BOREALIS TECHNOLOGY CORP, 424B4, 1997-07-23

BOREALIS TECHNOLOGY CORP
424B4, 1997-07-23
COMPUTER PROGRAMMING SERVICES

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<PAGE> 1
Filed pursuant to Rule 424(b)(4)
Registration No. 333-27299

1,400,000 SHARES

LOGO
COMMON STOCK
------------------------

All of the shares of Common Stock, par value $0.001 ("Common Stock"),
offered hereby are being sold by Borealis Technology Corporation, a Delaware
corporation (the "Company"). The Common Stock is traded on the Nasdaq SmallCap
Market under the symbol "BRLS." On July 21, 1997, the reported last sale price
of the Common Stock was $4.375 per share. See "Price Range of Common Stock."
------------------------

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
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.

<TABLE>
<CAPTION>
=================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $3.625 $0.3625 $3.2625
- -------------------------------------------------------------------------------------------------
Total(3).......................... $5,075,000 $507,500 $4,567,500
=================================================================================================
</TABLE>

(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $152,250 (or
$175,088 if the Underwriter's over-allotment option described in footnote
(3) is exercised in full), and (ii) a warrant to purchase 140,000 shares of
Common Stock at $5.075 per share, exercisable over a period of four years,
commencing one year from the date of this Prospectus (the "Underwriter's
Warrant"). The Company has agreed to indemnify the Underwriter against
certain civil liabilities under the Securities Act of 1933. See
"Underwriting."

(2) Before deducting expenses of the offering payable by the Company, estimated
at $575,000.

(3) The Company has granted the Underwriter an option, exercisable within 30
business days of the date of this Prospectus, to purchase up to 210,000
additional shares of Common Stock on the same terms and conditions as set
forth above to cover over-allotments, if any. If all such additional shares
of Common Stock are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be increased to
$5,836,250, $583,625 and $5,252,625, respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered hereby on a "firm commitment" basis
by the Underwriter, subject to prior sale when, as and if delivered to and
accepted by the Underwriter, and subject to the right of the Underwriter to
reject any order in whole or in part. It is expected that delivery of the
certificates representing the shares of Common Stock will be made at the offices
of H.J. Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New York 15620 on
or about July 25, 1997.
------------------------
H.J. MEYERS & CO., INC.

The date of this Prospectus is July 21, 1997
<PAGE> 2

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------

The Company furnishes to its stockholders annual reports containing
financial statements audited by an independent accounting firm and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial information.

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<PAGE> 3

SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Each prospective investor is urged to read this Prospectus in its entirety. This
Prospectus contains forward-looking statements that involve risks 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 under "Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

Borealis Technology Corporation ("Borealis" or the "Company") is a provider
of enterprise-wide software solutions for the sales force automation market.
Borealis has developed and recently commenced sales of Arsenal, an advanced
software solution for the sales automation market, which is designed to enable
customers to automate sales processes and information exchanges between hundreds
or thousands of mobile users and central information systems containing
enterprise-wide customer databases. The Company believes that Arsenal overcomes
limitations of commercially available sales automation solutions by providing
the customization and scalability features of custom solutions together with
rapid implementation capabilities. In April 1997, the Company introduced Arsenal
and, to date, has shipped copies to Heidelberg USA and Maersk, Inc.

Over the past decade, information technology has had a substantial impact
on finance, accounting, manufacturing and research and development functions
and, more recently, has made inroads in sales. The sales force automation market
has emerged as a result of competitive pressures that are causing many
organizations to seek new ways to reduce costs and improve enterprise
productivity by automating their sales processes. Core sales processes that may
be automated through the application of information technology include contact
management, calendaring, delivery of pricing updates, sales forecasting, report
generation and network-wide access to customer information and other data.
Moreover, increased use of portable computers, decreased communications costs
and the emergence of the World Wide Web and wireless data communications have
increased the number of businesses seeking to extend core business process
automation to mobile computer users.

Organizations seeking to provide their mobile sales personnel with
enterprise-wide sales automation solutions are faced with a limited number of
approaches, each of which, the Company believes, typically fail to provide a
viable and cost-effective solution. These approaches generally fall into one of
two categories: pre-packaged products that provide a fixed set of features, are
not customizable and are not optimized to meet the needs of a large segment of
the sales automation market or custom applications where ease and cost of system
implementation are mitigating factors.

The Company believes that other commercially available sales automation
solutions do not adequately meet the needs of both management information system
("MIS") administrators and sales personnel. Accordingly, the Company believes
that the successful implementation of an enterprise-wide client/server and
mobile sales automation solution requires a dramatically different approach from
those offered by other commercially available products. As a result, during mid
1995, the Company ceased sales and marketing activities related to all of its
products and refocused its operational and strategic efforts on the design of
Arsenal and the establishment of relationships with third-party consulting
organizations and systems integrators ("third party integrators") to develop a
third-party integrator channel to assist customers in the implementation and
customization of Arsenal and to help leverage the Company's direct selling
efforts. Arsenal is an advanced mobile computing client/server application with
a development tool that is designed to enable organizations or third-party
integrators to rapidly and cost-effectively implement, modify on an on-going
basis sales automation solutions to meet the dynamic and changing needs of an
organization's sales force.

The Company's objective is to become the leading supplier of sales
automation solutions to assist businesses in deploying and customizing mobile
and client/server-based applications to enhance the productivity and
effectiveness of their sales personnel. The Company believes that Arsenal: (i)
provides new and advanced functionality to enable a more competitive use of
information technology; (ii) is easily modifiable as

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business requirements or technical infrastructures evolve; and (iii) provides
the high level of reliability, performance and manageability required for mobile
and client/server sales automation solutions.

Borealis Corporation was incorporated in the State of Nevada in June 1988
and reincorporated in the State of Delaware under the name Borealis Technology
Corporation prior to the completion of its initial public offering in June 1996.
The Company's headquarters are located at 4070 Silver Sage Drive, Carson City,
NV 89701, and its phone number is (702) 888-3200.

The Company has filed trademark applications for Arsenal and Borealis. This
Prospectus also includes trademarks of companies other than the Company.
------------------------

NOTICE TO CALIFORNIA AND OREGON INVESTORS

EACH PURCHASER OF SHARES OF COMMON STOCK IN CALIFORNIA AND OREGON MUST MEET
ONE OF THE FOLLOWING SUITABILITY STANDARDS: (I) A LIQUID NET WORTH (EXCLUDING
HOME, FURNISHINGS AND AUTOMOBILES) OF $250,000 OR MORE AND GROSS ANNUAL INCOME
DURING 1996, AND ESTIMATED DURING 1997, OF $65,000 OR MORE FROM ALL SOURCES; OR
(II) A LIQUID NET WORTH (EXCLUDING HOME, FURNISHINGS AND AUTOMOBILES) OF
$500,000 OR MORE. EACH CALIFORNIA AND OREGON RESIDENT PURCHASING SHARES OF
COMMON STOCK OFFERED HEREBY WILL BE REQUIRED TO EXECUTE A REPRESENTATION THAT IT
COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES.

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- ---------------------
1995 1996 1996 1997
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 736 $ 177 $ 91 $ 22
Gross margin............................... 522 111 57 11
Loss from operations....................... (564) (6,073) (629) (1,929)
Net loss................................... (593) (6,027) (646) (1,911)
Net loss per share(1)...................... $ (0.64) $ (3.11) $ (0.69) $ (0.60)
Shares used in computing net loss per
share(1)................................ 931,758 1,935,984 931,758 3,184,506
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
MARCH 31, 1996 ACTUAL AS ADJUSTED(2)
-------------- ------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................ $ (404) $1,186 $ 5,179
Total assets......................................... 539 3,707 7,700
Current liabilities.................................. 756 1,520 1,520
Stockholders' equity (deficit)....................... $ (1,246) $2,128 $ 6,121
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of shares used in computing net loss per share.

(2) Adjusted to reflect the application of the estimated net proceeds of this
offering (this "Offering"), assuming no exercise of the Underwriter's
over-allotment option or Underwriter's Warrant, based upon a public offering
price of $3.625 per share, and after deducting underwriting discounts and
commissions and estimated offering expenses. See "Use of Proceeds,"
"Capitalization" and "Description of Capital Stock."

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THE OFFERING

Common Stock Offered by the
Company....................... 1,400,000 shares

Common Stock Outstanding after
the Offering.................... 4,584,506 shares

Use of Proceeds................. Sales and marketing, research and
development, general and administrative
expenses, and general corporate purposes. See
"Use of Proceeds."

Nasdaq SmallCap Symbol.......... "BRLS"

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

RISK FACTORS

THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 6.

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

Except as otherwise specified, all information in this Prospectus relating
to shares of Common Stock
outstanding excludes 649,304 shares of Common Stock reserved for issuance
pursuant to the Company's 1996 Stock Plan, 115,000 shares of Common Stock
reserved for issuance pursuant to the Company's 1996 Director Option Plan,
185,786 shares of Common Stock reserved for issuance pursuant to the Company's
1994 Stock Plan, 200,000 shares of Common Stock reserved for issuance pursuant
to the Company's 1997 Employee Stock Purchase Plan, 140,000 shares of Common
Stock issuable upon exercise of the Underwriter's Warrant and 262,000 shares of
Common Stock issuable upon exercise of other outstanding warrants and assumes no
exercise of the Underwriter's over-allotment option. The Company's 1994 Stock
Plan, 1996 Stock Plan, 1996 Director Option Plan and 1997 Employee Stock
Purchase Plan are sometimes referred to herein as the "Stock Plans." See "Stock
Plans."

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<PAGE> 6

RISK FACTORS

In addition to the other information in this Prospectus, each prospective
investor should carefully consider the following factors in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby. No investor should participate in the Offering unless such investor can
afford a complete loss of his or her investment. This Prospectus contains
forward-looking statements that involve risks 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 in
the following risk factors and elsewhere in this Prospectus.

GOING CONCERN ASSUMPTION; FUTURE CAPITAL NEEDS UNCERTAIN; NO ASSURANCE OF FUTURE
FINANCING

The net proceeds from this Offering will be approximately $3,992,500,
assuming no exercise of the Underwriters' over-allotment option. In the absence
of receiving the proceeds of this Offering, the Company anticipates that its
existing capital resources and cash generated from operations, if any, will be
sufficient to meet the Company's cash requirements only through the end of July
1997 at its anticipated level of operations. The Company's future capital
requirements will depend upon numerous factors, including the amount of revenues
generated from operations, the cost of the Company's sales and marketing
activities and the progress of the Company's research and development
activities, none of which can be predicted with certainty. The Company
anticipates that the proceeds of this Offering, together with existing capital
resources and cash generated from operations, if any, will be sufficient to meet
the Company's cash requirements for at least the next 12 months at its
anticipated level of operations. However, the Company may seek additional
funding during the next 12 months and will likely seek additional funding after
such time. There can be no assurance that any additional financing will be
available on acceptable terms, or at all, when required by the Company.
Moreover, if additional financing is not available, the Company could be
required to reduce or suspend its operations, seek an acquisition partner or
sell securities on terms that may be highly dilutive or otherwise
disadvantageous to investors purchasing the shares of Common Stock offered
hereby. The Company has experienced in the past, and may continue to experience,
operational difficulties and delays in its product development due to working
capital constraints. Any such difficulties or delays could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 1 of Notes to Financial Statements.

COMPLETE DEPENDENCE ON RECENT PRODUCT INTRODUCTION

The Company commenced sales of Arsenal, currently the Company's only
product, in April 1997. As a result, the Company will derive substantially all
of its revenues from the sale of licenses and maintenance contracts for Arsenal.
Consequently, the Company is entirely dependent on the successful introduction
and commercial acceptance of Arsenal. Unless and until Arsenal receives market
acceptance, the Company will have no material source of revenue. There can be no
assurance that Arsenal will achieve market acceptance. The Company's ability to
effectuate market acceptance and sales of Arsenal will be substantially
dependent on the hiring and training of additional personnel, and there can be
no assurance that the Company will be able to successfully hire and train such
personnel. Although the Company has begun to establish distribution channels

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for Arsenal, commercial acceptance of Arsenal will require the Company to
successfully establish additional sales and distribution channels, of which
there can be no assurance. Any such failure will have a material adverse effect
on the Company's business, financial condition and results of operations.
Failure of Arsenal to achieve significant market acceptance will have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy," and "-- Sales and Marketing."

NEED TO FILL KEY EXECUTIVE POSITION; DEPENDENCE ON LIMITED NUMBER OF KEY
PERSONNEL

In May 1997, the Company's Vice President of Sales resigned from that
position and is now managing the Company's strategic partnership program. As a
result, the Company is currently seeking to hire a new Vice President of Sales.

There can be no assurance that the Company will timely locate and hire a
new Vice President of Sales, if at all, or that any such new Vice President of
Sales will possess the leadership and other skills necessary to effectively
manage the Company's sales operations. Highly skilled candidates are in great
demand and the Company will be required to provide substantial compensation to
any new Vice President of Sales. Any failure by the Company to timely find and
hire such an individual will have a material adverse effect on the Company's
business, financial condition and results of operations.

In addition, the Company's future success substantially depends on the
efforts of certain of its officers and key technical and other employees, many
of whom have only recently joined the Company. In particular the Company's
President and Chief Executive Officer has been with the Company only since July
1997. The Company's future success will require it to recruit additional key
personnel, in addition to a Vice President of Sales, including product support,
product development and additional sales and marketing personnel. The Company
has not entered into employment agreements nor does it have key man life
insurance. The Company believes that its future success also substantially
depends on its ability to attract, retain and motivate highly skilled employees,
who are in great demand. There can be no assurance that the Company will be
successful in doing so. See "Management" and "Business -- Employees."

DEPENDENCE ON THIRD PARTY INTEGRATORS

Sales automation software products that address the needs of medium- to
large-size businesses are typically highly complex and require significant
customization that often results in an extensive implementation process. The
Company's strategy for implementing Arsenal is dependent on the utilization of
third-party integrators to install, customize and service it. Consequently,
third-party integrators are required to undergo a substantial amount of training
to be able to apply the Company's products to the varied needs of the Company's
current and prospective customers. There can be no assurance that the Company
will be able to attract and retain personnel necessary to train such
integrators. In addition, there can be no assurance that the Company's training
will be sufficient or that such integrators will be able to provide the level or
quality of service required to meet the needs of the Company's current and
prospective customers. The Company will likely be dependent on third-party
integrators to complete certain post-delivery obligations prior to the Company's
recognition of revenue. Any failure of such integrators to complete such
obligations could prevent the Company from recognizing revenue and the failure
to so recognize revenue could have a material adverse effect on the Company's
business, financial condition and results of operations. If the Company is
unable to maintain effective, long-term relationships with these integrators, or
if such integrators fail to meet the needs of the Company's current and
prospective customers in a timely fashion, or at all, such failure would result
in a loss of, or delay in, market acceptance or sales and could result in
increased product support costs and an injury to the Company's reputation, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Strategy" and "-- Sales
and Marketing."

In addition, the Company uses its third-party integrators as a source for
sales leads and, to some extent, as part of its sales and distribution channels.
To the Company's knowledge, such use of third-party integrators by other
companies has been limited and there can be no assurance that such third-party
integrators will contribute meaningfully to the Company's sales efforts.

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The Company has not and does not plan to enter into or maintain exclusive
relationships with third-party integrators and, consequently, such integrators
may have existing relationships with, or may undertake new relationships with,
the Company's direct competitors. There can be no assurance that such
integrators will promote Arsenal effectively, or at all. The failure of the
Company to provide sufficient incentive for such integrators may materially and
adversely affect the Company's sales of Arsenal which could have a material
adverse effect on the Company's business, financial condition and results of
operations.

RECENT LOSSES; QUARTERLY FLUCTUATIONS IN PERFORMANCE

The Company has experienced significant operating losses in each of fiscal
1994, 1995, 1996 and for the three months ended March 31, 1997 and expects to
incur significant operating losses for the foreseeable future. In mid 1995, the
Company ceased sales and marketing of its entire product line and shifted its
focus to the development of Arsenal and the establishment of a third-party
integrator channel. As a result, the Company will derive substantially all of
its revenues from the sale of licenses and maintenance contracts for Arsenal.
There can be no assurance that the Company will ever achieve profitability.

The Company's operating and other expenses are relatively fixed in the
short term. As a result, variations in timing of revenues will cause significant
variations in quarterly operating results. Notwithstanding the difficulty in
forecasting future sales, the Company generally must undertake its development,
sales and marketing activities and other commitments months in advance.
Accordingly, any shortfall in revenues in a given quarter may materially
adversely affect the Company's business, financial condition and results of
operations due to the inability to adjust expenses during the quarter to match
the level of revenues for the quarter. Once commitments for such expenditures
are undertaken, the Company may be unable to reduce them quickly if revenue is
less than expected. In addition, the Company's sales expectations are based
entirely on its internal estimates of future demand. 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 future performance.

Operating results may fluctuate as a result of many factors, including
volume and timing of orders received, the extent to which the Company is
required to establish and support a third-party integrator channel or hire
additional sales personnel to supplement such channel, announcements by the
Company and its competitors, the timing of commercial introduction of
enhancements to Arsenal, if any, or competitive products, the impact of price
competition on the Company's average selling prices, and the level of research
and development required to complete any future product enhancements. Almost all
of these factors are beyond the Company's control. In addition, due to the short
product life cycles that characterize the sales automation software market, the
Company's failure to introduce any Arsenal enhancements in a timely manner could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "-- Volatility of Stock Price" and "Market for
Common Stock."

RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DELAYS OR DEFECTS

The sales automation software market is characterized by ongoing
technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The introduction of products embodying new technologies and the emergence of new
industry standards and practices can render existing products obsolete and
unmarketable. The Company's future success depends in large part upon its
ability to obtain market acceptance of Arsenal, develop enhancements to Arsenal
to address the changing requirements of its customers, educate third-party
integrators regarding Arsenal and anticipate or respond to technological
advances, competitive products and emerging industry standards and practices in
a timely, cost-effective manner. There can be no assurance that the Company will
be successful in marketing and supporting Arsenal or enhancements to Arsenal, if
any, or will not experience difficulties that could delay or prevent the
successful marketing and support of these products, or that Arsenal and any such
product enhancements will adequately meet the requirements of the marketplace
and achieve any significant degree of commercial acceptance. The Company has in
the past experienced delays in product development, including significant delays
in the development of Arsenal. Delays in enhancements to Arsenal, if any, may
result in customer dissatisfaction and delay or loss of product and maintenance
revenues. In

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addition, there can be no assurance that Arsenal or other future products will
meet the requirements of the marketplace or will conform to industry standards
and requirements. Any delays in the development or introduction of enhancements
to Arsenal or failure to respond to market requirements could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Software products such as Arsenal often contain errors or "bugs" that can
adversely affect the performance of the product or damage a user's data. There
can be no assurance that, despite testing by the Company and by potential
customers, errors will not be found in Arsenal, resulting in a loss of, or delay
in, market acceptance and sales, diversion of development resources, injury to
the Company's reputation, or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Sales and Marketing" and
"-- Research and Development."

COMPETITION

The sales automation software market is highly competitive, highly
fragmented and characterized by rapid technological change, frequent new product
introductions, short product life cycles and evolving industry standards, and is
expected, in the future, to be characterized by significant price erosion over
the life of a product. Within specific ranges of functionality, the Company
experiences competition from many sources, including: (i) companies that
directly address the sales automation market, such as Aurum Software, Inc.,
Siebel Systems, Inc., Saratoga Systems, Inc., Saleskit Software and Brock
Control Systems, Inc.; (ii) third-party integrators, such as Andersen
Consulting, LLP and KPMG Peat Marwick LLP, that design, develop and implement
custom sales automation solutions; (iii) the internal information technology
departments of organizations that develop proprietary sales automation
applications; and (iv) companies such as Symantec Corporation, Goldmine Software
Corporation and Modatech Systems Corporation, suppliers of Personal Information
Managers ("PIMS") off-the-shelf software specific to personal computers designed
to aid in such activities as time management, contact management and
calendaring. In addition, the Company may experience competition from additional
companies, to the extent such companies enter the sales automation market, such
as "groupware" vendors, "help desk" vendors, Local Area Network ("LAN") based
application development tools vendors, remote LAN-access communication vendors
and communications and systems management software vendors. Among the Company's
potential competitors are also a number of large hardware and software companies
that may develop or acquire products that compete in the sales automation
software market.

Current and potential competitors have established and may establish
cooperative relationships with third parties to increase the ability of their
products to address the needs of the Company's current and prospective
customers. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. Many of the
Company's current and potential competitors have significantly greater
financial, technical, marketing, name recognition and other resources than the
Company. As a result, they may be able to respond more quickly to new or
emerging technologies and to changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products than
can the Company. There can be no assurance that the Company will be able to
compete successfully against current or future competitors or that competitive
pressures will not materially adversely affect the Company's business, financial
condition and results of operations. See "Business -- Competition."

LENGTHY SALES AND IMPLEMENTATION CYCLES

The purchase and implementation of Arsenal involves a significant
commitment of resources by prospective customers. As a result, the Company's
sales process could be subject to delays associated with lengthy approval
processes over which the Company has little or no control. These delays may
contribute to fluctuations in the Company's operating results, which may have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company will likely be dependent on
third-party integrators to complete certain post-delivery obligations prior to
the Company's recognition of revenue. See "-- Recent Losses; Quarterly
Fluctuations in Performance," "-- Dependence on Third Party

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Integrators," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Sales and Marketing."

RISKS ASSOCIATED WITH MANAGING GROWTH

The Company's anticipated level of growth, should it occur, will challenge
the Company's management and its sales and marketing, customer support, research
and development, finance and general and administrative operations. The
Company's future performance will depend in part on its ability to manage any
such growth, should it occur, and to adapt its operational and financial control
systems, if necessary, to respond to changes resulting from any such growth. The
failure of the Company's management to respond to and manage growth effectively
will have a material adverse effect on the Company's business, financial
condition and results of operations. See "-- Need to Fill Key Executive
Positions; Dependence on Limited Number of Key Personnel."

LIMITED INTELLECTUAL PROPERTY PROTECTION

The Company's ability to compete effectively depends in large part on its
ability to develop and maintain proprietary aspects of its technology. The
Company relies on a combination of trade secret, copyright and trademark law and
nondisclosure agreements to protect its proprietary rights in its anticipated
products. Existing copyright laws afford only limited protection for Arsenal and
any future products. Despite precautions taken by the Company, it may be
possible for unauthorized third parties to copy aspects of Arsenal or future
products or to obtain and use information that the Company regards as
proprietary. Moreover, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. In addition, some aspects of the Company's proposed products are not
subject to intellectual property protection.

The Company cannot be certain that others will not independently develop
substantially equivalent or superseding proprietary technology, or that an
equivalent product will not be marketed in competition with the Company's
products, thereby substantially reducing the value of the Company's proprietary
rights. There can be no assurance that any confidentiality agreements between
the Company and its employees will provide adequate protection for the Company's
proprietary information in the event of any unauthorized use or disclosure of
such proprietary information. See "Business -- Proprietary Rights and Licenses."

PRODUCT LIABILITY

The Company's license agreements with its customers typically have
contained, and are expected in the future to contain, provisions designed to
limit the Company's exposure to potential product liability claims. However, it
is possible that the limitation of liability provisions contained in the
Company's license agreements may not be effective under the laws of certain
jurisdictions. Although the Company has not experienced any product liability
claims to date, the sale and support of Arsenal or other future products by the
Company may entail the risk of such claims and there can be no assurance that
the Company will not be subject to such claims in the future. And although the
Company maintains insurance covering such claims, no assurance can be given that
the amount or terms of such insurance will be adequate. A product liability
claim brought against the Company, regardless of its merit, could have a
material adverse effect upon the Company's business, financial condition and
results of operations.

EFFECT OF ANY FUTURE LEGAL PROCEEDINGS

Although the Company is not currently party to any material legal
proceedings, any future litigation involving the Company could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of operations
regardless of the final outcome of any such litigation. See "Business -- Legal
Proceedings."

10
<PAGE> 11

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

As permitted by Delaware General Corporation Law, the Company has included
in its Certificate of Incorporation a provision to eliminate the personal
liability of its directors for monetary damages for breach or alleged breach of
their fiduciary duties as directors, subject to certain exceptions. In addition,
the Bylaws of the Company provide that the Company is required to indemnify its
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary and the
Company is required to advance expenses to its officers and directors as
incurred in connection with proceedings against them for which they may
indemnified. The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. See "Management -- Limitations on Liability and Indemnification
Matters."

SHARES ELIGIBLE FOR FUTURE SALE

Sale of substantial amounts of the Company's Common Stock in the public
market or the prospect of such sales could materially adversely affect the
market price of the Common Stock. Upon completion of this Offering, the Company
will have outstanding approximately 4,584,506 shares of Common Stock. On the
date of this Prospectus, the 1,400,000 shares offered hereby and 2,291,050
additional shares will be immediately eligible for sale in the public market
without restriction. The remaining 893,456 shares (the "Lock-up Shares") are
subject to lock-up agreements under which the holders of such shares have agreed
not to sell or otherwise dispose of such shares, or shares subsequently acquired
under any option, warrant or convertible security owned by them until June 1998
without the prior written consent of the Underwriter. Substantially all of the
Lock-up Shares will be eligible for sale beginning in June 1998.

The Company has filed a registration statement on Form S-8 under the
Securities Act to register the sale of approximately 477,973 shares of Common
Stock reserved for issuance under its 1994 Stock Plan, 1996 Stock Plan and 1996
Director Option Plan. The Company also intends to file a registration statement
on Form S-8 to register the sale of approximately 672,117 additional shares of
Common Stock issuable pursuant to the Company's 1996 Stock Plan, 1996 Director
Option Plan and 1997 Employee Stock Purchase Plan. Shares of Common Stock issued
upon exercise of options granted after the effective date of the registration
statements on Form S-8 will be available for sale in the public market, subject
in some cases to volume and other limitations, including the lock-up agreements
referred to above. In addition, the Company's Board of Directors has authorized
the issuance of up to 1,000,000 shares of the Company's Common Stock upon the
Company achieving certain milestones, and has issued warrants to purchase
262,000 shares of Common Stock (402,000 upon the closing of this Offering). See
"Contingent Stock Issuance," "Management -- Stock Plans," "Description of
Capital Stock," "Shares Eligible for Future Sale," "Underwriting" and "Legal
Matters."

CHARGE TO INCOME IN THE EVENT OF CONTINGENT STOCK ISSUANCE

The Company's Board of Directors has authorized the issuance of 1,000,000
shares of Common Stock (the "Contingent Shares") issuable to holders of record
("Participants") of the Company's Common Stock and stock options issued by the
Company as of the effective time of the Company's initial public offering in
June 1996 contingent upon the Company achieving certain milestones. In the event
that the Company achieves net revenues for the year ended December 31, 1997 in
excess of $12,000,000 and a net loss of $2,500,000 or less for that year (before
giving effect to any compensation expense recognized by virtue of the issuance
of the Contingent Shares), then rights to purchase 350,000 shares of Common
Stock for one dollar per share will be issued to the Participants. In the event
that the Company achieves net revenues for the year ended December 31, 1998 in
excess of $18,000,000 and pre-tax profits of at least $2,730,000 for that year
(before giving effect to any compensation expense recognized by virtue of the
issuance of the Contingent Shares), then rights to purchase 650,000 shares of
Common Stock for one dollar per share will be issued to the Participants. In
addition, rights to purchase all of the unissued Contingent Shares for one
dollar per share will be issued to the Participants upon the occurrence of a
transaction in which control of the Company changes hands at a price (excluding
the Contingent Shares) equal to or greater than approximately: (i) $15 per share
prior to December 31, 1997; or (ii) $30 per share after December 31, 1997 and
prior to December 31, 1998.

11
<PAGE> 12

To date, the Company has not recorded any compensation expense related to
the issuance of the contingent shares. When in the opinion of the Company's
management it becomes probable that the milestones will be achieved, a
compensation expense will be recorded equal to the number of contingent shares
to be issued times the difference between the fair market value of the Company's
Common Stock (at the time of determination that the milestones will be met) and
one dollar per share. Such expense would have a material adverse effect on the
results of operations. If the Company's management does not determine that it is
probable that it will achieve the milestones, it will be required to record such
compensation expense if such milestones are, in fact, achieved, which would
result in a substantial one-time charge and will have a material adverse effect
on the Company's results of operations.

VOLATILITY OF STOCK PRICE

The Company's stock price has historically been volatile. The trading price
of the Company's Common Stock could be subject to significant fluctuations in
the future in response to variations in quarterly operating results, changes in
analysts' estimates, announcements of technological innovations by the Company
or its competitors, general conditions in the marketplace for sales automation
technology and other factors. In addition, the stock market is subject to price
and volume fluctuations that affect the market prices for companies in general,
and small capitalization, high technology companies, such as the Company, in
particular, and are often unrelated to such companies' operating performance.
See "-- Recent Losses; Quarterly Fluctuations in Performance" and "Market for
Common Stock."

POSSIBLE ILLIQUIDITY OF TRADING MARKET; PENNY STOCK; PENDING SEC INVESTIGATION
OF UNDERWRITER;
RECENTLY SETTLED NASD INVESTIGATION REGARDING UNDERWRITER

The shares of Common Stock are quoted on the Nasdaq SmallCap Market which
is a significantly less liquid market than the Nasdaq National Market. If the
Company should continue to experience losses from operations, it may be unable
to maintain the standards for continued quotation on the Nasdaq SmallCap Market,
and the shares of Common Stock could be subject to removal from the Nasdaq
SmallCap Market. Trading, if any, in the Common Stock would therefore be
conducted in the over-the-counter market on an electronic bulletin board
established for securities that do not meet the Nasdaq SmallCap Market listing
requirements, or in what are commonly referred to as the "pink sheets." As a
result, an investor would find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's Common Stock. Nasdaq has
recently promulgated new rules which make continued listing of companies on the
Nasdaq SmallCap Market more difficult and has significantly increased its
enforcement efforts with regard to the standards for such listing. In addition,
if the Company's Common Stock were removed from the Nasdaq SmallCap Market, the
Company's Common Stock would be subject to so-called "penny stock" rules that
impose additional sales practice and market making requirements on
broker-dealers who sell and/or make a market in such securities. Consequently,
removal from the Nasdaq SmallCap Market, if it were to occur, could affect the
ability or willingness of broker-dealers to sell and/or make a market in the
Company's Common Stock and the ability of purchasers of the Company's Common
Stock to sell their securities in the secondary market. In addition, if the
market price of the Company's Common Stock is less than $5.00 per share, the
Company may become subject to certain penny stock rules even if still quoted on
the Nasdaq SmallCap Market. Such rules may further limit the market liquidity of
the Common Stock and the ability of purchasers in this Offering to sell such
Common Stock in the secondary market.

The Chicago office of the Securities and Exchange Commission is conducting
a private, nonpublic investigation of H.J. Meyers & Co., Inc., the Underwriter
and the principal market maker in the Company's Common Stock, pursuant to a
Formal Order of Investigation issued by the Commission. The Staff is
investigating whether the Underwriter may have violated Section 17(a) of the
Securities Act of 1933 and Sections 10(b), 15(c) and 17(a) of the Securities
Exchange Act of 1934, and the rules and regulations thereunder, with respect to
sales of certain securities including those of the Company. The Company has
received a subpoena for the production of documents pursuant to this
investigation. Specifically, the subpoena requests that the Company provide
documents relating to the following: loans received by the Company, sales of the
Company's securities by employees, officers and directors of the Company,
information relating to the Underwriter, information relating to any other
underwriter whether or not retained by the Company,

12
<PAGE> 13

communications with the Company's stockholders, sales materials pertaining to
the Company's stock, documents filed with the Commission or any other regulatory
agency, self-regulatory organization or securities exchange, sales or shipments
of Arsenal, minutes to Board of Director and stockholder meetings, audits
conducted for the Company, documents pertaining to any due diligence conducted
as part of a stock issuance and a list of employees, officers and directors of
the Company.

The Company is currently unable to assess the potential impact of the
outcome of the Staff's investigation on the Offering or trading in the Company's
securities. Any limitation on the ability of the Underwriter to make a market in
the Company's Common Stock as a result of this investigation, or for any other
reason, could adversely impact the liquidity or trading price of the Company's
Common Stock, which could have a material adverse impact on the market price of
the Company's Common Stock. In addition, any adverse impact on the Company as a
result of this investigation, or for any other reason, could have a material
adverse effect on the market value and liquidity of the Company's Common Stock.

The Underwriter has informed the Company that it believes that it has
materially complied with the above-mentioned securities laws, and rules and
regulations thereunder, and that it has, and will continue to cooperate fully
with the Staff with respect to such investigation.

On July 16, 1996, the National Association of Securities Dealers, Inc. (the
"NASD") issued a notice of Acceptance, Waiver and Consent (the "AWC") whereby
the Underwriter was censured and ordered to pay fines and restitution to retail
customers in the amount of $250,000 and approximately $1.025 million,
respectively. The AWC was issued in connection with claims by the NASD that the
Underwriter charged excessive markups and markdowns in connection with the
trading of four certain securities originally underwritten by the Underwriter;
the activities in question occurred during periods between December 1990 and
October 1993. The Underwriter has informed the Company that the fines and
refunds will not have a material adverse effect on the Underwriter's operations
and that the Underwriter has effected remedial measures to help ensure that the
subject conduct does not recur.

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of shares of Common Stock offered hereby will incur an immediate
and substantial dilution of approximately 63% of their investment in the shares
of Common Stock. The pro forma net tangible book value of the Company's Common
Stock after this Offering will be approximately $1.33 per share. See "Dilution"
and "Capitalization."

NO ANTICIPATED DIVIDENDS

The Company has not paid any dividends on its Common Stock and, for the
foreseeable future, intends to continue its policy of retaining earnings, if
any, to finance the development and expansion of its business. See "Dividend
Policy."

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and Bylaws
and certain other contractual provisions could have the effect of making it more
difficult for a third-party to acquire, or of discouraging a third-party from
attempting to acquire control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. Certain of these provisions allow the Company to
issue Preferred Stock with rights senior to those of the Common Stock without
any further vote or action by the stockholders, and impose various procedural
and other requirements which could make it more difficult for stockholders to
affect certain corporate actions. These provisions could also have the effect of
delaying or preventing a change in control of the Company. The issuance of
Preferred Stock could decrease the amount of earnings and assets available for
distribution to the holders of Common Stock or could adversely affect the rights
and powers, including voting rights, of the holders of the Common Stock. In
certain circumstances, such issuance could have the effect of decreasing the
market price of the Common Stock.

13
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,400,000 shares of
Common Stock being offered hereby, after deducting underwriting discounts and
commissions and offering expenses, will be approximately $3,992,500. The Company
expects to use the net proceeds from this Offering approximately as follows:

<TABLE>
<CAPTION>
AMOUNT PERCENT
----------- -------
<S> <C> <C>
Sales and marketing (See "Business -- Sales and Marketing")..... $ 2,076,100 52%
Research and development (See "Business -- Research and
Development")................................................. 1,317,525 33%
General and administrative...................................... 348,875 9%
Repayment of indebtedness....................................... 250,000 6%
---------- ---
Total................................................. $ 3,992,500 100%
</TABLE>

The projected expenditures described above are estimates and approximations
only and do not represent firm commitments by the Company. The Company
anticipates that the allocation to sales and marketing will include hiring
additional sales personnel (including a Vice President of Sales), attracting and
retaining additional solution providers and engaging in certain marketing
activities such as seminars and trade show events. Proceeds allocated to general
corporate purposes may be utilized for acquisitions of or investments in
complementary technologies or businesses. No such acquisitions or investments
are currently planned by the Company. Pending such uses, the net proceeds will
be invested in short-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain future earnings, if any, to fund
the development of its business and therefore does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. Pursuant to a bank
term loan, the Company is restricted from paying cash dividends without the
prior approval of the lender. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

14
<PAGE> 15

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of
the Company as of March 31, 1997; (i) actual, and (ii) as adjusted to reflect
the sale by the Company of 1,400,000 shares of Common Stock at a public offering
price of $3.625 per share, less applicable underwriting discounts and
commissions and net of expenses and the application of the estimated net
proceeds therefrom.

<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Short-term debt:
Current portion of capital lease obligations........................ $ 143 $ 143
Promissory note..................................................... 650 650
------- -------
Total short-term debt....................................... $ 793 $ 793
======= =======
Long-term debt:
Long-term portion of capital lease obligations...................... $ 60 $ 60
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
no shares issued and outstanding.................................... -- --
Common stock, $0.001 par value; 10,000,000 shares authorized;
3,184,506 shares issued and outstanding actual, 4,584,506 shares
issued and outstanding as adjusted.................................. 3 5
Additional paid in capital.......................................... 10,826 14,817
Accumulated deficit................................................. (8,701) (8,701)
------- -------
Total stockholders' equity.................................. 2,128 6,121
------- -------
Total capitalization........................................ $ 2,188 $ 6,181
======= =======
</TABLE>

- ---------------
(1) Assumes no exercise of the Underwriter's over-allotment option, the
Underwriter's Warrant or exercise of outstanding stock options or warrants.

15
<PAGE> 16

DILUTION

The net tangible book value of the Company's Common Stock as of March 31,
1997 was $2,127,795, or approximately $0.67 per share. Net tangible book value
per share represents the amount of the Company's total tangible assets less
total liabilities, divided by 3,184,506 shares of Common Stock outstanding as of
March 31, 1997.

Net tangible book value dilution per share represents the difference
between the amount per share paid by new investors who purchase shares of Common
Stock in this Offering and the pro forma net tangible book value per share of
Common Stock immediately after the closing of this Offering. After giving effect
to the sale by the Company of 1,400,000 shares of Common Stock in this Offering
at a public offering price of $3.625 per share and after deduction of
underwriting discounts and commissions and estimated offering expenses, the pro
forma net tangible book value of the Company as of March 31, 1997 would have
been $6,120,295 or $1.33 per share. These effects result in an immediate net
increase in net tangible book value of $0.66 per share to existing stockholders,
and an immediate dilution of $2.30 per share to new investors. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share(l)................... $3.63
Net tangible book value per share at March 31, 1997........ $0.67
Increase per share attributable to new investors........... 0.66
-----
Pro forma net tangible book value per share after the
Offering(2)................................................ 1.33
------
--
Pro forma net tangible book value dilution per share to new
investors(3)............................................... $2.30
========
</TABLE>

- ---------------
(1) Before deduction of underwriting discounts and commissions and estimated
expenses of the Offering to be paid by the Company.

(2) Does not give effect to an aggregate of up to 210,000 shares of Common Stock
issuable upon exercise of the Underwriter's over-allotment option.

(3) Represents dilution of approximately 63% to purchasers of the shares of
Common Stock.

As of March 31, 1997, there were outstanding options to purchase an
aggregate of 428,877 shares of Common Stock at a weighted average exercise price
of $3.57 per share and warrants to purchase an aggregate of 262,000 shares of
Common Stock at a weighted average exercise price of $7.59 per share. As of
March 31, 1997, the Company had reserved 2,150,090 shares of Common Stock for
issuance upon the exercise of options that may be granted under its Stock Plans
and including the Contingent Shares. To the extent options are exercised, there
will be further dilution to new investors in the Offering.

16
<PAGE> 17

CONTINGENT STOCK ISSUANCE

The Company's Board of Directors has authorized the issuance of 1,000,000
shares of Common Stock (the "Contingent Shares") issuable to holders of record
of the Company's Common Stock and stock options issued by the Company as of June
21, 1996 (the "Participants") as of the effective date of the Company's initial
public offering in June 1996 contingent upon the Company achieving certain
milestones. In the event that the Company achieves total revenues for the year
ended December 31, 1997 in excess of $12,000,000 and a net loss of $2,500,000 or
less for that year (before giving effect to any compensation expense recognized
by virtue of the issuance of the Contingent Shares), then rights to purchase
350,000 shares of Common Stock for one dollar per share will be issued to the
Participants. In the event that the Company achieves total revenues for the year
ended December 31, 1998 in excess of $18,000,000 and pre-tax profits of at least
$2,730,000 for that year (before giving effect to any compensation expense
recognized by virtue of the issuance of the Contingent Shares), then rights to
purchase 650,000 shares of Common Stock for one dollar per share will be issued
to the Participants. In addition, rights to purchase all of the unissued
Contingent Shares for one dollar per share will be issued to the Participants
upon the occurrence of a transaction in which control of the Company changes
hands at a price (excluding the Contingent Shares) equal to or greater than
approximately: (i) $15 per share prior to December 31, 1997; or (ii) $30 per
share after December 31, 1997 and prior to December 31, 1998.

To date, the Company has not recorded any compensation expense related to
the issuance of the Contingent Shares, because in the opinion of the Company's
management it is not probable that the milestones will be achieved. If and when
management determines that it is probable that the milestones will be achieved,
the Company will record a compensation expense equal to the number of Contingent
Shares to be issued times the difference between the fair market value of the
Company's Common Stock (at the time of determination that the milestones will be
met) and one dollar per share over the remaining fiscal year from the time of
such determination. Such expense would have a material adverse effect on the
results of operations. If the Company's management does not determine that it is
probable that it will achieve the milestones, it will be required to record such
compensation expense if such milestones are, in fact, achieved, which would
result in a substantial one-time charge and will have a material adverse effect
on the Company's results of operations.

MARKET FOR COMMON STOCK

The Company's Common Stock is traded on the Nasdaq SmallCap Market under
the symbol "BRLS." Following the Company's initial public offering on June 20,
1996, the following high and low closing prices were reported by Nasdaq each
quarter:

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Quarter ended June 30, 1996 (subsequent to June 20, 1996).............. $8.13 $6.75
Quarter ended September 30, 1996....................................... 6.88 3.88
Quarter ended December 31, 1996........................................ 4.75 3.00
Quarter ended March 31, 1997........................................... 6.00 3.88
Quarter ended June 30, 1997............................................ 6.13 4.00
Quarter ending September 30, 1997 (through July 21, 1997).............. 4.75 3.75
</TABLE>

At March 31, 1997, the Company had approximately 84 holders of record of
its Common Stock.

17
<PAGE> 18

SELECTED FINANCIAL DATA

The following selected statement of operations data for each of the two
years in the period ended December 31, 1996 and the balance sheet data at
December 31, 1995 and December 31, 1996 are derived from financial statements of
the Company which have been audited by Ernst & Young LLP, independent auditors,
whose report with respect thereto states that there is substantial doubt about
the Company's ability to continue as a going concern, and are included elsewhere
in this Prospectus. The financial statements and selected financial data do not
include any adjustments that might result from the outcome of this uncertainty.
The selected statements of operations data for the three month periods ended
March 31, 1996 and 1997 and the selected balance sheet data as of March 31, 1996
and 1997 have been derived from unaudited interim condensed financial statements
of the Company contained elsewhere herein and reflect in management's opinion,
all adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the results of operations for these periods. Results of
operations for the three months ended March 31, 1996 and 1997 are not
necessarily indicative of results to be expected for the full fiscal year or any
future period. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, notes thereto and the independent
auditors' report included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ---------------------------
1995 1996 1996 1997
-------- ---------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 736 $ 177 $ 91 $ 22
Cost of revenues........................ 214 66 34 11
------ ------ ------- -------
Gross margin.......................... 522 111 57 11
Operating expenses:
Sales and marketing................... 188 2,744 178 817
Research and development.............. 565 2,452 334 617
General and administrative............ 333 988 174 506
------ ------ ------- -------
Loss from operations.................... (564) (6,073) (629) (1,929)
Interest income, net.................... (29) 46 (17) 18
------ ------ ------- -------
Net loss................................ $ (593) $ (6,027) $ (646) $ (1,911)
====== ====== ======= =======
Net loss per share...................... $ (0.64) $ (3.11) $ (0.69) $ (0.60)
Shares used in computing net loss per
share(1).............................. 931,758 1,935,984 931,758 3,184,506
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- ---------------------------
1995 1996 1996 1997
-------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............... $ (375) $ 3,182 $ (404) $ 1,186
Total assets............................ 331 5,607 539 3,707
Current liabilities..................... 577 878 756 1,520
Stockholders' equity (deficit).......... $ (600) $ 3,991 $ (1,246) $ 2,128
</TABLE>

- ---------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of shares used in computing net loss per share.

18
<PAGE> 19

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

This Prospectus contains forward-looking statements that involve risks 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 under "Risk Factors," 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 incorporated and began operation as a division of a company
founded by Curtis M. Faith, Chairman of the Board of Directors of the Company.
In September 1992, the Company purchased all of the assets and operations of
such division.

The Company has experienced a significant decrease in revenues and
significant operating losses in fiscal 1994, 1995 and 1996, and for the three
months ended March 31, 1997. In mid 1995, the Company ceased sales and marketing
of its entire product line and shifted its focus to the development of Arsenal
and the establishment of a third party integrator channel. The Company's
revenues in past periods have been generated almost entirely from the sale of
consulting services and products which the Company no longer sells and, as a
result, are not meaningful in predicting future performance. Although the
Company continues to provide product support for the products it no longer
sells, this activity is not expected to be meaningful to future operating
results. Due to the shift to the development and sale of Arsenal, the Company
will derive substantially all of its revenues from the sale of licenses and
maintenance contracts for Arsenal.

The Company's independent auditors' report on the Company's financial
statements at December 31, 1996 and for the years ended December 31, 1995 and
1996 contains an explanatory paragraph indicating that the Company had recurring
operating losses that raise substantial doubt about its ability to continue as a
going concern. In the absence of receiving the proceeds of this Offering, the
Company anticipates that its existing capital resources and cash generated from
operations, if any, will be sufficient to meet the Company's cash requirements
only through the end of June 1997 at its anticipated level of operations. The
Company's future operating results will depend on many factors, including demand
for the Company's Arsenal product, which has only recently been introduced, the
level of product and price competition, the ability of the Company to develop
and market new products and to control costs, the ability of the Company to
expand its direct sales force and indirect distribution channels and the ability
of the Company to attract and retain key personnel. In particular, the ability
of the Company to achieve revenue growth in the future will depend on its
success in adding a substantial number of direct sales personnel and in
attracting third party integrators in the current year and in future periods.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its existing sales personnel or that it can attract,
assimilate or retain additional highly qualified sales personnel in the future.
Further, the Company believes, based on interactions with its customers and
potential customers, that the purchase of its product is relatively
discretionary and generally involves a significant commitment of capital. As a
result, in the event of a downturn in any potential customer's business or the
economy in general, purchases of the Company's product may be deferred or
canceled, which could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company has generally recognized product license revenues not subject
to significant future obligations upon execution of a licensing agreement and
delivery of software products, provided there are no significant post-delivery
obligations and collection is probable. Service revenues have been and are
expected to be recognized as services are performed while maintenance revenues
have been and are expected to be recognized ratably over the term of the support
period.

THREE MONTHS ENDED MARCH 31, 1996 AND 1997

Revenues:

Revenues have historically consisted of revenue from the licensing and sale
of products, revenue from service and maintenance agreements and revenue from
consulting services. Revenues decreased from $90,586 for the three months ended
March 31, 1996 compared to $22,349 for the three months ended March 31, 1997

19
<PAGE> 20

due to the cessation of sales of the Company's previous products. While the
Company continues to provide support for previously discontinued products, this
activity is not expected to generate significant revenues. The Company does not
expect such fees to constitute a significant percentage of future revenues. The
Company anticipates that revenues will continue to decrease until the Company
begins to recognize revenues from sales of Arsenal.

Cost of Revenues:

Cost of revenues represents primarily amounts incurred pursuant to royalty
obligations and maintenance agreements on certain technology. Cost of revenues
decreased from $33,524 for the three month period ended March 31, 1996 to
$11,020 for the three month period ended March 31, 1997 due to the cessation of
sales of the Company's previous product line. The Company anticipates that cost
of revenues will increase in future periods as the Company commences sales of
Arsenal. The Company believes that the ratio of cost of revenues to revenues is
not meaningful in this period or indicative of future results.

Operating Expenses:

Total operating expenses, which are comprised of sales and marketing,
research and development, and general and administrative expenses, increased
from $685,972 to $1,940,498 between the three months ended March 31, 1996 and
1997. Sales and marketing expenses increased from $178,493 to $816,586 between
the three months ended March 31, 1996 and 1997. This increase was the result of
increased staffing as well as costs associated with the Company's attendance at
trade shows, print advertising and public relations. The Company anticipates
that sales and marketing expenses will continue to increase in future periods as
the Company expands its sales and marketing efforts in connection with the
introduction of Arsenal. Research and development expenses increased from
$333,648 to $617,509 between the three months ended March 31, 1996 and 1997.
This increase was the result of additional staffing and expenditures related to
the development of Arsenal. General and administrative expenses increased from
$173,831 to $506,403 between the three months ended March 31, 1996 and 1997.
This increase was due primarily to increased staffing. The Company anticipates
that total operating expenses will continue to increase for the foreseeable
future as the Company: (i) expands its sales and marketing function in order to
facilitate the market acceptance and sale of Arsenal; (ii) expands its technical
services organization to support customer needs and (iii) adds additional
software engineers to fund the development of enhancements to Arsenal and
develop new products.

Based on the Company's research and development process, costs incurred
between the establishment of technical feasibility and general release have not
been material and therefore have not been capitalized in accordance with
Statement of Financial Accounting Standards No. 86. All research and development
costs are expensed as incurred.

YEARS ENDED DECEMBER 31, 1995 AND 1996

Revenues:

Revenues decreased from $736,152 to $176,941 between the fiscal years ended
December 31, 1995 and 1996. This decrease was primarily due to the cessation of
sales of the Company's previous products. The majority of the revenues in the
fiscal year ended December 31, 1996 are attributable to the recognition of
revenues related to sales and maintenance of products the Company no longer
sells.

In 1996, the Company received 35% and 36% of its revenues from its two
largest customers, Nortel and Synopsys, Inc., respectively. The Company received
14%, 27% and 38% of its 1995 revenues from Nortel, Scitex America Corp., and
Synopsys, Inc., respectively. As significant sales to any particular customer
are typically non-recurring, the Company does not believe its future results are
dependent on recurring revenues from any particular customer. The Company
anticipates, however, that a small number of customers may account for
disproportionately large percentages of its revenues in future quarters.

Cost of Revenues:

Cost of revenues decreased from $214,325 to $66,140 between the fiscal
years ended December 31, 1995 and 1996. The decrease is primarily the result of
the cessation of sales of the Company's previous products.

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<PAGE> 21

The Company believes that the ratio of cost of revenues to revenues is not
meaningful in this period or indicative of future results.

Operating Expenses:

Total operating expenses increased from $1,085,472 to $6,183,414 between
the fiscal years ended December 31, 1995 and 1996. Sales and marketing expenses
increased from $187,525 to $2,743,778 between the fiscal years ended December
31, 1995 and 1996. This increase was the result of increased staffing as well as
costs associated with the Company's attendance at several trade shows, print
advertising and public relations. Research and development expenses increased
from $565,276 to $2,451,544 between the fiscal years ended December 31, 1995 and
1996. This increase was the result of additional staffing and expenditures
related to the development of Arsenal. General and administrative expenses
increased from $332,671 to $988,092 between the fiscal years ended December 31,
1995 and 1996. This increase was due primarily to increased staffing.

The number of the Company's employees increased from 17 to 49 full time
employees between the end of fiscal year 1995 and 1996 and dropped to 46 as of
March 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

In June 1996, the Company completed an initial public offering of 2,000,000
shares of Common Stock. In July 1996, the Company completed the public sale of
an additional 291,050 shares of Common Stock pursuant to the exercise of an
over-allotment option granted by the Company to the Underwriter, who was also
the underwriter of the Company's initial public offering. As a result of these
sales, the Company received proceeds of $9.6 million, net of related
underwriting discounts and offering expenses. The Company invested the proceeds
from these sales in investment grade, interest-bearing securities, and has not
invested in any derivative securities or other financial instruments that
involve a high level of risk.

The Company's cash and short-term investments totaled $3.9 million at
December 31, 1996 and $2.5 million at March 31, 1997, representing 70% and 67%,
respectively, of total assets. The Company used $5.6 million of cash to fund
operations during fiscal 1996 and $1.8 million to fund operations for the first
quarter of 1997. Net cash used in operating activities was primarily for the
development and sales and marketing costs associated with Arsenal. The Company's
principal investing activities consisted of expenditures for computers, computer
related equipment, office furniture and leasehold improvements associated with a
new office facility the Company began occupying in February 1997.

In addition to sales of Common Stock, financing activities for the fiscal
year ended December 31, 1996 included $375,946 in new long-term lease
commitments to finance purchases of equipment and office furniture and a
$650,000 bank loan secured by an 18-month restricted certificate of deposit. The
bank loan was secured to repay stockholder debt which was at less favorable
terms and contains restrictions which preclude the Company from paying out cash
dividends or from incurring any indebtedness which would incumber the assets of
the Company without the prior written consent of the lender. Financing
activities for the three months ended March 31, 1997 consisted of scheduled
lease payments.

During July 1997, the Company issued a $250,000 promissory note which is
due on demand seven days following the closing of this Offering and bears
interest of 10% per annum. In connection with the promissory note, the Company
issued a warrant to purchase up to 50,000 shares of the Company's Common Stock.
The exercise price of the warrant is equal to the fair market value of the
Company's Common Stock price at the date of execution. The warrant expires five
years from its execution date. In addition, in July 1997, the Company borrowed
$250,000 pursuant to a bank credit line personally guaranteed by certain
directors of the Company. These borrowings accrue interest at 10.25% per annum
and are due and payable on July 14, 1998.

The net proceeds from this Offering will be approximately $3,992,500
(assuming no exercise of the Underwriter's over-allotment option). In the
absence of receiving the proceeds of this Offering, the Company anticipates that
its existing capital resources and cash generated from operations, if any, will
be sufficient to meet the Company's cash requirements only through the end of
July 1997 at its anticipated level of operations. The Company's future capital
requirements will depend upon numerous factors, including the amount of

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<PAGE> 22

revenues generated from operations, the cost of the Company's sales and
marketing activities and the progress of the Company's research and development
activities, none of which can be predicted with certainty. The Company
anticipates that the proceeds of this Offering, together with existing capital
resources and cash generated from operations, if any, will be sufficient to meet
the Company's cash requirements for at least the next 12 months at its
anticipated level of operations, which includes increases in expenses,
particularly sales and marketing expenses, and costs of revenues. However, the
Company may seek additional funding during the next 12 months and will likely
seek additional funding after such time. There can be no assurance that any
additional financing will be available on acceptable terms, or at all, when
required by the Company. Moreover, if additional financing is not available, the
Company could be required to reduce or suspend its operations, seek an
acquisition partner or sell securities on terms that may be highly dilutive or
otherwise disadvantageous to investors purchasing the shares of Common Stock
offered hereby. The Company has experienced in the past, and may continue to
experience, operational difficulties and delays in its future product
enhancement and product development efforts due to working capital constraints.
Any such difficulties or delays could have a material adverse effect on the
Company's business, financial condition and results of operations.

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<PAGE> 23

BUSINESS

The following Business section contains forward-looking statements that
involve risks 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 under "Risk Factors" and
elsewhere in this Prospectus.

Borealis Technology Corporation is a provider of enterprise-wide software
solutions for the sales force automation market. The Company was incorporated in
Nevada in June 1988 and reincorporated in Delaware in June 1996 prior to the
Company's initial public offering. From its inception until 1994, the Company
created and marketed development tools for software developers. In 1994, the
Company bought from an unrelated third party and began selling Salesbase, a
sales force automation product. The Company recognized the inherent risks and
drain on internal resources associated with the implementation of then current
enterprise-wide salesforce automation products and decided to design a sales
force automation product that could be easily implemented and customized by
third parties rather than the Company.

Borealis has developed and recently commenced sales of Arsenal, an advanced
software solution for the sales automation market, which is designed to enable
customers to automate sales processes and information exchanges between hundreds
or thousands of mobile users and central information systems containing
enterprise-wide customer databases. The Company believes that Arsenal overcomes
limitations of commercially available sales automation solutions by providing
the customization and scalability features of custom solutions together with
rapid implementation capabilities. In April 1997, the Company introduced Arsenal
and has shipped copies to Heidelberg USA and Maersk, Inc.

Traditionally, third-party integrators have functioned as an implementation
rather than a distribution channel of sales automation products. The Company
believes that such integrators have been constrained in their ability to serve
as a distribution channel due to product complexities, long implementation times
and the high cost of licensing and support of commercially available sales
automation products. The Company believes that Arsenal is deployable and
modifiable with considerably less effort and in a more timely and cost-effective
manner than other commercially available products. Reduced installation and
customization time is expected to enable third-party integrators to implement an
increased number of Arsenal systems without a corresponding increase in staffing
and related expenses. As a result, the Company believes that its network of
third-party integrators provides a more broad-based implementation capacity than
the Company could establish if implementing solutions itself, and which also
functions as a highly leveraged incremental distribution channel. The Company
believes that this approach should allow it to focus greater attention on
product development and marketing rather than on consulting and implementation.

INDUSTRY OVERVIEW

Advances in personal computer, telecommunications and related technologies
continue to stimulate interest in more effective client/server approaches to the
automation of core business processes. Moreover, increased use of portable
computers, decreased communications costs and the emergence of the World Wide
Web and wireless data communications have increased the number of businesses
seeking to extend core business process automation to mobile computer users.
Organizations seeking to provide their mobile sales personnel with
enterprise-wide sales automation solutions are faced with a limited number of
approaches, each of which, the Company believes, fails to provide a viable and
cost-effective solution. These approaches generally fall into one of two
categories: pre-packaged products that provide a fixed set of features, are not

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<PAGE> 24

customizable and are not optimized to meet the needs of a large segment of the
sales automation market or custom applications where ease and cost of system
implementation are mitigating factors.

Pre-packaged products enable individuals and small groups to monitor
contact information such as addresses and telephone numbers; calendar
information such as appointments, meetings and phone calls; and, in some cases,
provide limited task-specific sales functionality. However, the Company does not
believe that these pre-packaged products are effective substitutes for
enterprise-wide sales automation systems, because they are not designed to scale
in size to address large mobile user groups, are inflexible and are generally
configurable in limited ways. Moreover, the Company believes that such products
do not fully address the customer's internal sales process because they do not
work with the customer's existing information system infrastructure and lack
comprehensive sales-specific functionality.

Custom solutions are better suited to meet the individual requirements of
different organizations and their respective sales methodologies. However,
custom solutions are typically expensive to implement and require programming of
source code by an MIS administrator or third party integrator for their
installation or modification. The complexities introduced by source code
modifications often result in long and expensive installations and may cause
difficulty in integrating subsequent upgrades and improvements. In addition,
because each custom product requires its own quality assurance testing, custom
solutions do not achieve the efficiencies obtainable when quality assurance
efforts are leveraged across many customers.

As a result of the foregoing, the Company believes that a substantial
market opportunity exists for a sales automation solution that provides "off the
shelf" functionality that can be readily customized to match the unique needs of
an organization and can be quickly and cost-effectively reconfigured as the
organization grows and its needs evolve.

STRATEGY

The Company's objective is to become the leading supplier of sales
automation solutions to enable businesses to enhance the productivity and
effectiveness of their sales personnel. The Company's strategy includes the
following key elements:

Leverage Proprietary Technology to Provide Easily Modified and Upgraded
Solutions

Borealis has developed a powerful set of software technologies that have
been designed to enable the Company to bring to market sales automation
solutions that work on multiple host and client platforms and provide
competitive advantages over commercially available products. These technologies
include: (i) a proprietary mobile database synchronization engine; (ii) a
proprietary object-oriented graphical interface library; (iii) a proprietary
high-speed multiple platform mobile computing database engine; and (iv) an
extensive library of software tools designed to minimize product development
time and ensure product quality.

The Company believes that these proprietary technologies provide, among
other things: (i) inherent scalability; (ii) an architecture that enables rapid
deployment and continuous modification; (iii) automatic distribution of
application updates; (iv) efficient and continuous collection and dissemination
of critical data, (v) support for integration with existing legacy systems; (vi)
support for existing and emerging communication and connectivity strategies,
including wireless data communications such as paging and cellular, the Internet
and the World Wide Web; and (vii) an architecture that permits intermittent
connections to a central computing center by mobile users. The Company believes
that its proprietary software technology should allow it to develop and
introduce products that meet the needs of both MIS administrators and sales
personnel within the sales automation marketplace.

Establish and Leverage Third-Party Integrator and Distribution Channel

As many of the Company's current and potential licensing arrangements will
require customization or systems integration consulting, Borealis has devoted
significant resources to develop relationships with third-party sales automation
integrators to assist end-use customers with the implementation and
customization of Arsenal. To develop these relationships, the Company has
trained third-party integrators in the use of Arsenal,

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<PAGE> 25

and intends to identify appropriate projects for specific integrators and to
introduce one or more of such integrators to the customer early in the sales
process. The Company believes that this strategy will enable its customers to
achieve efficient implementation and customization of Arsenal, while enabling
the Company to focus on the marketing and enhancement of Arsenal. In addition,
the Company believes that, as third party integrators become increasingly
familiar with Arsenal, such integrators could become a source of sales leads.
The Company has signed agreements with several third party integrators to
implement Arsenal and the Company is continuing to have discussions with other
potential integrators.

ARSENAL

Arsenal consists of three separate software components: the Arsenal
Designer, which is the development tool that enables customization and
modification of the application; the Arsenal Server, which coordinates the
distribution of various changes to the application and data across multiple
users; and the Arsenal Client, which is the software application that resides on
the end-user's computer.

Arsenal Designer

Using the Arsenal Designer, an MIS administrator, without modifying the
source code of the product, can: extensively modify the database or third party
integrator structure by adding or removing tables, database fields and indexes;
create new screens and forms with graphical and display editing controls; and,
through the use of Visual Basic compatible scripting, alter business rules and
functionality. In addition to these built-in customization capabilities, the
Arsenal Designer allows MIS administrators or third party integrators to extend
the product's functionality through the use of C++ plug-in extension modules.
Using the application programming interface, developers are able to access
native low-level operating system routines directly, making available the full
range of capabilities of the operating system. Changes made with the Arsenal
Designer are automatically distributed to mobile and LAN computer users
throughout a customer's mobile enterprise through processes controlled by MIS
administrators. The Company believes that the Arsenal Designer offers
significant functionality not available in commercially available sales
automation products.

Arsenal Server

The Arsenal Server manages central-site administration and synchronization,
administers the implementation of enterprise-wide business rules and translates
higher-level user requests into low-level commands executable by the Database
Management System, the central data repository for the system. This approach
creates a three-tier client/server architecture which the Company believes
offers the following benefits over two-tier systems used by certain of the
Company's competitors: reduced network traffic, increased ability to handle a
large number of users, and improved system performance.

Arsenal Client

The Arsenal Client is designed to be installed on the computers of
enterprise wide sales personnel. It contains Arsenal's graphical user interface
and the individual data subsets that upload and download data to and from the
Application Server when the Client is detached from the Server. Customization of
individual Arsenal Client applications allows data to be displayed and processed
in different ways by different users. Some of the pre-built modules that are
included in an Arsenal Client application include calendaring, account and
customer contact management, sales opportunity management, forecasting and
others.

A modular open architecture, industry-standard scripting language and a
well-defined application programming interface give MIS administrators and third
party integrators the ability to control and extend Arsenal's capabilities in
ways that isolate these extensions from the Arsenal source code. Arsenal is
designed to allow customers to easily upgrade to new versions of the Arsenal
system in the future without requiring the replacement or re-entry of data.

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RESEARCH AND DEVELOPMENT

The Company's research and development efforts are currently focused upon
the enhancement and improvement of Arsenal. The Company's research and
development expenses were $565,276 and $2,451,544 for the fiscal years ended
December 31, 1995 and 1996, respectively, and $333,648 and $617,509 for the
three months ended March 31, 1996 and 1997, respectively. Software products such
as Arsenal often contain errors or "bugs" that can adversely affect the
performance of the product or damage a user's data. There can be no assurance
that despite testing by the Company and by current and potential customers
errors will not be found in Arsenal, resulting in a loss of, or delay in, market
acceptance and sales of the product, diversion of development resources, injury
to the Company's reputation or increased service and warranty costs, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

SALES AND MARKETING

The Company endeavors to leverage and complement its direct sales efforts
by recruiting and training a network of domestic and international third party
integrators. Traditionally, third-party integrators have functioned as an
implementation rather than a distribution channel of sales automation solutions.
The Company believes that such integrators have been constrained in their
ability to serve as a distribution channel due to product complexities, long
implementation times and the high cost of licensing and supporting commercially
available sales automation products. Arsenal is designed to be deployable and
modifiable with considerably less effort and in a more timely and cost-effective
manner than commercially available products. Reduced installation and
customization time is expected to enable third-party integrators to implement an
increased number of Arsenal systems without a corresponding increase in staffing
and related expenses. As a result, the Company believes that its network of
third-party integrators should not only provide a more broad-based
implementation capacity than the Company could establish if implementing
solutions itself, but which should also function as a highly leveraged
incremental distribution channel which complements its direct sales force.

Nonetheless, third-party integrators are required to undergo a substantial
amount of training to be able to apply the Company's products to the varied
needs of the Company's prospective customers. There can be no assurance that the
Company will be able to attract and retain personnel necessary to train such
integrators. In addition, there can be no assurance that the Company's training
will be sufficient or that such integrators will be able to provide the level or
quality of service required to meet the needs of the Company's customers. The
Company will likely be dependent on third-party integrators to complete certain
post-delivery obligations prior to the Company's recognition of revenue. Any
failure of such integrators to complete such obligations could prevent the
Company from recognizing revenue and the failure to so recognize revenue could
have a material adverse affect on the Company's business, financial condition
and results of operations. If the Company is unable to maintain effective,
long-term relationships with these integrators, or if such integrators fail to
meet the needs of the Company's prospective customers in a timely fashion, or at
all, such failure would result in a loss of or delay in market acceptance or
sales and could result in increased product support costs and an injury to the
Company's reputation, which would have a material adverse effect on the
Company's business, financial condition and results of operations.

PROPRIETARY RIGHTS AND LICENSES

The Company relies on a combination of copyright, trademark and trade
secret laws, as well as confidentiality agreements and licensing arrangements,
to establish and protect its proprietary rights. The Company does not have any
patents or patent applications pending, and existing copyright, trademark and
trade secret laws afford only limited protection. The Company licenses its
products in object code form only, although it has in the past, and in the
future may have source code escrow arrangements when required by customers.

Despite the Company's efforts to protect its proprietary rights, attempts
may be made to copy or reverse engineer aspects of the Company's products or to
obtain and use information that the Company regards as

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<PAGE> 27

proprietary. Moreover, there can be no assurance that others will not develop
products that infringe the Company's proprietary rights, or that are similar or
superior to those developed by the Company. Policing the unauthorized use of the
Company's products is difficult. Litigation may be necessary in the future to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets or to determine the validity and scope of the proprietary rights
of others. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations. Adverse determinations in any
such litigation could result in the loss of the Company's proprietary rights,
subject the Company to significant liabilities, require the Company to seek
licenses from third parties or prevent the Company from manufacturing or selling
its products, any of which would have a material adverse affect on the Company's
business, financial condition and results of operations. See "Risk
Factors -- Limited Intellectual Property Protection."

In addition, the laws of certain foreign countries treat the protection of
proprietary rights of the Company in its products differently from those in the
United States, and in many cases the protection afforded by such foreign laws is
weaker than in the United States. Accordingly, there can be no assurance that
the Company will be able to protect its proprietary rights against unauthorized
third party copying or use, which could materially adversely affect the
Company's business, operating results or financial condition.

The Company believes that its past products did not and Arsenal does not
infringe the proprietary rights of third parties. There can be no assurance,
however, that infringement claims will not successfully be made. The Company may
receive communications in the future from third parties asserting infringement
upon intellectual property rights of such parties as a result of either features
or content of its software products. Although the Company is not currently
engaged in any intellectual property litigation or proceedings regarding any
claim or a violation by the Company of the intellectual property rights of
others, there can be no assurance that the Company will not become involved in
such proceedings.

The Company currently licenses certain technology from third parties
pursuant to fully paid up, royalty free source code licenses. The Company has no
material obligations with respect to such licenses. The Company expects that it
may be required to license certain software from third parties. While the
Company has not identified any technology for which it expects to obtain
licenses for future product development, the inability to obtain any such future
software licenses could result in delays in future product development or delays
or reductions in shipment until equivalent software could be developed or
identified, licensed and integrated, which could adversely affect the Company's
business, financial condition and results of operations.

COMPETITION

The sales automation software market is highly-competitive,
highly-fragmented and characterized by rapid technological change, frequent new
product introductions, short product life cycles and evolving industry
standards, and is expected, in the future, to be characterized by significant
price erosion over the life of a product. Within specific ranges of
functionality, the Company experiences competition from many sources, including:
(i) companies that directly address the sales automation market, such as Aurum
Software, Inc., Siebel Systems, Inc., Saratoga Systems, Inc., Saleskit Software
and Brock Control Systems, Inc.; (ii) third party integrators, such as Andersen
Consulting, LLP and KPMG Peat Marwick, that design, develop and implement custom
sales automation solutions; (iii) the internal information technology
departments of potential customers that develop proprietary sales automation
applications; and (iv) companies such as Symantec Corporation, Goldmine Software
Corporation and Modatech Systems Corporation, suppliers of Personal Information
Managers ("PIMS") off-the-shelf software specific to personal computers designed
to aid in such activities as time management, contact management and
calendaring. In addition, the Company may experience competition from additional
companies, to the extent such companies enter the sales automation market, such
as "groupware" vendors, "help desk" vendors, LAN-based application development
tools vendors, remote LAN-access communication vendors and communications and
systems management software vendors. Among the Company's potential competitors
are also a number of large hardware and software companies that may develop or
acquire products that compete in the sales automation software market.

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The Company believes that the principal competitive factors affecting its
market include product features such as adaptability, scalability, ability to
integrate with third party products, functionality, ease of use, product
reputation, quality, performance, price, customer service and support,
effectiveness of sales and marketing efforts and company reputation.

Current and potential competitors have established or may establish
cooperative relationships with third parties to increase the ability of their
products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Many of the Company's
current and potential competitors have significantly greater financial,
technical, marketing, name recognition and other resources than the Company. As
a result, they may be able to respond more quickly to new or emerging
technologies and to changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than can the
Company. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
will not materially adversely affect the Company's business, operating results
and financial condition. See "Risk Factors -- Competition."

FACILITIES

The Company's principal administrative, engineering, marketing and sales
facilities total approximately 19,000 square feet, and are located in a single
building in Carson City, Nevada under a lease that expires in 2002. In addition,
the Company has approximately 3,700 square feet in Incline Village, Nevada under
a lease that expires in July 1997. Management believes that its current
facilities are adequate to meet its currently foreseeable needs, and that, if
required, suitable additional space will be available to accommodate expansion
of the Company's operations on commercially reasonable terms.

EMPLOYEES

As of March 31, 1997, Borealis had 46 full-time employees. This number
includes 17 persons in research and development, 4 in technical services, 16 in
sales and marketing, and 9 in administration. The Company has experienced no
work stoppages and believes its relationship with its employees is good.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings. However, the Company
has received a letter alleging wrongdoing by the Company in connection with the
hiring of certain of the Company's employees by a former employer of such
employees, which allegation the Company believes is without merit. There can be
no assurance that litigation will not develop. Litigation is inherently
uncertain and any such litigation, regardless of its merit, could be expensive,
disruptive of management time, and could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Effect of Any Future Legal Proceedings."

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The current executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------------
<S> <C> <C>
Jack Murphy................... 51 President and Chief Executive Officer
Curtis Faith.................. 33 Chairman of the Board
Elizabeth Gasper.............. 44 Executive Vice President and Chief Financial
Officer
Ed Murphy..................... 43 Vice President of Marketing
Brian Breidenbach............. 35 Vice President of Engineering
Timothy Arnold................ 31 Vice President of Application Strategies
Edward Esber.................. 44 Director
Patrick Grady................. 29 Director
Joe Marengi................... 44 Director
Peter Pitsker................. 64 Director
Shekar Swamy.................. 41 Director
</TABLE>

Jack Murphy joined the Company in July 1997 as President and Chief
Executive Officer. In addition, the Company expects that Mr. Murphy will be
appointed as a Director of the Company in the near future. Prior to joining the
Company, Mr. Murphy served as President and Chief Executive Officer of
Prometheus Products, Inc. from 1995 to 1996, as President of Practical
Peripherals, Inc. from 1993 to 1994 and as Vice President of Operations of Apple
Computer, Inc. from 1992 to 1993.

Curtis Faith founded the Company in June 1988 and has served as Chairman of
the Board since that time. Mr. Faith also served as the Company's President and
Chief Executive Officer from June 1988 to January 1997. Mr. Faith attended
Worcester Polytechnic Institute in Worcester, Massachusetts.

Elizabeth Gasper joined the Company in November 1996 as Executive Vice
President and Chief Financial Officer. From March 1993 until November 1996, Ms.
Gasper served as Controller of Scopus Technology, a customer asset management
software vendor. From May 1990 through August 1992, Ms. Gasper managed the
Corporate Financial Planning and Treasury Operations groups at Sybase, Inc., a
database vendor. Ms. Gasper graduated from the University of California at
Irvine with a B.A. in Economics and graduated from the University of California
at Los Angeles with an M.B.A. in Finance.

Ed Murphy joined the Company in June 1996 as Vice President of Marketing.
From April 1995 to June 1996, Mr. Murphy was Vice President of Marketing at Live
Picture, Inc. and from May 1988 to April 1995, Mr. Murphy served as Worldwide
Director of Marketing Communications at Borland International, Inc. Mr. Murphy
graduated from the University of California at Davis with a B.S. in Geology.

Brian Breidenbach joined the Company as Vice President of Engineering in
December 1996. From March 1991 to November 1996, Mr. Breidenbach served as
Director of Development at Quarterdeck Corporation, an Internet software vendor.
Mr. Breidenbach attended the University of Southern California.

Timothy Arnold joined the Company in September 1992 and has served as Vice
President of Application Strategies since January 1997. Prior thereto, Mr.
Arnold served as Vice President of Operations and Finance from January 1994 to
October 1996, Director of Marketing, Finance and Operations from January 1993 to
January 1994 and as a software engineer from September 1992 to January 1993.
Prior to joining the Company, Mr. Arnold served as a Senior Information Systems
Specialist for Sales at Bose Corporation. Mr. Arnold holds a B.A. in Economics
from Harvard University.

Edward Esber joined the Company as a Director in July 1996. Mr. Esber has
served as Chief Executive Officer and President of SoloPoint, Inc. since October
1995 and as the principal of The Esber Group, a strategy consulting group, since
April 1990. From July 1994 to October 1995 he was Chairman, Chief Executive
Officer and President of Creative Insights. Prior thereto, he served as
President and Chief

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<PAGE> 30

Operating Officer of Creative Labs from May 1993 to July 1994. Mr. Esber holds a
bachelor's degree in computer engineering from Case Western Reserve University,
a master's degree in electrical engineering from Syracuse University and an
M.B.A. in general management from Harvard Business School. Mr. Esber also serves
on the boards of directors of Quantum Corporation and SoloPoint, Inc. Pursuant
to the Underwriting Agreement between the Company and H.J. Meyers & Co., Inc.
dated June 21, 1996, the Company has agreed, until June 27, 1999, that H.J.
Meyers & Co., Inc., shall have the right to designate two members to the
Company's Board of Directors provided that such members are acceptable to the
Company. Mr. Esber has been nominated to the Company's Board of Directors
pursuant to this Agreement.

Patrick Grady became a director of the Company in July 1996. Mr. Grady is
currently Managing Director, Venture Capital of H.J. Meyers & Co., Inc. From
June 1993 to March 1996. Mr. Grady served as Senior Vice President of Corporate
Finance at H.J. Meyers & Co., Inc. From March 1990 to May 1993, he was Vice
President of Corporate Finance at Josephthal, Lyon & Ross, Inc. Mr. Grady also
serves as a director of Deltapoint, Inc. and SoloPoint, Inc. Pursuant to the
Underwriting Agreement between the Company and H.J. Meyers & Co., Inc. dated
June 21, 1996, the Company has agreed, until June 27, 1999, that H.J. Meyers &
Co., Inc., shall have the right to designate two members to the Company's Board
of Directors provided that such members are acceptable to the Company. Mr. Grady
has been nominated to the Company's Board of Directors pursuant to this
Agreement.

Joe Marengi became a director of the Company in July 1997. Mr. Marengi is
currently a Senior Vice President of Dell Computer Corporation. Mr. Marengi
previously served as president of Novell, Inc. from August 1996 to July 1997.
Prior to that, Mr. Marengi served as executive vice president, worldwide sales
and as vice president of channel sales at Novell. Before joining Novell, Mr.
Marengi was the director of channels for Excelan, Inc. and national sales
manager for Kinetics, Inc. Mr. Marengi holds a bachelor's degree from the
University of Massachusetts and a master's degree from the University of
Southern California. Mr. Marengi also serves on the boards of directors of Corel
Corporation, Network Peripherals, Inc. and Deltapoint, Inc.

Peter Pitsker served as interim President and Chief Operating Officer from
January 1997 through July 1997 and has served on the Board of Directors since
August 1995. Mr. Pitsker was President of Wonderware Corporation from October
1989 through January 1991 and served as Chairman of the Board from January 1991
to January 1992. Since December 1993, Mr. Pitsker has served as President of
TechnoManagement, Inc. Mr. Pitsker graduated from Stanford University with a
B.S. in Chemical Engineering.

Shekar Swamy joined the Company as a Director in May 1996. Mr. Swamy
co-founded American Technology Corporation, an integrator of mobile sales
automation and information solutions, in 1991, and has served as President of
such company since such time. Prior thereto, Mr. Swamy was Vice President of
Sales and Client Services at Dun & Bradstreet Corporation from April 1987 to
June 1991.

The Company currently is authorized to elect six directors. Each director
holds office until the next annual meeting of stockholders or until his
successor is duty elected and qualified. The officers serve at the discretion of
the Board.

Directors receive reimbursement of expenses incurred in attending Board
meetings. Except as otherwise described in this Prospectus, and for the
reimbursement of expenses, the Company has not paid cash or other compensation
to its directors. See "-- 1996 Director Option Plan."

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning the
compensation earned for services rendered in all capacities to the Company for
the fiscal year ended December 31, 1996, as well as the

30
<PAGE> 31

total compensation paid for the Company's previous two fiscal years to the
Company's Chairman and former President and Chief Executive Officer:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS COMPENSATION(2)
------------------------------------------ ---- -------- ------- ---------------
<S> <C> <C> <C> <C>
Curtis Faith.............................. 1996 $ 87,500 -- $ 3,263
Chairman of the Board(3) 1995 $ 53,333 $ 6,667 $ 2,869
1994 $ 17,500 $ 500 $ 2,918
</TABLE>

- ---------------
(1) Other than salary described herein, the Company did not pay Mr. Faith any
compensation, including incidental personal benefits, in excess of 10% of
such individual's salary. No executive officer of the Company had a total
annual salary and bonus which exceeded $100,000 during fiscal 1996.

(2) Represents premiums paid for health and life insurance on behalf of Mr.
Faith.

(3) Mr. Faith resigned as President and Chief Executive Officer of the Company
in January 1997.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company's Certificate of Incorporation contains provisions that
eliminate to the fullest extent permissible under Delaware law the liability of
its directors to the Company for monetary damages. Such limitation of liability
does not affect the availability of equitable remedies such as injunction relief
or rescission. The Company's Bylaws provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Delaware law,
including in circumstances in which indemnification is otherwise discretionary
under Delaware law. The Company has entered into indemnification agreements with
its officers and directors containing provisions which require the Company,
among other things, to indemnify the 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. See "Risk
Factors -- Limitations on Liability and Indemnification Matters."

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

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<PAGE> 32

STOCK PLANS

1994 STOCK OPTION PLAN

The Company's 1994 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors and stockholders on July 2, 1994. An aggregate of 185,786
shares of Common Stock have been reserved for issuance under the Option Plan.
Following approval of the Company's 1996 Stock Plan, discussed below, the
Company ceased granting options under the Option Plan. The Option Plan provides
for the grant to employees of the Company of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for the grant of nonstatutory stock options to employees and
consultants of the Company. The Option Plan may be administered by the Board or
a committee approved by the Board in a manner that complies with Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Currently, the Option Plan is administered by the Board, which determines the
terms of options and rights granted, including the exercise price, number of
shares subject to the option or right and the exercisability thereof.

Options granted under the Option Plan are not transferable other than by
will or the laws of descent or distribution, and such options are exercisable
during the lifetime of the recipient only by such person. The exercise price of
all incentive stock options granted under the Option Plan must be at least equal
to the fair market value of the shares of Common Stock on the date of the grant.
With respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of stock of the Company, 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 maximum term of the option must not exceed five (5)
years. The term of all other options granted under the Option Plan may not
exceed ten (10) years.

1996 DIRECTOR OPTION PLAN

The 1996 Director Option Plan (the "Director Plan") was adopted by the
Board of Directors and approved by the stockholders of the Company in May 1996.
Non-employee directors are entitled to participate in the Director Plan. The
Director Plan has a term of ten years, unless terminated sooner by the Board. A
total of 115,000 shares of Common Stock have been reserved for issuance under
the Director Plan.

The Director Plan provides for the automatic grant of 20,000 shares of
Common Stock to each non-employee director on the date on which the person first
becomes a non-employee director (the "First Option"), unless immediately prior
to becoming a non-employee director, such person was a director of the Company.
After the First Option is granted to the non-employee director, he or she shall
automatically be granted an option to purchase 6,667 additional shares (a
"Subsequent Option") each year on the day immediately following the annual
stockholders' meeting of the Company, if on such date he or she shall have
served on the Board for at least three years. Each First Option and each
Subsequent Option will have a term of 10 years. The exercise prices of the First
Option and each Subsequent Option shall be the fair market value per share of
the Common Stock, generally determined with reference to the closing price of
the Common Stock as reported on the Nasdaq SmallCap Market.

In the event of a merger of the Company or the sale of substantially all of
the assets of the Company, each option may be assumed or an equivalent option
substituted by the successor corporation. Options granted under the Director
Plan must be exercised within three months of the end of the optionee's tenure
as a director of the Company, or within twelve months after such director's
termination by death or disability, but in no event later than the expiration of
the option's ten year term. No option granted under the Director Plan is
transferable by the optionee other than by will or the laws of descent and
distribution, and each option is exercisable, during the lifetime of the
optionee, only by such optionee.

The administration and other terms of the Director Plan are structured so
that options granted to the nonemployee directors who administer the Company's
stock plans shall qualify as transactions exempt from Section 16(b) of the
Securities Exchange Act of 1934 as amended (the "Exchange Act"), pursuant to
Rule 16b-3 promulgated thereunder.

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<PAGE> 33

1996 STOCK PLAN

The 1996 Stock Plan (the "1996 Plan") was adopted by the Board of Directors
and approved by the stockholders of the Company in May 1996. The Company's 1996
Plan provides for the granting to employees of incentive stock options within
the meaning of Section 422 of the Code, and for the granting to employees and
consultants of nonstatutory stock options and stock purchase rights ("SPRs"). A
total of 649,304 shares of Common Stock have been reserved for issuance pursuant
to the 1996 Plan. Unless terminated sooner, the 1996 Plan will terminate
automatically on its tenth anniversary. The Board has the authority to amend,
suspend or terminate the 1996 Plan, provided that no such action may affect any
share of Common Stock previously issued and sold or any option previously
granted under the 1996 Plan.

The 1996 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee is required to be constituted to
comply with Section 16(b) of the Exchange Act and applicable laws. The Committee
has the power to determine the terms of the options or SPRs granted, including
the exercise price, the number of shares subject to each option or SPR and the
exercisability thereof, and the form of consideration payable upon exercise.
Options and SPRs granted under the 1996 Plan will not generally be transferable
by the optionee, and each option and SPR will be exercisable during the lifetime
of the optionee only by such optionee. Options granted under the 1996 Plan must
be exercised within three months of the end of optionee's status as an employee
or consultant of the Company, or within twelve months after such optionee's
termination by death or disability, but in no event later than the expiration of
the option's ten year term. The exercise price of all incentive stock options
granted under the 1996 Plan must be at least equal to the fair market value of
the Common Stock on the date of grant. The exercise price of nonstatutory stock
options and SPRs granted under the 1996 Plan is determined by the Committee.
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 1996 Plan may not exceed ten years.

The 1996 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 or a portion of the optioned stock, including shares as
to which it would not otherwise be exercisable. If the Committee makes an option
or SPR exercisable in full in the event of a merger or sale of assets, the
Committee shall notify the optionee that the option or SPR shall be fully
exercisable for a period of fifteen days from the date of such notice, and the
option or SPR will terminate upon the expiration of such period.

1997 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan")
was adopted by the Board of Directors in April 1997 and the stockholders in May
1997. The 1997 Purchase Plan, which is intended to qualify under Section 423 of
the Code, contains consecutive, overlapping, twelve month offering periods. Each
offering period includes two six-month purchase periods. The offering periods
generally start on the first trading day on or after May 1 and November 1 of
each year. A total of 200,000 shares have been reserved for issuance under the
1997 Purchase Plan.

Employees are eligible to participate if they are customarily employed by
the Company or any designated subsidiary for at least 20 hours per week and more
than five months in any calendar year. However, any employee who: (i)
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of the Company; or
(ii) whose rights to purchase stock under all employee stock purchase plans of
the Company accrues at a rate which exceeds $25,000 worth of stock for each
calendar year may not be granted an option to purchase stock under the 1997
Purchase Plan.

33
<PAGE> 34

The 1997 Purchase Plan permits participants to purchase Common Stock
through payroll deductions of up to 10% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings,
including commissions, incentive bonuses and performance bonuses. Amounts
deducted and accumulated by the participant are used to purchase shares of
Common Stock at the end of each purchase period. The price of stock purchased
under the 1997 Purchase Plan is 85% of the lower of the fair market value of the
Common Stock at the beginning of the offering period or at the end of the
purchase period. The maximum number of shares a participant may purchase during
a single offering period is determined by dividing $25,000 by the fair market
value of a share of the Company's Common Stock on the first day of the offering
period. In the event the fair market value at the end of a purchase period is
less than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. Participants
may end their participation at any time during an offering period, and they will
be paid their payroll deductions to date. Participation ends automatically upon
termination of employment with the Company.

Rights granted under the 1997 Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the 1997 Purchase Plan.

The 1997 Purchase Plan provides that, in the event of a merger of the
Company with or into another corporation or a sale of substantially all of the
Company's assets, each outstanding option may be assumed or substituted for by
the successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding options, the offering period then in progress
will be shortened and a new purchase date will be set so that shares of Common
Stock are purchased with the participant's accumulated payroll deductions prior
to the effective date of such transaction.

The Board of Directors has the authority to amend or terminate the 1997
Purchase Plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 1997 Purchase Plan. Unless sooner terminated
by the Board of Directors, the 1997 Purchase Plan will terminate on April 9,
2007.

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<PAGE> 35

CERTAIN TRANSACTIONS

On December 31, 1995 and April 17, 1996, the Company borrowed $49,472 and
$100,000, respectively, from Curtis Faith, the Company's Chairman of the Board,
pursuant to demand promissory notes which bore interest at 6% per year. In
addition, on each of April 25, 1996 and May 14, 1996, the Company borrowed
$100,000 from Mr. Faith, pursuant to 8.5% promissory notes. These notes were
repaid by the Company in July 1996. From September 1992 to February 1995, the
Company made royalty payments of $5,000 per month to Efficient Field Service
Corporation, a company 50% owned by Mr. Faith and 50% owned by Mr. Faith's
father.

On November 3, 1995, Peter Pitsker, the Company's interim President and
Chief Operating Officer and a director of the Company, invested $83,000 in a 6%
Convertible Promissory Note financing of the Company. In addition, Mr. Pitsker
loaned $100,000 to the Company on May 6, 1996 pursuant to an 8.5% promissory
note. This note was repaid by the Company in July 1996. On June 11, 1996, the
Company also granted to Mr. Pitsker a warrant to purchase up to 2,000 shares of
Common Stock. The warrant is exercisable until July 2001 at a per share exercise
price of $5.00. In addition, in May 1997, in connection with Mr. Pitsker's
service as the Company's Interim President and Chief Operating Officer, the
Company granted TechnoManagement, Inc., a company owned by Mr. Pitsker, an
option to purchase up to 15,600 shares of Common Stock at a price of $4.25 per
share. 10,400 shares of Common Stock represented by this option vested
immediately, with the remainder vesting at a rate of 2,600 shares per month each
month during which Mr. Pitsker serves as the Company's Interim President and
Chief Operating Officer. Moreover, the Company has agreed to pay
TechnoManagement, Inc. $7,000 per month during which Mr. Pitsker serves in such
capacity. See "Notes to Condensed Financial Statements."

On May 23, 1996 and June 5, 1996, Jerry Brooks, Vice President of Strategic
Accounts of the Company, loaned $160,000 and $190,000, respectively, to the
Company pursuant to 8.5% promissory notes that were due 15 months from the date
of issue. These notes were repaid in July 1996. In addition, on June 11, 1996,
the Company granted Mr. Brooks a warrant to purchase up to 7,000 shares of
Common Stock. The warrant is exercisable until June 2001 at a per share exercise
price of $5.00.

Curtis Faith, the Company's Chairman of the Board, and Peter Pitsker,
interim President and Chief Operating Officer, are eligible to receive rights to
purchase shares of Common Stock pursuant to the Company's Contingent Rights
Plan. In the event that the Company achieves total revenues for the year ended
December 31, 1997 in excess of $12,000,000 and a net loss of $2,500,000 or less
for that year, Messrs. Faith and Pitsker would receive rights to purchase
123,687 and 5,877 shares of Common Stock, respectively. In the event that the
Company achieves total revenues for the year ended December 31, 1998 in excess
of $18,000,000 and pre-tax profits of at least $2,730,000 for that year, Messrs.
Faith and Pitsker would receive rights to purchase 229,705 and 10,915 shares of
Common Stock, respectively. See "Contingent Stock Issuance."

The Company and American Technology Corporation ("American") entered into a
Solution Provider Agreement dated October 4, 1996 pursuant to which American
will assist in the integration of the Company's Arsenal product following its
release. Mr. Swamy, a director of the Company, is President of American. The
Company believes that its negotiations with American have been held on an
arm-length basis. The Company's Solution Provider Agreements with its
third-party integrators grant a non-exclusive, non-transferable license to
implement Arsenal. Such agreements, including the agreement with American,
provide for standard pricing licensing terms, payment terms and support, among
other things.

The Company is negotiating a Settlement Agreement and Mutual Release with
its former Chief Operating Officer, Richard Mellor, pursuant to which it is
expected that the Company will agree to pay Mr. Mellor $8,334 per month, less
applicable withholding through July 31, 1997, and to continue to provide Mr.
Mellor with medical insurance benefits through such time. The Company expensed
the entire amount of these costs, which amounted to approximately $85,000, in
the first quarter of 1997. In addition, in connection with such Agreement, the
Company expects to loan Mr. Mellor $75,000 pursuant to a Note for the purpose of
exercising options which were previously granted to him. It is expected that
pursuant to a Security Agreement to be entered into between the Company and Mr.
Mellor that Mr. Mellor's obligations pursuant to such Note

35
<PAGE> 36

will be secured by certain shares of Common Stock of the Company held by Mr.
Mellor. The Company expects to agree that it shall have no recourse against Mr.
Mellor in connection with the Note, and shall only proceed against the
collateral securing the Note in the event of default.

The Company's initial public offering was underwritten and this Offering is
being underwritten by H.J. Meyers & Co., Inc., a firm that also serves as a
market maker with regard to the Company's Common Stock. Patrick Grady, a
director of the Company serves as the Managing Director, Venture Capital of H.J.
Meyers & Co., Inc. In addition to an underwriting discount of $1,145,525, in
connection with the Company's initial public offering, the Company paid H.J.
Meyers & Co., Inc. a non-accountable expense allowance of $343,657.50 and
$10,000 related to the publishing of a "tombstone" notice. In addition, in
connection with the Company's initial public offering, the Company issued to
H.J. Meyers & Co., Inc., a warrant to purchase up to 200,000 shares of the
Company's Common Stock at a price of $7.75 per share at any time during the
four-year period commencing on June 21, 1997. See "Underwriting."

The Company believes that the above-referenced transactions were made on
terms no less favorable to the Company than those available from unaffiliated
parties. All future transactions by the Company with officers, directors, 5%
stockholders and their affiliates will be entered into only if the Company
believes that such transactions are reasonably expected to benefit the Company
and the terms of such transactions are no less favorable to the Company than
could be obtained from unaffiliated parties.

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<PAGE> 37

PRINCIPAL STOCKHOLDERS

The following table sets forth as of May 31, 1997 information relating to
the beneficial ownership of the Company's Common Stock by each person known by
the Company to be the beneficial owner of more than five percent (5%) of the
outstanding shares of Common Stock, by each director and nominee for director,
by each of the executive officers named in the Summary Compensation Table, and
by all directors and executive officers as a group. Unless otherwise indicated,
all persons named as beneficial owners of Common Stock have sole voting power
and sole investment power with respect to the shares indicated as beneficially
owned.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
---------------------
NO. OF SHARES BEFORE AFTER
NAME BENEFICIALLY OWNED OFFERING OFFERING
- ---------------------------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Curtis Faith(1)........................................... 447,020 13.7% 9.8%
2246 Willowbend
Genoa, Nevada 89411
Edward Esber(2)........................................... 46,000 1.4% 1.0%
13430 Country Way
Los Altos Hills, CA 94022
Patrick Grady(3).......................................... 5,000 * *
2812 Laguna
San Francisco, CA 94123
Joe Marengi(4)............................................ -- * *
Dell Computer Corporation
1 Dell Way
Round Rock, TX 78682
Peter Pitsker(5).......................................... 143,893 4.4% 3.1%
925 Vista Lago Way
Boulder City, NV 89005
Shekar Swamy(6)........................................... 10,416 * *
29 Cedar Meadow Lane
Media, PA 19063
All directors and officers as a group (10 people)(7)...... 734,535 22.5% 15.8%
</TABLE>

- ---------------
* Less than one percent (1%).

(1) Mr. Faith has agreed, for a period of three years, to vote all of his shares
for the election of two nominees to the Board of Directors identified by
H.J. Meyers & Co., Inc.

(2) Includes 20,000 shares held by the Esber Family Trust and 5,000 shares
issuable upon exercise of stock options within 60 days of May 31, 1997.

(3) Represents 5,000 shares issuable upon exercise of stock options within 60
days of May 31, 1997. Mr. Grady currently serves as Managing Director,
Venture Capital, of H.J. Meyers & Co., Inc. He disclaims any beneficial
ownership of any shares beneficially owned by H.J. Meyers & Co., Inc.

(4) Mr. Marengi was granted options to purchase 40,000 shares of Common Stock at
a price per share of $4.00 in July 1997. These options vest in accordance
with the standard terms of options granted pursuant to the Company's 1996
Director Option Plan.

(5) Includes 120,290 shares held by the Pitsker Revocable Living Trust dated
9-11-85, 8,003 shares issuable upon exercise of stock options and warrants
within 60 days of May 31, 1997, and 15,600 shares issuable upon exercise of
stock options within 60 days of May 31, 1997 held by TechnoManagement, Inc.,
a Company owned by Mr. Pitsker.

(6) Includes 5,416 shares issuable upon exercise of stock options within 60 days
of May 31, 1997.

(7) Includes 76,275 shares issuable upon exercise of stock options within 60
days of May 31, 1997.

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<PAGE> 38

DESCRIPTION OF CAPITAL STOCK

Upon the closing of the sale of the shares of Common Stock offered hereby,
the authorized capital stock of the Company will consist of 10,000,000 shares of
Common Stock, $0.001 par value, and 5,000,000 shares of Preferred Stock, $0.001
par value.

COMMON STOCK

As of March 31, 1996, there were approximately 3,184,506 shares of Common
Stock outstanding. The holders of Common Stock are entitled to one vote per
share on all matters to be voted on by stockholders. Subject to preferences that
may be applicable to any outstanding Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors in its discretion out of
funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior rights of Preferred Stock, if any, then
outstanding. The Common Stock has no preemptive or other subscription rights and
there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. All of the outstanding shares of Common Stock are fully
paid and nonassessable.

PREFERRED STOCK

The Company is authorized to issue up to 5,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to determine the powers,
preferences and rights and the qualifications, limitations or restrictions
granted to or imposed upon any wholly unissued series of undesignated Preferred
Stock, as well as to fix the number of shares constituting any series and the
designations of such series, without any further vote or action by the
stockholders. The issuance of any Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of the Common Stock. At present, the Company has no plans
to issue any shares of Preferred Stock.

WARRANTS

In connection with the Company's initial public offering, the Company
issued to H.J. Meyers & Co., Inc., the underwriter of such offering, a warrant
to purchase for investment a maximum of 200,000 shares of Common Stock. This
warrant becomes exercisable for a four-year period commencing June 21, 1997. The
exercise price of this warrant is $7.75 per share. The warrant will not be
transferable prior to its exercise date except to H.J. Meyers & Co., Inc. The
warrant contains anti-dilution provisions providing adjustment in the event of
any recapitalization, stock dividend, stock split or similar transaction. The
warrant does not entitle H.J. Meyers & Co., Inc. to any rights as a stockholder
of the Company until such warrant is exercised and shares are purchased
thereunder. The warrant and the shares of Common Stock thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act. The Company has agreed that, if it shall cause to be filed with
the Securities and Exchange Commission a registration statement, the Underwriter
shall have the right during the four-year period commencing on June 21, 1996 to
include in such registration statement the warrant and the shares of Common
Stock issuable upon its exercise at no expense to the Underwriter. Additionally,
the Company has agreed that, upon written request by a holder or holders of 50%
or more of the warrant which is made during the exercise period of the warrant,
the Company will, on two separate occasions, register the warrant and the shares
of Common Stock issuable upon exercise thereof. The initial such registration
will be at the Company's expense and the second such registration will be at the
expense of the holder(s) of the warrant.

In connection with this Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 140,000 shares
of Common Stock. The Underwriter's Warrant and the underlying shares are being
registered by means of the Registration Statement of which this Prospectus forms
a part. The Underwriter's Warrant will be exercisable for a four-year period
commencing one year from the

38
<PAGE> 39

effective date of the Registration Statement relating to the shares of Common
Stock offered hereby. The exercise price of such warrant will be $5.075 per
share. The Underwriter's Warrant will be restricted from sale, assignment or
hypothecation prior to its exercise date except to officers of the Underwriter
and members of the selling group and officers and partners thereof. The
Underwriter's Warrant will contain anti-dilution provisions providing adjustment
in the event of any recapitalization, stock dividend, stock split or similar
transaction. The Underwriter's Warrant will not entitle the Underwriter to any
rights as a stockholder of the Company until such warrant is exercised and
shares are purchased thereunder. The Underwriter's Warrant and the shares of
Common Stock thereunder may not be offered for sale except in compliance with
the applicable provisions of the Securities Act. The Company has agreed that, if
it shall cause to be filed with the Securities and Exchange Commission a
registration statement, the Underwriter shall have the right during the
four-year period commencing on the date of this Prospectus to include in such
registration statement the Underwriter's Warrant and the shares of Common Stock
issuable upon its exercise at no expense to the Underwriter. Additionally, the
Company has agreed that, upon written request by a holder or holders of 50% or
more of the Underwriter's Warrant which is made during the exercise period of
such warrant, the Company will, on two separate occasions, register such warrant
and the shares of Common Stock issuable upon exercise thereof. The initial such
registration will be at the Company's expense and the second such registration
will be at the expense of the holder(s) of the Underwriter's Warrant. See
"Underwriting."

In addition, the Company has issued to Peter Pitsker, the Company's Interim
President and Chief Operating Officer and a Director of the Company; Jerry
Brooks, an employee of the Company, and Wilson Sonsini Goodrich & Rosati,
Professional Corporation ("WSGR"), the Company's corporate counsel, warrants to
purchase a maximum of 2,000, 7,000 and 3,000 shares of Common Stock,
respectively. The warrant issued to WSGR is exercisable at any time prior to the
fourth anniversary of its execution and the warrants issued to Messrs. Pitsker
and Brooks are exercisable at any time prior to the fifth anniversary of their
execution. The exercise price of each warrant is $5.00 per share. The Company
also issued in July 1997, to Oxbow LLC, a Wyoming limited liability company
("Oxbow"), a warrant to purchase up to 50,000 shares of Common Stock at a price
per share of $4.125 at any time prior to the fifth anniversary of the execution
of such warrant. The exercise price of the Oxbow warrant is equal to the last
sales price of the Company's Common Stock as quoted by Nasdaq for the date of
execution of the Oxbow warrant. In connection with the issuance of the Oxbow
warrant, the Company granted certain registration rights, including piggyback
registration rights to the holder. These warrants contain anti-dilution
provisions providing adjustment in the event of any recapitalization, stock
dividend, stock split or similar transaction. These warrants do not entitle the
holders thereof to any rights as stockholders of the Company until they are
exercised and shares are purchased thereunder. These warrants and the shares of
Common Stock thereunder may not be offered for sale except in compliance with
the applicable provisions of the Securities Act. See "Certain Transactions" and
"Legal Matters."

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.

39
<PAGE> 40

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of Common Stock in the public market or
the perception that such sales could occur could materially adversely affect the
market price of the Common Stock and the ability of the Company to raise capital
in the future.

Upon completion of this Offering, the Company will have outstanding
approximately 4,584,506 shares of Common Stock, assuming no exercise of the
Underwriter's over-allotment option, the Underwriter's Warrant and no exercise
of outstanding options or warrants. The 1,400,000 shares of Common Stock that
are sold by the Company to the public in this Offering and an additional
2,291,050 shares will be freely tradeable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act.

The remaining 893,456 shares of Common Stock outstanding upon completion of
this Offering are subject to lock-up agreements, providing that the holders of
such shares will not offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of the shares of stock owned by them or that could
be purchased by them through the exercise of options to purchase stock of the
Company prior to June 1998 without the prior written consent of the Underwriter.

The Company has agreed not to offer, issue, sell, contract to sell, grant
any option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any rights to acquire Common Stock prior to the
date that is 12 months from the date of this Prospectus without the prior
written consent of the Underwriter, subject to certain exceptions. See
"Underwriting."

The Company has filed a registration statement on Form S-8 under the
Securities Act covering 477,973 shares of Common Stock reserved for issuance
under its 1994 Stock Plan, 1996 Stock Plan and 1996 Director Option Plan. In
addition, the Company intends to file a registration statement on Form S-8 to
register the sale of approximately 672,117 additional shares of Common Stock
issuable pursuant to the Company's 1996 Stock Plan, 1996 Director Option Plan
and 1997 Employee Stock Purchase Plan. Accordingly, shares registered under such
registration statements will, subject to volume limitations applicable to
affiliates of the Company, be available for sale in the open market, subject to
vesting restrictions and the lock-up agreements described above. In addition,
the Company's Board of Directors has authorized the issuance of up to 1,000,000
shares of the Company's Common Stock upon the Company achieving certain
milestones, and has issued warrants to purchase 262,000 shares of Common Stock
(402,000 upon the closing of this Offering).

40
<PAGE> 41

UNDERWRITING

The Underwriter has agreed subject to the terms and conditions of the
Underwriting Agreement between the Company and the Underwriter to purchase from
the Company 1,400,000 shares of Common Stock. The underwriting discount set
forth on the cover page of this Prospectus will be allowed to the Underwriter at
the time of delivery to the Underwriter of the shares so purchased.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
NAME OF UNDERWRITER PURCHASED
------------------------------------------------------------------ ---------
<S> <C>
H.J. Meyers & Co., Inc. .......................................... 1,400,000
</TABLE>

The Underwriter has advised the Company that it proposes to offer the
shares to the public at an offering price of $3.625 per share and that the
Underwriter may allow certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") a concession of not in excess
of $0.18 per share. After the Offering, the public offering price and concession
may be changed.

The Company has granted to the Underwriter an option, exercisable during
the 30 business-day period from the date of this Prospectus, to purchase up to a
maximum of 210,000 additional shares on the same terms set forth above. The
Underwriter may exercise such right only to satisfy over-allotments in the sale
of the shares.

The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the total proceeds of the Offering, or $152,250
($175,088 if the Underwriter exercises the over-allotment option in full). In
addition to the Underwriter's commissions and the Underwriter's non-accountable
expense allowance, the Company is required to pay the costs of qualifying the
shares of Common Stock, under federal and state securities laws, together with
legal and accounting fees, printing and other costs in connection with this
Offering, estimated to total approximately $575,000.

At the closing of this Offering, the Company will issue to the Underwriter
the Underwriter's Warrant to purchase for investment a maximum of 140,000 shares
of Common Stock. The Underwriter's Warrant and the underlying shares are being
registered by means of the Registration Statement of which this Prospectus forms
a part. The Underwriter's Warrant will be exercisable for a four-year period
commencing one year from the date of this Prospectus. The exercise price of the
Underwriter's Warrant will be $5.075 per share. The Underwriter's Warrant will
be restricted from sale, assignment or hypothecation prior to its exercise date
except to officers of the Underwriter and members of the selling group and
officers and partners thereof. The Underwriter's Warrant will contain
anti-dilution provisions providing adjustment in the event of any
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The Underwriter's Warrant does not entitle the Underwriter to any
rights as a stockholder of the Company until such Warrant is exercised and the
shares of Common Stock are purchased thereunder. The Underwriter's Warrant and
the shares of Common Stock thereunder may not be offered for sale except in
compliance with the applicable provisions of the Securities Act. The Company has
agreed that, if it shall cause to be filed with the Securities and Exchange
Commission either an amendment to the Registration Statement of which this
Prospectus is a part or a separate registration statement, the Underwriter shall
have the right during the five-year period commencing on the date of this
Prospectus to include in such amendment or Registration Statement the
Underwriter's Warrant and the shares of Common Stock issuable upon its exercise
at no expense to the Underwriter. Additionally, the Company has agreed that,
upon written request by a holder or holders of 50% or more of the Underwriter's
Warrant which is made during the exercise period of the Underwriter's Warrant,
the Company will on two separate occasions, register the Underwriter's Warrant
and the shares of Common Stock issuable upon exercise thereof. The initial such
registration will be at the Company's expense and the second such registration
will be at the expense of the holder(s) of the Underwriter's Warrant.

For the period during which the Underwriter's Warrant is exercisable, the
holder or holders thereof will have the opportunity to profit from a rise in the
market value of the Company's Common Stock, with a resulting dilution in the
interests of the other stockholders of the Company. The holder or holders of the
Underwriter's Warrant can be expected to exercise it at a time when the Company
would, in all likelihood, be

41
<PAGE> 42

able to obtain any needed capital from an offering of its unissued Common Stock
on terms more favorable to the Company than those provided for in the
Underwriter's Warrant. Such facts may materially adversely affect the terms on
which the Company can obtain additional financing. To the extent that the
Underwriter realizes any gain from the resale of the Underwriter's Warrant or
the securities issuable thereunder, such gain may be deemed additional
underwriting compensation under the Securities Act.

The Company has agreed to enter into a consulting agreement with the
Underwriter under the terms of which the Underwriter has agreed to perform
consulting services related to corporate finance and will be paid a
non-refundable fee of $6,000 per month for 12 months. The Company has agreed to
pay the Underwriter the entire one year fee upon the closing of this Offering.

The Company has agreed that, for a period of 12 months from the date of
this Prospectus, it will not sell any securities, with the exception of the
shares of Common Stock issued upon exercise of options granted under the
Company's Stock Plans, without the Underwriter's prior written consent, which
consent shall not be unreasonably withheld. In addition, for a period of 24
months from the date of this Prospectus, the Company has agreed not to issue any
shares of Preferred Stock or sell or issue any securities pursuant to Regulation
S under the Securities Act without the Underwriter's prior written consent.

Directors and officers of the Company are expected to be subject to lock-up
agreements under which they will agree not to sell or dispose of any shares of
Common Stock issued to them directly by the Company, for a period of 13 months
after the date of this Prospectus, without prior written consent of the
Underwriter.

The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.

The Company's initial public offering was underwritten by the Underwriter,
and the Underwriter also serves as a market maker with regard to the Company's
Common Stock. Patrick Grady, a director of the Company, serves as the Managing
Director, Venture Capital of the Underwriter. In addition to an underwriting
discount of $1,145,525, in connection with the Company's initial public
offering, the Company paid the Underwriter a non-accountable expense allowance
of $343,658 and $10,000 related to the publishing of a "tombstone" notice. In
addition, in connection with the Company's initial public offering, the Company
issued to the Underwriter a warrant to purchase up to 200,000 shares of the
Company's Common Stock at a price of $7.75 per share at any time during the
four-year period commencing on June 21, 1997.

In connection with its initial public offering, the Company agreed that
until June 1999, the Underwriter shall have the right to designate two members
to the Company's Board of Directors, provided that the designees are acceptable
to the Company. Edward Esber and Patrick Grady are the current designees of the
Underwriter pursuant to this agreement. In connection with this Offering, the
Company has agreed with the Underwriter that Messrs. Esber and Grady, or any
successors designated by them, will continue to serve on the Company's Board of
Directors, subject to stockholder approval, until the date that is 36 months
from the closing of this Offering.

The Underwriter has advised the Company that the Underwriter does not
intend to confirm sales to any account over which they exercise discretionary
authority.

42
<PAGE> 43

documents filed with the Commission or any other regulatory agency,
self-regulatory organization or securities exchange, sales or shipments of
Arsenal, minutes to Board of Director and stockholder meetings, audits conducted
for the Company, documents pertaining to any due diligence conducted as part of
a stock issuance and a list of employees, officers and directors of the Company.

In connection with the Offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriter may overallot the Offering, creating a syndicate
short position. In addition, the Underwriter may bid for and purchase shares of
Common Stock in the open market to cover syndicate short positions or to
stabilize the price of the Common Stock. Finally, the underwriting syndicate may
reclaim selling concessions from syndicate members in the Offering, if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilizing transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriter is not required to engage in these activities,
and may end any of these activities at any time.

The Underwriter has advised the Company that the Underwriter does not
intend to confirm sales to any account over which they exercise discretionary
authority.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California ("WSGR"). In May 1996, the Company issued a warrant to WSGR
(the "WSGR Warrant") to purchase a maximum of 3,000 shares of Common Stock. The
WSGR Warrant is exercisable for a four-year period commencing from the date of
its issuance. The exercise price of the WSGR Warrant is $5.00 per share. The
WSGR Warrant contains anti-dilution provisions providing adjustment in the event
of any recapitalization, stock dividend, stock split or similar transaction. The
WSGR Warrant does not entitle WSGR to any rights as a stockholder of the Company
until such Warrant is exercised and shares are purchased thereunder. The WSGR
Warrant and the shares of Common Stock thereunder may not be offered for sale
except in compliance with the applicable provisions of the Securities Act. See
"Description of Capital Stock --Warrants."

Certain legal matters in connection with the Offering will be passed upon
for the Underwriter by Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation, Beverly Hills, California.

43
<PAGE> 44

EXPERTS

The financial statements of the Company at December 31, 1996 and for each
of the two years in the period ended December 31, 1996, appearing in the
Prospectus and the Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon (which contains
an explanatory paragraph which raises substantial doubt about the Company's
ability to continue as a going concern) 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 is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company's Common
Stock is quoted for trading on the Nasdaq SmallCap Market and reports, proxy
statements and other information concerning the Company may also be inspected at
the offices of the National Association of Securities Dealers, 1735 K Street,
N.W., Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, omits
certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Securities and Exchange
Commission pursuant to the Securities Act and the rules and regulations of the
Securities and Exchange Commission thereunder. For further information with
respect to the Company and the shares of Common Stock, reference is made to the
Registration Statement and the exhibits and schedules thereto. The Registration
Statement, including exhibits thereto, as well as the Company's Exchange Act
filings, may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 75
Park Place, Room 1400, New York, New York 10007 and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies
may be obtained at the prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington, D.C. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in its entirety by such
reference. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the site is
http:/www.sec.gov.

44
<PAGE> 45

BOREALIS TECHNOLOGY CORPORATION
------------------------

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial Statements
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets as of December 31, 1995 and 1996....................................... F-3
Statements of Operations for the years ended December 31, 1995 and 1996............... F-4
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995 and
1996................................................................................ F-5
Statements of Cash Flows for the years ended December 31, 1995 and 1996............... F-6
Notes to Financial Statements......................................................... F-7
Condensed Balance Sheets as of December 31, 1996 and March 31, 1997 (unaudited)....... F-15
Condensed Statements of Operations (unaudited) for the three months ended March 31,
1996 and 1997....................................................................... F-16
Condensed Statements of Cash Flows (unaudited) for the three months ended March 31,
1996 and 1997....................................................................... F-17
Notes to Condensed Financial Statements (unaudited)................................... F-18
</TABLE>

F-1
<PAGE> 46

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Borealis Technology Corporation

We have audited the accompanying balance sheets of Borealis Technology
Corporation (the "Company") as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
years ended December 31, 1995 and 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 Borealis Technology
Corporation at December 31, 1995 and 1996, and the results of its operations and
its cash flows for the years ended December 31, 1995 and 1996, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming Borealis
Technology Corporation will continue as a going concern. As discussed in Note 1
to the financial statements, the Company's recurring operating losses and
uncertainty with regard to future revenues from its new product raise
substantial doubt about its ability to continue as a going concern. Management's
plans as to these matters are also discussed in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

/s/ Ernst & Young LLP

Reno, Nevada
January 20, 1997

F-2
<PAGE> 47

BOREALIS TECHNOLOGY CORPORATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 158,840 $ 3,921,506
Accounts receivable.............................................. 36,188 2,000
Other current assets............................................. 7,080 136,073
--------- -----------
Total current assets..................................... 202,108 4,059,579
Property and equipment, net........................................ 128,989 856,653
Long-term investment............................................... -- 650,000
Other assets....................................................... -- 40,850
--------- -----------
Total assets............................................. $ 331,097 $ 5,607,082
========= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................. $ 82,310 $ 258,377
Accrued employee compensation and benefits....................... 75,218 298,492
Other accrued liabilities........................................ 43,206 60,375
Deferred revenue................................................. 129,028 81,550
Note payable to stockholder...................................... 221,311 --
Current portion of capital lease obligations..................... 25,944 178,814
--------- -----------
Total current liabilities................................ 577,017 877,608
Capital lease obligations.......................................... 29,628 88,800
Convertible promissory notes....................................... 324,000 --
Long-term promissory note.......................................... -- 650,000
--------- -----------
Total liabilities........................................ 930,645 1,616,408
--------- -----------
Commitments and contingency (Notes 1 and 10)
Stockholders' equity (deficit):
Preferred stock, $.001 par value:
Authorized shares: 5,000,000.................................. -- --
Issued and outstanding -- none
Common stock, $.001 par value:
Authorized shares: 10,000,000
Issued and outstanding shares -- 651,658 at 12/31/95 and
3,184,506 at 12/31/96........................................ 652 3,185
Additional paid-in capital......................................... 162,471 10,777,241
Accumulated deficit................................................ (762,671) (6,789,752)
--------- -----------
Total stockholders' equity (deficit)..................... (599,548) 3,990,674
--------- -----------
Total liabilities and stockholders' equity (deficit)..... $ 331,097 $ 5,607,082
========= ===========
</TABLE>

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

F-3
<PAGE> 48

BOREALIS TECHNOLOGY CORPORATION

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
---------- -----------
<S> <C> <C>
Revenues:
Licenses......................................................... $ 397,207 $ 35,170
Service and maintenance.......................................... 338,945 141,771
--------- -----------
Total revenues........................................... 736,152 176,941
Cost of revenues:
Licenses......................................................... 69,538 2,310
Service and maintenance.......................................... 144,787 63,830
--------- -----------
Total cost of revenues................................... 214,325 66,140
--------- -----------
Gross margin....................................................... 521,827 110,801
Operating expenses:
Sales and marketing.............................................. 187,525 2,743,778
Research and development......................................... 565,276 2,451,544
General and administrative....................................... 332,671 988,092
--------- -----------
Total operating expenses................................. 1,085,472 6,183,414
--------- -----------
Loss from operations..................................... (563,645) (6,072,613)
Interest expense................................................... (29,147) (134,107)
Interest income.................................................... -- 179,639
--------- -----------
Net loss................................................. $ (592,792) $(6,027,081)
========= ===========
Net loss per share................................................. $ (0.64) $ (3.11)
========= ===========
Shares used in computing net loss per share........................ 931,758 1,935,984
========= ===========
</TABLE>

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

F-4
<PAGE> 49

BOREALIS TECHNOLOGY CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY(DEFICIT)
--------- ------ ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994......... 597,569 $ 598 $ 39,925 $ (169,879) $ (129,356)
Issuance of common shares for
compensation..................... 1,682 2 2,598 -- 2,600
Sale of common shares............... 52,407 52 119,948 -- 120,000
Net loss............................ -- -- -- (592,792) (592,792)
--------- ------ ----------- ----------- ----------
Balances at December 31, 1995......... 651,658 652 162,471 (762,671) (599,548)
Issuance of common stock in public
offering, net of issuance costs
of $1,865,678.................... 2,291,050 2,291 9,587,281 -- 9,589,572
onversion of promissory notes....... 241,798 242 1,027,489 -- 1,027,731
Net loss............................ -- -- -- (6,027,081) (6,027,081)
--------- ------ ----------- ----------- ----------
Balances at December 31, 1996......... 3,184,506 $3,185 $10,777,241 $(6,789,752) $ 3,990,674
========= ====== =========== =========== ==========
</TABLE>

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

F-5
<PAGE> 50

BOREALIS TECHNOLOGY CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................... $(592,792) $(6,027,081)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 76,065 157,387
Common stock issued for compensation............................. 2,600 --
Changes in operating assets and liabilities:
Accounts receivable........................................... 40,847 34,188
Other assets.................................................. (2,913) (169,843)
Accounts payable.............................................. 67,271 176,067
Accrued employee compensation and benefits.................... 30,305 223,274
Other accrued liabilities..................................... 15,918 45,330
Deferred revenue.............................................. 90,803 (47,478)
--------- -----------
Net cash used in operating activities.............................. (271,896) (5,608,156)
INVESTING ACTIVITIES
Purchase of investment............................................. -- (650,000)
Purchases of property and equipment................................ (98,087) (515,707)
Proceeds from disposal of property and equipment................... -- 6,602
--------- -----------
Net cash used in investing activities.............................. (98,087) (1,159,105)
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net........................ 120,000 9,589,572
Proceeds from issuance of convertible promissory notes............. 324,000 675,570
Proceeds from issuance of long-term promissory note................ -- 650,000
Proceeds from issuance of notes payable to stockholder and related
parties.......................................................... 154,472 750,000
Payment on notes payable to stockholder and related parties........ (105,000) (971,311)
Payments under capital lease obligations........................... (12,085) (163,904)
--------- -----------
Net cash provided by financing activities.......................... 481,387 10,529,927
--------- -----------
Net increase in cash and cash equivalents.......................... 111,404 3,762,666
Cash and cash equivalents at beginning of year..................... 47,436 158,840
--------- -----------
Cash and cash equivalents at end of year........................... $ 158,840 $ 3,921,506
========= ===========
Cash paid during the year for:
Interest......................................................... $ 6,078 $ 173,087
Income taxes..................................................... -- --
</TABLE>

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

F-6
<PAGE> 51

BOREALIS TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

Borealis Technology Corporation (the "Company") was originally incorporated
in Nevada in 1988. (See Note 5.) The Company develops, markets and supports
mobile and client/server software for the sales force automation market.

BASIS OF PRESENTATION

The financial statements have been prepared on a going concern basis. The
Company has incurred significant losses in 1995 and 1996 and at December 31,
1996 has an accumulated deficit of $6,789,752. In addition, the Company
generated substantially all of its historical revenue from sales of products it
no longer sells and will commercially introduce its new product no earlier than
the second quarter of 1997. In the absence of receiving additional funding, the
Company anticipates that its existing capital resources and cash generated from
operations, if any, will be sufficient to meet the Company's cash requirements
only through the end of June 1997 at its anticipated level of operations. The
Company's future capital requirements will depend upon numerous factors,
including the amount of revenues generated from operations, the cost of the
Company's sales and marketing activities and the progress of the Company's
research and development activities, none of which can be predicted with
certainty. The Company anticipates filing a registration statement to raise
approximately $5.4 million in the second or third quarter of 1997. The Company
believes that proceeds from that offering together with existing capital
resources and cash generated from operations, if any, will be sufficient to meet
the Company's cash requirements for at least the next 12 months at its
anticipated level of operations, which includes increases in expenses,
particularly sales and marketing expenses, and costs of revenues. However, the
Company may seek additional funding during the next 12 months and will likely
seek additional funding after such time. There can be no assurance that any
additional financing will be available on acceptable terms, or at all, when
required by the Company. Moreover, if additional financing is not available, the
Company could be required to reduce or suspend its operations or seek an
acquisition partner. The Company has experienced in the past, and may continue
to experience, operational difficulties and delays in its future product
enhancement and product development efforts due to working capital constraints.
Any such difficulties or delays could have a material adverse effect on the
Company's business, financial condition and results of operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company generally recognizes license revenues upon execution of a
licensing agreement provided there are no significant post delivery obligations
and collection is deemed probable. Royalty revenues are recognized based on the
reporting of usage of certain of the Company's products by third party
manufacturers or end users. Service revenues from training and consulting are
recognized as services are performed while service revenues from customer
maintenance contracts are recognized ratably over the term of the support
period, which is one to three years. At December 31, 1995 and 1996, the
Company's deferred revenue related to maintenance contracts for products sold
during 1994 and 1995.

RESEARCH AND DEVELOPMENT

Research and development expenditures are generally charged to operations
as incurred.

Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed" ("SFAS
86"), requires that software development costs be capitalized once the
technological feasibility of the software product has been established. To date,
such

F-7
<PAGE> 52

BOREALIS TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

amounts have been insignificant and have been charged to research and
development expenses in the period incurred.

ADVERTISING

Advertising costs are charged in the period the costs are incurred.
Advertising expense totaled $9,394 and $389,517, for the years ended December
31, 1995 and 1996, respectively.

INCOME TAXES

The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which
requires the Company to record deferred income taxes for temporary differences
that are reported in different years for financial reporting and for income tax
purposes, and classifies tax liabilities and assets into current and non-current
amounts based on the classification of the related assets and liabilities.

STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed in Note 7, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("Statement
123") requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

COMPUTATION OF NET LOSS PER SHARE

Except as noted below, net loss per common share is computed using the
weighted average number of common shares outstanding during each period and
common equivalent shares from common stock options and warrants are excluded
from the computation because their effect is antidilutive. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares issued by the Company at prices below the initial public
offering price during the twelve-month period prior to the offering have been
included in the computation of net loss per share for the year ended December
31, 1995 as if they were outstanding for the entire period (using the treasury
stock method and the proposed public offering price). Also included in the
computation of net loss per share for the year ended December 31, 1995 was the
conversion of the convertible promissory notes. (See Note 5.)

Fully diluted and primary loss per common share are the same amounts for
each of the periods presented.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The Company invests
its excess cash principally in mutual funds which focus on high quality,
short-term money market securities of all types.

PROPERTY AND EQUIPMENT

Depreciation and amortization is calculated using the straight-line method
over the estimated useful lives of three to five years. Assets under capital
leases are amortized over the asset life.

F-8
<PAGE> 53

BOREALIS TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Leasehold improvements at December 31, 1996 include $134,081 of
improvements relating to a new facility that will be occupied in 1997. (See Note
10.) Amortization of these leasehold improvements will commence upon occupation
of the facility.

During the years ended December 31, 1995 and 1996, the Company financed,
under capital lease obligations, the acquisition of property and equipment for
$54,769 and $375,946, respectively.

SIGNIFICANT CUSTOMERS

Sales are not concentrated geographically. The Company received significant
portions of its revenues from Nortel (14%), Scitex American Corp. (27%) and
Synopsys, Inc. (38%) during 1995 and from Nortel (35%) and Synopsys, Inc. (36%)
during 1996.

USE OF ESTIMATES

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which require the Company's management
to make estimates and assumptions that affect the amounts reported therein.
Actual results could vary from such estimates.

3. PROPERTY AND EQUIPMENT

Property and equipment, at cost, consisted of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Computer equipment........................................... $136,877 $ 690,802
Furniture and equipment...................................... 63,081 260,125
Leasehold improvements....................................... 24,214 158,296
-------- ---------
224,172 1,109,223
Less accumulated depreciation and amortization............... (95,183) (252,570)
-------- ---------
Total property and equipment, net............................ $128,989 $ 856,653
======== =========
</TABLE>

4. LONG-TERM PROMISSORY NOTE

At December 31, 1996, the Company has a promissory note payable to a bank
for $650,000. The note matures on January 11, 1998 and bears interest of 7.55%
per annum. The note is collaterallized by the $650,000 long-term investment
(certificate of deposit) and places certain business and borrowing restrictions
on the Company, including the Company's ability to pay cash dividends.

5. COMMON STOCK

CONVERTIBLE PROMISSORY NOTES

During the period November 1995 through February 1996, the Company issued
unsecured Convertible Promissory Notes (the "Notes") in the aggregate amount of
$999,570 of which $324,000 had been issued by December 31, 1995. The notes bore
interest at 6%. The Notes plus accrued interest converted to 241,798 shares of
common stock upon the effective date of the initial public offering of the
Company's common stock.

REINCORPORATION AND STOCK SPLIT

In May 1996, the Board of Directors and stockholders approved the
reincorporation of the Company in Delaware and a split of the Company's common
stock of 1.294 to one. With the reincorporation, the authorized shares of common
stock were increased to 10,000,000 and the authorized shares of preferred stock

F-9
<PAGE> 54

BOREALIS TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

were established at 5,000,000. All common stock, common equivalent shares, and
per share amounts were adjusted retroactively to give effect to the stock split.

PUBLIC OFFERING

In 1996, the Company sold 2,291,050 shares of common stock in an initial
public offering which generated net proceeds of $9,589,572 after deducting
underwriting discounts and expenses. The Company is using the proceeds to fund
the development of their new product and to fund operations.

WARRANTS

As part of its initial public offering, the Company issued 200,000 warrants
to its underwriter at an exercise price of $7.75, exercisable for 4 years
commencing one year from the effective date of the registration statement, and
3,000 warrants to its legal firm at an exercise price of $5.00, exercisable for
4 years commencing from the date of issuance.

In addition, during 1996 the Company issued 7,000 warrants to an officer
and 2,000 warrants to a director, both at an exercise price of $5.00,
exercisable for 5 years from the execution of the warrant.

6. STOCK OPTION PLANS

STOCK PLANS

The Company's 1994 Stock Plan (the "1994 Plan") provides for the grant of
incentive stock options and nonstatutory stock options or the issuance of the
Company's common stock to employees, directors, and consultants of the Company.
The Company's 1996 Stock Plan (the "1996 Plan") provides for the grant of
incentive stock options to employees and the grant of nonstatutory stock options
and stock purchase rights to employees and consultants of the Company. Both
plans stipulate that the exercise prices cannot be less than the fair market
value of the common stock on the date of grant. A total of 185,786 and 224,304
shares of common stock are reserved for issuance under the 1994 Plan and 1996
Plan, respectively. The vesting and exercise provisions for the plans are
determined by the Board of Directors, with a maximum term for exercise of ten
years. Options granted and shares issued under the 1994 Plan vest over various
periods (grant date to seven years) while options granted under the 1996 Plan
generally vest in two or four year periods.

A summary of the Company's 1994 Plan's stock option activity, and related
information for the years ended December 31 are as follows:

<TABLE>
<CAPTION>
1995 1996
-------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
-------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year............... 54,833 $ 1.55 151,495 $ 2.29
Granted..................................... 96,662 2.71 34,284 2.71
Exercised................................... -- -- -- --
Forfeited................................... -- -- (7,117) 2.71
------- ----- ------- -----
Outstanding-end of year..................... 151,495 $ 2.29 178,662 $ 2.35
======= ===== ======= =====
Exercisable at end of year.................. 47,554 $ 1.55 83,991 $ 1.95
Weighted-average fair value of options
granted during the year................... $ 1.88 $ 2.09
</TABLE>

Exercise prices for options outstanding, under the 1994 Plan, as of
December 31, 1996 ranged from $1.55 to $2.71. The weighted-average remaining
contractual life of those options is 8.4 years.

F-10
<PAGE> 55

BOREALIS TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the Company's 1996 Plan's stock option activity, and related
information for the year ended December 31, 1996 are as follows:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding-beginning of year.............................. -- $ --
Granted.................................................... 146,726 4.14
Exercised.................................................. -- --
Forfeited.................................................. (5,823) 4.00
------- -----
Outstanding-end of year.................................... 140,903 $ 4.15
======= =====
Exercisable at end of year................................. 472 $ 4.00
Weighted-average fair value of options granted during the
year..................................................... $ 2.60
</TABLE>

Exercise prices for options outstanding, under the 1996 Plan, as of
December 31, 1996 ranged from $3.81 to $5.00. The weighted-average remaining
contractual life of those options is 9.6 years.

1996 DIRECTOR OPTION PLAN

The Company's 1996 Director Option Plan (the "Director Plan") provides for
the automatic grant of 20,000 shares of common stock to each non-employee
director and an additional automatic grant of 6,667 shares each year on the day
immediately following the annual stockholder's meeting of the Company, if on
such date he or she has served on the Board for at least three years. A total of
75,000 shares of common stock have been reserved for issuance under the Director
Plan. Each option will have a term of 10 years. The exercise prices of options
will be the fair market value per share of the common stock on the date of
grant.

A summary of the Company's 1996 Director Plan's stock option activity, and
related information for the year ended December 31, 1996 are as follows:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding-beginning of year............................... -- $ --
Granted..................................................... 75,000 4.73
Exercised................................................... -- --
Forfeited................................................... -- --
------ -----
Outstanding-end of year..................................... 75,000 $ 4.73
====== =====
Exercisable at end of year.................................. -- --
Weighted-average fair value of options granted during the
year...................................................... $ 3.01
</TABLE>

Exercise prices for options outstanding as of December 31, 1996 ranged from
$4.50 to $5.00. The weighted-average remaining contractual life of those options
is 9.5 years.

7. STOCK-BASED COMPENSATION

The Company has three stock based compensation plans: the 1994 Stock Plan,
the 1996 Stock Plan, and the 1996 Director Option Plan, all of which are
described in Note 6.

Pro forma information regarding net loss and loss per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995
and 1996, respectively: risk-free interest rates of 6.4% and 6.2%;

F-11
<PAGE> 56

BOREALIS TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

dividend yields of 0% and 0%; volatility factors of the expected market price of
the Company's common stock of .823 and .823; and a weighted-average expected
life of the options of 5.3 and 4.3 years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for years ended December 31 is as follows:

<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Pro forma net loss........................................... $611,113 $6,141,084
Pro forma net loss per share................................. $ .66 $ 3.17
</TABLE>

8. CONTINGENT STOCK

The Company's Board of Directors authorized the issuance of 1,000,000
shares of common stock (the "Contingent Shares") issuable to holders of record
of the Company's common stock and stock options issued by the Company as of the
effective date of the Company's initial public offering ("Participants"),
contingent upon the Company achieving certain milestones. In the event that the
Company achieves total revenues for the year ended December 31, 1997 in excess
of $12,000,000 and a net loss of $2,500,000 or less for that year, then rights
to purchase 350,000 shares of common stock for one dollar per share will be
issued to the Participants. In the event that the Company achieves total
revenues for the year ended December 31, 1998 in excess of $18,000,000 and
pre-tax profits of at least $2,730,000 for that year, then rights to purchase
650,000 shares of common stock for one dollar per share will be issued to the
Participants. The compensation expense related to the contingent stock will be
recorded as operating expenses periodically through the date the contingent
shares are issued when, in the opinion of the Company's management, it becomes
probable that the milestones will be achieved. This expense could adversely
affect results of operations for a number of quarters. If the Company's
management does not determine that it is probable that the shares will be issued
until the milestones are met, it could result in a substantial one-time charge
and a material adverse effect on the Company's operating results.

In addition, rights to purchase all of the unissued contingent shares for
one dollar per share will be issued to the participants upon the occurrence of a
transaction in which control of the company changes hands at a price (excluding
the contingent shares) equal to or greater than approximately: (i) $15 per share
prior to December 31, 1997; or (ii) $30 per share after December 31, 1997 and
prior to December 31, 1998.

9. INCOME TAXES (SECTION 382) LOSS LIMITATIONS

There is no provision for income taxes for the years ended December 31,
1996 and 1995, as the Company has incurred net operating losses.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. The Company uses the cash method of

F-12
<PAGE> 57

BOREALIS TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

accounting for income tax purposes. Significant components of the Company's
deferred tax assets and liabilities are as follows at December 31:

<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts payable and other accruals...................... $ 68,250 $ 209,863
Deferred revenue......................................... 43,870 27,727
Net operating loss carryforwards......................... 115,600 2,061,304
--------- -----------
Total deferred tax assets.................................. 227,720 2,298,894
Valuation allowance........................................ (215,415) (2,261,905)
--------- -----------
Net deferred tax assets.................................... 12,305 36,989
Deferred tax liabilities:
Receivables and prepaid expenses......................... (12,305) (36,989)
--------- -----------
Net deferred tax assets.................................... $ -- $ --
========= ===========
</TABLE>

Based upon the weight of available evidence, which includes the Company's
historical operating losses and the uncertainties regarding future results, the
Company has provided a full valuation allowance against its net deferred tax
assets, as it is more likely than not that the deferred tax assets will not be
realized. The valuation allowance increased by $2,046,490 during 1996.

At December 31, 1995 and 1996, the Company had federal net operating loss
carryforwards of approximately $340,000 and $6,060,000, respectively. These
carryforwards will expire beginning in the year 2011. Utilization of these
carryforwards may be limited due to the ownership change provisions as enacted
by the Tax Reform Act of 1986 and subsequent legislation.

10. COMMITMENTS

LEASES

The Company leases its facilities under operating leases expiring at
various dates through May 2000. The Company has an option to extend their new
facility lease discussed in Note 2 for two consecutive terms of five years each.

The Company leases certain equipment under noncancelable lease agreements
that are accounted for as capital leases. Equipment under capital lease
arrangements and included in property and equipment aggregated $502,531 at
December 31, 1996. Related accumulated amortization was $111,541 at December 31,
1996. In addition, the capital leases are secured by the related equipment, and
the Company is required to maintain liability and property damage insurance.

F-13
<PAGE> 58

BOREALIS TECHNOLOGY CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments under noncancelable capital and operating
leases are as follows at December 31, 1996:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- --------
<S> <C> <C>
1997.......................................................... $ 216,020 $269,740
1998.......................................................... 73,486 266,278
1999.......................................................... 23,915 275,597
2000.......................................................... 2,244 118,381
--------- --------
Total minimum payments........................................ 315,665 $929,996
========
Less amount representing interest............................. (48,051)
---------
Present value of minimum lease payments....................... 267,614
---------
Less current obligations...................................... (178,814)
---------
Long-term obligations......................................... $ 88,800
=========
</TABLE>

Total rental expense for 1995 and 1996 was approximately $42,143 and
$103,109, respectively.

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's financial instruments which include the
long-term investment, the long-term promissory note, the note payable to
stockholder and the convertible promissory notes approximate their recorded book
values at December 31, 1995 and 1996. The fair values are based on quoted market
prices and discounted cash flow using the Company's incremental borrowing rate.

F-14
<PAGE> 59

BOREALIS TECHNOLOGY CORPORATION

CONDENSED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................................... $ 3,921,506 $ 1,837,105
Accounts receivable............................................. 2,000 --
Other current assets............................................ 136,073 868,217
----------- -----------
Total current assets.................................... 4,059,579 2,705,322
Property and equipment, net..................................... 856,653 955,228
Long term investment............................................ 650,000 --
Other assets.................................................... 40,850 46,708
----------- -----------
Total assets............................................ $ 5,607,082 $ 3,707,258
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 258,377 $ 212,555
Accrued employee compensation................................ 298,492 321,526
Promissory note.............................................. -- 650,000
Other current liabilities.................................... 320,739 335,647
----------- -----------
Total current liabilities............................... 877,608 1,519,728
Long-term obligations........................................... 738,800 59,735
----------- -----------
Total liabilities....................................... 1,616,408 1,579,463
----------- -----------
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares -- 5,000,000
Issued and outstanding -- none
Common stock, $.001 par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 3,184,506
at December 31, 1996, and March 31, 1997................... 3,185 3,185
Additional paid-in capital................................... 10,777,241 10,825,421
Accumulated deficit.......................................... (6,789,752) (8,700,811)
----------- -----------
Total stockholders' equity.............................. 3,990,674 2,127,795
----------- -----------
Total liabilities and stockholders' equity.............. $ 5,607,082 $ 3,707,258
=========== ===========
</TABLE>

See accompanying notes to condensed financial statements.

F-15
<PAGE> 60

BOREALIS TECHNOLOGY CORPORATION

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1997
--------- -----------
<S> <C> <C>
Total revenues..................................................... $ 90,586 $ 22,349
Cost of revenues................................................... 33,524 11,020
--------- -----------
Gross profit....................................................... 57,062 11,329
Operating expenses:
Sales and marketing.............................................. 178,493 816,586
Research and development......................................... 333,648 617,509
General and administrative....................................... 173,831 506,403
--------- -----------
Total operating expenses................................. 685,972 1,940,498
--------- -----------
Loss from operations............................................... (628,910) (1,929,169)
Interest income (expense), net..................................... (17,306) 18,110
--------- -----------
Net loss........................................................... $(646,216) $(1,911,059)
========= ===========
Net loss per common and common share equivalent.................... $ (0.69) $ (0.60)
========= ===========
Weighted average common and common equivalent shares outstanding... 931,758 3,184,506
========= ===========
</TABLE>

See accompanying notes to condensed financial statements.

F-16
<PAGE> 61

BOREALIS TECHNOLOGY CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1996 1997
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................... $(646,216) $(1,911,059)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 15,954 80,511
Compensation expense related to stock options.................... -- 48,180
Changes in assets and liabilities:
Accounts receivable........................................... 8,388 2,000
Other assets.................................................. (150) (88,002)
Accounts payable.............................................. 90,383 (45,822)
Other liabilities............................................. 53,312 73,743
--------- -----------
Net cash used in operating activities.............................. (478,329) (1,840,449)
INVESTING ACTIVITIES
Purchases of property and equipment................................ (16,645) (179,086)
--------- -----------
Net cash used in investing activities.............................. (16,645) (179,086)
FINANCING ACTIVITIES
Payments under capital lease obligations........................... (22,102) (64,866)
Proceeds from issuance of convertible promissory notes............. 675,570 --
--------- -----------
Net cash (used in) provided by financing activities................ 653,468 (64,866)
--------- -----------
Net increase (decrease) in cash and cash equivalents............... 158,494 (2,084,401)
Cash and cash equivalents at beginning of period................... 158,840 3,921,506
--------- -----------
Cash and cash equivalents at end of period......................... $ 317,334 $ 1,837,105
========= ===========
</TABLE>

See accompanying notes to condensed financial statements.

F-17
<PAGE> 62

BOREALIS TECHNOLOGY CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)

NOTE A -- BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997.

NOTE B -- LOSS PER COMMON SHARE

Loss per share was computed by dividing the net loss by the weighted
average number of shares of common stock outstanding. Common stock equivalents
from stock options and warrants are excluded from the computation because their
effect is anti-dilutive. The weighted average number of shares of common stock
and common stock equivalents has been computed in accordance with Securities and
Exchange Commission's Staff Accounting Bulletin No. 83, pursuant to which "cheap
stock," as defined, is considered outstanding even if the effect is
anti-dilutive. Fully diluted earnings per share are considered equal to primary
earnings per share in all periods presented.

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. A restatement of prior periods will not be necessary as common
equivalent shares from common stock options and warrants have been excluded from
the computation of net loss per share because their effect is anti-dilutive. The
impact of Statement No. 128 on the calculation of fully diluted earnings per
share for these quarters is not expected to be material.

NOTE C -- OTHER CURRENT ASSETS

At March 31, 1997, the Company has a promissory note payable to a bank for
$650,000. The note which was consummated in July 1996 and matures on January 11,
1998, bears interest at 7.55% per annum. The note is collateralized by a
$650,000 short-term investment, which is included with other current assets on
the accompanying condensed balance sheets.

NOTE D -- CERTAIN TRANSACTIONS

During May 1997, the Company granted an option to purchase 15,600 shares of
the Company's common stock at an exercise price of $4.25 per share to a company
which is wholly owned by the Company's interim President and Chief Operating
Officer. The option vests as follows: 10,400 shares at the grant date and the
remainder will vest at a rate of 2,600 shares per month of service as interim
President and Chief Operating Officer. The Company will recognize the difference
between the fair market value on the grant date ($5.00) and the exercise price
as compensation expense during the quarters ended June 30, 1997 and September
30, 1997.

NOTE E -- SUBSEQUENT EVENTS

F-18
<PAGE> 63

note, the Company issued a warrant to purchase up to 50,000 shares of the
Company's common stock. The exercise price of the warrant is equal to the fair
market value of the Company's common stock price at the date of execution. The
warrant expires five years from the execution date. In addition, in July 1997,
the Company borrowed $250,000 pursuant to a bank credit line personally
guaranteed by certain directors of the Company. These borrowings accrue interest
at 10.25% per annum and are due and payable on July 14, 1998.

During July 1997, the Company granted options to purchase 40,000 shares to
a newly appointed member of the Board of Directors. 20,000 shares were granted
under the 1996 Stock Plan and 20,000 shares were granted under the 1996 Director
Option Plan. The shares vest ratably over 36 months from the date of grant. The
exercise prices of the options are equal to the fair market value of the
Company's common stock price at the grant date.

F-19
<PAGE> 64

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE UNDERWRITER OR BY ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION TO WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary............................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Contingent Stock Issuance............. 17
Market for Common Stock............... 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 23
Management............................ 29
Stock Plans........................... 32
Certain Transactions.................. 35
Principal Stockholders................ 37
Description of Capital Stock.......... 38
Shares Eligible for Future Sale....... 40
Underwriting.......................... 41
Legal Matters......................... 43
Experts............................... 44
Additional Information................ 44
Index to Financial Statements......... F-1
</TABLE>

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1,400,000 SHARES

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H.J. MEYERS & CO., INC.
JULY 21, 1997

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