REGISTRY MAGIC INC, 424B4, 1998-05-29

REGISTRY MAGIC INC
424B4, 1998-05-29
PREPACKAGED SOFTWARE

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<PAGE> 1

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-47715

PROSPECTUS

(REGISTRY MAGIC INCORPORATED LOGO)

1,600,000 Shares of Common Stock
---------------------

Registry Magic Incorporated (the "Company") is hereby offering 1,600,000
shares of common stock, $.001 par value (the "Common Stock"). Prior to this
offering (the "Offering"), there has been no public market for the Common Stock
of the Company. The initial public offering price has been determined by
negotiation between the Company and Commonwealth Associates, as representative
(the "Representative") of the several underwriters (the "Underwriters"). See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price.

The Company's Common Stock has been approved for listing on The Nasdaq
SmallCap Market ("Nasdaq") under the symbol "RMAG."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION, AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING
ON PAGE 6 AND "DILUTION."

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

<TABLE>
<CAPTION>
===================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $7.25 $.54 $6.71
- -------------------------------------------------------------------------------------------------------------------
Total(3)............................. $11,600,000 $870,000 $10,730,000
===================================================================================================================
</TABLE>

(1) Does not include additional underwriting compensation to be received by the
Representative in the form of: (i) warrants to purchase up to 160,000 shares
of Common Stock exercisable for a period of four years commencing one year
from the date of the Prospectus at a price equal to 125% of the initial
public offering price (the "Representative's Warrants"); (ii) a non-
accountable expense allowance equal to 1.5% of the gross proceeds of the
Offering; and (iii) a financial advisory fee (the "Advisory Fee") of
$266,800. The Company has agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."

(2) Before deducting estimated expenses of the Offering payable by the Company,
including the non-accountable expense allowance and the Advisory Fee,
estimated at $830,800 ($856,900 if the Underwriters' over-allotment option
is exercised in full). See "Underwriting."

(3) The Company has granted to the Underwriters a 45-day option (which may be
exercised by the Representative, individually) to purchase up to 240,000
additional shares of Common Stock on the same terms and conditions as set
forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $13,340,000, $1,000,500 and
$12,339,500, respectively. See "Underwriting."

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

The shares of Common Stock are being offered by the Underwriters subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify the Offering and to reject any order in whole or in
part. It is expected that delivery of certificates representing the Common Stock
will be made against payment therefor at the offices of Commonwealth Associates,
830 Third Avenue, New York, New York 10022 on or about June 2, 1998. See
"Underwriting."

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

COMMONWEALTH ASSOCIATES

THE DATE OF THIS PROSPECTUS IS MAY 28, 1998.

<PAGE> 2

[DIAGRAMS]

[Logo of a telephone receiver]

Conversational Speech Recognition Technologies & Products
- --------------------------------------------------------------------------------

[Five emblems of magazine and show awards received for Virtual Operator]

- --------------------------------------------------------------------------------
Virtual Operator(TM)
Speech recognition call routing system

Answers and routes calls like a live operator. Callers just
say the name of the party or department they want and they are
connected. Works 24-hours a day, answers up to twelve calls at
the same time and frees up employees to handle other tasks.

[Picture of an operator with telephone head phones in a circle]

[Picture of a computer and monitor displaying an operator with head phones]

The Virtual Operator is "Plug and Play"
and sold as a complete turnkey solution
including hardware, software and support.

[Picture of a computer screen]
[Logo for Virtual Operator(TM)
this is a machine?(TM) with a
swirl]

Customizing and maintaining the system is
simple. All you do is type in the name ... no
speech recognition skills are required.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, OR THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING" FOR A DESCRIPTION OF THESE
ACTIVITIES.
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<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Except as otherwise noted, all share and
per share data and information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed under "Risk Factors."

THE COMPANY

Registry Magic Incorporated is engaged in the development and marketing of
proprietary applications software incorporating core speech recognition
technology. The Company's products are designed to enable a user to perform
tasks or retrieve information by speaking into a telephone or to a computer in a
natural conversational manner. The Company recently introduced the Virtual
Operator(TM) ("Virtual Operator") -- a speech driven auto-attendant for the
commercial marketplace that has received a number of industry awards including
"Product of the Year" for 1997 by both CTI Magazine and Teleconnect Magazine,
"Best of Show" at the 1998 CT Expo and is a finalist for a Computerworld
Smithsonian Award in the category of Business & Related Services. The Company
has developed prototypes for two additional telephone-based speech recognition
products which it intends to introduce during calendar 1998 -- a voice driven
speed dialing product and a conversational personal assistant that performs
voice mail, facsimile and e-mail retrieval, as well as auto-attendant and speed
dialing functions. The Company anticipates that it will initially market these
products primarily through a distribution network of independent resellers,
although it will also seek to license its proprietary applications software to
telephone switch and voice-mail manufacturers, among others, on an original
equipment manufacturer (OEM) basis.

The Company's goal is to continue to develop applications software that
simulates the manner in which people communicate by incorporating the following
key attributes into its products: (i) speaker independence (the ability to
understand almost anyone); (ii) continuous speech (the ability to understand
language at a natural pace rather than one word at a time); (iii) barge-in (the
ability to allow a user to talk through or interrupt a prompt); and (iv) key
word spotting (the ability to recognize relevant speech and ignore the balance).
The Company's strategy is to establish alliances with corporate partners to
develop specific customer solutions incorporating the Company's proprietary
applications software and generate revenue on a recurring basis. For example,
the Company has entered into a letter of intent with a national shopping mall
operator for the development of conversational kiosk systems incorporating the
Company's applications software and full motion video which, if successful, will
provide the Company with a percentage of the revenues derived from kiosk-related
sales.

Industry sources, including Speech Recognition Update(TM) and ASR News,
recognized industry publications, agree that the potential market for speech
recognition products is vast and worldwide. Through its assembled group of
highly qualified professionals, including a former IBM management team with
extensive international experience in the speech recognition industry, as well
as its technical expertise, the Company believes that it is well positioned to
compete in the emerging market for speech driven telephony and computer products
and services.

The Company expects to incur significant expenditures in connection with
the development and marketing of its speech recognition applications which will
likely result in losses until such time, if ever, as the Company is able to
secure sufficient contracts for its speech recognition products and services
which would generate adequate sources of revenue to support its operations.
There can be no assurance that the Company's current business strategy will
enable it to ever achieve profitable operations. In addition, as a result of the
aforementioned conditions, the Company's independent certified public
accountants included an explanatory paragraph in their report dated December 19,
1997 indicating that such conditions raise substantial doubt about the Company's
ability to continue as a going concern.

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<PAGE> 4

The Company was incorporated as a Florida corporation on October 11, 1995
under the name Registry Database Incorporated, and on May 24, 1996 changed its
name to Registry Magic Incorporated. The address and telephone number of the
Company's executive offices are One South Ocean Boulevard, Suite 206, Boca
Raton, Florida 33432; (561) 367-0408. Its fiscal year end is July 31.

THE OFFERING

Common Stock offered by the
Company.................. 1,600,000 shares

Common Stock outstanding
after the Offering......... 5,593,000 shares(1)(2)

Use of Proceeds............ The Company intends to use the net proceeds from
the Offering for (i) product development and
refinement; (ii) sales and marketing; (iii)
repayment of debt; and (iv) general corporate
purposes, including working capital. See "Use of
Proceeds."

Nasdaq SmallCap Market
Symbol................... RMAG

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

(1) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(2) Excludes: (i) 160,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants; (ii) 300,000 shares of Common Stock reserved for
issuance in accordance with the Company's 1997 Stock Option Plan, pursuant
to which options to purchase 227,350 shares of Common Stock are issued and
outstanding; and (iii) 440,676 shares of Common Stock underlying additional
outstanding options and warrants held by officers, employees, consultants
and others. See "Management -- Stock Options," "Description of Securities"
and "Underwriting."

4
<PAGE> 5

SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
FOR THE SIX
CUMULATIVE FROM MONTHS ENDED FOR THE PERIOD FROM
OCTOBER 11, 1995 JANUARY 31, FOR THE OCTOBER 11, 1995
(INCEPTION) THROUGH ----------------------- YEAR ENDED (INCEPTION) THROUGH
JANUARY 31, 1998 1998 1997 JULY 31, 1997 JULY 31, 1996
------------------- ---------- ---------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Incidental consulting fees
revenues................ $ 683,328 $ 338,384 $ 37,500 $ 344,944 $ --
Total costs and
expenses................ 2,776,611 1,013,623 708,265 1,719,147 43,841
Net loss.................. $(2,093,283) $ (675,239) $ (670,765) $(1,374,203) $ (43,841)
Weighted average shares
outstanding............. 3,882,130 3,460,136 3,625,200 3,325,000
Net loss per common share
outstanding............. $ (0.17) $ (0.19) $ (0.38) $ (0.01)
</TABLE>

<TABLE>
<CAPTION>
JANUARY 31, 1998
------------------------
JULY 31, 1997 ACTUAL ADJUSTED(1)
------------- ---------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $ 937,904 $ 983,358 $10,559,038
Working capital........................................... $ 196,029 $ 375,816 $10,371,112
Total assets.............................................. $1,108,095 $1,322,048 $10,784,200
Total liabilities......................................... $ 741,875 $ 607,542 $ 187,926
Shareholders' equity...................................... $ 366,220 $ 714,506 $10,596,274
</TABLE>

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

(1) As adjusted to give effect to the sale of 1,600,000 shares of Common Stock
offered hereby, the receipt of net proceeds therefrom and the application of
a portion of the proceeds to repay debt, including payment of accrued
interest thereon through January 31, 1998. Gives effect to the recognition
of unamortized debt issuance costs associated with such debt. See "Use of
Proceeds."

5
<PAGE> 6

RISK FACTORS

An investment in the securities offered hereby is speculative in nature and
involves a high degree of risk. In addition to the other information contained
in this Prospectus, the following factors should be considered carefully in
evaluating the Company and its business before purchasing the securities offered
hereby. This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the forward-
looking statements. Factors that might cause or contribute to such difference
include, but are not limited to, those discussed below, as well as those
discussed elsewhere in this Prospectus.

LIMITED OPERATING HISTORY; OPERATING LOSSES; GOING CONCERN QUALIFICATION IN
INDEPENDENT ACCOUNTANT'S REPORT

The Company is a development stage enterprise and has received only limited
incidental revenues from its inception in October 1995 through January 31, 1998.
The Company has only recently begun shipping its Virtual Operator product for
on-site field testing and evaluation, and has entered into a limited number of
contracts for the provision of its speech recognition products and services.
Accordingly, the Company has only a limited history upon which an evaluation of
its prospects and future performance can be made. Such prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the operations and expansion of a new business in an evolving
industry which has not obtained widespread commercial acceptance and which is
characterized by rapid technological obsolescence and intense competition.

From inception through January 31, 1998, the Company has incurred
cumulative losses of $2,093,283 and anticipates that losses will continue during
the current fiscal year ending July 31, 1998. The Company expects to incur
significant expenditures in connection with the development and marketing of its
speech recognition applications which will likely result in losses until such
time, if ever, as the Company is able to secure sufficient contracts for its
speech recognition products and services which would generate adequate sources
of revenue to support its operations. There can be no assurance that the
Company's current business strategy will enable it to ever achieve profitable
operations. In addition, as a result of the aforementioned conditions, the
Company's independent certified public accountants included an explanatory
paragraph in their report dated December 19, 1997 indicating that such
conditions raise substantial doubt about the Company's ability to continue as a
going concern. See "Management's Discussion and Analysis and Plan of Operation"
and "Financial Statements."

SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT
BUSINESS PLAN; POSSIBLE NEED FOR ADDITIONAL FINANCING

The Company's capital requirements have been and will continue to be
significant due to the substantial costs associated with product development and
refinement, recruitment of skilled personnel and the marketing of innovative
speech recognition products and related services primarily to large established
corporations and other organizations. The Company's cash requirements for the
purpose of developing its products have been substantial and, as a result, the
Company has been dependent upon capital resources provided by investors in order
to finance its operations. The Company is dependent upon the proceeds of the
Offering to implement its business plan and finance its working capital
requirements. Based on the Company's currently proposed plans and assumptions
relating to the implementation of its business plan, the Company anticipates
that the net proceeds of the Offering will be sufficient to satisfy its
contemplated cash requirements for at least 12 months following the consummation
of the Offering. In the event the Company's products are not developed and
refined on a timely basis, contracts for the provision of products and
technology are not consummated in sufficient number or in the event the proceeds
of the Offering otherwise prove to be insufficient to fund the implementation of
the Company's business plan and working capital requirements, the Company could
be required to seek additional financing. The Company has no current
arrangements with respect to, or potential sources of, additional financing and,
following the consummation of the Offering, it is not anticipated that existing
shareholders will satisfy any portion of the Company's future financing
requirements. There can be no assurance that any additional financing will be
available to the Company when needed, on commercially
6
<PAGE> 7

reasonable terms, or at all. Any inability to obtain additional financing when
needed would have a material adverse effect on the Company, including the
curtailment of its product development, marketing and expansion activities. See
"Use of Proceeds" and "Management's Discussion and Analysis and Plan of
Operation."

DEVELOPMENT OF MARKETS REQUIRED FOR SUCCESSFUL PERFORMANCE BY THE COMPANY

The Company has only recently commenced significant marketing activities,
and there can be no assurance that the Company's marketing program will be
successful or that the Company's applications software will achieve market
acceptance. Achieving market acceptance for the Company's products will require
substantial marketing efforts and the expenditure of significant funds. The
financial performance of the Company will depend, in part, on acceptance of
speech recognition technology and the future development, growth and ultimate
size of this market. The Company's applications software products will compete
with more conventional means of information processing (e.g., data entry or
access by keyboard or touch-tone phone). The development of these markets also
will be dependent upon the demand for new applications, the ability of the
Company's products and services to meet and adapt to these needs, and the
continuing price and performance improvements in speech recognition engine
technology and hardware technology that will reduce the cost and increase the
performance of products incorporating the Company's applications. See
"Business -- Sales and Marketing."

UNCERTAINTY OF PRODUCT AND TECHNOLOGY DEVELOPMENT BY THE COMPANY

The Company has recently introduced the Virtual Operator product, which is
a speech driven auto-attendant, and has developed prototypes for two additional
telephone-based speech recognition products including a voice driven speed
dialing product and a conversational personal assistant that performs voice-
mail, facsimile, and e-mail retrieval, as well as the functions of the Virtual
Operator and the speed dialing product. To date, however, the Company has not
developed foreign language versions, for its Virtual Operator Product (other
than Spanish) or its two prototypes. Additionally, the Company also intends to
continue to develop and refine additional products including conversational call
centers, kiosks, and point-of-sale applications, which are currently in the
relatively early stages of development. The Company will be required to commit
considerable time, effort and resources to finalize development of these
products. The Company's success will depend, in part, upon the ability of its
proposed products to meet targeted performance, cost objectives, and timely
introduction into the marketplace.

In addition, early versions of software products often contain errors or
defects. There can be no assurance that, despite extensive testing by the
Company and potential customers, errors or defects will not be found in the
Company's applications software products prior to or after commencement of
commercial deployment, resulting in redevelopment costs and loss of, or delay
in, market acceptance of the Company's products. Additionally, there can be no
assurance that the Company's products will satisfactorily perform the functions
for which they are designed or, that they will meet applicable price or
performance objectives. Moreover, the Company currently does not maintain errors
and omissions insurance, although it intends to do so in the foreseeable future.
In the event of any errors or defects in any of the Company's products that may
adversely affect end users, the Company may be liable for such errors or
defects, which could have a material adverse impact on the Company's financial
condition. See "Business -- Products."

RAPID TECHNOLOGICAL CHANGE

The market for speech recognition products is expected to be characterized
by rapid technological change resulting in dynamic customer demands, frequent
new product and service introductions and short product lifecycles. The markets
for the Company's products may change rapidly as a result of innovations in core
speech recognition engine technology, computer hardware, software and
communications technologies. The Company's success will depend, in part, upon
its ability to make timely and cost-effective enhancements and additions to its
existing applications software products and develop new products that meet
evolving customer demands. There can be no assurance that the Company will have
the resources necessary to achieve this objective and that the Company's
products will not be rendered obsolete.
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<PAGE> 8

COMPETITION

The speech recognition applications market is growing and expected to
become intensely competitive. The Company's products will compete with those
developed or being developed by many well established companies, including
International Business Machines Corporation ("IBM"), American Telephone and
Telegraph Company ("AT&T"), Microsoft Corporation ("Microsoft"), Digital
Equipment Corporation ("Digital Equipment"), Lucent Technologies, Inc.
("Lucent"), American Nortel Communications, Inc. ("Nortel") and Unisys
Corporation ("Unisys"). Most of these companies have substantially greater
financial, technical, personnel and other resources than the Company and have
established reputations for success in the development, licensing and sale of
their products and technology, especially the larger organizations. A number of
these competitors have the financial resources necessary to enable them to
withstand substantial price competition or downturns in their markets. In
addition, certain companies may be expected to develop technologies or products
which may be functionally similar to some or all of those being developed by the
Company. With respect to its Virtual Operator product, the Company's competitors
may include Voice Control Systems, Vocalis Group plc ("Vocalis"), and
PureSpeech, Inc. ("PureSpeech"). In the conversational speed dialing and
personal assistant applications, the Company expects that its initial
competitors will be Wildfire Communications, Inc. ("Wildfire"), General Magic,
and Webley Systems, Inc. ("Webley"). Additionally, voicemail companies and
telephone switch manufacturers could also attempt to develop their own
conversational speech recognition applications.

Industry standards with respect to the markets for the technology and
products being developed by the Company are continually evolving, which often
results in product obsolescence or short product life cycles. Accordingly, the
ability of the Company to compete will depend on its ability to complete
development and introduce into the marketplace its proposed products and
technology, to continually enhance and improve its products and technology in a
timely manner, to adapt its proposed products in order to be compatible with
specific products manufactured by others, and to successfully develop and market
new products and technology. There can be no assurance that the Company will be
able to compete successfully, that its competitors or future competitors will
not develop technologies or products that render the Company's products and
technology obsolete or less marketable, or that the Company will be able to
successfully enhance its proposed products or technology or adapt them
satisfactorily. See "Business -- Competition."

DIFFICULTIES IN MAINTAINING PROPRIETARY RIGHTS

The Company's success is dependent upon its proprietary applications
software technology which may be difficult to protect. The Company currently
relies on a combination of contractual rights, trade secrets, know-how,
trademarks, non-disclosure agreements and technical knowledge to establish and
protect its proprietary rights. There can be no assurance, however, that the
measures taken by the Company to protect its proprietary rights will be adequate
to prevent misappropriation of the technology or independent development by
others of products with features based upon, or otherwise similar to, those of
the Company's products. Additionally, although the Company believes that its
technology has been independently developed and does not infringe on the
proprietary rights or trade secrets of others, there can be no assurance that
the Company's technology does not and will not so infringe or that third parties
will not assert infringement claims, trade secret violations, competitive torts
or other proprietary rights violations against the Company in the future. In the
case of infringement, the Company could, under certain circumstances, be
required to modify its products or obtain licenses, which would likely require
cash or other consideration. There can be no assurance that the Company would be
able to do either in a timely manner or upon acceptable terms and conditions,
and such failure could have a material adverse effect on the Company. In
addition, there can be no assurance that the Company will have the resources to
defend or prosecute a patent infringement or other proprietary rights
infringement action. See "Business -- Proprietary Rights."

DEPENDENCE ON OTHER COMPANIES FOR ASSEMBLY AND COMPONENT PARTS

The Company does not manufacture component parts for its products and,
accordingly, will be dependent on others for the supply and assembly of various
of its products. The Company's products are designed to be used with personal
computers (PCs), specifically Intel Pentium MMX (multi-media extension)
processors.
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<PAGE> 9

While the Company currently purchases its modems, which are required for its
software applications, for remote maintenance from Boca Research, Inc. and its
telephone interface cards, which are also required for its software
applications, from Dialogic Corporation, located in Parsippany, New Jersey,
there are a number of other manufacturers who can supply similar products to the
Company, and the Company is not dependent upon a single supplier for any
equipment or component parts. However, the loss of Dialogic as a source for
telephone interface cards could have an impact on the Company, since the Company
may not be able to offer all of the features of a particular application if a
card manufactured by another entity were to be used. Additionally, the Company
generally does not have long-term contracts with suppliers for the purchase and
delivery of component parts or contractors for the assembly of its products.
However, any interruption of supply in the assembly services utilized by the
Company or in the supply of key components, for any reason, could result in
significant delivery delays, thereby adversely affecting the Company's marketing
efforts, customer relations, revenues and profitability. See
"Business -- Suppliers and Licensors."

LACK OF SALES AND MARKETING CAPABILITIES; DEPENDENCE UPON INDEPENDENT
DISTRIBUTORS, CORPORATE PARTNERS AND STRATEGIC ALLIANCES

The Company's sales and marketing efforts have been limited to date, and
the Company does not intend to establish a large internal sales and marketing
organization. The Company has allocated a substantial portion of the proceeds of
the Offering for sales and marketing activities, including those aimed at
establishing a network of independent distributors. There can be no assurance
that such network can be successfully established or will result in substantial
sales of the Company's products. The Company also will seek to enter into
strategic alliances to develop and market certain products, however, none of
these arrangements may prove successful. There can be no assurance that the
Company's strategic partners will provide the Company with the support
anticipated by the Company, or that any of the strategic alliances will be
successful in marketing speech technology applications without further delays or
within budget. Failure of these joint ventures to be successful could have a
material adverse effect on the Company's business and prospects. See
"Business -- Sales and Marketing."

RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH

The Company's business plan anticipates, among other things, significant
growth in the Company's customer base and continued development of its speech
recognition products and related services which represent potential attendant
risks. This growth and continued development, if it materializes, could place a
significant strain on the Company's management, employees and operations. In the
event of this expansion, the Company would have to continue to implement and
improve its operating systems, and to expand, train and manage its employee
base. If the Company is unable to implement and improve these operating systems
and manage its employee base effectively, the Company's operations could be
materially adversely affected. See "Business -- Employees."

DIFFICULTIES IN IMPLEMENTATION OF STRATEGY

The Company's strategy is to develop and refine proprietary applications
software products that address certain of the shortcomings associated with
speech recognition products currently in the market. While the Company intends
to market its initial products on a stand-alone basis through independent
reseller channels and on an OEM basis, the Company's ultimate strategy is to
establish alliances with corporate partners with whom it will develop specific
customer solutions incorporating the Company's proprietary applications software
and generate revenue on a recurring basis. The Company's ability to implement
its strategy and its ultimate success are subject to a broad range of
uncertainties and contingencies, many of which are beyond the Company's control.
There can be no assurance that the Company will be able to establish alliances
to develop customer solutions, that such solutions will be profitable, or that
these applications will generate revenue to the Company on a recurring basis.
See "Business -- Strategy."

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RISK OF INTERNATIONAL SALES

The Company's business in the near term is expected to be conducted in the
European Union ("EU"), as well as in the United States, and may be affected by
changes in demand resulting from fluctuations in currency exchange rates, as
well as by governmental controls and other risks associated with international
sales. The Company's international business may be subject to longer payment
cycles, difficulties in accounts receivable collection, delays in shipments,
increases in duties and taxes, price controls, adverse changes in foreign
regulations and the burdens of complying with a wide variety of foreign laws.
The Company will generally deal in local currencies in foreign markets. If the
U.S. dollar strengthens in relation to these international currencies, the
Company's revenues from international sales and the gains and losses on the
settlement of receivables of the Company from international operations may be
adversely affected. There can be no assurance that exchange rate fluctuations
and other risks associated with international operations will not have a
material adverse effect on the Company's business and prospects. See
"Business -- Sales and Marketing."

BROAD DISCRETIONARY USE OF PROCEEDS

The Company has broad discretion with respect to the specific application
of the net proceeds of the Offering. Such amounts are intended to be used for
working capital, including salaries, product development, implementation of a
sales and marketing program and the repayment of promissory notes issued to
investors in a private placement between November and December 1996. Thus,
purchasers of the Common Stock offered hereby will be entrusting their funds to
the Company's management, upon whose judgment such purchasers must depend, with
only limited information concerning management's specific intentions. See "Use
of Proceeds."

VARIABILITY OF QUARTERLY RESULTS

The Company's quarterly operating results may fluctuate as a result of a
variety of factors, including the length of the sales cycle, the timing of
orders from and shipments to customers, delays in product development and
customer acceptance of custom applications, product development expenses, the
success of new product introductions or announcements by the Company or its
competitors, levels of market acceptance for new and existing products and the
hiring and training of additional staff as well as general economic conditions.
Because a significant portion of the Company's overhead is fixed in the
short-term, the Company's results of operations may be materially adversely
affected if revenues fall below the Company's expectations. If management's
estimate of product sales and product mix prove to be substantially inaccurate,
the Company may not have the necessary inventory available to deliver systems in
a timely manner, which may have a material adverse effect on the Company's
results of operations during such period. See "Management's Discussion and
Analysis and Plan of Operation."

DEPENDENCE ON KEY PERSONNEL

The success of the Company will be largely dependent on the efforts of the
members of the management of the Company, especially Walt Nawrocki, its
President and Chief Executive Officer, Lawrence Cohen, its Chairman of the
Board, and Neal Bernstein, its Vice President of Business Development and
Marketing. Although the Company has entered into employment agreements with
various members of the management of the Company, there can be no assurance that
such persons will continue their employment with the Company. The loss of the
services of one or more of such key personnel could have a material adverse
effect on the Company's ability to maximize its use of its products and
technologies or to develop related products and technologies. The Company has
obtained $2,500,000 of key man insurance on the life of Mr. Nawrocki, which may
prove insufficient in the event Mr. Nawrocki were to become deceased. The
success of the Company is also dependent upon its ability to hire and retain
additional qualified executive, programming, engineering and marketing
personnel. Qualified employees are in great demand and are likely to remain a
limited resource for the foreseeable future. Competition for skilled, creative
and technical talent is intense. There can be no assurance that the Company will
be successful in attracting and retaining such personnel. Any failure by the
Company to retain existing employees or to hire new employees when necessary
could have

10
<PAGE> 11

a material adverse effect upon the Company's business, financial condition and
results of operations. See "Business -- Employees" and "Management."

DILUTION

Upon the closing of the Offering, investors in the Offering will incur
immediate substantial dilution of approximately $5.36 or approximately 74.0% in
the per share net tangible book value of their Common Stock. See "Dilution."

CONTROL OF THE COMPANY BY MANAGEMENT

Immediately following the Offering, the executive officers and directors of
the Company will beneficially own 49.4% of the outstanding shares of Common
Stock (47.4% if the Underwriters' over-allotment option is exercised in full,
but exclusive of options granted to management). Accordingly, the management of
the Company will have the ability to elect the Company's entire Board of
Directors and control the outcome of all matters submitted to a vote of the
shareholders of the Company. See "Management" and "Principal Shareholders."

NO DIVIDENDS

The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. See "Dividend Policy."

ARBITRARY OFFERING PRICE; POSSIBLE STOCK PRICE VOLATILITY

The initial public offering price of the shares of Common Stock offered
hereby has been determined by negotiations between the Company and the
Representative. Among the factors considered in determining this price were the
Company's current financial condition and prospects, stage of development of the
speech recognition industry, market prices of similar securities of various
publicly traded software companies, and the general condition of the securities
market. However, the initial public offering price does not necessarily bear any
direct relationship to the Company's assets, book value, earnings or other
established indicia of value. See "Underwriting."

The stock market, especially Nasdaq, has from time to time experienced
significant price and volume fluctuations that may be unrelated to the operating
performance of particular companies. In addition, the market price of the Common
Stock, like the stock prices of many publicly-traded technology companies, may
prove to be highly volatile. Announcements of technological innovations or new
commercial products by the Company or its competitors, developments or disputes
concerning patent or proprietary rights, publicity regarding actual or potential
products by the Company or its competitors, commercial contracts consummated or
not obtained as a result of unsuccessful testing, various external factors as
well as period-to-period fluctuation in financial results, among other factors,
may have a significant impact on the market price of the Common Stock.

REPRESENTATIVE'S POTENTIAL CONTINUING INFLUENCE ON THE COMPANY

The Representative, for a period of two years after the date of the
Offering, may designate one director or a non-voting observer to the Board of
Directors of the Company. Accordingly, as a result of the foregoing, the
Representative may, under certain circumstances, be able to influence the
operations of the Company. Additionally, holders of the Representative's
Warrants will also have certain demand and piggyback registration rights with
respect to the Representative's Warrants and the 160,000 shares of Common Stock
underlying such Warrants. Any exercise of these registration rights may hinder
efforts by the Company to arrange future financings of the Company and/or have
an adverse effect on the market price of the Company's shares of Common Stock.
See "Underwriting."

11
<PAGE> 12

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

The sale, or availability for sale, of a substantial number of shares of
Common Stock in the public market subsequent to the Offering pursuant to Rule
144 under the Securities Act ("Rule 144") or otherwise could materially
adversely affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of its equity
securities or debt financing. The availability of Rule 144 to the holders of
restricted securities of the Company would be conditioned on, among other
factors, the availability of certain public information concerning the Company.
All of the 3,993,000 shares of Common Stock currently outstanding are
"restricted securities" as that term is defined in Rule 144, and 3,793,000 of
such shares may be sold, under certain circumstances, without registration under
the Securities Act. Ordinarily, any shares issuable to employees upon exercise
of options granted under the Company's 1997 Stock Option Plan or otherwise,
pursuant to Rule 701 under the Securities Act, could be sold publicly commencing
90 days after the Company becomes a reporting company under the Securities
Exchange Act of 1934 (the "Exchange Act"). Additionally, the holders of 668,000
shares of Common Stock have certain demand and piggyback registration rights
with respect to shares owned by them and the holder of warrants to purchase
100,000 shares of Common Stock has registration rights with respect to the
shares underlying such warrants. All of the Company's executive officers,
directors and substantially all of its shareholders, as well as the holders of
the warrants, have agreed not to sell their shares of Common Stock for a period
of 12 months from the consummation of the Offering without the Representative's
prior written consent (with the exception of the lock-up for the 100,000
warrants which is nonwaivable). See "Shares Eligible for Future Sale" and
"Description of Securities -- Registration Rights."

NO PRIOR PUBLIC MARKET

Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that any trading market therefor will
develop, or, if any such market develops, that it will be sustained.
Accordingly, purchasers of the shares of Common Stock offered hereby may
experience difficulty selling or otherwise disposing of their shares of Common
Stock. See "Underwriting."

POSSIBLE DELISTING OF SECURITIES FROM NASDAQ

The Company's Common Stock has been approved for listing on Nasdaq. In
order to continue to be listed on Nasdaq, however, the Company must maintain at
least $2,000,000 in net tangible assets (total assets less total liabilities and
goodwill) or $500,000 in net income in the latest fiscal year or in two of the
last three years or $35,000,000 in market capitalization, a public float of at
least 500,000 shares, a $1,000,000 market value of public float, a minimum bid
price of $1.00 per share, at least two market makers, at least 300 shareholders
and at least two outside directors. The failure to meet these maintenance
criteria in the future may result in the delisting of the Company's securities
from Nasdaq, and the Company's Common Stock would thereafter be traded in the
non-Nasdaq over-the-counter market. As a result of such delisting, an investor
could find it more difficult to dispose of or to obtain accurate quotations as
to the market value of, the Company's Common Stock.

AUTHORIZATION OF PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS

The Board of Directors is authorized to issue shares of preferred stock and
to determine the dividend, liquidation, conversion, redemption, and other
rights, preferences, and limitations of such shares without any further vote or
action of the shareholders. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could adversely affect
the voting power or other rights of the holders of the Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging and delaying or preventing a change
in control of the Company. The Company has no present plan to issue any shares
of its preferred stock, although there can be no assurance that the Company will
not do so in the future. See "Description of Securities -- Preferred Stock."

12
<PAGE> 13

LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS

The Company's Articles of Incorporation include provisions to eliminate, to
the full extent permitted by the Florida Business Corporation Act (the "Florida
Act") as in effect from time to time, the personal liability of directors of the
Company for monetary damages arising from a breach of their fiduciary duties as
directors. The Articles of Incorporation also include provisions to the effect
that the Company shall, to the maximum extent permitted from time to time under
the laws of the State of Florida, indemnify, and upon request shall advance
expenses to any director or officer, to the extent that such indemnification and
advancement of expense is permitted under such law, as it may from time to time
be in effect. See "Management -- Indemnification of Directors and Officers."

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby, after deducting underwriting discounts and commissions and
estimated expenses payable by the Company, will be approximately $9,899,200 (or
approximately $11,482,600 if the over-allotment option granted to the
Underwriters is exercised in full). The Company intends to use the net proceeds
of the Offering approximately as follows:

<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE AMOUNT PERCENTAGE OF
APPLICATION OF NET PROCEEDS NET PROCEEDS
- ----------- ------------------ -------------
<S> <C> <C>
Product Development(1)................................ $4,500,000 45.5%
Sales and Marketing(2)................................ 4,500,000 45.5%
Repayment of Debt(3).................................. 420,000 4.2%
Working Capital(4).................................... 479,200 4.8%
---------- ------
Total....................................... $9,899,200 100.0%
========== ======
</TABLE>

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

(1) Includes the costs of personnel, equipment and software necessary to further
develop and enhance the Company's Virtual Operator, conversational personal
assistant and voice dialing products. See "Business -- Products."
(2) Includes the costs of marketing and sales and technical support personnel
and related expenditures to be incurred in connection with developing and
implementing a sales and marketing program. See "Business -- Sales and
Marketing."
(3) Represents principal and accrued interest (through January 31, 1998) on
promissory notes in the aggregate principal amount of $410,000 held by
private placement investors which bear interest at the rate of 7% per annum
and are payable on the earlier of October 1, 1998 or completion of the
Offering. The proceeds of all of these loans were used for working capital
purposes. None of such investors are officers, directors or affiliates of
the Company. See "Management's Discussion and Analysis and Plan of
Operation" and "Certain Transactions."
(4) Includes general corporate purposes, such as funding day-to-day operations
of the Company, payment of salaries and general and administrative expenses
and the future development of the Company.

The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Offering during the next approximately 12 months based
on current plans and prevailing economic, industry and competitive conditions.
The Company reserves the right to reallocate the proceeds if unanticipated
events may cause the Company to redirect its priorities.

Any additional proceeds received upon exercise of the Underwriters'
over-allotment option will be added to working capital. Pending utilization, the
net proceeds of the Offering will be invested in short-term, investment grade,
interest-bearing investments, certificates of deposit or direct or guaranteed
United States government obligations.

13
<PAGE> 14

DIVIDEND POLICY

The Company has not paid, and does not anticipate paying, any dividends on
its Common Stock in the foreseeable future. The Company currently intends to
retain its future earnings for use in operations and expansions of its business.
Declaration and payment of future dividends, if any, will be at the sole
discretion of the Board of Directors.

CAPITALIZATION

The following table sets forth the capitalization of the Company: (i) as of
January 31, 1998 and (ii) as adjusted to give effect to the sale of the Common
Stock offered hereby and the receipt of the estimated net proceeds therefrom.

<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------------------
ACTUAL AS ADJUSTED
----------- --------------
<S> <C> <C>
Notes payable -- shareholders............................... $ 410,000 $ --(1)
Note payable -- related party............................... 50,000 50,000
----------- -----------
Total debt................................................ 460,000 50,000
----------- -----------
Shareholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares
authorized; no shares outstanding...................... -- --
Common Stock, $.001 par value; 30,000,000 shares
authorized; 3,993,000 shares issued (actual); 5,593,000
shares (as adjusted)(2)................................ 3,993 5,593
Additional paid-in capital................................ 2,803,796 12,701,396
Accumulated deficit....................................... (2,093,283) (2,110,715)(3)
----------- -----------
Total shareholders' equity........................ 714,506 10,596,274
----------- -----------
Total capitalization.............................. $ 1,174,506 $10,646,274
=========== ===========
</TABLE>

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

(1) Reflects repayment of $410,000 principal amount of promissory notes issued
to shareholders in a private placement completed in December 1996.
(2) Does not include shares of Common Stock issuable upon exercise of (i) the
over-allotment option; (ii) the Representative's Warrants; or (iii)
outstanding options and warrants or options which may be granted under the
Company's 1997 Stock Option Plan.
(3) Gives effect to the recognition of unamortized debt issuance costs
associated with notes payable to shareholders referred to in footnote (1)
above.

14
<PAGE> 15

DILUTION

As of January 31, 1998, the net tangible book value of the Company was
$577,894 or approximately $.14 per share of Common Stock based on 3,993,000
shares of Common Stock outstanding. Net tangible book value per share represents
the amount of the Company's shareholders' equity, less intangible assets,
divided by the number of shares of Common Stock outstanding. Dilution to new
investors represents the difference between the amount per share paid by
purchasers of shares of Common Stock in the Offering made hereby and the net
tangible book value per share of Common Stock immediately after completion of
the Offering. After giving effect to the sale of 1,600,000 shares of Common
Stock by the Company and receipt of the estimated net proceeds therefrom, the
adjusted net tangible book value of the Company as of January 31, 1998 would
have been $10,573,190 or $1.89 per share. This represents an immediate increase
in net tangible book value of $1.75 per share to existing shareholders and an
immediate dilution in net tangible book value of $5.36 or approximately 74.0%
per share to new investors. The following table illustrates this per share
dilution:

<TABLE>
<S> <C> <C>
Public offering price per share............................. $ 7.25
Net tangible book value before the Offering............... .14
Increase attributable to new investors.................... 1.75
-----
Adjusted net tangible book value after the Offering......... 1.89
------
Dilution to new investors................................... $ 5.36
======
</TABLE>

In the event that the Underwriters' over-allotment option is exercised in
full, the net tangible book value of the Company at January 31, 1998 would be
approximately $2.08 per share, which would result in dilution per share to the
new investors in the Offering of approximately $5.17 per share.

The following table summarizes at January 31, 1998, the difference between
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing shareholders
since inception and by new investors in the Offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders................ 3,993,000 71.4% $ 2,641,325 18.5% $ 0.66
New Investors........................ 1,600,000 28.6% $11,600,000 81.5% $ 7.25
--------- ------ ----------- ------
Totals............................... 5,593,000 100.0% $14,241,325 100.0%
========= ====== =========== ======
</TABLE>

The foregoing tables do not give effect to the exercise of any outstanding
options. See "Management -- Stock Options."

15
<PAGE> 16

SELECTED FINANCIAL INFORMATION

The table below contains certain summary historical financial information
of the Company. The information has been derived from the Financial Statements
included elsewhere in this Prospectus. The six months data at January 31, 1998,
the cumulative data from October 11, 1995 (inception) through January 31, 1998,
and for the six months ended January 31, 1998 and 1997 are derived from the
Company's unaudited financial statements and include all adjustments, consisting
only of normal recurring adjustments, that management considers necessary to
fairly present such data. The results of the six months ending January 31, 1998
are not necessarily indicative of the results to be expected for the full year
ended July 31, 1998. This information should be read in conjunction with the
Financial Statements and "Management's Discussion and Analysis and Plan of
Operation."

<TABLE>
<CAPTION>
FOR THE SIX FOR THE
CUMULATIVE FROM MONTHS ENDED PERIOD FROM
OCTOBER 11, 1995 JANUARY 31, FOR THE OCTOBER 11, 1995
(INCEPTION) THROUGH ---------------------- YEAR ENDED (INCEPTION) THROUGH
JANUARY 31, 1998 1998 1997 JULY 31, 1997 JULY 31, 1996
------------------- ---------- --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Incidental consulting fees
revenues................. $ 683,328 $ 338,384 $ 37,500 $ 344,944 $ --
Total costs and expenses... 2,776,611 1,013,623 708,265 1,719,147 43,841
Net loss................... $(2,093,283) $ (675,239) $(670,765) $(1,374,203) $ (43,841)
Weighted average shares
outstanding.............. 3,882,130 3,460,136 3,625,200 3,325,000
Net loss per common share
outstanding.............. $ (0.17) $ (0.19) $ (0.38) $ (0.01)
</TABLE>

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

16
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with
the financial statements of the Company and the notes thereto appearing
elsewhere in this Prospectus.

RESULTS OF OPERATIONS

The Company is in the development stage. Since its inception in October
1995, the Company's efforts have been principally devoted to research,
development and design of products, marketing activities and raising capital.
The Company has generated only nominal incidental consulting fee revenues and
has incurred substantial operating losses to date, which losses are continuing.

Since inception, the Company has sustained cumulative losses of
($2,093,283). These losses have resulted primarily from expenditures for general
and administrative activities, including salaries and professional fees, which
have aggregated $1,328,910 since inception. Losses are expected to continue
through fiscal year 1998.

Since inception, the Company has recognized incidental consulting fee
revenues of $683,328 which were derived from three consulting contracts, one of
which was completed as of July 31, 1997 and the two remaining consulting
contracts were both completed as of December 31, 1997. The Company performed
these consulting services for Lernout & Hauspie Speech Products, N.V. ("L&H")
and Nortel. The Company does not consider revenues from consulting fees to be a
significant source of revenues in the future, as revenues are expected to be
derived from the sale or licensing of products and technologies.

Subsequent to January 31, 1998, the Company received $200,000 from L&H as a
prepayment against future royalties on sales of the Company's Magic Calendar
product. See "Business -- Products."

Research and development expenses for the fiscal year ended July 31, 1997
were $418,164 compared to $16,129 for the period ended July 31, 1996, an
increase of $402,035. Research and development expenses for the six months ended
January 31, 1998 were $441,530, compared to $174,494 for the six months ended
January 31, 1998, an increase of $267,036. These increases were due to the
development of the Company's Virtual Operator product, the development of other
product and service prototypes, and expenses related to the Company's
performance of the consulting contracts. Research and development expenses
incurred in the course of establishing technological feasibility of the
Company's software applications have been charged to operations pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 86 -- "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." As of
January 31, 1998, the Company had not reached technological feasibility of its
products.

Royalty expense for the fiscal year ended July 31, 1997 was $500,000,
compared to nil for the fiscal year ended July 31, 1996. This amount represents
a non-refundable prepayment to L&H on royalties to use certain speech
recognition engine technologies and text to speech technologies. The Company
expensed such prepaid royalties in the absence of any contracts for the sale of
its products at the time of the prepayment. See Note 8 of Notes to the Financial
Statements and "Business -- Suppliers and Licensors." As of January 31, 1998,
the Company has not sold any products utilizing these licenses and accordingly,
has not used any of the prepaid royalties. On March 30, 1998, the Company paid
L&H an additional $200,000 non-refundable prepayment against future royalties.

General and administrative expenses increased from $26,879 for the fiscal
year ended July 31, 1996 to $770,283 for the fiscal year ended July 31, 1997.
General and administrative expenses increased by $133,109 from $398,639 for the
six months ended January 31, 1997, to $531,748 for the six months ended January
31, 1998. The Company incurred a $300,000 charge for the six months ended
January 31, 1997 for stock options issued to employees. The increases for fiscal
year 1997 were due to additional employees hired to begin marketing and sales of
the Virtual Operator, additional office support staff, and increased legal and
accounting fees incurred in connection with the Company's expanding activities
and patent applications.

The Securities and Exchange Commission has issued Staff Legal Bulletin No.
5 (CF/IM) stating that public operating companies should consider whether there
will be any anticipated costs, problems and

17
<PAGE> 18

uncertainties associated with the Year 2000 issue, which affects many existing
computer programs that use only two digits to identify a year in the date field.
According to the Company's best knowledge, all software used by the Company is
Year 2000 compliant, whether developed by the Company or by third parties, and
the Company will continue to ensure that all software systems used by the
Company are Year 2000 compliant.

LIQUIDITY AND CAPITAL RESOURCES

From inception through January 31, 1998, the Company's capital was provided
by loans made by the Company's Chairman and his wife in the amount of $100,000
(of which $50,000 was repaid at December 31, 1996). The remaining $50,000 plus
accrued interest still outstanding and due to the Chairman shall be repaid not
earlier than six months from the date of this Prospectus and only to the extent
of cash flow from operations, if any. Such related party loans included interest
ranging from 6 1/2% to 7% per annum.

Between November and December 1996, the Company completed a private
placement in which it sold 82 units of its securities consisting in the
aggregate of $410,000 principal amount of its subordinated promissory notes (the
"Notes") and 410,000 shares of Common Stock for an aggregate payment net of
expenses of $1,606,216 to 40 investors, none of whom were affiliated with the
Company and substantially all of whom were accredited investors. The Notes bear
interest at the rate of 7% per annum payable semi-annually on April 1 and
October 1 of each year and mature on October 1, 1998. In accordance with the
terms of the Notes, the principal amount of such Notes together with accrued
interest is to be repaid from the proceeds of the Offering. See "Use of
Proceeds." The placement agent for the offering received warrants to purchase
100,000 shares of Common Stock exercisable at $6.00 per share on or prior to
November 27, 2001.

In January 1997, the Company issued 58,000 shares of its Common Stock to
three unaffiliated investors at $3.50 per share for a total payment of $203,000.

In November 1997, the Company received net proceeds of $997,159 through the
issuance of 200,000 shares of its Common Stock at $5.00 per share to 1-800-REACH
ME LLC, a dealer for certain of the Company's products and services. See
"Business -- Sales and Marketing" and "Certain Transactions."

The proceeds generated from private placements described above were used
for (i) research and development (approximately $324,000), (ii) payment of the
non-refundable prepayment due to L&H ($500,000), (iii) general and
administrative expenses including salaries (approximately $529,000), (iv)
purchase of equipment (approximately $185,000), (v) repayment of related party
loans ($50,000), and (vi) patent fees and related legal expenses (approximately
$18,000).

In December 1997, the Company entered into three-year employment agreements
with three of its executive officers which provide for aggregate base salaries
of $415,500. See "Management -- Employment Agreements" and Note 8 of Notes to
the Financial Statements.

PLAN OF OPERATION

The report of the independent auditors on the Company's financial
statements as of July 31, 1997 contains an explanatory paragraph regarding an
uncertainty with respect to the ability of the Company to continue as a going
concern. The Company has generated only nominal, incidental consulting fee
revenues of $683,328 and incurred an accumulated deficit through January 31,
1998 of $2,093,283. However, the Company believes that upon the completion of
the Offering and the receipt of the proceeds therefrom, it will have the
necessary liquidity and capital resources to sustain planned operations for the
12 month period following the Offering. See "Use of Proceeds."

During such 12-month period, the Company intends to focus its efforts on
enhancing its Virtual Operator product and refining two of its telephone-based
speech recognition prototypes which it intends to introduce during calendar
1998. It will also use a portion of the proceeds for the implementation of its
sales and marketing program which includes developing a marketing and sales
network initially in North America and thereafter, in the EU.

18
<PAGE> 19

In the event that the Company's internal estimates relating to its planned
expenditures prove materially inaccurate or the Company's development and
marketing efforts do not result in significant product sales, the Company may be
required to reallocate funds among its planned activities and curtail certain
planned expenditures. In any event, the Company is unable to predict whether
revenues from operations will be sufficient to fund the Company's working
capital requirements beyond 12 months. Therefore, the Company may be required to
obtain substantial additional financing through equity or debt financings,
collaborative arrangements or otherwise. There can be no assurance as to the
availability or terms of any required additional financing, when and if needed.
In the event that the Company fails to raise any funds it requires, it may be
necessary for the Company to significantly curtail its activities or cease
operations. See "Use of Proceeds."

FUTURE ACCOUNTING PRONOUNCEMENTS

SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, Financial Reporting for Segments of
a Business Enterprise, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate the resources and in assessing performance.

Both SFAS No. 130 and 131, issued in June 1997, are effective for financial
statements for periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Due to the recent issuance of
these standards, management has been unable to fully evaluate the impact, if
any, they may have on future financial statement disclosures.

19
<PAGE> 20

BUSINESS

INTRODUCTION

The Company was organized to design, develop and market proprietary
applications software to exploit advances in speech recognition technologies.
The Company is creating products that enable a user to perform tasks or retrieve
information by speaking into a telephone or to a computer in a natural
conversational manner. The Company recently introduced the Virtual Operator -- a
speech driven auto-attendant that has received a number of industry awards
including "Product of the Year 1997" by both CTI Magazine and Teleconnect
Magazine, "Best of Show" at the 1998 CT Expo and a nomination as a finalist for
a Computerworld Smithsonian Award in the category of Business & Related
Services. The Company has developed prototypes for two additional
telephone-based speech recognition products which it intends to introduce during
calendar 1998 -- a voice driven speed dialing product and a conversational
personal assistant that performs voice mail, facsimile, and e-mail retrieval, as
well as auto-attendant and speed dialing functions. See "Business -- Products."
The Company anticipates that it will initially market these products primarily
through a distribution network of independent resellers, although it will also
seek to license its proprietary applications software to telephone switch and
voice-mail manufacturers, among others, on an OEM basis. See "Business -- Sales
and Marketing."

The Company's goal is to continue to develop and refine speech driven
applications software products which will enable users to easily access computer
automated transactions via telephone or PC without the need for extensive
touch-tone menus or computer proficiency while providing customers with
cost-saving benefits. The Company's strategy is to establish alliances with
corporate partners to develop specific customer solutions incorporating the
Company's proprietary applications software and generate revenue on a recurring
basis. See "-- Strategy."

INDUSTRY BACKGROUND

The following description of industry background is based on management's
understanding of trends and developments in the speech recognition industry
predicated on the experience and background of various members of management in
such industry.

While various types of speech recognition technology have existed for
several years and the number of commercially available speech-enabled products
continues to grow, until recently, speech recognition technology applications
have been deficient and costly, thereby limiting widespread acceptance.
Historically, emphasis in the speech recognition industry has been placed on the
development of core speech recognition engine technology, rather than on the
development of speech recognition applications technology. The speech
recognition engine is the core technology upon which various applications are
based. Major companies, including IBM, Dragon Dictate Systems, Inc., L&H, Voice
Control Systems, Nortel and Lucent, have spent vast sums of money over the last
quarter century in developing core engine technology, but have, for the most
part, relegated developing applications to others.

Speech recognition engine technologies require distinct skills including
speech algorithms, statistics, digital signal processing algorithms, digital
signal processing programming, phonetics, linguistics, information theory and
coding theory. On the other hand, creating speech recognition applications
requires an entirely different set of skills including speech and word
recognition, linguistics, usability engineering, phonetics, multimedia and
telephone application development.

Early speech recognition applications typically required programming of
equipment to recognize a limited number of discrete words spoken by a specific
user, referred to as "speaker enrollment." These speaker-dependent systems also
tended to be sensitive to background noise and to changes in speech patterns
that resulted from an enrolled speaker being tired or excited. Additionally,
these initial speech recognition applications had limited vocabularies and
required the user to speak discretely, pausing between each word, rather than
allowing natural continuous speech. Moreover, in addition to these performance
challenges, the development of foreign language versions of automatic speech
recognition and text-to-speech synthesis (technologies for converting textual
information into synthetic speech output) has been costly and time
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<PAGE> 21

consuming. As a result, most developers have limited development to one
(typically English) or a few language versions of their technology.

As the number of electronic devices used by businesses and consumers
proliferate and the features and functionality of these products and services
increase and become more complex, manufacturers continually seek to increase the
ease of use and the interface between their products and the end user. The
manner and simplicity of operation of a product can have a direct effect on its
popularity, frequency of use and market acceptance. The introduction of the
"mouse" and the graphical user interface (GUI), each of which simplified the use
of the personal computer, are examples of how improving a product's
user-friendliness can enhance its marketability.

Speech is typically the most natural, efficient and easiest means of human
communication. With the increase in the power and capability of core speech
recognition engine technology, as well as the increase in speed and reduction of
costs in computer processors, integration of human speech as an interface to
telephone and computer applications is now feasible. Recent advances in the
accuracy of speech recognition technologies have led to improvements in the
performance and reliability of speech recognition products, allowing for
multiple languages to be developed for a specific application. Management
believes that these improvements and continuing advances in speech recognition
technologies, including the development of intuitive and easy-to-use natural
language user interfaces, are accelerating the growth of speech-enabled products
in daily business and personal use. Furthermore, management believes that
electronic devices and products incorporating speech recognition technology will
be available in an increasing variety of applications, provided that these
applications are easy to use, natural, accurate and cost effective.

STRATEGY

The Company's goal is to exploit existing speech engine technology to
create advanced speech recognition applications. The Company's strategy is to
develop and refine proprietary applications software products that address
certain of the shortcomings associated with speech recognition products
currently on the market. In pursuit of that goal, management has retained a
development team which includes (i) speech recognition developers to enhance the
capabilities of the speech recognition engines that form the foundation of the
Company's products; (ii) natural dialogue designers with linguistic and phonetic
skills to design applications that anticipate user responses; (iii) multimedia
application developers to exploit and integrate audio and video functionality;
(iv) usability engineers to design intuitive, easy-to-use applications; and (v)
telephone application developers to integrate telephone systems with computer
applications.

The Company intends to offer products and services that, among other
attributes, will substantially eliminate touch-tone menus, reduce labor costs by
reducing the number of live operators, increase efficiency by reducing the
potential for lost messages and information, and provide information in a
natural conversational manner to a targeted audience.

While the Company intends to market its initial products on a stand-alone
basis through independent reseller channels and on an OEM basis, the Company's
ultimate strategy is to establish alliances with corporate partners pursuant to
which it will develop specific customer solutions incorporating the Company's
proprietary applications software and generate revenue on a recurring basis. See
"-- Sales and Marketing."

PRODUCTS

General

The Company is developing proprietary applications software products that
simulate the manner in which human beings communicate by incorporating the
following key attributes:

- Speaker Independence -- enables any person to speak and be understood. As
a result, within a geographic region or country, the Company's technology
"listens" to and can understand different dialects, ages and genders.

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<PAGE> 22

- Natural Speech -- allows users to speak at a continuous and natural pace
rather than one word at a time.

- Key Word Spotting -- identifies the key words for action within any
naturally spoken command. For example, a caller may say, "I'd like to
speak with John Doe, please." Dialogue Detection locates the name "John
Doe" and ignores all other words which have been spoken.

- Barge-in -- allows callers to override prompts with their voice. The
computer stops speaking, "hears" the new input and responds by going into
its database to retrieve the requested information.

- Advanced Statistical Methods -- used to analyze what users will say based
on quantitative statistical analyses that evaluates the combination of
responses in order to understand the spoken language. For example,
although it is currently not possible for a computer system to understand
each individual city, town or village in the United States (e.g., Boise,
Dallas or Buffalo), it can understand a specific city or town when
coupled with a specific state (e.g., Idaho, Texas or New York).

Telephony Products

The Company believes that because of its universality, the telephone offers
a particularly powerful means for information retrieval, transactions and
messaging. While in the United States interactive voice response telephone
systems using touch-tone input have enjoyed considerable success in automating a
variety of transactions, users often find that using touch-tone telephone menus,
which require a user to push different buttons based upon a series of commands,
tend to be inefficient and frustrating. The limitations for touch-tone input for
more complex and varied transactions are significant and provide a strong
opportunity for speech driven products. Furthermore, outside North America, many
telephone systems are still rotary-driven, which precludes touch-tone telephone
application capability. The recent deregulation of the telecommunication market
in the EU, however, is expected to result in telecommunication products and
services becoming more competitive. The Company believes it is well positioned
to compete in the overseas market based on its prior experience in developing
multi-lingual voice recognition products. The Company has developed a Spanish
language version of its Virtual Operator which recently was awarded "Best of
Show" at the 1998 CT Expo. In light of the foregoing and as a result of better
applications and advances in speech recognition technologies, management
believes that the exploitation of speech driven applications in the telephony
market will increase. Accordingly, the Company has determined to focus its
initial development efforts primarily on telephone products and services.

- The Virtual Operator. The Company's first stand-alone product is a
speech driven auto-attendant that enables a caller to request connection
to a person or department by speaking into the telephone in a natural
manner. A caller does not need to remember the extension of the person or
department to whom the caller wishes to speak, and the caller is not
required to enter touch-tones to transfer to a desired department.
Additionally, a caller can interrupt a prompt at any time and state the
caller's request without waiting for the prompt to finish. A product
prototype of the Virtual Operator won a Best-of-Show Award at the
Computer Technology Expo 1997, a major trade show for products and
services using computer telephone solutions that was held in Los Angeles
in March 1997. The Virtual Operator was also named "Product of the Year"
for 1997 by both Teleconnect Magazine and CTI Magazine, leading trade
publications for telephone equipment dealers, and "Best of Show" at the
1998 CT Expo. In December 1997, the Company was nominated as a finalist
for a Computerworld Smithsonian Award for its Virtual Operator
application in the category of Business & Related Services, with the
winner to be announced later this year.

In December 1997, the Company began shipping the Virtual Operator for
on-site field testing and evaluation by several international businesses,
national and regional distribution companies and prospective OEM resellers. The
Company is engaged in ongoing discussions with respect to additional field
pilots as well as sales of product for those entities which are nearing
completion of their evaluation process. See "-- Sales and Marketing."

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<PAGE> 23

- MagicDialing(TM). The Company's second product is an application
software package that enables a user to dial his or her contact list by
stating the requested name rather than requiring a user to enter a number
or numerical extension. This product is targeted at companies providing
cellular telephone services, as well as to long distance and calling card
companies.

- Conversational Personal Assistant. The Company is also developing a
conversational personal assistant that can be sold as either a
stand-alone product or as a service on a subscription basis. This product
will perform remote voice mail, facsimile, and e-mail retrieval, as well
as the functions of the Virtual Operator and the speed dialing product.

The Company has allocated a substantial portion of the proceeds of the
Offering for product development efforts aimed at enhancing the Virtual
Operator, including the creation of foreign language versions of this product,
completion of development of the conversational voice dialing and personal
assistant applications, and creation of foreign language versions of the latter.
See "Use of Proceeds."

Other Products

The Company has developed several additional products and services. One of
these -- Magic Calendar -- is a PC microphone-based interface which enables
users to input scheduling data into their computers utilizing spoken commands.
In December 1997, the Company entered into a licensing agreement with L&H for
distribution of Magic Calendar pursuant to which L&H is to pay $450,000 of
prepaid royalties to the Company. L&H paid $200,000 in prepaid royalties at
March 20, 1998 and will pay $250,000 of additional prepaid royalties between
June 30 and September 30, 1998.

Retail products and services under development include:

- Conversational Call Centers. Integrating the attributes of key word
spotting and barge-in, this product could be employed in applications
such as order-taking by a virtual call-center attendant.

- Conversational Kiosks(TM). Employing most of the Company's applications
technologies and integrating full motion video, this product can be
employed by customers to create a virtual employee capable of promoting
product sales to or eliciting information from the end user.

- Conversational Point-Of-Sale Applications. Employing many of the
Company's application technologies, this product can potentially be used
in a diverse number of applications including fast-food items ordering
via telephone or as part of an in-store informational kiosk.

The Company does not intend to utilize a significant portion of the
proceeds of the Offering to further develop these applications. Instead, it is
the Company's intention to seek strategic alliances pursuant to which third
parties will contribute technology or services, provide financing or marketing,
sales or support in connection with the development and commercialization of
these specific customer solutions. See "-- Strategy."

The Company has entered into a strategic alliance agreement with Phone
Interactive Corporation ("PIC"), a telephone service bureau business. As part of
this agreement, the Company has agreed to contribute its speech recognition call
center software under development, while PIC will provide its telecommunications
platforms, marketing, customer base and other contributions, and each will
receive a percentage of the overall revenue from the proposed services based
upon each party's contribution in developing and marketing a specific
application. The Company and PIC have begun the integration of the Company's
call center software with PIC's telecommunications platforms, and the Company
believes that the service will be available for customers prior to the end of
calendar 1998.

The Company and M.S. Management Associates, Inc. ("MSM"), an affiliate of
the Simon DeBartollo Group, L.P. ("SDG"), a national shopping mall developer,
have entered into a letter of intent in anticipation of consummation of a
Strategic Technology and Marketing Agreement for purposes of identifying
opportunities for installation of Conversational Kiosks at a limited number of
SDG properties. Under the terms of the proposed joint venture, MSM would provide
national advertisers and mall facilities for the Conversational Kiosks, while
the Company would contribute its speech application software and related
technology under
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<PAGE> 24

development. Revenues derived from advertising, rent and transaction fees from
the Conversational Kiosks would also be divided evenly between MSM and the
Company. The letter of intent contemplates that the first phase of the venture
will consist of a pilot program for installation of Conversational Kiosks in a
limited number of malls, with additional Conversational Kiosks to be installed
at additional SDG properties based on the results of the initial phase of the
program. There can be no assurance that a definitive agreement with MSM will be
consummated or that full scale deployment of Conversational Kiosks will occur
following evaluation of the initial phase of the program.

Research and Development Expenses

For the period ended July 31, 1996, the fiscal year ended July 31, 1997 and
the six months ended January 31, 1998, the Company incurred research and
development expenses of $16,129, $418,164 and $441,530, respectively. As
previously described above and under "Use of Proceeds", the Company will use a
substantial portion of the proceeds of the Offering for further product
development.

SALES AND MARKETING

To date, marketing efforts have been conducted by Company personnel and
have focused on international businesses, national and regional distribution
companies and OEM telephone switch and voicemail manufacturers which would
conduct field pilots of the Virtual Operator for evaluation purposes. The
Company anticipates that initially sales of its telephony products will be made
primarily through independent resellers that supply telephone and voicemail
systems to businesses, as well as OEM manufacturers. The Company is first
seeking to establish a distribution network for North America. Thereafter, the
Company intends to establish a similar network in the EU, focusing initially on
the United Kingdom, based on the natural progression from U.S. English-based
applications to U.K. English-based applications. Thereafter, the Company intends
to expand into other EU countries based on the expected size of the market
opportunities and the availability of distribution partners. The Company will
also be required to provide ongoing technical support and training to
distributors of its applications software.

The Company has allocated a substantial portion of the proceeds of the
Offering for sales and marketing activities, including the costs of attendance
at trade shows, trade journal publications and advertising and promotional
materials aimed at increasing awareness of the Company's products and
establishing a network of committed distributors and resellers. See "Use of
Proceeds." There can be no assurance, however, that any sales and marketing
efforts undertaken by or on behalf of the Company will be successful or will
result in substantial sales of the Company's applications software products.

The Company's ultimate strategy is to establish alliances with corporate
partners pursuant to which it will develop specific customer solutions
incorporating the Company's proprietary applications software and generate
revenue on a recurring basis. There can be no assurances, however, that the
Company will be able to enter into any additional agreements or arrangements
with any entities to develop, market, distribute or sell applications software
products or that any arrangements entered into will generate significant
revenues for the Company.

SUPPLIERS AND LICENSORS

The Company's proprietary applications software incorporates core speech
engine technology developed by others for which the Company must obtain
licenses. The Company has entered into a four-year, non-exclusive, worldwide
license agreement, effective as of December 31, 1996 and subsequently amended
(the "L&H Agreement"), to use and exploit L&H's proprietary core speech
recognition engine technologies and text-to-speech technologies. L&H is an
international developer, licensor and provider of multilingual advanced speech
and language technologies and services for telephone and desktop applications.
Included in the license to the Company are all advances or improvements made by
L&H to such technologies and all foreign language uses requested by the Company
which initially include American English, Castillian Spanish, French, German,
Italian, Dutch, and in certain instances, British English and Korean. L&H has
agreed to provide technical support, marketing support and training to the
Company. To date, the Company has paid L&H an aggregate of $700,000 in
non-refundable prepayments against future royalties due to L&H on sales of
certain of the Company's products incorporating L&H technology. The Company has
also entered into a

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<PAGE> 25

licensing arrangement with IBM for use of its core speech engine technology to
incorporate into certain products under development.

The Company's applications software is designed to be used with PCs,
specifically Intel Pentium MMX (multi-media extension) processors. The Company's
software applications also require a modem for remote maintenance which the
Company currently purchases from Boca Research, although these modems are
available from numerous sources on similar terms and conditions. Standard
telephone interface cards are also required for certain of the applications if
these operations communicate via the telephone. The Company's telephony products
currently require telephone interface cards manufactured by Dialogic of
Parsippany, New Jersey, however there are a number of other manufacturers,
including Natural Microsystems, Rhetoric, and NewVoice from which the Company
may purchase cards on similar terms and conditions. Certain of the Company's
products also rely on special external processing boards which are manufactured
by Dialogic as well. The loss of Dialogic as a source for these cards could have
a material adverse impact on the Company, since the Company might not be able to
offer all the features of a particular application if it were required to rely
on other suppliers.

The Company's conversational kiosk applications under development require
high quality sound cards shipped with most PCs today, as well as high quality
noise-canceling microphones available from a number of suppliers including
Andrea Electronics. The Company's telephony applications software is designed to
be used with Microsoft(R) Windows NT and its kiosk applications software is
designed to be used with Microsoft(R) Windows 95. The Company undertakes its
software development using Microsoft programming tools. To the extent that
Microsoft programming tools become unavailable, the Company should be able to
utilize Borland programming tools; however, the loss of the Microsoft
programming tools could have a material adverse affect on the development of the
Company's applications. Additionally, toolkits (i.e. collections of programs
that facilitate the creation of applications software) from engine providers
enable the Company to exploit speech recognition engine technologies developed
by different vendors. Typically, the Company selects engine toolkits and speech
recognition engine technology manufactured by the same entity. Alternatively,
the Company selects a programming toolkit to complement a specific application
based on the toolkit that produces the fastest results in a high quality manner
and yields efficiencies in hardware requirements.

PROPRIETARY RIGHTS

The Company considers its software and applications as propriety and
currently relies on a combination of copyright, trade secret and trademark laws
and license agreements to protect its intellectual property rights. The Company
also will enter into license agreements with end-users of the products and
applications, and has required all employees to enter into confidentiality and
non-disclosure agreements. Despite these precautions, it may be possible for
unauthorized third parties to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. The Company
currently has filed for federal trademark protection with the United States
Patent and Trademark Office (the "PTO") for the marks REGISTRY MAGIC(TM) and
VIRTUAL OPERATOR(TM).

There are three patent applications currently pending with the PTO on
various aspects of its applications software including for the Company's
barge-in and key word spotting attributes. The Company has six additional
provisional patent disclosures filed with the PTO which relate to its
conversational personal assistant and speed dialing products. There can be no
assurance that any of these patents will be granted, or if granted, will provide
the Company with significant protection against competitors. Certain of the
Company's competitors have obtained patent protection, and the Company believes
that certain of its competitors are seeking patent protection on various aspects
of their speech recognition technology. There can be no assurances that the
Company's technology will not be subject to challenges that such technology
infringes on the proprietary rights or trade secrets of others.

COMPETITION

The speech recognition applications market is growing and is expected to be
characterized by intense competition. The Company's products will compete with,
or affect the sales of, many well established companies including IBM, AT&T,
Digital Equipment, Lucent, Nortel and Unisys. Most of these companies

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have substantially greater financial, technical, personnel and other resources
than the Company and have established reputations for success in the
development, licensing and sale of their products and technology, especially the
larger organizations. Various of these competitors have the financial resources
necessary to enable them to withstand substantial price competition or downturns
in their markets. In addition, certain companies may be expected to develop
technologies or products which may be functionally similar to some or all of
those being developed by the Company. With respect to the Virtual Operator
product, the Company's competitors will likely include Voice Control Systems,
Vocalis and PureSpeech. In the speed dialing and conversational personal
assistant applications, the Company expects that its initial competitors will be
Wildfire, General Magic, and Webley. Additionally, voice-mail companies and
telephone switch manufacturers may also attempt to develop their own
conversational speech recognition applications. There can be no assurance that
the Company will be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the Company's
products and technology obsolete or less marketable, or that the Company will be
able to successfully enhance its proposed products or technology or adapt them
satisfactorily.

EMPLOYEES

The Company currently has 15 full-time employees. Four persons are in
management and provide services in the areas of marketing and business
development, administration and research and development; eight are employed in
research and development; two persons are engaged in sales and marketing and one
person is in administration. No employee of the Company is covered by a
collective bargaining agreement or is represented by a labor union. The Company
considers its employee relations to be good. The Company also has entered into
independent contractor arrangements with 11 individuals on an as-needed basis to
develop programming or provide sales and marketing assistance for the Company.

LITIGATION

On April 3, 1998, the Company initiated an action in the Circuit Court for
Palm Beach County, Florida against a former employee of the Company whose
employment was terminated at such date. The Company is alleging breach of an
oral employment agreement and misrepresentations in the inducement of such
agreement. The Company is seeking damages and the rescission of the 20,000
shares of Common Stock and options to purchase 90,000 shares of Common Stock
previously granted to such former employee. The defendant has filed an answer
denying various of the Company's allegations and raising certain affirmative
defenses. The defendant has also asserted a counterclaim against the Company and
Walt Nawrocki and Lawrence Cohen, who are members of management and principal
shareholders of the Company, seeking salary and benefits under the terms of his
oral employment agreement as well as additional unspecified equity participation
in the Company (the defendant had previously made a demand for 200,000 shares of
Common Stock). The defendant is also seeking a declaratory judgment with regard
to the Company's claim for rescission. While the Company believes that the
defendant's claims are without merit based on the breaches by the defendant of
his oral agreement with the Company, Walt Nawrocki and Lawrence Cohen have
agreed to settle such equity claims, should the need arise, from their personal
shareholdings. Any expense associated with the action will be incurred as an
expense by the Company. The Company does not believe that the outcome of this
matter will have a material adverse effect on the financial condition or
business prospects of the Company.

Other than as described above, the Company is not a party to any litigation
nor is it aware of any material threatened litigation.

FACILITIES

The Company currently leases adjacent facilities consisting of
approximately 1,594 and 1,009 square feet of office space in Boca Raton, Florida
at an initial monthly base rental amount of $1,726 and $1,093, respectively,
plus the Company's proportionate share (an aggregate of 5.43%) of taxes and
operating expenses for the common area of the building. The Company's leases
terminate on December 31, 1999.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and their ages are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Walt Nawrocki(1)........................... 53 President, Chief Executive Officer and
Director
Lawrence Cohen............................. 53 Chairman of the Board
Neal A. Bernstein.......................... 36 Vice President-Business Development and
Marketing
Martin Scott............................... 30 Treasurer and Secretary
Ted Gordon(1).............................. 68 Director
Paul Spindler(1)........................... 66 Director
Sheldon E. Misher(2)....................... 57 Director (nominee)
</TABLE>

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

(1) Member of the Audit and Compensation Committee.
(2) Mr. Misher will join the Board of Directors immediately following the
completion of the Offering.

WALT NAWROCKI has served as President, Chief Executive Officer and a
director of the Company since June 1996. Prior to joining the Company, Mr.
Nawrocki spent over 30 years at IBM where he was employed in positions of
increasing responsibility becoming Manager for Worldwide Product Development and
Business Management in August 1992. In such capacity, he oversaw a number of
business areas, including speech products, and was responsible for acquisitions,
joint development and OEM licensing programs. While at IBM, Mr. Nawrocki was
responsible for the shift from 5 1/4 inch diskettes to 3 1/2 inch diskettes and
the standardization of keyboards currently used on most PCs today. His working
teams have been honored with five Byte Magazine awards for speech recognition
products and an IBM Market Driven Quality award for customer requirements and
customer satisfaction.

LAWRENCE COHEN has served as Chairman of the Board since he founded the
Company in October 1995. Mr. Cohen has been engaged in providing financial
consulting and merchant banking services to early-stage companies for more than
the past 25 years. He has served as Vice Chairman of the Board and Executive
Vice President of Bristol Retail Solutions, Inc. (Nasdaq:BRTL), a point-of-sale
equipment distributor ("Bristol"), since he co-founded such company in April
1996. He is also the co-founder and a director of Apollo BioPharmaceuticals,
Inc., a privately-held company in Massachusetts engaged in the development of
neuroprotective pharmaceuticals ("Apollo"), and currently serves on the board of
directors of ASHA Corp. (Nasdaq:ASHA), an automotive drive train developer.
Between November 1990 and September 1996, Mr. Cohen served as Chairman of the
Board of BioTime, Inc. (Nasdaq:BTIM), a biotechnology firm he founded to develop
an artificial blood plasma substitute. He was a co-founder of Cryomedical
Sciences (Nasdaq:CMSI), a low temperature surgery company, and served as its
President from November 1990 to November 1991. It is anticipated that Mr. Cohen
will devote approximately 25% of his working time to the Company's affairs.

NEAL A. BERNSTEIN has served as Vice President-Business Development and
Marketing of the Company since January 1997. Prior to joining the Company, Mr.
Bernstein spent approximately 13 years at IBM where he was employed in a variety
of sales, marketing and business development capacities, serving last as a
Business Development Manager within the IBM Internet Division from May 1996
until December 1996. From January 1992 until May 1996, he held a number of
management positions within the Speech Products Business Unit, including Manager
of OEM and Licensing, Manager of Business Development and Strategic Alliances
and Manager of North American Sales and Marketing.

MARTIN SCOTT, a certified public accountant, has served as Secretary and
Treasurer of the Company since October 1997. From June 1996 until October 1997,
he was employed as an Audit Supervisor by Millward & Co., CPAs. From October
1995 until June 1996, Mr. Scott served as Controller of ERD Waste Corp.
(Nasdaq:ERDI), a waste disposal company. Prior thereto, from January 1995, he
was employed as a Senior

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Accountant with the firm of Richard A. Eisner & Co., LLP. From January 1991 to
January 1995, he was employed as a Senior Accountant with the firm of Feldman
Radin & Co., P.C.

TED GORDON served as a director of the Company from June 1996 until his
resignation in December 1996 and was reelected to the Board of Directors in
December 1997. From April 1971 to June 1990, Mr. Gordon served as President and
Chairman of the Board of The Futures Group, a Connecticut-based management
consulting firm he founded which provides strategic planning in the areas of
technology deployment and Company re-engineering. He remains a director and
consultant of such firm. Mr. Gordon also serves as Director of the Millennium
Project in Washington, D.C., an outlook study for the American Council of the
United Nations with which he has been associated since January 1992. Since March
1994, he has served as a consultant to the United States Environmental
Protection Agency in the area of forecasting future environment issues. He
currently serves on the boards of directors of Apollo BioPharmaceuticals and the
Institute for Global Ethics in Camden, Maine.

PAUL SPINDLER has served as a director of the Company since June 1996. He
has served as Chairman of the Board and Executive Vice President of Bristol
since he co-founded such company in April 1996. From May 1987 to December 1996,
Mr. Spindler served as President of GCI-Spindler, a Los Angeles-based marketing
communications firm (a subsidiary of Grey Advertising, Inc.), whose clients
include Toshiba Information Systems, Microsoft Corp. and IBM.

SHELDON E. MISHER has been nominated to become a director of the Company
upon the closing of the Offering. Mr. Misher has been a partner in the law firm
of Bachner, Tally, Polevoy & Misher LLP, New York, New York since 1971, and has
over 30 years experience in the areas of corporate and securities law.

Directors are elected at the Company's annual meeting of shareholders and
serve a term of one year or until their successors are elected and qualified.
Officers are appointed by the Board of Directors and serve at the discretion of
the Board of Directors, subject to the By-Laws of the Company.

BOARD COMMITTEES AND RELATED INFORMATION

Upon the closing of the Offering, the Company will establish a Compensation
and Audit Committee to be comprised of Ted Gordon and Paul Spindler, who are
non-employee directors, and Walt Nawrocki.

The Compensation and Audit Committee will administer the Company's stock
option plan and make recommendations to the full Board of Directors concerning
compensation, including bonuses and incentive arrangements, of the Company's
officers and key employees. The Compensation and Audit Committee will be
comprised of a majority of independent directors. The Compensation and Audit
Committee will also review the engagement of the independent accountants and
review the independence of the accounting firm, as well as review the audit and
non-audit fees of the independent accountants and the adequacy of the Company's
internal accounting controls.

The Company has agreed that, if it is requested to do so by the
Representative, it will use its best efforts, for a period of two years from the
date of this Prospectus, to elect one designee of the Representative as a
director of the Company or, at the Representative's option, as a non-voting
observer to the Company's Board of Directors. Such observer will have no voting
rights. He or she will be reimbursed for any out-of-pocket expense incurred in
attending such meetings, and will be indemnified against any claims arising out
of participation at Board meetings, including claims based on liabilities
arising under the securities laws. The Representative has not selected a
designee for director or a non-voting observer.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Florida Act permits the indemnification of directors, employees,
officers and agents of Florida corporations. The Company's Articles of
Incorporation indemnify its directors and officers to the fullest extent
permitted by law.

At present, there is no pending litigation or proceeding involving a
director, officer, employee, or other agent of the Company as to which
indemnification is being sought. However, the Company is a plaintiff in a

28
<PAGE> 29

recently filed complaint against a former employee who has filed a counterclaim
against the Company as well as executives of the Company. See
"Business -- Litigation."

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

DIRECTOR COMPENSATION

Following the completion of the Offering, the Company will compensate
non-employee directors in the amount of $500 per meeting for attending meetings
of the Board of Directors. In addition, directors will be reimbursed for
expenses incurred in attending such meetings and will be indemnified against any
claims arising out of his or her status as a director of the Company, including
claims arising under federal and state securities laws. In addition, directors
are eligible to receive options under the Company's 1997 Stock Option Plan.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information relating to the compensation
paid by the Company during the past two fiscal years to: (i) the Company's
President and Chief Executive Officer; and (ii) each of the Company's executive
officers who earned more than $100,000 during the fiscal year ended July 31,
1997 (collectively, the "Named Executive Officers"):

<TABLE>
<CAPTION>
STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- -------- ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Walt Nawrocki............................. 1997 $175,000 $ 0 200,000 $ 0
President and Chief Executive 1996 $ 14,583 $ 0 0 $ 0
Officer
Lawrence Cohen............................ 1997 $ 67,375 $ 0 100,000 $ 0
Chairman 1996 $ 0 $ 0 0 $ 0
</TABLE>

The Company maintains key man life insurance on the life of Walt Nawrocki
in the amount of $2,500,000 payable to the Company.

Employment Agreements

Effective December 21, 1997, the Company entered into three-year employment
agreements with each of Walt Nawrocki, Lawrence Cohen and Neal Bernstein
providing for base annual salaries of $175,000, $115,500 and $125,000,
respectively. The employees may receive annual bonuses at the discretion of the
Company, with bonuses to be determined by the Compensation and Audit Committee.
No formula or criteria have been specifically determined. The agreements provide
for severance equal to one year's salary in the event of (i) non-renewal of the
agreement upon expiration other than for cause or (ii) a change of control of
the Company as a result of which the employee is not retained by new management
on a comparable basis. In addition, the agreements contain confidentiality
provisions and 12-month post termination non-competition restriction which may
be imposed by the Company provided the employee receives a lump sum payment
equal to one year's salary within 30 days of termination of employment. Under
Florida law, a court of competent jurisdiction may determine not to enforce such
non-competition restrictions or partially enforce or modify such provisions.

29
<PAGE> 30

STOCK OPTIONS

OPTION/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)

<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENTAGE OF TOTAL EXERCISE OR EXPIRATION
UNDERLYING OPTIONS/ OPTIONS/SARS GRANTED BASE PRICE DATE
NAME SARS GRANTED(#) EMPLOYEES IN FISCAL YEAR ($/SH) THROUGH
- ---- -------------------- ------------------------ ----------- ----------------
<S> <C> <C> <C> <C>
Walt Nawrocki................ 200,000 37% $3.50 October 20, 2001
Lawrence Cohen............... 100,000 18% $3.85 March 11, 2001
</TABLE>

1997 Stock Option Plan

The 1997 Stock Option Plan (the "Plan") provides for the grant of options
to purchase up to 300,000 shares of Common Stock to employees, officers,
directors, and consultants of the Company. Options may either be "incentive
stock options" within the meaning of Section 422 of the United States Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified options.
Incentive stock options may be granted only to employees of the Company, while
non-qualified options may be issued to non-employee directors, consultants, and
others, as well as to employees of the Company.

The Plan will be administered by the Board of Directors or a committee
thereof, who determine, among other things, those individuals who shall receive
options, the time period during which the options may be partially or fully
exercised, the number of shares of Common Stock issuable upon the exercise of
each option, and the option exercise price.

The exercise price of an incentive stock option may not be less than the
fair market value per share of Common Stock on the date the option is granted.
The exercise price of a non-qualified option may be established by the Board of
Directors. The aggregate fair market value (determined as of the date the option
is granted) of Common Stock for which any person may be granted incentive stock
options which first become exercisable in any calendar year may not exceed
$100,000. No person who owns, directly or indirectly, at the time of the
granting of an incentive stock option to such person, 10% or more of the total
combined voting power of all classes of stock of the Company (a "10%
Shareholder") shall be eligible to receive any incentive stock options under the
Plan unless the exercise price is at least 110% of the fair market value of the
shares of Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to such limitation.

Incentive stock options may not be transferred by an optionee other than by
will or the laws of descent and distribution, and, during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
will be entitled to exercise the option, unless otherwise determined by the
Board of Directors. Upon termination of employment of an optionee by reason of
death or permanent and total disability, an optionee's options remain
exercisable for one year thereafter to the extent such options were exercisable
on the date of such termination. No similar limitation applies to non-qualified
options.

Options under the Plan must be issued within ten years from the effective
date of the Plan, which is March 12, 1997. Incentive stock options granted under
the Plan cannot be exercised more than ten years from the date of grant.
Incentive stock options issued to a 10% Shareholder are limited to five year
terms. Options granted under the Plan generally provide for the payment of the
exercise price in cash and may provide for the payment of the exercise price by
delivery to the Company of shares of Common Stock already owned by the optionee
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of such methods. Therefore, if so provided in an
optionee's options, an optionee may be able to tender shares of Common Stock to
purchase additional shares of Common Stock and may theoretically exercise all of
his stock options with no additional investment other than the purchase of his
original shares.

Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan.

30
<PAGE> 31

The Plan may be terminated or amended at any time by the Board of
Directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the Plan may not be
increased without the consent of the shareholders of the Company.

Options to purchase 227,350 shares of Common Stock have been granted
pursuant to the Plan leaving a balance of 72,650 shares of Common Stock
available for issuance. The Company issued options to purchase an aggregate of
207,350 shares of Common Stock on March 12, 1997 exercisable at $3.50 to $3.85
per share over a four-year term to two executive officers and other employees of
the Company. Lawrence Cohen, the Company's Chairman of the Board, received
options to purchase 100,000 shares of Common Stock exercisable at $3.85 per
share during their four-year term. Neal Bernstein, the Company's Vice
President -- Business Development and Marketing, received options to purchase
50,000 shares of Common Stock and Tony Nawrocki, an employee and the adult son
of Walt Nawrocki, the Company's President and Chief Executive Officer, received
options to purchase 30,000 shares of Common Stock. Other employees also received
options to purchase 27,350 shares of Common Stock exercisable at $3.50 per share
during their four-year term. In addition, Martin Scott, the Company's Secretary
and Treasurer, received options to purchase 5,000 shares of Common Stock of the
Company on October 15, 1997 at an exercise price of $3.50 per share over their
four-year term and an employee received options to purchase 15,000 shares of
Common Stock of the Company on December 15, 1997 at an exercise price of $5.00
per share over their four-year term. Such options are exercisable as to 50% of
the options granted commencing one year following the date of grant and as to
the remaining 50% of such options, commencing two years from the date of grant,
except for Lawrence Cohen whose options are currently exercisable in their
entirety.

OTHER OPTION GRANTS

In addition to options granted pursuant to the Company's 1997 Stock Option
Plan described above Registry Magic granted options in October 1996 to Walt
Nawrocki, the President and Chief Executive Officer of the Company, to purchase
200,000 shares of Common Stock of the Company exercisable at $3.50 per share on
or prior to October 20, 2001. At that time, the Company also issued options to
purchase an aggregate of 100,000 shares of Common Stock to two employees of the
Company, exercisable at $.50 per share on or prior to October 20, 2001. See
"Management's Discussion and Analysis and Plan of Operation." In addition,
between March and July 1997, the Company granted options to purchase an
aggregate of 19,500 shares of Common Stock to two consultants of the Company,
exercisable at $3.50 per share during the five year term of such options. During
the six months ended January 31, 1998, options to purchase 6,676 shares of
Common Stock were granted to two consultants of the Company, including one of
the consultants referred to above. Such options are exercisable at $3.50 to
$5.00 per share, expiring in four to five years and vesting immediately.
Subsequent to January 31, 1998, options to purchase 14,500 shares of Common
Stock were granted to three consultants. Such options are exercisable at $7.00
per share, expiring in five years and vesting immediately.

In connection with the issuance of the aforementioned options, $300,000 was
charged to operations representing the difference between the market price of
the stock and the exercise price of the options on the date the options were
granted. In addition, $4,500 was charged to operations for services received in
exchange for the grant of options.

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<PAGE> 32

OPTION EXERCISES AND HOLDINGS

The following table sets forth information with respect to the exercise of
options to purchase shares of Common Stock during the fiscal year ended July 31,
1997 to each person named in the Summary Compensation Table and the unexercised
options held as of the end of the 1997 fiscal year.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS(1)/SARS
ACQUIRED ON VALUE AT FY-END(#) AT FY-END($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ------------- ---------------
<S> <C> <C> <C> <C>
Walt Nawrocki, President and
Chief Executive Officer...................... -- -- 200,000/0 $750,000
Lawrence Cohen, Chairman....................... -- -- 100,000/0 $340,000
</TABLE>

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

(1) Based on the public offering price of $7.25 per share.

CERTAIN TRANSACTIONS

Between June and September 1996, the Company issued an aggregate of
3,325,000 shares of Common Stock for $.001 per share in connection with its
initial capitalization. Following reallocation and transfers, executive officers
and directors, their immediate family members or affiliated entities received
shares of Common Stock as follows: (i) 300,000 shares were issued to Elizabeth
Nawrocki, the wife of Walt Nawrocki, the President, Chief Executive Officer and
a director of the Company; (ii) 1,724,000 shares were issued to Alliant Holding
and Transfer Company ("Alliant"), an affiliate of Lawrence Cohen, the Company's
Chairman of the Board; (iii) 120,000 shares were issued to The Spindler Trust
which is controlled by Paul Spindler, a director of the Company; (iv) 320,000
shares were issued to Ted Gordon, a director of the Company; and (v) 300,000
shares were issued to Leslie Bernstein, the wife of Neal Bernstein, a Vice
President of the Company. Alliant transferred 15,000 of its shares in October
1997 to Martin Scott, the Company's Secretary and Treasurer.

During 1996 and 1997, Lawrence Cohen contributed $25,959 and $3,500,
respectively, to the capital of the Company. At that time he also advanced the
Company $50,000 which bears interest at the rate of 6.5% per annum. This loan
and related interest may be repaid not earlier than six months from the date of
this Prospectus and only to the extent of cash flow from operations, if any. In
October and November 1996, Donna Cohen, Mr. Cohen's wife, advanced the Company a
total of $50,000, which was repaid in December 1996 together with interest at
the rate of 7% per annum.

In November 1997, the Company issued 200,000 shares of its Common Stock to
1-800-REACH ME, LLC ("REACH ME") in consideration for a cash payment of
$1,000,000 (net proceeds of $997,159). REACH ME, subsequently entered into a
dealer agreement with the Company. REACH ME has certain demand and piggyback
registration rights with regard to these shares of Common Stock that it
acquired, and the Company will register the resale of such shares 12 months from
the date hereof.

Between October 20, 1996 and October 15, 1997, the Company granted options
to purchase an aggregate of 355,000 shares of Common Stock at exercise prices
ranging from $0.50 to $3.85 per share to executive officers of the Company. See
"Management -- Stock Options."

All transactions between the Company and its officers, shareholders and
each of their affiliated companies have been made on terms no less favorable to
the Company than those available from unaffiliated parties. In the future, the
Company intends to handle transactions of a similar nature on terms no less
favorable to the Company than those available from unaffiliated parties. In
addition, any forgiveness of loans must be approved by a majority of the
Company's independent directors who do not have an interest in the transaction
and who have access, at the Company's expense, to the Company's counsel or
independent counsel.

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<PAGE> 33

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of the date of this Prospectus and as
adjusted to reflect the sale of the shares of Common Stock offered hereby,
certain information with respect to the beneficial ownership of the Company's
Common Stock by (i) each person known by the Company to own beneficially 5% or
more of the outstanding Common Stock, (ii) each director of the Company, (iii)
the executive officers of the Company, (iv) the nominee for director whose term
will begin upon the completion of the Offering; and (v) all current directors
and executive officers as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
SHARES OF COMMON STOCK --------------------
NAME AND ADDRESS BENEFICIALLY OWNED BEFORE AFTER
OF BENEFICAL OWNERS(1)(2) PRIOR TO OFFERING OFFERING OFFERING
- ------------------------- ---------------------- -------- --------
<S> <C> <C> <C>
Lawrence Cohen(3)...................................... 1,809,000 44.2% 31.8%
Walt Nawrocki(4)....................................... 500,000 11.9 8.6
Neal Bernstein(5)...................................... 325,000 8.1 5.8
Harbor View Fund, Inc.(6).............................. 340,000 8.3 6.0
488 Madison Avenue New York, New York 10019
Ted Gordon............................................. 320,000 8.0 5.7
1-800-REACH ME, LLC(7)................................. 200,000 5.0 3.6
One Penn Plaza, Suite 1526
New York, New York 10019.
Paul Spindler(8)....................................... 120,000 3.0 2.1
Martin Scott........................................... 15,000 .4 .3
Sheldon Misher(9)...................................... -- -- --
All officers and directors as a group (6 persons)...... 3,089,000 71.5 52.2
</TABLE>

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

(1) Unless otherwise indicated below, the persons in the table above have sole
voting and investment power with respect to all shares shown as beneficially
owned by them, subject to community property laws where applicable. A person
is deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the date of this Prospectus upon the
exercise of options. Each person's percentage of ownership is determined by
assuming that any options held by such person have been exercised.
(2) Unless otherwise indicated below, the address of each person is c/o the
Company at One South Ocean Boulevard, Boca Raton, Suite 206, Florida 33432.
(3) Includes (i) 100,000 shares of Common Stock underlying immediately
exercisable options and (ii) 1,709,000 shares owned by Alliant. Alliant is
wholly owned by East Ocean Limited Partnership, as to which Mr. Cohen is the
general partner and members of Mr. Cohen's family are limited partners. Mr.
Cohen disclaims beneficial ownership with respect to the limited partnership
interests owned by members of his family. Does not include 340,000 shares
beneficially owned by Harbor View Fund, Inc. ("Harbor View") as to which Mr.
Cohen has voting control pursuant to a voting trust agreement. See footnote
(6) below.
(4) Includes (i) 200,000 shares of Common Stock underlying immediately
exercisable options and (ii) 300,000 shares owned by Mr. Nawrocki's wife.
Mr. Nawrocki disclaims beneficial ownership of his wife's shares.
(5) Includes (i) 25,000 shares of Common Stock underlying immediately
exercisable options and (ii) 300,000 shares owned by Mr. Bernstein's, wife.
Mr. Bernstein disclaims beneficial ownership of his wife's shares.
(6) Harbor View is an entity controlled by Cori Orr, the wife of Kenneth Orr,
the former principal of the placement agent for the Company's private
offering completed in December 1996. Harbor View's holdings include (i)
100,000 shares underlying warrants originally issued to the placement agent
in the aforementioned private offering and (ii) 145,000 shares acquired by
Sheldon Schwartz, Mrs. Orr's father, as to which she disclaims beneficial
ownership. Harbor View and Mr. Schwartz have entered into a voting

33
<PAGE> 34

trust agreement pursuant to which Lawrence Cohen, Chairman of the Board of the
Company, has been granted the right to vote their shares in the same proportion
as votes cast by the Company's other shareholders. The Company has been advised
that a dispute exists as to the ownership of an aggregate of 240,000 of the
shares beneficially owned by Harbor View and Mr. Schwartz. Based on
supporting documentation reviewed by the Company and statements of Mr. and
Mrs. Orr, the Company believes that the shares in question were assigned to
Mr. Orr by Gregg Marcus in May 1997 in connection with a loan transaction.
Mr. Marcus had acquired the shares from the Company in August 1996. In
August 1997, Mr. Marcus submitted an affidavit of lost stock certificate to
the Company pursuant to which the Company reissued the 240,000 shares to
Mr. Marcus. The representations contained in the affidavit are inconsistent
with certain transfer and assignment documentation subsequently supplied to
the Company by Mr. and Mrs. Orr, and a lawsuit has been filed by Mrs. Orr
against Mr. Marcus (whose counsel has advised the Company that he is a
convicted felon) seeking, inter alia, delivery of a formal stock power for
the transfer. It is the Company's present position, based on the foregoing,
that the 240,000 shares were validly transferred to Mr. Orr and that Mr.
Marcus is not currently a beneficial shareholder of the Company. However,
Harbor View, Mrs. Orr and Mr. Schwartz have agreed to escrow 240,000 of the
shares in the event it is ultimately determined that Mr. Marcus is entitled
to all or a portion of the disputed shares. While neither the Company nor
the Underwriter are parties to such litigation, there can be no assurance
that during the course of the litigation either party will not seek to
include the Company and/or the Underwriter as an additional party based on
the Company's position as to the beneficial ownership of the 240,000
shares.

(7) The managing member of REACH ME is Mortimer D.A. Sackler.
(8) Such shares are held of record by The Spindler Trust, of which Mr. Spindler
is the beneficial owner and trustee.
(9) Address is 380 Madison Avenue, New York, New York 10017. Mr. Misher is a
nominee for director of the Company.

34
<PAGE> 35

DESCRIPTION OF SECURITIES

GENERAL

The following description of the material terms of the Common Stock is
subject to the Florida Act and to the provisions contained in the Company's
Articles of Incorporation, as amended (the "Articles of Incorporation"), and
By-Laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. See "Available Information."

The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of preferred stock, $.01 par
value (the "Preferred Stock"). Immediately prior to the Offering, there were
outstanding 3,993,000 shares of Common Stock and no shares of Preferred Stock.

COMMON STOCK

The Company is authorized to issue 30,000,000 shares of Common Stock, $.001
par value per share, of which as of the date of this Prospectus, 3,993,000
shares of Common Stock are outstanding and held by 77 holders of record. All
outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon completion of the Offering will be, validly authorized and
issued, fully paid and non-assessable.

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution, or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities.

PREFERRED STOCK

The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock, $.01 par value per share, of which no shares are outstanding as of the
date hereof. The Preferred Stock may be issued in one or more series, the terms
of which may be determined at the time of issuance by the Board of Directors,
without further action by shareholders, and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights, and sinking
fund provisions. The issuance of any such Preferred Stock could adversely affect
the rights of the holders of Common Stock and, therefore, reduce the value of
the Common Stock. The ability of the Board of Directors to issue Preferred Stock
could discourage, delay, or prevent a takeover of the Company.

THE NASDAQ SMALLCAP MARKET

The Company's Common Stock has been approved for listing on Nasdaq under
the symbol "RMAG."

ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW

The Company may be subject to the control-share acquisition provisions of
Section 607.0902 of the Florida Act.

The control share acquisition provisions generally provide that control
shares of an issuing public corporation acquired in a control share acquisition
have no voting rights until voting rights are granted by a resolution approved
by a majority of shares entitled to vote excluding control shares. Control share
acquisition provisions apply to "Issuing Public Corporations" which are defined
to include corporations with: (i) 100 or more shareholders, excluding all
nominees or brokers; (ii) principal offices in Florida; and (iii) more than 10%
of its shares owned by Florida residents.

35
<PAGE> 36

"Control Shares" are defined as shares that, when acquired and added to
other shares owned by a person, enable that person to exercise voting power with
respect to shares of an Issuing Public Corporation within the ranges of
one-fifth to one-third, one-third to one-half, and one-half or more of the
outstanding voting power. This term does not include all shares owned by the
person but only those shares acquired to put the shareholder "over the top" with
respect to that particular range. The Florida Act provides that shares acquired
within any 90-day period either before or after purchase are considered to be
one acquisition. Approval of voting rights requires: (i) approval by each class
entitled to vote separately by majority vote and (ii) approval by each class or
series entitled to vote separately by a majority of all votes entitles to be
cast by that group excluding all Control Shares.

If an acquiring person proposes to make or has made a control share
acquisition, he may deliver to the Issuing Public Corporation an acquiring
person's statement ("APS"). The acquiring person may then request that the
Issuing Public Corporation call a special meeting of the shareholders at the
acquiring person's expense to consider granting rights to the Control Shares. If
no APS has been filed, any Control Shares acquired in a Control Share
acquisition by such person may, after 60 days has passed since the last
acquisition of Control Shares, be redeemed at their fair market value. If an APS
is filed, the shares are not subject to redemption unless the shares are not
accorded full voting rights by shareholders. The effect and intent of the
control share acquisition provision is to deter corporate takeovers. Therefore,
it is more likely than not that control of the Company will remain in the hands
of the existing principal shareholders. See "Principal Shareholders."

REGISTRATION RIGHTS

The Company has granted demand and piggyback registration rights to (i)
investors in the December 1996 private placement who hold 410,000 shares of
Common Stock; (ii) the holders of 58,000 shares of Common Stock acquired in
January 1997; (iii) REACH ME, which holds 200,000 shares of Common Stock; and
(iv) the assignee of the former placement agent for the Company's private
offering of securities, which holds warrants to purchase 100,000 shares of
Common Stock (the "Agent's Warrants"). The Company has obtained lock-up
agreements from the January 1997 investors, REACH ME and most of the investors
in the December 1996 offering pursuant to which they have agreed not to exercise
such registration rights or sell or otherwise transfer their shares for a period
of 12 months after the consummation of the Offering without the prior written
consent of the Representative. The Company believes, notwithstanding the
foregoing, that all of the investors in the December 1996 placement are bound by
the 12 month lock-up by virtue of documentation executed by such individuals at
the time of their purchase. The holder of the Agent's Warrants has agreed not to
exercise its demand registration rights and not to sell or otherwise transfer
the shares underlying the Agent's Warrants for a period of 12 months after the
consummation of the Offering. The holders of the Representative's Warrants will
also have certain demand and piggyback registration rights with respect to such
Warrants and the 160,000 shares of Common Stock underlying such Warrants. Any
exercise of the above registration rights may hinder efforts by the Company to
arrange future financings of the Company and/or have an adverse effect on the
market price of the Company's shares of Common Stock.

TRANSFER AGENT

The transfer agent for the Common Stock is American Stock Transfer & Trust
Company, 40 Wall Street, New York, New York 10005.

36
<PAGE> 37

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 5,593,000 shares of
Common Stock outstanding (5,833,000 shares of Common Stock outstanding if the
Underwriters' over-allotment option is exercised in full). Of these shares, the
1,600,000 shares of Common Stock offered hereby (1,840,000 shares if the
Underwriter's over-allotment option is exercised in full) will be freely
tradable without further registration under the Securities Act. All of the
presently outstanding 3,993,000 shares of Common Stock are "restricted
securities" within the meaning of Rule 144 of the Securities Act and, will be
eligible for sale in the public market in reliance upon, and in accordance with,
the provisions of Rule 144 commencing on the date of this Prospectus, subject to
the restrictions on transferability described below. In general, under Rule 144,
as currently in effect, a person or persons whose shares are aggregated,
including a person who may be deemed to be an "affiliate" of the Company as that
term is defined under the Securities Act, would be entitled to sell within any
three month period a number of shares beneficially owned for at least one year
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock, or (ii) the average weekly trading volume in the Common Stock on a
designated exchange or automated quotation system during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice, and the availability of current
public information about the Company. However, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale by
such person and who has beneficially owned shares of Common Stock for at least
two years may sell such shares without regard to the volume, manner of sale, or
notice requirements of Rule 144.

Under Rule 701 of the Securities Act, a person having exercisable options
which were granted prior to the date of this Prospectus would be entitled to
sell such shares commencing 90 days following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after the 90-day
period, but without a holding period. Currently, 411,176 outstanding options are
exercisable; however, if all the requirements of Rule 701 are met, an aggregate
of 474,851 shares subject to outstanding stock options may be sold by December
31, 1998, subject to the restrictions on transferability described below.

All officers and directors of the Company and substantially all of its
shareholders have agreed not to sell, assign, transfer or otherwise dispose of
their shares for a period of 12 months following the date of this Prospectus
without the prior written consent of the Representative. See "Description of
Securities -- Registration Rights."

The Company has granted certain demand and piggyback registration rights
with respect to an aggregate of 768,000 shares of Common Stock and shares of
Common Stock underlying warrants. The Representative also has demand and
piggyback registration rights with respect to the Common Stock underlying the
Representative's Warrants. See "Description of Securities -- Registration
Rights" and "Underwriting."

Prior to the Offering, there has been no public market for the Company's
securities. Following the Offering, the Company cannot predict the effect, if
any, that sales of shares of Common Stock pursuant to Rule 144 or otherwise, or
the availability of such shares for sale, will have on the market price
prevailing from time to time. Nevertheless, sales by the current shareholders of
a substantial number of shares of Common Stock in the public market could
materially adversely affect prevailing market prices for the Common Stock. In
addition, the availability for sale of a substantial number of shares of Common
Stock acquired through the exercise of the Representative's Warrants or the
currently outstanding options could materially adversely affect prevailing
market prices for the Common Stock.

37
<PAGE> 38

UNDERWRITING

Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, the Underwriters named below, for whom
Commonwealth Associates is acting as Representative, have severally agreed to
purchase, and the Company has agreed to sell to them, severally, the respective
number of shares of Common Stock set forth opposite the names of such
Underwriters below:

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Commonwealth Associates..................................... 1,570,000
Laidlaw Global Securities, Inc.............................. 10,000
C. E. Unterberg, Tobin...................................... 10,000
Pennsylvania Merchant Group, LLC............................ 10,000
---------
Total............................................. 1,600,000
=========
</TABLE>

The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public at the initial offering price set forth on
the cover page of this Prospectus and to certain dealers who are members of the
NASD, at such prices less concessions of not in excess of $0.12 per share, of
which a sum not in excess of $0.10 per share may in turn be reallowed to other
dealers who are members of the NASD, which initial public offering price,
concessions and reallowances will not be changed by the Representative until
after the Offering has been completed. The Underwriters are committed to
purchase all of the shares of Common Stock offered hereby if any are purchased.
The shares are being offered by the Underwriters subject to prior sale, when, as
and if delivered to and accepted by the Underwriters and subject to approval of
certain legal matters by counsel and to certain other conditions.

The Company has granted to the Underwriters an option, exercisable during
the 45-day period commencing on the date of this Prospectus, to purchase from
the Company at the initial public offering price, less underwriting discounts,
up to 240,000 additional shares for the purpose of covering over-allotments, if
any.

The Company has agreed to sell to the Representative and its designees, for
nominal consideration, the Representative's Warrants to purchase up to 160,000
shares of Common Stock. The Representative's Warrants will be exercisable during
the four-year period commencing one year after the date of this Prospectus at an
exercise price of $9.06 per share, subject to adjustment in certain events to
protect against dilution, and are not transferable for a period of one year
after the date of this Prospectus except to officers of the Representative or to
members of the selling group or their respective officers. The Company has
agreed to register during the four-year period commencing one year after the
date of this Prospectus, on two separate occasions, the securities issuable upon
exercise thereof under the Securities Act, the initial such registration to be
at the Company's expense and the second at the expense of the holders. The
Company has also granted certain demand and piggyback registration rights to
holders of the Representative's Warrants. The Representative's Warrant includes
a provision permitting the holders to elect a "cashless exercise" whereby the
holders, in lieu of paying the exercise price in cash, may elect to forego the
right to exercise the Representative's Warrant with respect to certain of the
shares issuable thereunder (the "Warrant Shares") as consideration for part or
all of the remaining shares issuable under the Representative's Warrant.
Specifically, the Representative's Warrant provides that the dollar amount of
such cashless consideration shall be deemed to be the market value per share of
Common Stock on the date of exercise less the exercise price per share provided
in the Representative's Warrant multiplied by the number of Warrant Shares
surrendered.

The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 1.5% of the gross proceeds derived from the sale of
shares offered hereby, including any shares purchased pursuant to the
Underwriters' over-allotment option, $50,000 of which has been paid to date. The
Company has also agreed to enter into a financial consulting agreement with the
Representative providing for an advisory fee of 2.0% of the gross proceeds
derived from the sale of shares offered hereby, assuming exercise of the
Underwriters' overallotment option.

38
<PAGE> 39

The Company and the Underwriters have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including liabilities under
the Securities Act.

The Company has agreed that, if it is requested to do so by the
Representative, it will use its best efforts, for a period of two years from the
date of this prospectus, to elect one designee of the Representative as a
director of the Company or, at the Representative's option, as a non-voting
observer to the Company's Board of Directors. The Representative has not
selected a designee for director or a non-voting observer.

Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the initial public offering price of the
shares offered hereby has been determined by negotiation between the Company and
the Representative and are not necessarily related to the Company's asset value,
net worth or other established criteria of value. Among the factors considered
in determining such prices and terms, in addition to the prevailing market
conditions, include the history of and the prospects for the industry in which
the Company competes, the present state of the Company's development and its
future prospects, an assessment of the Company's management, the Company's
capital structure and demand for similar securities of comparable companies.

The Representative has informed the Company that it does not expect sales
to discretionary accounts to exceed 5% of the total number of the shares offered
hereby.

The foregoing is a summary of the principal terms of the Underwriting
Agreement and related agreements described above and does not purport to be
complete. Reference is made to copies of each such agreements which are filed as
exhibits to the Registration Statement. See "Additional Information."

LEGAL MATTERS

The validity of the issuance of the securities offered hereby will be
passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A., Fort
Lauderdale, Florida. Certain members of the firm of Atlas, Pearlman, Trop &
Borkson, P.A. own 21,000 shares of Common Stock. Certain matters will be passed
upon for the Underwriters by Bachner, Tally, Polevoy & Misher LLP., New York,
New York.

EXPERTS

The financial statements of the Company appearing in this Prospectus have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent and for the periods set forth in their report appearing elsewhere
herein, which contains an explanatory paragraph raising substantial doubt as to
the Company's ability to continue as a going concern, and are included in
reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company intends to furnish to its shareholders annual reports, which
will include financial statements audited by independent accountants, and such
other periodic reports as it may determine to furnish or as may be required by
law, including Sections 13(a) and 15(d) of the Securities Exchange Act of 1934,
as amended.

The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form SB-2 (the "Registration Statement") under the Securities Act
with respect to the securities offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, as permitted by the rules and regulations of the Commission. For
further information, reference is made to the Registration
39
<PAGE> 40

Statement and to the exhibits filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other document which has been
filed as an exhibit to the Registration Statement are qualified in their
entirety by reference to such exhibits for a complete statement of their terms
and conditions. The Registration Statement and the exhibits thereto may be
inspected without charge at the offices of the Commission and copies of all or
any part thereof may be obtained from the Commission's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549 or at certain of the regional offices
of the Commission located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
upon payment of the fees prescribed by the Commission. Electronic reports and
other information filed through the Electronic Data Gathering, Analysis, and
Retrieval System are publicly available through the Commission's website
(http://www.sec.gov.). In addition, following approval of the Common Stock for
quotation on The Nasdaq SmallCap Market, reports and other information
concerning the Company may be inspected at the office of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.

40
<PAGE> 41

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Shareholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 42

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Registry Magic Incorporated
(A Development Stage Company)

We have audited the accompanying balance sheet of Registry Magic
Incorporated, (a development stage company) as of July 31, 1997 and the related
statements of operations, shareholders' equity (deficit) and cash flows for the
year ended July 31, 1997 and for the period from October 11, 1995 (inception)
through July 31, 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 Registry Magic Incorporated
(a development stage company), as of July 31, 1997 and the results of its
operations and its cash flows for the year then ended and for the period from
October 11, 1995 (inception) to July 31, 1996 in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's dependence on outside financing, lack of
existing commitments from lenders to provide necessary financing, lack of
sufficient working capital, and losses since inception raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

Miami, Florida BDO Seidman, LLP
December 19, 1997

F-2
<PAGE> 43

REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1998 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 829,345 $ 928,680
Accounts receivable....................................... -- 5,140
Inventories............................................... 136,078 --
Other current assets...................................... 17,935 4,084
---------- ----------
Total current assets.............................. 983,358 937,904
Property and equipment, net (Note 3)........................ 195,153 114,929
Deferred patent costs....................................... 23,084 17,847
Deferred loan costs, net.................................... 17,432 30,490
Deferred offering costs..................................... 96,096 --
Other assets................................................ 6,925 6,925
---------- ----------
$1,322,048 $1,108,095
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities.................. $ 147,542 $ 44,375
Notes payable -- shareholders (Note 4).................... 410,000 410,000
Notes payable -- related party (Note 5)................... 50,000 50,000
Deferred revenue.......................................... -- 237,500
---------- ----------
Total current liabilities......................... 607,542 741,875
---------- ----------
Shareholders' equity:
Preferred stock $.01 par value; 5,000,000 shares
authorized; no shares outstanding...................... -- --
Common stock, $.001 par value; 30,000,000 shares
authorized; 3,993,000 and 3,793,000 shares issued and
outstanding at January 31, 1998 and July 31, 1997,
respectively........................................... 3,993 3,793
Additional paid-in capital................................ 2,803,796 1,780,471
Deficit accumulated during the development stage.......... (2,093,283) (1,418,044)
---------- ----------
Total shareholders' equity........................ 714,506 366,220
---------- ----------
$1,322,048 $1,108,095
========== ==========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE> 44

REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE
CUMULATIVE FROM PERIOD FROM
OCTOBER 11, OCTOBER 11,
1995 1995
(INCEPTION) FOR THE SIX MONTHS ENDED FOR THE (INCEPTION)
THROUGH JANUARY 31, YEAR ENDED THROUGH
JANUARY 31, ------------------------- JULY 31, JULY 31,
1998 1998 1997 1997 1996
--------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Incidental consulting fees
revenue........................ $ 683,328 $ 338,384 $ 37,500 $ 344,944 $ --
----------- ---------- ---------- ----------- ----------
Costs and Expenses:
General and administrative..... 1,328,910 531,748 398,639 770,283 26,879
Research and development....... 875,823 441,530 174,494 418,164 16,129
Royalty expense (Note 8)....... 500,000 -- 125,000 500,000 --
Depreciation and
amortization................ 80,703 43,789 8,673 36,357 557
Interest expense (income),
net......................... (8,825) (3,444) 1,459 (5,657) 276
----------- ---------- ---------- ----------- ----------
Total costs and
expenses............. 2,776,611 1,013,623 708,265 1,719,147 43,841
----------- ---------- ---------- ----------- ----------
Net Loss............... $(2,093,283) $ (675,239) $ (670,765) $(1,374,203) $ (43,841)
=========== ========== ========== =========== ==========
Weighted average shares
outstanding (Note 1)........... 3,882,130 3,460,136 3,625,200 3,325,000
Net loss per common share (basic
and diluted) (Note 1).......... $ (0.17) $ (0.19) $ (0.38) $ (0.01)
========== ========== =========== ==========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE> 45

REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
------------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
--------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash at
$.001 per share (Note 7)............. 3,325,000 $3,325 $ -- $ -- $ 3,325
Capital contributions (Note 7)......... -- -- 25,959 -- 25,959
Net loss..................... -- -- -- (43,841) (43,841)
--------- ------ ---------- ----------- -----------
Balance at July 31, 1996............... 3,325,000 3,325 25,959 (43,841) (14,557)
Issuance of stock options to employees
(Note 9)............................. -- -- 300,000 -- 300,000
Capital contributions (Note 7)......... -- -- 3,500 -- 3,500
Issuance of common stock for cash at
$3.50 per share net of offering costs
of $191,020 (Note 7)................. 410,000 410 1,243,570 -- 1,243,980
Issuance of stock options for services
(Note 9)............................. -- -- 4,500 -- 4,500
Issuance of common stock for cash at
$3.50 per share (Note 7)............. 58,000 58 202,942 -- 203,000
Net loss..................... -- -- -- (1,374,203) (1,374,203)
--------- ------ ---------- ----------- -----------
Balance at July 31, 1997............... 3,793,000 3,793 1,780,471 (1,418,044) 366,220
Issuance of common stock for cash at
$5.00 per share, net of offering
costs of $2,841 (Note 10)
(unaudited).......................... 200,000 200 996,959 -- 997,159
Issuance of stock options for services
(unaudited).......................... -- -- 26,366 -- 26,366
Net loss (unaudited)......... -- -- -- (675,239) (675,239)
--------- ------ ---------- ----------- -----------
Balance at January 31, 1998
(unaudited).......................... 3,993,000 $3,993 $2,803,796 $(2,093,283) $ 714,506
========= ====== ========== =========== ===========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE> 46

REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE
CUMULATIVE FROM PERIOD FROM
OCTOBER 11, OCTOBER 11,
1995 (INCEPTION) FOR THE SIX MONTHS FOR THE 1995
THROUGH ENDED JANUARY 31, YEAR ENDED (INCEPTION) TO
JANUARY 31, ---------------------- JULY 31, JULY 31,
1998 1998 1997 1997 1996
---------------- --------- ---------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net loss.......................... $(2,093,283) $(675,239) $ (670,765) $(1,374,203) (43,841)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization... 80,703 43,789 8,673 36,357 557
Stock option compensation
expense...................... 330,866 26,366 300,000 304,500 --
(Increase) decrease in accounts
receivable................... -- 5,140 (37,500) (5,140) --
Increase in inventories......... (136,078) (136,078)
Increase in other current
assets....................... (4,084) -- -- (4,084) --
Increase in other assets........ (20,776) (13,851) (6,925) (6,925) --
Increase (decrease) in accounts
payable and accrued
expenses..................... 147,542 103,167 27,226 22,137 22,238
Increase (decrease) in deferred
revenue...................... -- (237,500) -- 237,500 --
----------- --------- ---------- ----------- --------
Net cash used in operating
activities............... (1,695,110) (884,206) (379,291) (789,858) (21,046)
----------- --------- ---------- ----------- --------
Investing Activities:
Purchase of equipment............. (251,959) (117,390) (47,941) (116,525) (18,044)
Proceeds from sale of equipment... 6,435 6,435 -- -- --
Deferred patent costs............. (23,084) (5,237) (4,090) (13,824) (4,023)
----------- --------- ---------- ----------- --------
Net cash used in investing
activities............... (268,608) (116,192) (52,031) (130,349) (22,067)
----------- --------- ---------- ----------- --------
Financing Activities:
Borrowings from related party..... 100,000 -- 50,000 50,000 50,000
Repayment to related party........ (50,000) -- (50,000) (50,000) --
Stock subscription receivable..... -- -- 1,479 1,479 (1,479)
Payment of deferred offering
costs........................... (96,096) (96,096) -- -- --
Payment of deferred loan costs.... (47,764) -- (47,764) (47,764)
Net proceeds from sale of common
stock........................... 2,450,964 997,159 1,450,480 1,450,480 3,325
Capital contribution.............. 25,959 -- -- -- 25,959
Notes payable..................... 410,000 -- 410,000 410,000 --
----------- --------- ---------- ----------- --------
Net cash from (used in)
financing activities..... 2,793,063 901,063 1,814,195 1,814,195 77,805
----------- --------- ---------- ----------- --------
Net increase (decrease) in
cash..................... 829,345 (99,335) 1,382,873 893,988 34,692
Cash beginning of period............ -- 928,680 34,692 34,692 --
----------- --------- ---------- ----------- --------
Cash end of period.................. $ 829,345 $ 829,345 $1,417,565 $ 928,680 $ 34,692
=========== ========= ========== =========== ========
Supplemental disclosures:
Cash paid for interest............ $ 28,009 $ 17,945 $ 952 $ 10,064 $ --
=========== ========= ========== =========== ========
Common stock issued for services
rendered in connection with
private placement................. $ 3,500 $ -- $ 3,500 3,500 $ --
=========== ========= ========== =========== ========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE> 47

REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS
UNAUDITED WITH RESPECT TO THE CUMULATIVE PERIOD FROM OCTOBER 11, 1995
(INCEPTION) THROUGH JANUARY 31, 1998 AND THE SIX MONTHS ENDED
JANUARY 31, 1998 AND 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

Registry Magic Incorporated (the "Company"), was incorporated on October
11, 1995 (Inception). The Company is engaged in the development and marketing of
proprietary applications software incorporating core speech recognition
technology. The Company's products are designed to enable a user to perform
tasks or retrieve information by speaking into a telephone or a computer in a
natural conversational manner. The Company has developed voice recognition
prototype products that span the spectrum of applications areas from telephony
to point-of-sale human interface solutions. The Company's offices are located in
Boca Raton, Florida. The Company is in the development stage and its operations
to date have largely consisted of the research and development of its products.
Certain incidental consulting fees revenue have been earned unrelated to the
Company's intended purpose.

Preparation of Financial Statements

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

Cash Equivalents

The Company considers all liquid debt instruments with original maturities
of six months or less to be cash equivalents. Cash equivalents include
investments in money market accounts.

Research and Development Costs

Research and development costs incurred to establish the technological
feasibility of computer software products are charged to operations as incurred.

Equipment and Depreciation

Equipment is recorded at cost. Depreciation is calculated on a straight
line basis over the estimated useful lives of the assets, which range from three
to five years.

Deferred Patent Costs

Costs incurred in relation to patent applications are capitalized as
deferred patent costs. If and when a patent is issued, the related patent
application costs will be transferred to a patent account and amortized over the
legal life of the patent. If it is determined that a patent will not be issued,
the related patent application costs will be charged to expense at the time such
determination is made.

Deferred Loan Costs

The costs incurred in connection with the issuance of debt are deferred and
amortized over the term of the notes. See Note 4.

F-7
<PAGE> 48
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED WITH RESPECT TO THE CUMULATIVE PERIOD FROM OCTOBER 11, 1995
(INCEPTION) THROUGH JANUARY 31, 1998 AND THE SIX MONTHS ENDED
JANUARY 31, 1998 AND 1997

Deferred Offering Costs

Costs incurred in connection with the Company's effort to obtain additional
financing through a public offering have been deferred and will be offset
against the proceeds of the offering or charged to operations if the offering is
unsuccessful.

Fair Value of Financial Instruments

The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
notes payable. The carrying amounts of such financial instruments as reflected
in the balance sheet approximate their estimated fair value as of July 31, 1997.
The estimated fair value is not necessarily indicative of the amounts the
Company could realize in a current market exchange or of future earnings or cash
flows.

Capitalized Software Costs

Costs for developing computer software are capitalized when technological
feasibility has been established for the computer software product.
Capitalization of computer software costs is discontinued when the product is
available for general release to customers and such costs are amortized on a
product-by-product basis over the estimated lives of the products. There are no
capitalized costs in the accompanying financial statements.

Revenue Recognition

Revenue from consulting services is recognized as services are provided.
Deferred revenues represent prepayments for such services.

Income Taxes

The Company accounts for income taxes pursuant to the provisions of FASB
No. 109, "Accounting for Income Taxes," which requires, among other things, a
liability approach to calculating deferred income taxes. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. The Company has no income
since inception and accordingly has not provided for income taxes.

Net Loss Per Common Share

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which simplifies the standards for computing earnings
per share ("EPS") previously found in APB No. 15, "Earnings Per Share." It
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the diluted EPS computation.
The Company adopted SFAS No. 128 in January 1998 and its implementation did not
have a material effect on the financial statements. EPS has been restated for
all prior periods presented.

Net loss per common share (basic and diluted) is based on the net loss
divided by the weighted average number of common shares outstanding during each
year.

F-8
<PAGE> 49
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

The Company's potentially issuable shares of common stock pursuant to
outstanding stock purchase options and warrants (totaling $668,026 with prices,
ranging from $0.50 to $7.00) are excluded from the Company's diluted computation
as their effect would be antidilutive to the Company's net loss.

Long-Lived Assets

In accordance with Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121"), the
Company includes as a component of income from continuing operations before
taxes on income, the impairment loss of assets to be held and gains and losses
that are expected to be disposed of.

Stock Based Compensation

In January 1995, FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation." SFAS No. 123 establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company did not adopt the fair value based method but instead will disclose the
pro forma effects of the calculation required by the statement.

Future Accounting Pronouncements

Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.

Unaudited Financial Statements

The interim financial statements as of January 31, 1998 and for the six
months ended January 31, 1998 and 1997 and the cumulative period October 11,
1995 (inception) through January 31, 1998 are unaudited. In the opinion of
management, such statements reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations and changes in

F-9
<PAGE> 50
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

cash flows. The results of operations for the six months ended January 31, 1998
and 1997 are not necessarily indicative of the results for the entire year.

2. LIQUIDITY

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of operations. Since inception, the Company has been involved
in the research and design of its products, the development of an organizational
infrastructure, and the performance of preliminary marketing and promotional
activities. The Company's ultimate ability to attain profitable operations is
dependent upon obtaining additional financing adequate to complete its
development activities, and to achieve a level of sales adequate to support its
cost structure. Through January 1, 1998, the Company has incurred losses
totaling $2,093,283 which raises substantial doubt about the Company's ability
to continue as a going concern.

The Company has entered into a letter of intent with an underwriter for an
initial public offering of the Company's common stock. If the Company is not
successful in consummating an initial public offering, the Company intends to
fund future development activities by obtaining additional funds from new or
existing investors. However, there can be no assurance that the Company will be
successful in consummating its plans, or that such plans, if consummated, will
enable the Company to attain profitable operations or continue as a going
concern.

3. PROPERTY AND EQUIPMENT

The Company's property and equipment is summarized as follows:

<TABLE>
<CAPTION>
JULY 31, 1997
-------------
<S> <C>
Office equipment............................................ $ 3,883
Computers................................................... 125,012
Leasehold improvements...................................... 5,674
--------
134,569
Accumulated depreciation.................................... (19,640)
--------
$114,929
========
</TABLE>

4. NOTES PAYABLE SHAREHOLDERS

The Company issued $410,000 of subordinate notes in connection with a
private placement of securities. The notes are due and payable on October 1,
1998 or prior thereto upon receipt by the Company of proceeds from the sale of
equity securities equal to or exceeding $5 million. There is no scheduled
prepayment or amortization of principal on the notes. Costs associated with this
transaction were $47,764. Interest of 7% per annum is payable semi-annually on
April 1 and October 1 of each year. (Note 7)

5. NOTES PAYABLE RELATED PARTY

Notes payable related party consists of a $50,000 loan from an officer and
director of the Company. The note bears interest at a rate of 6.5% per annum and
is payable no earlier than six months from the date of the Company's initial
public offering of securities and only to the extent that there is cash flow
from operations.

F-10
<PAGE> 51
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

The wife of this officer of the Company loaned the Company an additional $50,000
in January and November of 1996 at a rate of 7% per annum. The full amount of
this $50,000 loan and interest was paid in December 1996.

6. INCOME TAXES

At July 31, 1997, the Company had a net operating loss carryforward (NOL)
of approximately $2,000,000 which expires through 2011. In the event of a change
in ownership of the Company, the utilization of the NOL carryforward will be
subject to limitation under certain provisions of the Internal Revenue Code.
Deferred income taxes are comprised of the following at July 31, 1997:

<TABLE>
<S> <C>
Prepaid royalty expense..................................... $ 161,000
Start up costs.............................................. 156,000
Compensation................................................ 113,000
Deferred revenue............................................ 89,000
Net operating loss carryforward............................. 1,000
---------
Gross deferred tax asset.................................... 520,000
Deferred tax asset valuation allowance...................... (520,000)
---------
Net deferred tax asset............................ $ --
=========
</TABLE>

Realization of any portion of the Company's deferred tax asset at July 31,
1997 is not considered to be more likely than not and accordingly a $520,000
valuation allowance has been provided.

7. SHAREHOLDERS' EQUITY (DEFICIT)

During 1996, the Company issued 3,325,000 shares of common stock for
$3,325.

During 1997 and 1996, the Company received $3,500 and $25,959 in additional
capital contributions from its Chairman.

In December 1996, the Company completed a private offering of securities.
The Company received gross proceeds of $1,845,000 from this private offering.
Costs associated with this transaction were $238,784. In connection with this
offering, 410,000 shares of common stock were sold for $1,435,000 and $410,000
in subordinated notes were also sold (Note 4). In addition, five year warrants
to purchase 100,000 shares of common stock exercisable at $6.00 per share were
granted to the investment banker.

In January 1997, in connection with a private placement, the Company issued
58,000 shares of common stock, at $3.50 per share for cash of $203,000.

8. COMMITMENTS

a) In December 1997, the Company entered into three year employment
agreements with three of its executive officers, which provide for aggregate
base salaries of $415,500. In the event of a change of control of the Company,
and the officers are not retained on a comparable basis by new management, the
officers will receive lump sum payments equivalent to one year's salary. In
addition, in the event of the non-renewal of the employment agreements, the
officers will be entitled to the same lump sum payments.

b) The Company has entered into a licensing agreement with Lernout &
Hausple Speech Products N.V. ("L&H") which grants the Company the right to use a
certain software object code in the development of its

F-11
<PAGE> 52
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

products in exchange for payment of certain amounts for royalties. The agreement
commenced on December 31, 1996 for a term of four years and provides for the
payment of percentage royalties and unit royalties as specified in the
agreement. During 1996, the Company prepaid a $500,000 non-refundable royalty
which has been expensed. As of January 31, 1998 the Company has not sold any
products and accordingly has not used any of the prepaid royalties. The Company
has also agreed to pay L&H a $200,000 non-refundable royalty prepayment on
future royalties in March 1998.

The success of the Company will be largely dependent on the members of the
management of the Company, especially its President and Chief Executive Officer,
Chairman, and Vice President -- Business Development. Although the Company has
entered into employment agreements with certain members of the management of the
Company, as described above, there can be no assurance that such persons will
continue their employment with the Company.

The Company occupies premises under two operating leases. The facilities
are leased for three year terms with annual rental payments of approximately
$34,000. Rent expense for 1997 and 1996 aggregated approximately $10,000 and $0,
respectively. Minimum guaranteed lease payments under these leases are as
follows:

9. STOCK BASED COMPENSATION

At July 31, 1997, the Company has a fixed stock option plan and non-plan
options which are described below. The Company applies Accounting Principles
Board ("APB") Opinion 25, Accounting For Stock Issued to Employees, and related
interpretations in accounting for the plan. Under APB Opinion 25, in situations
where the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation cost is recognized.

In March 1997, the Company adopted a Stock Option Plan (the "Plan") under
which 300,000 shares of common stock will be reserved for issuance upon exercise
of stock based awards including, non-qualified stock options. The Plan is also
authorized to issue short-term cash incentive awards. The Plan will be
administered by a plan administrator which may consist of either the Board or
such committees, officers and/or employees of the Company as the Board may so
designate. The purchase price of each share of common stock purchased upon
exercise of any option granted is as follows: (i) Incentive stock options shall
be equal to or greater than the fair market value of the common stock on the
date of grant as required under Section 422 of the Internal Revenue Code, (ii)
Options granted to 10% holders and designated by the plan administrator as
incentive stock options shall be at least 110% of the fair market value of the
common stock on the date of grant as required under Section 422 of the Internal
Revenue Code, (iii) Non-employee director options shall be equal to or greater
than the fair market value of the common stock on the date of the grant. To
date, options to purchase 207,350 shares of common stock at $3.50 to $3.85 have
been granted pursuant to the plan. These options vest over terms up to two years
from the grant date and expire in 2001.

In addition, during 1997, five-year non-plan options to purchase 4,500
shares at $3.50 were granted to a consultant for general business services and
five-year non-plan options to purchase 300,000 shares ranging

F-12
<PAGE> 53
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

between $0.50 and $3.50 were granted to certain employees. These options were
fully vested at date of grant. In connection with these grants, $300,000 was
charged to operations representing the difference between the market price of
the stock and the exercise price of the options on the date the options were
granted and $4,500 was charged to operations representing the value of the
services provided.

SFAS No. 123, Accounting for Stock-Based Compensation, requires the Company
to provide pro forma information regarding net income and net income per share
as if compensation cost for the Company's stock option plan had been determined
in accordance with the fair value based method prescribed in SFAS No. 123. The
Company estimates the fair value of each stock option at the grant date by using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997: no dividend yield percent; expected
volatility of 0.001; risk-free interest rates of 6.1%, and expected lives
ranging between 4 and 5 years for the Plan and non-plan options.

Under the accounting provisions of SFAS No. 123, the Company's net loss and
loss per share would have been increased to the pro forma amount indicated
below.

<TABLE>
<CAPTION>
YEAR ENDED
JULY 31, 1997
-------------
<S> <C>
Net loss
As reported............................................... $1,374,203
Pro forma................................................. $1,641,203
Net loss per common share
As reported............................................... $ (.38)
Pro forma................................................. $ (.45)
</TABLE>

A summary of the status of the Company's fixed stock option plan and
non-plan options as of July 31, 1997, and changes during the year ended on that
date is presented below:

<TABLE>
<CAPTION>
JULY 31, 1997
-----------------------
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
------- -------------
<S> <C> <C>
Outstanding at beginning of year............................ -- $ --
Granted..................................................... 526,850 3.00
Exercised................................................... -- --
Forfeited................................................... -- --
------- -----
Outstanding at end of year.................................. 526,850 3.00
------- -----
Options exercisable at year-end............................. 404,500 2.84
Weighted-average fair value of options granted during the
year:
Below market.............................................. $3.13
At market................................................. $0.74
Above market.............................................. $0.70
</TABLE>

F-13
<PAGE> 54
REGISTRY MAGIC INCORPORATED
(A DEVELOPMENT STAGE COMPANY)

The following table summarizes information about fixed stock options and
non-plan options outstanding at July 31, 1997.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
NUMBER WEIGHTED AVERAGE -------------------------------------
OUTSTANDING REMAINING WEIGHTED AVERAGE NUMBER EXERCISABLE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES AT 7/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 7/31/97 EXERCISE PRICE
------------------------ ----------- ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
$3.85 100,000 3.6 years $3.85 100,000 $3.85
3.50 326,850 3.9 years 3.50 204,500 3.50
0.50 100,000 4.2 years .50 100,000 .50
</TABLE>

10. SUBSEQUENT EVENTS (UNAUDITED)

Subsequent to July 31, 1997, the Company's board of directors authorized
the Company to undertake an initial public offering of the Company's common
stock pursuant to a letter of intent dated October 22, 1997.

During the six months ended January 31, 1998, options to purchase 26,676
shares of common stock were granted to two consultants and an employee of the
Company. Such options are exercisable at $3.50 to $5.00 per share, expire in
four to five years and vest over terms up to two years.

In November 1997, in connection with a private placement, the Company
issued 200,000 shares of common stock at $5.00 for cash consideration of
$1,000,000. Costs associated with this transaction were $2,841.

Subsequent to January 31, 1998, options to purchase 14,500 shares of common
stock were granted to three consultants. Such options are exercisable at $7.00
per share, expire in five years and vest immediately.

In December 1997, the Company entered into a distribution agreement for one
of its products which calls for the Company to receive $450,000 in
non-refundable prepaid royalties during 1998, of which $200,000 was received
subsequent to July 31, 1997.

On April 3, 1998, the Company initiated an action in the Circuit Court for
Palm Beach County, Florida, against a former employee of the Company whose
employment was terminated at such date. The Company is alleging breach of an
oral employment agreement and misrepresentations in the inducement of such
agreement. The Company is seeking damages and the rescission of the 20,000
shares of common stock and options to purchase 90,000 shares of common stock
previously granted to such former employee. The defendant has filed an answer
denying various of the Company's allegations and raising certain affirmative
defenses. The defendant has also asserted a counterclaim against the Company and
Walt Nawrocki and Lawrence Cohen, who are members of management and principal
shareholders of the Company, seeking salary and benefits under the terms of his
oral employment agreement as well as additional unspecified equity participation
in the Company (the defendant had previously made a demand for 200,000 shares of
Common Stock). The defendant is also seeking a declaratory judgment with regard
to the Company's claim for rescission. While the Company believes that the
Defendant's claims are without merit based on the breaches by the Defendant of
his oral agreement with the Company, two members of management have agreed to
settle such equity claims, should the need arise, from their personal
shareholdings. Any expense associated with the action will be incurred as an
expense by the Company. The Company does not believe that the outcome of this
matter will have a material adverse effect on the financial position of the
Company.

F-14
<PAGE> 55

[Logo for MagicDialing consisting of a swirl]

MagicDialing(TM)
Speech recognition personal phonebook

Allows users to make calls by just saying the name of the
person they want to reach. Available anytime, anywhere ...
all that's needed is a phone.

MAGICDIALING(TM)
this is a machine?(TM)

[Picture of computer with product logo and four individuals using telephones]

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

Conversational Kiosk(TM)
Speech recognition for information access

Allows people to have conversations with computers to
overcome the lack of computer skills and the limitations of
telephone keypads. Can be used to promote products,
generate sales leads and provide information.

[Picture of a man using a telephone and of another man standing and using a
telephone to talk to a free standing kiosk with built-in display]

[Oval with the word "Information" within]

[Oval with the logo for Conversational K I O S K(TM) followed by "this is a
machine?"(TM)]
<PAGE> 56

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

NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 13
Dividend Policy....................... 14
Capitalization........................ 14
Dilution.............................. 15
Selected Financial Information........ 16
Management's Discussion and Analysis
and Plan of Operation............... 17
Business.............................. 20
Management............................ 27
Certain Transactions.................. 32
Principal Shareholders................ 33
Description of Securities............. 35
Shares Eligible for Future Sale....... 37
Underwriting.......................... 38
Legal Matters......................... 39
Experts............................... 39
Additional Information................ 39
Index to Financial Statements......... F-1
</TABLE>

UNTIL JUNE 22, 1998 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEALERS
AFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

(REGISTRY MAGIC INCORPORATED LOGO)

1,600,000 Shares of
Common Stock

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

PROSPECTUS
--------------------
COMMONWEALTH
ASSOCIATES

MAY 28, 1998

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