SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

ChatCom, Inc.
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(Name of Registrant as Specified In Its Charter)

ChatCom, Inc.
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(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.

[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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Notes:

PRELIMINARY COPIES

CHATCOM, INC.

ANNUAL MEETING OF SHAREHOLDERS
November 21, 1996

PROXY STATEMENT

SOLICITATION, VOTING, AND REVOCABILITY OF PROXIES

This Proxy Statement is furnished to the holders (the "Shareholders") of
Common Stock, no par value (the "Common Stock"), of ChatCom, Inc., a California
corporation (the "Company"), in connection with the solicitation of proxies by
and on behalf of the Board of Directors of the Company (the "Board"). The
proxies solicited hereby are to be voted at the 1996 Annual Meeting of
Shareholders, to be held on November 21, 1996 at the Wyndham Hotel at Los
Angeles Airport, 6225 West Century Boulevard, Los Angeles, California 90045, at
10:30 A.M., and at any adjournments thereof (the "Annual Meeting"). The
approximate date on which the Proxy Statement and the accompanying form of proxy
(the "Proxy") are being mailed to Shareholders is October 11, 1996. Only
Shareholders of record on October 7, 1996 (the "Record Date") are entitled to
vote in person or by proxy at the Annual Meeting or any adjournments thereof.

A form of Proxy is enclosed for your use. A person giving a Proxy has
the power to revoke it at any time before it is exercised by giving written
notice to the Secretary of the Company, by the filing of a duly executed proxy
bearing a later date or by attending the Annual Meeting and voting in person.
The Proxy, if returned properly, executed and not subsequently revoked, will be
voted in accordance with the choices made by the Shareholder with respect to the
proposals listed thereon. If a choice is not made with respect to a proposal,
the Proxy will be voted (i) "FOR" the approval of an amendment to the Company's
Bylaws; (ii) "FOR" the election of the nominees for Director set forth herein;
(iii) "FOR" the approval of the amendments to the Company's 1994 Stock Option
Plan; and (iv) "FOR" the ratification of the appointment of Deloitte & Touche as
the Company's independent auditors for the fiscal year ending March 31, 1997.

The enclosed Proxy confers discretionary authority with respect to any
other proposals which may be properly brought before the Annual Meeting. As of
the date hereof, management is not aware of any other matters to be presented
for action at the Annual Meeting. However, if any other matters are properly
brought before the meeting, the Proxies solicited hereby will be voted by the
Proxyholders in accordance with the recommendations of the Board of Directors.

It is contemplated that the solicitation of Proxies will be primarily by
mail. Should it, however, appear desirable to do so in order to ensure adequate
representation of shares at the Annual Meeting, officers, agents and employees
of the Company may communicate with Shareholders, banks, brokerage houses and
others by telephone, telegraph or in person to request that Proxies be
furnished. All expenses incurred in connection with this solicitation will be
borne by the Company. In following up the original solicitation of Proxies by
mail, the Company may make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send Proxies and proxy materials to the
beneficial owners of the shares eligible to vote at the Annual Meeting and will
reimburse them for their expenses in so doing. The Company has no present plans
to hire special employees or paid solicitors to assist in obtaining Proxies, but
reserves the option of doing so if it should appear that a quorum otherwise
might not be obtained.

9600 Topanga Canyon Boulevard . Chatsworth, California 91311 . 818 709-1778

The authorized capital of the Company consists of 25,000,000 shares of
Common Stock, of which 9,202,505 shares were issued and outstanding on the
Record Date. One third of the outstanding shares of Common Stock entitled to
vote whether present in person or by proxy constitutes a quorum for the conduct
of business at the Annual Meeting. Abstentions will be treated as shares present
and entitled to vote for purposes of determining the presence of a quorum.

Each Shareholder is entitled to one vote, in person or by proxy, for each
share of Common Stock standing in his or her name on the books of the Company as
of the Record Date on each matter submitted to the Shareholders.
California corporation law provides the Shareholders of the Company with
cumulative voting rights in certain instances. Shareholders may cumulate their
votes with respect to the election of directors of the Company ("Directors")
if such candidate or candidates' names have been placed in nomination prior to
the voting and one or more Shareholders gives notice at the Annual Meeting,
prior to the voting, of an intention to cumulate votes for a nominated
Director. A Shareholder may cumulate votes by casting for the election of
one nominee a number of votes equal to the number of Directors to be elected
multiplied by the number of votes to which his shares are entitled, or by
distributing his votes on the same principle among as many candidates as he sees
fit. If any one Shareholder gives such notice, all Shareholders may cumulate
their votes for candidates in nomination. If a Proxy is marked "FOR" the
election of Directors, it may, at the discretion of the Proxyholder, be
voted cumulatively in the election of Directors.

In the election of Directors, the eight (or if the amendment to the
Company's Bylaws is not approved, seven) persons receiving the highest number of
votes will be elected. Each of the other proposals submitted hereby, except the
proposal to amend the Company's Bylaws, requires the affirmative vote of a
majority of the Common Stock represented and eligible to vote at the Annual
Meeting. The proposal to amend the Company's Bylaws regarding the authorized
number of Directors of the Company requires the affirmative vote of a majority
of the outstanding shares of Common Stock entitled to vote. Accordingly,
abstentions from voting on any matter other than the election of Directors will
have the effect of a vote "AGAINST" the proposal.

If you hold your stock in "street name" and you fail to instruct your
broker or nominee as to how to vote your stock, your broker or nominee may, in
its discretion, vote your stock "FOR" the amendment to the Bylaws, "FOR" the
election of the Board of Directors' nominees and "FOR" the proposal to ratify
the appointment of Deloitte & Touche as the Company's independent auditors for
the fiscal year ending March 31, 1997. If, however, you fail to instruct your
broker or nominee how to vote your shares of Common Stock, your broker or
nominee may not, pursuant to applicable Securities and Exchange Commission
rules, vote your shares of Common Stock with respect to the proposal to approve
the amendments to the 1994 Stock Option Plan. This results in what is known
as a "broker non-vote" on such proposals. A "broker non-vote" will have the
effect of a vote "AGAINST" the proposal.

PROPOSAL 1

AMENDMENT TO THE COMPANY'S BYLAWS

Article III, Section 2, of the Company's Bylaws currently provides that the
authorized number of Directors of the Company shall not be less than four nor
greater than seven, with the exact number of Directors within this range to
be established by resolution of the Board of Directors. The authorized number
of Directors is currently set at seven. On September 11, 1996, the Board of
Directors adopted a proposal to amend the Company's Bylaws which, if approved by
the Shareholders, would provide that the authorized number of Directors shall
not be less than five nor more than nine, with the exact number of Directors
being fixed by the Board. The proposed amendment is set forth as Appendix A to
this Proxy Statement.

The purpose of this amendment is to allow Mr. James B. Mariner, the current
President and Chief Executive Officer of the Company, to become a member of the
Board of Directors, without having to remove any current Board members.
Accordingly, subject to Shareholder approval of the foregoing amendment, the
Board has fixed the number of directors at eight. The approval of the amendment
will also provide the Board the flexibility to change the number in the future
without shareholder approval, provided the number of directors remains within
the specified limits. Any change in the range of authorized number of Directors
would require shareholder approval.

If the Bylaw amendment is approved, the seven current members of the Board,
together with Mr. Mariner, will constitute the slate of Directors nominated for
election. In the event the proposed amendment is not approved, Mr. Mariner will
be removed from the slate of Directors nominated for election. The amendment
requires approval by the affirmative vote of a majority of the outstanding
shares of Common Stock entitled to vote.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1

PROPOSAL 2

ELECTION OF DIRECTORS

The authorized number of Directors of the Company is currently set at
seven. If the proposed amendment to the Company's Bylaws is approved by the
Shareholders, the number of Directors authorized shall be eight. The Bylaws
provide that Directors shall be elected at each annual meeting of the
Shareholders to hold office until the next annual meeting. Each Director shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.

Seven of the Directors nominated for re-election, Messrs. Gordon, Lubash,
Lazik, Sayer, Edwards, Sigoloff and Smith have been serving as the Company's
Directors since the dates indicated in their biographic summaries below. The
eighth nominee for Director, Mr. Mariner, is the current President and Chief
Executive Officer of the Company and has not previously served as a director of
the Company. If the proposed amendment to the Company's Bylaws (Proposal 1
above) is approved by the Shareholders, all eight nominees will constitute the
slate of Directors nominated for election. In the event the Bylaw amendment is
not approved, Mr. Mariner will be removed as a nominee for Director. All
nominees have indicated their willingness to serve. Unless otherwise instructed,
Proxies will be voted "FOR" the election of all nominees. If cumulative voting
is utilized, the Proxyholders will distribute the votes represented by each
Proxy, unless such authority is withheld, among the seven nominees named, in
such proportion as they see fit. Nominees receiving the highest number of
affirmative votes cast, up to the number of Directors to be elected, will be
elected as Directors. In the event that any of the nominees should be unable to
serve as Director, it is intended that the Proxies will be voted for the
election of such substitute nominees, if any, as shall be designated by the
Board of Directors. Management has no reason to believe that any nominee will be
unavailable to serve as Director.

None of the Directors, nominees for Director or executive officers was
selected pursuant to any arrangement or understanding, other than with the
Directors and executive officers of the Company acting within their capacities
as such. There are no family relationships among any of the Directors or
executive officers of the Company. Except as described below, as of the date
hereof, no directorships were held by any Director with a company which has a
class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act, or any company registered as an investment
company under the Investment Company Act of 1940.

The following sets forth biographical information of the nominees for
Directors of the Company and the Company's executive officers. The number of
shares of Common Stock beneficially owned by nominees for Directors is set forth
in the section entitled "Security Ownership of Certain Beneficial Owners and
Management."

Richard F. Gordon, Jr., 66 - Chairman of the Board, Director of the Company
since 1982; President of the Company from April 1982 to August 1991.
President and founder of Dick Gordon Enterprises, Inc. (a marketing and
promotional firm) since May 1995; President, Space Age America, Inc.(an
aerospace consulting firm) from August 1991 to September 1995.

A. Charles Lubash, 64 - Director of the Company since 1982; Chairman Emeritus of
the Company since June 1996; President and Chief Executive Officer of the
Company from August 1991 to July 1995; Vice Chairman of the Board from July
1995 to June 1996 and Consultant to the Company from 1988 to 1991.

George L. Lazik, Ph.D, 55 - Director of the Company since 1988; consultant to
the Company since March 1996; Executive Vice President of the Company from
1988 to March 1996, President of J&L Information Systems Division of the
Company from 1988 to February 1996; Chief Operating Officer of the Company
from April 1991 to November 1994.

Gerald R. Sayer, Ph.D, 57 - Director of the Company since July 1995; Interim
President and Chief Executive Officer from July 1995 to March 1996;
President of GL International (a consulting firm) since 1994; President and
Chief Executive Officer of Developmental Sciences Corporation (an aerospace
company) from 1987 to 1993; Chairman of the Board of Lear Astronics
Corporation (an aerospace company) from 1988 to 1993.

James D. Edwards, 56 - Director of the Company since November 1995; President,
Chief Executive Officer and Director, Tricord Systems, Inc. (a computer
hardware manufacturer) from May 1989 to May 1995. Mr. Edwards is a director
of Capital Associates, Inc. (an equipment leasing company), and Netstar,
Inc. (a network hardware manufacturer), which are public companies.

Sanford C. Sigoloff, 66 - Director of the Company since February 1996; Chairman
of the Board, President and Chief Executive Officer of Sigoloff &
Associates, Inc. (a management consulting company) since 1989; Chief
Executive Officer of LJ Hooker Corporation (a retail conglomerate company)
from August 1989 to June 1992; Chairman of the Board, President and Chief
Executive Officer of Wickes Companies, Inc. (a furniture retail chain) from
March 1982 until 1988. Mr. Sigoloff is a director of Sun America, Inc.,
Kaufman and Broad Home Corporation, Wickes plc-London, England, Digital
Video Systems, Inc. and Movie Gallery, Inc., all of which are public
companies. Mr. Sigoloff is an adjunct full professor at the John E.
Anderson Graduate School of Management at the University of California at
Los Angeles.

Philip B. Smith, 60 - Director of the Company since February 1996. Vice
Chairman of the Board of Spencer Trask Securities Incorporated since 1991;
formerly a Managing Director of Prudential Securities in its merchant bank
division; founding General Partner of Lawrence Venture Associates, a
venture capital limited partnership headquartered in New York City;
Executive Vice President and Group Executive of the worldwide corporations
group at Irving Trust Company, from 1981 to 1984. Prior to joining Irving
Trust Company, Mr. Smith was at Citibank for 15 years, where he founded
Citicorp Venture Capital as President and Chief Executive Officer. Since
1988, Mr. Smith also has been the managing general partner of Private
Equities Partnership, L.P. Mr. Smith is a director of Movie Gallery, Inc.,
DenAmerica Corp., Digital Video Systems, Inc. and KLS Enviro Resources,
Inc., all of which are public companies.

James B. Mariner, 56 - President and Chief Executive Officer of the Company
since March 1996. President and sole shareholder of Turnaround Management
Consulting, Inc. (a management

consulting firm) since 1990. Chairman and Chief Executive Officer of EFX
Incorporated (an audio post-production firm) from September 1991 to March
1994 and President and Chief Executive Officer of Prime Access, Inc. (a
video editing firm) from June 1992 to June 1993.

James R. Spievak, 49, Secretary of the Company since 1984, Director of the
Company from August 1988 to February 1996. Partner of Annis & Spievak,
Attorneys at Law since February 1996. Shareholder of Shenas, Shaw &
Spievak, A Professional Legal Corporation from 1984 to January 1996.

Russell Jackson, 45 - Senior Vice President of the Company since February 1996.
Senior Vice President of J&L Information Systems (a former operating
division of the Company) from August 1988 to February 1996.

John R. Grady, 37 - Chief Financial Officer of the Company since January 1994.
Partner of Bogart, Elliott & Grady, Certified Public Accountants since June
1995. Employed by Deloitte & Touche from September 1987 to December 1993.

The Board of Directors of the Company held eight meetings, and acted
by unanimous written consent without a meeting five times, during the fiscal
year ended March 31, 1996. No Director attended fewer than 75% of the meetings
held by the Board of Directors and the committees on which he served. Prior to
February 8, 1996, the entire Board of Directors performed the functions of an
Audit Committee. In that capacity, the Board of Directors determined the
accounting firm to be selected as independent auditors of the Company, and
communicated with the independent auditors after completion of the annual audits
and the rendering of their opinion as a result thereof, to discuss the auditors'
comments thereon, if any, and the Company's accounting methods and procedures.

The Executive Committee of the Board of Directors was previously composed
of three directors and serves to provide advice and counsel to the Company's
management. Until February 8, 1996, the Executive Committee of the Board of
Directors consisted of Messrs. Gordon, Lubash and Lazik. That committee did not
meet during the fiscal year ended March 31, 1996. On February 8, 1996, the Board
of Directors elected an Executive Committee consisting of Messrs. Edwards,
Sayer, Sigoloff and Smith and appointed Mr. Edwards as the chairman of the
Executive Committee. The Executive Committee formed on February 8, 1996 held no
meetings during the fiscal year ended March 31, 1996.

The Compensation Committee is composed of three non-employee members of the
Board of Directors and meets at the convenience of the Board of Directors to
determine the compensation of the Company's executive officers, and to review
compensation of other key employees of the Company. Prior to February 8, 1996,
the Compensation Committee also served as an option committee to administer the
Company's 1994 Stock Option Plan. Prior to February 8, 1996, the Compensation
Committee of the Board of Directors was composed of Messrs. Gordon, Spievak and
Charles Conrad, Jr. The Compensation Committee did not meet during the fiscal
year ended March 31, 1996. On February 8, 1996, the Board of Directors elected
Messrs. Sayer, Smith and Sigoloff to the Compensation Committee, and appointed
Mr. Sayer to chair the committee. The Compensation Committee formed on February
8, 1996 did not meet during the fiscal year ended March 31, 1996.

On February 8, 1996, the Board of Directors elected to form an Audit
Committee composed of Messrs. Sigoloff, Edwards and Gordon, and an Option
Committee composed of Messrs. Smith, Gordon and Edwards. These newly formed
committees did not meet during the fiscal year ended March 31, 1996. The Audit
Committee is chaired by Mr. Sigoloff and was formed to select the Company's
independent auditors and meet with such auditors following the completion of the
annual audit and the rendering of their opinion as a result thereof, to discuss
the auditors' comments thereon, if any, and the Company's accounting methods and
procedures. The Option Committee is chaired by Mr. Smith and was formed to
administer the Company's 1994 Stock Option Plan.

On June 5, 1996, the Board of Directors elected to form a Nominating
Committee composed of Messrs. Gordon, Edwards and Lubash. Mr. Mariner currently
serves as an Ex-Officio member of the Nominating Committee. The Nominating
Committee's function is to identify qualified candidates for Director and
propose a slate of Directors for ratification by the Board. Prior to the
formation of this committee, the entire Board served as a nominating committee.
It is the policy of the Board of Directors to consider as potential nominees any
persons proposed by any of the shareholders, provided that such proposal is
received in writing sufficiently in advance of the Annual Meeting of
Shareholders to allow the Board of Directors to adequately evaluate the
candidate.

The Company pays its Directors who are not otherwise compensated by the
Company for their service to the Company, a fee of $1,500 per regular quarterly
board meeting attended, $750 per special meeting or meeting of a committee of
the Board of Directors attended, and $400 per telephonic meeting in which they
participated. Additionally, pursuant to the formula option grant provision for
non-employee Directors in the 1994 Stock Option Plan, as amended, each non-
employee Director is granted options to purchase 25,000 shares of Common Stock,
which options vest over a two-year period, upon his initial appointment or
election to the Board of Directors, and is granted options to purchase 3,000
shares of Common Stock, which options vest six months after the date of grant,
upon each subsequent re-election at the annual meeting of shareholders. The
options have an exercise price equal to the fair market value of the Common
Stock on the date of grant. Employee Directors receive no fees, but are eligible
to receive grants of options to purchase Common Stock pursuant to the 1994 Stock
Option Plan at the discretion of the Board or the Option Committee of the Board.

During the fiscal year ended March 31, 1996, Messrs. Gordon, Sayer,
Edwards, Sigoloff, Smith, Spievak and Conrad each received options to purchase
25,000 shares of Common Stock, and Messrs. Gordon, Sayer and Edwards each
received options to purchase 3,000 shares of Common Stock. All such options are
exercisable at a price of $2.125 per share and were granted pursuant to the
formula option grant provision for non-employee Directors in the 1994 Stock
Option Plan, as amended. The Company granted each of Messrs. Gordon, Conrad and
Spievak options to purchase 5,000 shares of Common Stock at an exercise price of
$4.13 per share pursuant to the formula option grant provision for non-employee
Directors in the 1994 Stock Option Plan that was in effect at the time of that
grant. The Company granted additional options to purchase 40,000 shares of
Common Stock to Mr. Sayer with exercise prices ranging from $1.75 to $3.6875 per
share pursuant to the terms of a consulting agreement.

Subject to ratification of the amendments to the 1994 Stock Option Plan by
the Shareholders (Proposal 3 below), the Board by resolution awarded to non-
employee Directors stock options to purchase (i) 25,000 shares of Common Stock
on the date in which the Director is elected or appointed as a non-employee
Director, which options vest pro rata quarterly over a period of two years, (ii)
3,000 shares of Common Stock upon re-election, which options vest entirely in
six months, (iii) 25,000 shares of Common Stock upon appointment as a committee
chair, and (iv) 4,000 shares of Common Stock upon re-appointment as a committee
chair. The options so granted will be exercisable at the market price of the
Common Stock on the date of grant. Such grants of stock options to non-employee
Directors by Board resolution is intended to replace the current formula grant
provision of the 1994 Stock Option Plan. See "PROPOSAL 3 - AMENDMENTS TO 1994
STOCK OPTION PLAN."

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE ELECTION OF NOMINEES FOR DIRECTORS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of September 20, 1996, certain
information regarding the beneficial ownership of the Company's Common Stock by
each Director and nominee for Director, each of the named executive officers and
by all Directors, nominees for Director and named executive officers of the
Company as a group, and of beneficial owners of more than 5% of the Company's
Common Stock.

The number of shares beneficially owned is deemed to include shares of Common
Stock acquirable within sixty (60) days pursuant to the exercise of stock
options and warrants and pursuant to conversion of the Company's preferred
stock. Each such person has sole voting and dispositive power with respect to
such shares, except as otherwise indicated and subject to community
property laws where applicable.

Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class (1)
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D.H. Blair Investment 2,113,000 (2) 23.0%
Banking Corporation
44 Wall Street
New York, NY 10005

Strategic Growth International, Inc. 647,250 (3) 7.0%
111 Great Neck Road, Suite 606
Great Neck, NY 11021

Legong Investments N.V. 587,842 (4) 6.4%
International Trade Center TM I 26
Piscadera Bay, Curacao
Netherlands Antilles

James B. Mariner 0 (5)
9600 Topanga Canyon Boulevard
Chatsworth, CA 91311

Richard F. Gordon, Jr. 437,732 (6) 4.8%
3115 Calle del Montana
Sedona, AZ 86336

A. Charles Lubash 914,826 (7) 10.0%
9600 Topanga Canyon Boulevard
Chatsworth, CA 91311

George L. Lazik 650,000 (8) 7.1%
9600 Topanga Canyon Boulevard
Chatsworth, CA 91311

Gerald R. Sayer 60,625 (9) *
25481 Bootstrap Place
Laguna Hills, CA 92653-6101

James D. Edwards 18,625 (10) *
5415 Sunshine Canyon Road
Boulder, CO 80302

Sanford C. Sigoloff 9,375 (11) *
3340 Ocean Park Boulevard #3050
Santa Monica, CA 90405

Philip B. Smith 9,375 (12) *
535 Madison Avenue
New York, NY 10022

Name and Address Amount and Nature of Percent
of Owner Beneficial Ownership of Class (1)
-----------------------------------------------------------------------------------

Russell Jackson 188,000 (13) 2.1%
9600 Topanga Canyon Blvd.
Chatsworth, CA 91311

All Officers and Directors 2,460,999 (14) 26.9%
as a Group (11 Persons)

* Less than 1%.

(1) Shares which the person (or group) has the right to acquire within 60 days
after September 20, 1996 are deemed to be outstanding in calculating the
percentage ownership of the person (or group), but are not deemed to be
outstanding as to any other person (or group.

(2) Includes 625,000 shares issuable upon the exercise of common stock purchase
warrants.

(3) Includes 100,000 outstanding shares of Common Stock and 128,500 shares
issuable upon the exercise of common stock purchase warrants owned by
Richard E. Cooper, 97,250 outstanding shares of Common Stock and 121,500
shares issuable upon the exercise of common stock purchase warrants owned
by Stanley Altschuler, and 200,000 options granted to Strategic Growth
International, Inc. ("SGI"). Both Mr. Cooper and Mr. Altschuler are
founders and principals of SGI.

(4) Represents 118,568 shares of Common Stock and 469,274 shares of Common
Stock issuable upon the conversion or redemption of 52.5 shares of Series C
6% Convertible Preferred Stock, $20,000 stated value (the "Series C
Preferred Stock"). The Series C Preferred Stock, together with any accrued
but unpaid dividends that the Company may pay in shares of its Common
Stock, is convertible into shares of the Company's Common Stock. The actual
number of shares of Common Stock into which the preferred stock is
convertible is variable with the conversion price of the Common Stock equal
to the lesser of (a) the Market Price (as hereinafter defined) of the
Common Stock on the date of issuance of the preferred stock, or (b) 75% of
the Market Price of the Common Stock on the date of conversion or
redemption of the Series C Preferred Stock. The Market Price of the Common
Stock is equal to the average closing bid price of the Common Stock for the
five trading day period immediately preceding the applicable date of
issuance, conversion or redemption. The 469,274 shares is based on the
assumption that the Market Price of the Common Stock at the time of
issuance of the Series C Preferred Stock is less than 75% of the Market
Value of the Common Stock at the time of conversion or redemption of the
Series C Preferred Stock.

(5) Excludes 360,000 unvested options to purchase Common Stock. The vesting
schedule of such options is variable depending upon future performance of
the Company, with March 31, 1997 as the first possible date of vesting of a
portion of the options.

(6) Includes 110,000 shares issuable upon the exercise of stock options. Does
not include 25,000 shares issuable upon the exercise of options, which are
not exercisable within 60 days.

(7) Includes 425,000 shares issuable upon the exercise of stock options and
12,500 shares issuable upon the exercise of common stock purchase warrants.

(8) Includes 225,000 shares issuable upon the exercise of stock options. Does
not include 14,500 shares owned by Mr. Lazik's wife; or 12,500 shares
issuable upon the exercise of common stock

purchase warrants owned by Mr. Lazik's wife. Mr. Lazik disclaims beneficial
ownership of the shares owned by his wife or which may be acquired upon
exercise of her stock purchase warrants.

(9) Includes 58,625 shares issuable upon the exercise of stock options. Does
not include 34,375 shares issuable upon the exercise of options, which are
not exercisable within 60 days.

(10) Consists of 18,625 shares issuable upon the exercise of stock options. Does
not include 34,375 shares issuable upon the exercise of options, which are
not exercisable within 60 days.

(11) Consists of 9,375 shares issuable upon the exercise of stock options. Does
not include 40,625 shares issuable upon the exercise of options, which are
not exercisable within 60 days.

(12) Consists of 9,375 shares issuable upon the exercise of stock options. Does
not include 40,625 shares issuable upon the exercise of options, which are
not exercisable within 60 days.

(13) Consists of 188,000 shares issuable upon the exercise of stock options.

(14) Includes the 1,056,500 shares issuable upon the exercise of options and
warrants described in footnotes 6, 7, 8, 9, 10, 11, 12, and 13 above. Does
not include 535,000 shares issuable upon the exercise of unexercisable
options described in footnotes 5, 6, 9, 10, 11 and 12 above.

COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's Directors and executive officers, and persons who own more than 10% of
the Company's Stock, file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
Directors, and greater than 10% beneficial owners are required by SEC
regulations to furnish the Company with copies of all 16(a) forms they file.

Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
Directors, the Company believes that during the fiscal year ended March 31,
1996, all Section 16(a) filing requirements applicable to its executive
officers, Directors and greater than 10% beneficial holders were complied with,
except that Mr. Gordon was approximately eleven months late in reporting the
grant of 5,000 options, approximately five months late in reporting the grant of
25,000 options, and approximately one month late in reporting the grant of 3,000
options; Mr. Sayer was approximately one month late in reporting his initial
status as a director and executive officer, eight months late in reporting the
grant of 2,500 options, seven months late in reporting the grant of 5,000
options, six months late in reporting the grant of 5,000 options, five months
late in reporting the grant of 5,000 options, four months late in reporting the
grant of 30,000 options, three months late in reporting the grant of 5,000
options, two months late in reporting the grant of 8,000 options, and one month
late in reporting the grant of 5,000 options; Messrs. Lubash and Lazik were
approximately one month late in reporting their year end beneficial ownership;
Mr. Conrad was approximately five months late in reporting the grant of 25,000
options; Mr. Spievak was approximately twelve months late in reporting the grant
of 5,000 options, ten months late in reporting the sale of 5,000 shares of
Common Stock, and five months late in reporting the grant of 25,000 options; Mr.
Edwards was approximately nine months late in reporting his initial status as a
director of the Company, four months late in reporting the grant of 25,000
options, and one month late in reporting the grant of 3,000 options; Messrs.
Sigoloff and Smith were approximately two months late in reporting their initial
status as directors of the Company, and Mr. Jackson was approximately three
months late in reporting his initial status as an executive officer of the
Company and approximately one month late in reporting his year-end beneficial
ownership.

EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth certain summary information concerning the
annual and long-term compensation for all services rendered to the Company in
all capacities for the fiscal years ended March 31, 1996, 1995 and 1994 of (i)
all persons who served as Chief Executive Officer of the Company during the
fiscal year ended March 31, 1996 and (ii) each of the other executive officers
of the Company whose total annual salary and bonus for the fiscal year ended
March 31, 1996 exceeded $100,000. (The Chief Executive Officers and the other
named executives are collectively referred to as the "Named Executives.")

SUMMARY COMPENSATION TABLE

Long-Term
Annual Compensation Compensation
-----------------------------------------------
Other Securities
Annual Underlying
Name/Principal Fiscal Compen- Options
Position Year Salary* Bonus sation /SARs
- ------------------------------------------------------------------------------------------------

James B. Mariner, 1996 $ 9,520 -0- -0- 360,000
President and Chief Executive Officer (1)

Gerald R. Sayer, 1996 $ 86,250 -0- -0- 68,000
Interim President and Chief Executive
Officer (2)

A. Charles Lubash, 1996 $150,000 -0- -0- -0-
President, Chief Executive Officer and 1995 $150,000 -0- -0- 425,000 (4)
Vice Chairman (3) 1994 $205,877 -0- -0- -0-

George L. Lazik, Ph.D., 1996 $130,000 -0- -0- -0-
Executive Vice President (5) 1995 $130,000 -0- -0- 225,000 (6)
1994 $200,877 -0- -0- -0-

Russell Jackson, 1996 $145,000 -0- -0- 83,000
Senior Vice President 1995 $130,000 -0- -0- 30,000
1994 $115,000 -0- -0- 60,000

Ernest Holland, 1996 $114,620 -0- -0- 3,000
Vice President of Sales (7) 1995 $115,875 -0- -0- -0-
1994 $ 67,338 -0- -0- -0-

* Includes accrued vacation salary

(1) Mr. Mariner began service as President and Chief Executive Officer of the
Company on March 11, 1996.

(2) Mr. Sayer served as interim President and Chief Executive Officer of the
Company from July 1995 to March 1996. Mr. Sayer also served on the Board
of Directors during this period and the table above includes options to
purchase 28,000 shares of Common Stock granted for Mr. Sayer's service as a
director.

(3) Mr. Lubash was President and Chief Executive Officer of the Company from
August 1991 until July 1995. From July 1995 to June 1996, Mr. Lubash served
as Vice Chairman of the Board of Directors.

(4) Represents the extension of the exercise terms of options originally
granted in 1992. 225,000 of the options were originally issued in
consideration for Mr. Lubash's personal guarantee of the Company's bank
loan and other obligations. 200,000 of the options vested under Mr.
Lubash's employment agreement with the Company for attaining certain sales
goals set forth therein.

(5) Mr. Lazik served as Executive Vice President of the Company until March
1996.

(6) Represents the extension of the exercise terms of options originally
granted in 1992. 25,000 of the options were originally issued in
consideration for Mr. Lazik's personal guarantee of the Company's bank loan
and other obligations. 200,000 of the options vested under Mr. Lazik's
employment agreement with the Company for attaining certain sales goals set
forth therein.

(7) Mr. Holland was hired by the Company in July 1993.

EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS

In March 1996, the Company employed James B. Mariner as President and Chief
Executive Officer pursuant to a letter agreement. The agreement provides for
annual cash compensation of $165,000, a cash bonus of up to $50,000 for the year
ending March, 31 1997 and the grant of options to purchase 360,000 shares of the
Company's Common Stock which expire on March 7, 2003. The cash bonus will be
determined based on the Company achieving certain predetermined revenue and
profit goals. The stock options vest at a rate of 120,000 options per year if
all revenue and profit goals are achieved and any options that remain unvested
at March 31, 1999 due to failure to meet such goals shall vest pro-rata over the
following three years. Pursuant to the agreement, Mr. Mariner is an "at-will"
employee of the Company.

In April 1994, the Company entered into employment agreements (the
"Agreements") with A. Charles Lubash, (who was the Company's President and Chief
Executive Officer until July 1995 and the Company's Vice Chairman from July 1995
to June 1996), and George L. Lazik (who was the Company's Executive Vice
President until March 1996). The Agreements were both for three-year terms,
unless sooner terminated in accordance with their respective terms. The
Agreements provided for an annual base salary level of $150,000 for Mr. Lubash
and $130,000 for Mr. Lazik. The Agreements also provided that cash and/or stock
option bonuses could be awarded at the discretion of the Board of Directors for
each fiscal year during the Agreements' terms, to both Mr. Lubash and Mr. Lazik.
No stock options or bonuses were awarded to either officer for fiscal years 1996
or 1995. Effective March 31, 1996, the Company renegotiated its employment
agreement with Mr. Lazik. Pursuant to the terms of the amended agreement, Mr.
Lazik will serve as a consultant to the Company until September 30, 1997 and
receive base compensation of $80,000 and $50,000 for the year ended March 31,
1997 and the six months ended September 30, 1997, respectively. During the
eighteen months term of Mr. Lazik's consulting contract, Mr. Lazik will receive
$600 per month as an expense allowance, and the Company will pay health, vision
and dental insurance premiums for Mr. Lazik and his spouse.

Effective as of August 14, 1995, the Company entered into a consulting
agreement (the "Consulting Agreement") with Gerald R. Sayer, Ph.D., pursuant to
which Mr. Sayer served as President and Chief Executive Officer of the Company
for approximately three days per week. The Consulting Agreement provided for
compensation of $1,200 per day and the grant of options to acquire 5,000 shares
of Common Stock per month for each month during the term of the Consulting
Agreement. The options granted to Mr. Sayer are exercisable for three years from
the date of grant at an exercise price equal to the market price of the Common
Stock on the date of grant and are fully vested upon the date of grant. The
Consulting Agreement was terminated on March 8, 1996.

In April 1993, the Company entered into an employment agreement with
Russell Jackson, who is currently a Senior Vice President of the Company. The
Company's agreement with Mr. Jackson, as amended (the "Jackson Agreement"), had
a term of three years, beginning April 1, 1993, and ending March 31, 1996. The
Jackson Agreement provided for a base salary of $115,000 for the first year,
$130,000 for the second year, and $145,000 for the third year. Mr. Jackson's
employment has continued after March 31, 1996 on an "at-will" basis, with the
same compensation terms as those contained in his prior agreement until either
he or the Company provides written notification of termination to the other.

The Jackson Agreement provides him the opportunity to earn cash bonuses for
each fiscal year during the agreement's term in the amount of 3% of the
Company's net pre-tax profits, after all salary and salary adjustments. In no
event, however, can the amount of the cash bonus exceed $150,000 for any one
fiscal year. The Jackson Agreement also provided for the issuance on April 1,
1993, of options to purchase 20,000 shares of the Company's Common Stock at a
price of $3.00 per share, the issuance on April 1, 1994 of options to purchase
20,000 shares of the Company's Common Stock at a price of $4.00 per share and
the issuance on April 1, 1995 of options to purchase 20,000 shares of the
Company's Common Stock at a price of $5.00 per share.

COMPENSATION OF DIRECTORS

The Company pays its Directors who are not otherwise compensated
by the Company for their service to the Company, a fee of $1,500 per regular
board meeting attended, $750 per special meeting or meeting of a committee of
the Board of Directors attended, and $400 per telephonic meeting in which they
participated. Employee directors receive no fees.

The Company's 1994 Stock Option Plan provides for the grant of a fixed
amount of options to each Director who is not an employee of the Company. The
formula option provision covering grants to non-employee Directors provides for
the grant of options to purchase 25,000 shares of Common Stock to each person
who was a non-employee Director of the Company on November 13, 1995 and to any
person elected or appointed as a non-employee Director subsequent to that date.
Additionally, the formula provision provides for the grant of options each year
thereafter to purchase 3,000 shares of Common Stock to each non-employee upon
re-election as a Director at the annual meeting of shareholders. All options
granted pursuant to the formula provision are exercisable for a period of ten
years, with an exercise price equal to the closing price of the Company's Common
Stock on the date of grant. On April 1, 1995, options to purchase 5,000 shares
of Common Stock were granted to each of the Company's three then non-employee
directors at an exercise price of $4.03 per share pursuant to the formula
provision of the Company's 1994 Stock Option Plan that was in effect at the time
of that grant.

During the fiscal year ended March 31, 1996, Messrs. Gordon, Sayer,
Edwards, Sigoloff, Smith, Spievak and Conrad each received options to purchase
25,000 shares of Common Stock, and Messrs. Gordon, Sayer and Edwards each
received options to purchase 3,000 shares of Common Stock. All such options are
exercisable at a price of $2.125 per share and were granted pursuant to the
formula option grant provision for non-employee Directors in the 1994 Stock
Option Plan, as amended. The Company granted each of Messrs. Gordon, Conrad and
Spievak options to purchase 5,000 shares of Common Stock at an exercise price of
$4.13 per share pursuant to the formula option grant provision for non-employee
Directors in the 1994 Stock Option Plan that was in effect at the time of that
grant. The Company granted additional options to purchase 37,500 shares of
Common Stock to Mr. Sayer with exercise prices ranging from $1.75 to $3.6875 per
share pursuant to the terms of a consulting agreement.

STOCK OPTIONS

The following table contains information concerning the grant of stock
options during the fiscal year ended March 31, 1996, to the Named Executives:

Option Grants in Fiscal Year 1996 (1)
-------------------------------------

Percent of
Total Options/
SARs Granted Exercise or
Options/ SARs to Employees Base Price Expiration
Name Granted (#) In FY 1996 Per Share Date
- ------------------------------------------------------------------------------------------

James B. Mariner 360,000 (2) 65% $1.875 Mar. 4, 2003

Gerald R. Sayer 68,000 (3) 13% (3) (3)

A. Charles Lubash -0- 0% N/A N/A

George L. Lazik, Ph.D. -0- 0% N/A N/A

Russell Jackson 83,000 16% $2.125 Feb. 7, 2001

Ernest Holland 3,000 * $2.125 Feb. 7, 2001

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

* Less than 1%.

(1) The Company has no plans pursuant to which stock appreciation rights may be
granted.

(2) The stock options vest at a rate of 120,000 options per year if all revenue
and profit goals are achieved and any options that remain unvested at March
31, 1999 due to failure to meet such goals shall vest pro-rata over the
following three years.

(3) Consists of options granted pursuant to the formula option plan for non-
employee Directors and pursuant to the terms of a consulting agreement.
The exercise terms of the options are as follows:

Number of Exercise Expiration
Description Options Price Date
--------------------------------------------------------------------------------------

Formula Options 25,000 $2.125 Nov. 12, 2005
Formula Options 3,000 $2.125 Feb. 7, 2006
Consulting Options 2,500 $3.687 Jul. 30, 1998
Consulting Options 5,000 $3.625 Aug. 30, 1998
Consulting Options 5,000 $3.250 Sept. 29, 1998
Consulting Options 5,000 $2.125 Oct. 30, 1998
Consulting Options 5,000 $2.125 Nov. 29, 1998
Consulting Options 5,000 $1.750 Dec. 30, 1998
Consulting Options 5,000 $2.625 Jan. 30, 1999
Consulting Options 5,000 $1.750 Feb. 28, 1999
Consulting Options 2,500 $2.500 Mar. 31, 1999
------------------
68,000

The following table provides information with respect to the exercise of
options during the fiscal year ended March 31, 1996 by the Named Executives,
and unexercised options held by such Named Executives as of March 31, 1996.

Aggregated Option Exercises in Fiscal Year 1996
and Fiscal Year End Option Values (1)
- ------------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised Unexercised In-the-Money
Shares Options @ 3/31/96 Options @ 3/31/96(2)
Acquired Value ----------------------------------------------------------------
on Exercise Realized Unexer- Unexer-
Name (#) ($) Exercisable cisable Exercisable cisable
- ------------------------------------------------------------------------------------------------------------------

James B. Mariner -0- N/A -0- 360,000 -0- $225,000

Gerald R. Sayer -0- N/A 49,375 (3) 18,625 $ 14,766 $ 6,984

A.Charles Lubash -0- N/A 425,000 (4) -0- $807,500 N/A

George L. Lazik -0- N/A 225,000 (5) -0- $427,500 N/A

Russell Jackson -0- N/A 188,000 -0- $ 41,025 N/A

Ernest Holland -0- N/A 3,000 -0- $ 1,125 N/A
- ------------------------------

(1) The Company has no plans pursuant to which stock appreciation rights may be
granted.

(2) Value of unexercised "in-the-money" options is the difference between the
market price of the Company's Common Stock on March 31, 1996 ($2.50 per
share), and the exercise price of the option, multiplied by the number of
shares subject to the option.

(3) Includes options to purchase 28,000 shares of Common Stock granted pursuant
to the formula plan provision of the 1994 Stock Option Plan for Mr. Sayer's
service as a member of the Board of Directors.

(4) 225,000 of the options were issued in consideration for Mr. Lubash's
personal guarantee of the Company's bank loan and other obligations.
200,000 of the options vested under Mr. Lubash's employment agreement with
the Company for attaining certain sales goals set forth therein.

(5) 25,000 of the options were issued in consideration for Mr. Lazik's personal
guarantee of the Company's bank loan and other obligations. 200,000 of the
options vested under Mr. Lazik's employment agreement with the Company for
attaining certain sales goals set forth therein.

1994 STOCK OPTION PLAN

On August 31, 1994, the Board of Directors adopted the 1994 Stock Option
Plan (the "1994 Plan"). On November 22, 1994, the Shareholders of the Company
ratified the 1994 Plan at the annual meeting of Shareholders. The 1994 Plan
provides for the issuance of up to 2,000,000 shares of the Company's Common
Stock upon the exercise of options granted to employees, Directors and
consultants of the Company. Under the terms of the 1994 Plan, options granted to
employees thereunder will be designated as options which qualify for incentive
stock option treatment ("ISOs") under Section 422A of the Internal Revenue Code
of 1986, as amended, to the extent that the fair market value of the Common
Stock underlying any individual grant, as determined at the time of grant, does
not exceed $100,000. Additionally, the 1994 Plan allows the Board of Directors
to grant options which do not qualify as incentive stock options ("Non-Qualified
Options") to non-employee Directors and consultants to the Company, as well as
employees.

The employees of the Company who are eligible to receive grants of options
under the 1994 Plan are those key employees who are from time to time
responsible for the management, growth, and protection of the business of the
Company. Officers and Directors of the Company who are also

employees of the Company are eligible to receive grants of ISOs under the 1994
Plan. No employee may be granted an ISO if the employee, at the time the option
is granted, owns shares of the Company's Common Stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company,
unless the option is granted to such person with an exercise price of at least
110% of the fair market value of the Common Stock on the date of grant. Any ISO
granted to an employee who owns more than 10% of the Company's Common Stock may
not be exercised until after the expiration of 5 years from the date the option
is granted.

The 1994 Plan is administered by an Option Committee of the Board of
Directors (the "Committee"), which has the discretion to determine the eligible
employees to whom, and the times and the price at which, options will be
granted; the periods during which each option will be granted; and the number of
shares subject to each option. The Committee has full authority to interpret the
1994 Plan and to establish and amend rules and regulations relating thereto.

As of September 20, 1996, options to purchase an aggregate of 1,420,850
shares of Common Stock were outstanding under the 1994 Stock Option Plan. These
include outstanding options granted to officers and Directors to purchase an
aggregate of 1,174,000 shares of Common Stock at exercise prices ranging from
$1.67 to $5.00 per share. As of September 20, 1996, options to purchase 897,500
shares were vested. Options to purchase 360,000 shares will vest over the next
seven fiscal years, the timing of which is dependent upon the performance of the
Company. Additionally, options to purchase 358,335 shares, 95,833 shares and
83,332 shares will vest over the remainder of the fiscal year ending March 31,
1997, and the fiscal years ending March 31, 1998 and 1999, respectively.

CERTAIN TRANSACTIONS WITH MANAGEMENT AND PRINCIPAL SHAREHOLDERS

The Company paid finder's fees of $150,000 and $125,000 to Maximum
Partners, Ltd. relating to private placements of the Company's preferred stock
in March and May, 1996, respectively. A principal of Maximum Partners, Ltd. is
the son of the Mr. Lubash, who is a Director of the Company.

James R. Spievak, a former director and the Secretary of the Company, is a
principal in the law firm of Annis & Spievak and was senior shareholder in the
law firm of Shenas, Shaw & Spievak, a Professional Corporation until February
1996. Each of these firms have performed legal services for the Company during
the last two years. For the year ended March 31, 1996, the fees related to
services provided to the Company by Annis & Spievak and Shenas, Shaw & Spievak
were $10,101 and $236,839, respectively. For the year ended March 31, 1995, the
fees related to services provided to the Company by Shenas, Shaw & Spievak were
$238,756.

In November 1994, the Company entered into an investor relations consulting
agreement with Strategic Growth International, Inc. ("SGI"). The agreement was
for a period of one year and provided for cash compensation of $6,750 per month.
Options to purchase 200,000 shares of Common Stock were also issued pursuant to
the terms of the agreement. In March 1995, the Company paid SGI $40,000 in
finder's fees relating to a private placement of Common Stock and warrants of
the Company. In August 1995, the agreement between the Company and SGI was
replaced with an agreement expiring on January 1, 1997. The replacement
agreement provides for a monthly fee of $11,600 and for SGI to provide
additional services to the Company, including merger and acquisition consulting
services, capital financing consulting services and services relating to the
introduction of the Company's products to potential customers.

PROPOSAL 3

AMENDMENTS TO 1994 STOCK OPTION PLAN

The third proposal to be acted upon at the Annual Meeting relates to
certain amendments (the "Plan Amendments") to the Company's 1994 Stock Option
Plan which would (i) eliminate the formula option grant system and (ii) provide
the Board with more flexibility in amending the 1994 Option Plan in the future.
The Board Management believes that the proposed amendments will provide it with
increased flexibility in administering the 1994 Plan while complying with recent
changes in the rules promulgated under the Exchange Act). The proposed
amendments are set forth as Appendix B to this Proxy Statement and the 1994 Plan
is described under "Executive Compensation -- 1994 Stock Option Plan."

The Securities and Exchange Commission recently adopted comprehensive
amendments to the rules which set forth the requirements for stock option grants
to company insiders to be exempted from the short-swing profits provisions of
the Exchange Act. The new Rule 16b-3 (the "New Rule") substantially simplifies
and eliminates many of the requirements under its old counterpart (the "Old
Rule"). Under the Old Rule any awards of stock options to a Director who was a
member of the Board committee that administered the 1994 Option Plan were
required to be made pursuant to a fixed formula. In accordance with the Old
Rule, Section 6.13 of the 1994 Plan (the "Formula Provision") currently provides
that each non-employee Director shall automatically receive formula options to
purchase (i) 25,000 shares of Common Stock on the date in which he is elected or
appointed as a non-employee Director, which options vest pro rata quarterly over
a period of two years, and (ii) 3,000 shares of Common Stock upon re-election,
which options vest entirely in six months. The options so granted are
exercisable at the market price of the Common Stock on the date of grant.

Because the New Rule obviates any need for a formula option provision, the
Board, on September 11, 1996, proposed amendments eliminating the Formula
Provision and any reference thereto in the 1994 Plan. In place of the Formula
Provision will be a program that has been approved by resolution of the Board
and which will be administered by the Board or a committee of the Board composed
of non-employee Directors. The Board currently intends such program (the
"Program") to provide for (i) materially equivalent option grants as that of the
Formula Provision to all non-employee Directors upon their election, appointment
and re-election ("Non-Employee Director Grants"), and (ii) a similarly fashioned
formula option system which will grant to each non-employee Director who is a
chairman of a committee of the Board of Directors additional options to purchase
25,000 shares of Common Stock upon appointment as a chairman of each such
committee and 4,000 shares of Common Stock upon re-appointment as committee
chair each year thereafter ("Committee Chairman Grants"). Although the terms of
the Program will neither be provided in the 1994 Plan nor in any other plan, and
such grants under the Program will be at the Board's discretion, the Board has
no reason to believe that option grants under the Program will not be
substantially as set forth above. Furthermore, the Board or a committee thereof
may at its discretion from time to time grant additional stock options to
outside Directors to reflect their contribution to the Company.

The Board believes that stock option grants made pursuant to the Program
will enable the Company to attract and retain qualified non-employee Directors,
adequately compensate the chairmen of the Board committees and allow for greater
flexibility in the Board's administration of stock option awards to non-employee
Directors without the rigid application of the fixed formula limitations imposed
under the Old Rule. Pursuant to the Program, the Board, subject to approval by
the Shareholders of the amendments to the 1994 Option Plan, has unanimously
approved on September 11, 1996 the grant of stock options to purchase (i) 25,000
shares of Common Stock to each non-employee Director upon his initial election
to the Board, (ii) 3,000 shares of Common Stock to each non-employee Director
upon his re-election to the Board, (iii) 25,000 shares of Common Stock to the
chairman of each of the Board Committees, and (iv) 4,000 shares of Common Stock
to the chairman of each of the Board Committees upon their re-appointment. Under
the Program, options for Non-Employee Director Grants related to the

initial election or appointment of a Director will be exercisable at the market
price of the Common Stock on the date of election or appointment and (assuming
the Director continues to serve as a Director) shall vest pro rata quarterly
over a period of two years. Non-Employee Director Grants related to the re-
election of a Director will be exercisable at the market price of the Common
Stock on the date of re-election, will be fully vested on the date of re-
election, but may not be exercised within six months of the date of re-election.
Options for Committee Chairman Grants will have an exercise price of $2.5625 for
each Director who was a committee chairman on September 11, 1996 (Messrs.
Edwards, Sayer, Sigoloff, Gordon and Smith). Other Committee Chairman Grants
will be exercisable at the market price of the Common Stock on the date of
appointment or re-appointment. Options for Committee Chairman Grants will vest
on the date of grant but may not be exercised within six months of the date of
grant. Currently, Messrs. Edwards, Sayer, Sigoloff, Gordon and Smith are the
Chairmen of the Executive, Compensation, Audit, Nominating and Option
Committees, respectively.

Because such amendment might be deemed to materially increase benefits to
Directors participating in the 1994 Plan, the Board determined to seek approval
of the amendment by the Shareholders.

Options granted under the 1994 Plan pursuant to the Program will be subject
to the following restrictions, among others: (i) options will expire no later
than 10 years after the date of grant; (ii) the exercise price for the shares
may not be less than the fair market value of such shares on the date of grant
of the option, and such price must be paid in full at the time of exercise in
any combination of cash or stock of the Company; (iii) no option, even if
vested, will be exercisable within six months of the date of grant of such
option; and (iv) options are not transferable during the lifetime of the option
holder.

Non-employee Directors who receive options under the Program will be
subject to taxation under federal tax law upon exercise of such options on the
spread between the fair market value of the Common Stock on the date of exercise
and exercise price of such options. This spread is treated as ordinary income
to the non-employee Directors, and the Company is permitted to deduct as an
employee expense a corresponding amount. Such options are nonstatutory options
and do not give rise to a tax preference item subject to the alternative minimum
tax.

The second area of amendment relates to the amendment provision of the 1994
Plan. Section 9 of the 1994 Plan currently provides the Board with full
authority to amend the 1994 Plan with the proviso that any action that either
(i) materially increases the maximum aggregate number of shares of Common Stock
issuable pursuant to the 1994 Plan, (ii) materially increases the benefits
accruing to plan participants, or (iii) materially modifies the eligibility
requirements for plan participants, requires shareholder approval. These
shareholder-approval provisions are explicit requirements of the Old Rule and
can be dispensed with under the New Rule to provide increased flexibility to the
Board in its administration of the 1994 Plan. Subject to Shareholder approval,
the Board has unanimously adopted the elimination of the above shareholder-
approval provisions in the 1994 Plan. Section 9, as amended, is set forth in
Appendix B to this Proxy Statement.

The amendment to Section 9 of the 1994 Plan would allow the Board, subject
to the restrictions under applicable rules of the National Association of
Securities Dealers, Inc. and the Internal Revenue Code of 1986, as amended,
and the regulations thereunder, to increase the number of shares of Common
Stock subject to the 1994 Plan and to make other changes to the 1994 Plan
(including additional changes to conform to the New Rule) without the need for
additional shareholder approval. Approval of the Plan Amendments requires
the affirmative vote of a majority of the shares of Common Stock represented and
eligible to vote at the Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3

PROPOSAL 4

RATIFICATION OF APPOINTMENT OF AUDITORS

The auditors of the Company are Deloitte & Touche, L.L.P., Certified Public
Accountants, 1000 Wilshire Boulevard, Los Angeles, California 90017-2472.
Deloitte & Touche has performed audit services for the Company since its
appointment in 1990, which have consisted of the examination of the financial
statements of the Company and assistance and consultation in connection with
filings with the Securities and Exchange Commission. Deloitte & Touche has also
provided tax advice to the Company. All professional services rendered by
Deloitte & Touche during fiscal year 1996 were furnished at customary rates and
terms.

Representatives of Deloitte & Touche will be present at the Annual Meeting
to respond to appropriate questions and to comment, if they so desire, on the
Company's financial statements.

The Board of Directors has appointed Deloitte & Touche as the Company's
auditors for the current fiscal year, and the Shareholders are being asked to
ratify such appointment. The affirmative vote of the holders of at least a
majority of the outstanding shares of the Company's stock represented and voting
at the Annual Meeting will be required for passage of the proposal.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 4

SHAREHOLDER PROPOSALS

It is anticipated that the 1997 Annual Meeting of Shareholders will be held
on or about October 5, 1997. Proposals of Shareholders intended to be
included in the proxy materials for the 1997 Annual Meeting of Shareholders must
be received by the Secretary of the Company, 9600 Topanga Canyon Boulevard,
Chatsworth, California 91311, by May 5, 1997.

ANNUAL REPORT

The Company's Annual Report for the fiscal year ended March 31, 1996,
accompanies this Proxy Statement. The Annual Report contains the financial
statements of the Company and the report thereon of Deloitte & Touche, the
Company's independent auditors.

SHAREHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB INCLUDING FINANCIAL STATEMENTS REQUIRED TO BE FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1996, BY WRITING THE COMPANY AT 9600
TOPANGA CANYON BOULEVARD, CHATSWORTH, CALIFORNIA 91311 (ATTN: JAMES B. MARINER,
PRESIDENT AND CHIEF EXECUTIVE OFFICER).

OTHER BUSINESS

The Board of Directors knows of no other business which may come before the
Annual Meeting other than stated in the Notice of Annual Meeting. If, however,
other matters are properly brought before the Annual Meeting, it is the
intention of the Proxyholders to vote the shares represented thereby on such
matters in accordance with the recommendation of the Board of Directors, and
authority to do so is included in the Proxy.

Dated at Chatsworth, California, this 9th day of October, 1996.

By Order of the Board of Directors

Richard F. Gordon, Jr.
Chairman of the Board

APPENDIX A
- ----------

"Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The number of
directors of the corporation shall not be less than five (5) nor more than nine
(9). The exact number of directors shall be eight (8) until changed, within the
limits specified above, by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the number or
the minimum number of Directors to a number less than five (5) cannot be adopted
if the votes cast against its adoption at a meeting of the shareholders, or the
shares not consenting in the case of action by written consent, are equal to
more than 16-2/3 percent of the outstanding shares entitled to vote. No
amendment may change the stated maximum number of authorized directors to a
number greater than two times the stated minimum number of directors minus one."

APPENDIX B
- ----------

Sections 6.13 and 9 of the 1994 Stock Option Plan as currently in effect:

"6.13 FORMULA OPTIONS. Each person who is a non-employee Director of the
---------------
Company on November 13, 1995, the effective date of the Plan, as amended, and
each person who thereafter is elected or appointed as a non-employee Director
shall automatically receive a Formula Option to purchase: (i) 25,000 shares of
Stock ("Initial Formula Options"), subject to adjustment as provided in this
Plan, on the effective date of this Plan, as amended, or on the date thereafter
upon which such person first is elected or appointed as a non-employee Director;
and (ii) thereafter, on the date of each annual Stockholders meeting at which
the Director is re-elected to the Board, 3,000 shares of Stock ("Re-Election
Formula Options"), subject to adjustment as provided in this Plan. Formula
Options will have an Option Price equal to the Fair Market Value of the Stock as
of the date of such grant, which in this case of Re-Election Formula Options
shall be the date of the Company's annual stockholders meeting at which the
Director is re-elected. Subject to earlier termination as provided elsewhere in
this Plan, each option shall expire ten (10) years from the date the option was
granted. Initial Formula Options will vest pro rata quarterly over a two-year
period and Re-Election Formula Options will vest entirely six months after the
date of grant. For purposes of vesting of Formula Options, service as a non-
employee Director prior to the date of grant shall be counted in calculating
vesting (e.g., Initial Formula Options granted to a Director who had served on
----
the Board for 18 months prior to the date of grant would be immediately vested
as to 75% of such Options with the remaining Options vesting pro rata over the
next two quarters). No option, even if vested, will be exercisable within six
months of the date of grant of such option. Except as otherwise specifically
provided in this Section 6.13, the terms of this Plan will apply to all Formula
Options granted pursuant to this Section 6.13; provided, however, that neither

the Board nor the Committee shall exercise any discretion with respect to the
formula options."

"9. AMENDMENT AND DISCONTINUANCE
----------------------------

The Board may amend, suspend or discontinue this Plan at any time or from
time to time; provided that no action of the Board will cause ISOs granted under
this Plan not to comply with Section 422 of the Code unless the Board
specifically declares such action to be made for that purpose and provided
further that no action may, without the approval of the stockholders of the
Company, materially increase (other than by reason of an adjustment pursuant to
Section 5.2 hereof) the maximum aggregate number of shares of Option Stock in
the Option Pool that may be issued under Options granted pursuant to this Plan
or materially increase the benefits accruing to Plan Participants or materially
modify eligibility requirements for the Participants; provided further, that the
provisions of Section 6.13 hereof may not be amended more often than once during
any six (6) month period, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, or the rules and regulations
thereunder. Moreover, no such action may alter or impair any Option previously
granted under this Plan without the consent of the holder of such Option."

Sections 6.13 and 9 of the 1994 Stock Option Plan as proposed to be
amended:

"6.13. (Reserved)"

"9. AMENDMENT AND DISCONTINUANCE
----------------------------

PRELIMINARY COPIES

APPENDIX - PROXY

CHATCOM, INC.
9600 Topanga Canyon Boulevard, Chatsworth, CA 91311
(818) 709-1778

Proxy for Annual Meeting of Shareholders, November 21, 1996

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

Richard F. Gordon, Jr. and James B. Mariner, or either of them, with full
power of substitution, are hereby authorized to represent and vote all the
shares of Common Stock of the undersigned at the Annual Meeting of the
Shareholders of ChatCom, Inc. (the "Company"), to be held at the Wyndham
at Los Angeles Airport, 6225 West Century Boulevard, Los Angeles, California
90045, November 21, 1996, at 10:30 A.M. local time (Pacific Standard Time), or
any adjournment thereof, with all power which the undersigned would possess if
personally present, in the following manner:

1. Approval of an amendment to the Company's Bylaws regarding the authorized
number of Directors of the Company.

___ FOR ___ AGAINST ___ ABSTAIN

2. Election of Directors proposed by the Board of Directors as listed below:

___ FOR ALL NOMINEES LISTED BELOW (EXCEPT AS MARKED TO THE CONTRARY BELOW)

___ WITHHOLD AUTHORITY (TO VOTE FOR ALL NOMINEES LISTED BELOW)

Richard F. Gordon, Jr., A. Charles Lubash, George L. Lazik, Ph.D., Gerald R.
Sayer, Ph.D., James D. Edwards, Sanford C. Sigoloff, Philip B. Smith, James B.
Mariner

INSTRUCTION: JAMES B. MARINER WILL BE REMOVED AS A NOMINEE IF THE PROPOSAL
TO AMEND THE COMPANY'S BYLAWS (PROPOSAL 1 ABOVE) IS NOT APPROVED. TO WITHHOLD
AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THAT
NOMINEE'S NAME IN THE LIST ABOVE.

3. Approval of certain amendments to the Company's 1994 Stock Option Plan.

___ FOR ___ AGAINST ___ ABSTAIN

4. Ratification of the appointment of Deloitte & Touche, L.L.P. as auditors for
the audit of financial statements for the year ending March 31, 1997.

___ FOR ___ AGAINST ___ ABSTAIN

5. In their discretion, the Proxyholders are authorized to vote upon such
other business (none at the time of solicitation of this proxy) as may
properly come before the meeting, or any adjournment thereof.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED
PROPOSITIONS.

THIS PROXY SHALL BE VOTED AS DIRECTED. IN THE ABSENCE OF A CONTRARY
DIRECTION, IT SHALL BE VOTED FOR THE PROPOSALS AND THE PROXYHOLDERS MAY
VOTE IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS PROPERLY MAY COME
BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF:

The undersigned acknowledges receipt of Notice of said Meeting, the
accompanying Proxy Statement and the 1996 Annual Report to Shareholders, and
hereby revokes all proxies heretofore given by the undersigned for said Meeting.

THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTING THEREOF.

Date_____________, 1996

Number of Shares

Signature of Shareholder

Signature of Shareholder, if held jointly

PLEASE DATE THIS PROXY AND SIGN YOUR NAME OR NAMES EXACTLY AS SHOWN, HEREON.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
SIGN YOUR FULL TITLE AS SUCH, IF MORE THAN ONE TRUSTEE, OR JOINT OWNERS, ALL
MUST SIGN. PLEASE RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.