
     associated  with opening new stores,  developing a related  marketing plan,
     and establishing the infrastructure for Internet provider services incurred
     in 1996 should result in increased related revenues in 1997. However, there
     can be no assurance that these efforts will  ultimately  enable the Company
     to  return  to  profitability,   and  other  actions  may  be  required  by
     management.  However,  management  believes  the  actions  taken to  reduce
     overhead  and  increase  revenues  will  enable  the  Company  to  continue
operations through 1997.                                              

3.  PROPERTY AND EQUIPMENT:                                                   
Property and equipment consist of the following at December 31:       
                                                  1996          1995
                                                  ------        ------
        Office and computer equipment               $1,745,000  $  1,025,000

        Vehicles                                       156,000       109,000
        Leasehold improvements                         227,000        75,000
Other                                                       
                                                       151,000        29,000
                                                     ---------    ----------
                                                     2,279,000     1,238,000
Less accumulated depreciation and                           
        amortization                                 (510,000)     (402,000)
                                                     ---------    ----------

                                                   $ 1,769,000    $  836,000
                                                     =========    ==========

     Included  in office and  computer  equipment  is $189,000  and  $175,000 at
     December 31, 1996 and 1995 (net of related amortization expense) of payroll
     costs  related  to  software   development  of  internal   information  and
     communication  systems  and to provide  Internet  access for the  Company's
customers.                                                            

     In 1995, the Company  capitalized direct and indirect costs associated with
     computer  software  developed  for  internal  use.  In December  1996,  the
     American  Institute  of CPAs issued an Exposure  Draft (E.D.) of a proposed
     Statement  of Position  on  "Accounting  for the Cost of Computer  Software
     Developed  or  Obtained  for  Internal  Use." The  Company  has adopted the
     guidelines  set  forth in the E.D.  with  regard  to  internal  capitalized
     software costs. As a result, the Company has expensed (and, therefore,  the
     Company's net loss was increased by the same amount) in the fourth  quarter
     of 1996 certain  indirect  overhead  costs of $339,000 (or (.11) per common
     share) which the E.D.  indicates,  if formally adopted as proposed,  should
     not be capitalized. Pursuant to the guidelines of the E.D., this policy was
     applied  retroactively to the beginning of the current fiscal year, and the
     prior year's  capitalized  amount was not  adjusted.  These costs are being
amortized over five years.                                            

4.  NOTES PAYABLE:                                                            

     Lines-of-Credit - The Company has a $2,500,000 regular  line-of-credit,  of
     which  $2,465,000  was drawn upon as of December 31,  1996.  Of this amount
     $506,000 is included in  long-term  notes  payable  (even though it is also
     classified  as current  due to a  "due-on-demand"  clause  included  in the
     notes) and the balance of  $1,959,000 is reflected as notes  payable.  This
     balance carries interest at prime plus 2 1/2% (10.75% at December 31, 1996)
     and is collateralized by substantially all of the assets of the Company and
     guaranteed by major  shareholders of the Company.  As of December 31, 1996,
     the Company was not in  compliance  with certain  financial  reporting  and
     other  covenants  under this note with the  financial  institution.  Formal
     waivers  have not been  received by the  Company.  The  Company  also has a

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     $2,500,000  "Major-order  account"  line-of-credit,  for which  there is no
     balance  outstanding  at  December  31,  1996.  This is a  special  purpose
line-of-credit.                                                       

     The  Company has the  following  long-term  notes  payable  outstanding  at
December 31, 1996:                                                    

Note payable to financial  institution,  bears  interest at 9%        
and is due in monthly  installments  of $11,000  through  June        
2001.  The  loan   agreement   limits  the   distribution   of        
dividends  and  contains  various  covenants  that  pertain to        
reporting   requirements,   maximum   property  and  equipment        
acquisitions,  and the  organization or participation in other        
business  entities.  The note is  collateralized  by  accounts        
receivable,   inventory,   and  equipment.  The  note  is  82%        
guaranteed by the U.S.  Small Business  Administration  and is        
personally  guaranteed by certain  stockholders.  This note is        
classified  as current as it is due on  demand,  however,  the        
Company  does not  expect  this note to be called  before  its        
 scheduled maturity dates.                                      $506,000

Notes payable to financial  institutions bear interest at 9.14%       
and are due in monthly installments totaling $1,000 through           
January 2000. The notes are collateralized by certain                 
 vehicles.                                                        39,000

Other,  primarily  capitalized leases,  collateralized by the         
 related leased equipment.                                       263,000
                                                                ________
                                                                 808,000

  Less portion due within one year.                              (571,000)
                                                                ________

                                                               $ 237,000
                                                               =========

     Future   principal   payments   required  under  long-term  notes  payable,
     considering the Small Business  Administration  loan of $506,000 as current
due to demand features, as of December 31, 1996, are as follows:      
Year                                
1997                        $571,000
1998                          68,000
1999                          76,000
2000                          83,000
2001                          10,000
                        ------------
                           $ 808,000
                        ============

     In  February  1997,  the  Company  entered  into a  $1,000,000  lease  line
     commitment  with a financial  institution  for future  purchases of capital
equipment.                                                            

5.  INCOME TAXES:                                                             

     Federal and state income tax expense  (benefit)  consists of the  following
amounts at December 31:                                               
                                                             Pro Forma
                                  1996          1995          1995
                                  ----          ----          ----

             Current               $ (153,000)    $  163,000  $    200,000
Deferred                                        
                                       (22,000)        22,000        (4,000)
                                   ----------     ----------  ------------

       Income tax expense          $ (175,000)    $  185,000  $    196,000
        (benefit)                   ==========     ==========  =============

     Effective  June  2,  1995,  the  Company   terminated  its  election  under
     Subchapter S of the Internal  Revenue Code.  Accordingly,  the net deferred
     tax liability at that date of $30,000 has been recorded through a charge to
the deferred tax provision.                                           

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     The income tax effects of deferred tax assets  (liabilities)  are comprised
of the following at December 31, 1996:                                
                                    1996
                                    ------------
Future taxable amounts:                                     
Depreciation                        $   (20,000)

Future deductible amounts:                                  
Net operating loss carryforward         300,000 
Reserve for obsolete inventory           30,000 
Accrued liabilities and other            45,000 
                                   -----------
                                       375,000
                                   ===========
Net deferred tax asset                        355,000       

Valuation allowance                          (355,000)      
                                   -----------
Balance                                   $        --       
                                   ===========

     There was no valuation  allowance in 1995.  The Company has an  approximate
     net operating  loss  carryforward  of $900,000 which expires for the fiscal
year ending December 31, 2001.                                        

     A  reconciliation  of statutory  Federal income tax rates and the effective
income tax rates is as follows:                                       

                                                                       Pro Forma
                                                     1996      1995       1995
                                                     ------    ------  ---------

    Statutory Federal income tax rate (benefit)     (34.0%)   34.0%      34.0%
   State and local income taxes, net of Federal      --       2.0        2.8
tax benefit                                                       
    Depreciation and amortization                     --       6.2       (0.1)
Charge-off of related party                                           
         receivable                                   --     (10.9)     (10.9)
  Effect of Subchapter S election                   --      (4.7)       --
  Reduction due to valuation  allowance            22.5       --        --
   Other                                             --      (1.4)       1.0
                                                   -----    -----      -----

    Effective income tax rate                       (11.5%)   25.2%      26.8%
                                                   =====    =====      =====

6.  COMMITMENTS AND CONTINGENCIES:                                            

     SEC   Investigation  -  In  November  1996,  the  Securities  and  Exchange
     Commission  (SEC)  commenced a formal  investigation  of the  Company.  The
     Company  understands this investigation  relates primarily to the Company's
     capitalization  of labor and related costs associated with  enhancements to
     the Company's  internal software  systems,  the development of software for
     the Company's Internet Access service, the development of the Company's new
     marketing program and the opening of new business centers.  As discussed in
     Notes 1 and 3, the Company changed its accounting  policy  concerning these
     costs and  elected  to  expense  substantially  all of the costs  which had
     previously  been  capitalized  during  1996  by the  Company  in the  areas
     mentioned  above.  The SEC's  investigation  is  continuing,  however,  the
     Company  does  not  believe  the  investigation  will  have  a  significant
    financial impact upon the Company's December 31, 1996 financial condition.

     Operating Leases - The Company leases office,  production,  warehouse,  and
     retail  facilities  under various  noncancellable  lease  agreements  which
     expire through September 2007. The agreements generally provide for certain
     rent-free,  or reduced rent periods and escalating rents in future periods.
     The Company, however, recognizes rent expense ratably over the terms of the
     leases.  Rent  expense for the years ended  December  31, 1996 and 1995 was
     $253,000 and $172,000.  Liabilities for rental expense recognized in excess
     of payments required under the agreements were $5,000 at December 31, 1996.

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     At  December  31,  1996,  future  minimum  lease  payments  required  under
noncancellable operating leases are as follows:                       
Year                                    
1997                 $  392,000       
1998                    377,000       
1999                    396,000       
2000                    319,000       
2001                    273,000       
Thereafter                    110,000             
              ----------
              $1,867,000
              ==========

     Retirement  Plan - The Company has a defined  contribution  retirement plan
     under  Section  401(k)  of the  Internal  Revenue  Code.  The  plan  covers
     substantially all of the Company's employees and allows the Company to make
     discretionary contributions. No contributions have been made by the Company
since the plan's inception.                                           

7.   STOCKHOLDERS' EQUITY:                                                      

     Recapitalization  - Effective in January 1995,  the Company's  stockholders
     approved  an  amendment  to  the  Articles  of  Incorporation   authorizing
     25,000,000 shares of common stock with no par value and 5,000,000 shares of
     preferred stock with no par value.  Also during January 1995, the Company's
     stockholders  approved  a 142 for 1 stock  split of its common  stock.  All
     references to common stock and per share data have been restated to reflect
the stock split.                                                      

     Stock  Issuances  and  Outstanding  Warrants - During  February  1995,  the
     Company  issued 20,000  shares of its common stock for services  which were
valued at $5,000.                                                     

     During 1995, the Company  completed a private offering of 400,000 shares of
     common stock.  Warrants to purchase 40,000 shares of common stock for $4.55
     per share were issued to the  underwriter in connection  with the offering.
     The Company also completed a public offering of 1,150,000 units.  Each unit
     included one share of common stock and one redeemable common stock purchase
     warrant.  Two  warrants  entitle the holder to purchase one share of common
     stock for $4.50.  Warrants to purchase  60,000  shares of common  stock for
     $4.55 per share, and warrants to purchase  100,000 warrants  exercisable at
     $.14 per warrant  were issued to the  underwriter  in  connection  with the
offering.                                                             

A summary of warrants outstanding at December 31, 1996 is as follows: 

                                             Number of    Exercise    Expiration
               Issued For                  Shares       Price         Date
          -------------------------------    ---------    --------    ----------
          Private offering, underwriter        40,000      $4.55    October 2000
          Public offering, unit holders       575,000       4.50    October 1998
          Public offering, underwriter         60,000       4.55    October 2000
          Public offering, underwriter         50,000       4.83    October 2000
                   -------
Total shares reserved for warrants  725,000                 
                   =======

     Stock Option Plans - During March 1995, the Board of Directors  adopted the
     1995 incentive  Stock Option Plan (Plan).  The Plan authorizes the issuance
     of up to 600,000 shares of the Company's common stock to employees. Options
     granted pursuant to the plan are incentive stock options within the meaning
     of the Internal  Revenue Code.  The exercise  price of the options  granted
     under the plan is not less than the fair market value of the common  stock.
     The options are granted for terms of five or ten years and may be increased
     at such times as may be determined by the Plan's administrator. Options are
subject to certain acceleration and termination provisions.           

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A summary of incentive stock option activity is as follows:           

                             1996       1995
                             ----       ----
                                           Weighted               Weighted
                                            Average                Average
                                Number     Exercise     Number    Exercise
                              of Shares     Price     of Shares    Price
                               ---------   --------    ---------  --------
Outstanding, beginning of   212,500       $2.32          --   $  -- 
year                                                          

     Granted               249,000        5.04     463,500    1.47
     Exercised            (40,000)        2.00          --      --
     Canceled             (71,000)        2.23   (251,000)     .76
     Expired                   --           --         --       --
                  -------                 --------
Outstanding, end of year   350,500        $4.54     212,500    2.32 
                  =======                 ========

     During 1996, a former officer  exercised  40,000  options.  Pursuant to the
     Plan, the former officer  surrendered shares with a market value equivalent
to the exercise price.                                                

     For all options  granted during 1996 and 1995, the weighted  average market
     price of the  Company's  common  stock on the grant date was  approximately
     equal to the weighted average exercise price. At December 31, 1996, options
     for 250,800 shares were  exercisable (at a weighted  average exercise price
     of $4.86) with 64,300 shares becoming exercisable in 1997 and the remaining
     35,400  shares  becoming  exercisable  by December 31,  2000.  The range of
     exercise  prices is $2.00 - $5.63 for all options  outstanding  at December
     31, 1996. If not previously exercised,  options outstanding at December 31,
1996, will expire as follows:                                         
                                    Weighted
                                     Average
                    Number          Exercise
Year Ending December 31,       of Shares          Price             
------------------------       ---------        --------            
2000                     20,000     $     2.00  
2001                     20,000           4.62  
2005                     47,500           2.00  
2006                     34,000           3.50  
2006                    229,000           5.07  
   -------------
       350,500

     Directors  of the Company  have  nonqualified  options to  purchase  20,000
     shares of common  stock for $2.00 per share  granted in 1995 and options to
     purchase  20,000 shares of common stock at $4.62 per share granted in 1996.
     The options become  exercisable at 25% per year and expire in July 2000 and
     2001,   respectively.   The  Company  has  agreed  to  grant  each  of  the
     non-management  directors  options to acquire 10,000 shares of common stock
     in 1997. The options will be exercisable at the market value on the date of
the grant.                                                            

     Pro Forma  Stock-Based  Compensation  Disclosures - The Company applies APB
     Opinion 25 and related  interpretations in accounting for stock options and
     warrants which are granted to employees.  Accordingly, no compensation cost
     has been  recognized for grants of options and warrants to employees  since
     the  exercise  prices  were not less than the fair  value of the  Company's
     common  stock on the grant dates.  Had  compensation  cost been  determined
     based on the fair value at the grant  dates for awards  under  those  plans
     consistent  with the method of FAS 123, the Company's net income (loss) and
     net  income  (loss)  per share  would  have been  reduced  to the pro forma
amounts indicated below.                                              

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                                                   Year Ended December 31,
                                                   -----------------------
                                                   1996           1995
                                                   ----           ----
Net income (loss) applicable to common stockholders:                          
     As reported                                   $(1,342,000)    $ 546,000
     Pro forma                                     $(1,795,000)    $ 521,000
Net income (loss) per common share:                                           
     As reported                                   $      (.44)    $     .25
     Pro forma                                     $      (.59)    $     .25

     The fair value of each employee option and warrant granted in 1996 and 1995
     was estimated on the date of grant using the  Black-Scholes  option-pricing
model with the following weighted average assumptions:                

                 Year Ended December 31,

                  1996              1995
                  ----              ----

Expected volatility            50.84%                --             
Risk-free interest rate          6.5%               6.5%            
Expected dividends                --                 --             
Expected terms (in years)        5.0                5.0             

8. RELATED PARTY TRANSACTIONS:                                              

     Certain major stockholders and officers of the Company are general partners
     of Medical Information Systems (MIS), a related  partnership,  and also own
     all of the stock of Managed Care Technologies,  Inc. (MCTI). These entities
     developed  and  marketed  computer  software  for the  managed  health care
     industry,  which activities have  significantly  curtailed in recent years.
     Advances  in prior years made to the related  entities  have been  deducted
     from  retained  earnings  similar to  dividends.  Advances in 1995  totaled
     $3,000.  Principal and interest receivable on the advances principally made
     in prior years  totaled  $257,000 at December  31,  1995.  This balance was
     deducted by the Company for income tax  purposes in fiscal 1995 and was not
     reflected  as an  asset  for  financial  reporting  purposes  as they  were
     charged,  as  previously  indicated,  as  dividends  to retained  earnings.
     However,  the Company and the shareholders did execute a note, whereby this
     balance was to be repaid in monthly  installments  of $5,000  commencing in
     1996.  The  Company's has agreed to forgive this note in  consideration  of
     certain stock options  surrendered by these  shareholders,  and the benefit
the Company received from expensing this note for tax purposes.       

     During  fiscal 1996,  the Company  provided  additional  services  totaling
     $36,000 to MCTI, which were charged based upon direct costs incurred by the
     Company on behalf of MCTI.  As of December 31, 1996,  the Company has notes
     receivable of $36,000 from its  stockholders,  which are  collateralized by
     their  common stock  ownership.  Subsequent  to year-end,  $10,000 has been
received on these notes.                                              

     In 1995, the Company made $40,000 of distributions  to stockholders  owning
     shares  during the period the Company was taxed under  Subchapter  S of the
     Internal  Revenue  Code.  The  distribution  allowed  the  stockholders  to
     discharge income tax liabilities  associated with corporate  earnings taxed
to the individual stockholders.                                       

9.  CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMER:                          

     Financial   instruments   which   potentially   subject   the   Company  to
     concentrations  of credit risk consist  principally  of cash and  temporary
     cash investments.  At times,  cash balances held at financial  institutions
     were in excess of FDIC insurance  limits.  The Company places its temporary
     cash investments with  high-credit,  quality  financial  institutions.  The
     Company  believes no significant  concentration  of credit risk exists with
respect to these cash investments.                                    

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     The Company  sells its products and services  primarily to customers in the
     education, corporate, and governmental markets. Credit is extended based on
     an  evaluation of the  customer's  financial  condition  and  collateral is
     generally  not  required.  Credit  losses have been minimal and such losses
have been within management's expectations.                           

Sales in excess of 10% or more of the Company's sales are as follows: 

1996         1995                         
----         ----                         
A        15%           12%                                  
B        10%           14%                                  
C        16%           15%                                  

     Accounts  receivable from these customers  totaled $322,000 at December 31,
1996.                                                                 

10. SEGMENT INFORMATION:                                                      

     The Company's principal  operations are in the assembly and distribution of
     personal  computers  and  Internet  access  industries.  The  following  is
     selected  information for the fiscal year ended December 31, 1996 about the
     Company's  industry  segments.  Since the  Internet  access  segment of the
     Company was not established until 1996, segment information is not included
for the fiscal year ended December 31, 1995.                          

                          Computer      Internet
         Year Ended December 31,  1996    Sales        Access     Consolidated
         -----------------------------   --------      --------   ------------
        Revenue                       $20,228,000  $    11,000   $20,239,000
         Loss from operations             (807,000)    (482,000)   (1,289,000)
        Depreciation and amortization     257,000       17,000       274,000
        Identifiable assets             8,420,000      453,000     8,873,000
        Capital expenditures            1,171,000      224,000     1,395,000

F - 16

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  APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS

ASSETS
------

                                                                [Download Table]

                                                   September 30,   December 31,   

                                                        1997           1996       
                                                        ----           ----       
                                                    (unaudited)                   
                                                                                  
CURRENT ASSETS:                                                                   
    Cash and equivalents                             $      5,000      $  710,000 
    Receivables:                                                                  
        Trade, net of allowance of $30,000              3,397,000       1,700,000 
        Income taxes                                            -         280,000 
        Loans to Officers                                  92,000          36,000 
        Other                                              95,000         433,000 
    Inventories                                         2,871,000       3,381,000 
    Prepaid and Other                                     450,000         328,000 
                                                     ------------      ---------- 
           Total Current Assets                      $  6,910,000      $6,868,000 

NET PROPERTY AND EQUIPMENT, at cost                     2,015,000       1,769,000 

NET INTANGIBLE ASSETS, at cost                            131,000         166,000 

OTHER ASSETS                                                                      
                                                          259,000          70,000 
                                                          -------          ------ 

TOTAL ASSETS                                         $  9,315,000     $ 8,873,000 
                                                     ============      ========== 

                      LIABILITIES AND STOCKHOLDERS' EQUITY                        
                      ------------------------------------                        
CURRENT LIABILITIES:                                                              
    Current portion of long-term debt                 $    46,000     $   571,000 
    Notes payable                                       2,640,000       1,959,000 
    Accounts payable                                    5,484,000       2,752,000 
    Accrued liabilities                                   278,000         345,000 
                                                     ------------      ---------- 
           Total Current Liabilities                  $ 8,448,000     $ 5,627,000 
LONG -TERM LIABILITIES                                    642,000         237,000 

STOCKHOLDERS' EQUITY:                                                             
Preferred stock - no par value; 5,000,000 shares                                  
authorized; no Shares issued                                                      
Common stock, no par value; 25,000,000 shares           4,139,000       4,139,000 
authorized; 3,063,127 shares issued and outstanding                               
Accumulated deficit                                                               
                                                       (3,914,000)     (1,130,000)
                                                     ------------      ---------- 
               Total stockholders' equity                 225,000       3,009,000 
                                                     ------------      ---------- 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              9,315,000       8,873,000 
                                                     ============       ========= 

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

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  APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                        [Enlarge/Download Table]

                                   Three Months Ended           Nine Months Ended    
                                      September 30,               September 30,      
                                   ------------------           -----------------    
                                   1997            1996        1997         1996     
                                   ----            ----        ----         ----     

                                                                                     
NET REVENUES                        $13,908,000  $9,126,000  $22,339,000 $16,343,000 

TOTAL COST OF GOODS SOLD:                                                            
   Cost of  Materials & Overhead     11,928,000   7,206,000   19,189,000  12,699,000 
   Inventory Adjustment                  65,000    (37,000)      746,000     (37,000)
   Unabsorbed Services Cost                                                          
                                        264,000     365,000    1,120,000     485,000 
                                     ----------   ---------   ----------  ---------- 
COST OF GOODS SOLD                   12,257,000   7,534,000   21,055,000  13,147,000 
                                     ----------   ---------   ----------  ---------- 
GROSS PROFIT (LOSS)                   1,651,000   1,592,000    1,284,000   3,196,000 
                                     ----------   ---------   ----------  ---------- 
OPERATING EXPENSES:                                                                  
       Marketing and selling            455,000     591,000    1,786,000   1,393,000 
       General and administrative       471,000     399,000    1,348,000   1,072,000 
       Internet access cost             206,000          --      543,000          -- 
                                        -------           -      -------           - 
TOTAL OPERATING EXPENSES              1,132,000     990,000    3,677,000   2,465,000 
                                     ----------   ---------   ----------  ---------- 

INCOME (LOSS) FROM OPERATIONS           519,000     602,000  (2,393,000)     731,000 

OTHER INCOME (EXPENSE):                                                              
       Other income (expense)           (68,000)      4,000     (45,000)      12,000 
       Interest expense                (143,000)    (68,000)   (346,000)     (93,000)
                                     ----------   ---------   ----------  ---------- 
INCOME (LOSS)                                                                        
BEFORE INCOME TAXES                     308,000     538,000   (2,784,000)    650,000 

       Income tax expense (benefit)          --     160,000           --     197,000 
                                     ----------   ---------   ----------  ---------- 

NET INCOME (LOSS)                    $  308,000   $ 378,000  $(2,784,000) $  453,000 
                                     ==========   =========  ===========  ========== 
NET INCOME (LOSS)                                                                    
PER COMMON SHARE                    $       .10         .11  $(      .91)        .14 
                                     ==========   =========  ===========  ========== 
WEIGHTED AVERAGE COMMON SHARES                                                       
OUTSTANDING                           3,063,127   3,328,443    3,058,865   3,339,109 
                                     ==========   =========  ===========  ========== 


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

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  APPLIED COMPUTER TECHNOLOGY, INC. AND SUBSIDIARIES
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        [Enlarge/Download Table]

                                                                Nine Months Ended     
                                                                   September 30,      
                                                                -------------------   
                                                               1997             1996  
                                                               ----             ----  
                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES:                                                 
    Net income (loss)                                    $(2,784,000)       $ 453,000 
    Adjustments to reconcile net income (loss) to net                                 
    cash used in operating activities:                                                
         Depreciation and amortization                       482,000          234,000 
         Loss on equipment disposal                               -           161,000 
    Changes in operating assets and liabilities:                                      
       Increase (decrease) Accounts receivable            (1,697,000)        (561,000)
       Increase (decrease)  Inventories                      510,000       (1,145,000)
       Increase (decrease) Prepaid expenses and other        (29,000)        (166,000)
       current assets                                                                 
       Increase (decrease) Income tax refund receivable      280,000          156,000 
       Increase (decrease)  Accounts payable               2,732,000          139,000 
       Increase (decrease)  Customer deposits                      0          (53,000)
       Increase (decrease)  Accrued liabilities and                                   
       other current liabilities                             (63,000)         180,000 
                                                             --------         ------- 
          Net cash used in operating activities             (574,000)        (601,000)
                                                            ---------        ---------

    CASH FLOWS FROM INVESTING ACTIVITIES                                              
       Property and equipment acquisitions                                            
                                                            (693,000)      (1,380,000)
    CASH FLOWS FROM FINANCING ACTIVITIES                    ---------      -----------

       Principal payments on loans                           (15,000)         (33,000)
       New borrowings                                        192,000          864,000 
       Principal payments on capital leases                 (172,000)         (19,000)
       Proceeds from new lease obligations                   557,000           75,000 
          Net cash provided by financing activities          562,000          887,000 
                                                             -------          ------- 
     NET DECREASE IN CASH AND EQUIVALENTS                   (705,000)      (1,094,000)

    CASH AND EQUIVALENTS, at beginning of period            $710,000       $1,277,000 
                                                            --------       ---------- 
    CASH AND EQUIVALENTS, at end of period                     5,000          183,000 
                                                            =========       ========= 

    SUPPLEMENTAL CASH FLOW INFORMATION:                                               
    Non-cash items:                                                                   
       Purchase of equipment for notes and capital                                    
       leases                                               $857,000          175,000 
                                                            =========       ========= 
    Cash paid (received ) for:                                                        
       Interest                                             $346,000           93,000 
                                                            =========       ========= 
       Income taxes                                         (280,000)        (156,000)
                                                            =========       ========= 


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

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 APPLIED COMPUTER TECHNOLOGY, INC.
 NOTES TO FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION                                                  

Financial  Information - The Company's  unaudited interim  financial  statements
have been prepared  pursuant to the rules and  regulations of the Securities and
Exchange  Commission   applicable  to  Regulation  S-B.   Accordingly,   certain
information and footnote  disclosures  normally included in financial statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or omitted.  These  interim  financial  statements  should be read in
conjunction with the Company's December 31, 1996 financial  statements and notes
included elsewhere in this prospectus.                                          

      In the opinion of management, the interim financial statements reflect all
adjustments  necessary  for a fair  presentation  of the interim  periods,  such
adjustments  being of a normal recurring  nature.  The results of operations for
the interim periods are not necessarily  indicative of the results of operations
to be expected for the full year.                                               

Nature of  Operations  -  Applied  Computer  Technology,  Inc.  (the  "Company")
principally  assembles and distributes  personal  computers and related products
and  services to  customers  throughout  the United  States.  Additionally,  the
Company has five business center / training  locations within  Colorado.  During
1996,  the  Company  also  expended  substantial  amounts  in  establishing  the
infrastructure to become an Internet provider                                   

Principles of Consolidation - in 1996, the Company  established two wholly owned
subsidiaries,  ACT Far East Limited and ACTNET,  Inc. The  financial  statements
include  the  accounts of the company  and its  subsidiaries.  All  intercompany
balances and transactions have been eliminated in consolidation.                

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

Property and Equipment - Property and equipment are stated at cost.             

Revenue  Recognition - The Company  recognizes  revenues from product and system
sales when title passes to the customer.                                        

Warranty - The  company  provides a warranty  to its  customers  and the related
costs are recorded at the time of sale.                                         

Earnings Per Share Calculation - The quarter ended September 30, 1997 the common
stock equivalents were excluded from calculation since the Company's stock price
did not exceed the exercise price for a significant portion of the period.      

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 PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24.  Indemnification of Directors and Officers.                            

         The Company's  Articles of  Incorporation,  as amended,  and Bylaws, as
amended,  allow the Company to indemnify and hold harmless to the maximum extent
permissible by Colorado law any officer or director of the Company who is made a
party to any  proceeding as a result of that person's  service to the Company as
an officer or director.                                                         

         Apart from rights afforded by the Company's  Articles of  Incorporation
and  Bylaws,  an officer  or  director  may be  indemnified  against  judgments,
penalties,  fines,  settlements and reasonable expenses actually incurred if the
officer or director  conducted  himself in good faith and either (i)  reasonably
believed  his  conduct  to  be in  the  corporation's  best  interest,  or  (ii)
reasonably  believed the conduct to be at least not opposed to the corporation's
best  interest.  In the case of a criminal  proceeding,  the officer or director
must have had no reasonable cause to believe the conduct was unlawful.          

         The Colorado Business  Corporation Act also requires that a corporation
indemnify a director who is wholly  successful,  on the merits or otherwise,  in
the defense of any proceeding to which the director was a party because of being
a director  of the  corporation,  against  reasonable  expenses  incurred by the
director in connection with the proceeding.                                     

         Indemnification may also be granted pursuant to the terms of agreements
which may be entered into in the future  pursuant to a vote of  shareholders  or
directors.  The  statutory  provisions  cited  above also grant the power to the
Company to purchase  and  maintain  insurance  which  protects  its officers and
directors against any liabilities  incurred in connection with their services in
such positions, and such a policy may be obtained by the Company in the future. 

Item 25.  Other Expenses of Issuance and Distribution.                          

Item                                                            Amount          

S.E.C. Registration Fee                                          $ 266          
N.A.S.D. Filing Fee                                                766          
State Securities Laws Legal and Filing Fees                      1,000          
Printing                                                           200          
Legal Fees                                                      25,000          
Accounting Fees and Expenses                                     5,000          
Transfer Agent's Fees                                              100          
Miscellaneous Expenses                                           2,668          
                                                       -----

Total                                                      $35,000      
                                                      ========
*All expenses, with the exception of the SEC and NASD filing fees, are          
estimated.                                                                    

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Item 26.  Recent Sales of Unregistered Securities.                              

         The  following  information  sets forth all  securities  of the Company
which have been sold since the Company's inception and which securities were not
registered under the Securities Act of 1933, as amended.                        

Shares of Common    Date of     
Security Holder           Stock Sold          Sale             Consideration    

Wiley E. Prentice, Jr.     1,065,000        1/1/1991   An undivided 75% of the  
                                                     assets of a partnership
                                                       known as Applied Computer
                                                       Technology subject to all
                                                    liabilities associated
                                               with such assets.
Cynthia E. Koehler           355,000        1/1/1991   An undivided 25% of the  
                                                     assets of a partnership
                                                       known as Applied Computer
                                                       Technology subject to all
                                                    liabilities associated
                                               with such assets.
Robert Oliphant               20,000        2/1/1995   Services rendered, with a
                                              value of $5,000.
Robert G. Holman              20,000        6/2/1995   $25,000                  
Hugh H. McCullough            20,000        6/2/1995   $25,000                  
James B. Jaqua                20,000        6/2/1995   $25,000                  
Elsa P. McCullough            20,000        6/2/1995   $25,000                  
Joel R. Sachs                 10,000        6/2/1995   $25,000                  
Olesh Partners, Ltd.          20,000        6/2/1995   $25,000                  
Nutri Chem, Inc. Pension                                                        
& Profit Sharing Plan         20,000        6/2/1995   $25,000                  
Lee Roy Tautz                 20,000        6/2/1995   $25,000                  
Joseph E. Phillips             5,000        6/2/1995   $ 6,250                  
D. H. Carlson                 10,000        6/2/1995   $12,500                  
Alan Fleisher                 20,000        6/2/1995   $25,000                  
William Bammell IRA           10,000        6/12/1995  $12,500                  
Dan R. Koehler                 5,000        6/12/1995  $ 6,250                  
Paul D. Koehler               10,000        6/12/1995  $12,500                  
Suzanne Oliphant              20,000        6/12/1995  $25,000                  
Stephen D. Whitman            10,000        6/12/1995  $12,500                  
Ralph H. Baltran              10,000        6/12/1995  $12,500                  
Todd and Dawn Morgan          10,000        6/12/1995  $25,000                  
James R. Parker                5,000        6/12/1995  $ 6,250                  
D/Ann Campbell                 5,000        6/12/1995  $ 6,250                  
Robert F. Cantor              10,000        6/12/1995  $12,500                  
Eileen Marie Koehler           5,000        6/12/1995  $ 6,250                  
David W. Whitman IRA          10,000        6/12/1995  $12,500                  
John and Darcie Osbourn        5,000        6/12/1995  $ 6,250                  
Alfred P. Davis                5,000        6/12/1995  $ 6,250                  
Marilyn M. Davis               5,000        6/12/1995  $ 6,250                  

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Thomas & Susan Hilb           10,000        6/12/1995  $12,500                  
Armond Azharian               10,000        6/12/1995  $12,500                  
Wiley Prentice, Sr.           50,000        6/23/1995  $62,500                  
J. Douglas Heiskell           10,000        6/23/1995  $12,500                  
David K. Hicks                10,000        6/12/1995  $12,500                  
J. Roger Moody                40,000        7/30/1995  $50,000                  
Michael D. DeWitt             10,000        7/30/1995  $12,500                  

         The sales of the  Company's  Common Stock  described  above were exempt
transactions  under  Section  4(2) of the Act as  transactions  by an issuer not
involving  a public  offering.  The shares of Common  Stock sold  subsequent  to
February 1995 were also exempt in accordance with Rule 504 of the Securities and
Exchange  Commission.  All of  the  shares  of  Common  Stock  were  issued  for
investment purposes only and without a view to distribution.  All of the persons
who acquired the  foregoing  securities  were fully  informed and advised  about
matters  concerning the Company,  including its business,  financial affairs and
other  matters.  The  purchasers  of the  Company's  Common  Stock  acquired the
securities for their own accounts.  The  certificates  evidencing the securities
bear legends  stating that they may not be offered,  sold or  transferred  other
than pursuant to an effective registration statement under the Securities Act of
1933, or pursuant to an applicable exemption from registration.  No underwriters
were involved with the sale of the shares of Common Stock and no  commissions or
other forms of remuneration  were paid to any person in connection with sales of
the Company's  securities  prior to March 1995. The Company paid a commission of
$50,000  to  Schneider  Securities,  Inc.  in  connection  with  the sale of the
securities  sold in June  1995.  All of the  shares of Common  Stock sold by the
Company  are  "restricted"  shares  as  defined  in Rule  144 of the  Rules  and
Regulations of the Securities and Exchange Commission.                          

Item 27.  Exhibits.                                                             

         The  following  is a complete  list of  Exhibits  filed as part of this
Registration Statement and which are incorporated herein.                       

Exhibit No.                                                            Page     

3.1.1  Articles of Incorporation.                                        *      
3.1.2  Amendment to Articles of Incorporation as filed on May 19,               
 1995                                                              *
3.1.3  Amendment to Articles of Incorporation as filed on June 6,               
 1995                                                              *
3.2.1  By-Laws.                                                          *      
4.1    Form of specimen certificate for Common Stock of the Company.     *      
4.2    Form of specimen certificate for Warrants of the Company.         *      
4.5    Warrant Agreement between the Company and American Securities            
 Transfer, Inc.                                                    *
5      Opinion of Hart & Trinen regarding legality of the securities            
covered by this Registration Statement.                           

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Exhibit No.                                                              Page   

10.1.1 Employment Agreement, dated April 1, 1995, by and between                
 Wiley E. Prentice, Jr. and the Company.                           *
10.1.2 Employment Agreement, dated April 1, 1995, by and between                
 Cynthia E. Koehler and the Company.                               *
10.2   1995 Incentive Stock Option Plan, adopted March 1, 1995,                 
authorizing 600,000 shares of Common Stock for issuance           
 upon exercise of options issued pursuant to the Plan.             *
10.7   Retail Lease, dated May 29, 1992, by and between Clarmont                
 Enterprises, Inc. and the Company.                                *
10.8   Retail Lease, dated August 13, 1990, by and between                      
 University Hill Plaza Partnership, Ltd. and the Company.          *
10.9   Lease Agreement, dated August 16, 1989, by and between                   
G.B. Ventures and the Company, as amended by Lease                
Extension Agreement #1, dated September 15, 1994                  
 and Lease Addendum No. 2, dated July 7, 1995.                     *
10.10  Shopping Center Lease, dated August 13, 1991, by and                     
 between Colorado & Wesley Partners, Ltd. and the Company.         *
10.11  Shopping Center Lease, dated July 16, 1993, by and between               
 Crow-Watson #8, a Texas limited partnership, and the Company.     *
10.12  Shopping Center Lease, dated September 14, 1992, by and                  
between First Interstate Bank, N.A., as Trustee of Heron          
 North America Property Trust, and the Company.                    *
10.13  Lease, dated July 8, 1991, by and between Westside                       
 Investment Company and the Company.                               *
10.14  Certificate of Registration of Trademark, dated July 5,                  
 1994, from Patent and Trademark Office.                           *
10.15  Certificate of Registration of Trademark, dated April 19,                
 1994, from Patent and Trademark Office.                           *
10.16  Certificate of Registration of Service Mark, dated December              
 14, 1993 from Patent and Trademark Office.                        *
10.17  Certificate of Registration of Service Mark, dated July 5,               
 1994, from Patent and Trademark Office.                           *
10.18  Certificate of Registration of Service Mark, dated April 19,             
 1994, from Patent and Trademark Office.                           *
10.19  Certificate of Registration of Service Mark, dated December              
 14, 1993, from Patent and Trademark Office.                       *
10.24  Share Escrow Agreement.                                           *      
14     Not applicable.                                                          
15     Not applicable.                                                          
21     Not applicable.                                                          
23.1   Consent of Hart & Trinen.                                         __     
23.2   Consent of Hein + Associates LLP                                  __     
23.3   Consent of Brock and Company                                      __     

* Incorporated  by reference to same exhibit filed with  Company's  Registration
Statement on Form SB-2 (Commission File #33-95782-D).                           

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Item 28.  Undertakings.                                                         

(a)  Rule 415 Offering.                                                 

The undersigned Registrant hereby undertakes:                 

         (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:                      

              (i)  To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;                                                         

              (ii)  Reflect  in  the  prospectus  any  facts  or  events  which,
individually or together,  represent a fundamental change in the information set
forth in the Registration Statement; and                                        

              (iii) Include any additional  material  information on the plan of
distribution.                                                                   

         (2) For  determining  any liability under the Securities Act, each such
post-effective  amendment  as a new  registration  statement  of the  securities
offered,  and the offering of the securities at that time to be the initial bona
fide offering.                                                                  

         (3) File a post-effective  amendment to remove from registration any of
the securities that remain unsold at the end of the offering.                   

(b)  Indemnification.                                                   

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors,  officers and controlling  persons of
the  Registrant  pursuant  to  the  foregoing  provisions,   or  otherwise,  the
Registrant  has been advised that in the opinion of the  Securities and Exchange
Commission,  such  indemnification  is against public policy as expressed in the
Act,   and  is  therefore   unenforceable.   In  the  event  that  a  claim  for
indemnification  against  such  liabilities  (other  than  the  payment  by  the
Registrant of expenses  incurred or paid by a director,  officer or  controlling
person of the  Registrant  in the  successful  defense  of any  action,  suit or
proceeding)  is  asserted by such  director,  officer or  controlling  person in
connection with the securities being registered,  the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit  to a  court  of  appropriate  jurisdiction  the  question  whether  such
indemnification  by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.                            

SB-2 71st Page of 74 TOC 1st Previous Next ↓Bottom Just 71st
 POWER OF ATTORNEY

         The  Registrant  and each person whose  signature  appears below hereby
authorizes the agent for service named in this Registration Statement, with full
power to act alone,  to file one or more  amendments  (including  post-effective
amendments)  to this  Registration  Statement,  which  amendments  may make such
changes  in  this  Registration  Statement  as  such  agent  for  service  deems
appropriate,  and the Registrant and each such person hereby appoints such agent
for service as attorney-in-fact, with full power to act alone, to execute in the
name and in behalf of the  Registrant and any such person,  individually  and in
each capacity stated below, any such amendments to this Registration Statement. 

SIGNATURES

         In accordance with the  requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the  requirements  for filing on Form SB-2 and authorized  this  Registration
Statement  or Amendment  to be signed on its behalf by the  undersigned  in Fort
Collins, Colorado on February 12, 1998.                                         

                     APPLIED COMPUTER TECHNOLOGY, INC.

                 By:/s/ Wiley E. Prentice, Jr.
                       -----------------------------
                               Wiley E. Prentice, Jr., President and
                 Chief Executive Officer

         By:/s/ Daniel Radford
                        ------------------------------
         Daniel Radford,
                                    Principal Financial and Accounting Officer

         Pursuant  to the  requirements  of the  Securities  Act of  1933,  this
Registration  Statement or Amendment was signed by the following  persons in the
capacities and on the dates stated.                                             

Signature                               Title                    Date           

/s/ Wiley E. Prentice, Jr.     President, Chief Executive    February 12, 1998  
-------------------------                                                       
Wiley E. Prentice, Jr.         Officer (Principal Executive                     
 Officer) and Director

/s/ Cynthia E. Koehler         Executive Vice President,     February 12, 1998  
-------------------------                                                       
Cynthia E. Koehler             Secretary and Director                           

-------------------------      Director                                         
J. Roger Moody                                                                  

SB-2 72nd Page of 74 TOC 1st Previous Next ↓Bottom Just 72nd
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM SB-2

Registration Statement
 Under
THE SECURITIES ACT OF 1933

 Applied Computer Technology, Inc.

EXHIBITS

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Exhibit No.                                                            Page     

3.1.1  Articles of Incorporation.                                        *      
3.1.2  Amendment to Articles of Incorporation as filed on May 19,               
 1995.                                                             *
3.1.3  Amendment to Articles of Incorporation as filed on June 6,               
 1995.                                                             *
3.2.1  By-Laws.                                                          *      
4.1    Form of specimen certificate for Common Stock of the Company.     *      
4.2    Form of specimen certificate for Warrants of the Company.         *      
4.5    Warrant Agreement between the Company and American Securities            
 Transfer, Inc.                                                    *
5      Opinion of Hart & Trinen regarding legality of the securities            
covered by this Registration Statement.                           
10.1.1 Employment Agreement, dated April 1, 1995, by and between                
 Wiley E. Prentice, Jr. and the Company.                           *
10.1.2 Employment Agreement, dated April 1, 1995, by and between                
 Cynthia E. Koehler and the Company.                               *
10.2   1995 Incentive Stock Option Plan, adopted March 1, 1995,                 
authorizing 600,000 shares of Common Stock for issuance upon      
 exercise of options issued pursuant to the Plan.                  *
10.7   Retail Lease, dated May 29, 1992, by and between Clarmont                
 Enterprises, Inc. and the Company.                                *
10.8   Retail Lease, dated August 13, 1990, by and between                      
 University Hill Plaza Partnership, Ltd. and the Company.          *
10.9   Lease Agreement, dated August 16, 1989, by and between                   
G.B. Ventures and the Company, as amended by Lease                
Extension Agreement #1, dated September 15, 1994                  
 and Lease Addendum No. 2, dated July 7, 1995.                     *
10.10  Shopping Center Lease, dated August 13, 1991, by and                     
 between Colorado & Wesley Partners, Ltd. and the Company.         *
10.11  Shopping Center Lease, dated July 16, 1993, by and between               
 Crow-Watson #8, a Texas limited partnership, and the Company.     *
10.12  Shopping Center Lease, dated September 14, 1992, by and                  
between First Interstate Bank, N.A., as Trustee of Heron          
 North America Property Trust, and the Company.                    *
10.13  Lease, dated July 8, 1991, by and between Westside                       
 Investment Company and the Company.                               *
10.14  Certificate of Registration of Trademark, dated July 5,                  
 1994, from Patent and Trademark Office.                           *
10.15  Certificate of Registration of Trademark, dated April 19,                
 1994, from Patent and Trademark Office.                           *
10.16  Certificate of Registration of Service Mark, dated December              
 14, 1993 from Patent and Trademark Office.                        *
10.17  Certificate of Registration of Service Mark, dated July 5,               
 1994, from Patent and Trademark Office.                           *
10.18  Certificate of Registration of Service Mark, dated April 19,             
 1994, from Patent and Trademark Office.                           *
10.19  Certificate of Registration of Service Mark, dated December              
 14, 1993, from Patent and Trademark Office.                       *

SB-2 Last Page of 74 TOC 1st Previous Next ↓Bottom Just 74th
Exhibit No.                                                              Page   

10.24  Share Escrow Agreement.                                           *      
14     Not applicable.                                                          
15     Not applicable.                                                          
21     Not applicable.                                                          
23.1  Consent  of Hart & Trinen.                                         __     
23.2  Consent  of Hein +  Associates  LLP                                       
23.3  Consent of Brock and Company.                                      __     

* Incorporated  by reference to same exhibit filed with  Company's  Registration
Statement on Form SB-2 (Commission File #33-95782-D).

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘SB-2’ Filing	Date	First	Last	Other Filings

	12/31/02	40	41
	12/31/01	57
	12/31/00	59
	11/21/00	17
	10/25/00	17
	10/26/98	17	44
Filed on:	2/17/98
	2/12/98	71
	1/31/98	8	37
	12/31/97	9	34	10-K, 10KSB
	11/24/97	17		8-K, 8-K/A
	9/30/97	9	65	10QSB
	6/30/97	21		10-Q, 10-Q/A, NT 10-Q
	4/11/97	47
	3/31/97	22	23	10QSB, NT 10-Q
	12/31/96	9	65	10KSB, 8-K, NT 10-K
	12/30/96	9
	9/30/96	46		10QSB, 8-K, NT 10-Q
	4/25/96	48
	1/31/96	39
	1/1/96	39
	12/31/95	23	61	DEF 14A
	10/26/95	18
	7/7/95	69	73
	6/6/95	68	73
	6/2/95	19	56
	5/19/95	68	73
	4/1/95	69	73
	3/1/95	69	73
	1/1/95	46	51
	9/15/94	69	73
	7/5/94	69	73
	4/19/94	69	73
	12/14/93	69	73
	7/16/93	69	73
	9/14/92	69	73
	5/29/92	69	73
				List all Filings

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Filing Submission 0001004878-98-000012 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Applied Computer Technology Inc – ‘SB-2’ on 2/17/98

As of: Tuesday, 2/17/98 · Accession #: 1004878-98-12 · File #: 333-46379

Registration of Securities by a Small-Business Issuer — Form SB-2Filing Table of Contents

SB-2 — Registration of Securities by a Small-Business IssuerDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents

SB-2 — Registration of Securities by a Small-Business Issuer
Document Table of Contents