AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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NOTIFY CORPORATION
(Name of small business issuer in its charter)

CALIFORNIA 3661 77-0382248
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)

1054 S. DE ANZA BLVD. SUITE 105
SAN JOSE, CALIFORNIA 95129
(408) 777-7920
(Address and telephone number of principal executive offices)

1054 S. DE ANZA BLVD. SUITE 105
SAN JOSE, CALIFORNIA 95129
(408) 777-7920
(Address of principal place of business or intended principal place of
business)

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PAUL F. DEPOND
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1054 S. DE ANZA BLVD. SUITE 105
SAN JOSE, CALIFORNIA 95129
(408) 777-7920
(Name, address and telephone number of agent for service)

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Copies to:

HENRY P. MASSEY, JR., ESQ. FRAN STOLLER, ESQ.
PETER S. HEINECKE, ESQ. BACHNER, TALLY, POLEVOY & MISHER LLP
BRADLEY A. BUGDANOWITZ, ESQ. 380 MADISON AVENUE
WILSON SONSINI GOODRICH & ROSATI NEW YORK, NEW YORK 10017-2590
PROFESSIONAL CORPORATION (212) 687-7000
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]

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 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 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. [_]

Continued on next page

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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE FEE
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Units, each consisting of
one share of Common
Stock, $.001 par value,
one Class A Warrant and
one Class B Warrant (2). 1,610,000 $5.00 $ 8,050,000 $ 2,440
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One share of Common
Stock, $.001 par value
and one Class B Warrant
(3)..................... 1,610,000 $6.50 $10,465,000 $ 3,172
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Common Stock, $.001 par
value (4)............... 3,220,000 $8.75 $28,175,000 $ 8,538
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Unit Purchase Option (5). 140,000 $.001 $ 140 $ --
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Units, each consisting of
one share of Common
Stock, $.001 par value,
one Class A Warrant and
one Class B Warrant (6). 140,000 $6.00 $ 840,000 $ 255
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One share of Common
Stock, $.001 par value,
and one Class B Warrant
(7)..................... 140,000 $6.50 $ 910,000 $ 276
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Common Stock, $.001 par
value (8)............... 280,000 $8.75 $ 2,450,000 $ 743
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Class A Warrants (9)..... 425,000 -- -- --
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One share of Common
Stock, $.001 par value
and one Class B Warrant
(10).................... 425,000 $6.50 $ 2,762,500 $ 838
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Common Stock, $.001 par
value (11).............. 425,000 $8.75 $ 3,718,750 $ 1,127
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Total.................. $17,389

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(1) Estimated solely for the purposes of calculating the registration fee.

(2) Includes 210,000 Units subject to the Underwriter's over-allotment option.

(3) Issuable upon exercise of the Class A Warrants.

(4) Issuable upon exercise of the Class B Warrants.

(5) To be issued to the Underwriter.

(6) Issuable upon exercise of the Unit Purchase Option.

(7) Issuable upon exercise of the Class A Warrants underlying the Unit
Purchase Option.

(8) Issuable upon exercise of the Class B Warrants underlying the Unit
Purchase Option.

(9) These Class A Warrants are being registered for resale by selling security
holders, each of whom was an investor in the Registrant's private
placement (the "Selling Securityholders").

(10) Issuable upon exercise of Class A Warrants registered for resale by the
Selling Securityholders.

(11) Issuable upon exercise of Class B Warrants registered for resale by the
Selling Securityholders.

PURSUANT TO RULE 416, THERE ARE ALSO BEING REGISTERED SUCH ADDITIONAL SHARES
AND WARRANTS AS MAY BECOME ISSUABLE PURSUANT TO ANTI-DILUTION PROVISIONS UPON
THE EXERCISE OF THE CLASS A WARRANTS, THE CLASS B WARRANTS AND THE UNIT
PURCHASE OPTION.
------------

THE REGISTRATION 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 OF THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.

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EXPLANATORY NOTE

This Registration Statement covers the registration of (i) up to 1,610,000
units ("Units"), including Units to be issued to cover over-allotments, if
any, each Unit consisting of one share of Common Stock, $.001 par value
("Common Stock"), of Notify Corporation, a California corporation (the
"Company"), one redeemable Class A Warrant ("Class A Warrant") and one
redeemable Class B Warrant ("Class B Warrant"), for sale by the company in an
underwritten public offering, (ii) 140,000 additional Units, purchaseable by
the Underwriter at a price per Unit of 120% of the initial public offering
price upon the exercise of the Underwriter's option to do so (the "Unit
Purchase Option), and (iii) an additional 425,000 Class A Warrants (the
"Selling Securityholders' Class A Warrants"), for sale by the holders thereof
(the "Selling Securityholders"), 425,000 Class B Warrants (the "Selling
Securityholders' Class B Warrants") underlying the Selling Securityholders'
Class A Warrants and 850,000 shares of Common Stock (the "Selling
Securityholders' Stock") underlying the Selling Securityholders' Class A
Warrants and the Selling Securityholders' Class B Warrants, all for resale
from time to time by the Selling Securityholders. The Selling Securityholders
may not sell the Selling Securityholders' Class A Warrants for specified
periods after the closing of the underwritten offering. The Selling
Securityholders' Class A Warrants, the Selling Securityholders' Class B
Warrants and the Selling Securityholders' Stock are sometimes collectively
referred to herein as the "Selling Securityholders' Securities."

The complete Prospectus relating to the underwritten offering follows
immediately after this Explanatory Note. Following the Prospectus for the
underwritten offering are pages of the Prospectus relating solely to the
Selling Securityholders' Securities, including alternate front and back cover
pages and sections entitled "Concurrent Public Offering," "Plan of
Distribution" and "Selling Securityholders" to be used in lieu of the sections
entitled "Concurrent Offering" and "Underwriting" in the Prospectus relating
to the underwritten offering. The "Dilution" section of the Prospectus for the
underwritten offering will not be used in the Prospectus relating to the
Selling Securityholders' Securities.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- DATED MARCH 14, 1997
PROSPECTUS
NOTIFY CORPORATION

1,400,000 UNITS CONSISTING OF 1,400,000 SHARES OF COMMON STOCK, 1,400,000
REDEEMABLE CLASS A WARRANTS AND 1,400,000 REDEEMABLE CLASS B WARRANTS

Each unit ("Unit") offered by Notify Corporation (the "Company") consists of
one share of common stock, $.001 par value (the "Common Stock"), one redeemable
Class A Warrant (the "Class A Warrant") and one redeemable Class B Warrant (the
"Class B Warrant"). The Class A Warrants and Class B Warrants (collectively,
the "Warrants") will be transferable separately immediately upon issuance. Each
Class A Warrant entitles the holder to purchase one share of Common Stock and
one Class B Warrant at an exercise price of $6.50, subject to adjustment, until
the fifth anniversary of the date of this Prospectus. Each Class B Warrant
entitles the holder to purchase one share of Common Stock at an exercise price
of $8.75, subject to adjustment, until the fifth anniversary of the date of
this Prospectus. The Warrants are subject to redemption by the Company
commencing one year from the date of this Prospectus, at $.05 per Warrant on 30
days' written notice if the closing bid price of the Common Stock for 30
consecutive trading days ending within 15 days of the notice of redemption of
the Warrants averages in excess of $9.10 per share with respect to the Class A
Warrants and $12.10 per share with respect to the Class B Warrants (subject to
adjustment in each case). It is currently anticipated that the initial public
offering price will be $5.00 per Unit. See "Description of Securities."

Prior to this offering (the "Offering") there has been no public market for
the Units, the Common Stock, or the Warrants, and there can be no assurance
that such a market will develop after the completion of the Offering. See
"Underwriting" for a discussion of factors considered in determining the
initial public offering price. The Company has applied for listing of the
Common Stock, the Class A Warrants, the Class B Warrants and the Units for
quotation on the Nasdaq SmallCap Market ("Nasdaq"). For information concerning
a Securities and Exchange Commission investigation relating to the Underwriter,
see "Risk Factors" and "Underwriting."

The registration statement of which this Prospectus is a part also covers the
offering for resale from time to time by certain securityholders (the "Selling
Securityholders") of 425,000 Class A Warrants (the "Selling Securityholders'
Warrants"), and the 425,000 shares of Common Stock and 425,000 Class B Warrants
underlying the Selling Securityholders' Warrants and the 425,000 shares of
Common Stock issuable upon exercise of such Class B Warrants. The Selling
Securityholders' Warrants and the securities underlying such warrants are
sometimes collectively referred to as the "Selling Securityholders'
Securities." The Selling Securityholders' Warrants are issuable upon the
closing of the Offering to the Selling Securityholders upon the automatic
conversion of 425,000 bridge warrants (the "Bridge Warrants") acquired by them
in the Company's private placement completed in March 1997 (the "Bridge
Financing"). The Selling Securityholders have agreed not to exercise the
Selling Securityholders' Warrants for one year after the closing of the
Offering and have agreed to certain restrictions on transferability. See
"Concurrent Securities Offering." Sales of any of the Selling Securityholders'
Securities, or even the potential of such sales at any time, may have an
adverse effect on the market prices of the securities offered hereby. Unless
the context otherwise requires, all references to the Warrants shall include
the Selling Securityholders' Warrants.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" BEGINNING ON PAGE 7 AND "DILUTION."

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

===================================================================================================
UNDERWRITING
DISCOUNT PROCEEDS TO
PRICE TO PUBLIC AND COMMISSION(1) COMPANY(2)
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Per Unit................................... $ $ $
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Total(3)................................... $ $ $
===================================================================================================

(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a nonaccountable expense allowance equal to 3% of the
gross proceeds of the Offering and (ii) an option to purchase up to 140,000
Units at a price per unit equal to 120% of the initial public offering
price, exercisable at any time, in whole or in part, during the four year
period commencing one year from the date of this Prospectus (the "Unit
Purchase Option"). The Company and the Selling Stockholders have agreed to
indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(2) Before deducting expenses payable by the Company estimated at approximately
$ ($ if the overallotment is exercised in full), including the
Underwriter's nonaccountable expense allowance.

(3) The Company has granted the Underwriter an option exercisable within 30
days of the date of this Prospectus to purchase up to an additional 210,000
Units on the same terms and conditions set forth above, solely for the
purpose of covering over-allotments, if any. If the over-allotment option
is exercised in full, the Price to Public will be $ , the Underwriting
Discount and Commissions will be $ and the Proceeds to the Company will
be $ . See "Underwriting."

--------

THE UNITS ARE BEING OFFERED SUBJECT TO PRIOR SALE, WHEN, AS AND IF DELIVERED
TO AND ACCEPTED BY THE UNDERWRITER, SUBJECT TO OTHER CONDITIONS. THE
UNDERWRITER RESERVES THE RIGHT TO WITHDRAW, CANCEL OR MODIFY THE OFFERING AND
TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF THE
UNITS WILL BE MADE AT THE OFFICES OF D.H. BLAIR INVESTMENT BANKING CORP., NEW
YORK, NEW YORK ON OR ABOUT , 1997.

--------

D.H. BLAIR INVESTMENT BANKING CORP.

--------

THE DATE OF THIS PROSPECTUS IS , 1997

THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS AND WARRANTHOLDERS WITH
ANNUAL REPORTS CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT
AUDITORS.

NOTIFY AND CENTREX AUTO ATTENDANT ARE TRADEMARKS OF THE COMPANY. THE
PROSPECTUS ALSO CONTAINS TRADEMARKS AND REGISTERED TRADEMARKS OF OTHER
COMPANIES.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF UNITS, COMMON STOCK,
CLASS A WARRANTS OR CLASS B WARRANTS, INCLUDING STABILIZING BIDS OR SYNDICATE
COVERING TRANSACTIONS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

PROSPECTUS SUMMARY

The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information and financial data (including the
financial statements and the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise noted, all information in this Prospectus (a)
assumes no exercise of (i) the Underwriter's over-allotment option, (ii) the
Warrants, (iii) the Underwriter's Unit Purchase Option, (iv) the Selling
Securityholders' Warrants, (v) options available for grant under the Company's
1997 Stock Plan (the "Stock Option Plan") or (vi) other outstanding warrants
and options and (b) gives effect to the conversion, which will occur upon the
closing of the Offering, of (i) the Bridge Warrants into the Selling
Securityholders' Warrants; and (ii) all outstanding shares of the Company's
Series A Preferred Stock and Series B Preferred Stock (collectively, the
"Outstanding Preferred Stock") into shares of Common Stock. All share, per
share and other information contained in this Prospectus has been adjusted to
reflect a 1-for-5.05 reverse split of the Company's Common Stock effected in
February 1997. See "Capitalization," "Management--Stock Option Plan" and
"Description of Securities."

THE COMPANY

The Company is engaged in the development, manufacture, marketing and sale of
computer telephony products for the business, Small Office Home Office ("SOHO")
and residential marketplaces. In recent years, the number of individuals and
businesses relying on their telephone company service provider to provide them
with services such as voice mail and CENTREX, a business-oriented service which
eliminates the need for on-premise telephone switching equipment, has increased
dramatically. The Company's products are designed to enhance the convenience
and utility of these services by providing customers with features which are
either not available or not included in standard service packages. The
Company's MessageAlert product increases the timeliness and ease of message
retrieval for voice mail subscribers by providing a visual indication that a
message has been received. The Company's Centrex Auto Attendant product gives
business and SOHO customers a cost-effective means of ensuring that incoming
calls are properly routed even when a human attendant is not available.

Over 14 million business and residential customers receive voice mail service
from their telephone company service provider. Telephone company provided voice
mail has several advantages over traditional answering machines including
better remote access, enhanced message management capabilities, support for
multiple calls and superior reliability. A major drawback to telephone company
provided voice mail is the lack of a visual indication that a message is
waiting; subscribers must pick up their phones and listen for a distinctive
dial tone to determine if they have a message. As a result, messages are often
received substantially later than if the blinking light of a traditional
answering machine had been available. Telephone company product managers
believe that the lack of a visual message indicator is a major reason for
cancellation of voice mail service. The Company has remedied this deficiency in
telephone company provided voice mail by developing an inexpensive, battery
operated device which gives subscribers a visual indication that a message is
waiting. The Company believes its MessageAlert product is the only battery
operated visual message indicator compatible with both of the signaling
standards currently used by U.S. telephone companies.

The Company's second product is designed to enhance the functionality of the
CENTREX services which many small businesses purchase from their telephone
service provider. CENTREX gives small businesses useful business-oriented
telephone capabilities such as extension dialing, conference calling, call
transfer capability and call-forwarding without the need to buy and maintain
expensive telephone switches. The Company's Centrex Auto Attendant product
expands this feature set by providing auto-attendant features such as automatic
call answering, menu-prompted call routing and an automated name directory.
Small businesses can use the Centrex Auto Attendant to answer and route calls
received by their main or 800 number, thereby eliminating the need for

a human receptionist. The Company has designed the Centrex Auto Attendant to be
easy to install and configure and believes it offers a cost-effective solution
to small businesses' call-management needs.

The Company intends to distribute both of these products through or in
conjunction with the large domestic telephone companies and certain of their
authorized resellers. To date, the Company has sold its MessageAlert product to
two of the seven Regional Bell Operating Companies and five of the
approximately 20 large local exchange carriers. The Company's strategy is to
encourage these telephone companies to bundle the MessageAlert product with
their voice mail services in order to increase retention of new subscribers. In
addition, the Company intends to encourage telephone companies and their
authorized resellers which focus on selling CENTREX services to market its
Centrex Auto Attendant as an enhancement to the basic CENTREX service. The
Company believes that relationships with telephone companies it has formed as a
result of its marketing of the MessageAlert product will aid it in developing
the telephone companies as a distribution channel for the Centrex Auto
Attendant.

The Company intends to use a portion of the net proceeds from the Offering to
fund ongoing research and development of new products and product enhancements.
The Company expects to focus its efforts on four areas: cost reduction and
feature enhancement of the MessageAlert; enhancement of the Centrex Auto
Attendant platform to increase its capacity; expansion of the MessageAlert
architecture to create a combination Caller-ID/visual message waiting indicator
product; and completion of a product to provide remote telephone access to e-
mail.

The Company was incorporated in California in August 1994. Its address is
1054 S. DeAnza Blvd., Suite 105, San Jose, CA 95129. Its telephone number at
that address is 408-777-7920.

THE OFFERING

Securities Offered................ 1,400,000 Units, each Unit consisting of
one share of Common Stock, one Class A
Warrant and one Class B Warrant. Each Class
A Warrant entitles the holder to purchase
one share of Common Stock and one Class B
Warrant at an exercise price of $6.50,
subject to adjustment, at any time until
the fifth anniversary of the date of this
Prospectus. Each Class B Warrant entitles
the holder to purchase one share of Common
Stock at an exercise price of $8.75,
subject to adjustment, at any time until
the fifth anniversary of the date of this
Prospectus. The Warrants are subject to
redemption in certain circumstances on 30
days' written notice. See "Description of
Securities."

Securities Offered Concurrently
by Selling Securityholders....... 425,000 Class A Warrants; 425,000 Class B
Warrants issuable upon exercise of such
Class A Warrants and 850,000 shares of
Common Stock issuable upon exercise of such
Class A Warrants and Class B Warrants. See
"Concurrent Securities Offering."

Common Stock Outstanding Before
the Offering...................... 2,160,000 shares(1)(2)

Common Stock Outstanding After
the Offering...................... 3,560,000 shares(1)(3)

Use of Proceeds................... The net proceeds of the Offering will be
used for product development, sales and
marketing efforts, repayment of the Bridge
Notes and other indebtedness, additional
inventory, investment in fixed assets and
working capital and general corporate
purpose. See "Use of Proceeds."

Risk Factors...................... The Offering involves a high degree of risk
and immediate substantial dilution. See
"Risk Factors" and "Dilution."

Proposed Nasdaq Symbols(4):

Units............................. NTFYU

Common Stock...................... NTFY

Class A Warrants.................. NTFYW

Class B Warrants.................. NTFYZ
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(1) Includes warrants to purchase 185,064 share of Common Stock, of which
warrants to purchase 111,008 shares will be placed in escrow by the holders
thereof (the "Escrow Warrants") and 1,263,537 shares of Common Stock which
the holders thereof have agreed to deposit into escrow (the "Escrow
Shares"). The Escrow Shares and Escrow Warrants are subject to cancellation
and will be contributed to the capital of the Company if the Company does
not attain certain earnings levels or the market price of the Company's
Common Stock does not achieve certain levels. If such earnings or market
price levels are met, the Company will record a substantial non-cash charge
to earnings, for financial reporting purposes, as compensation expense
relating to the value of the Escrow Shares and Escrow Warrants released to
Company officers, directors, employees and consultants. See
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Release of Escrow Securities" and
"Principal Shareholders--Escrow Securities."
(2) Does not include (i) 200,000 shares of Common Stock reserved for issuance
upon the exercise of options issuable under the Stock Option Plan, under
which no options are currently outstanding, and (ii) 425,000 shares of
Common Stock issuable upon exercise of the Bridge Warrants. See
"Capitalization" and "Management--Stock Option Plan."
(3) Does not include (i) 4,200,000 shares of Common Stock issuable upon
exercise of the Warrants included in the Units offered hereby; (ii) 840,000
shares of Common Stock issuable upon exercise of the Underwriter's over-
allotment option and underlying Warrants; (iii) 560,000 shares of Common
Stock issuable upon exercise of the Unit Purchase Option and the underlying
Warrants; (iv) 850,000 shares of Common Stock issuable upon exercise of the
Selling Securityholders' Warrants and the underlying warrants; or (v)
200,000 shares of Common Stock reserved for issuance under the Stock Option
Plan. See "Capitalization" and "Management--Stock Option Plan".
(4) Notwithstanding quotation on Nasdaq, there can be no assurance that an
active trading market for the Company's securities will develop or, if
developed, that it will be sustained.

SUMMARY FINANCIAL INFORMATION

THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- --------------------
1995 1996 1995 1996
------------ ------------- --------- ---------

Product sales................ $ 9,333 $ 308,067 $ 4,903 $ 396,294
Cost of sales................ 7,929 428,112 2,775 351,079
----------- ------------- --------- ---------
Gross profit (loss).......... 1,404 (120,045) 2,128 45,215
Operating expenses:
Research and development.... 159,163 537,902 147,272 149,415
Sales and marketing......... 122,884 549,916 116,672 153,399
General and administrative.. 146,756 440,089 84,194 138,787
----------- ------------- --------- ---------
Total operating expenses..... 428,803 1,527,907 348,138 441,601
----------- ------------- --------- ---------
Loss from operations......... (427,399) (1,647,952) (346,010) (396,386)
Interest expense, net........ 1,337 (9,267) 6,806 (19,583)
----------- ------------- --------- ---------
Net loss..................... $ (426,062) $ (1,657,219) $(339,204) $(415,969)
=========== ============= ========= =========
Pro forma net loss per
share(1).................... $ (1.89) $ (0.47)
============= =========
Shares used in computing pro
forma net loss per share(1). 875,092 882,787
============= =========

- --------
(1) The pro forma net loss per share computation gives retroactive effect to
the conversion of the Outstanding Preferred Stock into Common Stock upon
the closing of the Offering, and excludes the Escrow Securities. See Note 1
of Notes to Financial Statements for an explanation of the calculation for
pro forma net loss per share. See "Capitalization--Bridge Financing," "--
Restructuring," "Certain Relationships and Related Transactions," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

DECEMBER 31, 1996
-------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
---------- ------------ ------------

BALANCE SHEET DATA:
Working capital.......................... $ (706,643) $ 131,732 $
Total assets............................. 738,633 1,463,633
Total liabilities........................ 1,343,589 1,230,214
Total shareholders' equity (net capital
deficiency)............................. (604,956) 233,419

- --------
(1) Gives pro forma effect to (i) the sale of the Bridge Notes and Bridge
Warrants subsequent to December 31, 1996, (ii) the conversion of certain of
the Convertible Shareholder Notes into equity in connection with a
restructuring effected by the Company in January 1997 and (iii) the
conversion of the Outstanding Preferred Stock into Common Stock upon
completion of the Offering. See "Capitalization--Bridge Financing," "--
Restructuring," "Certain Relationships and Related Transactions," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) Adjusted to give effect to the sale of the 1,400,000 Units offered hereby,
the application of a portion of the net proceeds therefrom to repay the
Bridge Notes and other indebtedness and the corresponding non-recurring
charge which will be incurred upon the closing of the Offering of
approximately $231,000 representing debt discount and debt issuance costs
associated with the Bridge Financing. See "Use of Proceeds," "Certain
Relationships and Related Transactions," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

RISK FACTORS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including, without limitation, statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors, including those set forth
in the following risk factors and elsewhere in this Prospectus. In evaluating
the Company's business, prospective investors should consider carefully the
following factors in addition to the other information set forth in this
Prospectus.

LIMITED OPERATING HISTORY; HISTORY OF LOSSES; WORKING CAPITAL DEFICIT; NO
ASSURANCE OF FUTURE PROFITABILITY

The Company commenced operations in August 1994 and through January 1996 was
engaged primarily in research and development. For the fiscal year ended
September 30, 1996, the Company incurred a net loss of $1,657,219. As of
December 31, 1996, the Company had an accumulated deficit of $2,499,250 and a
working capital deficit of $706,643. The Company incurred a net loss of
$415,969 for the quarter ended December 31, 1996 and expects to incur further
operating losses during at least the next three quarters and until such time,
if ever, as there is a substantial increase in orders for the Company's
products and product sales generate sufficient revenue to fund its continuing
operations. There can be no assurance that sales of the Company's products
will ever generate significant revenue, that the Company will ever generate
positive cash flow from its operations or that the Company will attain or
thereafter sustain profitability in any future period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business--Sales, Marketing and Distribution."

UNCERTAINTY AS TO ABILITY TO CONTINUE AS A GOING CONCERN

The Company has received a report from its independent auditors containing
an explanatory paragraph that describes the uncertainty as to the ability of
the Company to continue as a going concern due to the Company's recurring
losses from operations. There can be no assurance that the Company will
achieve profitable operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Financial Statements--
Report of Independent Auditors."

UNCERTAINTY OF PRODUCT ACCEPTANCE

The Company sold its first MessageAlert in January 1996 and its first
Centrex Auto Attendant in December 1996. To date, the Company has received
only limited revenue from the sale of these products. While the Company
believes that its products are commercially viable, developing products for
the consumer and business marketplaces is inherently difficult and uncertain.
The Company does not believe its sales to date are sufficient to determine
whether or not there is meaningful consumer or business demand for its
products. The Company intends to devote a significant portion of the proceeds
of the Offering to its sales and marketing efforts and to promote consumer and
business interest in its products. There can be no assurance that such efforts
will be successful or that significant market demand for the Company's
products will ever develop. See "Business--Products," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Use of
Proceeds."

DEPENDENCE ON LIMITED NUMBER OF POTENTIAL CUSTOMERS; NEED TO DEVELOP MARKETING
CHANNELS

The Company believes its success, if any, will be largely dependent on its
ability to either sell its products to or enter into joint marketing
arrangements with the seven Regional Bell Operating Companies (RBOCs) and

approximately 20 large Local Exchange Carriers (LECs) in the United States. In
particular, the Company believes that its MessageAlert product can be sold
profitably only if it is sold to or in conjunction with the RBOCs and LECs.
The Company also expects to rely significantly on the RBOCs and LECs as a
channel for its Centrex Auto Attendant product. To date, the Company has sold
its products to two RBOCs and seven LECs. Qualifying its product and
developing the marketing relationships necessary to make these sales took
substantially longer than the Company originally anticipated. RBOCs and LECs
tend to be hierarchical organizations characterized by distributed decision-
making authority and an institutional reluctance to take risks. Selling a
product to or entering into a marketing relationship with an RBOC or LEC is
generally a lengthy process requiring multiple meetings with numerous people
in the organization. A failure by the Company to develop significantly
enhanced relationships with the RBOCs and LECs would have a materially adverse
effect on the Company's business and operating results.

Sales to RBOCs and LECs constituted 69% and 78% of revenue for the fiscal
year ended September 30, 1996 and the quarter ended December 31, 1996,
respectively. In addition, three customers accounted for 30%, 18% and 16% of
sales in fiscal 1996, and for 31%, 19% and 13% of sales in the quarter ended
December 31, 1996.

The Company also intends to develop other distribution channels for its
products including certain authorized service resellers of the RBOCs and LECs,
retail stores and mail order catalogues. Development of any one of these
channels will require the expenditure of substantial time and effort by the
Company's management. Because the Company's marketing efforts have been
largely focused on the RBOCs and LECs, its management has had only limited
experience in selling the Company's products through these channels. There can
be no assurance that the Company will be able to implement such a marketing
and distribution program or that any marketing efforts undertaken by or on
behalf of the Company will be successful. See "Business--Sales, Marketing and
Distribution."

RISK OF PRODUCT DEFECTS

The Company's products incorporate a combination of reasonably sophisticated
computer chip design, electric circuit design and telephony technology. The
Company has devoted substantial resources to researching and developing each
of these elements. In order to reduce the manufacturing costs, limit the power
consumption and otherwise enhance the operation of its products, the Company
has from time to time redesigned its products. The Company expects that in the
future it will engage in similar redesigns of its products. In addition, the
Company is in the process of developing new, similarly complex products.
Though the Company extensively tests its products before marketing them, any
new, redesigned or current product may contain design flaws which are
undetected by the Company's testing procedures. For example, in August 1996,
the Company recalled 6,500 of an earlier version of its MessageAlert product
as a result of a design flaw and, in November 1996, the Company recalled
14,000 of its MessageAlert product, also as a result of a design flaw. The
direct cost to re-work and repair the defective products in these instances
was approximately $29,000 and $13,000, respectively. In addition, the Company
relies on subcontractors to manufacture and assemble its products. Though the
Company has quality control procedures designed to detect manufacturing
errors, there can be no assurance that the Company will identify all defective
products. The Company believes that reliable operation will be an important
purchase consideration for both its consumer and business customers. A failure
by the Company to detect and prevent a design flaw or a widespread product
defect could materially adversely affect the sales of the affected product and
the Company's other products and materially adversely affect the Company's
business, financial condition and operating results. See "Business--Products."

COMPETITION

The Company believes the market for its products is highly competitive and
that competition is likely to intensify. In the market for visual message
waiting indicators, the Company competes with Voicewaves, Inc., Consumerware,
Inc., SNI Innovation, Inc. and AASTRA TELECOM. Certain of these companies have
greater financial, technical and marketing resources than the Company. In
addition, there are several companies with

substantially greater technical, financial and marketing resources than the
Company which could produce competing products. These companies include
telephone equipment manufacturers such as CIDCO Incorporated, Intelidata,
Inc., Northern Telecom, Inc., and Lucent Technologies, Inc. In the market for
auto-attendant products, the Company competes directly with Bogen
Communications, Inc. and Cobtyx Corporation, Inc. In addition, the Company
competes with alternative products such as PC-based auto-attendant and voice
mail products offered by companies such as Active Voice Corporation, Altigen
Communications, and Voice Systems Research Corporation. The Company expects
that to the extent that the market for its products develops, competition will
intensify and new competitors will enter the market. There can be no assurance
that the Company will be able to compete successfully against existing and new
competitors as the market for its products evolves and the level of
competition increases. A failure to compete successfully against existing and
new competitors would have a materially adverse effect upon the Company's
business and results of operations. See "Business--Competition."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon certain key
management employees, including its Chairman, President and Chief Executive
Officer, Mr. Paul F. DePond, and its Vice President of Operations, Gaylan
Larson. The Company has applied for three-year key-man term life insurance on
each of Messrs. DePond and Larson in the amount of $2,000,000 and has entered
into employment agreements with them along with Gerald Rice, the Company's
Chief Financial Officer and David Yewell, the Company's Vice-President of
Sales and Marketing. The loss of their services or those of any of the
Company's other key employees would have a materially adverse effect on the
Company. The Company's success, if any, will also be dependent on its ability
to attract and retain highly skilled technical personnel as well as marketing
and sales personnel. If the Company is unable to hire the necessary personnel,
the development of new products and enhancements to current products would
likely be delayed or prevented. Competition for highly-skilled technical,
managerial, sales, and marketing personnel is intense. There can be no
assurance that the Company will be successful in retaining its key personnel
and in attracting and retaining the personnel it requires for expansion. See
"Business--Employees" and "Management."

RISKS OF LIMITED PROTECTION FOR COMPANY'S INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS AND INFRINGEMENT OF THIRD PARTIES' RIGHTS

The Company regards various features and design aspects of its products as
proprietary and relies primarily on a combination of trademark, copyright and
trade secret laws and employee and third-party nondisclosure agreements to
protect its proprietary rights. The Company has been issued one patent
covering the design of its MessageAlert products, has applied for a patent
covering the MultiSense technology used in its MessageAlert product and
intends to continue to apply for patents, as appropriate, for its future
technologies and products. There are few barriers to entry into the market for
the Company's products, and there can be no assurance that any patents applied
for by the Company will be granted or that the scope of the Company's patent
or any patents granted in the future will be broad enough to protect against
the use of similar technologies by the Company's competitors. There can be no
assurance, therefore, that any of the Company's competitors, some of whom have
far greater resources than the Company, will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. Further, the Company intends to distribute its products in a
number of foreign countries. The laws of those countries may not protect the
Company's proprietary rights to the same extent as the laws of the United
States.

issued and such an assertion is made, the Company intends to challenge either
the validity of the patent or its application to the MessageAlert product or
enter into a licensing agreement with the patent holder. There can be no
assurance that the Company will be able to challenge the patent successfully
or enter into a licensing arrangement on commercially reasonable terms. A
failure of the Company to challenge the patent successfully or enter into a
licensing arrangement, would, in all probability, force the Company to cease
selling the MessageAlert product and would have a materially adverse affect on
the Company's business, financial condition and results of operation. In
addition, the expense associated even with a successful challenge to the
patent or a licensing arrangement could have a materially adverse affect on
the Company's business, financial condition and results of operations. See
"Business--Proprietary Rights."

DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS

Certain key components used in the Company's products are currently
available only from single or limited sources. The Company does not have long
term supply contracts with these or any other component vendors and purchases
all of its components on a purchase order basis. No assurance can be given
that component shortages will not occur or that the Company will be able to
obtain the components it needs in a timely manner and on a commercially
reasonable basis. In particular, the application specific integrated circuit
(ASIC) which forms the core of the Company's MessageAlert product is
manufactured only by Microchip Technology, Inc. From time to time, the
semiconductor industry has experienced extreme supply constraints. An
inability of the Company to obtain sufficient quantities of ASICs from
Microchip Technology, Inc. would have a materially adverse effect on the
Company's business and operating results.

The Company subcontracts the manufacture of its board level assemblies to
third parties, and there can be no assurance that these subcontractors will be
able to support the manufacturing requirements of the Company. An inability to
obtain sufficient quantities of sole-source components or subassemblies, or to
develop alternative sources as required in the future, could result in delays
or reductions in product shipments or could force the Company to redesign its
products, either of which could materially adversely effect the Company's
business and operating results. See "Business--Manufacturing."

COMPLIANCE WITH REGULATIONS AND INDUSTRY STANDARDS

The Company's products must comply with a variety of regulations and
standards including regulations and standards set by the Federal
Communications Commission, Underwriters Laboratories, National Registered
Testing Laboratories, and Bell Communications Research. As the Company enters
international markets it will be required to comply with whatever governmental
regulations and industry standards exist in those markets. In addition, the
U.S. telecommunications market is evolving rapidly in part due to recently
enacted laws revamping the telecommunications regulatory structure. Additional
legislative or regulatory changes are possible. A failure by the Company to
comply with existing regulations and standards or to adapt to new regulations
and standards could have a material adverse effect on the Companies business
and operating results. See "Business--Governmental Regulation and Industry
Standards."

DISCRETION TO REALLOCATE USE OF PROCEEDS; USE OF PROCEEDS TO BENEFIT INSIDERS

The proposed use of the net offering proceeds described herein represents
the Company's anticipated use of proceeds based upon current operating plans
and certain assumptions, including those relating to the Company's future
revenue levels and expenditures, and assumptions regarding industry and
general economic conditions and other conditions. Future events, including
problems, delays, expenses, and complications frequently encountered by early-
stage companies, as well as changes in competitive conditions affecting the
Company's business and the success or lack thereof of the Company's research
and development or marketing efforts, may make it necessary or advisable for
the Company to reallocate the net proceeds among the described uses or use
portions of the net proceeds for other purposes. Any such shifts will be at
the discretion of the Company. Further, $1,120,000 of the net proceeds will be
used to repay certain indebtedness of the Company, including approximately
$865,000 to repay the Bridge Notes (including approximately $51,000 which will
be paid to Paul

F. DePond, the Company's President and Chief Executive Officer), approximately
$215,000 to repay the Outstanding Convertible Shareholder Notes, and
approximately $40,000 to repay certain loans made to the Company by Mr.
DePond. See "Use of Proceeds" and "Certain Relationships and Related
Transactions."

RISKS ASSOCIATED WITH PLANNED GROWTH

The Company plans to expand significantly its operations during 1997, which
could place a significant strain on its limited personnel, financial,
management and other resources. In order to manage its planned growth, the
Company will need to significantly expand its product development and sales
and marketing capabilities and personnel. In addition, the Company will need
to adapt its financial planning, accounting systems and management structure
to accommodate such growth if it occurs. A failure by the Company to properly
anticipate or manage its growth, if any, could adversely affect its business,
operating results and financial condition. In the last quarter of fiscal 1996,
the Company over-estimated its growth rate and, as a result, built-up
excessive inventories of certain products and components. There can be no
assurance that the Company will not experience similar or more severe
difficulties in the future. See "Business."

POSSIBLE FLUCTUATIONS IN QUARTERLY RESULTS

The Company anticipates that it may experience significant fluctuations in
operating results in the future. Fluctuations in operating results may result
in volatility in the price of the Company's Common Stock, Units and Warrants.
Operating results may fluctuate as a result of many factors, including the
Company's level of research and development and sales and marketing
activities, announcements by the Company and its competitors, volume and
timing of orders received, if any, during the period, the timing of commercial
introduction of future products and enhancements or competitive products and
the impact of price competition on the Company's average selling prices.
Almost all of these factors are beyond the Company's control.

Notwithstanding the difficulty in forecasting future sales, the Company
generally must undertake its research and development and sales and marketing
activities and other commitments months or years in advance. Accordingly, any
shortfall in product revenues in a given quarter may materially adversely
affect the Company's financial condition and results of operations due to the
inability to adjust expenses during the quarter to match the level of product
revenues, if any, for the quarter. Due to these and other factors, the Company
believes that quarter to quarter comparisons of its results of operations are
not necessarily meaningful and should not be relied upon as indications of the
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

SHARES AVAILABLE FOR FUTURE SALE; REGISTRATION RIGHTS

Future sales of Common Stock by existing shareholders pursuant to Rule 144
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to the Concurrent Securities Offering or otherwise, could have an adverse
effect on the price of the Company's securities. Pursuant to the Concurrent
Securities Offering, 425,000 Selling Securityholders' Class A Warrants and the
underlying securities have been registered for resale concurrently with the
Offering, subject to a contractual restriction that the Selling
Securityholders not sell any of the Selling Securityholders' Class A Warrants
for at least 90 days from the closing of the Offering and, during the period
from 91 to 270 days after the closing of the Offering, only sell specified
percentages of such Selling Securityholders' Class A Warrants. In addition,
upon the sale of the 1,400,000 Units offered hereby, the Company will have
outstanding 3,374,936 shares of Common Stock, 1,400,000 Class A Warrants,
1,400,000 Class B Warrants and other warrants to purchase 185,064 shares of
Common Stock (3,584,936 shares of Common Stock, 1,610,000 Class A Warrants and
1,610,000 Class B Warrants if the Underwriter's over-allotment option is
exercised in full). The shares of Common Stock, Class A Warrants and Class B
Warrants sold in the Offering will be freely tradeable without restriction
under the Securities Act, unless acquired by "affiliates" of the Company as
that term is defined in the Securities Act. The remaining 2,160,000
outstanding shares of Common Stock and options and warrants to purchase Common
Stock are "restricted securities" within the meaning of Rule 144 under the
Securities Act. Pursuant to Rule 144, substantially all of these restricted
shares

will be eligible for resale either immediately or commencing 90 days following
the date of this Prospectus subject to the restrictions on transferability
relating to the Escrow Shares. However, all the holders of the shares of
Common Stock outstanding prior to the Offering and all the holders of options
or warrants to purchase shares of Common Stock have agreed not to sell or
otherwise dispose of any securities of the Company for a period of 13 months
from the date of this Prospectus without the prior written consent of the
Underwriter. The holder of the Unit Purchase Option has certain demand and
"piggy-back" registration rights covering their securities. The exercise of
such rights could involve substantial expense to the Company. Sales of Common
Stock, or the possibility of such sales, in the public market may adversely
affect the market price of the securities offered hereby. See "Concurrent
Securities Offering," "Description of Securities," "Shares Eligible for Future
Sale" and "Underwriting".

EFFECT OF OUTSTANDING OPTIONS AND WARRANTS

Upon sale of the 1,400,000 Units offered hereby, the Company will have
outstanding 1,400,000 Class A Warrants to purchase 1,400,000 shares of Common
Stock and 1,400,000 Class B Warrants for $6.50 per share (subject to
adjustment in certain circumstances) and 1,400,000 Class B Warrants to
purchase 1,400,000 shares of Common Stock at $8.75 per share (subject to
adjustment in certain circumstances) (or 1,610,000 Class A Warrants and
1,610,000 Class B Warrants if the Underwriter's over-allotment option is
exercised in full). In addition, the Company will have outstanding 425,000
Selling Securityholders' Class A Warrants to purchase 425,000 shares of Common
Stock and 425,000 Class B Warrants (which are exercisable for 425,000 shares
of Common Stock), the Unit Purchase Option to purchase an aggregate of 560,000
shares of Common Stock assuming exercise of the underlying Warrants,
additional warrants to purchase 185,064 shares of Common Stock and 200,000
shares of Common Stock reserved for issuance under the Option Plan, under
which no options are currently outstanding. Holders of such options and
warrants may exercise them at a time when the Company would otherwise be able
to obtain additional equity capital on terms more favorable to the Company.
Moreover, while these options are outstanding, the Company's ability to obtain
financing on favorable terms may be adversely affected. See "Management" and
"Description of Securities."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of the Units offered hereby will incur immediate and substantial
dilution in the net tangible book value of the Common Stock included in the
Units, estimated to be approximately $3.42 per share or approximately 68% of
the public offering price per share (allocating no value to the Warrants).
Additional dilution to public investors, if any, may result to the extent that
the Warrants, the Unit Purchase Option or outstanding options and warrants are
exercised at a time when the net tangible book value per share of Common Stock
exceeds the exercise price of any such securities. See "Dilution."

ARBITRARY DETERMINATION OF OFFERING PRICE; ABSENCE OF PUBLIC MARKET AND
POSSIBLE VOLATILITY OF STOCK PRICE

The initial public offering price of the Units and the exercise prices and
other terms of the Warrants have been arbitrarily determined by negotiation
between the Company and the Underwriter and do not necessarily bear any
relationship to the Company's assets, net worth or other established criteria
of value. The exercise and redemption prices of the Warrants should not be
construed to imply or predict any increase in the market price of the Common
Stock. See "Underwriting." No public market for the securities has existed
prior to the Offering. No assurance can be given that an active trading market
in the Company's securities will develop after completion of the Offering or,
if developed, that it will be sustained. No assurance can be given that the
market price of the Company's securities will not fall below the initial
public offering price. The Company believes factors such as quarterly
fluctuations in financial results and announcements of new technology or
products or regulatory developments in the telephone industry may cause the
market price of the Company's securities to fluctuate, perhaps substantially.
These fluctuations, as well as general economic conditions, such as recessions
or high interest rates, may adversely affect the market price of the
securities.

POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET.

While the Company's Units, Common Stock, Class A Warrants and Class B
Warrants meet the current Nasdaq listing requirements and are expected to be
initially included on the Nasdaq SmallCap Market, there can be no assurance
that the Company will meet the criteria for continued listing. Continued
inclusion on Nasdaq generally requires that (i) the Company maintain at least
$2,000,000 in total assets and $1,000,000 in capital and surplus, (ii) the
minimum bid price of the Common Stock be $1.00 per share, (iii) there be at
least 100,000 shares in the public float valued at $200,000 or more, (iv) the
Common Stock have at least two active market makers, and (v) the Common Stock
be held by at least 300 holders.

Nasdaq has recently proposed more stringent financial requirements for
listing on Nasdaq. With respect to continued listing, such new requirements
are (i) either at least $2,000,000 in tangible assets, a $35,000,000 market
capitalization or net income of at least $500,000 in two of the three prior
years, (ii) at least 500,000 shares in the public float valued at $1,000,000
or more, (iii) a minimum Common Stock bid price of $1.00, (iv) at least two
active market makers, and (v) at least 300 holders of the Common Stock. If
adopted, the Company will have to meet and maintain such new requirements. If
the Company is unable to satisfy Nasdaq's maintenance requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Units, Common Stock and Warrants would thereafter be conducted in the over-
the-counter market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities could
be impaired, not only in the number of securities which could be bought and
sold, but also through delays in the timing of transactions, reduction in
security analysts' and the news media's coverage of the Company and lower
prices for the Company's securities than might otherwise be attained.

RISK OF LOW-PRICE STOCKS

If the Company's securities were to be delisted from Nasdaq, they could
become subject to Rule 15g-9 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which imposes additional sales practice
requirements on broker-dealers which sell such securities to persons other
than established customers and "accredited investors" (generally, individuals
with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000,
or $300,000 together with their spouses). For transactions covered by this
rule, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, the rule may adversely affect the ability of
broker-dealers to sell the Company's securities and may adversely affect the
ability of purchasers in the Offering to sell any of the securities acquired
hereby in the secondary market.

Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless
exempt, the rules require delivery, prior to any transaction in a penny stock,
of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.

The foregoing penny stock restrictions will not apply to the Company's
securities if such securities are listed on Nasdaq and have certain price and
volume information provided on a current and continuing basis or if the
Company meets certain minimum net tangible assets or average revenue criteria.
There can be no assurance that the Company's securities will qualify for
exemption from these restrictions. In any event, even if the Company's
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If

the Company's securities were subject to the rules on penny stocks, the market
liquidity for the Company's securities could be severely adversely affected.

CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS

The Warrants included in the Units offered hereby will be immediately
detachable and separately tradeable. Although the Units will not knowingly be
sold to purchasers in jurisdictions in which the Units are not registered or
otherwise qualified for sale, purchasers who reside in or move to
jurisdictions in which the securities underlying the Warrants are not so
registered or qualified during the period that the Warrants are exercisable
may buy Units (or the Warrants included therein) in the aftermarket. In this
event, the Company would be unable to issue securities to those persons
desiring to exercise their Warrants unless and until the underlying securities
could be registered or qualified for sale in the jurisdictions in which such
purchasers reside, or unless an exemption from such qualification exists in
such jurisdictions. No assurance can be given that the Company will be able to
effect any such required registration or qualification.

Additionally, purchasers of the Units will be able to exercise the Warrants
included therein only if a current prospectus relating to the securities
underlying the Warrants is then in effect under the Securities Act and such
securities are qualified for sale or exempt from qualification under the
applicable securities or "blue sky" laws of the states in which the various
holders of the Warrants then reside. Although the Company has undertaken to
use reasonable efforts to maintain the effectiveness of a current prospectus
covering the securities underlying the Warrants, no assurance can be given
that the Company will be able to do so. The value of the Warrants may be
greatly reduced if a current prospectus covering the securities issuable upon
the exercise of the Warrants is not kept effective or if such securities are
not qualified or exempt from qualification in the states in which the holders
of the Warrants then reside.

ADVERSE EFFECT OF POSSIBLE REDEMPTION OF WARRANTS

The Warrants are subject to redemption by the Company commencing one year
from the date of this Prospectus, on at least 30 days' prior written notice,
if the average closing bid price of the Common Stock for 30 consecutive
trading days ending within 15 days of the date on which the notice of
redemption is given exceeds $9.10 per share with respect to the Class A
Warrants and $12.10 per share with respect to the Class B Warrants. If the
Warrants are redeemed, holders of Warrants will lose their right to exercise
the Warrants, except during such 30-day notice of redemption period. Upon the
receipt of a notice of redemption of the Warrants, the holders thereof would
be required to: (i) exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for them to do so, (ii) sell the Warrants at
the then current market price (if any) when they might otherwise wish to hold
the Warrants, or (iii) accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities--Redeemable Warrants."

POSSIBLE ADVERSE EFFECT ON LIQUIDITY OF THE COMPANY'S SECURITIES DUE TO
INVESTIGATION BY THE SECURITIES AND EXCHANGE COMMISSION OF THE UNDERWRITER AND
D.H. BLAIR & CO.

The Securities and Exchange Commission (the "Commission") is conducting an
investigation concerning various business activities of the Underwriter and
D.H. Blair & Co., Inc. ("Blair & Co."), a selling group member that will
distribute substantially all of the Units offered hereby. The investigation
appears to be broad in scope, involving numerous aspects of the Underwriter's
and Blair & Co.'s compliance with the federal securities laws and compliance
with the federal securities laws by issuers whose securities were underwritten
by the Underwriter or Blair & Co., or in which the Underwriter or Blair & Co.
made over-the counter markets, persons associated with the Underwriter or
Blair & Co., such issuers and other persons. The Company has been advised by
the Underwriter that the investigation has been ongoing since at least 1989
and that it is cooperating with the investigation. The Underwriter cannot
predict whether this investigation will ever result in any type of formal
enforcement action against the Underwriter or Blair & Co. or, if so, whether
any such action might have an adverse effect on the Underwriter or the
securities offered hereby. The Company has been advised that Blair &

Co. intends to make a market in the securities following the Offering. An
unfavorable resolution of the Commission's investigation could have the effect
of limiting such firm's ability to make a market in the Company's securities,
which could adversely affect the liquidity or price of such securities. See
"Underwriting."

POSSIBLE RESTRICTIONS ON MARKET MAKING ACTIVITIES IN THE COMPANY'S SECURITIES

The Underwriter has advised the Company that Blair & Co. intends to make a
market in the Company's securities. Regulation M, which was recently adopted
to replace Rule 10b-6 and certain other rules promulgated under the Securities
Act of 1934, as amended (the "Exchange Act"), may restrict Blair & Co.'s
ability to engage in market-making activities with regard to the Company's
securities for the period from five business days (or such other applicable
period as Regulation M may provide) prior to any solicitation by the
Underwriter of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Underwriter may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, Blair & Co. may be unable
to provide a market for the Company's securities during certain periods while
the Warrants are exercisable. In addition, Regulation M restricts the ability
of any person engaged in the distribution of the Selling Securityholder
Warrant to engage in market-making activities with respect to any securities
of the Company for the applicable "cooling off" period prior to the
commencement of such distribution. Accordingly, in the event the Underwriter
or Blair & Co. is engaged in a distribution of the Selling Securityholder
Warrants, their ability to make a market in the Company's securities during
the applicable restrictive period will be restricted. Any temporary cessation
or limitation of such market-making activities could have an adverse effect on
the market price of the Company's securities. See "Underwriting."

NO DIVIDENDS

The Company has paid no dividends to its shareholders since its inception
and does not plan to pay dividends in the foreseeable future. The Company
intends to reinvest earnings, if any, in the development and expansion of its
business. See "Dividend Policy."

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

The Company's Board of Directors has authority to issue up to 5,000,000
shares of Preferred Stock and determine the price, rights, preferences,
privileges and restrictions, including voting rights of such shares, without
any further vote or action by the Company's shareholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisition and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company has no current
plans to issue shares of Preferred Stock. See "Description of Securities--
Preferred Stock."

CHARGE TO INCOME IN THE EVENT OF RELEASE OF ESCROW SECURITIES

In the event any Escrow Securities owned by securityholders of the Company
who are officers, directors, consultants or employees of the Company are
released from escrow, compensation expense will be recorded for financial
reporting purposes. Therefore, in the event the Company attains any of the
earnings or stock price thresholds required for the release of the Escrow
Securities, the release will be treated, for financial reporting purposes, as
compensation expense of the Company. Accordingly, the Company will, in the
event of the release of the Escrow Securities, recognize during the period
that the earnings or stock price thresholds are met a substantial noncash
charge to earnings that would increase the Company's loss or reduce or
eliminate earnings, if any, at such time. The amount of this charge will be
equal to the aggregate market price of such Escrow Securities at the time of
release from escrow. Although the amount of compensation expense recognized by
the Company will not affect the Company's total shareholders' equity or cash
flow, it may have a depressive effect

on the market price of the Company's securities. See "Principal Shareholders--
Escrow Securities" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Release of Escrow Securities".

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Articles of Incorporation eliminate in certain circumstances
the liability of directors of the Company for monetary damages for breach of
their fiduciary duty as directors. The Company has also entered into
indemnification agreements ("Indemnification Agreement(s)") with each of its
directors and officers. Each such Indemnification Agreement will provide that
the Company will indemnify the indemnitee against expenses, including
reasonable attorneys' fees, judgments, penalties, fines, and amounts paid in
settlement actually and reasonably incurred by them in connection with any
civil or criminal action or administrative proceeding arising out of their
performance of duties as a director or officer, other than an action
instituted by the director or officer. The Indemnification Agreements will
also require the Company indemnify the director or other party thereto in all
cases to the fullest extent permitted by applicable law. Each Indemnification
Agreement will permit the director or officer that is party thereto to bring
suit to seek recovery of amounts due under the Indemnification Agreement and
to recover the expenses of such a suit if they are successful. See
"Management--Indemnification of Officers and Directors and Related Matters."

USE OF PROCEEDS

The net proceeds from the sale of the 1,400,000 Units to be sold in the
Offering, after deducting the underwriters discount and commissions and other
estimated expenses of the Offering, are anticipated to be approximately $
($ if the over-allotment option is exercised in full). The Company expects
the net proceeds to be utilized as follows:

APPROXIMATE
AMOUNT OF PERCENTAGE OF
ANTICIPATED APPLICATION NET PROCEEDS NET PROCEEDS
- ----------------------- ------------ -------------

Repayment of indebtedness(1)......................... $1,120,000
Product development(2)............................... $1,000,000
Sales and marketing(3)............................... $1,000,000
Additional inventory(4).............................. $ 500,000
Fixed assets(5)...................................... $ 250,000
Working capital and general corporate purposes(6).... $
---------- ---
Total.............................................. $
========== ===

- --------
(1) Represents (i) the $850,000 principal amount of Bridge Notes issued in the
Bridge Financing completed by the Company in March 1997, together with
estimated interest through April 30, 1997, (ii) the $200,000 principal
amount of Outstanding Convertible Shareholder Notes together with
estimated interest through April 30, 1997 and (iii) $25,000 principal
amount of a note issued to Mr. Paul DePond, President and Chief Executive
Officer of the Company (the "DePond Note") together with estimated
interest through April 30, 1997.
(2) Represents costs for research and development of new products and
enhancements of current products.
(3) Represents funds required for the implementation of marketing programs,
sales materials, advertising, trade shows and the hiring, training and
employment of additional sales, marketing, and support personnel.
(4) Represents the cost of establishing manufacturing inventories for
projected sales of current products.
(5) Represents fixed asset requirements that are anticipated to support new
product development and to establish and maintain an adequate customer
service and warranty tracking system.
(6) Represents funds that are to be used for working capital and general
corporate purposes, including $420,000 for salaries for executive
officers, office expenses and other general overhead expenses.

The proposed use of the net offering proceeds described herein represents
the Company's anticipated use of the proceeds based upon current operating
plans and certain assumptions, including those relating to the Company's
future revenue levels and expenditures, and assumptions regarding industry and
general economic conditions and other conditions. Future events, including
problems, delays, expenses and complications frequently encountered by early
stage companies, as well as changes in competitive conditions affecting the
Company's business and the success or lack thereof of the Company's research
and development or marketing and sales efforts, may make it necessary or
advisable for the Company to reallocate the net proceeds among the above uses
or use portions of the net proceeds for other purposes. Any such shifts will
be at the discretion on the Company.

The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the net proceeds of the Offering, together
with projected cash flow from operations, will be sufficient to satisfy the
Company's contemplated cash requirements for the next 12 months. If the
Company's estimates prove incorrect, the Company will have to seek alternative
sources of financing during such period, including debt and equity financing
and the reduction of operating costs and projected growth plans. No assurance
can be given that such financing could be obtained by the Company on favorable
terms, if at all, and if the Company is unable to obtain needed financing, the
Company's business would be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Pending application, the net proceeds of the Offering will be invested in
short-term, high grade interest-bearing savings accounts, certificates of
deposit, United States government obligations, money market accounts or short-
term interest bearing obligations. Any proceeds received upon exercise of the
Underwriters over-allotment option, the Warrants, the Underwriter's Unit
Purchase Option, as well as income from investments, are currently intended to
be used for general corporate purposes.

DIVIDEND POLICY

The Company has never paid any cash dividends on its stock and anticipates
that, for the foreseeable future, it will continue to retain any earnings for
use in the operation of its business. Payment of cash dividends in the future
will depend upon the Company's earnings, financial condition, any contractual
restrictions, restrictions imposed by applicable law, capital requirements and
other factors deemed relevant by the Company's Board of Directors.

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
December 31, 1996 (after giving retroactive effect to a 1-for-5.05 reverse
stock split effected in February 1997); (ii) pro forma as of December 31, 1996
to reflect (a) the sale of the Bridge Notes and Bridge Warrants subsequent to
such date, (b) the conversion of certain of the Convertible Shareholder Notes
into equity in January 1997 and (c) the conversion of the Outstanding
Preferred Stock into Common Stock upon completion of the Offering; and (iii)
as adjusted to reflect the sale of the Units offered hereby and the
application of a portion of the net proceeds therefrom to repay the Bridge
Notes, the Outstanding Convertible Shareholder Notes and the DePond Note. This
table should be read in conjunction with the Financial Statements and the
Notes thereto included elsewhere in this Prospectus.

DECEMBER 31, 1996
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------

Bridge Notes, net of discount(1)......... $ -- $ 618,750 $
De Pond Note(2).......................... 25,000 25,000
Convertible Shareholder Notes(2)......... 932,125 200,000
Shareholders' equity (net capital
deficiency):
Convertible Preferred Stock, $.001 par
value, 4,500,000 shares authorized,
issued and outstanding at December 31,
1996, aggregate liquidation preference
of $1,850,000; none outstanding, pro
forma; 5,000,000 shares authorized,
none outstanding, as adjusted(3)...... 1,850,000 --
Common Stock, $.001 par value,
12,100,000 shares authorized, 918,182
shares issued and outstanding, at
December 31, 1996; 1,974,936 shares
outstanding, pro forma; 3,374,936
shares outstanding, as adjusted(4)(5). 70,819 2,759,194
Additional paid-in capital............. -- --
Notes receivable from shareholders..... (26,525) (26,525)
Accumulated deficit(6)................. (2,499,250) (2,499,250)
----------- ----------- ----
Total shareholders' equity (net capital
deficiency)........................... (604,956) 233,419
----------- ----------- ----
Total capitalization................. $ 352,169 $ 1,077,169
=========== =========== ====

- --------
(1) The Bridge Notes are payable on the earlier of March 11, 1998 or the
completion of the Offering. See "Use of Proceeds."
(2) The De Pond Note is due on demand or the completion of the Offering and
the Convertible Shareholder Notes outstanding as of the date of this
Prospectus are payable on the earlier of April 30, 1997 or the completion
of the Offering. See "Use of Proceeds."
(3) As adjusted authorized amounts give effect to an amendment to the
Company's Certificate of Incorporation. As adjusted par value of $.001
gives effect to Restated Articles of Incorporation which will be filed
upon the close of the Offering.
(4) Excludes (i) up to 840,000 shares of Common Stock issuable upon exercise
of the Underwriter's over-allotment option and the underlying warrants;
(ii) 4,200,000 shares of Common Stock issuable upon exercise of the
Warrants included in or underlying the Units offered hereby; (iii) 850,000
shares of Common Stock issuable upon exercise of the Selling
Securityholder Warrants and the underlying warrants; (iv) 560,000 shares
of Common Stock issuable upon exercise of the Unit Purchase Option and the
Warrants included in or underlying such option; (v) 200,000 shares of
Common Stock reserved for issuance under the Stock Option Plan, (vi)
185,064 shares of Common Stock issuable upon exercise of outstanding
warrants. See "Management--Stock Option Plan," "Certain Relationships and
Related Transactions," "Description of Securities" and "Concurrent
Securities Offering."
(5) Includes the 1,263,537 Escrow Shares. See "Principal Shareholders--Escrow
Securities."

(6) As adjusted accumulated deficit gives effect to the recognition of
$246,250 of expense upon the closing of the Offering representing debt
discount, debt issuance costs and interest expense of approximately
$15,000 relating to the Bridge Financing and repayment of the Bridge
Notes. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

RESTRUCTURING

As of December 31, 1996, the Company had issued and sold to certain of its
shareholders and other investors an aggregate of $932,125 principal amount of
convertible promissory notes (the "Convertible Shareholder Notes") and
warrants to purchase that number of shares of Common Stock of the Company
equal to 20% of the principal amount of the Convertible Shareholder Notes
divided by the price per share of the Company's next equity financing (the
"Shareholder Warrants"). The Convertible Shareholder Notes bore an interest
rate of 8% per annum and were convertible into equity of the Company at a
price equal to the price per share of the Company's next equity financing.
Subsequent to December 31, 1996, the Company completed a restructuring of the
Convertible Shareholder Notes and Shareholder Warrants (the "Restructuring").
Holders of an aggregate of $732,125 in principal amount of the Convertible
Shareholder Notes converted their notes into Common Stock of the Company at a
price per share of $4.55 and exchanged their accompanying Shareholder Warrants
for warrants to purchase an aggregate of 48,272 shares of the Company's Common
Stock at a price of $0.25 per share. Holders of the remaining $200,000
principal amount of Convertible Shareholder Notes (the "Outstanding
Convertible Shareholder Notes") agreed to defer repayment of the notes until
the earlier of the closing of the Offering or until April 30, 1997 and
exchanged their Shareholder Warrants for warrants to purchase an aggregate of
7,920 shares of Common Stock at an exercise price of $5.05 per share.

BRIDGE FINANCING

In March 1997, the Company completed a financing (the "Bridge Financing") in
which it issued an aggregate of $850,000 principal amount of Bridge Notes and
425,000 Bridge Warrants and received net proceeds of approximately $725,000
(after expenses of such offering). The Bridge Notes are payable, together with
interest at the rate of 10% per annum, on the earlier of one year from the
issuance of the Bridge Notes or the closing of the Offering. See "Use of
Proceeds." The Bridge Warrants entitle the holders thereof to purchase one
share of Common Stock commencing one year from the date of their issuance but
will be exchanged automatically on the closing of the Offering for the Selling
Securityholders' Warrants, each of which will be identical to the Class A
Warrants included in the Units offered hereby. The Selling Securityholders'
Warrants have been registered for resale in the Registration Statement of
which this Prospectus forms a part, subject to the contractual restriction
that the Selling Securityholders have agreed not to exercise the Selling
Securityholders' Warrants for a period of one year from the closing of the
Offering and not to sell the Securityholders' Warrants except after specified
periods. See "Concurrent Securities Offering."

Upon repayment of the Bridge Notes, the unamortized balance of $106,250 of
debt discount attributable to the Bridge Warrants as well as debt issuance
costs of approximately $125,000 will be charged to the Company's operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

DILUTION

The following discussion and tables allocate no value to the Warrants
contained in the Units.

Dilution represents the difference between the initial public offering price
per share paid by the purchasers in the Offering and the net tangible book
value per share immediately after completion of the Offering. Pro forma net
tangible book value per share represents the net tangible assets of the
Company (total assets less total liabilities and intangible assets), divided
by the number of shares of Common Stock outstanding. The pro forma net
tangible book value gives effect to (i) the issuance in March 1997 of the
Bridge Notes, net of debt discount, (ii) the conversion in January 1997 of
certain Convertible Shareholder Notes into Common Stock, and (iii) the
conversion of the Outstanding Preferred Stock into Common Stock upon the
closing of the Offering. At December 31, 1996, the Company had a pro forma net
tangible book value of $233,419, or approximately $.11 per share ($.30 per
share if the Escrow Securities are excluded). After giving effect to the
issuance of the 1,400,000 Units offered hereby at a public offering price of
$5.00 per Unit, and the Company's receipt of the estimated net proceeds
therefrom after deduction of expenses aggregating approximately $675,000 and
the use of a portion of the net proceeds to repay the Bridge Notes, the
Outstanding Convertible Shareholder Notes and the DePond Note, the pro forma
net tangible book value per share of the Company, as adjusted at December 31,
1996 would have been $5,612,169, or approximately $1.58 per share ($2.57 per
share if the Escrow Securities were excluded). This would result in an
immediate dilution to investors in the Offering of $3.42, or 68%, per share
($2.43 or 49%, per share if the Escrow Securities were excluded), and the
aggregate increase in the pro forma net tangible book value to present
shareholders would be $1.47 per share ($2.27 per share if Escrow Securities
are excluded), as illustrated by the following table:

Initial public offering price per Unit....................... $5.00
Pro forma net tangible book value per share before
Offering.................................................... $ .11
Increase per share attributable to new investors in the
Units....................................................... 1.47
-----
Pro forma net tangible book value per share after the
Offering.................................................... 1.58
-----
Dilution per share to investors(1)........................... $3.42
=====

- --------
(1) If the over-allotment option is exercised in full, the pro forma net
tangible book value per share after the Offering would be approximately
$1.73, resulting in dilution to new investors in the Offering of $3.27, or
65% per share.

The following table sets forth on a pro forma basis the differences between
existing shareholders and new investors in the Offering with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing shareholders and by new investors at an estimated initial public
offering price of $5.00 per Unit:

PERCENTAGE
PERCENTAGE OF OF TOTAL AVERAGE
OUTSTANDING CONSIDERATION CONSIDERATION PRICE PER
NUMBER SHARES PAID(1) PAID SHARE
--------- ------------- ------------- ------------- ---------

Existing
Shareholders(2)........ 1,974,936 58.5% $2,652,944 % $1.34
New Investors........... 1,400,000 41.5 $
--------- ----- ---------- -----
Total................... 3,374,936 100.0% $ 100.0%
========= ===== ========== =====

- --------
(1) Prior to the deduction of costs of issuance.
(2) Includes the 1,263,537 Escrow Shares. See "Principal Shareholders--Escrow
Securities."

As of the date of this Prospectus, there were outstanding warrants to
purchase 185,064 shares of Common Stock exercisable at prices ranging from
$0.25 to $5.05 per share. To the extent that such outstanding options are
exercised in the future, there may be additional dilution to existing
shareholders.

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
Company's financial statements and related notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The statement of operations
data for the two years in the period ended September 30, 1996 are derived from
the audited financial statements of the Company included elsewhere in this
Prospectus. The report of Ernst & Young LLP which also appears herein contains
an explanatory paragraph relating to uncertainty as to the ability of the
Company to continue as a going concern. The selected financial data as of
December 31, 1996 and for the three months ended December 31, 1995 and 1996
have been derived from the Company's unaudited financial statements which, in
the opinion of Management, reflect all adjustments which are of a normal
recurring nature necessary for a fair presentation of the results of
operations for such periods. The results of the interim periods are not
necessarily indicative of the results of a full year.

YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------- --------------------
1995 1996 1995 1996
--------- ----------- --------- ---------

STATEMENT OF OPERATIONS DATA:
Product sales.................... $ 9,333 $ 308,067 $ 4,903 $ 396,294
Cost of sales.................... 7,929 428,112 2,775 351,079
--------- ----------- --------- ---------
Gross profit (loss).............. 1,404 (120,045) 2,128 45,215
Operating expenses:
Research and development....... 159,163 537,902 147,272 149,415
Sales and marketing............ 122,884 549,916 116,672 153,399
General and administrative..... 146,756 440,089 84,194 138,787
--------- ----------- --------- ---------
Total operating expenses......... 428,803 1,527,907 348,138 441,601
--------- ----------- --------- ---------
Loss from operations............. (427,399) (1,647,952) (346,010) (396,386)
Interest expense, net............ 1,337 (9,267) 6,806 (19,583)
--------- ----------- --------- ---------
Net loss......................... $(426,062) $(1,657,219) $(339,204) $(415.969)
========= =========== ========= =========
Net loss per share............... $ (.84) $ (3.17) $ (.65) $ (.80)
========= =========== ========= =========
Weighted average shares
outstanding..................... 509,564 522,550 525,700 517,480
========= =========== ========= =========
Pro forma net loss per share..... $ (1.89) $ (.47)
=========== =========
Weighted average shares used in
computing
pro forma net loss per share.... 875,092 882,787
=========== =========

DECEMBER 31, 1996
------------------------
ACTUAL PRO FORMA(1)
---------- ------------

BALANCE SHEET DATA:
Working capital (deficit).............................. $ (706,643) $ 131,732
Total assets........................................... 738,633 1,463,633
Total liabilities...................................... 1,343,589 1,230,214
Total shareholders' equity (net capital deficiency).... (604,956) 233,419

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

This Prospectus contains forward-looking statements that involve risk and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth below and elsewhere in this Prospectus. The
following discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.

OVERVIEW

The Company was founded in August 1994 to develop, manufacture, market and
sell computer telephony products for the business, SOHO and residential
markets. From inception until January 1996, the Company was engaged primarily
in research and development. In January 1996, the Company shipped the first
version of its MessageAlert product and in December 1996 shipped its first
Centrex Auto Attendant product. Substantially all of the Company's revenue has
been derived from sales of its MessageAlert product.

To date, the Company's working capital requirements have been met through
the sale of equity and debt securities and, to a lesser extent, product
revenue and the Company's line of credit. The Company has sustained
significant operating losses in every fiscal period since inception and
expects to incur substantial quarterly operating losses in the future. The
Company's limited operating history makes the prediction of future operating
results difficult if not impossible. Accordingly, although the Company
experienced significant growth in revenue in the three-month period ended
December 31, 1996, such growth should not be considered to be indicative of
future revenue growth. Future operating results will depend on many factors,
including the demand for the Company's products, the level of product and
price competition, the ability of the Company to expand its existing and to
create new distribution channels, and the ability of the Company to develop
and market new products and control costs. There can be no assurance that the
Company's revenue will grow or be sustained in future periods or that the
Company will ever achieve profitability.

RESULTS OF OPERATIONS

Revenue

To date, substantially all of the Company's revenue has been derived from
the sale of its MessageAlert products. Revenue consists of gross revenue less
product returns. Revenue for the fiscal year ended September 30, 1996
increased to $308,067 from $9,333 for the fiscal year ended September 30,
1995. Revenue for the quarter ended December 31, 1996 increased to $396,294
from $4,903 for the quarter year ended December 31, 1995. Sales to RBOCs and
LECs constituted 69% and 78% of revenue for the fiscal year ended September
30, 1996 and the quarter ended December 31, 1996, respectively. In addition,
three customers accounted for 30%, 18% and 16% of sales in fiscal 1996, and
31%, 19% and 13% of sales in the quarter ended December 31, 1996.

Cost of Sales

Cost of sales consists primarily of the cost to manufacture the Company's
products. Cost of sales increased to $428,112 in the fiscal year ended
September 30, 1996 from $7,929 in the fiscal year ended September 30, 1995 and
to $351,079 for the quarter ended December 31, 1996 from $2,775 for the
quarter ended December 31, 1995. These increases were the result of increased
sales of the Company's products.

Research and Development

Research and development expense consists principally of personnel costs,
supply expenses and equipment depreciation. Research and development expense
increased to $537,902 for the year ended September 30, 1996 from $159,163 for
the year ended September 30, 1995. This increase was primarily the result of
hiring additional engineers and outside consultants for product development.
Research and development expense for the three-

month period ended December 31, 1996 was $149,415, relatively unchanged from
the three-month period ended December 31, 1995.

The Company expects that research and development expenses will increase
significantly in future quarters as the Company attempts to develop new
products and enhance its current products. See "Use of Proceeds" and
"Business--Research and Development."

Sales and Marketing

Sales and marketing expense consists primarily of personnel, consulting and
travel costs and sales commissions related to the Company's sales and
marketing efforts. Sales and marketing expenses increased to $549,916 for the
year ended September 30, 1996 from $122,884 for the year ended September 30,
1995 and to $153,399 for the three-month period ended December 31, 1996 from
$116,672 for the three-month period ended December 31, 1995. These increases
were attributable primarily to the addition of sales and marketing personnel.

The Company anticipates that sales and marketing expenses will increase
significantly in future quarters as the Company hires additional sales
personnel and attempts to expand its existing and create new distribution
channels. See "Use of Proceeds" and "Business-Sales, Marketing and
Distribution."

General and Administrative

General and administrative expense consists of general management and
finance personnel costs, rent, telephone and legal expenses for the Company.
General and administrative expenses increased to $440,089 for the year ended
September 30, 1996 from $146,756 for the year ended September 30, 1995 and to
$138,787 for the three-month period ended December 31, 1996 from $84,194 for
the three-month period ended December 31, 1995. These increases were primarily
the result of hiring additional personnel and the commencement of salary
payments to certain founders who previously had not been paid salaries. The
Company expects that it will need to hire additional accounting and financial
personnel in order to support anticipated growth and comply with the reporting
and investor relations obligations of a public company.

Income Taxes

There was no provision for federal or state income taxes in fiscal 1995 or
1996 or in the three month periods ended December 31, 1995 and 1996, as the
Company incurred net operating losses. The Company expects to incur a net
operating loss in future quarters and years. As of September 30, 1996, the
Company had federal and state net operating loss carryforwards of
approximately $1,800,000. The net loss carryforwards and credit forwards will
expire in tax years 2003 and 2011, if not utilized. Utilization of the net
operating losses and credits may be subject to a substantial annual limitation
due to ownership change limitations provided by the Internal Revenue Code of
1986, as amended (the "Code"), and similar state provisions. This Offering may
result in such an ownership change for purposes of Section 382 of the Code. If
an ownership change were to occur, net operating losses and credits could
expire before utilization. For financial reporting purposes, deferred tax
assets primarily related to the net operating carryforwards recognized under
Financial Accounting Standard No. 109, "Accounting for Income Taxes," have
been fully offset by a valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed it operations to date primarily through private
sales of equity and debt securities and a now expired bank line of credit for
working capital. In the fiscal year ended September 30, 1996 and three-month
period ended December 31, 1996, the Company's net cash used in operating
activities equaled $2,034,658 and $325,754, respectively. The Company
anticipates that it will have a negative cash flow from operating activities
in future quarters and years.

In March 1996, the Company completed the Bridge Financing which consisted of
the sale of $850,000 principal amount of Bridge Notes bearing interest at an
annual rate of 10% and warrants to purchase an aggregate of 425,000 shares of
Common Stock. See "Capitalization--Bridge Financing." The net proceeds of the
Bridge Financing of approximately $725,000 have been utilized by the Company
to repay certain indebtedness and for working capital purposes including
general and administrative expense and expenses of the Offering. The Company
intends to repay the principal and accrued interest on the Bridge Notes with a
portion of the proceeds of the Offering. See "Use of Proceeds." The Company
will recognize a non-recurring charge of $231,000 representing the aggregate
debt discount and debt issuance costs associated with the Bridge Financing at
the time of repayment. See Note 7 of Notes to Financial Statements.

From time to time, Mr. Paul F. DePond, President and Chief Executive Officer
of the Company, has funded the Company's working capital requirements. In
fiscal 1995, Mr. DePond made capital advances in the aggregate principal
amount of $75,000 of which $50,000 in principal amount, but not the accrued
interest thereon, was repaid through December 31, 1996 and the remaining
$25,000 in principal amount and the remaining accrued interest thereon will be
repaid upon the closing of the Offering. In February 1997, Mr. DePond advanced
the Company $65,000 which amount, including accrued interest, was repaid upon
the closing of the Bridge Financing. See "Use of Proceeds" and "Certain
Relationships and Related Transactions."

During the 12-month period following the Offering, the Company is committed
to pay approximately $420,000 in compensation to its current executive
officers. See "Management--Employment Contracts."

The Company believes that the proceeds from the sale by the Company of the
Units together with existing sources of liquidity will satisfy the Company's
anticipated cash needs through at least the next 12 months. Thereafter, if
cash generated from operations is insufficient to satisfy the Company's
liquidity requirements, the Company may attempt to sell additional equity or
convertible debt securities or obtain credit facilities. The sale of
additional equity or convertible debt securities would result in additional
dilution the Company's shareholders. There can be no assurance as to the
availability or terms of any required additional financing, when and if
needed. In the event that the Company fails to raise any funds it requires, it
may be necessary for the Company to significantly curtail its activities or
cease operations.

RELEASE OF ESCROW SECURITIES

BUSINESS

The Company is engaged in the development, manufacture, marketing and sale
of computer telephony products for the business, Small Office Home Office
("SOHO") and residential marketplaces. In recent years, the number of
individuals and businesses relying on their telephone company service provider
to provide them with services such as voice mail and CENTREX, a business-
oriented service which eliminates the need for on-premise telephone switching
equipment, has increased dramatically. The Company's products are designed to
enhance the convenience and utility of these services by providing customers
with features which are either not available or not included in standard
service packages. The Company's MessageAlert product increases the timeliness
and ease of message retrieval for voice mail subscribers by providing a visual
indication that a message has been received. The Company's Centrex Auto
Attendant product gives business and SOHO customers a cost-effective means of
ensuring that incoming calls are properly routed even when a human attendant
is not available.

INDUSTRY BACKGROUND

Voice Mail

In 1995, approximately 14 million residential and business customers
received voice mail services from their telephone service provider. The number
of customers subscribing to voice mail has increased at an annual rate of
almost 20% since 1990. Residential voice mail subscribers typically pay their
telephone service provider a monthly fee of $6 to $7 for voice mail services
whereas business voice mail subscribers generally pay from $15 to $20. Because
of its message management capabilities, reliability and remote access
features, voice mail is a significant improvement over traditional telephone
answering machines. However, voice mail subscribers know they have a message
waiting only if they remember to pick up their telephone and listen for the
distinctive stutter dial tone which indicates that a message has been
received. As a result, messages are often received substantially later than if
the blinking light of the traditional answering machine had been available.
Telephone company voice mail product managers believe that the lack of a
visual message waiting indicator is one of the major reasons that voice mail
subscribers cancel their service. In a survey conducted by Pacific Bell, 83%
of respondents stated that a voice mail indicator light either "enhanced" or
"greatly enhanced" their voice mail service.

Development of a visual indicator for telephone company provided voice mail
was impeded by governmental regulation and shifting telephony standards. For
many years, the Federal Communications Commission ("FCC") prohibited the use
of any device which would take a telephone line "off-hook" for a purpose other
than making a telephone call. As a result, it was illegal to sell a device
which would sample a telephone line to determine if the stutter dial tone was
present. In response to this restriction, the major domestic telephone
companies in 1992 and 1993 adopted a signaling standard (known as "CLASS")
which enabled a device which was attached to a telephone line to be alerted to
the presence of a voice mail message without taking the line off-hook. In
addition, in September 1995, the FCC issued a waiver to allow stutter tone
detection devices to be attached to telephone lines. See "Business--
Governmental Regulation and Industry Standards." Despite these changes, the
vast majority of subscribers to telephone company provided voice mail still do
not receive a visual indication that they have a message waiting.

The Notify Solution

The Company's MessageAlert product remedies this deficiency in voice mail
services by providing subscribers with a visual indication that a message has
been received. The MessageAlert is a small, battery-operated Visual Message
Waiting Indicator ("VMWI") which connects to a voice mail subscriber's
telephone line between the telephone jack and the telephone. The MessageAlert
is designed to work with either one or both of the signaling standards used by
telephone companies to indicate that voice mail has been received. When the
MessageAlert senses that a message has been received, its indicator light
begins to blink. Once the message has been retrieved, the light turns off. The
Company's believes the MessageAlert is the only battery operated VMWI
compatible with both stutter and CLASS signaling on the market today.

Stutter dial tone, a normal dial tone turned on and off intermittently, is
still the most common signaling standard. This signal is initiated by a
communication from the voice mail platform to the central office switch. If a
subscriber has a message, the stutter dial tone is present; if there are no
messages, the dial tone is normal. Stutter compatible VMWIs work by checking
the telephone line whenever the customer completes a call and whenever a call
is placed to the customer's number but not picked up. The VMWI turns its
indicator light on or off based on the presence or absence of a stutter dial
tone when it checks the line.

CLASS signaling is emerging as a complement to, rather than a replacement
for, stutter signaling. CLASS signals are low speed signals transmitted over
the telephone line while the telephone is on hook. CLASS signals are used to
support Caller-ID as well as voice mail. With CLASS signaling, the voice mail
platform instructs the central office switch to notify the subscriber that
they have a message. If the subscriber's telephone line is not in use, the
CLASS signal is transmitted and picked up by the VMWI and the indicator light
on the VMWI begins to blink. When the subscriber retrieves his messages,
another CLASS signal is sent which causes the VMWI to cease blinking.

Both stutter signaling and CLASS signaling have limitations. Implementing
CLASS signaling often requires telephone companies to upgrade their switches
and other elements of their network. In addition, a CLASS signal cannot be
sent while the subscriber's phone is in use. If an attempt to transmit the
CLASS signal to the subscriber's VMWI is unsuccessful because the subscriber's
phone is in use, then the switch does not attempt to re-send the CLASS signal
again for a period of time, often from two to four hours. As a result, a
subscriber may not receive timely notification of messages received while they
are on the phone.

The stutter signal is deficient in two instances. First, if a subscriber
picks up his messages remotely, the stutter signal will turn off but the
VMWI's indicator light will stay on. Second, if a subscriber forwards a
message to another subscriber, a common occurrence in the office context, the
stutter signal will be implemented but the indicator light will not come on.
Both these failures occur because the VMWI samples the line only after
specified events; events which occur without the use of the subscriber's
telephone do not trigger a sampling of the line. FCC regulations prohibit the
sale or use of VMWIs which sample the line other than after the specific
events described above.

In order to overcome the deficiencies of stutter and CLASS signaling, the
Company developed its MessageAlert product, a VMWI which is compatible with
both standards. Combining stutter and CLASS signaling provides the advantages
of both methods and eliminates the disadvantages of each. The stutter is
immediate and never delayed, and CLASS signaling is not event driven. As a
result, subscribers are ensured of timely notification of new messages. Notify
believes it is the only company currently producing a battery-operated VMWI
which is compatible with both stutter and CLASS signaling. The Company has
filed a patent application covering the "MultiSense" technology which provides
dual signalling capability to its MessageAlert product.

The Company is working with certain Regional Bell Operating Companies
("RBOCs") and large Local Exchange Carriers ("LECs") to encourage the adoption
of dual signaling as the standard for voice mail services. The Company
estimates that currently 20% of voice mail subscribers are on systems which
support both stutter and CLASS signaling with the remaining 80% on systems
which support only stutter signaling. The Company expects that eventually all
telephone companies will offer both CLASS and stutter signaling throughout
their networks but that the migration to dual signaling will be slow because
of the expense of upgrading switches to handle CLASS signaling.

Nevertheless, the Company believes that products which support dual-
signaling will have a significant competitive advantage even in telephone
systems with limited or no support for CLASS signaling. Almost all RBOCs and
large LECs have announced their intention to implement CLASS signaling. Most
will do so on a

piecemeal basis over a number of years. During that transition period,
tracking which customers have dual signaling and which only have stutter
signaling will be difficult for the telephone companies from both an
administrative and a technical standpoint. Distributing dual signal VMWIs to
all customers regardless of which signaling standard they are currently
receiving would eliminate the need for such tracking as well as the need to
upgrade customers' VMWIs when their switching is upgraded. The Company
believes that when marketing to the RBOCs and LECs the ability to support dual
signaling is a significant competitive advantage.

The Company also believes the type of power source a VMWI uses is an
important competitive feature. All of the Company's MessageAlert products are
powered by batteries and can operate for over a year on one set of four "AA"
batteries under normal operating conditions. Certain of the Company's
competitors products require an AC power adapter. This approach is
disadvantageous because telephones are often not located near power outlets
and because the VMWI will cease to operate in the event of a power outage.
Other competitors' products are powered by the current in the telephone line.
While convenient, most large telephone companies disfavor this approach
because such devices may adversely affect telephone service when they go off-
hook to recharge their visual indicator circuit. In addition, a device
connected to the public telephone network is not allowed under current FCC
regulations to go off hook periodically for any reason other than to dial a
number and use the network services.

CENTREX

Many businesses today rely on telephone company provided CENTREX services to
handle their call processing needs rather than owning and maintaining their
own telephone switches. CENTREX provides companies with most of the benefits
of an internal system, such as call transferring, extension dialing,
conference call capability and voice mail without the burdens of hardware
ownership. There are currently over 10 million CENTREX lines in service in the
United States approximately 35% of which are in small businesses.

A major deficiency of CENTREX services for small businesses is that calls to
a business' main or 800 number generally must be answered by a human attendant
or they will go unanswered or be transferred into the business' general voice
mail mailbox. For many small businesses, their main and 800 number are
critical components of their operations yet they cannot afford to have a human
attendant available at all times. These businesses need some way to ensure
that all incoming calls are answered and properly routed. Some telephone
companies have attempted to add auto-attendant features to their CENTREX
services; such services have generally been expensive to purchase and
cumbersome to install and maintain and, as result, have not been widely
accepted. In addition, a number of companies offer computer-based systems;
these also are expensive because of the need to dedicate a personal computer
to answering the main or 800 number, and complicated to install and maintain.

The Notify Solution

The Company's Centrex Auto Attendant product responds to the needs of small
businesses or work groups which require an automated method of ensuring that
incoming calls are answered and properly routed. The Centrex Auto Attendant is
attached to the business' main or 800 number line and functions as an
automated substitute for a human receptionist. Incoming calls are answered by
the Centrex Auto Attendant which plays a greeting and provides the caller with
a set of options. These options can include transferring the caller to a
particular department, extension or person, providing the caller with pre-
recorded information (such as directions to the business), or providing the
caller with another set of menu options. The caller responds to the Centrex
Auto Attendant by pressing the buttons on his touch-tone phone. If the caller
chooses to be transferred to a specific extension or person, the Centrex Auto
Attendant works in conjunction with the business' CENTREX service to ensure
that the call is properly transferred.

The Centrex Auto Attendant was designed to give businesses a robust set of
features typically found on more expensive PC-based systems without the
complicated installation and configuration procedures typically associated
with such systems. The Centrex Auto Attendant can answer a business' phone,
play a greeting, provide a series of options to the caller, transfer the call
to a specified extension and transfer the call to another set of menu options.
Other features include multiple greetings for business hours and off business
hours, a name directory, and extension dialing. The Centrex Auto Attendant
also tracks a variety of call statistics, such as number of calls processed at
different times of the day. A non-technical user can configure the Centrex
Auto Attendant by simply responding to the interactive voice prompts which are
imbedded in the system. Installation requires nothing more than plugging
standard telephone lines into the product. The Company believes the Centrex
Auto Attendant's suggested retail price of under $2,000 makes it a cost-
effective solution to the call-processing needs of small business CENTREX
users.

The Company believes that its current Centrex Auto Attendant which has a
port for one incoming telephone line can address the needs of most businesses
with 2 to 19 telephone lines. In addition, the Company is developing models of
the Centrex Auto Attendant with ports for two and four incoming lines to
address the needs of businesses with up to 50 lines. See "Business--Research
and Development."

BUSINESS STRATEGY

The Company's goal is to become a leading supplier of computer telephony
products to the business, SOHO, and residential marketplace. The Company's
strategy for achieving this objective includes the following key elements:

Position the MessageAlert as a "Bundled" Product

The Company intends to encourage RBOCs and LECs to provide the Company's
MessageAlert product to their customer as part of their voice mail service at
no additional charge. The Company believes that recent reductions in its cost
to manufacture its MessageAlert products will allow it to offer the products
to RBOCs and LECs at price where the expected revenues from an increased
retention rate for voice mail subscribers will be sufficient to justify
bundling it with their voice mail services.

Incorporate Proprietary Technology in New Products

The Company believes the proprietary technology in its MessageAlert and
Centrex Auto Attendant products can be leveraged to provide new and enhanced
telephony products for the business and SOHO market. For example, the
technology in the MessageAlert can be used to provide Caller-ID and call
waiting Caller-ID and the architecture of the Centrex Auto Attendant can be
expanded to support two or four incoming lines. The Company is also developing
a product that will provide remote e-mail access via the telephone. See
"Business--Research and Development."

Develop Telephone Company and Related Distribution Channels

The Company has established and is in the process of establishing OEM and
joint marketing relationships with the RBOCs and large LECs for its
MessageAlert product line. In addition, the Company believes that many of the
RBOCs' and LECs' authorized resellers would also be appropriate resellers of
its products. Though establishing these channels requires a substantial amount
of up front time and effort, the Company believes that, if it is able to
develop credibility in these channels, it will be able to use them to sell all
of its products including its Centrex Auto Attendant and any future products.

Expand into International Markets

The Company believes there is a significant market for its products in
European and Pacific Rim countries. Many of the telephone companies in these
countries are just now introducing voice mail to their residential customers.
By working with telephone companies as they begin implementation, the Company
believes it can increase the possibility that its products will become a
standard part of voice mail service in those countries. In addition, in those
countries where CENTREX service is available or planned, the Company intends
to use the telephone company, as well as other distributors, as a channel for
its Centrex Auto Attendant product.

The Company's strategy includes plans for substantial growth in 1997, which
could place a significant strain on its limited personnel, financial,
management and other resources. In order to manage its planned growth, the
Company will need to significantly expand its product development and sales
and marketing capabilities and personnel. In addition, the Company will need
to adapt its financial planning, accounting systems and management structure
to accommodate such growth if it occurs. A failure by the Company to properly
anticipate or manage its growth, if any, could adversely affect its business,
operating results and financial conditions. In the last quarter of fiscal
1996, the Company over-estimated its growth rate and, as a result, built-up
excessive inventories of certain products and components. There can be no
assurance that the Company will not experience similar or more severe
difficulties in the future.

PRODUCTS

MessageAlert

Introduced in January 1996, the MessageAlert is the only battery powered
stutter and CLASS compatible VMWI on the market. The Company has applied for a
patent on the MultiSense Technology incorporated in it which enables it to
work with both signaling standards. In addition the MessageAlert is the first
VMWI to include Autosensing Line Voltage Calibration (ALVC). ALVC allows the
MessageAlert to perform in a wide range of consumer environments by causing it
to calibrate itself automatically to whatever voltage is present on the
telephone line. This adaptability reduces the likelihood that a customer will
need telephone company support to install the product. The MessageAlert is
marketed by the Company and certain telephone companies under the name
"MessageAlert" and by certain other telephone companies under their own names.
In addition, the Company markets a version of the MessageAlert, "MessageAlert
PBX," which is specifically adapted for PBX environments.

Below is a table listing certain features of the MessageAlert and the
benefits the Company believes those features bring to customers and telephone
companies:
- -------------------------------------------------------------------------------

FEATURES CUSTOMER BENEFIT TELEPHONE COMPANY BENEFIT
- --------------------------------------------------------------------------------------
MultiSense Reliable indication of messages Customers use service more
Detection
- --------------------------------------------------------------------------------------
Autosense Reliability Works in almost all environments
line
voltage
- --------------------------------------------------------------------------------------
Battery No AC adapter--no need for an outlet Easy acceptance by the customer
Power Less desktop cabling mess
- --------------------------------------------------------------------------------------
Low Cost Easily affordable Quicker, broader market penetration
- --------------------------------------------------------------------------------------
Attractive Pleasing to have in living or work Provides a physical presence
Design areas including "brand" name
- --------------------------------------------------------------------------------------
Post-it(R) Added functionality Opportunities for pad-based
Notes promotions
Holder
- --------------------------------------------------------------------------------------

Centrex Auto Attendant

The Centrex Auto Attendant is a stand-alone unit which provides the CENTREX
customer with automatic call answer and transfer capability 24 hours a day.
The Centrex Auto Attendant provides nine minutes of

recorded announcement time, special after hours or holiday announcements, and
nine main menu items. Each main menu item supports nine selections which can
be either a transfer to telephone number or announcement. The Centrex Auto
Attendant also provides extension dialing, name directory services, call
statistics and operator assistance. The unit has a battery back-up that will
last up to three days. The Centrex Auto Attendant is programmable by a local
or remote touch tone telephone and has password protection for all
administrative programming. The current Centrex Auto Attendant model supports
one incoming CENTREX line. Multiple units may be used for multiple inbound
lines. Future models of the Centrex Auto Attendant will support two and four
lines.

Below is a table listing certain features of the Centrex Auto Attendant and
the benefits the Company believes those features bring to customers and
telephone companies.

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

FEATURES CUSTOMER BENEFIT TELEPHONE COMPANY BENEFIT
- -----------------------------------------------------------------------------------------
Works in a Enhances their CENTREX service Increased CENTREX customer
CENTREX retention
Environment
- -----------------------------------------------------------------------------------------
Two Levels More efficient call routing Works for different size businesses
of Menus
- -----------------------------------------------------------------------------------------
Name More flexible call processing Competitive feature for CENTREX
Director & competing against PBX
Extension
Dialing
- -----------------------------------------------------------------------------------------
Daily Call Allows tracking of call volumes, types Statistics can be used to justify
Statistics of calls, etc. additional CENTREX trunk lines
- -----------------------------------------------------------------------------------------
Voice Easy to configure Reduces customer support
Prompts
for Set-up
- -----------------------------------------------------------------------------------------
Large Allows for 9 minutes of recording Provides solution for a range of
Memory time of information business applications
Capacity
- -----------------------------------------------------------------------------------------
72 Hour Saves all configuration info during Reduces customer support and
Battery power failure enhances CENTREX reliability
Back-up
- -----------------------------------------------------------------------------------------
System Simple disaster recovery or Reduces customer support and
Copy/Back- duplication of system enhances CENTREX reliability
up
(optional)
- -----------------------------------------------------------------------------------------

To date, the Company has received only limited revenue from the sale of its
products. While the Company believes that its products are commercially
viable, developing products for the consumer and business marketplaces is
inherently difficult and uncertain. The Company does not believe its sales to
date are sufficient to determine whether or not there is meaningful consumer
or business demand for its products. The Company intends to devote a
significant portion of the proceeds of the Offering to its sales and marketing
efforts and to promote consumer and business interest in its products. There
can be no assurance that such efforts will be successful or that significant
market demand for the Company's products will ever develop.

In order to reduce the manufacturing costs, limit the power consumption and
otherwise enhance the operation of its products, the Company has from time to
time redesigned its products. The Company expects that in the future it will
engage in similar redesigns of its products. In addition, the Company is in
the process of developing new, similarly complex products. Though the Company
extensively tests its products before marketing them, any new, redesigned or
current product may contain a design flaw which is undetected by the Company's
testing procedures. For example, in August 1996, the Company recalled 6,500 of
an earlier version of its MessageAlert product as a result of a design flaw
and, in November 1996, the Company recalled 14,000 of its MessageAlert product
also as a result of a design flaw. The direct cost to re-work and repair the
defective products in these instances was approximately $29,000 and $13,000,
respectively. In addition, the Company relies on subcontractors to manufacture
and assemble its products. Though the Company has quality control procedures
designed to detect manufacturing errors, there can be no assurance that the
Company will identify all defective products. The Company believes that
reliable operation will be an important purchase consideration for both its
consumer and business customers. A failure by the Company to detect and
prevent a

design flaw or a widespread product defect could materially adversely affect
the sales of the affected product and the Company's other products and
materially adversely affect the Company's business, financial condition and
operating results.

SALES, MARKETING AND DISTRIBUTION

The Company's domestic and international marketing and sales activities for
the MessageAlert to date have been focused on direct sales to large telephone
companies. The MessageAlert is being either private labeled or joint marketed
by GTE Communication Systems Corporation, Pacific Bell, BellSouth Corporation,
Century Telephone Enterprises Inc., Commonwealth Telephone Company, Puerto
Rico Telephone Company, Standard Telephone Company and Aliant Communications,
Inc. Except with respect to Pacific Bell, the Company's relationship with
these companies has not been reduced to a formal agreement or contract and
none of these companies is obligated to purchase any product from the Company.
The Company manufactures product based on purchase orders and forecasts of
purchases received from RBOCs and LECs. The Company believes large telephone
companies typically do business in this manner and does not intend to seek
long-term contractual commitments from its telephone company customers.

Qualifying its product and developing the marketing relationships necessary
to enter into the foregoing relationships took substantially longer than the
Company originally anticipated. RBOCs and LECs tend to be hierarchical
organizations characterized by distributed decision-making authority and an
institutional reluctance to take risks. As a result, selling a product to or
entering into a marketing relationship with an RBOC or LEC is generally a
lengthy process. The Company believes its success, if any, will be largely
dependent on its ability to either sell its products to or enter into joint
marketing arrangements with the RBOCs and LECs. In particular, the Company
believes that its MessageAlert product can be sold profitably only if it is
sold to or in conjunction with the RBOCs and LECs. A failure by the Company to
develop significantly enhanced relationships with the RBOCs and LECs would
have a materially adverse effect on the Company's business and operating
results.

The Company is marketing the Centrex Auto Attendant to the same group of
large telephone companies it has targeted for the MessageAlert product. The
Company believes that having established itself as a qualified supplier or
joint marketing partner with respect to the MessageAlert product will help
shorten the sales cycle with respect to the Centrex Auto Attendant. In
particular, the Company believes the Centrex Auto Attendant and the
MessageAlert product can be marketed together by the telephone companies to
the business and SOHO market.

The Company is also in the process of establishing an authorized reseller
program for the Centrex Auto Attendant and MessageAlert products. Throughout
the United States, there are several hundred authorized resellers of the
RBOCs' and LECs' products and services. The Company intends to select those
authorized resellers which are focused on selling CENTREX services and recruit
them as the Company's authorized resellers. The Company expects to use a
portion of the proceeds of the Offering to hire regional sales managers to
recruit and manage these authorized resellers. Because the Company's marketing
efforts have been largely focused on the RBOCs and LECs, its management has
had only limited experience in selling the Company's products through other
channels. There can be no assurance that the Company will be able to implement
its marketing and distribution program or that any marketing efforts
undertaken by or on behalf of the Company will be successful.

The Company is marketing its products outside North America by using sales
representatives from various countries. The Company has entered into a sales
representative agreement covering France and another covering the United
Kingdom, Germany, Netherlands, Spain, Sweden, and Switzerland.

TECHNICAL AND MARKETING SUPPORT

The Company has developed product collateral and marketing programs for the
Centrex Auto Attendant and MessageAlert products. The Company intends to use a
portion of the proceeds of the Offering to expand its

ongoing marketing programs. These marketing programs will include augmentation
of collateral material, advertising and trade shows, supplemented with public
relations campaigns. The Company intends to establish channel marketing
programs consisting of collateral material, training and incentive programs
for the reseller sales force.

The Company provides back-up technical support to large telephone companies
and resellers. All technical support is performed by the Company's support
personnel. In the future, the Company's support organization will provide both
sales and technical support. Sales support consists of sales and marketing
training at the Company's home office training facility for its own sales
force and those of authorized resellers.

RESEARCH AND DEVELOPMENT

Since its inception, the Company has devoted substantial resources to
research and product development. The Company has had limited internal
engineering resources and uses contract engineering resources for a
significant portion of its research and development. The Company believes that
its future depends significantly on its ability to continue to enhance its
existing products and to develop new products, and the Company intends to use
a substantial portion of the proceeds of the Offering for research and
development. The Company's research and development efforts will be focused in
four areas: cost reduction and feature enhancement of the MessageAlert
product; the enhancement of the Centrex Auto Attendant platform to handle two-
and four-port trunk line connections; expansion of the MessageAlert
architecture to create a combination Caller-ID/visual message waiting
indicator product; and completion of a remote telephone access to e-mail
product. See "Use of Proceeds."

MANUFACTURING

The Company primarily uses domestic contract manufacturing to minimize
resources devoted to manufacturing and to maximum flexibility and response
time. At times, the Company uses offshore turnkey manufacturing when
production volume makes it a cost-effective alternative. To the extent
possible, the Company uses standards parts and components for its products
although certain components are custom designed and/ or are available only
from a single source or limited sources.

The Company currently tests 100% of its products before shipping. It expects
to implement a sample testing program once a statistically sufficient history
has been established with respect to each of its manufacturing sources. The
MessageAlert and Centrex Auto Attendant products each have one-year
replacement warranties.

The Company subcontracts the manufacture of its board level assemblies to
third parties, and there can be no assurance that these subcontractors will be
able to support the manufacturing requirements of the Company. An inability to
obtain sufficient quantities of source components or subassemblies, or to
develop alternative sources as required in the future, could result in delays
or reductions in product shipments or could force the Company to redesign its
products, either of which could materially adversely effect the Company's
business and operating results.

GOVERNMENTAL REGULATION AND INDUSTRY STANDARDS

COMPETITION

The Company currently has several direct competitors in the market for
VMWIs. Voicewaves, Inc. produces VoiceLite, a line-powered, stutter tone only
VMWI. The Company believes that the product does not have FCC approval and is
not marketed or resold by any large telephone company. Consumerware, Inc.
produces VoiceMail Lite, a battery powered, stutter tone only VMWI. The
Company believes the retail store unit of Southwestern Bell Communications is
the only telephone company which markets the VoiceMail Lite. SNI Innovation,
Inc. produces VisuAlert, a dual standard VMWI which requires an AC adapter.
The Company believes that no large telephone company is reselling or marketing
the VisuAlert product. AASTRA TELECOM of Canada produces Call Answer Lite, a
dual standard VMWI which requires an AC Adapter. The Company believes that no
domestic large telephone company is reselling or marketing the Call Answer
Lite product but that Aastra does have a marketing agreement with Bell Canada.
The Company believes competition in the VMWI market is based on support of
signaling standards, type of power source, other features, price and quality.
The Company believes it competes favorably with respect to all of these
factors.

Certain manufacturers of competing VMWI products have greater financial,
technical and marketing resources than the Company. In addition, there are
several companies with substantially greater technical, financial and
marketing resources than the Company which could produce competing products.
These companies include telephone equipment manufacturers such as CIDCO
Incorporated, Intelidata, Inc., Northern Telecom Limited, and Lucent
Technologies Inc.

The Company has two known direct competitors in the market for auto-
attendant products. Both Bogen Communications and Cobotyx Corporation, Inc.
produce auto-attendant products which have basic call answering and call
routing features but are missing features such as multiple levels of menus,
pre-recorded system prompts, interactive voice response for configuration,
name directory functionality and call statistics. The Company believes
competition in the autoattendant market is based on features (including ease
of use, availability of a name directory, amount of recording time and number
of menu levels), price and quality. The Company believes it competes favorably
with respect to all of these factors.

The Company also faces indirect competition from manufacturers of PC-based
call management systems. These systems are designed to provide voice mail
capability, auto-attendant features, and CENTREX-style functionality on a PC
platform. Such systems are typically significantly more expensive than the
Centrex Auto Attendant with prices ranging from $5,000 and up. The cost of
such systems is based on the price of the PC and whatever additional hardware
and software is required. There are many companies that provide PC-based call
management systems including Active Voice Corporation, Altigen Communications,
and Voice Systems Research, Inc. The Company believes that by combining its
Centrex Auto Attendant with a purchase of CENTREX services, a business can
achieve similar or better call management services than from a PC-based system
at a substantially lower upfront cost.

The Company expects that to the extent that the market for either of its
products develops, competition will intensify and new competitors will enter
the market. There can be no assurance that the Company will be able to compete
successfully against existing and new competitors as the market for its
products evolves and the level of competition increases. A failure to compete
successfully against existing and new competitors would have a materially
adverse effect upon the Company's business and results of operations.

PROPRIETARY RIGHTS

The Company relies on a combination of patent, trade secret, copyright and
trademark law, nondisclosure agreements and technical measures to establish
and protect its proprietary right in its products. The Company has a design
patent issued on the MessageAlert design. The MessageAlert design is unique in
that it provides a visual message waiting indicator light packaged in the form
of a 3M Post-it(R) Note holder. In addition, the Company filed a patent
application in July 1996 relating to the MultiSense technology used in the
MessageAlert product. The Company's MultiSense technology automatically
detects and reacts to either stutter or CLASS signaling. The Company intends
to continue to apply for patents, as appropriate, for its future technologies
and products.

There are few barriers to entry into the market for the Company's products,
and there can be no assurance that any patents applied for by the Company will
be granted or that the scope of the Company's patent or any patents granted in
the future will be broad enough to protect against the use of similar
technologies by the Company's competitors. There can be no assurance,
therefore, that any of the Company's competitors, some of whom have far
greater resources than the Company, will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. Further, the Company intends to distribute its products in a
number of foreign countries. The laws of those countries may not protect the
Company's proprietary rights to the same extent as the laws of the United
States.

The Company may be involved from time to time in litigation to determine the
enforceability, scope and validity of any proprietary rights of the Company or
of third parties asserting infringement claims against the Company. Any such
litigation could result in substantial costs to the Company and diversion of
efforts by the Company's management and technical personnel. In particular,
the Company is aware that a manufacturer of computer telephony products has
filed a patent application purporting to cover any device which electronically
detects stutter dial tone signaling. The Company expects that the patent will
be issued and believes that the manufacturer may assert that the Company's
MessageAlert product infringes upon the patent. If the patent is issued and
such an assertion is made, the Company intends to challenge either the
validity of the patent or its application to the MessageAlert product or enter
into a licensing agreement with the patent holder. There can be no assurance
that the Company will be able to challenge the patent successfully or enter
into a licensing arrangement on commercially reasonable terms. A failure of
the Company to challenge the patent successfully or enter into a licensing
arrangement, would, in all probability, force the Company to cease selling the
MessageAlert product and would have a materially adverse affect on the
Company's business, financial condition and results of operation. In addition,
the expense associated even with a successful challenge to the patent or a
licensing arrangement could have a materially adverse affect on the Company's
business, financial condition and results of operations.

EMPLOYEES

As of March 1, 1997, the Company employed 12 persons of whom two were
engaged in research and development, two in manufacturing, five in sales,
marketing, and customer support, and three in general administration and
finance. During the first year following completion of the Offering, the
Company contemplates increasing its staff at a pace consistent with the
Company's business and growth. None of the Company's employees are currently
represented by a labor union. The Company considers its relations with its
employees to be good.

The Company's success, if any, will be dependent on its ability to attract
and retain highly skilled technical personnel as well as marketing and sales
personnel. If the Company is unable to hire the necessary personnel, the
development of new products and enhancements to current products would likely
be delayed or prevented. Competition for highly-skilled technical, managerial,
sales, and marketing personnel is intense. There can be no assurance that the
Company will be successful in retaining its key personnel and in attracting
and retaining the personnel it requires for expansion.

FACILITIES

The Company's principal executive offices are located at 1054 South DeAnza
Boulevard, Suite 105, San Jose, California 95129. The facilities consist of
approximately 3,500 square feet of office space pursuant to a lease that
expires March 31, 1999. The Company will either renew its lease and acquire
more space if available or enter into a lease for new premises in the local
area.

LEGAL PROCEEDINGS

The Company is not a party to any litigation.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company, and their ages as of
March 1, 1997, are as follows:

NAME AGE POSITION
- ---- --- --------

Paul F. DePond(1)....... 43 President, Chief Executive Officer and Chairman of the Board of Directors
Gaylan I. Larson........ 56 Vice President of Operations and Director
Gerald W. Rice.......... 49 Chief Financial Officer and Secretary
David P. Yewell......... 51 Vice President of Sales and Marketing
Michael Ballard(1)(2)... 42 Director
Barry Bellue(1)......... 54 Director
Michael Smith(2)........ 50 Director

- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee

PAUL F. DEPOND, founder of the Company, has served as its President, Chief
Executive Officer and Chairman of the Board of Directors since the Company's
inception in August 1994. From September 1992 through May 1994, Mr. DePond
served as Vice President--Corporate Marketing of Telebit Corporation, a
supplier of high speed modems and dialup remote access products. From January
1991 through September 1992, Mr. DePond served as Vice President, Marketing,
of Alantec Corporation, a manufacturer of networking products. Mr. DePond
received a B.S. in Electrical Engineering and Computer Engineering in 1979,
and an M.A. in Computer Science in 1980, each from the University of Michigan
at Ann Arbor.

GERALD W. RICE has served as Chief Financial Officer and Secretary of the
Company since August 1994. From November 1993 to June 1996, he owned
Comprehensive Business Services, a financial services company franchise. From
April 1992 to April 1993, Mr. Rice served as Controller at Surface Science
Instruments, a manufacturer of capital equipment for surface chemical
analysis. From June 1990 to April 1992 Mr. Rice was Vice President of Finance
and Secretary of Applied Dielectrics, a manufacturer of microwave circuit
boards. Mr. Rice received an A.A. from Ohlone Community College in 1969 and a
B.A. in Accounting from California State College of Stanislaus in 1971.

GAYLAN I. LARSON has served as Vice President of Operations and as a
Director of the Company since August 1994. From January 1991 to August 1994,
Mr. Larson was Chief Operating Officer of SportSense, Inc., a manufacturer of
golf training equipment. Prior to SportSense, Mr. Larson served as General
Manager of the Data Systems Division of Hewlett-Packard Company, a company
with which he had an 18 year relationship. Mr. Larson received an A.A. from
Sacramento Junior College in 1959, a B.S. in Electrical Engineering from
University of California, Berkeley in 1961, and a M.S.E.E. in Engineering from
Newark College of Engineering in 1965.

DAVID P. YEWELL has served as Vice President of Sales and Marketing of the
Company since January 1996. From April 1994 through May 1994, Mr. Yewell was
Vice President of Marketing at PictureTel, a video conferencing company. From
July 1968 through June 1993, Mr. Yewell served in several capacities at
Hewlett-Packard Company, most recently as Director of Financial Services
Marketing. Mr. Yewell received a B.S. in Electrical Engineering in 1967 and a
M.A. in Electrical Engineering in 1968, both from Cornell University.

BARRY BELLUE has served as a director of the Company since August 1995.
Since January 1996, Mr. Bellue has been the Chief Executive Officer of
Thinkstream, Inc., an imaging software company. From October 1993 to January
1995, Mr. Bellue served as Vice President of Symantec Corporation. From
December 1986 to October 1993, Mr. Bellue served as Chief Executive Officer of
Fifth Generation Systems, a security and data management software company. Mr.
Bellue received his B.S. in Accounting in 1965 from Southeastern University,
and his M.A. of Divinity from Southern Seminary in 1978.

MICHAEL BALLARD has served as a director of the Company since January 1996.
From May 1995 to October 1996, Mr. Ballard served as Executive Vice
President--Marketing of Telebit Corporation. From June 1993 to September 1994,
Mr. Ballard served as Chief of Operations of UUNet, Inc., an internet service
provider. From January 1986 to May 1993, Mr. Ballard served as Chief Executive
Officer of Telebit Corporation. Mr. Ballard has also been a product director
of Cisco Systems since October 1996. Mr. Ballard received his B.F.A. in 1978
from the University of Utah.

MICHAEL SMITH has served as a director of the Company since February 1996.
Since 1970, Mr. Smith has been the President and owner of COMAC, a literature
and product fulfillment company. Mr. Smith attended San Jose State University
from 1964 through 1969.

All directors are elected annually and serve until the next annual meeting
of shareholders or until the election and qualification of their successors.
All executive officers serve at the discretion of the Board of Directors.
There are no family relationships between any of the directors or executive
officers of the Company.

The Company's success, if any, will be dependent to a significant extent
upon certain key management employees, including Messrs. DePond and Larson.
The Company has applied for 3-year key-man term life insurance on each of
Messrs. DePond and Larson in the amount of $2 million and has entered into
employment agreements with them and with Messrs. Rice and Yewell. See
"Employment Contracts."

DIRECTOR COMPENSATION

Members of the Company's Board of Directors do not receive compensation for
their services as directors.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation
awarded to, earned by, or paid for services rendered to the Company in all
capacities during the fiscal year ended September 30, 1996, by (i) the
Company's Chief Executive Officer and (ii) the Company's most highly
compensated executive officers whose salary and bonus for such year exceeded
$100,000 (the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
------------
AWARDS
------------
FISCAL 1996
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS ($) OPTIONS (#) COMPENSATION(1)
- --------------------------- ----------- ----------------------- ---------------

Paul F. DePond........... 100,385 -- -- $7,146
President and Chief
Executive Officer
David P. Yewell.......... 101,345(2) -- -- 1,987
Vice President of Sales
and Marketing

- --------
(1) Consists of health insurance premiums paid by the Company.
(2) Includes amounts paid as consulting fees.

STOCK OPTION PLAN

The Company's 1997 Stock Option Plan (the "Stock Option Plan") provides for
the granting to employees of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), and for the granting to employees and consultants of
nonstatutory stock options and stock purchase rights ("SPRs"). The Stock
Option Plan was approved by the Board of Directors and the shareholders in
January 1997. Unless terminated sooner, the Stock Option Plan will terminate
automatically in January 2007. A total of 200,000 shares of Common Stock are
currently reserved for issuance pursuant to the Stock Option Plan.

The Stock Option Plan may be administered by the Board of Directors or a
committee of the Board (the "Committee"), which Committee shall, in the case
of options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The exercise
price of incentive stock options must be at least equal to the fair market
value of the Company's Common Stock on the date of grant. The exercise price
of nonstatutory stock options and SPRs granted under the Stock Option Plan is
determined by the Committee, but with respect to nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the exercise price must at least be equal to the
fair market value of the Common Stock on the date of grant. With respect to
any participant who owns stock possessing more than 10% of the voting power of
all classes of the Company's outstanding capital stock, the exercise price of
any incentive stock option granted must equal at least 110% of the fair market
value on the grant date and the term of such incentive stock option must not
exceed five years. The term of all other options granted under the Stock
Option Plan may not exceed ten years.

The Stock Option Plan provides that in the event of a merger of the Company
with or into another corporation, a sale of substantially all of the Company's
assets or a like transaction involving the Company, each option shall be
assumed or an equivalent option substituted by the successor corporation. If
the outstanding options are not assumed or substituted as described in the
preceding sentence, the Committee shall provide for the Optionee to have the
right to exercise the option or SPR as to all of the optioned stock, including
shares as to which it would not otherwise be exercisable. If the Administrator
makes an option or SPR exercisable in full in the event of a merger or sale of
assets, the Administrator shall notify the optionee that the option or SPR
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the option or SPR will terminate upon the expiration of such
period.

EMPLOYMENT CONTRACTS

In December 1996, the Company entered into an employment agreement with Paul
DePond, the Company's President and Chief Executive Officer. The agreement
automatically terminates on December 31, 1998, unless the Company undergoes a
change of control, in which case the agreement is extended until 24 months
after such change in control. The agreement provides for a base salary of
$120,000, which increases to $150,000 thirteen months following the Offering,
and a $50,000 bonus contingent on the Company's attainment of certain
performance milestones.

In the event that the Company terminates Mr. DePond without cause following
a change in control, Mr. DePond is entitled to receive severance compensation
equal to a continuation of his salary for a period of eighteen (18) months. In
the event that the Company terminates Mr. DePond without cause apart from a
change of control, Mr. DePond is entitled to receive severance compensation
equal to a continuation of his salary for a period of twelve (12) months. Mr.
DePond is not entitled to severance compensation in the event of a termination
for cause or voluntary resignation. In the event of a termination due to
disability, Mr. DePond is entitled to receive only those severance or
disability benefits as are established under the Company's then existing
severance and benefits plans and policies.

In December 1996, the Company entered into employment agreements with Mr.
Larson, the Company's Vice President of Operations and Mr. Rice, the Company's
Chief Financial Officer. The agreements automatically terminate on December
31, 1998, unless the Company undergoes a change of control, in which case the
agreements are extended until twenty-four (24) months after such change in
control. The agreements provide for base salaries of $115,000 and $95,000 for
Messrs. Larson and Rice, respectively. Under the agreements, Messrs. Larson
and Rice are eligible to receive annual bonuses based on an earnings target
approved by the board of directors of the Company.

In the event that the Company terminates Messrs. Larson or Rice without
cause following a change in control, the terminated officer is entitled to
receive severance compensation equal to a continuation of his salary for a
period of twelve (12) months. In the event that the Company terminates Messrs.
Larson or Rice without

cause apart from a change of control, the terminated officer is entitled to
receive severance compensation equal to a continuation of his salary for a
period of six (6) months. Messrs Larson and Rice are not entitled to severance
compensation in the event of a termination for cause or voluntary resignation.
In the event of a termination due to disability, the terminated officer is
entitled to receive only those severance or disability benefits as are
established under the Company's then existing severance and benefits plans and
policies.

In December 1996, the Company entered into an employment agreement with Mr.
Yewell, the Company's Vice President of Sales and Marketing. The agreement
automatically terminates on December 31, 1997, unless the Company undergoes a
change of control, in which case the agreement is extended until twenty-four
(24) months after such change in control. The agreement provides for a base
salary of $90,000. Under the agreement, Mr. Yewell is eligible to receive a
commission based on a fixed percentage of quarterly sales figures in the event
of the achievement of certain sales milestones.

In the event that the Company terminates Mr. Yewell without cause following
a change in control, then Mr. Yewell is entitled to receive severance
compensation equal to a continuation of his salary for a period of twelve (12)
months. In the event that the Company terminates Mr. Yewell without cause
apart from a change of control, Mr. Yewell is entitled to receive severance
compensation equal to a continuation of his salary for a period of three (3)
months. Mr. Yewell is not entitled to severance compensation in the event of a
termination for cause or voluntary resignation. If Mr. Yewell is terminated
due to disability, then Mr. Yewell is entitled to receive only those severance
or disability benefits as are established under the Company's then existing
severance and benefits plans and policies.

The foregoing agreements define a "change in control" as (i) the acquisition
of more than 30% of the voting securities of the Company by any person or
group; (ii) a change in a majority of the board of directors of the Company
occurring within a two-year period; or (iii) the approval by the shareholders
of the Company of a transaction which would result in a transfer of more than
50% of the Company's voting power. The agreements define "cause" as an act of
dishonesty in connection with employment; a conviction of a felony which will
detrimentally affect the Company's reputation or business; willful and gross
misconduct injurious to the Company; and continued and willful failure to
perform duties. The agreements define "disability" as the inability to perform
duties under the agreement due to mental or physical illness determined to be
total and permanent by a physician.

INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS

The Company has adopted provisions in its Articles of Incorporation that
eliminate the personal liability of its directors for monetary damages arising
from a breach of their fiduciary duties in certain circumstances to the
fullest extent permitted by law and authorizes the Company to indemnify its
directors and officers to the fullest extent permitted by law. Such limitation
of liability does not affect the availability of equitable remedies such as
injunctive relief or recision.

The Company's bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by California law. The Company
has entered into indemnification agreements with its officers and directors
containing provisions which are in some respects broader than the specific
indemnification provisions contained in the California Corporations Code. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of a culpable nature) and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified.

At present, there is no pending material litigation or proceeding involving
a director or officer of the Company where indemnification may be required or
permitted. The Company is not aware of any threatened material litigation or
proceeding which may result in a claim for such indemnification.

Insofar as indemnification for liabilities arising under the Securities 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 it is the opinion of the Commission that such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company was founded in August 1994 by Paul DePond and David Welling as
co-founders. Mr. DePond is President, Chief Executive Officer and Chairman of
the Board of Directors of the Company, and Mr. Welling is a consultant to the
Company. In August 1994, the Company issued to Mr. DePond 550,000 shares of
its Series A Preferred Stock (convertible into 108,909 shares of Common Stock)
for an aggregate purchase price of $55,000, and to Mr. Welling 450,000 shares
of its Series A Preferred Stock (convertible into 89,108 shares of Common
Stock) for an aggregate purchase price of $45,000. Also in August 1994 the
Company issued to Mr. DePond 198,019 shares of Common Stock for an aggregate
purchase price of $10,000 and to Mr. Welling 108,910 shares of Common Stock
for an aggregate purchase price of $5,500.

In November 1994, as a part of a larger sale of common stock to employees,
the Company issued to Mr. DePond 99,009 shares of Common Stock for an
aggregate purchase price of $5,000.

At various times in February and March 1995, the Company sold to Mr. DePond
convertible promissory notes with an aggregate principal amount of $75,000
bearing interest rates of 10% per annum and warrants to purchase 74,257 shares
of common stock of the Company at an exercise price of $1.01 per share for an
aggregate purchase price of $75,000. At various times between November 1995
and October 1996, the Company made payments on the notes totaling $50,000.

In October 1995, the Company issued and sold a total of 3,500,000 shares of
its Series B Preferred Stock (convertible into 693,069 shares of Common Stock)
at a purchase price of $0.50 per share. The purchasers of the Series B
Preferred Stock included three directors of the Company, Michael Ballard,
Barry Bellue and Michael Smith each of whom purchased 200,000 shares
(convertible into 39,603 shares of Common Stock).

In July 1996, pursuant to a Note Purchase Agreement, the Company issued
convertible promissory notes (the "Convertible Shareholder Notes") and
warrants to purchase shares of the Company's Common Stock for an aggregate
purchase price of $932,125. The Convertible Shareholder Notes accrued interest
at a rate of 8% per annum and were convertible into equity of the Company. Mr.
Ballard, a director of the Company, purchased a Convertible Shareholder Note
in the principal amount of $100,000 and the accompanying warrants for
aggregate consideration of $100,000. In January 1997 in connection with a
restructuring of the Convertible Shareholder Notes, Mr. Ballard converted his
note into 21,978 shares of Common Stock and exchanged his warrant for a
warrant to purchase 6,593 shares of Common Stock at a price of $0.25 per
share. See, "Capitalization--Restructuring."

In February 1997, the Company issued to Mr. DePond a 10% subordinated
promissory note with principal amount of $65,000 and warrants to purchase
11,535 shares of the Company's Common Stock at a price per share of $3.00 for
an aggregate purchase price of $65,000. The promissory note was repaid with a
portion of the proceeds from the Bridge Financing.

In March 1997, the Company issued and sold 17 bridge units ("Bridge Units")
at $50,000 per unit. Each Bridge Unit consisted of a one-year $50,000
promissory note bearing 10% interest and warrants to purchase 25,000 shares of
Common Stock at a purchase price of $3.00 per share. The warrants
automatically convert into Class A Warrants upon the closing of the Offering,
and the promissory notes become due upon the earlier of March 11, 1998 or
closing of the Offering. Paul DePond purchased one Bridge Unit in the Bridge
Financing. See "Capitalization--Bridge Financing."

The Company has an ongoing business relationship with COMAC, a literature
and product fulfillment company owned by Michael Smith, its president and a
director of the Company. In fiscal year 1996, the Company paid to COMAC $4,349
in fees. In the first quarter of fiscal year 1997, the Company paid to COMAC
$10,332 in fees.

The Company has entered into two-year employment agreements with Messrs.
DePond, Larson and Rice, the terms of which call for base salaries of
$120,000, $115,000 and $95,000 per annum, respectively. Additionally, the
Company has entered into a one-year employment agreement with Mr. Yewell, the
terms of which call for a base salary of $90,000 per annum. See "Management--
Employment Contracts."

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 1996, and as
adjusted to reflect the sale of shares offered by this Prospectus, (i) by each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than five percent of the Company's Common Stock, (ii) by
each of the Named Executive Officers, (iii) by each of the Company's
directors, and (iv) by all directors and executive officers as a group. The
Company believes that the persons and entities named in the table have sole
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by them, subject to community property laws, where
applicable.

PERCENTAGE
SHARES -----------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------ ------------ -------- --------

Paul F. DePond(2)............................... 491,731 23.9 14.2
Gaylan I. Larson................................ 198,019 10.0 5.9
David Welling................................... 138,200 7.0 4.1
20 Shoshone Place
Portola Valley, CA 94028
SIPPL MacDonald Ventures, L.P.(3)............... 108,539 5.5 3.2
5 Elder Court
Menlo Park, CA 94025
Bayview Investors(4)............................ 108,154 5.5 3.2
555 California Street
San Francisco, CA 94104
David P. Yewell................................. 46,534 2.4 1.4
Michael Ballard(5).............................. 68,935 3.5 2.0
Barry Bellue.................................... 46,533 2.4 1.4
Michael Smith(6)................................ 54,269 2.7 1.6
All directors and executive officers as a group
(6 persons).................................... 906,021 48.7 29.2

- --------
* Less than 1%.
(1) Applicable percentage of ownership is based on 1,974,936 shares of Common
Stock outstanding as of March 1, 1997 together with applicable options for
such shareholder. Beneficial ownership is determined in accordance with
the rules of the Securities Exchange Commission, and includes voting and
investment power with respect to shares. Shares of Common Stock subject to
warrants currently exercisable or exercisable within 60 days after March
1, 1997 are deemed outstanding for purposes of computing the percentage
ownership of the person holding such options or warrants, but are not
deemed outstanding for computing the percentage of any other stockholder.
(2) Includes 85,792 shares issuable upon exercise of currently exercisable
warrants. Does not include 25,000 shares issuable upon exercise of Selling
Securityholder Warrants acquired in the Bridge Financing. See "Concurrent
Securities Offering," and "Capitalization--Bridge Financing."
(3) Includes 6,528 shares issuable upon exercise of currently exercisable
warrants.
(4) Includes 8,233 shares issuable upon exercise of currently exercisable
warrants.
(5) Includes 6,528 shares issuable upon exercise of currently exercisable
warrants.
(6) Includes 3,264 shares issuable upon exercise of currently exercisable
warrants.

ESCROW SECURITIES

In connection with the Offering, the holders of the Company's Common Stock
and warrants to purchase Common Stock placed 1,263,537 Escrow Shares and
Escrow Warrants to purchase 111,008 shares of Common Stock into escrow
pursuant to an escrow agreement ("Escrow Agreement") with the Company's
transfer agent, American Stock Transfer and Trust, as escrow agent. The Escrow
Securities are not assignable or transferable; however, the Escrow Shares may
be voted. Holders of any Escrow Warrants in escrow may exercise their warrants
prior to their release from escrow; however, the shares issuable upon any such
exercise will continue to be held in escrow as Escrow Shares pursuant to the
Escrow Agreement.

The Escrow Agreement provides that one-half of the Escrow Securities (i.e.
687,273 shares of issued or issuable Common Stock) will be released from
escrow, on a pro rata basis, if, and only if, one or more of the following
conditions are met:

1. the Company's net income before provision for income taxes and
exclusive of any extraordinary earnings as audited and determined by the
Company's independent public accountants (the "Minimum Pretax Income")
amounts to at least $1.875 million for the fiscal year ending September 30,
1997 or September 30, 1998;

2. the Minimum Pretax Income amounts to at least $3.0 million for the
fiscal year ending September 30, 1999;

3. the Minimum Pretax Income amounts to at least $4.5 million for the
fiscal year ending on September 30, 2000;

4. the Minimum Pretax Income amounts to at least $6.0 million for the
fiscal year ending on September 30, 2001;

5. the Minimum Pretax Income amounts to at least $9.0 million for the
fiscal year ending on September 30, 2002;

6. commencing on the date of this Prospectus and ending 18 months after
the date of this Prospectus, the bid price of the Company's Common Stock
averages in excess of $12.00 per share (subject to adjustment in the event
of any reverse stock splits or other similar events) for 30 consecutive
business days;

7. commencing 18 months after the date of this Prospectus and ending 36
months after the date of this Prospectus, the bid price averages in excess
of $15.00 per share (subject to adjustment in the event of any reverse
stock splits or other similar events) for 30 consecutive business days; or

8. the Company is acquired by or merged into another entity in a
transaction in which shareholders of the Company receive per share
consideration at least equal to the level set forth in (6) above.

The Escrow Agreement further provides that the remaining Escrow Securities
(i.e. 687,274 shares of issued or issuable shares of Common Stock) will be
released from escrow, on a pro rata basis, if, and only if, one or more of the
following conditions is met:

1. the Minimum Pretax Income amounts to at least $3.0 million for the
fiscal year ending September 30, 1997 or September 30, 1998;

2. the Minimum Pretax Income amounts to at least $4.5 million for the
fiscal year ending on September 30, 1999;

3. the Minimum Pretax Income amounts to at least $6.0 million for the
fiscal year ending on September 30, 2000;

4. the Minimum Pretax Income amounts to at least $7.5 million for the
fiscal year ending on September 30, 2001;

5. the Minimum Pretax Income amounts to at least $10.5 million for the
fiscal year ending on September 30, 2002;

6. commencing on the date of this Prospectus and ending 18 months after
the date of this Prospectus, the bid price of the Company's Common Stock
averages in excess of $13.30 per share (subject to adjustment in the event
of any reverse stock splits or other similar events) for 30 consecutive
business days;

7. commencing 18 months after the date of this Prospectus and ending 36
months after the date of this Prospectus, the bid price averages in excess
of $16.75 per share (subject to adjustment in the event of any reverse
stock splits or other similar events) for 30 consecutive business days; or

8. the Company is acquired by or merged into another entity in a
transaction in which shareholders of the Company receive per share
consideration at least equal to the level set forth in (6) above.

The Minimum Pretax Income amounts set forth above (i) shall be calculated
exclusive of any extraordinary earnings, including, but not limited to, any
charge to income resulting from release of the Escrow Securities and (ii)
shall be increased proportionately, with certain limitations, in the event
additional shares of Common Stock or securities convertible into, exchangeable
for or exercisable into Common Stock are issued after completion of the
Offering. The bid price amounts set forth above are subject to adjustment in
the event of any stock splits, reverse stock splits, reverse stock splits or
other similar events.

Any money, securities, rights or property distributed in respect of the
Escrow Securities, including any property distributed as dividends or pursuant
to any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the
Escrow Securities. If none of the applicable Minimum Pretax Income or bid
price levels set forth above have been met by December 31, 2002, the Escrow
Securities, as well as any dividends or other distributions made with respect
thereto, will be canceled and contributed to the capital of the Company. The
Company expects that the release of the Escrow Securities to officers,
directors, employees and consultants of the Company, if it occurs, will be
deemed compensatory and, accordingly, will result in a substantial charge to
reportable earnings, which would equal the fair market value of such shares on
the date of release. Such charge could substantially increase the loss or
reduce or eliminate the Company's net income for financial reporting purposes
for the period or periods during which such shares are, or become probable of
being, released from escrow. Although the amount of compensation expense
recognized by the Company will not affect the Company's total shareholders'
equity, it may have a negative effect on the market price of the Company's
securities.

The Minimum Pretax Income and bid price levels set forth above were
determined by negotiation between the Company and the Underwriter and should
not be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities.

CONCURRENT SECURITIES OFFERING

An additional 425,000 redeemable Class A Warrants have been registered under
the Securities Act pursuant to the registration statement of which this
Prospectus forms a part for sale by the holders thereof (the "Selling
Securityholders"). These Class A Warrants are identical to the Class A
Warrants included in the Units offered hereby and are being issued to the
Selling Securityholders on the closing of the Offering upon the automatic
conversion of all of the Company's outstanding Bridge Warrants. All of the
Selling Securityholders' Warrants issued upon conversion of the Company's
outstanding Bridge Warrants, the Common Stock and Class B Warrants issuable
upon exercise of such Class A Warrants and the Common Stock issuable upon
exercise of the Class B Warrants will be registered, at the Company's expense,
under the Securities Act and are expected to become tradeable on or about the
closing of the Offering, subject to a contractual restriction that such Class
A Warrants and underlying securities may not be sold for at least 90 days
after the closing of the Offering and, during the period from 91 to 270 days
after such closing, only certain specified percentages of such securities may
be sold. The Selling Securityholders have also agreed with the Company not to
exercise their Selling Securityholders' Warrants for a period of one year
following the closing of the Offering; provided, however, that purchasers of
such Selling Securityholders' Warrants are not subject to such restrictions on
exercise. After the one-year period following the closing of the Offering or
following delivery of a notice of redemption by the Company, the Selling
Securityholders may exercise the Selling Securityholders' Warrants and sell
the Common Stock issuable upon exercise of their warrants without restriction
if a current prospectus relating to such Common Stock is in effect and the
securities are qualified for sale. The Company will not receive any proceeds
from the

sale of the Selling Securityholders' Warrants. Sales of Selling
Securityholders' Warrants issued upon conversion of the Bridge Warrants or the
securities underlying such Class A Warrants or even the potential of such
sales could have an adverse effect on the market prices of the Units, the
Common Stock and the Warrants. See "Shares Eligible For Future Sale."

Paul DePond, President and Chief Executive Officer of the Company, purchased
one Unit in the Bridge Financing. There are no other material relationships
between any of the Selling Securityholders and the Company, nor have any other
such material relationships existed within the past three years. The Company
has been informed by the Underwriter that there are no agreements between the
Underwriter and any Selling Securityholder regarding the distribution of the
Selling Securityholders' Warrants or the underlying securities.

The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices prevailing at the time of sale, or at negotiated prices.

Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the over-
the-counter market, in negotiated transactions or otherwise. Such broker-
dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders or the purchasers
for whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer
may exceed customary commissions).

Regulation M restricts the ability of any person engaged in the distribution
of the Selling Securityholders' Warrants to engage in market making activities
with respect to any securities of the Company for the applicable "cooling off"
period prior to the commencement of such distribution. Accordingly, in the
event the Underwriter or Blair & Co. is engaged in a distribution of the
Selling Securityholders' Warrants, their ability to make a market in the
Company's securities during the applicable restrictive period will be
restricted. However, neither the Underwriter nor Blair & Co. has agreed to,
nor is either of them obligated to, act as a broker-dealer in the sale of the
Selling Securityholders' Warrants, and the Selling Securityholders may be
required, and in the event Blair & Co. is a market maker, will likely be
required, to sell such securities through another broker-dealer. In addition,
each Selling Securityholder desiring to sell Warrants will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Regulation M, which provisions may
limit the timing of the purchases and sales of shares of the Company's
securities by such Selling Securityholders.

The Selling Securityholders and broker-dealers, if any, acting in connection
with such sales may deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the securities might be deemed to be underwriting discounts
and commissions under the Securities Act.

DESCRIPTION OF SECURITIES

UNITS

Each Unit consists of one share of Common Stock, one Class A Warrant and one
Class B Warrant. Each Class A Warrant entitles the holder thereof to purchase
one share of Common Stock and one Class B Warrant, and each Class B Warrant
entities the holder thereof to purchase one share of Common Stock. The Common
Stock and Warrants included in the Units are immediately transferable
separately upon issuance.

COMMON STOCK

The Company has authorized 15,000,000 shares of Common Stock, par value
$.001 per share. The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the shareholders.
Subject to preferences that may be applicable to any shares of Preferred Stock
issued in the future, 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 therefore. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of the Offering will be, fully paid and nonassessable.

REDEEMABLE WARRANTS

The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects
by reference to the actual text of the Warrant Agreement between the Company
and American Stock Transfer and Trust Company. A copy of the Warrant Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.

CLASS A WARRANTS

The holder of each Class A Warrant is entitled, upon payment of the exercise
price of $6.50, to purchase one share of Common Stock and one Class B Warrant.
Unless previously redeemed, the Class A Warrants are exercisable at any time
after issuance until , 2002, provided that at such time a current
prospectus relating to the underlying Common Stock and the Class B Warrants is
in effect and the underlying Common Stock and the Class B Warrants are
qualified for sale or exempt from qualification under applicable state
securities laws. The Class A Warrants included in the Units offered hereby are
immediately transferable separately from the Common Stock and the Class B
Warrants issued with such Class A Warrants as part of the Units. The Class A
Warrants are subject to redemption, as described below.

CLASS B WARRANTS

The holder of each Class B Warrant is entitled, upon payment of the exercise
price of $8.75, to purchase one share of Common Stock. Unless previously
redeemed, the Class B Warrants are exercisable at any time after issuance
until , 2002, provided that at such time a current prospectus relating to
the underlying Common Stock is then in effect and the underlying Common Stock
is qualified for sale or exempt from qualification under applicable state
securities laws. The Class B Warrants included in the Units offered hereby are
transferable separately from the Common Stock. The Class B Warrants are
subject to redemption, as described below.

REDEMPTION

Commencing on the first anniversary of the effective date of the
Registration Statement, of which this Prospectus is a part, the Class A
Warrants and Class B warrants are subject to redemption by the Company, upon
30 days written notice, at a price of $.05 per Warrant, if the average closing
bid price of the Common Stock for any 30 consecutive trading days ending
within 15 days of the date on which the notice of redemption is given shall
have exceeded $9.10 per share with respect to the Class A Warrants or $12.10
per share with respect to the Class B Warrants. Holders of Warrants will
automatically forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Warrants unless the Warrants are exercised
before the close of business on the business day immediately prior to the date
set for redemption. All of the outstanding Warrants of a class, except for
those underlying the Unit Purchase Option, must be redeemed if any of that
class are redeemed. A notice of redemption shall be mailed to each of the
registered holders of the Warrants by first class mail, postage prepaid, upon
30 days' notice before the date fixed for redemption.

GENERAL

The Warrants may be exercised upon surrender of the certificate or
certificates therefor on or prior to the expiration or the redemption date (as
explained above) at the offices of the Company's warrant agent (the "Warrant
Agent") with the Subscription Form on the reverse side of the certificate or
certificates completed and executed as indicated, accompanied by payment (in
the form of a certified or cashier's check payable to the order of the
Company) of the full exercise price for the number of Warrants being
exercised.

The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price per share and the number of
shares issuable upon exercise thereof upon the occurrence of certain events,
including issuances of Common Stock (or securities convertible, exchangeable
or exercisable into Common Stock) at less than market value, stock dividends,
stock splits, mergers, sale of substantially all of the Company's assets, and
for other extraordinary events; provided, however, that no such adjustment
shall be made upon, among other things, (i) the issuance or exercise of
options or other securities under the Stock Option Plan or other employee
benefit plans or (ii) the sale or exercise of outstanding options or warrants
or the Warrants offered hereby.

The Company is not required to issue fractional shares of Common Stock, and
in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the Warrants will not possess any
rights as a shareholder of the Company unless and until he exercises the
Warrants.

Upon notice to the Warrantholders, the Company has the right to reduce the
exercise price or extend the expiration date of the Warrants.

CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS

of the states in which the various holders of the Warrants then reside.
Although the Company has undertaken to use reasonable efforts to maintain the
effectiveness of a current prospectus covering the securities underlying the
Warrants, no assurance can be given that the Company will be able to do so.
The value of the Warrants may be greatly reduced if a current prospectus
covering the securities issuable upon the exercise of the Warrants is not kept
effective or if such securities are not qualified or exempt from qualification
in the states in which the holders of the Warrants then reside.

PREFERRED STOCK

The Company has authorized 5,000,000 shares of Preferred Stock. Shares of
Preferred Stock may be issued without shareholder approval. The Board of
Directors is authorized to issue such shares in one or more series and to fix
the rights, preferences, privileges, qualifications, limitations and
restrictions thereof, including dividend rights and rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series or the designation of such
series, without any vote or action by the shareholders. No shares of Preferred
Stock will be outstanding upon the closing of the Offering and the Company has
no present intention to issue any shares of Preferred Stock. Any Preferred
Stock to be issued could rank prior to the Common Stock with respect to
dividend rights and rights on liquidation. The Board of Directors, without
shareholder approval, may issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of holders of Common
Stock and discourage, delay or prevent a change in control of the Company.

UNIT PURCHASE OPTION

Upon the closing of the Offering, the Company has agreed to grant to the
Underwriter the Unit Purchase Option to purchase up to 140,000 Units. The
Units issuable upon exercise of the Unit Purchase Option will, when so issued,
be identical to the Units offered hereby. The Unit Purchase Option cannot be
transferred, sold, assigned or hypothecated for two years, except to any
officer of the Underwriter or members of the selling group or their officers.
The Unit Purchase Option is exercisable during the three-year period
commencing two years from the date of this Prospectus at an exercise price of
$ per Unit (120% of the initial public offering price) subject to
adjustment in certain events. The holders of the Unit Purchase Option have
certain demand and piggyback registration rights. See "Underwriting."

TRANSFER AGENT AND WARRANT AGENT

American Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has not been any public market for the Common
Stock. Sale of a substantial number of shares of Common Stock into the public
market following the offering could adversely affect prevailing market prices
for the Common Stock.

Following the Offering, the Company will have outstanding an aggregate of
3,374,936 shares of Common Stock, assuming no exercise of the Underwriter's
over-allotment option. In addition to the 1,400,000 shares of Common Stock
offered hereby, as of the date of this Prospectus, there will be 1,974,936
shares of Common Stock outstanding, all of which are Restricted Securities
under the Act. Approximately 1,068,656 of such shares will be eligible for
sale immediately following the Effective Date without restriction in reliance
on Rule 144(k) under the Act. Beginning 90 days after the Effective Date, an
additional 906,280 of such shares will become eligible for sale in the public
market pursuant to Rule 144, subject to the volume and other restrictions
under such rule. However, holders of all of the outstanding shares of Common
Stock of the Company have agreed not to sell or otherwise dispose of any
securities of the Company without the Underwriter's prior written consent for
a period of 13 months from the date of this Prospectus. In addition 1,263,537
of such shares are Escrow Shares subject to the Escrow Agreement. See
"Principal Shareholders--Escrow Securities."

In general under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), who has beneficially owned shares for at least one
year (including the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period, a number of shares that does not exceed the greater of:
(i) 1% of the then outstanding shares of Common Stock (approximately 34,000
shares immediately after this offering) or (ii) generally, the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
the sale. Sales under Rule 144 are also subject to the filing of a Form 144
with respect to such sale and certain other limitations and restrictions.
Under Rule 144(k), a person who is not deemed to have been an affiliate of the
Company at any time during the ninety (90) days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
would be entitled to sell such shares without having to comply with the manner
of sale, volume limitation or notice filing provisions described above.

Any employee of the Company who purchased his or her shares of Common Stock
pursuant to a written compensation plan or contract may be entitled to rely on
the resale provisions of Rule 701 under the Securities Act, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
current public information, holding period, volume limitation or notice
provision of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with the holding period restrictions of Rule 144.

Holders of the Class A Warrants included in the Units sold in the Offering
(assuming no exercise of the Underwriter's over-allotment option) will be
entitled to purchase an aggregate of 1,400,000 shares of Common Stock upon
exercise of the Class A Warrants and holders of the Class B Warrants offered
hereby and underlying the Class A Warrants offered hereby will be entitled to
purchase an aggregate of 2,800,000 additional shares of Common Stock upon
exercise of the Class B Warrants, in each case at any time during the five-
year period following the effective date of the Registration Statement, of
which this Prospectus is a part, provided that the Company satisfies certain
securities registration requirements with respect to the securities underlying
the Warrants.

Up to 560,000 additional shares of Common Stock may be purchased by the
Underwriter through the exercise of the Unit Purchase Option and the Class A
Warrants and Class B Warrants contained in and underlying the Unit Purchase
Option. Any and all of such shares of Common Stock will be tradeable without
restriction, provided that the Company satisfies certain securities
registration requirements in accordance with the terms of the Unit Purchase
Option. The Underwriter has demand and "piggyback" registration rights with
respect to the securities underlying the Unit Purchase Option. See
"Underwriting."

The Company has also registered on behalf of the Selling Securityholders an
aggregate of 425,000 Selling Securityholders' Class A Warrants and the
securities underlying such Class A Warrants. See "Concurrent Securities
Offering" The Selling Securityholders have agreed not to sell their Selling
Securityholder Class A Warrants or the securities issuable on exercise thereof
except pursuant to the restrictions set forth below, provided that, if
required in connection with approval of the Company's securities for listing
on Nasdaq, the Selling Securityholders have agreed not to sell, transfer,
assign, hypothecate or otherwise dispose of their Class A Warrants for a
period of one year from the date of the Offering:

PERCENTAGE
ELIGIBLE
LOCK-UP PERIOD FOR RESALE
-------------- ----------

Up to 90 days after closing.................................... 0%
Between 91 and 150 days after closing.......................... 25%
Between 151 and 210 days after closing......................... 20%
Between 211 and 270 days after closing......................... 75%
After 270 days after closing................................... 100%

The Selling Securityholders have also agreed with the Company not to
exercise the Selling Securityholders' Class A Warrants for a period of one
year following the closing of the Offering; provided, however, that purchasers
of such Selling Securityholders' Class A Warrants are not subject to this
restriction on exercise.

UNDERWRITING

D.H. Blair Investment Banking Corp., the Underwriter, has agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase the
1,400,000 Units offered hereby from the Company on a "firm commitment" basis,
if any are purchased. It is expected that Blair & Co. will distribute as a
selling group member substantially all of the Units offered hereby. Blair &
Co. is owned by a corporation that is substantially owned by family members of
J. Morton Davis. Mr. Davis is the sole stockholder of the Underwriter.

The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering price set forth on the cover page of this
Prospectus. The Underwriter may allow to selected dealers who are members of
the National Association of Securities Dealers, Inc. (the "NASD") concessions
not in excess of $ per Unit, of which not in excess of $ per Unit may
be reallowed to other dealers who are members of the NASD. After commencement
of the offering, the public offering price, concession and the reallowance may
be changed by the Underwriter.

The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter a nonaccountable expense allowance of 3%
of the gross proceeds derived from the sale of the Units offered hereby,
including any Units purchased pursuant to the Underwriter's over-allotment
option, $40,000 of which has been paid as of the date of this Prospectus.

The Underwriter has informed the Company that it does not expect to make
sales to discretionary accounts.

The Company has granted to the Underwriter an option, exercisable during the
30-day period commencing on the date of this Prospectus, to purchase from the
Company at the public offering price, less underwriting discounts and
commissions, up to 210,000 additional Units for the purpose of covering over-
allotments, if any.

The Company has agreed to sell to the Underwriter and its designees, for
nominal consideration, the Unit Purchase Option to purchase up to 140,000
Units substantially identical to the Units being offered hereby, except that
the Warrants included therein are subject to redemption by the Company for
$.05 at any time after the Unit Purchase Option has been exercised and the
underlying Warrants are outstanding. The Unit Purchase Option will be
exercisable during the three-year period commencing two years from the date of
this Prospectus at an exercise price of $6.00 per Unit, subject to adjustment
in certain events to protect against dilution, and is not transferable for a
period of two years from the date of this Prospectus except to officers of the
Underwriter or to members of the Underwriter's selling group or the officers
of such selling group members. The Company has agreed to register the
securities issuable upon exercise thereof under the Securities Act on two
separate occasions (the first at the Company's expense and the second at the
expense of the holders of the Unit Purchase Option) during the five-year
period commencing one year from the date of this Prospectus. The Unit Purchase
Option includes a provision permitting the holder to elect a cashless exercise
of the option. The Company has also granted certain piggyback registration
rights to holders of the Unit Purchase Options.

The Underwriter has the right to designate one director to the Company's
Board of Directors for a period of five years from the completion of the
Offering, although it has not yet selected any such designee. Such designee
may be a director, officer, partner, employee or affiliate of the Underwriter.

The Underwriter has advised the Company that, pursuant to Regulation M under
the Securities Act, certain persons participating in the Offering may engage
in transactions, including stabilizing bids or syndicate covering
transactions, which may have the effect of stabilizing or maintaining the
market price of the Units, Common Stock, Class A Warrants or Class B Warrants
at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of a security on behalf of the
Underwriter for the purpose of fixing or maintaining the price of the
security. A "syndicate covering transaction" is the bid for or the purchase of
a security on behalf of the Underwriter to reduce a short position incurred by
the Underwriter in connection with the Offering. The Underwriter has advised
the Company that such transactions may be effected on Nasdaq or otherwise and,
if commenced, may be discontinued at any time.

During the five-year period from the date of this Prospectus, in the event
the Underwriter originates financing or a merger, acquisition, or transaction
to which the Company is a party, the Underwriter will be entitled to receive a
finder's fee in consideration for origination of such transaction. The fee is
based on a percentage of the consideration paid in the transaction, ranging
from 7% of the first $1,000,000 to 2 1/2% of any consideration in excess of
$9,000,000.

The Underwriter acted as placement agent in connection with the Bridge
Financing in March 1997 and received a placement agent fee of $85,000 and a
non-accountable expense allowance of $25,500. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

The directors and executive officers of the Company, and holders of the
shares of the Common Stock and warrants issued prior to the Offering, have
agreed not to sell or otherwise dispose of any of their shares of Common Stock
of the Company for a period of 13 months from the date of this Prospectus
without the prior written consent of the Underwriter.

The Company has agreed not to solicit Warrant exercises other than through
the Underwriter, unless the Underwriter declines to make such solicitation.
Upon any exercise of the Warrants after one year from the date of this
Prospectus, the Company will pay the Underwriter a fee of 5% of the aggregate
exercise price for Warrant exercises solicited by the Underwriter or its
representatives or agents, if (i) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the then exercise
price of the Warrants; (ii) the exercise of the Warrant was solicited in
writing by a member of the NASD; (iii) the Warrant is not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the offering and at the time of exercise of the Warrants;
and (v) the solicitation of exercise of the Warrant was not in violation of
Regulation M promulgated under the Exchange Act.

The notice of redemption shall specify the redemption price, the date fixed
for redemption, the place where the Warrant certificates shall be delivered
and the redemption price to be paid, and that the right to exercise the
Warrants shall terminate at 5:00 p.m. (New York City time) on the business day
immediately preceding the date fixed for redemption. The Underwriter has
advised the Company that Blair & Co. intends to make a market in the Company's
securities. Regulation M, which was recently adopted to replace Rule 10b-6 and
certain other rules promulgated under the Securities Act of 1934, as amended
(the "Exchange Act"), may restrict Blair & Co.'s ability to engage in market-
making activities with regard to the Company's securities for the period from
five business days (or such other applicable period as Regulation M may
provide) prior to any solicitation by the Underwriter of the exercise of
Warrants until the later of the termination of such solicitation activity or
the termination (by waiver or otherwise) of any right that the Underwriter may
have to receive a fee for the exercise of Warrants following such
solicitation. As a result, Blair & Co. may be unable to provide a market for
the Company's securities during certain periods while the Warrants are
exercisable. In addition, under applicable rules and regulations under the
Exchange Act, any person engaged in the distribution of the Selling
Securityholder Warrants may be restricted in their ability to engage in
market-making activities with respect to any securities of the Company for the
applicable "cooling off" period prior to the commencement of such
distribution. Accordingly, in the event the Underwriter or Blair & Co. is
engaged in a distribution of the Selling Securityholder Warrants, such firms
will be restricted in their ability to make a market in the Company's
securities during the applicable restrictive period. Any temporary cessation
or limitation of such market-making activities could have an adverse effect on
the market price of the Company's securities. See "Underwriting."

The Commission is conducting an investigation concerning various business
activities of the Underwriter and Blair & Co. The investigation appears to be
broad in scope, involving numerous aspects of the Underwriter's and Blair &
Co's compliance with the federal securities laws and compliance with the
federal securities laws by issuers whose securities were underwritten by the
Underwriter or Blair & Co., or in which the Underwriter or Blair & Co. made
over-the-counter markets, persons associated with the Underwriter or Blair &
Co., such issuers and other persons. The Company has been advised by the
Underwriter that the investigation has been ongoing since at least 1989 and
that it is cooperating with the investigation. The Underwriter cannot predict
whether this

investigation will ever result in any type of formal enforcement action
against the Underwriter or Blair & Co. or, if so, whether any such action
might have an adverse effect on the Underwriter or the securities offered
hereby. The Company has been advised that Blair & Co. will make a market in
the securities following the Offering. An unfavorable resolution of the
Commission's investigation could have the effect of limiting such firm's
ability to make a market in the Company's securities, which could adversely
affect the liquidity or price of such securities.

Prior to the Offering, there has been no market for any of the securities of
the Company. Accordingly, the initial public offering price of the Units and
the exercise prices and other terms of the Warrants have been determined by
negotiations between the Company and the Underwriter and are not necessarily
related to the Company's assets net worth or other established criteria of
value. Factors considered in determining such prices and terms, in addition to
prevailing market conditions, include the history of, and prospects for, the
industry in which the Company competes, the Company's management, the
Company's financial condition, the Company's capital structure and such other
factors as were deemed relevant.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Securityholders by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Bachner, Tally, Polevoy &
Misher LLP, New York, New York, has acted as counsel for the Underwriters.

EXPERTS

The financial statements of Notify Corporation at September 30, 1996, and
for each of the two years in the period ended September 30, 1996, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon (which
contains an explanatory paragraph with respect to the uncertainty surrounding
the Company's ability to continue as a going concern, as discussed in Note 1
to Notes to the Financial Statements) appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed a Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Commission") with respect to the Common Stock offered
pursuant to this Prospectus. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information included in
the Registration Statement and amendments thereof and the exhibits thereto,
which are available for inspection without charge, and copies of which may be
obtained at prescribed rates, at the office of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission at 7 World Trade Center, 13th Floor, New York, New York 10048, and
at the Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission (http://www.sec.gov).

The Company will provide, without charge, to each person who received a
Prospectus, upon written or oral request of such person to the Company at the
mailing address or telephone number listed below, a copy of any of the
information incorporated by reference. The mailing address of the Company's
principal executive offices is Notify Corporation, 1054 S. De Anza Blvd.,
Suite 105, San Jose, California 95129 and its telephone number is (408) 777-
7920.

NOTIFY CORPORATION

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Audited Financial Statements
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statement of Shareholders' Equity (Net Capital Deficiency)................. F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7

F-1

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Notify Corporation

We have audited the accompanying balance sheet of Notify Corporation as of
September 30, 1996, and the related statements of operations, shareholders'
equity (net capital deficiency), and cash flows for each of the two years in
the period ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Notify Corporation at
September 30, 1996, and results of its operations and its cash flows for each
of the two years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.

As discussed in Note 1 to the financial statements, Notify Corporation's
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Management's plans as to these matters are also
described in Note 1. The 1996 financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

San Jose, California November 15, 1996, except as to Note 7, as to which the
date is March 13, 1997

F-2

NOTIFY CORPORATION

BALANCE SHEETS

PRO FORMA
UNAUDITED
SHAREHOLDERS'
SEPTEMBER 30, DECEMBER 31, EQUITY AT
1996 1996 DECEMBER 31, 1996
------------- ------------ -----------------
(UNAUDITED) (UNAUDITED)
(NOTE 7)

ASSETS
Current assets:
Cash and cash equivalents....... $ 260,380 $ 107,951
Accounts receivable, net of
allowance for doubtful
accounts of $2,106 and $3,812,
respectively................... 134,682 117,140
Inventories..................... 579,929 411,855
----------- -----------
Total current assets.............. 974,991 636,946
Property and equipment, net....... 92,903 83,422
Other assets...................... 8,765 18,265
----------- -----------
$ 1,076,659 $ 738,633
=========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Line of credit.................. $ 50,000 $ 100,000
Accounts payable................ 116,797 108,176
Accrued liabilities............. 265,049 178,288
Note payable to shareholder..... 30,000 25,000
Convertible notes payable....... 807,125 932,125
----------- -----------
Total current liabilities......... 1,268,971 1,343,589
Commitments
Shareholders' equity (net capital
deficiency):
Convertible preferred stock, no
par value, 4,500,000
shares authorized, issued and
outstanding;
aggregate liquidation
preference of $1,850,000; none
outstanding pro forma--
unaudited...................... 1,850,000 1,850,000 $ --
Common stock, no par value,
12,100,000 shares authorized,
885,125 and 918,182 shares
issued and outstanding at
September 30, 1996 and December
31, 1996, respectively;
1,974,936 shares issued and
outstanding pro forma--
unaudited...................... 58,619 70,819 2,652,944
Notes receivable from
shareholders................... (17,650) (26,525) (26,525)
Accumulated deficit............. (2,083,281) (2,499,250) (2,499,250)
----------- ----------- -----------
Total shareholders' equity (net
capital deficiency).............. (192,312) (604,956) $ 127,169
----------- ----------- ===========
$1,076,659 $ 738,633
=========== ===========

See accompanying notes.

F-3

NOTIFY CORPORATION

STATEMENTS OF OPERATIONS

THREE-MONTH
PERIOD ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- --------------------
1995 1996 1995 1996
------------ ------------- --------- ---------

Product sales................ $ 9,333 $ 308,067 $ 4,903 $ 396,294
Cost of sales................ 7,929 428,112 2,775 351,079
----------- ------------- --------- ---------
Gross profit (loss).......... 1,404 (120,045) 2,128 45,215
Operating expenses:
Research and development... 159,163 537,902 147,272 149,415
Sales and marketing........ 122,884 549,916 116,672 153,399
General and administrative. 146,756 440,089 84,194 138,787
----------- ------------- --------- ---------
Total operating expenses..... 428,803 1,527,907 348,138 441,601
----------- ------------- --------- ---------
Loss from operations......... (427,399) (1,647,952) (346,010) (396,386)
Interest expense............. -- (32,811) -- (7,252)
Other income and expense,
net......................... 1,337 23,544 6,806 (12,331)
----------- ------------- --------- ---------
Net loss..................... $(426,062) $(1,657,219) $(339,204) $(415,969)
=========== ============= ========= =========
Net loss per share........... $ (0.84) $ (3.17) $ (0.65) $ (0.80)
=========== ============= ========= =========
Weighted average shares
outstanding................. 509,564 522,550 525,700 517,480
=========== ============= ========= =========
Pro forma net loss per share. $ (1.89) $ (0.47)
============= =========
Weighted average shares used
in computing pro forma net
loss per share.............. 875,092 882,787
============= =========

See accompanying notes.

F-4

NOTIFY CORPORATION

STATEMENT OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

TOTAL
CONVERTIBLE SHAREHOLDERS'
PREFERRED STOCK COMMON STOCK NOTES RECEIVABLE EQUITY (NET
-------------------- ---------------- FROM ACCUMULATED CAPITAL
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS DEFICIT DEFICIENCY)
--------- ---------- ------- ------- ---------------- ----------- -------------

Issuance of common stock
to founders for cash
and note receivable.... -- $ -- 789,398 $39,865 $(29,865) $ -- $ 10,000
Issuance of Series A
convertible preferred
stock.................. 1,000,000 100,000 -- -- -- -- 100,000
Issuances of common
stock in exchange for
note receivable........ -- -- 59,406 3,000 (3,000) -- --
Repayments of notes
receivable from
shareholders........... -- -- -- -- 13,065 -- 13,065
Net loss................ -- -- -- -- -- (426,062) (426,062)
--------- ---------- ------- ------- -------- ----------- -----------
Balances at September
30, 1995............... 1,000,000 100,000 848,804 42,865 (19,800) (426,062) (302,997)
Issuance of Series B
convertible preferred
stock.................. 3,500,000 1,750,000 -- -- -- -- 1,750,000
Repurchases of common
stock.................. -- -- (32,590) (1,646) 2,500 -- 854
Repayments of notes
receivable from
shareholders........... -- -- -- -- 12,800 -- 12,800
Issuances of common
stock in exchange for
notes receivable and
cash................... -- -- 68,911 17,400 (13,150) -- 4,250
Net loss................ -- -- -- -- -- (1,657,219) (1,657,219)
--------- ---------- ------- ------- -------- ----------- -----------
Balance at September 30,
1996................... 4,500,000 1,850,000 885,125 58,619 (17,650) (2,083,281) (192,312)
Repayments of notes
receivable from
shareholders
(unaudited)............ -- -- -- -- 325 -- 325
Issuances of common
stock (unaudited)...... -- -- 33,057 12,200 (9,200) -- 3,000
Net loss (unaudited).... -- -- -- -- -- (415,969) (415,969)
--------- ---------- ------- ------- -------- ----------- -----------
Balance at December 31,
1996 (unaudited)....... 4,500,000 $1,850,000 918,182 $70,819 $(26,525) $(2,499,250) $ (604,956)
========= ========== ======= ======= ======== =========== ===========

See accompanying notes.

F-5

NOTIFY CORPORATION

STATEMENTS OF CASH FLOWS

THREE-
MONTH PERIOD ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- ---------------------
1995 1996 1995 1996
------------ ------------- ---------- ---------
(UNAUDITED)

CASH FLOWS USED IN
OPERATING ACTIVITIES
Net loss................... $(426,062) $(1,657,219) $ (339,204) $(415,969)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization............. 3,193 23,132 4,955 9,480
Changes in operating
assets and liabilities:
Accounts receivable...... (3,868) (130,814) 636 17,541
Inventory................ (19,849) (560,080) (26,704) 168,074
Other assets............. (5,609) (3,156) (2,700) (9,499)
Accounts payable......... 23,746 93,051 43,250 (8,621)
Accrued liabilities...... 64,621 200,428 (5,539) (86,760)
----------- ------------- ---------- ---------
Net cash used in operating
activities................ (363,828) (2,034,658) (325,306) (325,754)
----------- ------------- ---------- ---------
CASH FLOWS USED IN
INVESTING ACTIVITIES
Expenditures for property
and equipment............. (30,662) (88,566) (23,969) --
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES
Proceeds from issuance of
preferred stock........... 100,000 1,450,000 1,450,000 3,000
Proceeds from issuance of
common stock.............. 10,000 5,104 --
Proceeds from issuance of
convertible notes payable. 300,000 807,125 -- 125,000
Advances under line of
credit.................... -- 50,000 -- 50,000
Proceeds from note payable
to shareholder............ 75,000 -- -- --
Payments on note payable to
shareholder............... -- (45,000) (10,000) (5,000)
Repayments of notes
receivable from
shareholders.............. 13,065 12,800 13,425 325
----------- ------------- ---------- ---------
Net cash provided by
financing activities...... 498,065 2,280,029 1,453,425 173,325
----------- ------------- ---------- ---------
Net increase (decrease) in
cash and cash equivalents. 103,575 156,805 1,104,150 (152,429)
Cash and cash equivalents
at beginning of period.... -- 103,575 103,575 260,380
----------- ------------- ---------- ---------
Cash and cash equivalents
at end of period.......... $ 103,575 $ 260,380 $1,207,725 $ 107,951
=========== ============= ========== =========
NONCASH FINANCING
ACTIVITIES:
Common stock issued or
retired for notes
receivable
from shareholders......... $ 32,865 $ 13,150 $ 1,750 $ 9,200
=========== ============= ========== =========
Conversion of convertible
notes payable to
preferred stock........... $ -- $ 300,000 $ 300,000 $ --
=========== ============= ========== =========

See accompanying notes.

F-6

NOTIFY CORPORATION

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT DECEMBER 31, 1996 AND FOR THE THREE-MONTH PERIODS ENDED
DECEMBER 31, 1996 AND 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

ORGANIZATION AND BUSINESS

Notify Corporation (the "Company") was incorporated in the State of
California on August 12, 1994 to engage in the development and production of
phone message notification systems. As of September 30, 1995, the Company was
considered to be in the development stage and its main activities primarily
consisted of establishing its offices and research facilities, recruiting
personnel, conducting research and development, performing business and
financial planning and raising capital. This designation was no longer
applicable as of September 30, 1996 as the Company began the shipment of its
notification systems during the fiscal year. There were no operations of the
Company between August 12, 1994 (date of incorporation) and September 30,
1994.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Since inception, the Company has
incurred cumulative net losses of approximately $2.5 million and has negative
working capital as of December 31, 1996. Management expects the Company to
incur additional losses and recognizes the need for an infusion of cash during
the fiscal year 1997. The Company is actively pursuing various alternatives to
secure additional financing and believes that sufficient funding will be
available to achieve its planned business objectives (see Note 7).

INTERIM RESULTS

The accompanying balance sheet as of December 31, 1996 and the statements of
operations, stockholders' equity (net capital deficiency) and cash flows for
the three months ended December 31, 1995 and 1996 are unaudited. In the
opinion of management, the statements have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting of
normal recurring adjustments, necessary for the fair statement of interim
periods. The data disclosed in these notes to the financial statement for
these periods is also unaudited.

CASH AND CASH EQUIVALENTS

The Company maintains it cash and cash equivalents in depository and money
market accounts with two financial institutions.

INVENTORIES

Inventories are stated at the lesser of actual cost, on a FIFO basis, or
fair market value and consist of the following:

SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
(UNAUDITED)

Raw materials........................................ $399,719 $304,320
Work-in-progress..................................... 47,166 25,125
Finished goods....................................... 133,044 82,410
-------- --------
$579,929 $411,855
======== ========

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated or amortized on a
straight-line basis of the lesser of the estimated useful lives of the asset
or the lease term. The estimated useful lives range from three to five years.

F-7

NOTIFY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT DECEMBER 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED)

REVENUE RECOGNITION

Product sales are recognized upon product shipment. In fiscal 1996, three
customers accounted for 30%, 18% and 16% of sales, respectively. For the three
months ended December 31, 1996, three customers accounted for 31%, 19% and 13%
of sales, respectively.

INCOME TAXES

The Company follows Statement of Financial Accounts Standards No. 109,
"Accounting for Income Taxes" ("Statement 109"). Under Statement 109, the
liability method is used to account for income taxes. Under this method,
deferred tax assets and liabilities are measured using enacted tax rates and
laws that will be in effect when the differences are expected to reverse.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISK

The Company sells its products primarily to regional bell operating
companies and local exchange carriers in the United States. The Company
performs on-going credit evaluations and generally requires no collateral. The
Company maintains reserves for credit losses, and such losses have been within
management's expectations. As of September 30, 1996, two customers accounted
for 67% and 23% of accounts receivable, respectively. As of December 31, 1996,
three customers accounted for 28%, 24%, and 23% of accounts receivable,
respectively.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In October 1995, the Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") was issued and is
effective for the Company's fiscal 1997 year end. The Company intends to
account for employee stock options in accordance with APB Opinion No. 25 and
will make the pro forma disclosures required by SFAS 123 beginning in 1997.

NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of shares
of common stock outstanding. Common stock equivalent shares from convertible
preferred stock, convertible notes payable and warrants are not included as
the effect is antidilutive. In accordance with Securities and Exchange
Commission Staff Accounting Bulletins, common stock and common stock
equivalent shares issued by the Company at prices below the initial public
offering price during the period beginning one year prior to the initial
public offering have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method and the
estimated initial public offering price). The weighted average number of
common shares used in the net loss per share calculation was reduced by the
common stock, and common stock equivalent shares placed in escrow in
connection with the Company's initial public offering (see Note 7).

F-8

NOTIFY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT DECEMBER 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (CONTINUED)

NET LOSS PER SHARE (CONTINUED)

Pro forma net loss per share has been computed as described above and also
gives effect, pursuant to SEC policy, to common equivalent shares from
convertible preferred stock issued more than 12 months from the initial public
offering date that will automatically convert upon completion of the offering.

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

SEPTEMBER 30, DECEMBER 31,
1996 1996
------------- ------------
(UNAUDITED)

Furniture and office equipment....................... $116,982 $114,367
Leasehold improvements............................... 2,246 2,246
-------- --------
119,228 116,613
Less accumulated depreciation and amortization....... (26,325) (33,191)
-------- --------
$ 92,903 $ 83,422
======== ========

3. FINANCING ARRANGEMENTS

The Company had available a secured bank line of credit which allowed for
maximum borrowings and issuances of letters of credit of up to $500,000 at the
bank's prime rate plus 1.5% (9.75% at September 30, 1996) and expired in March
1997. At September 30, 1996, the Company had borrowings of $50,000 and standby
letters of credit of $20,000 outstanding under this facility. Borrowings of
$100,000 were outstanding at December 31, 1996. The Company was not in
compliance with certain covenants at September 30, 1996 and December 31, 1996.

During fiscal 1996, the Company received proceeds of $807,125 from the
issuance of convertible promissory notes including $100,000 of proceeds
received from a director. The notes accrue interest at the rate of 8% per
annum and are due and payable in June 1997 unless earlier converted. In the
event that the Company issues and sells shares of capital stock for aggregate
proceeds of at least $1,500,000, the entire unpaid principal amount of these
notes and, at the option of the lender, unpaid interest, shall be converted
into shares of the Company's securities sold in such financing. During the
three-month period ended December 31, 1996, the Company received proceeds of
$125,000 from the issuance of additional convertible promissory notes with
terms identical with those described above.

During December 1994, the Company issued a $75,000 promissory note to a
shareholder which accrues interest at the rate of 10% per annum and is due on
demand. The outstanding balance was $30,000 as of September 30, 1996 and
$25,000 as of December 31, 1996.

F-9

NOTIFY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT DECEMBER 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS UNAUDITED)

4. COMMITMENTS

The Company currently occupies a facility under an operating lease which
expires in March 1997 and contains renewal options to extend the lease term
for one two-year period. Future minimum payments under this lease for the year
ended September 30, 1997 is $29,958.

Rent expense totaled $19,000, $44,000, $6,400 and $15,000 for the years
ended September 30, 1995 and 1996 and the three months ended December 31, 1995
and 1996, respectively.

5. SHAREHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

Authorized and outstanding convertible preferred stock and its principal
terms are as follows at September 30, 1996.

LIQUIDATION
DIVIDEND PREFERENCE
DESIGNATED OUTSTANDING PER SHARE PER SHARE
---------- ----------- --------- -----------

Series A........................... 1,000,000 1,000,000 $0.01 $0.10
Series B........................... 3,500,000 3,500,000 $0.05 $0.50

Dividends on the convertible preferred stock are payable when and if
declared by the board of directors. The dividend requirements of the preferred
stock must be satisfied prior to payment of any dividends or distributions
with respect to the Company's common stock. Dividend, redemption and
liquidation rights for Series B are senior to Series A. No dividends have been
declared.

The Company's board of directors has five members; as long as there are at
least 1,000,000 shares of Series B preferred stock issued and outstanding,
holders of Series B preferred stock, voting separately as a class, are
entitled to elect one director. Preferred shareholders are entitled to voting
rights equivalent to the number of common shares into which their shares are
convertible. Subject to certain antidilution provisions, every 5.05 shares of
Series A and B preferred stock is convertible at any time into one common
share. All preferred shares convert automatically to common stock (891,060
shares if converted at September 30, 1996 and December 31, 1996) in the event
of a firm commitment public offering of the Company's common stock.

WARRANTS

At September 30, 1996, warrants issued in connection with various financings
were outstanding to purchase 172,944 shares of the Company's common stock
(including 96,742 warrants held by two employees who are also shareholders) at
prices ranging from $1.01 to $5.05 per share. These warrants are exercisable
at any time and expire at dates ranging from April 2000 to February 2001.
During the three-month period ended December 31, 1996 the Company issued
additional warrants in connection with convertible notes payable to purchase
8,160 shares of the Company's common stock. The Company believes that the
value of the warrants at the date of their issuance was not material, and no
value has been attributed to them in these financial statements.

In March 1996, and in conjunction with a line of credit agreement, the
Company issued a warrant that entitles the holder to purchase the number of
shares of Series C convertible preferred stock calculated by dividing $20,000
by the per share purchase price of a future Series C round of financing, or if
no such financing takes place by December 31, 1996, 3,960 shares of common
stock at an exercise price of $5.05 per share. This warrant is exercisable at
any time and expires in February 2001.

F-10

NOTIFY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT DECEMBER 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS UNAUDITED)

5. SHAREHOLDERS' EQUITY (CONTINUED)

COMMON STOCK

The Company has issued 918,182 common shares to founders, advisors and
employees of the Company, of which certain shares are subject to repurchase
rights upon termination of service to the Company, which generally expire
ratably over four years from date of issuance. At December 31, 1996, 194,241
shares were subject to repurchase at their paid-in amounts.

6. INCOME TAXES

At September 30, 1996, the Company had a net operating loss carryforward for
federal and state tax purposes of approximately $1,800,000, which will expire
in tax years 2003 and 2011, respectively. Due to the "change of ownership"
provisions of the Tax Reform Act of 1986, utilization of the net operating
loss carryforward will be significantly limited.

The Company had deferred tax assets of approximately $737,000 at September
30, 1996, which relate primarily to the future tax benefits of net operating
loss carryforwards. Due to the Company's lack of earnings history, the
deferred tax assets have been fully offset by a valuation allowance. The
valuation allowance increased by approximately $565,000 for the fiscal year
ended September 30, 1996.

7. SUBSEQUENT EVENTS

CONVERSION OF CONVERTIBLE PROMISSORY NOTES

Subsequent to December 31, 1996, the Company completed a restructuring of
convertible notes payable whereby holders of an aggregate of $732,125 in
principal amount of convertible notes converted their notes and accrued
interest into 165,694 shares of common stock of the Company at a price per
share of $4.55 and exchanged their warrants for new warrants to purchase an
aggregate of 48,272 shares of the Company's common stock at a price of $0.25
per share. Holders of the remaining $200,000 principal amount of notes agreed
to defer repayment of the notes until the earlier of the closing of the
Offering or until April 30, 1997 and exchange their warrants for new warrants
to purchase an aggregate of 7,920 shares of common stock at an exercise price
of $5.05 per share.

NOTE AND WARRANT PURCHASE AGREEMENT

During February 1997, the Company issued a $65,000 promissory note to a
shareholder which accrued interest at the rate of 8% and was repaid from the
proceeds of the private placement described below. The shareholder also
received a warrant to purchase up to 11,535 shares of common stock of the
Company at $3.00 per share.

PRIVATE PLACEMENT

In March 1997, the Company completed a private placement of an aggregate of
$850,000 principal amount of notes (the "Bridge Notes") and 425,000 warrants
(the "Bridge Warrants") in which it received net proceeds of approximately
$725,000 (after expenses of issuance). The Bridge Notes are payable, together
with cash interest at the rate of 10% per annum, on the earlier of one year
from the issuance of the Bridge Notes or the

F-11

NOTIFY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT DECEMBER 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS UNAUDITED)

7. SUBSEQUENT EVENTS (CONTINUED)

PRIVATE PLACEMENT (CONTINUED)

closing of the proposed public offering discussed below. Each Bridge Warrant
will be exercisable for a period commencing one year from the date of issuance
and expiring approximately two years thereafter, and entitles the holder
thereof to purchase one share of Common Stock at an exercise price of $3.00
per share if the Company does not consummate the proposed public offering. In
the event the Company completes the proposed offering and such offering
includes warrants or Class A Warrants, each Bridge Warrant will automatically
convert on the closing date of the public offering into one warrant or Class A
Warrant (a "Public Warrant") which is identical in all respects to the Class A
Warrant sold in the public offering, except that purchasers of the Bridge
Notes acquiring the Bridge Warrants have agreed (i) not to exercise the Public
Warrants for a period of one year from the closing date of the public offering
and (ii) not to sell publicly the Public Warrants except as provided in
certain lock-up provisions which expire between 90 and 270 days after the
closing date of the public offering. In addition, the purchasers have agreed
not to sell the Public Warrants for a period of up to a year if required in
connection with the approval of the Company's securities for inclusion on
Nasdaq. The fair value of the Bridge Warrants, amounting to $106,250 together
with the cost of issuance (approximately $125,000) will be treated as
additional interest expense over the term of the Bridge Notes.

INITIAL PUBLIC OFFERING OF UNITS AND RELATED MATTERS

In January 1997, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
offering to the public units consisting of one share of common stock, one
Class A warrant and one Class B warrant. Additionally, the Company agreed to
grant an option to an underwriter to purchase up to 10% of the units sold in
the offering which is exercisable at a price of 120% of the price of the units
sold in the offering during a three-year period commencing two-years from the
date of the offering. Additionally, the Company authorized 5,000,000 shares of
Preferred Stock.

ESCROW SECURITIES

In February 1997, the holders of the Company's common and preferred stock
placed 1,263,537 of their shares into escrow. Additionally, the holders of
warrants agreed to place warrants to purchase 111,008 shares of common stock
into escrow. The securities will be released to the holders in the event
specified levels of pretax income of the Company for the years ended September
30, 1998 to 2002 are achieved, or the market price of the Company's common
stock attains specified targets during a 36-month period commencing from the
effective date of the registration statement relating to the Company's public
offering. Any securities remaining in escrow on December 31, 2002 will be
forfeited, which securities will then be contributed to the Company's capital.
The pretax income levels are subject to proportionate adjustment upon the
issuance of certain securities subsequent to the Company's initial public
offering.

In the event that the foregoing earnings or market price levels are attained
and the escrowed securities released, the Securities and Exchange Commission
has adopted the position that the release of escrowed securities to officers,
directors, employees and consultants of the Company will be compensatory and,
accordingly, will result in compensation expense for financial reporting
purposes. The expense will equal the fair market value of the escrowed
securities on the date of release and will result in a material charge to
operations.

F-12

NOTIFY CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT DECEMBER 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED DECEMBER 31, 1996 AND 1995 IS UNAUDITED)

7. SUBSEQUENT EVENTS (CONTINUED)

STOCK SPLIT

In January 1997, the Board of Directors approved a reverse stock split of
one-for-5.05 of all outstanding shares of common stock and changed the
conversion ratio of preferred stock to one share of common stock for every
5.05 preferred shares. All common share and per share information included in
the accompanying financial statements has been retroactively adjusted to give
effect to the stock split as well as the change in the preferred stock
conversion ratio.

PRO FORMA UNAUDITED SHAREHOLDERS' EQUITY

Pro forma unaudited shareholders' equity at December, 1996 reflects the
assumed conversion of convertible preferred stock and convertible notes
payable described above, as set forth on the accompanying balance sheet.

1997 STOCK OPTION PLAN

In January 1997, the Company adopted the Notify Corporation 1997 Stock Plan
(the "Stock Option Plan"). A total of 200,000 shares of the Company's common
stock are reserved for issuance under the Stock Option Plan which provides for
the grant of stock options to employees, consultants and directors of the
Company.

F-13

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE
DELIVERY OF THIS PROSPECTUS OR ANY SALE PURSUANT TO THIS PROSPECTUS CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

PAGE
----

Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 21
Selected Financial Data................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 26
Management................................................................ 37
Certain Relationships and Related
Transactions............................................................. 41
Principal Shareholders.................................................... 42
Concurrent Securities Offering............................................ 44
Description of Securities................................................. 46
Shares Eligible for Future Sale........................................... 49
Underwriting.............................................................. 51
Legal Matters............................................................. 53
Experts................................................................... 53
Additional Information.................................................... 53
Index to Financial Statements............................................. F-1
Independent Auditors' Report.............................................. F-2

UNTIL ,1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

1,400,000 UNITS

NOTIFY CORPORATION

CONSISTING OF 1,400,000 SHARES OF COMMON STOCK,
1,400,000 REDEEMABLE CLASS A WARRANTS AND
1,400,000 REDEEMABLE CLASS B WARRANTS

------------------------
PROSPECTUS
------------------------

D.H. BLAIR INVESTMENT
BANKING CORP.

, 1997

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

SUBJECT TO COMPLETION -- DATED MARCH , 1997

PROSPECTUS ALTERNATE

NOTIFY CORPORATION

425,000 REDEEMABLE CLASS A WARRANTS
425,000 REDEEMABLE CLASS B WARRANTS AND
850,000 SHARES OF COMMON STOCK

This Prospectus relates to 425,000 redeemable Class A Warrants (the "Selling
Securityholders' Warrants" or the "Class A Warrants") of Notify Corporation, a
California corporation (the "Company"), issued to certain investors upon the
conversion of warrants issued to such investors (the "Selling
Securityholders") in a private placement by the Company completed in February
1997 (the "Bridge Financing"), the 425,000 redeemable Class B Warrants (the
"Class B Warrants") issuable upon exercise of the Class A Warrants, and the
850,000 shares of Common Stock, $.001 par value, of the Company (the "Common
Stock") underlying the Class A Warrants and Class B Warrants. See "Selling
Securityholders and Plan of Distribution." Each Class A Warrant entitles the
holder to purchase one share of Common Stock and one Class B Warrant at an
exercise price of $6.50, subject to adjustment, until the fifth anniversary of
the date of this Prospectus. Each Class B Warrant entitles the holder to
purchase one share of Common Stock at an exercise price of $8.75, subject to
adjustment, until the fifth anniversary of the date of this Prospectus. The
Class A Warrants and the Class B Warrants are subject to redemption,
commencing one year from the date of this Prospectus, by the Company at $.05
per Warrant on 30 days' written notice if the closing bid price of the Common
Stock for 30 consecutive trading days ending within 15 days of the notice of
redemption of the Warrants averages in excess of $9.10 per share with respect
to the Class A Warrants and $12.10 per share with respect to the Class B
Warrants (subject to adjustment in each case). See "Description of
Securities."

The Selling Securityholders have agreed not to exercise the Selling
Securityholders' Warrants for a period of one year from the closing of the
Offering and not to sell the Selling Securityholders' Warrants for a period of
90 days after the closing of the offering and to sell only certain specified
percentages of such warrants during the period from 91 to 270 days after such
closing. However, purchasers of such warrants in permitted sales will be
entitled to exercise such warrants immediately.

The securities offered by this Prospectus may be sold from time to time by
the Selling Securityholders, or by their transferees. The distribution of the
securities offered hereby may be effected in one or more transactions that may
take place in the over-the-counter market, including ordinary brokers'
transactions, privately negotiated transactions or through sales to one or
more dealers for resale of such securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Securityholders.

The Selling Securityholders and intermediaries through whom such securities
are sold may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commission received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.

The Company will not receive any of the proceeds from the sale of securities
by the Selling Securityholders. In the event the Warrants are fully exercised,
the Company will receive gross proceeds of $6,481,250. See "Selling
Securityholders and Plan of Distribution."

The Company has filed a registration statement under the Securities Act with
the Securities and Exchange Commission (the "Commission") relating to a public
offering by the Company (the "Offering") of 1,400,000 Units, each Unit
consisting of one share of Common Stock, one Class A Warrant and one Class B
Warrant. The Company will receive approximately $5,625,000 in net proceeds
from the sale of the Units (assuming no exercise of the Underwriter's over-
allotment option) after payment of underwriting discounts and commissions and
estimated expenses of the Offering.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 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 , 1997

SELLING SECURITYHOLDERS

An aggregate of up to 425,000 Class A Warrants, 425,000 shares of Common
Stock and 425,000 Class B Warrants issuable upon exercise of the Class A
Warrants, and 425,000 shares of Common Stock issuable upon exercise of the
Class B Warrants may be offered by certain securityholders who received their
Class A Warrants in connection with the Bridge Financing or by their
transferees.

The following table sets forth certain information with respect to each
Selling Securityholder for whom the Company is registering securities for
resale to the public. The Company will not receive any of the proceeds from
the sale of these securities. Except as described below, there are no material
relationships between any of the Selling Securityholders and the Company, nor
have any such material relationships existed within the past three years.

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

NUMBER OF CLASS A WARRANTS BENEFICIALLY
SELLING SECURITYHOLDER OWNED AND MAXIMUM NUMBER TO BE SOLD(1)
- ----------------------------------------------------------------------------------

The Frank & Brynde Berkowitz Family
Foundation, Frank Berkowitz, President 31,250
- ----------------------------------------------------------------------------------
Abraham E. Cohen 25,000
- ----------------------------------------------------------------------------------
Paul F. DePond(2) 25,000
- ----------------------------------------------------------------------------------
Nathan Eisen & Rose Eisen, JTWROS 25,000
- ----------------------------------------------------------------------------------
Susan Gartenberg Revocable Trust,
Michael Gartenberg, Trustee 6,250
- ----------------------------------------------------------------------------------
Deborah Katzin Memorial Chesed Society,
Aryeh Merzel, Administrator 6,250
- ----------------------------------------------------------------------------------
Regina Lehrer 12,500
- ----------------------------------------------------------------------------------
Alan C. Levinson & Audrey J. Levinson,
JTWROS 6,250
- ----------------------------------------------------------------------------------
William Newman 12,500
- ----------------------------------------------------------------------------------
Schon Family Foundation, Henry A. Schon,
President 12,500
- ----------------------------------------------------------------------------------
Gary J. Strauss 12,500
- ----------------------------------------------------------------------------------
E. Donald Shapiro 50,000
- ----------------------------------------------------------------------------------
Mordecai Soloff 25,000
- ----------------------------------------------------------------------------------
South Ferry #2, L.P. 137,500
- ----------------------------------------------------------------------------------
Weingarten Family Foundation, Otto Wein-
garten President 12,500
- ----------------------------------------------------------------------------------
Joel Wolff 25,000
- ----------------------------------------------------------------------------------

- --------
(1) Does not include shares of Common Stock and Class B Warrants issuable upon
exercise of the Class A Warrants and the shares of Common Stock issuable
upon exercise of the Class B Warrants. The Selling Securityholders have
agreed not to exercise the Class A Warrants offered hereby for a period of
one year after the closing of the offering.
(2) Paul F. DePond is President and Chief Executive Officer of the Company.
See "Principal Shareholders" for a description of Mr. DePond's beneficial
ownership of the Company's securities.

A-2

PLAN OF DISTRIBUTION

The Company has also registered on behalf of the Selling Securityholders an
aggregate of 425,000 Selling Securityholders' Class A Warrants and the
securities underlying such Class A Warrants. The Selling Securityholders have
agreed not to sell their selling Securityholder Class A Warrants or the
securities issuable on exercise thereof except pursuant to the restrictions
set forth below provided that, if required in connection with approval of the
Company's securities for listing on Nasdaq, the Selling Securityholders have
agreed not to sell, transfer, assign, hypothecate or otherwise dispose of
their Class A Warrants for a period of one year from the date of the Offering:

PERCENTAGE
ELIGIBLE
LOCK UP PERIOD FOR RESALE
- -------------- ----------

Before 90 days after the closing..................................... 0%
Between 91 and 150 days.............................................. 25%
Between 151 and 210 days............................................. 50%
Between 211 and 270 days............................................. 75%
After 270 days....................................................... 100%

Regulation M restricts the ability of any person engaged in the distribution
of the Selling Securityholders' Warrants to engage in market making activities
with respect to any securities of the Company for the applicable "cooling off"
period prior to commencement of such distribution. Accordingly, in the event
the Underwriter or Blair & Co. is engaged in a distribution of the Selling
Securityholders' Warrants, their ability to make a market in the Company's
securities during the applicable restrictive period will be restricted.
However, neither the Underwriter nor Blair & Co. has agreed to, nor is either
of them obligated to, act as a broker-dealer in the sale of the Selling
Securityholders' Warrants, and the Selling Securityholders may be required,
and in the event Blair & Co. is a market maker, will likely be required, to
sell such securities through another broker-dealer. In addition, each Selling
Securityholder desiring to sell Warrants will be subject to the applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation Regulation M, which provisions may limit the
timing of the purchases and sales of shares of the Company's securities by
such Selling Securityholders.

The Selling Securityholders and broker-dealers, if any, acting in connection
with such sales may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act and any commission received by them and
any profit on the resale of the securities by them might be deemed to be
underwriting discounts and commissions under the Securities Act.

A-3

CONCURRENT PUBLIC OFFERING

On the date of this Prospectus, a Registration Statement under the
Securities Act was declared effective with respect to an underwritten offering
of 1,400,000 Units by the Company (1,610,000 Units if the Underwriter's over-
allotment option is exercised in full), each Unit consisting of one share of
Common Stock, one Class A Warrant and one Class B Warrant.

A-4

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 317 of the California Corporations Code authorizes a court to award,
or a corporation's Board of Directors to grant indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). The Company's Bylaws provide that the Company shall
indemnify its directors and officers to the fullest extent permitted by
California law, including circumstances in which indemnification is otherwise
discretionary under California law. The Company has entered into
indemnification agreements with its directors and officers containing
provisions which are in some respects broader than the specific
indemnification provisions contained in the California Corporations Code. The
indemnification agreements may require the Company, among other things, to
indemnify its directors and officers against certain liabilities that may
arise by reason of their status or service as directors or officers (other
than liabilities arising from willful misconduct of culpable nature), to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms. Article IV of the Registrant's
Articles of Incorporation (Exhibit 3.1 hereto) provides for indemnification of
its directors and officers to the maximum extent permitted by the California
Corporations Code and Article IV of the Registrant's Bylaws (Exhibit 3.3
hereto) provides for indemnification of its directors, officers, employees and
other agents to the maximum extent permitted by the California Corporation
Code. Reference is also made to Section of the Underwriting Agreement
contained in Exhibit 1.1 hereto, indemnifying officers and directors of the
Registrant against certain liabilities.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the Common Stock being registered hereby. All amounts are estimates, except
the registration fee and the NASD filing fee.

ITEM AMOUNT
- ---- --------

SEC registration fee.................................................. $ 17,389
NASD filing fee....................................................... 5,589
Nasdaq listing fee.................................................... 10,000
Blue Sky fees and expenses............................................ 55,000
Printing and engraving expenses....................................... 75,000
Legal fees and expenses............................................... 140,000
Auditors' accounting fees and expenses................................ 150,000
Transfer Agent and Registrar fees..................................... 5,000
Underwriter's nonaccountable expense allowance........................ 210,000
Miscellaneous expenses................................................ 7,022
--------
Total................................................................. $675,000
========

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

The following is a summary of the transactions by Registrant during the last
three years involving sales of Registrant's securities that were not
registered under the Securities Act of 1933, as amended (the "Securities
Act"):

(1) In August 1994, the Company issued and sold 1,000,000 shares of its
Series A Preferred Stock and 1,550,000 shares of its Common stock to its two
co-founders at purchase prices of $0.10 and $0.01 per share, respectively, for
an aggregate purchase price of $115,500.

II-1

(2) In November 1994, the Company issued and sold 3,000,000 shares of its
Common Stock to seven of its employees pursuant to restricted stock purchase
agreements at a purchase price of $0.01 per share for an aggregate purchase
price of $30,000.

(3) At various times in February and March 1995, the Company sold its Chief
Executive Officer convertible promissory notes with an aggregate principal
amount of $75,000 bearing interest rates of 10% per annum and warrants to
purchase 375,000 shares of common stock of the Company at an exercise price of
$0.20 per share for an aggregate purchase price of $75,000.

(4) From February 1995, to December 1996, the Company issued and sold to
fourteen of its employees or consultants 805,000 shares of its Common Stock
pursuant to restricted stock purchase agreements at prices varying from $.01
per share to $.10 per share.

(5) In October 1995, the Company issued and sold a total of 3,500,000 shares
of its Series B Preferred Stock at a purchase price of $0.50 per share for an
aggregate consideration of $1,750,000 to thirty-four investors. In connection
with the financing, the Company issued warrants to purchase 200,000 shares of
its Common Stock at an exercise price of $1.00 per share to certain of the
participants in the financing.

(6) In March 1996, the Company issued and sold a warrant to purchase 20,000
shares of its Common Stock at an exercise price of $1.00 per share to a
financial institution in connection with a loan and security agreement.

(7) In June 1996, the Company issued and sold to certain of its shareholders
and other investors an aggregate of $932,125 principal amount of convertible
promissory notes (the "Convertible Shareholder Notes") and warrants to
purchase that number of shares of Common Stock of the Company equal to 20% of
the principal amount of the Convertible Shareholder Notes divided by the price
per share of the Company's next equity financing at a price per share equal to
the price per share of the Company's next equity financing (the "Shareholder
Warrants"). The Convertible Shareholder Notes bore an interest rate of 8% per
annum and were convertible into equity of the Company at a price equal to the
price per share of the Company's next equity financing. The participants in
this financing consisted entirely of "accredited investors" as that term is
defined under Regulation D of the Securities Act.

(8) In January 1997, the Company completed a restructuring of the
Convertible Shareholder Notes and Shareholder Warrants. Holders of an
aggregate of $732,125 in principal amount of the Convertible Shareholder Notes
converted their Convertible Shareholder Notes into Common Stock of the Company
at a price per share of $4.55 and exchanged their accompanying Shareholder
Warrants for warrants to purchase an aggregate of 48,272 shares of the
Company's Common Stock at a price of $0.25 per share. Holders of the remaining
$200,000 principal amount of Convertible Shareholder Notes agreed to defer
repayment of the notes until the earlier of the closing of the Offering or
until April 30, 1997 and exchanged their Shareholder Warrants for warrants to
purchase an aggregate of 7,920 shares of Common Stock at an exercise price of
$5.05 per share.

(9) In February, 1997 the Company issued to its Chief Executive Officer a
10% subordinated promissory note with principal amount of $65,000 and warrants
to purchase 11,535 shares of the Company's Common Stock at a price per share
of $3.00 for an aggregate purchase price of $65,000.

(10) In March 1997, the Company issued and sold 17 bridge units ("Bridge
Units") at $50,000 per unit. Each Bridge Unit consisted of a one-year $50,000
promissory note bearing 10% interest and warrants to purchase 25,000 shares of
Common Stock at a purchase price of $3.00 per share. The warrants
automatically convert into Class A Warrants, and the promissory note becomes
due upon the earlier of March 1998 or the closing of the Offering. All of the
purchasers of the Bridge Units were "accredited investors" as that term is
defined in Regulation D of the Securities Act.

II-2

The sale and exchange of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701
promulgated under Section 3(b) of the Securities Act or Section 3(a)(9) of the
Securities Act as transactions by an issuer not involving a public offering or
transactions pursuant to the compensatory benefit plans and contracts relating
to compensation as provided under such Rule 701 or as an exchange by the
issuer with its existing security holders where no commission or other
remuneration is paid. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were attached to the share certificates issued in such
transactions. All recipients had adequate access to information about the
Registrant.

ITEM 27. EXHIBITS.

(a) Exhibits

1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Registrant, as amended to date.
3.2 Restated Articles of Incorporation of Registrant to become effective
upon the closing of the Offering.
3.3 Bylaws of Registrant, as amended to date.
4.1 Form of Warrant Agreement.
4.2 Form of Underwriter's Unit Purchase Option.
*5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
Employment Agreement dated as of March 1, 1997 between the Company and
10.1 Paul DePond.
Employment Agreement dated as of March 1, 1997 between the Company and
10.2 Gaylan Larson.
Employment Agreement dated as of March 1, 1997 between the Company and
10.3 Gerald Rice.
Employment Agreement dated as of March 1, 1997 between the Company and
*10.4 David Yewell.
10.5 Form of Indemnification Agreement.
10.6 Escrow Agreement by and between Registrant, the American Stock
Transfer & Trust Company and certain security holders of the
Registrant.
10.7 Registrant's 1997 Stock Plan.
*10.8 Lease between Registrant and C.C. Poon.
11.1 Statement Regarding the Computation Per Share Loss (see page II-6).
23.1 Consent of Independent Auditors (see page II-7).
Consent of Wilson Sonsini Goodrich & Rosati, P.C. (to be included as
*23.2 part of Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27 Financial Data Schedule.

--------
(*)To be filed by amendment.

(b) All schedules are omitted, since the required information is not present
in amounts sufficient to require submission of schedules or because the
information required is included in Registrant's financial statements and
notes thereto.

II-3

ITEM 28. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the provisions described in Item 24, 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 Securities 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 of 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 Securities Act and will be governed
by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

For purposes of determining any liability under the Securities Act, the
Registrant will treat the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant under Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declares it effective.

For purposes of determining any liability under the Securities Act, the
Registrant will treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in this
registration statement, and that offering of the securities at that time as
the initial bona fide offering of those securities.

The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of
the subscription offer, the transactions by the underwriters during the
subscription period, the amount of un-subscribed securities to be purchased by
the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from
those set forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.

II-4

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 of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of San Jose, California, on the 6th day of March, 1997.

NOTIFY CORPORATION

By: /s/ Paul DePond
--------------------------------
Paul DePond
President, Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Paul F. DePond, Gerald W. Rice and Henry P.
Massey, Jr. and each of them, as his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, and any and all Registration
Statements to be filed pursuant to Rule 462 under the Securities Act of 1933,
as amended, in connection with or related to the offering contemplated by the
Registration Statement, if any, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys- in-fact and agents, and
each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated below and on the dates stated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Paul DePond President, Chief Executive Officer and March 6, 1997
- ----------------------------- Chairman (Principal Executive Officer)
Paul DePond

/s/ Gerald Rice Chief Financial Officer (Principal March 6, 1997
- ----------------------------- Financial and Accounting Officer)
Gerald Rice

/s/ Gaylan Larson Vice President, Operations and Director March 6, 1997
- -----------------------------
Gaylan Larson

/s/ Michael Ballard Director March 7, 1997
- -----------------------------
Michael Ballard

/s/ Barry Bellue Director March 7, 1997
- -----------------------------
Barry Bellue

/s/ Michael Smith Director March 7, 1997
- -----------------------------
Michael Smith

II-5

EXHIBIT 11.1

NOTIFY CORPORATION

STATEMENT REGARDING THE COMPUTATION OF PER SHARE LOSS

THREE MONTH PERIOD ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
-------------------------- --------------------------
1995 1996 1995 1996
------------ ------------- ------------ ------------

Net loss................ $(426,062) $(1,657,219) $(339,204) $(415,969)
=========== ============= ============ ============
Weighted average common
shares outstanding (1). 205,998 218,984 222,134 213,914
Common equivalent shares
from issuances of
warrants and common
stock during the twelve
month period prior to
the Company's proposed
initial public offering
(1).................... 303,566 303,566 303,566 303,566
----------- ------------- ------------ ------------
Shares used in computing
net loss per share..... 509,564 522,550 525,700 517,480
=========== ============= ============ ============
Net loss per share...... $ (.84) $ (3.17) $ (.65) $ (.80)
=========== ============= ============ ============
Convertible preferred
stock issued more than
twelve months prior to
the proposed initial
public offering (1).... 352,542 365,307
============= ============
Pro forma weighted
average shares
outstanding............ 875,092 882,787
============= ============
Pro forma net loss per
share.................. $ (1.89) $ (.47)
============= ============

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(1) Excludes shares to be placed into escrow according to the "Escrow
Agreement."

II-6

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated November 15,
1996, except for Note 7, as to which the date is March 13, 1997 in the
Registration Statement (Form SB-2) and the related Prospectus of Notify
Corporation for the registration of (i) 1,610,000 units consisting of
1,610,000 shares of common stock, 1,610,000 redeemable Class A warrants,
1,610,000 redeemable Class B warrants and the 3,220,000 shares of Common Stock
underlying the Class A and Class B warrants, (ii) the Underwriters' option to
purchase 140,000 Units and the securities underlying the option and (iii)
425,000 redeemable Class A warrants, 425,000 redeemable Class B warrants and
the 850,000 shares of common stock underlying the Class A and Class B
warrants.

ERNST & YOUNG LLP

San Jose, California
March 13, 1997

II-7

EXHIBIT INDEX

SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------

1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of Registrant, as amended to
date.
3.2 Restated Articles of Incorporation of Registrant to
become effective upon the closing of the Offering.
3.3 Bylaws of Registrant, as amended to date.
4.1 Form of Warrant Agreement.
4.2 Form of Underwriter's Unit Purchase Option.
*5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1 Employment Agreement dated as of March 1, 1997 between
the Company and Paul DePond.
10.2 Employment Agreement dated as of March 1, 1997 between
the Company and Gaylan Larson.
10.3 Employment Agreement dated as of March 1, 1997 between
the Company and Gerald Rice.
*10.4 Employment Agreement dated as of March 1, 1997 between
the Company and David Yewell.
10.5 Form of Indemnification Agreement.
10.6 Escrow Agreement by and between Registrant, the
American Stock Transfer & Trust Company and certain
security holders of the Registrant.
10.7 Registrant's 1997 Stock Plan.
*10.8 Lease between Registrant and C.C. Poon.
11.1 Statement Regarding the Computation Per Share Loss (see
page II-6).
23.1 Consent of Independent Auditors (see page II-7).
*23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (to
be included as part of Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27 Financial Data Schedule

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(*)To be filed by amendment.