C2I SOLUTIONS INC
SB-2/A, 1997-12-15
COMPUTER INTEGRATED SYSTEMS DESIGN
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<PAGE>   1
   
As filed with the Securities and Exchange Commission on December 15, 1997
                                                      REGISTRATION NO. 333-39425
    
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  ____________

                                 AMENDMENT NO. 1
                                       TO
                                    FORM SB-2
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                                  ____________

                               C2I SOLUTIONS, INC.
                 (Name of small business issuer in its charter)
          Delaware                          7379                33-0775687
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization)  Classification Code Number)  Identification No.)

                            JOHN ANTHONY WHALEN, JR.
                     President and Chief Executive Officer
                          4747 Morena Blvd., Suite 101
                              San Diego, CA 92117
                                 (619) 490-1555
      (Name, address and telephone number of agent for service, principal
                        executive offices and principal
                               place of business)

                                   Copies to:

      DOUGLAS J. REIN, ESQ.                      ROBINSON MARKEL, ESQ.
   GRAY CARY WARE & FREIDENRICH                  PIPER & MARBURY L.L.P.
 4365 Executive Drive, Suite 1600       1251 Avenue of the Americas, 29th Floor
     San Diego, CA 92121-2189                   New York, NY 10020-1104
          (619) 677-1400                             (212) 835-6262

                                  ____________


    APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
                                  ____________

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

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

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

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


   
    


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


================================================================================
<PAGE>   2
   
PROSPECTUS         SUBJECT TO COMPLETION, DATED DECEMBER 15, 1997
    

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

                               C2I SOLUTIONS, INC.
                        1,000,000 SHARES OF COMMON STOCK
                          1,000,000 REDEEMABLE WARRANTS


   
    The securities offered hereby by C2i Solutions, Inc. ("C2i" or the
"Company") consist of shares (the "Shares") of Common Stock, par value $.001 per
share (the "Common Stock") and a Redeemable Warrant (the "Warrants"). The Shares
and the Warrants are transferable separately. Each Warrant entitles the holder
to purchase, at an exercise price of $               (125% of the initial Share
offering price) (subject to adjustment), one share of Common Stock. The Warrants
are exercisable during the four year period commencing one year from the date of
this Prospectus. The Warrants are subject to redemption commencing one year from
the date of this Prospectus by the Company for $.01 per Warrant, on not less
than 30 days' written notice, if the last sale price of the Common Stock is at
least 150% of the then current exercise price of the Warrants for 20 consecutive
business days ending on the third day prior to the date on which notice is
given.
    


    Upon completion of this Offering, the officers and directors of the Company
will control approximately 62.4% of the total voting power and will therefore be
able to elect all of the Company's directors and to control the Company.


   
    Prior to this Offering, there has been no public market for the Company's
securities. The initial public offering price of the Shares, which is estimated
to be between $5.25 and $6.00, and the Warrants, which is estimated to be $0.10,
and the exercise prices and other terms of the Warrants have been determined by
negotiation between the Company and SouthWall Capital Corp., the representative
of the several Underwriters (the "Representative"), and are not necessarily
related to the Company's assets, book value, financial condition or any other
recognized criteria of value. The Company has made application to have the
Common Stock and the Warrants included on the Nasdaq SmallCap Market under the
symbols CTWO and CTWOW, respectively.
    


 AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
  SUBSTANTIAL DILUTION. 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 ANY SUCH
       COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
            ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

================================================================================
                             Price       Underwriting     Proceeds
                              to         Discounts and       to
                            Public       Commissions(1)   Company(2)
- --------------------------------------------------------------------------------
Per Share .............   $_________      $_________      $_________

Per Warrant ...........   $_________      $_________      $_________

Total(3) ..............   $_________      $_________      $_________
================================================================================
                                               (Notes appear on following page)

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

   
    The Shares and Warrants offered by this Prospectus are being offered by the
Underwriters on a firm commitment basis subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to the approval of
certain legal matters by its counsel and subject to certain other conditions. It
is expected that delivery of the Shares and Warrants will be made at the offices
of SouthWall Capital Corp., New York, New York, on or about              , 1998.
    

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

                            SOUTHWALL CAPITAL CORP.
               The date of this Prospectus is             , 1997


<PAGE>   3

   
(1) Does not reflect additional compensation to be received by the
    Representative in the form of: (i) a non-accountable expense allowance equal
    to 3% of the gross proceeds of the Offering; and (ii) warrants (the
    "Representative Warrants") to purchase up to 100,000 Shares and 100,000
    Warrants (collectively, the "Warrant Securities") issued to the
    Representative in exchange for $100 and exercisable for a period of four
    years commencing one year from the date of this Prospectus at
    $______________ (125% of the initial public offering price per Share). The
    Company has also agreed to indemnify the Underwriters against certain
    liabilities, including liabilities under the Securities Act of 1933, as
    amended. See "Underwriting."


(2) Before deducting estimated expenses of the Offering of $525,000 ($552,000
    assuming exercise in full of the Underwriters' Over-Allotment Option)
    payable by the Company, including the Representative's non-accountable
    expense allowance.


(3) The Company has granted the Underwriters a 45-day option to purchase up to
    150,000 additional Shares and 150,000 additional Warrants on the same terms
    and conditions as set forth above solely to cover over-allotments, if any
    (the "Over-Allotment Option"). If such option is exercised in full, the
    total Price to Public, Underwriting Discounts and Commissions and Proceeds
    to Company will be $_______, $_______ and $_______, respectively. See
    "Underwriting."


    The following diagram depicts the current service and product offerings of
C2i. Through September 30, 1997, these services and products had not generated
significant revenues for the Company. See "Risk Factors - Limited Operating
History; Limited Experience in Year 2000 Solutions."

                                      Y2K
                                 Tool Shed(TM)

<TABLE>
<CAPTION>
                             HARDWARE &                VAR
SERVICES                     SYSTEM SOFTWARE           TOOLS/OFFERINGS

<S>                          <C>                       <C>
- -Project Management           IBM P/390                 SYSTEM 390
- -Assessment                  -OS/390                   -CA Discovery 2000
- -Remediation                 -MVS, VSE, VM              -COBOL
 -COBOL                       IBM R/390                -CenturySolver/Assembler
 -Assembler                  -OS/390                    AS/400
 -RPG                        -MVS, VSE, VM             -CenturySolver/400
 -Other                       IBM AS/400                -RPG
- -Testing                     -OS/400                    MULTI-PLATFORM/LANGUAGES
- -Migration                    SUN MICROSYSTEMS         -CenturySolver/Multi
- -Compliance Audit            -Solaris                   -UNIX, VMS, Windows...

</TABLE>

    The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors. The C2i
logo and Tool Shed are trademarks of the Company. All other brand names or
trademarks appearing in this Prospectus are the property of their respective
holders.


    IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. SEE
"UNDERWRITING."
    

<PAGE>   4
                               PROSPECTUS SUMMARY

   
    The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus,
including information under "Risks Factors." The Securities offered hereby
involve a high degree of risk and investors should carefully consider the
information set forth in "Risk Factors." Unless otherwise indicated, all
information in this Prospectus (i) gives effect to the Company's conversion to a
Delaware corporation in September 1997 and (ii) assumes no exercise of (a) the
Underwriters' Over-Allotment Option, (b) the Representative Warrants, (c) the
Warrants (including Bridge Warrants) or (d) options granted pursuant to existing
stock option agreements or eligible for grant under the stock option plan the
Company anticipates adopting prior to the effective date of this Offering.
    

                                   THE COMPANY

   
    C2i is a provider of services to address the Year 2000 challenge and to
transition legacy applications effectively and efficiently. C2i employs proven
methodology, advanced tools and the expertise of dedicated professionals to
offer a wide variety of Year 2000 services. From assessment through
implementation and testing, C2i brings together the elements required for cost
effective implementation of solutions to the Year 2000 problem.
    

    The "Year 2000 problem" arises from the widespread use of computer programs
that rely on two-digit date codes to perform computations and decision-making
functions. Many of these computer programs may fail from an inability to
interpret date codes properly. For example, such programs may misinterpret "00"
as the year 1900 rather than 2000. These "date-dependent" programs are found in
computer hardware, software and embedded systems used in many businesses.

    The Company's experience in analyzing, and its strategy for resolving, the
Year 2000 problems of business organizations incorporates its access to a number
of tools and approaches, which enables the Company to develop customized
solutions to a client's specific problems. The Company is able to identify,
evaluate and select specific software approaches and tools that would be most
effective in assisting a client with the Year 2000 update process. In addition,
during this process the Company gains knowledge about many areas of the client's
computer environment, positioning it to provide a broad range of computer
consulting services characterized as "Data Re-Engineering," of which the Year
2000 problem is a subset.

    The Year 2000 consulting industry consists of a large number and wide
variety of computer consulting and software companies that offer Year 2000
consulting as part of their services. These companies address those aspects of
the Year 2000 problem that cannot be resolved by in-house information services
personnel. The industry is expected to grow rapidly as business organizations
become aware of the Year 2000 problem and accelerate the pace at which they
analyze their computer systems.

    The Company's strategy is to focus its resources on business organizations
that process large volumes of automated transactions involving date
computations, to expand both domestically and internationally, and to refine and
enhance its Year 2000 consulting methodology.

    Additionally, the Company intends to use the knowledge and relationships
obtained through its Year 2000 consulting services to implement a long-term,
post-2000 strategy of providing a full line of computer consulting services to
current and future clients, based on tools including hardware, software and
consulting services, particularly replacing modified legacy computer software,
replacing closed hardware systems with open systems including client-server
platforms, and providing experienced consulting teams.


   
    C2i was formed as a limited liability company in California in September
1996 under the name Challenge 2000 International, LLC, and it reorganized as a
Delaware corporation in September 1997 and changed its name to C2i Solutions,
Inc. The Company's principal executive offices are located at 4747 Morena Blvd.,
Suite 101, San Diego, CA 92117 and the telephone number is (619) 490-1555.
    


                                       3

<PAGE>   5
                                  THE OFFERING

   
<TABLE>
<S>                          <C>
Securities Offered.......... 1,000,000 shares of Common Stock and 1,000,000 Warrants.
                             Each Warrant entitles the holder to purchase, at an
                             exercise price of $_____ (125% of the initial Share offering
                             price) (subject to adjustment), one share of Common Stock
                             during the four year period commencing one year after the
                             date of this Prospectus.  The exercise price of the
                             Warrants is subject to adjustment and the Warrants are
                             subject to redemption in certain circumstances.  See
                             "Description of Securities--Warrants."

Capital Stock Outstanding
  Prior to this Offering.... 2,391,338 shares of Common Stock(1)

  After this Offering....... 3,391,338 shares of Common Stock(2)

Warrants Outstanding:
  Prior to this Offering.... 600,000(3)

  After this Offering....... 1,600,000(4)

Use of Proceeds............. Repayment of $600,000 Bridge Notes, plus accrued interest
                             of approximately $15,000, capital expenditures estimated at
                             $400,000 with the balance being used for working capital
                             and general corporate purposes.  See "Use of Proceeds."

Risk Factors................ This Offering involves a high degree of risk and immediate
                             substantial dilution and should not be made by investors
                             who cannot afford the loss of their entire investment.  See
                             "Risk Factors" and "Dilution."

Proposed Nasdaq Symbols(5):

   Common Stock............. CTWO
   Warrants................. CTWOW
</TABLE>
    


                                       4

<PAGE>   6
                             SUMMARY FINANCIAL DATA
   
<TABLE>
<CAPTION>
                                     Period from September 17,
                                        1996 (inception) to       Nine Months Ended
                                           December 31,              September 30,
STATEMENTS OF                                 1996                       1997
OPERATIONS DATA:                           -----------                ----------- 
<S>                                        <C>                        <C>        
Revenues .....................             $     9,798                $    79,283
Gross profit .................                   3,498                     32,389
Operating loss ...............                 (44,338)                (1,433,294)
Net loss .....................                 (44,338)                (1,434,894)
Pro forma net loss per share..             $     (0.02)               $     (0.50)
Shares used in computing pro
forma net loss per share(7)...               2,874,255                  2,874,255
</TABLE>


<TABLE>
<CAPTION>
                                                  September 30, 1997
                                         ------------------------------------
       BALANCE SHEET DATA:                                            As
                                           Actual                  Adjusted(6)
                                         ----------                ----------
<S>                                      <C>                       <C>       
Cash .......................             $   65,863                $4,899,043
Working capital ............                (40,471)                4,807,709
Total assets ...............                242,638                 5,075,818
Total liabilities ..........                151,254                   136,254
Total stockholders' equity..                 91,384                 4,939,564
</TABLE>
    

- -------------------
(1)  Does not include (i) 82,500 shares of Common Stock reserved for issuance
     under the Company's proposed 1997 Stock Option Plan; (ii) 625,000 shares of
     Common Stock reserved for issuance on exercise of options issued to
     employees, directors and consultants of the Company; and (iii) 600,000
     shares of Common Stock issuable upon exercise of the warrants issued in
     connection with the Company's Bridge Financing. See "Capitalization-Bridge
     Financing," "Management-Stock Plans," "Description of Securities" and
     "Underwriting."

   
(2)  Represents the shares of Common Stock included in the securities offered
     hereby and currently outstanding Common Stock, and does not include: (i)
     200,000 shares of Common Stock issuable upon exercise of the Representative
     Warrants and the underlying Warrant Securities; (ii) 82,500 shares of
     Common Stock reserved for issuance under the Company's proposed 1997 Stock
     Option Plan; (iii) 625,000 shares of Common Stock reserved for issuance
     upon exercise of options issued to employees, directors and consultants of
     the Company, and (iv) 600,000 shares of Common Stock issuable upon exercise
     of the warrants issued in connection with the Company's Bridge Financing.
     See "Capitalization-Bridge Financing," "Management-Stock Plans,"
     "Description of Securities" and "Underwriting."
    

(3)  Represents 600,000 warrants issued in connection with the Company's Bridge
     Financing. See "Capitalization-Bridge Financing".

(4)  Does not include 100,000 Warrants included in the Warrant Securities.

(5)  Notwithstanding initial quotation on Nasdaq, there can be no assurance that
     an active trading market for the Company's securities will develop or, if
     developed, that it will be sustained.

   
(6)  As adjusted to reflect the net proceeds from the sale of 1,000,000 Shares
     and 1,000,000 Warrants offered hereby at an assumed initial public offering
     price of $5.90 per Share and $0.10 per Warrant, after deducting estimated
     underwriting discounts and commissions and estimated offering expenses, and
     the application of a portion of the net proceeds therefrom to repay the
     Bridge Notes and interest accrued thereon.
    

(7)  Gives effect to the issuance of Common Stock and Common Stock equivalents
     at prices below the offering price per share during the twelve months
     preceding the initial filing of the Company's Registration Statement and
     through the effective date of the initial public offering, using the
     treasury stock method, as if outstanding since the beginning of each period
     presented. See Note 1 to Financial Statements.


                                       5

<PAGE>   7
                                  RISK FACTORS


        An investment in the securities offered hereby involves a high degree of
risk. In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before purchasing the securities offered by this Prospectus. Except for
the historical information contained herein, the information in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as with respect to the Company's plans, objectives,
expectations, intentions and strategies. The actual results could differ
materially from those discussed herein. The factors that could affect such
results or contribute to such differences include the following items as well as
other information discussed elsewhere in this Prospectus.


LIMITED OPERATING HISTORY; LIMITED EXPERIENCE IN YEAR 2000 SOLUTIONS


        The Company was founded in September 1996, has a very limited operating
history and is in the development stage. As a result, the Company's operations
to date have not produced significant revenues, and there can be no assurance
that the Company will generate any future revenues from the sale of its services
or products.


        The Company has limited experience in providing Year 2000 solutions.
Although the Company is in the process of completing its initial assessment
projects, the Company has not completed a large scale Year 2000 conversion
project. There can be no assurance that the Company will be successful in
completing large scale conversions, that the Company will not experience delays
or failures in providing its Year 2000 solutions or that the Year 2000 solutions
will be effective. The failure of the Company's Year 2000 solutions to function
properly or the existence of errors or bugs following completion of a Year 2000
conversion project could necessitate significant expenditures by the Company in
order to attempt to remedy the problems. The consequences of failures, errors
and bugs could have a material adverse effect on the Company's business,
operating results and financial condition.


   
HISTORY OF OPERATING LOSSES; NEED FOR ADDITIONAL FINANCING; GOING CONCERN
OPINION


        The Company has experienced significant operating losses since its
inception in September 1996. As of September 30, 1997, the Company's accumulated
deficit was approximately $1,479,000, which includes a non-recurring non-cash
charge of approximately $1.2 million, as a result of sales of equity securities
to key employees at less than deemed value for financial statement purposes.
Losses have been principally the result of the various costs associated with the
Company's selling, general and administrative expenses as the Company commenced
operations, acquired its technology rights and began marketing activities. The
Company expects that it will incur operating losses over at least the next year.
The Company believes that the net proceeds from this Offering, together with its
existing capital resources, will enable it to fund its operations for 12 to 18
months following completion of the Offering. The Company will be required to
seek additional capital to continue its operations beyond that time. If
available, the additional capital may result in dilution to the purchasers of
the Shares and Warrants and underlying securities offered hereby. The Company
has no commitments for any future funding, and there can be no assurance that
the Company will be able to obtain additional capital in the future. If the
Company is unable to obtain the necessary capital, it will be required to
significantly curtail its activities or cease operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


        The report of the Company's independent auditors includes an explanatory
paragraph that describes the substantial doubt as to the ability of the Company
to continue as a going concern. The Company's proposed operations are subject to
numerous risks associated with establishing any new business, including
unforseeable expenses, delays and complications, as well as specific risks of
the computer consulting services industry. There can be no assurance that the
Company will achieve profitable operations. See the "Financial Statements and
Notes" thereto.
    


                                       6
<PAGE>   8

INTENSE INDUSTRY COMPETITION; COMPETITIVE DISADVANTAGES


        The market for Year 2000 solutions is highly competitive and is expected
to become increasingly competitive as the year 2000 approaches. The Company's
lack of resources and proven results makes it extremely vulnerable to
competition from larger companies, all of which benefit from greater
recognition, larger lists of reference clients and significantly greater
financial, technical and marketing resources. Leading competitors have proven
products which can provide them with a significant advantage over the Company
because the Company's services have not been widely deployed and therefore
present potential customers with uncertainty not associated with existing
solutions from larger companies. In addition, many of the Company's potential
clients are reluctant to choose small companies as key suppliers or service
providers due to concerns about long term viability and, especially with respect
to Year 2000 conversion projects, the consequences to the organization of a
failure of a proposed solution. There can be no assurance that the Company will
overcome these disadvantages.


        There can be no assurance that competitors will not develop new products
or services or improve their existing products or services which, when combined
with their existing market presence, would make the Company's solutions obsolete
or unmarketable. Any such development would have a material adverse effect on
the Company. The Company also expects that competition will arise from new
competitors and from new technological approaches adopted by new and existing
competitors. Competitive technologies may be developed which could make the
Company's services obsolete or of diminished utility, thereby materially
adversely affecting the Company. If the Company is unable to respond to the
challenges of competition, there can be no assurance that the Company would be
able to achieve or maintain profitability at a level required to support its
survival or growth. See "Business -- Competition."


UNCERTAIN AND UNDEVELOPED MARKET


        The primary focus of the Company's services is resolving the Year 2000
problem. Although the Company believes that the demand for Year 2000 consulting
services will grow significantly as the year 2000 approaches, there can be no
assurance that this demand will increase to the extent anticipated by the
Company, if at all. Although the public and the business community appear to be
gaining awareness of the scope of the Year 2000 problem, companies may not be
willing or able to allocate the resources to address this problem in a timely
manner. Many companies may attempt to resolve the problem internally rather than
contract with firms such as the Company. As a result, demand for the Company's
Year 2000 solutions is uncertain and unpredictable. If the demand for the
Company's Year 2000 solutions fails to grow, or grows more slowly than
anticipated, the Company's business, operating results and financial condition
could be materially adversely affected.


FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; CHARGE TO EARNINGS


        At least initially, the Company expects to derive a substantial portion
of its revenues from a relatively small number of contracts. As a result, a
small delay during a quarter in the achievement of milestones triggering payment
to the Company could have a material adverse effect on the Company's revenues
and results of operations for that quarter. In addition, the Company's need to
expand its facilities and the need for continued investment by the Company in
research, development, marketing, customer service and support capabilities will
limit the Company's ability to reduce expenses in response to any such decrease
in sales. Moreover, because customer purchase orders are subject to cancellation
or rescheduling by the customer, backlog at any particular date is not
necessarily representative of actual sales for any succeeding period. If the
Company's anticipated level of revenues is not achieved for a particular period,
the Company's operating results could be adversely affected by its inability to
reduce costs. The impact of these and other factors on the Company's operating
results in any future period cannot be accurately forecast. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


   
        Upon completion of the Offering and repayment of the Bridge Notes, an
extraordinary charge representing the combined debt discount and deferred
finance charge of approximately $135,000 will be charged to operations in the
quarter in which the Offering will be completed, anticipated to be the first
quarter of 1998. This will result 
    


                                       7
<PAGE>   9

   

in a significant decrease in earnings which the Company might have otherwise
achieved in this period. See "Capitalization -- Bridge Financing."

    

COMPLEX SALES CYCLE


        Sales of the Company's Year 2000 solutions are characterized by a
relatively complex sales cycle due to such factors as the magnitude of the
expenses associated with implementation of a comprehensive solution at most
organizations, the substantial time required by potential customers to evaluate
the Company's solutions and those of competitors, and the potential consequences
to the organization of a wrong decision, all of which suggest that the decision
will ultimately be made at a level in an organization that is relatively higher
than would otherwise be involved in information system matters. As a result, the
Company will likely be required to devote additional sales and marketing efforts
to concluding sales decisions.


NEED TO DEVELOP NEW PRODUCTS AND SERVICES


        The Company currently generates substantially all of its revenues from,
and devotes most of its resources to, its Year 2000 solutions. Although the
Company believes that the demand for its Year 2000 solutions will continue to
exist for a limited period of time after the Year 2000, this demand will
diminish significantly over time and will eventually disappear. Therefore, the
Company plans to actively pursue business opportunities unrelated to the Year
2000 problem in the computer software and consulting market, and to develop
products and services to take advantage of those opportunities. The Company
believes that its future success will depend upon its ability to develop and
enhance its relationships with customers so that it will continue to be called
upon to assist in data conversion projects following the year 2000. To the
extent product offerings and services provided by the Company are based upon
anticipated changes, sales of such products and services may be adversely
affected if other technologies become accepted in the industry. If the Company
does not successfully introduce new products or services in a timely manner, any
competitive position the Company may develop would be lost and the Company's
sales, would be reduced. There can be no assurance that the Company will be able
to develop and introduce enhanced or new products or services which satisfy
customer needs and achieve market acceptance. The Company intends to use a
portion of the proceeds of the Offering to finance its own research and
development activities. The failure of the Company to implement a successful
research and development program would have a material adverse effect upon its
business and prospects.


DEPENDENCE ON LICENSES AND THIRD PARTY TECHNOLOGY


        Substantially all of the tools that the Company uses to provide its Year
2000 solutions are licensed from third parties. The Company's proprietary
software, as well as licensed software, is designed to work on or in conjunction
with certain third party hardware and/or software products. If any of these
licensors or third party vendors were to discontinue making their products
available to the Company, or to increase materially the cost to the Company to
acquire, license or purchase the products, or if a material problem were to
arise in connection with the ability of the Company to use and operate with
third party hardware and/or software products, the Company would be required to
redesign its solutions to function with or on alternative third party products
or attempt to develop internally a replacement for the third party products. In
such an event, interruptions in the availability or functioning in the Company's
Year 2000 solutions and delays in the introduction of new products and services
may occur until equivalent technology is obtained. There can be no assurance
that alternative sources of suitable technology would be available or that the
Company would be able to develop an alternative product in sufficient time or at
a reasonable cost. The failure of the Company to obtain or develop alternative
technologies or products on a timely basis and at a reasonable cost could have a
material adverse effect on the Company's business, financial condition and
results of operations.


DEPENDENCE ON PROPRIETARY TECHNOLOGY


        The Company relies on trade secret and copyright protection for its
products and technology. The Company believes that its licensors use similar
means of protecting their technologies.


                                       8
<PAGE>   10

        In the absence of significant proprietary protection, competitors may be
able to copy the Company's technology or design approaches, replicate its
processes or gain access to its trade secrets. Moreover, there can be no
assurance that competitors will not be able to develop technologies similar to
or more advanced than the Company's or design around any protected aspects of
the Company's technology rights. No assurance can be given that the Company's
current or future products or services will not infringe on the rights of
others.


        There has been substantial litigation regarding intellectual property
rights in computer software related industries. In the future, litigation may be
necessary to enforce technological rights of the Company, to protect trade
secrets or know-how owned or licensed by the Company or to defend the Company
against claimed infringement of the rights of others and to determine the scope
and validity of the proprietary rights of others. Any such litigation would
likely result in substantial cost and diversion of effort by the Company, which
by itself could have a material adverse effect on the Company's business,
financial condition and operating results. Further, adverse determinations in
such litigation could result in the Company's loss of proprietary rights,
subject the Company to significant liabilities to third parties, require the
Company to seek licenses from third parties or prevent the Company from
providing its services, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Business
- -- Intellectual Property Rights."


        The Company also relies on trade secrets and proprietary technology that
it seeks to protect, in part, through confidentiality agreements with employees,
consultants and other parties. There can be no assurance that these agreements
will not be breached, that the Company will have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by others.


DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF EXPANDING OPERATIONS


        The Company's success will, to a large extent, depend upon the continued
services of its executive officers who have limited experience at managing a
business like the Company's. The loss of services of any of these executive
officers would materially and adversely affect the Company. The Company's
employment agreements with its key personnel may be terminated by either party,
with or without cause, with the exception of Mr. Whalen's. Mr. Whalen's
employment agreement has a term of five years, expiring in May 2002, and limits
the Company's ability to terminate him, except for cause, and provides for six
months severance pay, unless Mr. Whalen voluntarily resigns his position. The
Company is in the process of securing key man life insurance in the amount of
$1,000,000 on Mr. Whalen.


        The Company's plans to expand its business are expected to place a
significant strain on the Company's management, operational and financial
resources and systems. To manage its expanding operations, the Company must,
among other things, improve its operational, financial and management
information systems, including its billing, accounts receivable and payable
tracking, fixed assets and other financial management systems. The Company must
also attract, retain and train additional highly qualified management,
technical, sales and marketing and customer support personnel. The process of
locating such personnel with the combination of skills and attributes required
to implement the Company's strategy is often lengthy. The loss of the services
of key personnel, or the inability to attract and train additional qualified
personnel, could have a material adverse effect upon the Company's business and
results of operations.


RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS


        The Company plans to acquire assets or businesses complimentary to its
operations, although no specific acquisitions are currently in negotiation or
planned. Any such future acquisitions would be accompanied by the risks commonly
encountered in acquisitions of companies. Such risks include, among other
things, the difficulty of assimilating the operations and personnel of the
acquired companies, the potential disruption of the Company's business, the
inability of the Company's management to maximize the financial and strategic
position of the Company by the incorporation of acquired technology or business
into the Company's service offerings, the difficulty of maintaining uniform
standards, controls, procedures and policies, the potential loss of key
employees of acquired companies, and the impairment of relationships with
employees and customers as a result of changes in management. No assurance can
be given that the Company will undertake acquisition activities, will complete
any 


                                       9
<PAGE>   11

acquisitions, or that if an acquisition does occur it will not materially and
adversely effect the Company or will be successful in enhancing the Company's
business. If the Company proceeds with one or more significant acquisitions, a
substantial portion of the Company's available cash, including proceeds of this
Offering, could be used to consummate those transactions. Alternatively,
stockholders of the Company could suffer significant dilution of their ownership
interest in the Company. The accounting for business acquisitions of the type of
businesses that would likely be attractive acquisition candidates for the
Company is likely to involve the recognition of significant goodwill and
intangible assets in connection with the acquisition and, as a result, would
typically result in substantial amortization of the charges against the
Company's reported financial results.

RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION

        A key component of the Company's strategy is its planned expansion into
international markets. The Company has no previous experience in working with
international customers and there can be no assurance that the Company will be
able to successfully market, sell and deliver its products and services in these
markets. In addition to the uncertainty as to the Company's ability to create an
international presence, there are risks inherent in doing business on an
international level, such as unexpected changes and regulatory requirements,
export restrictions, export controls, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates, and potential adverse tax consequences that could
adversely effect the Company's international operations, any one of which could
have a material adverse effect on the Company's business, financial conditions
and results of operations.


POTENTIAL LIABILITIES ASSOCIATED WITH YEAR 2000 SERVICES


        The Company's Year 2000 solutions involve key aspects of its client's
computer systems. A failure in a client's system could result in a claim for
substantial damages against the Company, regardless of the Company's
responsibility for such failure. The Company attempts to limit by contract, both
with its customers and with the parties that license technology to the Company,
its liability for damages arising in rendering its products and services.
Despite this precaution, there can be no assurance that the limitations of
liabilities set forth in its contracts would be enforceable or would otherwise
protect the Company from liability for damages. There can be no assurance that
the Company will be able to obtain or maintain insurance coverage for such
liabilities, that such coverage will continue to be available on acceptable
terms, or that such coverage will be available in amounts to cover one or more
large claims. The assertion of claims against the Company that exceed available
insurance coverage, or changes in the Company's insurance policies, including
premium increases or the imposition of large deductible or co-insurance
requirements, could have a material adverse effect on the Company's business,
financial condition and results of operation. Furthermore, litigation,
regardless of its outcome, could result in substantial cost to the Company and
divert management's attention from the Company's operations. Any contract
liability claim or litigation against the Company could, therefore, have a
material adverse effect on the Company's business, financial condition or
results of operations.


BROAD DISCRETION AS TO USE OF PROCEEDS


   
        With the exception of approximately $615,000 for repayment of the Bridge
Notes including interest accrued thereon, and $400,000 estimated for capital
expenditures, the net proceeds to the Company from this Offering will be used,
as determined by management in its sole discretion, for working capital and
general corporate purposes, as well as for the possible acquisition of or
investment in complimentary businesses and technologies. The Company has not
determined the specific allocation of net proceeds after repayment of the Bridge
Notes and capital requirements, among the various uses described above.
Accordingly, investors in this Offering will rely upon the judgment of the
Company's management with respect to the use of proceeds, with only limited
information concerning management's specific intentions. See "Use of Proceeds."
    


                                       10
<PAGE>   12

IMMEDIATE AND SUBSTANTIAL DILUTION


   
        The initial public offering price of the Shares is substantially higher
than the tangible book value per share of Common Stock. Investors purchasing
Shares in this Offering will therefore incur immediate, substantial dilution. To
the extent that the Warrants, the Representative Warrants, or outstanding stock
options are exercised, there will be further dilution. See "Dilution."
    


CONCENTRATION OF SHARE OWNERSHIP AND VOTING POWER


        Following the Offering, the directors and officers of the Company will
control approximately 62% of the voting power and will be able to elect all of
the Company's directors and, hence, will be able to control the affairs of the
Company. In addition, the directors and officers of the Company will, subject to
certain limitations imposed by applicable law, be able to, among other things,
amend the Company's Certificate of Incorporation and By-laws and effect or
preclude fundamental corporate transactions involving the Company, including the
acceptance or rejection of any proposals relating to a merger of the Company or
an acquisition of the Company by another entity, in each case without the
approval of any of the Company's other stockholders. See "Principal
Stockholders" and "Description of Securities."


POTENTIAL ADVERSE EFFECT OF AUTHORIZED BUT UNISSUED PREFERRED STOCK ON HOLDERS
OF COMMON STOCK; ANTI-TAKEOVER EFFECTS


        The Board of Directors has authority to issue up to 1,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and, as a result, the issuance
thereof could have a material adverse effect on the market value of the Common
Stock. The Company has no present plans to issue shares of Preferred Stock. See
"Description of Securities."


NO PRIOR TRADING MARKET; POTENTIAL PRICE VOLATILITY


   
        Prior to the Offering there has been no public market for the Shares,
the Warrants or any of the underlying securities, and there can be no assurance
that an active market will develop or be sustained. The initial public offering
prices of the Shares and Warrants and the terms of the Warrants have been
negotiated between the Company and the Underwriters and are not related to the
Company's asset value, net worth or results of operations, and may not be
indicative of future market prices. See "Underwriting" for information related
to the method of determining the initial public offering prices.
    


        The Company believes factors such as quarterly fluctuations in results
of operations, announcements of new orders by the Company and changes in either
earnings estimates of the Company or investment recommendations by stock market
analysts may cause the market price of the Shares, the Warrants and the
underlying securities to fluctuate, perhaps substantially. In addition, in
recent years the stock market in general, and the shares of technology companies
in particular, have experienced extreme price fluctuations which are likely to
continue. These broad market and industry fluctuations may adversely affect the
market price of the Shares, the Warrants and the underlying securities.


POSSIBLE DELISTING FROM NASDAQ SMALLCAP MARKET AND MARKET ILLIQUIDITY


        While the Company's Common Stock and Warrants are expected to meet the
current Nasdaq SmallCap Market initial listing requirements, there can be no
assurance that such securities will meet the continued listing requirements.
Under criteria that will come into effect in early 1998 for continued inclusion
on the Nasdaq 


                                       11
<PAGE>   13

SmallCap Market, (i) the Company will have to maintain at least $2,000,000 in
net tangible assets or $35,000,000 market capitalization or achieve net income
of $500,000 for two of the last three years, (ii) the minimum bid price of the
Common Stock will have to be $1.00 per share, (iii) there must be at least
500,000 shares in the public float valued at $1,000,000 or more, (iv) the Common
Stock must have at least two active market makers, and (v) the Common Stock must
be held by at least 300 holders.


        If the Company is unable to satisfy the Nasdaq SmallCap Market's
maintenance requirements, its securities may be delisted from the Nasdaq
SmallCap Market. In such event, trading, if any, in the Common Stock and
Warrants would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." Consequently,
the liquidity of the Company's securities could be impaired, not only in the
number of securities which could be bought and sold, but also through delays in
the timing of transactions, reduction in security analysts' and the news media's
coverage of the Company, and lower prices for the Company's securities than
might otherwise be attained.


        The Shares, the Warrants and the underlying securities have not been
qualified or registered in all states and will not be eligible for trading
unless an exemption from the qualification or registration requirements is
available. There can be no assurance that any such exemption will become
available in any jurisdiction.


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


   
        The Representative has advised the Company that the Representative
intends to make a market in the Company's securities. Regulation M of the
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended (the "1934 Act") may prohibit the
Representative from engaging in any market making activities with regard to the
Company's securities for the period from five business days (or such other
applicable period as Regulation M may provide) prior to any solicitation by the
Representative of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Representative may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Representative may be
unable to provide a market for the Company's securities during certain periods
while the Warrants are exercisable. Any temporary cessation of such
market-making activities could have an adverse effect on the market price of the
Company's securities.
    


RISK OF LOW-PRICED STOCKS


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


        The foregoing penny stock restrictions will not apply to the Company's
securities if (i) they are listed on the Nasdaq SmallCap Market, (ii) certain
price and volume information is publicly available on a current and continuing
basis, and (iii) the Company meets certain minimum net tangible assets or
average revenue criteria. There can be no assurance that the Company's
securities will qualify for exemption from the penny stock restrictions. If the
Company's securities were subject to the rules on penny stocks, the market
liquidity for the Company's securities could be severely adversely affected.


                                       12
<PAGE>   14
LIMITED OFFERING EXPERIENCE OF UNDERWRITER


   
        The Representative has been in business since May 1996. Prior to this
Offering, the Representative has only co-managed one other offering of
securities and has acted as an underwriter in several other offerings. There can
be no assurance that the Representative's limited offering experience and small
size relative to other broker-dealers will not adversely affect this Offering or
the subsequent development, if any, of a trading market for the Common Stock and
Warrants. See "Underwriting."
    


POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS


   
        During the four-year period commencing one year from the date of this
Prospectus, the Warrants may be redeemed by the Company, with the
Representative's prior written consent, at a redemption price of $.01 per
Warrant upon not less than 30 days' notice if the closing bid price of the
Common Stock is at least 150% of the then current exercise price of the Warrants
for 20 consecutive trading days ending on the third day prior to the Notice of
Redemption. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price therefor at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price (which will likely be adversely affected by the impending
redemption of the Warrants) when they might otherwise wish to hold the Warrants,
or to accept the redemption price, which, at the time the Warrants are called
for redemption, is likely to be substantially less than the market value of the
Warrants. See "Description of Securities -- Warrants."
    


CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS


        Holders of Warrants will only be able to exercise the Warrants if (i) a
current prospectus under the Securities Act of 1933, as amended (the "Securities
Act") relating to the securities underlying the Warrants is then in effect and
(ii) such securities are qualified for sale or exempt from qualification under
the applicable securities laws of the states in which the various holders of
Warrants reside. Although the Company has undertaken to use its best efforts to
maintain the effectiveness of a current prospectus covering the securities
underlying the Warrants, there can be no assurance that the Company will be able
to do so. There also can be no assurance that exemptions from the registration
or qualification requirements of those states in which the Company's securities
are not currently registered or qualified will be available at the time a
Warrant holder wishes to exercise his or her Warrant. The value of the Warrants
may be greatly reduced if a current prospectus, covering the securities issuable
upon the exercise of the Warrants, is not kept effective or if such securities
are not qualified, or exempt from qualification, in the states in which the
holders of Warrants reside. See "Description of Securities -- Warrants."


SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS


        Immediately following this Offering, there will be an aggregate of
3,391,338 shares of Common Stock outstanding. Of these shares, the 1,000,000
shares of Common Stock offered hereby will be freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), unless such shares are held by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act
("Affiliates"). The remaining 2,391,338 shares, and any shares issued upon
exercise of the Bridge Warrants or stock options, were or will be sold by the
Company in reliance on exemptions from the registration requirements of the
Securities Act and are or will be "restricted" securities within the meaning of
Rule 144 under the Securities Act (the "Restricted Shares"). Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or 701 promulgated under the
Securities Act.


        Holders of the Warrants will be entitled to purchase an aggregate of
1,000,000 additional shares of Common Stock upon exercise of the Warrants at any
time during the four year period commencing one year from the date of this
Prospectus, provided that the Company satisfies certain securities registration
and qualification requirements with respect to the securities underlying the
Warrants. Any and all shares of Common Stock purchased upon exercise of the
Warrants will be freely tradable, provided such registration requirements are
met.


                                       13
<PAGE>   15

   
        The holders of the Representative Warrants have been granted
registration rights with respect to all shares purchased upon exercise of the
Representative Warrants and the underlying securities. The sale, or availability
for sale, of substantial amounts of Common Stock in the public market subsequent
to this Offering could adversely affect the prevailing market price of the
Common Stock and could impair the Company's ability to raise additional capital
through the sale of its equity securities. See "Shares Eligible for Future Sale"
and "Underwriting."
    


NO DIVIDENDS ANTICIPATED


        The Company has never paid any cash dividends on its Common Stock. The
Company anticipates that in the future, earnings, if any, will be retained for
use in the business or for other corporate purposes, and it is not anticipated
that cash dividends in respect of the Common Stock will be paid. See "Dividend
Policy."


                                       14
<PAGE>   16
                                 USE OF PROCEEDS


        The net proceeds to the Company from the sale of the 1,000,000 Shares
and 1,000,000 Warrants offered by the Company hereby are estimated to be
approximately $4,875,000 ($5,658,000 if the Underwriters' over-allotment option
is exercised in full) at an assumed public offering price of $5.90 per Share and
$0.10 per Warrant and after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company.


        The Company intends to use approximately $615,000 of those proceeds to
repay the principal and accrued interest on outstanding Bridge Notes issued in
the Bridge Financing. The Bridge Financing was completed in October 1997, with
the proceeds used to finance operations and provide working capital to the
Company.


   
        The Company estimates that it will use approximately $400,000 of those
proceeds to invest in capital equipment, furniture and fixtures. Actual amounts
could vary significantly, in the event that revenue levels or headcount differ
materially from Management's expectations.


        The Company intends to use the remaining proceeds for working capital
and other general corporate purposes required to support the anticipated growth
of the business. A portion of the proceeds may also be used to acquire or invest
in complementary businesses or products or to obtain the right to use
complementary technologies. While from time to time the Company may evaluate
potential acquisitions of such businesses, products or technologies, there are
no present understandings, commitments or agreements with respect to any
acquisition of other businesses, products or technologies.


        Any additional proceeds received upon exercise of the Over-Allotment
Option, the Representative Warrants or the Warrants will be added to working
capital. Pending utilization, the net proceeds of the Offering will be invested
in short-term, interest-bearing investments.
    


                                 DIVIDEND POLICY


        The Company has not paid any cash dividends on its Common Stock. It is
the present policy of the Company to retain earnings to finance the growth and
development of the business and, therefore, the Company does not anticipate
paying cash dividends on its Common Stock in the foreseeable future.


                                       15
<PAGE>   17
                                 CAPITALIZATION


   
        The following table sets forth the capitalization of the Company (i) at
September 30, 1997, (ii) on a pro forma basis to reflect the completion of the
Bridge Financing, and (iii) as adjusted to reflect the sale of the 1,000,000
Shares and 1,000,000 Warrants offered hereby at an assumed public offering price
of $5.90 per Share and $0.10 per Warrant, the application of a portion of the
estimated net proceeds therefrom to repay Bridge Notes and accrued interest, and
an extraordinary charge to operations of approximately $135,000 in connection
with the Bridge Notes, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by the Company.

<TABLE>
<CAPTION>
                                                                      September 30, 1997
                                                         ---------------------------------------------
                                                            Actual         Pro Forma       As Adjusted
                                                         -----------      -----------      -----------
<S>                                                      <C>              <C>              <C>        
Bridge Notes payable(1) ............................     $        --      $   492,000      $        --
                                                         -----------      -----------      -----------
Stockholders' Equity:
 Preferred Stock - par value $.001; 1,000,000 shares
 authorized; no shares issued and outstanding,
 actual, pro forma and as adjusted .................              --               --               --
 Common Stock - par value $.001; 10,000,000 shares
 authorized; 2,391,338 shares issued and
 outstanding, actual and pro forma; 3,391,338
 shares issued and outstanding as adjusted(2) ......           2,391            2,391            3,391
 Additional paid-in capital ........................       1,697,391        1,697,391        6,471,391
 Warrants to acquire Common Stock ..................              --          108,000          208,000
 Accumulated deficit ...............................      (1,479,232)      (1,479,232)      (1,614,052)
 Deferred compensation .............................        (129,166)        (129,166)        (129,166)
                                                         -----------      -----------      -----------
     Total stockholders' equity ....................          91,384          199,384        4,939,564
                                                         -----------      -----------      -----------
       Total capitalization ........................     $    91,384      $   691,384      $ 4,939,564
                                                         ===========      ===========      ===========
</TABLE>
    

- -----------------
(1) The Bridge Notes were issued in October 1997 and are payable on the earlier
    of September 30, 1999 or the completion of the Offering. See Note 4 of the
    Notes to Financial Statements.


(2) Does not include 2,425,000 shares issuable upon exercise of outstanding
    warrants and options, or 82,500 shares reserved for future stock option
    grants.


BRIDGE FINANCING


        In October 1997, the Company completed the Bridge Financing in which it
sold, to 36 accredited investors, an aggregate of $600,000 principal amount of
Bridge Notes and 600,000 Bridge Warrants and received net proceeds of
approximately $573,000 (after expenses of such offering). The Bridge Warrants
entitle the holders thereof to purchase, during the one-year period beginning
one year after completion of this Offering, one share of Common Stock at a
purchase price of the lower of (i) $4.00 per share or (ii) 2/3 of the offering
price to the public of a Share and a Warrant.


   
        For financial statement purposes, the Bridge Financing has been
allocated $108,000 to warrants, $492,000 to Bridge Notes payable and $27,000 to
deferred finance charges. The Bridge Notes are payable, together with interest
at the rate of 10% per annum, on the earlier of September 30, 1999 or the
closing of the Offering. The resulting $135,000 of combined debt discount and
deferred finance charges will be charged to expense using the interest method
over the term of the Bridge Notes or as an extraordinary item upon the
retirement of the Bridge Notes, currently expected to occur in the first quarter
of 1998 with the proceeds of the Offering. See "Use of Proceeds."
    


                                       16
<PAGE>   18

                                    DILUTION


   
        The pro forma net tangible book value of the Company as of September 30,
1997 was $78,432 or $0.03 per share of Common Stock. "Pro forma net tangible
book value" per share represents the amount of total tangible assets of the
Company reduced by the amount of its total liabilities and divided by the total
number of outstanding shares of Common Stock. The pro forma adjustment to the
historical net book value gives effect the completion of the Bridge Financing.
See Notes to Financial Statements. After giving effect to the sale of 1,000,000
Shares and 1,000,000 Warrants offered hereby at an assumed initial public
offering price of $5.90 per Share and $0.10 per Warrant (after deducting
underwriting discounts, commissions and other estimated offering expenses,
anticipated to aggregate $1,125,000), and repayment of the Bridge Financing, the
net tangible book value of the Company, as adjusted, at September 30, 1997 would
have been $4,845,432 or $1.43 per share. This represents an immediate increase
from pro forma net tangible book value per share to pro forma net tangible book
value per share, as adjusted, of $1.40 per share to existing stockholders and an
immediate dilution of $4.57 per share to new investors purchasing Shares and
Warrants in this Offering. The following table illustrates this per share
dilution:

<TABLE>
<S>                                                                          <C>        <C>
Initial public offering price per Share and Warrant...................                  $  6.00

    Pro forma net tangible book value per share as of September 30, 1997
        before the Offering...........................................       $  .03

    Increase per share attributable to new investors..................         1.40
                                                                             --------

    Pro forma net tangible book value per share as of September 30, 1997
        after the Offering............................................                     1.43
                                                                                        -------  
Dilution per share to new investors...................................                  $  4.57
                                                                                        =======
</TABLE>


        The following table summarizes, on a pro forma basis as of September 30,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by the new investors at an assumed initial public offering price of $6.00
per Share and Warrant:
    

   
<TABLE>
<CAPTION>
                                                                             AVERAGE
                                                                              PRICE
                            SHARES PURCHASED        TOTAL CONSIDERATION        PER
                          --------------------      --------------------      
                            NUMBER      PERCENT       AMOUNT      PERCENT     SHARE
                          ----------     -----      ----------     -----      -----
<S>                       <C>           <C>         <C>           <C>        <C>     
Existing stockholders..    2,391,338      70.5%     $1,570,616      20.7%    $  .66

New investors .........    1,000,000      29.5%      6,000,000      79.3%      6.00
                          ----------     -----      ----------     -----      -----
     Total: ...........    3,391,338     100.0%     $7,570,616     100.0%    $ 2.23
                          ==========     =====      ==========     =====      =====
</TABLE>
    

   
        The above computations assume no exercise of options or warrants to
purchase shares of Common Stock. As of November 30, 1997, there were outstanding
options to purchase 625,000 shares of Common Stock at a weighted average
exercise price of $2.96 share and outstanding warrants to purchase 600,000
shares of Common Stock at a weighted average exercise of $4.00 per share. The
above computations also exclude 200,000 shares of Common Stock issuable upon
exercise of the Representative Warrants and the Warrants included therein. To
the extent outstanding options or warrants are exercised in the future, there
will be further dilution to new investors. See "Capitalization -- Bridge
Financing," "Management -- Stock Plans" and Notes 2 and 4 to Financial
Statements.
    


                                       17
<PAGE>   19

                             SELECTED FINANCIAL DATA


        The selected historical financial data set forth below is qualified by
reference to, and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto and the discussion thereof included elsewhere in
this Prospectus.


   
        The following selected statement of operations data for the period from
inception (September 17, 1996) through December 31, 1996 and the balance sheet
data as of December 31, 1996 are derived from the financial statements of the
Company, included elsewhere in this Prospectus, which have been audited by Ernst
& Young LLP, independent auditors. The statements of operations data presented
below for the nine months ended September 30, 1997, and the period from
inception (September 17,1996) through September 30, 1997, and the balance sheet
data as of September 30, 1997, are derived from unaudited financial statements
included elsewhere in this Prospectus. The unaudited statement of operations
data and balance sheet data have been prepared by the Company on a basis
consistent with the Company's audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information. The results of operations for the nine
months ended September 30, 1997, are not indicative of results to be expected
for the year ending December 31, 1997 or for any future period.
    

   
<TABLE>
<CAPTION>
                              Period from inception       Nine Months         Period from inception
                              (September 17, 1996)           Ended            (September 17, 1996)
                              through December 31,       September 30,        through September 30,
                                    1996                      1997                    1997
                                 -----------              -----------              -----------
<S>                           <C>                        <C>                  <C>        
STATEMENTS OF OPERATIONS DATA:                                                   
Revenues .....................   $     9,798              $    79,283              $    89,081
Cost of revenues .............         6,300                   46,894                   53,194
                                 -----------              -----------              -----------
Gross profit .................         3,498                   32,389                   35,887
                                                                                 
Selling, general and                                                             
administrative expenses ......        47,836                1,465,683                1,513,519
                                 -----------              -----------              -----------
                                                                                 
Operating loss ...............       (44,338)              (1,433,294)              (1,477,632)
                                                                                
Net loss .....................   $   (44,338)             $(1,434,894)             $(1,479,232)
                                 -----------              -----------              -----------
Pro forma net loss per share..   $     (0.02)             $     (0.50)
                                 -----------              ----------- 
Shares used in computing pro                                          
forma net loss  per share ....     2,874,255                2,874,255 
                                 ===========              =========== 

BALANCE SHEET DATA
(AT PERIOD END):

Cash                               $  16,467                $  65,863
Working capital                       94,352                  (40,471)
Total assets                         144,397                  242,638
Total liabilities                     31,235                  151,254
Total stockholders' equity           113,162                   91,384
</TABLE>
    


                                       18
<PAGE>   20

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


        This discussion contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in such forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following discussion and analysis should be read in conjunction
with "Selected Financial Data" and the financial statements and notes thereto
included elsewhere in this Prospectus.


OVERVIEW


   
        The Company has developed relationships with leading providers of Year
2000 software products, two international hardware manufacturers, and a
multinational consulting organization, thereby enabling C2i to provide solutions
to its customers from a wide variety of service choices and alternatives
intended to match their specific needs in achieving Year 2000 compliance. The
Company was founded in 1996, has a very limited operating history and is in the
development stage. As a result, the Company's operations to date have not
produced significant revenues.


        In view of the early stage of the Company's development, the expected
changes in the development costs related to the Company's Year 2000 solutions,
and the anticipated increases in its selling, general and administrative
expenses associated with its anticipated increased activity levels, the Company
believes that period-to-period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance.


        In order to identify, capture and meet the anticipated demand for Year
2000 solutions, the Company will need to expand its workforce and facilities.
The Company expects to begin incurring expenses relating to this expansion
before it begins to generate revenue of any significance.


        Specifically, the Company expects to incur or experience notable
increases in (i) salary, commission, consulting fees, placement fees, travel,
marketing, and office expenses associated with expanding its direct sales force:
(ii) personnel, training, placement fees, rent and other occupancy expenses, to
build its technical operations team; and, (iii) personnel, rent and other
occupancy expenses, professional fees and general overhead expenses associated
with the creation of a general and administrative infrastructure necessary to
support the anticipated future growth.


        In late September 1997, the company hired its first two regional sales
representatives and began selling activities. Given the complex nature of the
sales cycle and the expected length of time typically required for a potential
customer to conclude its purchase decision related to a comprehensive Year 2000
solution, the Company currently has no backlog of signed customer orders. The
Company is in the process of negotiating contracts with half a dozen potential
clients. The Company has submitted at least twice as many additional proposals
to potential clients, which have not yet progressed to the contract negotiation
stage. The Company does not expect to realize any significant revenues before
the end of the first quarter of 1998. There can be no assurance that the Company
will successfully conclude any of these negotiations and realize revenues
related to these or other potential customers.


        The Company began its workforce expansion in the third quarter of 1997,
and expects this to continue throughout 1998. The company commenced payment in
December 1997 of salaries to its officers. Prior to December 1997, the Company
had not incurred any significant cash compensation for its officers since its
inception. The Company has recognized a charge of approximately $1.2 million for
non-cash compensation expense to officers. The Company expects to incur
additional non-cash compensation expenses related to previous grants of stock
options at exercise prices below their deemed values. Future compensation
expenses are expected to be significant in order to attract qualified
individuals in the early stages of the Company's operations. The Company is in
the process of
    


                                       19
<PAGE>   21

   
negotiating lease agreements for larger facilities. The Company expects to
conclude these negotiations and begin relocating before the end of December
1997. Also, during the three months ending March 31, 1998, the Company expects
to recognize an extraordinary charge to operations arising from the Bridge
Financing of approximately $135,000, representing the combined debt discount and
deferred finance charges. In addition, most of the Company's revenues are
expected to be derived from a relatively small number of large-scale
comprehensive Year 2000 conversion projects provided by the Company and its
strategic partners. As a result, the Company's revenues and operating results
are subject to substantial variations in any given year and from quarter to
quarter. See "Risk Factors-Fluctuations in Quarterly Operating Results."
    


   
        The Company believes that a demand for its Year 2000 solution exists
today and will continue to exist for some time after the Year 2000, although the
demand will diminish significantly over time and will eventually disappear. The
Company plans to continue actively pursuing business opportunities unrelated to
the Year 2000 problem in the computer software and consulting market, with a
focus on the conversion marketplace, and to develop products and services to
take advantage of these opportunities. However, there can be no assurance that
the Company will be able to successfully develop its Year 2000 business or
expand its business beyond the Year 2000 conversion market. The failure to
diversify and develop additional computer software and consulting services would
materially adversely affect the Company's business, operating results and
financial condition. See "Risk Factors -- Need to Develop New Products and
Technologies."
    


        Revenue associated with performance under contracts to provide Year 2000
computer consulting and reengineering services is recognized utilizing the
percentage-of-completion method in the ratio that labor-hours incurred to date
bear to estimated total labor-hours at completion, provided that collection of
the related receivable is probable. Adjustments to contract cost estimates are
made in the periods in which the facts which require such revisions become
known. If the revised estimates indicate a loss, such loss will be provided for
currently in its entirety. The costs of providing warranty and follow-on
customer support related to services performed are currently non-existent. In
the future such costs are not expected to be significant and will be accrued.


        The Company recognizes revenue from the sale of software and hardware
products upon delivery of the product to customers, when collection is assured.
Revenues on sales of software products to customers which require significant
continued obligation from the Company are deferred until such obligations are no
longer significant.


RESULTS OF OPERATIONS


        The following tables sets forth, for the periods indicated, certain
items from the Company's statements of operations as a percentage of total
revenue:

   
<TABLE>
<CAPTION>
                                          PERIOD                         PERIOD FROM
                                      FROM INCEPTION                      INCEPTION
                                      (SEPTEMBER 17,     NINE MONTH     (SEPTEMBER 17,
                                       1996) THROUGH    PERIOD ENDED    1996) THROUGH
                                        DECEMBER 31,    SEPTEMBER 30,    SEPTEMBER 30,
                                           1996             1997              1997
                                          ------           ------            ------
<S>                                   <C>               <C>             <C>   
Revenues                                  100.0%           100.0%            100.0%
Cost of revenues                           64.3%            59.1%             59.7%
                                         -------         --------          --------

Gross profit                               35.7%            40.9%             40.3%
Selling, general and administrative
expenses                                  488.2%          1848.7%           1699.0%
                                         -------         -------           -------
Operating loss                           (452.5%)        (1807.8%)         (1658.7%)
Provision for income taxes                   --              2.0%              1.8%
                                         -------         --------          --------

Net loss                                 (452.5%)        (1809.8%)         (1660.5%)
                                         =======         ========          ========
</TABLE>
    



                                       20
<PAGE>   22
   
NINE MONTHS ENDED SEPTEMBER 30, 1997.

        Revenues. The Company's revenues of $79,283 consist primarily of
consulting fees for services provided ($47,033) and fees received for the sale,
license or use of software and hardware products ($32,250).


        Cost of Revenues. Cost of revenues consists primarily of
personnel-related costs of providing software consulting services. Cost of
revenues also includes third party royalties relating to licensed technology,
and costs of products sold. Cost of revenues for the period ended September 30,
1997 was approximately 59% of revenues.


        Selling, general and administrative expenses. Selling, general and
administrative expenses were $1,465,683 for the period ended September 30, 1997,
which includes a charge of $1,199,999, recognized for financial statement
purposes, as a result of sales of equity securities to key employees at below
the deemed value. Other selling, general and administrative expenses related
primarily to personnel and other occupancy expenses, overhead costs to support
the growth in the Company's workforce, as well as continued increases in
training, marketing and sales activities. The Company expects that such selling,
general and administrative expenses will continue to increase in the fourth
quarter 1997 and thereafter, as previously discussed herein. 
    


FISCAL YEAR ENDED DECEMBER 31, 1996.


        Revenues. The Company was founded in September 1996 and as a result had
limited revenues and related cost of revenues in the period ended December 31,
1996.


        Selling, general and administrative. Selling, general administrative
expenses were $47,836 for the period ended December 31, 1996 and primarily
related to costs incurred to establish the Company's infrastructure and internal
operations.


LIQUIDITY AND CAPITAL RESOURCES


   
        Since inception, the Company has financed its operations primarily
through the proceeds from the issuance of Common Stock and a Bridge Financing
completed in October 1997. See "Capitalization -- Bridge Financing". To date,
the Company has raised approximately $960,000 in total from the sale and
issuance of debt and equity securities, including warrants. Funds from these
sources have been and are expected to continue to be used as working capital to
fund the expansion of the Company's infrastructure and internal operations,
including purchases of capital equipment and the hiring of additional personnel.


        The Company generated negative cash flow from operating activities of
$41,343 and $126,856 in the period from inception (September 17, 1996) through
December 31, 1996 and for the nine months ended September 30, 1997,
respectively. The increase in the net cash used for operating activities in 1997
over 1996 is primarily attributed to a larger net loss for the nine months ended
September 30, 1997 as a result of the continued expansion of the Company's
operations, partially offset by an increase in accounts payable and accrued
liabilities.


        The Company's investing activities have consisted primarily of equipment
purchases to support the additional personnel being hired, and amounted to
$23,028 and $28,309 for the periods ended December 31, 1996 and September 30,
1997, respectively. The Company currently has no significant commitments for
capital expenditures, however, assuming the Company realizes an increased demand
for its services, and a corresponding increase in personnel, future capital
expenditures could be significant.


        Based on Management's current operating plan and anticipated personnel
increases, the Company expect to invest approximately $400,000 over the next
twelve months in capital equipment. This includes approximately $150,000 for
general office equipment, furniture and fixtures and approximately $250,000 for
computer equipment, including software. Because future capital expenditures will
be directly affected by the Company's ability to achieve targeted revenue levels
and successfully recruit qualified individuals, actual capital investment could
vary substantially.
    


                                       21
<PAGE>   23
   
        The Company's financing activities provided $80,838 and $204,561 for the
periods ending December 31, 1996 and September 30, 1997, respectively. The
Company received an advance from a former stockholder of $45,000 in 1996. In
addition, the Company sold an aggregate of $157,500 of equity in 1996, of which
$60,000 was collected in 1996. In 1997, the remaining $97,500 was collected and
additional equity was sold, providing the Company with an additional $200,000 in
cash.


        As of September 30, 1997, the Company had cash of $65,863 and working
capital of $(40,471). In October 1997, the Company completed a Bridge Financing
of $600,000, which resulted in net proceeds to the Company of $573,000 (after
deducting selling commissions and expenses of $27,000).


        The Company believes that net proceeds from the sale of Common Stock and
Warrants offered hereby, together with existing cash and anticipated funds from
operations will be sufficient to repay its Bridge Financing and to fund it
capital expenditures, working capital and other cash requirements for at least
the next twelve months. However, the Company expects to continue to experience
operating losses and to have negative cash flow from operations for the
foreseeable future. To the extent that the Company's sources of capital are
insufficient to fund the Company's activities in the short or long term, the
Company may need to raise additional funds through public or private financing.
There can be no assurance that additional financings will be available as needed
or, if available, will be on terms acceptable to the Company.
    


        The timing and amount of the Company's capital requirements will depend
on a number of factors, including demand for the Company's products and
services, the need to develop new or enhanced products and services, competitive
pressures and the availability of complementary businesses or technologies that
the Company may wish to acquire. If additional funds are raised through the
issuance of equity securities, the percentage ownership of the Company's
stockholders will be diluted and such equity securities may have rights,
preferences or privileges senior to those of the holders of the Company's Common
Stock. There can be no assurance that additional financing will be available
when needed or that, if available, such financing will include terms favorable
to the Company or its stockholders. If adequate funds are not available on
acceptable terms, the Company may be unable to develop or enhance its products
and services, take advantage of opportunities or respond to competition, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.


                                       22
<PAGE>   24

                                    BUSINESS

INTRODUCTION

   
        C2i is a provider of services to address the Year 2000 challenge and to
transition legacy software applications effectively and efficiently. Legacy
software and systems, which refers to installed bases of computing hardware and
software acquired over a number of years, usually do not represent the most
advanced technology and are frequently not Year 2000 compliant. C2i employs
proven methodology, advanced tools and the expertise of dedicated professionals
to offer a wide variety of Year 2000 services. From assessment through
implementation and testing, C2i brings together the elements required for cost
effective implementation of solutions to the Year 2000 problem. C2i began
providing Year 2000 related services and products in late 1996, however, the
Company has limited experience in providing Year 2000 solutions. As of the date
of this Registration Statement, the Company has not completed a large scale Year
2000 conversion project.
    


BACKGROUND


        Organizations periodically perform complex conversions on their
information systems in order to respond to changing environments. These
conversions can include operating system migrations, programming language
upgrades and application changes, such as data field expansions to accommodate
additional digits in telephone numbers, zip codes and account numbers. The
largest and most immediate conversion need currently facing users of information
systems is caused by the Year 2000 problem, the potential errors and failures
resulting from widespread use of computer programs utilizing two-digit year
codes when calculating dates after December 31, 1999.


        As the end of the century approaches, the Year 2000 problem is gaining
increased attention in the media and business community. Although many of the
computer programs recently written are designed to accommodate the year 2000, a
large number of mission critical programs currently in use lack the ability to
properly interpret date codes representing the year 2000 and beyond. For
example, these programs using two-digit year codes may misinterpret "00" as the
year 1900 rather than 2000, resulting in faulty information processing or
reporting and potential failures of related systems controlled by date codes or
date code comparisons.


   
        Businesses which are not ready for the Year 2000 problem will experience
significant operating difficulties. Many software applications depend on the way
dates are compared, used in calculations and sorted. These software applications
include financial services applications, billing, scheduling and planning. The
Company estimates that in many large-scale legacy environments millions of
lines of code will need to be scanned to find all occurrences of date-related
instructions, including data structure definitions and all related processing
instructions. These instructions must then be changed to handle year 2000
calculations correctly. Once these potential problems are addressed, changes to
application software may necessitate a corresponding change to the data used by
that software, including the millions of records often contained in an
organization's database.
    


        The Year 2000 problem is particularly important to large organizations
with mainframe computer systems, such as banks, securities firms, insurance
companies, healthcare providers, government agencies and transportation
companies. Solving the Year 2000 problem is essential in order for these
organizations to conduct their businesses.


        The worldwide cost of solving the Year 2000 problem has been estimated
by industry sources to be $300 billion to $600 billion over the next few years.
Much of these costs are expected to relate to conversion solutions for IBM MVS
mainframe systems. As a result of limitations on an organization's internal
resources and expertise, C2i believes it is likely that a substantial portion of
the Year 2000 update process will be outsourced. Thus, the market for conversion
solutions provided by independent consultants is expected to grow rapidly as


                                       23
<PAGE>   25

business organizations become aware of the Year 2000 problem and recognize their
own limitations in solving the problem internally.


        As a result of the size of the Year 2000 problem and its critical
importance to many organizations, there are many tools and methodologies, each
with a different approach, that have been developed to address the Year 2000
problem. This has produced a situation where organizations are faced with a
difficult task of selecting from a confusing array of claims and potential
solutions.


THE C2I SOLUTION


   
        C2i has developed relationships with leading providers of Year 2000
tools to provide its customers with a wide variety of service choices and
alternatives. These relationships include non-exclusive licensing agreements
that allow C2i to use third-party software to develop Year 2000 solutions,
value-added-reseller agreements ("VAR agreements") that allow C2i to re-sell
certain third-party software as part of its Year 2000 solutions, consulting
agreements and joint-development agreements. C2i is engaged in a constant
process of evaluating potential relationships with technology providers in order
to develop the most advanced Year 2000 solutions and add to its suite of service
and product offerings. Through its access to a number of tools and approaches,
C2i is able to recommend and select solutions intended to match a customer's
specific needs. C2i's tools scan and analyze software components, assess and
evaluate the software structure, including date-related fields and their
respective processing instructions, produce a range of reports and support
semi-automatic and automatic conversion of most of the information systems
components. The conversion involves both changes in the data and related
software through data field expansion, and if data field expansion is not
possible, application logic changes. By increasing the amount of automation in
the conversion process, these tools reduce overall conversion time and cost. The
Company combines its licensed technology with related consulting services,
training and support to deliver Year 2000 solutions for the IBM MVS mainframe
and other platform environments.
    


STRATEGY



        EXPLOIT YEAR 2000 OPPORTUNITIES. The flaw in the programming code of
current legacy systems has produced a threat for many companies of significant
liabilities, business interruption and computer system failure. C2i intends to
employ its hardware, software, programming and consulting skills to satisfy the
market need for its services.


   

        UTILIZE STRATEGIC RELATIONSHIPS TO OBTAIN ASSIGNMENTS. C2i intends to
use the leads generated by the software providers with whom it has entered into
a VAR agreement to overcome the initial reluctance of customers to retention of
a smaller company, such as C2i, to address critical organizational needs.
    


        EXPAND CHOICE OF SOFTWARE TOOLS. As new tools and approaches are
developed to address the Year 2000 problem, C2i intends to evaluate those
products and, where appropriate, to enter into agreements with the providers of
those solutions to expand C2i's existing capabilities.


        FOCUS ON CLIENT SERVICE. C2i believes that it must be dedicated to
quality improvement and service in order to build the level of customer loyalty
that will allow it to compete with larger organizations and obtain the insight
necessary to expand its service offerings beyond Year 2000 compliance.


        LEVERAGE SKILLS AND CONTACTS TO PENETRATE ADDITIONAL MARKETS. By
applying the knowledge it obtains about customers' needs during a Year 2000
project, C2i intends to expand the scope of services it provides to include
other complex data and system reengineering and conversion tasks. The Company
believes that these additional tasks will include operating system migrations,
programming language upgrades, database migrations and application changes. C2i
intends to expand its Year 2000 and reengineering practice into European and
Pacific Rim markets.


                                       24
<PAGE>   26

SERVICES


        The services provided in a Year 2000 conversion project involve a
detailed series of assessment, analysis, conversion, replacement, testing and
implementation steps, all of which must be managed through several different
groups within an organization.


        PROJECT MANAGEMENT


        Maintaining control of a Year 2000 conversion project requires project
managers to predict and monitor factors affecting resource consumption, delivery
dates and costs throughout the project. Computer time, personnel time and need
to work around existing operations are constraints that directly affect resource
availability and costs. C2i's project manager, who is a specialist in the
language(s) used in the customer's information systems, allocates assignments to
project personnel and uses project tracking system to monitor progress during
the complex series of tasks associated with the conversion.


        ENTERPRISE ASSESSMENT


   
        The enterprise assessment phase is an extremely important step that
forms the information-base upon which significant decisions will be made
regarding the nature of the conversion, code renovation and system replacement
efforts. To make a proper decision, a company needs to have accurate data
regarding the cost and manpower requirements of the various options. The "best
decision" must be able to be accomplished in the required time frame with the
available resources.
    


        C2i collects and analyzes customer specific data and reports the results
of its cost estimation and analysis activities to the customer. This step
predicts how much work will be needed to reformat date-related data and programs
for the Year 2000, based on a metric or cost model.


        C2i works with representatives of all involved business units in an
organization to compile a comprehensive Enterprise Assessment Report. This
report enables management to select a course of action and deploy resources for
conversion/replacement and compliance.


        INVENTORY


        C2i assists clients to inventory and review their Data Processing (DP)
and business environment to document the existing topology, currency of software
releases and inter-relationships of systems and subsystems. This inventory and
review becomes the basis for developing an overall methodology to deal with Year
2000 problems. The DP environment review addresses hardware, software, staff
resources and skills, and current system software plans. The software inventory
organizes operating systems, database systems, programming languages,
measurement and performance tools, utilities and any other vendor-supplied items
that may have Year 2000 implications.


        During the enterprise assessment, C2i assists clients to inventory and
review application systems, subsystems and programs to determine their
inter-relationships, as well as age, usefulness, size and appropriateness for
selection as a Pilot Scan and Analysis candidate. The inventory documents the
name, function, size, age, origin (in-house developed or purchased package),
available documentation, and importance of the system or subsystem to the
organization. It is important to understand how the program is stored, backed-up
and called, and to determine which other libraries and data feeds are used in
conjunction with the loading of the program or system.


        PILOT SCAN/ANALYSIS


        On the basis of the information gathered during the Enterprise
Assessment, C2i and the client may select a small segment of code to be scanned
and analyzed in the Pilot Scan and Analysis phase. This phase consists of
building tables of naming conventions and understanding how dates are used
within the systems. The Pilot Scan and Analysis phase produces reports showing
the number, location and relevance of date-sensitive fields, and 


                                       25
<PAGE>   27

highlights those instances where failure will occur in the year 2000 and beyond.
The Pilot Scan and Analysis phase assists C2i and the client to determine the
order and timing of a comprehensive scan and analysis of programs, subsystems
and systems and to determine the most cost-effective and functionally beneficial
remedies available to the organization.


        SCANNING AND ANALYSIS


        These processes are accomplished using the Scanning and Analysis tools.
The multi-pass scanning process identifies vulnerable lines of code, classifies
each date reference and procedure reports to assist C2i and the customer. The
date-search process matches language elements and data names against known
language elements and date-specific mnemonics. C2i can scan COBOL, Fortran,
Assembler, RPG, PL/1, Mantis, Natural, Focus, APS, CSP, Easytrieve, SAS, ADS and
Culprit. While scanning gives the programmer an overview of sensitive dates, the
analysis tools specify the dates, by line, that will cause the system to fail.
During the analysis steps, C2i search engines review data-names and comparison
and calculation statements and produce exception reports of data references that
fail or that appear to be inaccurate or misleading. This phase identifies the
lines of code that must be addressed by C2i and the client.


        IMPLEMENTATION CONSULTATION

        After the Scanning and Analysis steps are completed, C2i gathers all the
data reports and charts and provides client executives with the information
necessary to make the appropriate Year 2000 business decisions. At this point, a
client is in a position to make informed decisions of the cost of solutions and
the consequences of failing to act. A key element of the C2i approach is the
establishment of an overall project management system to assist planning,
tracking and communication regarding all aspects of the Year 2000 compliance
effort throughout the enterprise. The Company believes that it is of utmost
importance for all involved to be able to follow the progress regarding
milestones, manpower issues and costs on an ongoing basis. C2i uses, among other
tools, Microsoft Project with Year 2000 customized templates to insure that a
consistent methodology is followed and standardized reporting is provided to
assist in enterprise-wide communications.


        RENOVATION/REPLACEMENT


        This stage involves implementing the decisions to solve identified Year
2000 problems. This phase occurs when a plan has been agreed upon by all
business units and senior management. The adoption of this plan begins the
critical enterprise-wide process of insuring the organization will survive the
date-change implications of the Year 2000. All critical systems, programs,
databases, data feeds, procedures and printed material must meet the change
requirements set out in the Enterprise Alternatives Study Report. Solutions
generally entail fixing the system, replacing with packaged Year 2000-compliant
systems or modules, or abandoning the business function served by the programs
or systems.


        Fixes generally fall into one of three categories:


        - date-field expansion to create a standard four-digit year field


        - windowing, a procedural solution technique using the existing
          two-digit field


        - compression to create a four-digit representation in a two-digit field


        TESTING AND IMPLEMENTATION


        Testing is a significant and critical element of every successful Year
2000 effort. All critical systems, programs, data bases, data feeds, procedures
and printed material must meet the change requirements. The Company believes
that testing entails approximately 50% of the entire project. C2i intends to
assist clients to develop and implement testing procedures from unit test and
integration testing through systems and acceptance 


                                       26
<PAGE>   28

   
testing. With additional storage from date expansion or added logic code for
windowing or workaround, it is vital to conduct full-scale testing with live
data in production volumes. The C2i data center mainframe environment, with a
direct dedicated line or secure Internet connection to the client's production
mainframe system, will provide flexibility for unit and integration testing.
    


        The challenge for all organizations is the on-time completion of
mission-critical compliance efforts to insure that fundamental business systems
will not fail in the year 2000. Many experts predict that there is simply not an
adequate supply of technical and management resources to handle the challenge of
required intervention. This increases the importance of project prioritization
and planning. Complete re-systemization, date-field expansion, and some
compliance work will extend well into the year 2000 and beyond, where temporary
fixes and workarounds will require replacement by permanent solutions.


LICENSES AND RELATIONSHIPS


   
        C2i has entered into VAR Agreements with IBM, Computer Associates
International and Oracle, a development agreement with Sun Microsystems, and
non-exclusive licensing agreements with several other vendors, and is constantly
evaluating potential relationships with other third-parties to provide an
extensive range of Year 2000 solutions, including hardware, software and
consulting services and add to its suite of service and product offerings. Some
of the Company's licensors offer conversion services directly or have licensed
other companies to use the technologies offered by C2i.


        HARDWARE


        IBM. C2i has entered into a VAR Agreement with IBM that provides that
C2i may act as an IBM Business Partner and Solution Provider in the United
States and Puerto Rico. As a re-seller of IBM R390-P/390 hardware and software,
C2i may purchase at a discount and offer its clients an extensive selection of
tested and integrated software and tools in a hardware platform that mirrors the
customer's MVS environment and permits secure testing of date functions without
risk of propagating corrupted information into production data sets. The IBM
agreement may be terminated without cause by C2i or IBM on three months' written
notice, and may be modified by IBM on one month written notice. C2i's ability to
re-sell IBM equipment and services under the IBM agreement is conditioned on
IBM's approval of C2i's value-added enhancements, which must significantly add
to the function and capability of the IBM products to be resold.


        Sun Microsystems. C2i has entered into a series of agreements with Sun
Microsystems ("Sun") in connection with Sun's Catalyst Developer Program. This
relationship provides C2i with discounts on Sun software and hardware, a
non-exclusive license to Solaris, Sun's development environment, access to news
and information produced by Sun for its Catalyst Developers, special technical
support options, use of certain Sun trademarks, listings in Sun on-line and
printed catalogs and royalty-free joint marketing services in exchange for C2i's
development of products compatible with Sun SPARC workstations and Solaris. This
relationship allows C2i to more easily develop Year 2000 solutions for Sun and
other UNIX workstations.


        SOFTWARE


        Computer Associates International ("CA"). C2i has entered into a VAR
agreement with CA that provides C2i the non-exclusive right and license to
distribute CA's Discovery 2000 software, which C2i may purchase from CA at a
discount, within the United States. The Discovery 2000 solution helps to
formulate a Year 2000 strategy, establish appropriate guidelines, and deploy
needed tools and techniques. The CA-Discovery 2000 solution can be implemented
immediately in the existing environment and can be used to modify all
applications, including mission-critical legacy systems running on MVS
platforms. The CA-Discovery 2000 assists in reducing the costs and resources
associated with a Year 2000 solution by providing automated
conversion/replacement and partial testing. The CA-Discovery 2000 solution
provides the user with valuable road map that enhances a Year 2000 project by:

        - Defining the scope of the conversion project, including size, cost,
          resources and timeline 
    


                                       27
<PAGE>   29
   
        - Identifying problem areas with impact analysis tools 
        - Detecting source code to be modified through code analysis tools 
        - Implementing changes and converting programs to newer source dialects 
        - Managing and controlling the application life cycle
        - Utilizing automated tools for unit and system testing 
        - Enhancing quality assurance with automated regression tools 
        - Facilitating the distribution and redeployment of converted 
          applications

        The inventory and assessment of existing information systems portfolios
is a critical phase of Year 2000 projects. The CA-Discovery 2000 solution
includes the CA-Impact/2000 analysis tool, which is executable wherever the
source code resides, whether on the mainframe or on PC workstations. This
eliminates the need to move the code from one platform to another.
CA-Impact/2000 analyzes applications and details the information needed to
accurately estimate and carefully plan the Year 2000 project. The parser-based
technology is tuned for all of the leading data manipulation languages, such as
SQL, CA-IDMS , CA-Datacom and DL/1. The CA agreement may be terminated without
cause by C2i or CA on thirty days written notice.


        Oracle Corporation ("Oracle"). C2i has entered a VAR agreement with
Oracle which grants C2i a non-exclusive license to demonstrate, provide training
and technical support for, and sublicense certain Oracle software to its Year
2000 clients in exchange for payment by C2i to Oracle of sublicense fees. As
clients review their business priorities and cost for renovating or converting
their existing legacy applications to achieve Year 2000 compliance, a compelling
option in many cases is to abandon certain applications or replace them outright
with packaged solutions that are already Year 2000 compliant. C2i is able to
utilize Oracle's products and services based upon Oracle's relational database
management system (RDBMS) Oracle 7 product line. Oracle offers a number of
enterprise wide application solutions such as Manufacturing, Engineering,
Financial and H.R. Systems. In addition many other software developers have
created packaged solution products that utilize the Oracle 7 RDBMS and could
replace legacy applications that face expensive Year 2000 renovation costs.


        CenturySolver Solutions. C2i offers certain Scanning and Analysis and
Renovation/Replacement solutions under its CenturySolver trade name to address
the special Year 2000 problems associated with software written in various
dialects of Assembler, COBOL and AS/400 RPG. C2i also offers a CenturySolver
solution for customers who use software written in multiple languages and/or
running on multiple platforms. The CenturySolver solutions consist of software
provided to C2i by third party vendors under non-exclusive license agreements.
C2i researches and tests the Year 2000 software available at any given time to
determine which of those software packages are suitable for the CenturySolver
line of solutions and which are potential additions to bolster its services or
products.
    


        CenturySolver/Assembler Solutions. CenturySolver/Assembler helps
pinpoint the problems associated with finding and fixing date operations in
complex legacy Assembler code. Using the CenturySolver/Assembler automated
analysis capabilities, date variables can be tracked through registers, scratch
(and misused) variables, and offsets into memory areas. The program then
identifies operations carried out on, and using, dates, and provides an
annotated and commented listing of the source-code in machine-readable form and
a set of metrics giving a profile of the code and Year 2000 problem incidence.


        Because CenturySolver/Assembler automates the previously manual task of
tracking how and where each date operation is used in a program, it can achieve
substantial productivity and quality improvements over manual methods. Using
conventional manual techniques, an assembler programmer can analyze in detail
only a few hundred lines of code per day. With CenturySolver/Assembler, hundreds
of thousands of lines of complex Assembler code can be analyzed in a single day,
leaving the developer more time to make the identified changes and test the
code. As a result, CenturySolver/Assembler helps to reduce overall project costs
by ensuring that the conversion is completed faster and with a higher degree of
accuracy. Scarce assembler programmer resources can then be targeted at the key
points in the conversion process where they will have the most impact.


                                       28
<PAGE>   30

        CenturySolver/2000 COBOL Solutions. CenturySolver/2000 identifies code
that needs to be changed, then transforms this code to correctly handle dates in
the beyond the year 2000. It uses advanced data flow analysis techniques
combined with type analysis to accurately identify date-related code and analyze
its type (year, month, day, etc.). CenturySolver/2000 can handle MIS environment
and Year 2000 transformation requirements, including multiple language dialects
and transformation strategies, DBMS operating systems, and screen generators.
CenturySolver/2000 runs on scaleable UNIX platforms configured for Year 2000
transformation of MVS COBOL.


        CenturySolver/Multi-Language Solutions. CenturySolver/Multi-Language is
an innovative, inexpensive, multiple-language, cross-platform solution for Year
2000 projects. It uses a user-defined sliding-date approach where only date
logic is modified, versus expanding the year to four digits. Database date
fields are expanded for century only where required. This solution is uniform
for all software applications and languages. CenturySolver/Multi-Language
quickly pinpoints complexity issues to aide in assigning tasks to appropriate
staff members. It does not require expanding the year to four digits in existing
software applications. No change to records, files, input, historical or
archival data is required, nor are changes to data fields in applications.
Instead, existing applications are utilized without the extensive time-consuming
activities and major expense associated with new computers and/or software, data
conversions, wholesale retraining, etc.


        CenturySolver/400 RPG Solutions. CenturySolver/400 is a powerful
software solution designed for modification and maintenance of AS/400 RPG
applications for Year 2000 compliance. Extensive use of AS/400 object
descriptions and source information makes it possible to quickly find and
document all dates within an application. Because the information is derived
directly from the operating system, it is always up-to-date. A cross-reference
database captures detailed relationship information about all programs that
directly or indirectly use a file or data area, all programs that directly or
indirectly call other programs, and all files or programs that use a certain
data field can be captured and stored in the database. The library
administration function provides facilities for managing applications libraries
and the programs, files and other objects they contain. This includes the
implementation of changes and new versions of software applications as well as
the creation and maintenance of test environments.


   
        CONSULTING


        Tata Consultancy Services. C2i is in the final stages of completing a
non-exclusive consulting agreement with Tata America International Corporation
("Tata") for the provision of services by Tata to C2i, both on-site worldwide
and by dedicated communications with Tata's offices in India. Tata has agreed to
provide programming, development, maintenance and enhancement, Year 2000
conversion, documentation and other services to C2i or its customers, as
requested by C2i, on a project by project basis. The scope of the work, pricing
and substantially all other terms of any services performed under this contract
are to be agreed to by both C2i and Tata prior to commencement of the specific
project. The Tata agreement and work orders agreed upon under the agreement may
be terminated by C2i or Tata on ninety days written notice.
    


INTELLECTUAL PROPERTY


        The Company relies on a combination of copyright and trade secret laws
and contractual provisions to establish and protect its rights in its software
products and proprietary technology. Despite these precautions, it may be
possible for unauthorized parties to copy certain portions of the Company's
technologies or to reverse engineer to obtain and use information that the
Company regards as proprietary. The Company has no patents and existing
copyright and trade secret laws offer only limited protection. In addition, the
laws of some foreign countries do not protect the Company's proprietary rights
to the same extent as do the laws of the United States.


        The Company's competitive position may be affected by its ability to
protect its proprietary information. However, because the software industry is
characterized by rapid technological change, the Company believes that patent,
trademark, copyright, trade secret and other legal protection are less
significant to the Company's success than other factors such as the knowledge,
ability and experience of the Company's personnel, new product and service
development, frequent product enhancements, customer service and ongoing product
support.


                                       29
<PAGE>   31

CUSTOMERS


   
        During 1997, the Company has been engaged to provide assessment projects
to agencies of two states, a hotel chain, a major money center bank and a large
savings and loan. The Company is in the process of negotiating agreements with
several institutions to provide remediation and testing of code.
    


SALES AND MARKETING


        C2i's sales and marketing strategy is designed to promote and enhance
recognition that C2i's services provide turnkey solutions to a major problem.
The Company anticipates that many of its sales leads will come through referrals
from major accounting firms, systems integrators, service providers and the
parties who have entered into VAR relationships with C2i. Once a lead is
identified, C2i uses the technical capabilities of its services and the reduced
interference with customer operations made possible by C2i's ability to conduct
most of the required processes off-site to complete the selling process.


        C2i intends to use a direct sales force to follow up on potential
customers as well as telemarketing and direct mail to increase name recognition
and generate additional inquiries from prospective customers in the strategic
partners' existing client basis. The direct sales force will initially focus on
education of strategic partners and pre- and post-sales support.


        C2i intends to advertise in trade magazines targeted to individuals who
would influence an organization's Year 2000 compliance efforts as well as
referral sources. C2i also plans to participate in trade shows where potential
customers or referral sources are expected to be present.


        As the number of competitors providing Year 2000 services increases, it
is more likely that substantially similar tools and methodologies will be used
in providing such services. Although the Company's services have never been the
subject of an infringement claim, there can be no assurance that third parties
will not assert infringement claims against the Company in the future, that the
assertion of such claims will not result in litigation or that the Company would
prevail in such litigation or be able to obtain a license for the use of any
infringed intellectual property from a third party on commercially reasonable
terms. Furthermore, litigation, regardless of its outcome, could result in
substantial cost to the Company and divert management's attention from the
Company's operations. Any infringement claim or litigation against the Company
could, therefore, materially adversely affect the Company's business, operating
results and financial condition.


COMPETITION


        The market for services relating to the Year 2000 problem is highly
competitive and will become increasingly competitive as the Year 2000
approaches. The anticipated growth in this industry is expected to attract
additional competitors, many of whom may offer additional products and services.
Existing competitors for Year 2000 conversions and related software tools
include Coopers & Lybrand LLP, Electronic Data Services Corporation, Ernst &
Young LLP, Zitel Corp., Viasoft, Inc., Computer Horizons, Inc., Data Dimensions,
Inc., Crystal System Solutions, Ltd., Platinum Technology Inc., Acceler8
Technology Corporation, TSR, Inc. and Peritus Software Services, Inc. Most of
the competitors providing software tools and services for Year 2000 conversion
projects are more established, benefit from greater name recognition and have
substantially greater financial, technical and marketing resources than the
Company. As a result, there can be no assurance that the Company will be able to
compete effectively.


        The principal competitive factors affecting the market for the Company's
services include product performance and reliability, product functionality,
availability of experienced personnel and price, ability to respond in a timely
manner to changing customer needs, project management capabilities, ease of use,
training and quality of support.


                                       30
<PAGE>   32

EMPLOYEES

   
        As of December 11, 1997, the Company had 10 full-time employees.
    

        Competition for qualified software personnel is intense and there are a
limited number of professionals with the level of knowledge and experience
required by the Company. There can be no assurance that the Company will be
successful in attracting, integrating, training, and retaining such personnel in
accordance with the Company's needs.


LEGAL PROCEEDINGS

        The Company is not involved in any legal proceedings.


FACILITIES

   
        The Company occupies approximately 2,250 square feet of space in San
Diego, California under a lease that expires on December 31, 1997. The Company
is currently in the process of negotiating lease agreements for larger
facilities and expect to conclude these negotiations and move into new
facilities on or before December 31, 1997.
    


                                       31
<PAGE>   33
                                   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>                        
John Anthony Whalen, Jr.       55                Chairman of the Board of
                                                 Directors; President and
                                                 Chief Executive Officer

Frank J. Vukmanic              51                Senior Vice President, Sales
                                                 and Marketing

Clyde Wooten                   54                Senior Vice President,
                                                 Operations and Chief
                                                 Technology Officer

Diane E. Hessler               37                Vice President, Finance,
                                                 Secretary and Chief Financial
                                                 Officer

Hal H. Beretz (2)              61                Director

Kim P. Goh (1)(2)              54                Director

David Tendler (1)              59                Director
</TABLE>

- -----------------
(1)     Member of the Compensation Committee.


(2)     Member of the Audit Committee.


        Mr. Whalen founded the Company in 1996. Prior to joining the Company he
served from February 1994 through October 1994 as President and Chief Operating
Officer of NETCOM On-line Communication Services, Inc., an Internet service
provider and software developer, and from October 1986 through May 1990 as
Executive Vice President of Optimum Care Corporation, a company operating
behavioral medicine programs in healthcare facilities. From May 1990 to February
1994 and from October 1994 to February 1996, Mr. Whalen was a private investor.
Mr. Whalen holds a B.A. in English literature and American History from St.
Mary's College of California and an M.B.A. from California State University. Mr.
Whalen was licensed as a Certified Public Accountant by the State of California.


        Mr. Vukmanic joined the Company in June 1997 as Senior Vice President,
Sales and Marketing. From May 1994 through June 1997, Mr. Vukmanic served in
various executive sales and marketing positions with Zitel Corporation, a Year
2000 service provider and mid-range software, services and data storage company,
and from April 1989 through February 1994, he served as Senior Vice President,
Sales & Marketing at Amperif Corporation, a manufacturer of high-end storage
systems and provider of systems integration services. Prior to that he served
for a total of 19 years in various sales, marketing and executive positions,
first with Burroughs Corporation and later with Unisys Corporation. Mr. Vukmanic
holds a B. Sc. degree in Education: Social Sciences and History from
Shippensburg University.


        Mr. Wooten joined the Company in June 1997 as Senior Vice President,
Operations and Chief Technology Officer. From July 1995 through May 1997, Mr.
Wooten served as Vice President of Image Products of Excalibur 


                                       32
<PAGE>   34
Technologies, a software company, and from October 1992 to June 1995 he served
as Senior Director of New Technology Development at Knight-Ridder Information,
an electronic publishing company. Prior to that he served for a total of 26
years in various software and product development management positions with IBM
Corporation, Reference Technology, Inc., and Amdahl Corporation. Mr. Wooten
holds a B.Sc. degree in Aerospace Engineering and a M.S. degree in Aerospace
Engineering from Massachusetts Institute of Technology.


        Ms. Hessler joined the Company in September 1997 as Chief Financial
Officer. From May 1994 through March 1997, Ms. Hessler served in various senior
financial and accounting positions with AlphaNet Telecom, Inc., a
telecommunications company. From June 1991 through February 1994 she served as
Chief Financial Officer and Controller at Bluebird Systems, a software
development company, and from August 1989 through May 1991 she served as a
Manager of Accounting and Business Consulting at Steres, Alpert & Carne, a
public accounting firm. Prior to that, she served for a total of eight years in
various positions with public accounting firms, including Deloitte Haskins &
Sells, Breedlove & Co., P.C. and Fairall, Quindt & Cummins, Inc., P.C. Ms.
Hessler holds a B.B.A. in Accountancy from Western Michigan University, and is
licensed as a Certified Public Accountant by the State of Texas.


        Mr. Beretz was elected to the Board in September 1997. Mr. Beretz has
been a partner in the international consulting firm of Tendler Beretz LLC since
January 1985. Prior to forming Tendler Beretz LLC, Mr. Beretz served as
President and Chief Operating Officer of Phibro--Salomon, Inc., currently known
as Salomon, Inc., and was also a Director from May 1981 until leaving the firm
in December 1984. Mr. Beretz serves on the Boards of several institutions and is
active in various philanthropic organizations. Mr. Beretz holds a B.B.A. from
City College of New York.


        Mr. Goh was elected to the Board in September 1997. Mr. Goh is an
independent consultant for Merck/Medco, a managed healthcare company. From 1993
to 1996, he was Executive Vice President of MIS at Merck/Medco. From 1988 to
1993, Mr. Goh was Senior Vice President, Head of GeoService Technology and
Senior Vice President, Head of Retail Operations Division for Chemical Banking
Corporation, New York. From 1970 to 1988 he held several senior executive
positions at Citibank, N.A., New York, including several of Citicorp's
information business subsidiaries. Mr. Goh has a B.A. from Southhampton College
of Long Island University, an M.A. in Economics from the New School for Social
Research, New York, and an AMP from Harvard University Business School.


        Mr. Tendler was elected to the Board in September 1997. Mr. Tendler has
been a partner in the international consulting firm of Tendler Beretz LLC since
January 1985. Prior to forming Tendler Beretz LLC, Mr. Tendler served as
Co-Chairman and Chief Executive Officer of Phibro-Salomon, Inc., currently known
as Salomon, Inc. Mr. Tendler has almost forty years of experience in the
commodity and investment banking industries, including twenty years in senior
executive positions. Mr. Tendler serves as Chairman of V.I. Technologies, Inc.
and as a director of Bio-Technology General Corporation. Mr. Tendler has also
served on the Boards of various philanthropic organizations. Mr. Tendler holds a
B.B.A. from City College of New York.


        Currently, all directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
However, the Company's Certificate of Incorporation provides that upon the
effective date of the Offering, the Board of Directors, without further action
by the stockholders, will be divided into three classes. Each class of directors
will consist of one or two directors, who will serve for a one, two or three
year period or until their successors are elected and qualified. Thereafter,
directors will serve staggered three year terms. See "Description of Securities
- -- Delaware Law and Certain Charter Provisions." As of the effective date of the
Offering, the Class I directors, whose terms will end in 1998, will be Mr.
Beretz and Mr. Goh; the Class II director, whose term will end in 1999, will be
Mr. Tendler; and the Class III director, whose term will end in 2000, will be
Mr. Whalen.


        Officers are elected by and serve at the discretion of the Board of
Directors. There are no family relationships among the directors or officers of
the Company.


                                       33
<PAGE>   35

EMPLOYMENT ARRANGEMENTS


        On June 1, 1997, the Company entered into an employment agreement with
Mr. Whalen, its President and Chief Executive Officer. Under the agreement, Mr.
Whalen receives an annual base salary of $150,000 and may receive a bonus
determined in the discretion of the Board of Directors.


   
    Messrs. Whalen, Vukmanic and Wooten, executive officers of the Company,
have waived their right to receive compensation for their employment with the
Company from the respective dates on which their employment commenced through
November 30, 1997. The Company commenced payment of salaries to Messrs. Whalen,
Vukmanic and Wooten in December 1997.
    


                             EXECUTIVE COMPENSATION


        The following table sets forth certain information for the period from
September 17, 1996 (inception) through December 31, 1996 regarding the
compensation of the Company's Chief Executive Officer.


                           Summary Compensation Table


<TABLE>
<CAPTION>
                                                                          
                                                             Long Term
                                                           Compensation
                                                           ------------
                                       Annual Compensation   Securities                 
                                       -------------------   Underlying       All other
Name and Principal Position            Salary       Bonus     Options        Compensation
- ---------------------------            ------       -----     -------        ------------
<S>                                    <C>          <C>    <C>               <C>      
John Anthony Whalen, Jr.                $   0       $   0        0            $       0
    President and CEO
</TABLE>


   
                        Option Grants in Last Fiscal Year


        The following table sets forth, as to the Named Officers, information
concerning stock options granted during the period from inception (September 17,
1996) through December 31, 1996.
    

   
<TABLE>
<CAPTION>
                                         Individual Grants
                          --------------------------------------------------
                                        Percent                                Potential Realization                     
                            Number      of Total                                 Value at Assumed
                             of         Options                                Annual Rates of Stock
                          Securities   Granted to                              Purchase Appreciation
                          Underlying      to         Exercise                     for Option Term     
                           Options   Employees in   Price Per     Expiration   ---------------------
Name                       Granted   Fiscal Year       Share         Date          5%         10%
- ----                      ---------- ------------   ---------     ----------     ------     ------
<S>                       <C>        <C>            <C>           <C>            <C>        <C>
 John Anthony Whalen,          0          0%          $ ---        ---           $ ---      $ ---
 Jr.
</TABLE>
    


                                       34
<PAGE>   36

   
   Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
                                    Values.
    


        The following table sets forth, as to the Named Officers, certain stock
option information concerning the number of shares subject to both exercisable
and unexercisable stock options and the value of unexercised options as of
December 31, 1996. No options were exercised by Named Officers during the period
from inception (September 17, 1996) through December 31, 1996.

   
<TABLE>
<CAPTION>
                                  Number of Securities               Value of Unexercised
                                 Underlying Unexercised              In-the-Money Options
                               Options at Fiscal Year End           at Fiscal Year End ($)
                             -------------------------------     ----------------------------
Name                          Exercisable    Unexercisable       Exercisable    Unexercisable
                             ------------    -------------       -----------    -------------
<S>                          <C>             <C>                 <C>            <C>
John Anthony Whalen, Jr.          none            none               $ --            $ --
</TABLE>
    

STOCK PLANS


        1997 Stock Option Plan. The Board of Directors is currently reviewing a
Stock Option Plan which the Company anticipates will be adopted prior to the
effective date of this Offering, with an initial share reserve of 82,500 shares
of Common Stock (the "Option Plan"). Under the Option Plan, options may be
granted to employees, including officers, consultants, advisors and directors,
although only employees and directors and officers who are also employees may
receive "incentive stock options" intended to qualify for certain tax treatment.
The exercise price of all nonqualified stock options must equal at least 85% of
the fair market value of the Common Stock on the date of grant, and the exercise
price of incentive stock options must be no less than the fair market value on
the date of grant. Options granted under the Option Plan are generally
immediately exercisable, vest over periods ranging from one to four years and
must be exercised within ten years.


        Prior to the adoption of the Option Plan, the Company has granted
nonqualified options to purchase an aggregate of 625,000 shares to employees,
directors and consultants. Options to purchase 100,000 shares vest ratably over
twelve months, options to purchase 262,500 shares vest ratably over three years
and the remaining options to purchase 262,500 shares vest ratably over four
years. These options have exercise prices ranging from $2.50 to $5.40 per share
and expire five to ten years from the date of grant or earlier in the event of
termination of employment, directorship or consulting engagement.


COMPENSATION OF DIRECTORS


        Directors of the Company who are not employees of the Company do not
receive any compensation for attending meetings of the Board of Directors,
although directors are reimbursed for their expenses in attending such meetings.
From time to time, directors have received grants of options to purchase the
Company's Common Stock. The Company does not pay additional amounts for
committee participation or special assignments of the Board of Directors.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS


        During the fiscal year completed December 31, 1996, the Managing Owners
of the Company fulfilled all functions of the Compensation Committee with regard
to the compensation of executive officers of the Company. John Anthony Whalen,
Jr. was an executive officer and a Managing Owner during 1996.


LIMITATION OF LIABILITY AND INDEMNIFICATION


        Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate of Incorporation which provide
that directors of the Company shall not be personally liable for monetary
damages to the Company or its stockholders for a breach of fiduciary duty as a
director, except for liability as a result of (i) a breach of the director's
duty of loyalty to the Company or its stockholders; (ii) acts or 


                                       35
<PAGE>   37

omissions not in good faith or which involve intentional misconduct or knowing
violation of law; (iii) an act related to the unlawful stock repurchase or
payment of a dividend under Section 174 of Delaware General Corporation Law; and
(iv) transactions from which the director derived an improper personal benefit.
Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.


        The Company's Certificate of Incorporation also authorizes the Company
to indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the full extent permitted under Delaware law. The Company has
entered into separate indemnification agreements with its directors and officers
which may, in some cases, be broader than the specific indemnification
provisions contained in the Delaware General Corporation Law. The
indemnification agreements require the Company, among other things, to indemnify
such officers and directors against certain liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities
arising from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms.


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


                              CERTAIN TRANSACTIONS


        During the period from inception to December 31, 1996, the Company sold
Owner Units to certain of its officers, directors and holders of 5% of the
outstanding equity of the Company, as described below.


        In September 1996, the Company issued 350,000 Owner Units to John A.
Whalen, Jr., Chairman, President and Chief Executive Officer, and a co-founder
of the Company for cash consideration of $.15 per Unit, for total consideration
of $52,500.


   
        In June 1997, the Company issued 666,666 Owner Units to John A. Whalen,
Jr., for cash consideration of $.15 per Owner Unit, for total cash consideration
of $100,000. An additional $599,999 has been recorded as compensation expense in
the accompanying statement of operations for the nine months ended September 30,
1997, reflecting the additional deemed fair value of such Units on the date of
issuance.

        In June 1997, the Company issued 333,333 Owner Units to Frank J.
Vukmanic, Senior Vice President, Sales and Marketing for $.15 per Owner Unit,
for total consideration of $50,000. Mr. Vukmanic gave the Company a noninterest
bearing, 90 day promissory note as consideration for these Owner Units. Mr.
Vukmanic paid this promissory note in full in August, 1997. An additional
$300,000 has been recorded as compensation expense in the accompanying statement
of operations for the nine months ended September 30, 1997, reflecting the
additional deemed fair value of such Units on the date of issuance.


        In June 1997, the Company issued 333,333 Owner Units to Clyde Wooten,
Senior Vice President, Operations and Chief Technology Officer for $.15 per
Owner Unit, for total consideration of $50,000. Mr. Wooten gave the Company a
noninterest bearing 90 day promissory note as consideration for these Owner
Units. Mr. Wooten paid this promissory note in full in September, 1997. An
additional $300,000 has been recorded as compensation expense in the
accompanying statement of operations for the nine months ended September 30,
1997, reflecting the additional deemed fair value of such Units on the date of
issuance.


        In August and September 1997, the Company agreed to pay to each of David
Tendler, Hal Beretz and Kim Goh, directors of the Company, referral fees of four
and one-half percent for sales by the Company that are consummated without the
Company participating in a "Request for Proposal" process (an "RFP") with a
customer, provided the engagement of the Company by the customer resulted from
an introduction by the director, and two percent of sales by the Company that
are consummated following the participation in an RFP with a customer, if the
entrance of the Company in the RFP resulted from an introduction by the
director. These referral fees are payable by the Company on all revenue
generated from such customers during the period that the director serves as 
    


                                       36
<PAGE>   38

   
a director. Such fees are payable within 30 days after receipt of payment from
the customer. No such fees have been paid to or earned by any of these directors
as of November 30, 1997.


        Also in August 1997, the Company issued to each of Messrs. Tendler and
Beretz options to purchase 87,500 Owner Units of the Company at an exercise
price of $2.50 per share. In August, Mr. Goh was granted options to purchase
10,000 Owner Units of the Company, and in November 1997, he was granted options
to purchase an additional 77,500 shares of Common Stock all at an exercise price
of $2.50 per share. Such options vest in equal monthly amounts over a four year
period, for as long as they remain directors.
    


        On September 30, 1997, the Company exchanged each Owner Unit for one
share of its Common Stock, and converted options to acquire Owner Units to
options to acquire Common Stock, in connection with its reorganization from a
California LLC to a Delaware corporation.


   
        In October 1997, Mr. Vukmanic, an executive officer of the Company,
participated in the Bridge Financing and was issued a Bridge Note in the
principal amount of $17,304 and Bridge Warrants to acquire 17,304 shares of
Common Stock, which he directed the Company to transfer equally to his two 
children.
    


        The Company believes that all transactions with affiliates described
above were made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.


                                       37
<PAGE>   39
                             PRINCIPAL STOCKHOLDERS


   
        The following table sets forth certain information regarding the
beneficial ownership of the Company's capital stock as of November 30, 1997, and
as adjusted to reflect the sale of the Shares and Warrants offered hereby,
assuming no exercise of the Underwriters' over-allotment option, (i) by each
person who is known by the Company to own beneficially more than 5% of the
Company's capital stock, (ii) by each of the executive officers named in the
tables under "Executive Compensation" and by each of the Company's directors,
and (iii) by all officers and directors as a group.


<TABLE>
<CAPTION>
                                               
                                       Number of              
                                        Shares                 Percentage       
                                     Beneficially         Beneficially Owned(2) 
                                   Owned Before and     ------------------------- 
  Beneficial Owner                     After the        Before the     After the   
  ----------------                  Offering (1)         Offering      Offering
                                   ----------------     ----------    ----------- 
<S>                                  <C>               <C>             <C>  
John Anthony Whalen, Jr.(3)            1,462,694          60.8%          42.9%
Frank Vukmanic(4)                        345,333          14.4%          10.1%
Konrad Witt                              267,750          11.2%           7.9%
Clyde Wooten(5)                          345,333          14.4%          10.1%
Hal H. Beretz(6)                          10,938             *              *
Kim P. Goh(7)                              6,094             *              *
David Tendler(8)                          10,938             *              *
All directors and                      2,186,886          88.8%          63.1%
executive officers as a group
(7 persons)
</TABLE>
    

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

*       Represents less than one percent.


(1)     Except pursuant to applicable community property laws or as otherwise
        noted, all shares are beneficially owned and sole voting and investment
        power is held by the persons named.


(2)     Based on 2,391,338 shares of Common Stock outstanding before this
        Offering and 3,391,338 shares of Common Stock outstanding after this
        Offering.


   
(3)     Mr. Whalen is the President and Chief Executive Officer of the Company.
        Includes 13,778 shares subject to options exercisable within 60 days of
        November 30, 1997.


(4)     Mr. Vukmanic is the Senior Vice President, Sales and Marketing, of the
        Company. Includes 12,000 shares subject to options exercisable within 60
        days of November 30, 1997.


(5)     Mr. Wooten is the Senior Vice President, Operations and Chief Technology
        Officer of the Company. Includes 12,000 shares subject to options
        exercisable within 60 days of November 30, 1997.


(6)     Mr. Beretz is a director of the Company. Includes 10,938 shares subject
        to options exercisable within 60 days of November 30, 1997.


(7)     Mr. Goh is a director of the Company. Includes 6,094 shares subject to
        options exercisable within 60 days of November 30, 1997


(8)     Mr. Tendler is a director of the Company. Includes 10,938 shares subject
        to options exercisable within 60 days of November 30, 1997.
    


                                       38
<PAGE>   40

                            DESCRIPTION OF SECURITIES


GENERAL


        The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, par value $.001 per share, and 1,000,000 shares Preferred Stock,
par value $.001 per share (the "Preferred Stock").


COMMON STOCK


   
        As of November 30, 1997, there were 2,391,338 shares of Common Stock
outstanding held of record by eight stockholders. The holders of Common Stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of the holders of Common Stock. All outstanding shares of Common Stock
are fully paid and nonassessable, and the shares of Common Stock to be issued
upon completion of the Offering will be fully paid and non assessable. The
Certificate does not provide for cumulative voting, and accordingly, the holders
of a majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election.
    


WARRANTS


        The holder of each Warrant is entitled, upon payment of the exercise
price of $ (125% of the initial Share offering price), to purchase one share of
Common Stock. The exercise price of the Warrant will be reduced by $0.25 per
share for every $200,000 that the Company's pre-tax earnings from operations for
the year ending December 31, 1998 are less than $3,000,000, but in no event will
this reduction result in an exercise price of less than $2.00 per share. Unless
previously redeemed, the Warrants are exercisable at any time during the four
year period commencing one year after the date of this Prospectus, provided that
at such time a current prospectus relating the underlying Common Stock is in
effect and the underlying shares of Common Stock are qualified for sale or
exempt from qualification under applicable state securities laws. The Warrants
are subject to redemption, as described below.


   
        Redemption. Commencing one year from the date of this Prospectus, the
Warrants are subject to redemption by the Company, on not less than 30 days
written notice, at a price of $.01 per Warrant, if the closing bid price of the
Common Stock is at least 150% of the then current exercise price of the Warrants
for any 20 consecutive business days ending on the third day prior to the date
on which the notice of redemption is given. Holders of Warrants will
automatically forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Warrants unless the Warrants are exercised before
the close of business on the business day immediately prior to the date set for
redemption. All of the outstanding Warrants, except for the Representative
Warrants, must be redeemed if any of that class are redeemed. A notice of
redemption shall be mailed to each of the registered holders of the Warrants,
except for those underlying the Representative Warrants, by first class mail,
postage prepaid. The notice of redemption shall specify the redemption price,
the date fixed for redemption, the place where the Warrant certificates shall be
delivered and the redemption price to be paid, and that the right to exercise
the Warrants shall terminate at 5:00 p.m. (New York City time) on the business
day immediately preceding the date fixed for redemption.
    


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


        The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends, stock splits, mergers, sale of substantially all of the Company's
assets, and for other extraordinary events in order to enable the holders of the
Warrants to obtain the same or equivalent rights which they would have obtained
if the Warrants had been exercised prior to the event.


                                       39
<PAGE>   41

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


   
REPRESENTATIVE WARRANTS


        The Company has agreed to grant to the Representative, upon the closing
of the Offering, the Representative Warrants to purchase up to 100,000 Shares
and Warrants. These Shares and Warrants will be identical to the Shares and
Warrants offered hereby except that the Representative Warrants and the Warrants
included in the Representative Warrants will not be subject to redemption by the
Company. The Representative Warrants cannot be transferred, sold, assigned or
hypothecated for one year, except to any officer or partner of the
Representative or members of the selling group. The Representative Warrants are
exercisable during the four-year period commencing one year from the date of
this Prospectus at an exercise price of $______ per Share and Warrant (125% of
the initial Share offering price) subject to adjustment in certain events to
protect against dilution. The holders of the Representative Warrants and
underlying securities have certain demand and piggyback registration rights. The
existence of the Representative Warrants and the inability of the Company to
redeem the Warrants included therein may hinder the Company's future financing
or business transactions. See "Underwriting."
    


BRIDGE WARRANTS


        Each Bridge Warrant issued by the Company in connection with the Bridge
Financing entitles the holder to purchase one share of Common Stock of the
Company at an exercise price of the lower of (i) $4.00 per share, or (ii)
two-thirds (2/3) of the price to the public in this Offering of a Share and a
Warrant. The Bridge Warrants are exercisable for a one-year period beginning one
year after the closing of this Offering.


PREFERRED STOCK


        The Preferred Stock may be issued in series, and shares of each series
will have such rights and preferences as are fixed by the Board in the
resolutions authorizing the issuance of that particular series. In designating
any series of Preferred Stock, the Board may, without further action by the
holders of Common Stock, fix the number of shares constituting that series and
fix the dividend rights, dividend rate, conversion rights, voting rights (which
may be greater or lesser than the voting rights of the Common Stock), rights and
terms of redemption (including any sinking fund provisions), and the liquidation
preferences of the series of Preferred Stock. It is to be expected that the
holders of any series of Preferred Stock, when and if issued, will have priority
claims to dividends and to any distributions upon liquidation of the Company,
and that they may have other preferences over the holders of the Common Stock.


        The Board may issue series of Preferred Stock without action of the
stockholders of the Company. Accordingly, the issuance of Preferred Stock may
adversely affect the rights of the holders of the Common Stock. In addition, the
issuance of Preferred Stock may be used as an "anti-takeover" device without
further action on the part of the stockholders. Issuance of Preferred Stock may
dilute the voting power of holders of Common Stock (such as by issuing Preferred
Stock with super-voting rights) and may render more difficult the removal of
current management, even if such removal may be in the stockholders' best
interests. The Company has no current plans to issue any of the Preferred Stock.


DELAWARE SECTION 203


        As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which regulates large
accumulations of shares, including those made by tender offers. Section 203 may
have the effect of significantly delaying a purchaser's ability to acquire the
entire interest in the Company if such acquisition is not approved by the
Company's Board. In general, Section 203 prevents an "Interested Stockholder"
(defined generally as a person with 15% or more of a corporation's outstanding
voting stock) from engaging in a "Business Combination" (defined below) with a
Delaware corporation for three years 


                                       40
<PAGE>   42

following the date such person became an Interested Stockholder. For purposes of
Section 203, the term "Business Combination" is defined broadly to include
mergers and certain other transactions with or caused by the Interested
Stockholder; sales or other dispositions to the Interested Stockholder (except
proportionately with the corporation's other stockholders) of assets of the
corporation or a subsidiary equal to ten percent or more of the aggregate market
value of the corporation's consolidated assets or its outstanding stock; the
issuance or transfer by the corporation or a subsidiary of stock of the
corporation or such subsidiary to the Interested Stockholder (except for
transfers in a conversion or exchange or a pro rata distribution or certain
other transactions, none of which increase the Interested Stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock); or receipt by the Interested Stockholder (except
proportionately as a stockholder), directly or indirectly, of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation or a subsidiary.


        The three-year moratorium imposed on Business Combinations by Section
203 does not apply if: (a) prior to the date on which a stockholder becomes an
Interested Stockholder, the Board approves either the Business Combination or
the transaction which resulted in the person becoming an Interested Stockholder;
(b) the Interested Stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction which made him or her an Interested Stockholder
(excluding from the 85% calculation shares owned by directors who are also
officers of the target corporation and shares held by employee stock plans which
do not permit employees to decide confidentially whether to accept a tender or
exchange offer); or (c) on or after the date a person becomes an Interested
Stockholder, the Board approves the Business Combination, and it is also
approved at a stockholder meeting by sixty-six and two-thirds percent (66-2/3%)
of the voting stock not owned by the Interested Stockholder.


        Under Section 203, the restrictions described above do not apply if,
among other things, the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203. The
Company's Certificate of Incorporation does not contain such a provision. The
restrictions described above also do not apply to certain Business Combinations
proposed by an Interested Stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who had not been an Interested Stockholder during the previous three
years or who became an Interested Stockholder with the approval of a majority of
the corporation's directors.


TRANSFER AND WARRANT AGENT.


        The Transfer Agent for the Common Stock and Warrants and the Warrant
Agent for the Warrants is American Stock Transfer & Trust Company.


                                       41
<PAGE>   43

                         SHARES ELIGIBLE FOR FUTURE SALE


        Upon completion of the Offering, the Company will have outstanding
3,391,338 shares of Common Stock. Of these shares, the 1,000,000 shares of
Common Stock offered hereby will be freely tradable without restriction or
further registration under the Securities Act, unless such shares are held by
"Affiliates."


        Holders of the Warrants offered hereby will be entitled to purchase an
aggregate of 1,000,000 additional shares of Common Stock upon exercise of the
Warrants at any time during the four-year period commencing one year from the
date of this Prospectus, provided that the Company satisfies certain securities
registration and qualification requirements with respect to the securities
underlying the Warrants. Any and all shares of Common Stock purchased upon
exercise of the Warrants will be freely tradable, provided such registration
requirements are met.


   
        Up to 200,000 additional shares of Common Stock may be purchased by the
Representative through the exercise of the Representative Warrants and the
Warrants that may be purchased with the Representative Warrant. Until five years
from the date of this Prospectus, holders of such securities will have the
right, subject to certain conditions, to require the Company to register all or
a portion of such securities at the Company's expense beginning one year after
the date of this Prospectus.


        The 2,391,338 shares of Common Stock outstanding prior to this Offering
and any shares of Common Stock issuable upon exercise of outstanding Bridge
Warrants and stock options were sold by the Company in reliance on exemptions
from the registration requirements of the Securities Act and are "restricted"
securities within the meaning of Rule 144 under the Securities Act (the
"Restricted Shares"). Restricted Shares may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule 144
or 701 promulgated under the Securities Act. The Company's officers, directors
and shareholders owning five percent (5%) or more of the outstanding shares of
Common Stock, who hold an aggregate of 2,383,332 shares of Common Stock have
agreed that they will not sell such Common Stock for a period ending eighteen
months from the effective date of the Offering without the prior written consent
of the Representative. The Representative may agree upon request to release for
resale some or all of the shares subject to lock-up agreements. When determining
whether to release shares from the lock-up agreements, the Representative will
consider, amount other factors, the stockholder's reasons for requesting the
release, the number of shares for which the release is being requested and
market conditions at the time. Following expiration of the foregoing lock-up
agreements, all such Restricted Shares will be available for sale in the public
market subject to compliance with Rule 144 or Rule 701.
    


        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, is
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) one percent
of the number of then outstanding shares of Common Stock, or (ii) the average
weekly trading volume in the Common Stock 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. Furthermore, a person who is not deemed to
have been an affiliate of the Company during the ninety days preceding a sale by
such person and who has beneficially owned such shares for at least two years is
entitled to sell such shares without regard to the volume, manner of sale or
notice requirements of Rule 144.


   
        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 market sales of the Common Stock, or the availability of such shares
for sale, will have on the market price prevailing from time to time.
Nevertheless, sales by the existing stockholders of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices for the Common Stock. In addition, the availability for sale of
substantial amounts of Common Stock acquired through the exercise of the
Warrants or the Representative Warrants could adversely affect prevailing market
prices for the Company's securities.
    


                                       42
<PAGE>   44

                                  UNDERWRITING


   
        Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters for whom, SouthWall Capital Corp. is acting as Representative,
has severally agreed to purchase from the Company, the respective number of
Shares and Warrants set forth opposite its name below:

<TABLE>
<CAPTION>
                                                                Number of Shares
                                                                of Common Stock
                                                                  and Number of
          Underwriters                                              Warrants
          ------------                                          ----------------
<S>                                                             <C>
          SouthWall Capital Corp..............................

                                                                ----------------
                     Total....................................       1,000,000
                                                                ================
</TABLE>

        The Underwriters are committed to purchase all of the Common Stock and
Warrants offered hereby, if any Common Stock and Warrants are purchased. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to approval of certain legal matters by counsel to the Underwriters and
various other conditions specified therein, including the Underwriters' right to
terminate the Underwriting Agreement in the event of an occurrence of a default
of a more than 10% purchaser. In the event that such a purchaser default occurs
and the Underwriters decide to go forward with the Offering, the Company will be
required to amend and recirculate this Prospectus, prior to any confirmation of
sales to the public.


        The Underwriters propose to offer the Shares and Warrants to the public
at the initial public offering prices set forth on the cover page of this
Prospectus. The Underwriters may allow to certain dealers who are members of the
National Association of Securities Dealers, Inc. (the "NASD") concessions, not
in excess of $.___ per Share, of which not in excess of $.___ per Share may be
reallowed to other dealers who are members of the NASD. After the initial public
offering, the public offering price, concessions and reallowances may be changed
by the Representative.


        The Company has granted to the Underwriters an option, exercisable for
45 days from the date of this Prospectus, to purchase up to 150,000 additional
Shares and 150,000 additional Warrants at the initial public offering prices set
forth on the cover page of this Prospectus, less the underwriting discounts and
commissions. The Underwriters may exercise this option in whole, or, from time
to time, in part, solely for the purpose of covering over-allotments, if any,
made in connection with the sale of the Shares and Warrants offered hereby.


        The Company has agreed to pay to the Representative a nonaccountable
expense allowance equal to 3% of the gross proceeds of this Offering, of which
$45,000 has been paid. The Company has also agreed to pay all expenses in
connection with qualifying the Shares and Warrants offered hereby for sale under
the laws of such states as the Representative may designate, including expenses
of counsel retained for such purpose by the Representative.


        The Company has agreed to sell to the Representative and its designees,
for an aggregate of $100.00, the Representative Warrants to purchase up to
100,000 Shares and 100,000 Warrants at an exercise price of $______ per Share
and accompanying Warrant. The Representative Warrants may not be transferred for
one year except to the officers of the Representative or members of the selling
group, and are exercisable during the four-year period commencing one year after
the date of this Prospectus. Subject to certain limitations and exclusions, the
Company has agreed, at the request of the holders of a majority of the
Representative Warrants or underlying securities to register the Representative
Warrants and the underlying securities under the Securities Act (at the
Company's 
    


                                       43
<PAGE>   45

   
expense) during such four-year period and to include such
Representative Warrants and underlying securities in any appropriate
registration statement which is filed by the Company during that period.


        The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.


        The Representative has been in business since May 1996. Prior to this
Offering, the Representative has only co-managed one other offering of
securities and has acted as an underwriter in several other offerings. There can
be no assurance that the Representative's limited offering experience and small
size relative to other broker-dealers will not adversely affect this Offering or
the subsequent development, if any, of a trading market for the Common Stock and
Warrants.


        The Company's officers, directors and shareholders owning five percent
or more of the outstanding shares of Common Stock, who hold an aggregate of
2,383,332 shares of Common Stock, have agreed that they will not sell such
Common Stock for a period ending eighteen months from the effective date of this
Offering without the prior written consent of the Representative.


        The Company has agreed, in connection with the exercise of Warrants
pursuant to solicitation by the Underwriters, to pay to the Underwriters a fee
of 4% of the Warrant exercise price, a portion of which may be reallowed to any
dealer who is a member of the NASD who solicited the exercise (which may also be
the Representative) for each Warrant exercised, if (i) the market price of the
Common Stock of the Company at the time of exercise is higher than the exercise
price of the Warrants; (ii) the Warrants are not held in any discretionary
account; (iii) disclosure of compensation arrangements was made both at the time
of this Offering and in documents provided to holders of the Warrants at the
time of exercise; (iv) the exercise of the Warrants is solicited by a member of
the NASD as designated in writing on the Warrant Certificate Subscription Form;
and (v) the solicitation of exercise of the Warrants was not in violation of
Regulation M promulgated under the 1934 Act.


        In connection with this Offering, the Underwriters and certain selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Company's Common
Stock and Warrants. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which, such
persons may bid for or purchase the Common Stock or Warrants of the Company for
the purposes of stabilizing their market price. The Underwriters may also create
a short position of the account of the Underwriters by selling more of the
Common Stock or Warrants in connection with the Offering then they are committed
to purchase from the Company, and in such case may purchase Common Stock or
Warrants of the Company in the open market following completion of the Offering
to cover all or a portion of such short position. The Underwriters may also
cover all or a portion of such short position by exercising the Underwriters'
Over-Allotment Option. In addition, the Representative may impose "penalty bids"
under contractual arrangements with an Underwriter participating in the Offering
whereby it may reclaim from the Underwriter for the account of another
Underwriter, the selling concession with respect to the shares of Common Stock
or Warrants that are distributed in the Offering but subsequently purchased for
the account of the Underwriter in the open market. Any of the transactions
described in this paragraph may stabilize or maintain the price of the Company's
Common Stock or Warrants at a level above which might otherwise prevail in the
open market. None of the transactions described in this paragraph are required,
and, if they are undertaken, they may be discontinued at any time."


        Regulation M of the Securities and Exchange Commission under the 1934
Act may prohibit the Underwriters from engaging in any market making activities
with regard to the Company's securities for the period from five business days
(or such other applicable period as Regulation M may provide) prior to any
solicitation by the Underwriters of the exercise of Warrants until the later of
the termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that the Underwriters may have to receive a fee for the
exercise of Warrants following such solicitation. As a result, the Underwriters
may be unable to provide a market for the Company's securities during certain
periods while the Warrants are exercisable.
    


                                       44
<PAGE>   46

   
        During the five-year period from the date of this Prospectus, in the
event the Representative originates a merger, acquisition, joint venture or
transaction to which the Company is a party, the Representative will be entitled
to receive a finder's fee in consideration for origination of such transaction.
The finder's fee is based on the valuation of consideration involved in the
transaction and is computed by adding 5% of the first $1 million in value, 4% of
the second $1 million in value, 3% of the third $1 million in value, 2% of the
fourth $1 million in value and 1% of any value in excess of $4 million.


        During the three-year period from the date of this Prospectus, the
Representative will have a right of first refusal to underwrite, on terms
acceptable to the Representative, any public sale of debt or equity securities
(excluding sales to employees) of the Company or its subsidiaries, successors or
shareholders owning five percent or more of the Company's outstanding stock. The
Company must notify the Representative of any such proposed financing and the
Representative will have 30 days to determine whether it wishes to proceed with
the financing and to present a proposal of all terms pursuant to which the
Representative would be willing to proceed. If the Representative presents such
a proposal and the Company elects to proceed with a financing with another
underwriter, for whatever reason, then, prior to executing a letter of intent
with such other underwriter, the Company shall pay the Representative $35,000,
and this right of first refusal will terminate.


        During the four year period following the date of this Prospectus, the
Representative will have the right of first refusal to purchase for the
Representative's account or to sell for the account of the Company's Affiliates
any securities sold by Affiliates to the public pursuant to Rule 144 under the
Securities Act. Each of the Affiliates will agree to consult with the
Representative and offer the exclusive opportunity to purchase or sell such
securities on terms at least as favorable to the Affiliates as they can secure
from a third party. If the Representative fails to accept in writing any such
proposal for sale by the Affiliates within one business day of receiving such
notice, then the Representative will have no claim or right with respect to any
such sales contained in such notice. If the proposal is later modified in any
material respect, the Affiliates must again notify and offer the exclusive
opportunity to purchase or sell their securities to the Representative.


        The Company has agreed, during the five year period from the date of
this Prospectus, to recommend and use its best efforts to elect a designee of
the Representative, at the option of the Representative, either as a member of
or a non-voting advisor to its Board of Directors. If the Representative's
designee is elected or appointed, the designee will attend meetings of the Board
and receive no more or less compensation than is paid to other non-management
directors of the Company for board attendance, and shall be entitled to receive
reimbursement for reasonable costs incurred in attending such meetings. To the
extent permitted by law, the Company will indemnify the Representative and its
designee for the actions of such designee as a director of the Company, and if
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, it will include each of the Representative
and its designee as an insured under such policy. The Representative has not
exercised its right to designate a member of the Board of Directors of the
Company, and does not intend to exercise its right in the near future.


        The initial public offering price of the Shares and Warrants and the
exercise prices of the Warrants have been determined by negotiations between the
Company and the Underwriters. Among the facts considered in determining these
terms were the Company's present state of development, products and prospects,
the Company's management, the Company's financial condition, demand for
securities of comparable companies and the general condition of the securities
market.
    


                                       45
<PAGE>   47

                                  LEGAL MATTERS


   
        The validity of the Shares and Warrants offered hereby has been passed
upon by Gray Cary Ware & Freidenrich, A Professional Corporation. Certain legal
matters relating to the Offering will be passed upon by Piper & Marbury L.L.P.
on behalf of the Underwriters.
    


                                     EXPERTS


        The financial statements of C2i Solutions, Inc. (formerly Challenge 2000
International LLC) as of December 31, 1996, and for the period from inception
(September 17, 1996) through December 31, 1996, appearing in this Prospectus and
the Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.


                             ADDITIONAL INFORMATION


   
        The Company has filed with the Securities and Exchange Commission a
Registration Statement (which term shall include any amendments thereto) on Form
SB-2 under the Securities Act with respect to the Shares and Warrants offered
hereby. This Prospectus, which constitutes a part of the Registration Statement
does not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits to the Registration Statement
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Shares and Warrants offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement, including the exhibits thereto and the
financial statements and notes filed as a part thereof, as well as such report
and other information filed with the Commission, may be inspected without charge
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part thereof
may be obtained from the Commission upon the payment of certain fees prescribed
by the Commission. In addition, the Commission maintains a Website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Website is http://www.sec.gov.
    


                                       46
<PAGE>   48

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                          Index to Financial Statements


   
<TABLE>
<CAPTION>
                                                                                  Page
                                                                                  ----

<S>                                                                               <C>
Report of Ernst & Young LLP, Independent Auditors..................................F-2

Balance Sheets as of December 31, 1996 and September 30, 1997 (unaudited)..........F-3

Statements of Operations for the period from inception (September 17, 1996)
through December 31, 1996, nine month period ended September 30, 1997
(unaudited) and for the period from inception (September 17, 1996) through
September 30, 1997 (unaudited).....................................................F-4

Statements of Stockholders' Equity for the periods ended December 31, 1996
and September 30, 1997 (unaudited) ................................................F-5

Statements of Cash Flows for the period from inception (September 17, 1996)
through December 31, 1996, nine month period ended September 30, 1997
(unaudited) and for the period from inception (September 17, 1996) through
September 30, 1997 (unaudited).....................................................F-6

Notes to Financial Statements......................................................F-7
</TABLE>
    


                                      F-1
<PAGE>   49
                Report of Ernst & Young LLP, Independent Auditors


   
The Board of Directors and Stockholders
C2i Solutions, Inc.

We have audited the accompanying balance sheet of C2i Solutions, Inc. (a
development stage company) as of December 31, 1996 and the related statements of
operations, stockholders' equity and cash flows for the period from inception
(September 17, 1996) through December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audit.
    

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

   
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of C2i Solutions, Inc. at December
31, 1996, and the results of its operations and its cash flows for the period
from inception (September 17, 1996) through December 31, 1996, in conformity
with generally accepted accounting principles.
    

As more fully described in Note 1, at December 31, 1996 the Company has limited
working capital and will require additional sources of financing to complete the
commercialization of its services and products. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.

                                           ERNST & YOUNG LLP

San Diego, California
February 28, 1997,
except for the first and second paragraphs of Note 1
   
and all of Note 4, as to which the date is November 3, 1997
    


                                      F-2
<PAGE>   50
   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                                 Balance Sheets


   
<TABLE>
<CAPTION>
                                                                DECEMBER 31,       SEPTEMBER 30,
                                                                    1996              1997
                                                               -------------       -------------
                                                                                    (Unaudited)
<S>                                                            <C>                 <C>
ASSETS
Current assets:
  Cash                                                         $      16,467       $      65,863
  Accounts receivable, net                                             9,797              36,478
  Capital subscriptions receivable from stockholders                  97,500                  --
  Prepaid expenses and other                                           1,823               8,442
                                                               -------------       -------------
Total current assets                                                 125,587             110,783
                                                               -------------       -------------

Property and equipment, at cost:
  Computer equipment and purchased software                           13,988              30,907
  Furniture and fixtures                                               7,645              16,783
                                                               -------------       -------------
                                                                      21,633              47,690
  Accumulated depreciation                                            (4,148)            (11,612)
                                                               -------------       -------------
                                                                      17,485              36,078
                                                               -------------       -------------
Deferred offering costs                                                   --              93,525
Other assets                                                           1,325               2,252
                                                               -------------       -------------
Total assets                                                   $     144,397       $     242,638
                                                               =============       =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                             $       2,955       $     107,444
  Accrued payroll and related                                          1,142              19,233
  Accrued royalty due to former stockholder                            6,300               1,345
  Advance from former stockholder                                     20,838              21,424
  Other current liabilities                                               --               1,808
                                                               -------------       -------------
Total current liabilities                                             31,235             151,254
                                                               -------------       -------------

Commitments [Note 3]

Stockholders' equity:
  Preferred Stock - $.001 par value; 1,000,000 shares
    authorized; no shares issued and outstanding                          --                  --
  Common Stock - $.001 par value; 10,000,000 shares
    authorized; 1,050,000 and 2,391,338 (unaudited) 
    shares issued and outstanding at December 31, 1996 
    and September 30, 1997, respectively                               1,050               2,391
  Additional paid-in capital                                         156,450           1,697,391
  Deficit accumulated during the development stage                   (44,338)         (1,479,232)
  Deferred compensation                                                   --            (129,166)
                                                               -------------       -------------
Total stockholders' equity                                           113,162              91,384
                                                               -------------       -------------
Total liabilities and stockholders' equity                     $     144,397       $     242,638
                                                               =============       =============
</TABLE>
    


See accompanying notes.


                                      F-3
<PAGE>   51

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                            Statements of Operations

   
<TABLE>
<CAPTION>
                                                   PERIOD FROM                                PERIOD FROM
                                                    INCEPTION                                  INCEPTION
                                                  (SEPTEMBER 17,         NINE MONTH          (SEPTEMBER 17,
                                                  1996) THROUGH         PERIOD ENDED         1996) THROUGH
                                                   DECEMBER 31,         SEPTEMBER 30,         SEPTEMBER 30,
                                                       1996                  1997                 1997
                                                 ---------------       ---------------       ---------------
                                                                         (Unaudited)           (Unaudited)
<S>                                              <C>                   <C>                   <C>

Revenues                                         $         9,798       $        79,283       $        89,081
                                                 ---------------       ---------------       ---------------

Costs and expenses:
  Cost of revenues paid to former                          6,300                11,352                17,652
  stockholder
  Cost of revenues                                            --                35,542                35,542
  Selling, general and administrative                     
  expenses                                                47,836             1,465,683             1,513,519
                                                 ---------------       ---------------       ---------------
Total costs and expenses                                  54,136             1,512,577             1,566,713
                                                 ---------------       ---------------       ---------------
Operating loss                                           (44,338)           (1,433,294)           (1,477,632)
Provision for income taxes                                    --                 1,600                 1,600
                                                 ---------------       ---------------       ---------------

Net loss                                         $       (44,338)      $    (1,434,894)      $    (1,479,232)
                                                 ===============       ===============       ===============

Pro forma net loss per share                     $          (.02)      $          (.50)
                                                 ===============       =============== 
Shares used in computing pro forma net loss
per share                                              2,874,255             2,874,255
                                                 ===============       =============== 
</TABLE>
    


See accompanying notes.


                                      F-4
<PAGE>   52

   
                               C2i Solutions, Inc.
                          (a development stage company)

                       Statements of Stockholders' Equity
    

   
<TABLE>
<CAPTION>
                                                                                       Deficit
                                                                                      Accumulated
                                           Common Stock                Additional      during the                        Total
                                  ------------------------------        Paid-In       Development       Deferred      Stockholders'
                                     Shares            Amount           Capital          Stage        Compensation       Equity
                                  ------------      ------------      ------------    ------------    ------------    ------------
<S>                               <C>               <C>               <C>             <C>             <C>             <C>
Balance at inception,
September 17, 1996                          --     $          --     $          --   $          --   $          --   $          --

Issuance of common stock
for cash and capital
subscriptions receivable             1,050,000             1,050           156,450              --              --         157,500
Net loss                                    --                --                --         (44,338)             --         (44,338)
                                  ------------      ------------      ------------    ------------    ------------    ------------

Balance at December 31, 1996         1,050,000             1,050           156,450         (44,338)             --         113,162

Issuance of common stock
for cash and capital
subscriptions receivable             1,333,332             1,333         1,398,666              --              --       1,399,999
(unaudited)

Issuance of common stock
for services rendered                    8,006                 8             9,075              --              --           9,083
(unaudited)
Deferred compensation
(unaudited)                                 --                --           133,200              --        (129,166)          4,034
Net loss (unaudited)                        --                --                --      (1,434,894)             --      (1,434,894)
                                  ============      ============      ============    ============    ============    ============
Balance at September 30,
1997 (unaudited)                     2,391,338      $      2,391      $  1,697,391    $ (1,479,232)   $   (129,166)   $     91,384
                                  ============      ============      ============    ============    ============    ============
</TABLE>
    


See accompanying notes.



                                      F-5
<PAGE>   53

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                            Statements of Cash Flows

   
<TABLE>
<CAPTION>
                                                   PERIOD FROM                             PERIOD FROM
                                                    INCEPTION                               INCEPTION
                                                  (SEPTEMBER 17,       NINE MONTH        (SEPTEMBER 17,
                                                  1996) THROUGH       PERIOD ENDED        1996) THROUGH
                                                   DECEMBER 31,       SEPTEMBER 30,       SEPTEMBER 30,
                                                       1996               1997                1997
                                                  -------------       -------------       -------------
                                                                       (Unaudited)         (Unaudited)
<S>                                               <C>                 <C>                 <C>
OPERATING ACTIVITIES
Net loss                                          $     (44,338)        $(1,434,894)      $  (1,479,232)
Adjustments to reconcile net loss
  to net cash used for operating activities:
    Depreciation and amortization                         4,218               8,789              13,007
    Amortization of deferred                                 --               4,034               4,034
    compensation
    Non-cash compensation                                    --           1,209,082           1,209,082
    Changes in operating assets
    and liabilities:
      Accounts receivable                                (9,797)            (26,681)            (36,478)
      Prepaid expenses and other                         (1,823)             (6,619)             (8,442)
      Accounts payable                                    2,955             104,489             107,444
      Accrued payroll and related                         1,142              18,091              19,233
      Accrued royalty                                     6,300              (4,955)              1,345
      Other current liabilities                              --               1,808               1,808
                                                  -------------       -------------       -------------
Net cash used for operating activities                  (41,343)           (126,856)           (168,199)
                                                  -------------       -------------       -------------

INVESTING ACTIVITIES
Purchases of property and                               (21,633)            (26,057)            (47,690)
equipment
Other assets                                             (1,395)             (2,252)             (3,647)
                                                  -------------       -------------       -------------
Net cash used for investing activities                  (23,028)            (28,309)            (51,337)
                                                  -------------       -------------       -------------

FINANCING ACTIVITIES
Proceeds from issuance of common stock                   60,000             100,000             160,000

Deferred offering costs                                      --             (93,525)            (93,525)
Advance from former stockholder                          45,000                 586              45,586
Repayment of advance from former stockholder            (24,162)                 --             (24,162)
Collection of capital
  subscriptions receivable                                   --             197,500             197,500
  from stockholders
                                                  -------------       -------------       -------------
Net cash provided by financing activities                80,838             204,561             285,399
                                                  -------------       -------------       -------------
Net increase in cash                                     16,467              49,396              65,863
Cash at beginning of period                                  --              16,467                  --
                                                  =============       =============       =============
Cash at end of period                             $      16,467       $      65,863       $      65,863
                                                  =============       =============       =============
SUPPLEMENTAL DISCLOSURES
NON-CASH FINANCING ACTIVITIES:
Capital subscriptions receivable
  from stockholders                               $      97,500       $     100,000       $     197,500
OTHER CASH FLOW INFORMATION:
Interest paid                                                --                  --                  --
Income taxes paid                                            --               1,600               1,600
</TABLE>
    

See accompanying notes.


                                      F-6
<PAGE>   54

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                          Notes to Financial Statements

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

   
C2i Solutions, Inc. (the "Company") was incorporated in the State of Delaware on
September 30, 1997. The Company was initially organized as a California limited
liability company under the name of Challenge 2000 International LLC ("LLC") on
September 17, 1996 (Inception). From Inception through September 30, 1997, the
Company operated under the name of the LLC. On September 30, 1997, the Company
reorganized as a Delaware corporation and changed its name to C2i Solutions,
Inc. On September 30, 1997, all LLC Owner Units were converted into 2,391,338
shares of the Delaware corporation's common stock and all Owner options were
converted into options to acquire 547,500 shares of common stock. Concurrent
with the formation of the Delaware corporation, the LLC was dissolved.

The accompanying financial statements have been adjusted to give retroactive
effect to the reorganization and capital structure of the Delaware corporation
from Inception.
    

C2i Solutions, Inc.'s authorized capital stock consists of 10,000,000 shares of
common stock, with a par value of $.001 per share, and 1,000,000 shares of
preferred stock, with a par value of $.001 per share. The Board may issue series
of preferred stock without action of the stockholders of the Company.
Accordingly, the issuance of preferred stock may adversely affect the rights of
the holders of the common stock. In addition, the issuance of preferred stock
may be used as an "anti-takeover" device without further action on the part of
the stockholders. Issuance of preferred stock may dilute the voting power of
holders of common stock (such as by issuing preferred stock with super-voting
rights) and may render more difficult the removal of current management, even if
such removal may be in the stockholders' best interests. The Company has no
current plans to issue any of the preferred stock.

The Company is a provider of integrated solutions for organizations to assess,
manage and implement required changes to computer applications for the "Year
2000 Problem." In addition to shrink-wrapped products, the Company intends to
offer its customers a complete range of consulting services, including project
management, out-sourcing and testing in connection with Year 2000 projects.



                                      F-7
<PAGE>   55

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BASIS OF PRESENTATION

   
The accompanying financial statements have been prepared assuming that 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 conducting business. Since Inception, the Company has been
primarily engaged in organizational activities, including raising capital,
recruiting personnel and the marketing of its products and services. As of
September 30, 1997, the Company has not realized significant revenues and
therefore is considered to be in the development stage.
    

The Company's ability to transition from the development stage and ultimately to
attain profitable operations is dependent upon its ability to raise additional
capital through debt or equity financing and the successful market acceptance of
its products and services. There can be no assurances that the Company's
products and services or its efforts to raise additional capital will be
successful. The accompanying financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the outcome of this uncertainty.

INTERIM PERIODS

   
The financial statements for the nine months ended September 30, 1997 and for
the period from inception (September 17, 1996) through September 30, 1997 are
unaudited, but include all adjustments (consisting only of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position as of such date and the operating results and cash flows
for such periods. Results for the interim period and period since inception are
not necessarily indicative of results to be expected for the entire year or for
any future period.
    

FISCAL YEAR END

The Company's fiscal year end is December 31.



                                      F-8
<PAGE>   56

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATION OF CREDIT RISK

Credit is extended based on an evaluation of the customer's financial condition
and generally collateral is not required.

SIGNIFICANT CUSTOMERS


   
Revenue from one customer accounted for 100% of the Company's total revenue for
the period ended December 31, 1996. Revenue from three customers accounted for
62%, 19% and 10%, respectively, of the Company's total revenue for the nine
months ended September 30, 1997. At December 31, 1996, all of the accounts
receivable related to the customer which represented 100% of total revenue was
outstanding, and represented 100% of the accounts receivable balance. At
September 30, 1997, 91% and 9%, respectively of the accounts receivable related
to the customers which represented 62% and 10%, respectively, of total revenue
for the nine months ended September 30, 1997.
    

SIGNIFICANT SUPPLIERS

   
Purchases from a single supplier, who is also a former stockholder, accounted
for 100% of the Company's cost of revenues for the period ended December 31,
1996. At December 31, 1996, all $6,300 of these costs were outstanding and have
been included as accrued royalty due to former stockholder in the accompanying
balance sheet. Purchases from three suppliers, one of whom is a former
stockholder, accounted for 60%, 24% and 15% of the Company's total cost of
revenues for the nine months ended September 30, 1997. At September 30, 1997,
$16,544, $1,345 and $2,138 of these costs were outstanding and have been
included in accrued royalty due to former stockholder and accounts payable in
the accompanying balance sheet.
    

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and is being depreciated using the
straight-line method over the estimated useful life of the property and
equipment, which is three to seven years.



                                      F-9
<PAGE>   57

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


INTANGIBLE ASSETS

   
Organization costs which totaled $1,395 and $607 at December 31, 1996, and
September 30, 1997, respectively, are included in other assets and are amortized
using the straight-line method over five years. Accumulated amortization totaled
$70 and $0 at December 31, 1996 and September 30, 1997, respectively. In
September 1997, the unamortized balance of LLC organization costs totaling
$1,116 was written off as a result of the LLC's dissolution.
    

USE OF ESTIMATES

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

REVENUE RECOGNITION

Revenue associated with performance under contracts to provide Year 2000
computer consulting and reengineering services is recognized utilizing the
percentage-of-completion method in the ratio that labor-hours incurred to date
bear to estimated total labor-hours at completion, provided that collection of
the related receivable is probable. Adjustments to contract cost estimates are
made in the periods in which the facts which require such revisions become
known. When the revised estimates indicate a loss, such loss is provided for
currently in its entirety. The costs of providing warranty and follow-on
customer support related to services performed are not significant and have been
accrued.

The Company recognizes revenue from the sale of software and hardware products
upon delivery of the product to the customers when collection is assured.
Revenues on sales of software products to customers which require significant
continued obligation from the Company are deferred until such obligations are no
longer significant.


                                      F-10
<PAGE>   58
   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ACCOUNTING FOR STOCK-BASED COMPENSATION

Awards by the Company of stock options are accounted for in accordance with
Accounting Principles Board Opinion No. 25 and related interpretations ("APB
25"). The Company has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, ("SFAS 123"), "Accounting for
Stock-Based Compensation" (Note 2).

INCOME TAXES

   
Prior to September 30, 1997, the Company elected to be treated as a Limited
Liability Corporation ("LLC") for tax purposes. In lieu of corporate income
taxes, all taxable income or loss of the Company is included in the income tax
returns of the individual stockholders. Accordingly, the accompanying historical
financial statements do not include a provision for federal income taxes, but
reflect a provision for the California minimum franchise tax. On September 30,
1997, the Company elected to terminate its LLC status and thereafter become
taxable as a "C" Corporation.
    

PRO FORMA NET LOSS PER SHARE

Pro forma net loss per share is computed using the weighted average number of
shares of common stock and common stock equivalents outstanding during that
period, adjusted to reflect the conversion from a limited liability company to a
Delaware corporation, on a retroactive basis.

Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
common stock equivalents, regardless of their anti-dilutive impact, issued at
prices below the offering price per share during the twelve months preceding the
initial filing of the Company's Registration Statement and through the effective
date of the initial public offering of the Company's common stock have been
included in the calculation of pro forma net loss per share using the treasury
stock method as if outstanding since the beginning of each period presented.

Supplemental net loss per share, giving effect to the use of a portion of the
net proceeds of this offering to repay the Bridge Notes payable, is not
presented since it does not differ materially from pro forma net loss per share.


                                      F-11

<PAGE>   59

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)


2.    STOCKHOLDERS' EQUITY

As of December 31, 1996, the Company had issued 1,050,000 shares of Common Stock
to three individuals. In accordance with the Operating Agreement (the
"Agreement"), these individuals were required to contribute total capital of
$157,500, of which $60,000 had been received by the Company as of December 31,
1996. The Company recorded the remaining $97,500 to be received as capital
subscriptions receivable in the accompanying balance sheet. The subscription
amounts were received in January 1997.

In June 1997, the Company issued an additional 1,333,332 shares of Common Stock
to existing and new stockholders. In exchange for these shares, the Company
received a $100,000 cash payment and $100,000 was recorded as capital
subscriptions receivable. These subscription amounts were received $50,000 in
August 1997, and $50,000 in September 1997. The Company recognized $1,199,999 of
compensation expense, which is included in selling, general and administrative
expenses in the accompanying statement of operations, related to the issuance of
these shares, representing the difference between the deemed value of the shares
of Common Stock and the consideration received. In addition, from June 1997 to
September 1997, the Company issued 8,006 shares of Common Stock valued at $9,083
to consultants in exchange for services received.

Stock Options

During the period from June 1997 through September 1997, the Company granted
nonqualified options to purchase an aggregate of 547,500 shares of the Company's
Common Stock, at exercise prices ranging from $2.50 to $5.40 per share, to
employees, consultants and directors of the Company. These options vest over
periods ranging from one to four years, are exercisable at various dates and
expire five to ten years from the date of grant, or earlier in the event of
termination of employment, directorship or consulting engagement.
    


                                      F-12
<PAGE>   60

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    

2.    STOCKHOLDERS' EQUITY (CONTINUED)

   
      The following table summarizes certain information regarding stock options
during the nine months ended September 30, 1997:
    


   
<TABLE>
<CAPTION>
                                                               Weighted average
                                               Shares           exercise price
                                           -------------       ----------------
                                            (Unaudited)          (Unaudited)
<S>                                        <C>                 <C>

Outstanding at beginning of period                  0              $  --
Granted                                       547,500               3.03
Exercised                                           0                 --
Forfeited                                           0                 --
                                              -------              -----

Outstanding at end of period                  547,500              $3.03
                                              =======              =====

Options exercisable at end of period           36,121              $3.84
                                              =======              =====
</TABLE>


The following summarizes information regarding options outstanding at September
30, 1997:
    


   
<TABLE>
<CAPTION>
               Options Outstanding                          Options Exercisable
               -------------------                          -------------------
                   (Unaudited)                                  (Unaudited)

                     Weighted                                    Weighted
                     average       Weighted                       average       Weighted
                    remaining      average                       remaining      average
     Number        contractual     exercise          Number     contractual     exercise
   Outstanding     life (years)     price         exercisable   life (years)     price
   -----------     ------------    --------       -----------   ------------    --------
<S>                <C>             <C>            <C>           <C>             <C>

     100,000           4.8          $5.40            16,667          4.8         $5.40
     447,500           9.9          $2.50            19,454          9.8         $2.50
</TABLE>
    


                                      F-13
<PAGE>   61

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    

2.    STOCKHOLDERS' EQUITY (CONTINUED)

   
In accordance with APB 25, the Company recognized $4,034 of compensation expense
during the nine month period ended September 30, 1997 related to the grant of
options, as the exercise price of options granted was below the deemed value on
the date of value grant. Had compensation cost related to the options been
determined based upon the fair value of options at their grant dates, as
prescribed in SFAS 123, the Company's net loss would not have been materially
different.
    

The fair value of options at date of grant was estimated using the minimum value
method with the following weighted average assumptions:

   
<TABLE>
<CAPTION>
                                                                 Nine Months Ended
                                                                 September 30, 1997
                                                                 ------------------
                                                                    (Unaudited)

<S>                                                              <C>
Expected life (years)...........................................          5.0
Risk-free interest rate.........................................          6.0%
Dividend yield..................................................          0.0%
</TABLE>
    

Because options vest over several years and additional option grants are
expected to be made in future years, the above pro forma results applying the
provisions of SFAS 123 are not representative of pro forma results for future
years.


                                      F-14
<PAGE>   62
   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    

3.    COMMITMENTS

Licensing Agreements

   
In 1996, the Company entered into an exclusive technology licensing agreement
with a former stockholder through which it obtained world-wide marketing rights
to certain software products sold by the Company. Under this agreement, the
Company was obligated to pay a royalty on sales of the product ranging from 50%
to 70%. The accompanying balance sheets include $6,300 and $1,345 of accrued
royalties due under this agreement at December 31, 1996 and September 30, 1997,
respectively. In 1997, the Company terminated this licensing agreement and no
longer uses these software products.
    

Subsequent to December 31, 1996, the Company entered into several non-exclusive
license agreements. These agreements generally allow the Company to utilize and
resell to its customers certain software products, in exchange for royalty
payments by the Company which generally range from 10% to 50%.

Officers Salaries

   
The Agreement for the Company specifies that officers' salaries are only payable
from monthly profits as calculated prior to the consideration of such salaries.
In the event monthly profits are not sufficient to pay all amounts owed, such
salaries will be paid on a pro-rata basis with any remaining unpaid amount
payable in later profitable periods. As of September 30, 1997, the Company had
not realized any profits and as such no significant compensation had been paid
to its officers. As of September 30, 1997, three of the four officers have
agreed to forgo claims to unpaid salaries owed for services rendered in the
period from inception. The Company commenced payment of salaries to these 
officers in December 1997.
    

Lease Commitments

The Company leases its office facilities and certain computer equipment under
lease agreements which are classified as operating leases.


                                      F-15
<PAGE>   63

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    

3.    COMMITMENTS AND CONTINGENCIES (CONTINUED)

   
At September 30, 1997, future minimum payments under these noncancelable
operating leases are summarized as follows:

<TABLE>
<CAPTION>
                 Period Ending December 31:

<S>              <C>                                          <C>
                 1997                                         $  7,564
                 1998                                            6,030
                 1999                                              --
                 2000                                              --
                 2001                                              --
                 Thereafter                                        --
                                                              --------
                 Total future minimum lease payments          $ 13,594
                                                              ========
</TABLE>

Rent expense amounted to $5,643, $19,989, and $25,632 for the period from
inception (September 17, 1996) through December 31, 1996, the nine months ended
September 30, 1997, and for the period from inception (September 17, 1996)
through September 30, 1997, respectively, and has been included in selling,
general and administrative expenses in the accompanying statements of
operations.
    

4.    SUBSEQUENT EVENTS

   
    

Bridge Financing

In October 1997, the Company completed a $600,000 Bridge Financing. This debt
consists of $600,000 face value promissory notes bearing 10% interest, due at
the earlier of completion of an initial public offering or September 30, 1999
and 600,000 warrants which initially enable the holder to purchase shares of
Common Stock at $4.00 per share or two-thirds of the public offering price per
unit, if less. The Company received net



                                      F-16
<PAGE>   64

   
                               C2i Solutions, Inc.
    
                          (a development stage company)

                    Notes to Financial Statements (continued)

   
               (Information as of September 30, 1997, for the nine
            months ended September 30, 1997, and for the period from
                         inception (September 17, 1996)
                    through September 30, 1997 is unaudited)
    

4.    SUBSEQUENT EVENTS (CONTINUED)

proceeds of $573,180 (after deducting selling commission and expenses), which
have been allocated $108,000 to warrants, $492,000 to Bridge Notes payable and
$26,820 to deferred finance changes. The resulting $134,820 of combined debt
discount and deferred finance charges will be charged to expense using the
interest method over the term of the notes.

Stock Options

   
Subsequent to September 30, 1997, the Company granted options for the purchase
of 77,500 shares of Common Stock to a director. These options have an exercise
price of $2.50 per share, vest over a four year period and expire ten years from
the date of grant, or earlier in certain cases, in the event of termination of
directorship.
    

Initial Public Offering

In October 1997, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission,
permitting the Company to sell up to 1,150,000 securities (consisting of one
share of Common Stock and one Warrant for the purchase of one share of Common
Stock) to the public.

   
Lease Commitments

Subsequent to September 30, 1997, the Company entered into an agreement to lease
certain computer equipment under a lease agreement which is classified as a
capital lease. The lease term is for a thirty-six month period, with minimum
lease payments as follows:

<TABLE>
<CAPTION>
           Period Ending December 31:

<S>                                                          <C>
           1997                                              $    878
           1998                                                 3,309
           1999                                                 3,309
           2000                                                 3,033
           2001                                                   --
           Thereafter                                             --
                                                             --------
                                                               10,529
           Less amount representing interest                   (2,587)
                                                             --------
           Present value of net minimum lease payments       $  7,942
                                                             ========
</TABLE>
    


                                      F-17
<PAGE>   65

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


                                TABLE OF CONTENTS

   
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                              --
<S>                                                                         <C>
Prospectus Summary .....................................................       3
Risk Factors ...........................................................       6
Use of Proceeds ........................................................      15
Dividend Policy ........................................................      15
Capitalization .........................................................      16
Dilution ...............................................................      17
Selected Financial Data ................................................      18
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations ...........................................................      19
Business ...............................................................      23
Management .............................................................      32
Certain Transactions ...................................................      36
Principal Stockholders .................................................      38
Description of Securities ..............................................      39
Shares Eligible for Future Sale ........................................      42
Underwriting ...........................................................      43
Legal Matters ..........................................................      46
Experts ................................................................      46
Additional Information .................................................      46
Index to Financial Statements ..........................................      F-1
</TABLE>

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

                        1,000,000 SHARES OF COMMON STOCK
                                      AND
                         1,000,000 REDEEMABLE WARRANTS



                              C2i SOLUTIONS, INC.


                                   PROSPECTUS



                            SOUTHWALL CAPITAL CORP.

                               ___________, 1997


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

<PAGE>   66
                                     PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS


ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.


      Section 145 of the Delaware General Corporation Law permits
indemnification of officers, directors, and other corporate agents under certain
circumstances and subject to certain limitations. The Registrant's Certificate
of Incorporation and By-Laws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant has entered into separate indemnification agreements with its
directors and officers which require the Registrant, among other things, to
indemnify them against certain liabilities which may arise by reason of their
status or service (other than liabilities arising from willful misconduct of a
culpable nature) and to maintain directors' and officers' liability insurance,
if available on reasonable terms.


      These indemnification provisions and the indemnification agreement entered
into between the Registrant and its officers and directors may be sufficiently
broad to permit indemnification of the Registrant's officers and directors for
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act.


      The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.


ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.


      The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Shares and Warrants being registered. All amounts shown are estimates
except for the registration fee and the NASD filing fee.


   
<TABLE>
<S>                                                                   <C>
        Registration fee...........................................   $   4,740
        NASD filing fee............................................       2,064
        Nasdaq SmallCap Market fee.................................      10,000
        Blue sky qualification fees and expenses...................      35,000
        Printing and engraving expenses............................      20,000
        Legal fees and expenses....................................     150,000
        Accounting fees and expenses...............................      50,000
        Transfer agent and registrar fees..........................       5,000
        Directors and Officers insurance coverage..................      55,000
        Non-Accountable Representative Expense Allowance...........     180,000
        Miscellaneous..............................................      13,196
                                                                      ---------
        Total......................................................   $ 525,000
                                                                      =========
</TABLE>
    


ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.


      In the last three years the Registrant has sold and issued the following
unregistered securities:


      1.    Owner Units (Common Stock)


   
            In September 1996, the Company issued an aggregate of 1,050,000
Owner Units to four founders of the Company at a price of $.15 per Unit, for
aggregate consideration of $157,500.
    

            In June 1997, the Company issued 1,333,332 Owner Units to three
executive officers of the Company at a price of $.15 per unit, for aggregate
consideration of $200,000.


                                      II-1
<PAGE>   67
   
            In the months of June through September 1997, the Company issued an
aggregate of 8,006 Owner Units to three consultants to the Company as
consideration for services rendered to the Company by these consultants, valued
in the aggregate at $9,083.
    

            On September 30, 1997, the Company exchanged each Owner Unit for one
share of its Common Stock in connection with its reorganization from a
California limited liability company to a Delaware corporation.

      2.    Bridge Notes and Bridge Warrants

            In October 1997, the Company issued Bridge Notes having an aggregate
principal of $600,000, as well as 600,000 Bridge Warrants, to 36 accredited
investors for aggregate consideration of $600,000.

      3.    Option Issuances to Employees, Consultants and Directors

            From June 1, 1997 to the present, the Company issued options to
purchase an aggregate of 625,000 shares of Common Stock at exercise prices
ranging from $2.50 to $5.40 per share to ten employees and consultants and three
outside directors. No consideration was paid to the Company by any recipient of
any of the foregoing options for the grant of any such options.

      There were no underwriters employed in connection with any of the
transactions set forth in Item 26.

      The issuances described in Items 26(1) through 26(2) were exempt from
registration under the Securities Act because they did not involve a public
offering. The issuances described in Item 26(3) were exempt from registration
under the Securities Act in reliance on Rule 701 promulgated thereunder and on
Section 4(2) thereof as transactions pursuant to compensatory benefit plans and
contracts relating to compensation and transactions not involving a public
offering. The recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and other instruments issued in
such transactions.


ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

      (a)   EXHIBITS.

   
<TABLE>
<CAPTION>
      Exhibit
      Number    Description of Document
      ------    -----------------------
<S>             <C>
        1.1     Proposed Form of Underwriting Agreement
        1.2     Form of Representative Warrant
        1.3     Form of Future Services Agreement, to be dated as of the
                effective date, between the Representative and the Company
       +3.1     Certificate of Incorporation
       +3.2     Bylaws
        4.1     Form of Warrant Agreement between the Company and the Warrant
                Agent, including the form of Warrants
        5.1     Opinion and Consent of Gray Cary Ware & Freidenrich
       +10.1    Form of Indemnity Agreement for officers and directors
       +10.2    Form of Proposed Stock Option Plan and Agreements thereunder
       +10.3    Form of Bridge Note and accompanying Bridge Warrant
        10.4    Employment Agreement dated June 1, 1997 between the Company and
                John Anthony Whalen, Jr.
        10.5    Letter Agreement dated August 4, 1997 between the Company, David
                Tendler and Hal Beretz
</TABLE>
    


                                      II-2

<PAGE>   68

   
<TABLE>
<S>             <C>
        10.6    Letter Agreement dated August 20, 1997 between the Company and
                Kim P. Goh
        10.7    Letter Agreement dated November 3, 1997 between the Company and
                Kim P. Goh.
       +11.1    Calculation of Earnings Per Share
        23.1    Consent of Independent Accountants
        23.2    Consent of Gray Cary Ware & Freidenrich (included in Exhibit
                5.1)
       +24.1    Power of Attorney
       +27.1    Financial Data Schedule
</TABLE>
    

- ----------

*     To be filed by amendment.
   
+     Previously filed.
    


      (b)   FINANCIAL STATEMENT SCHEDULES.


      All required information is set forth in the financial statements included
in the Prospectus constituting part of this Registration Statement.


ITEM 28. UNDERTAKINGS


   
      Rule 415 Offering


      The undersigned Registrant hereby undertakes that it will:


      (1)   File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:


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


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


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


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


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


      The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.


   
      Request for Acceleration of Effectiveness
    


      Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities 


                                      II-3

<PAGE>   69

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


   
      Reliance on Rule 430A
    


      The undersigned registrant hereby undertakes that:


   
      (1)   For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective;


      (2)   For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof; and
    


                                      II-4
<PAGE>   70
                                   SIGNATURES


   
      Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of San Diego,
State of California, on the 15th day of December, 1997.
    

                                          C2i SOLUTIONS, INC.


                                       By: /S/ JOHN ANTHONY WHALEN, JR.
                                           -------------------------------------
                                           John Anthony Whalen, Jr.
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)


   
      Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.


<TABLE>
<CAPTION>
          Signature                            Title                        Date
          ---------                            -----                        ----


<S>                                 <C>                             <C>
/S/ JOHN ANTHONY WHALEN, JR.        Chief Executive Officer and     December 15, 1997
- -------------------------------     Director (Principal
  John Anthony Whalen, Jr.          Executive Officer)
                                    

                                             
  /S/ DIANE E. HESSLER              Chief Financial Officer         December 15, 1997
- -------------------------------     (Principal Financial and
      Diane E. Hessler              Accounting Officer)
      


        HAL H. BERETZ*              Director                        December 15, 1997
- -------------------------------
        Hal H. Beretz


         KIM P. GOH*                Director                        December 15, 1997
- -------------------------------
         Kim P. Goh


         DAVID TENDLER*             Director                        December 15, 1997
- -------------------------------
        David Tendler

 *By:/S/ JOHN ANTHONY
 WHALEN, JR.
 John Anthony Whalen, Jr.
 Attorney-in-Fact
</TABLE>
    


                                      II-5


   
    

<PAGE>   1
                                                                    EXHIBIT 1.1

                               C2i SOLUTIONS, INC.

              One Million Shares of Common Stock ($.001 Par Value)
                                      -and-
              One Million Redeemable Common Stock Purchase Warrants




                             UNDERWRITING AGREEMENT


                                                               January __, 1997



SouthWall Capital Corp.
110 Wall Street
New York, New York 10005

Gentlemen:

            C2i Solutions, Inc., a Delaware corporation (the "Company"),
proposes to sell to the several underwriters (the "Underwriters") named in
Schedule I hereto for whom you are acting as representative (the
"Representative") shares of the Company's Common Stock, $.001 par value ("Common
Stock") and Redeemable Warrants ("Warrants") to purchase such shares to be
issued pursuant to a Warrant Agreement between the Company and American Stock
Transfer and Trust Company dated ________, 1997 ("Warrant Agreement"). The
aggregate number of such shares that the Company proposes to sell is One Million
(the "Firm Shares") and the aggregate number of such warrants that the Company
proposes to sell is likewise One Million (the "Firm Warrants"). These are
collectively referred to in this agreement as the "Firm Securities." The
respective amounts of the Firm Securities to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto. The
Company also proposes to grant the Underwriters an option to purchase an
aggregate of up to 150,000 additional shares and a like number of warrants (the
"Option Shares" and "Option Warrants" respectively) as set forth below, and
these are collectively referred to in this agreement as the "Option Securities."

            As the Representative, you have advised the Company that (a) you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) the several Underwriters are willing, acting severally and not jointly,
to purchase the numbers of Firm Securities set forth opposite their respective
names in Schedule I, plus their pro rata portion of the Option Securities if you
elect to exercise the over-allotment option in whole or in part for the accounts
of the several Underwriters. The Firm Shares and the Option Shares (to the
extent the aforementioned option is exercised) are herein collectively called
the "Shares." The Firm Warrants and the Option Warrants (to the extent the
aforementioned option is exercised) are herein collectively called the
"Warrants."






                                      -1-


<PAGE>   2


            In consideration of the mutual agreements contained herein and of
the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:

1.          REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

            The Company represents and warrants to each of the Underwriters as
follows:

            (a) A registration statement on Form SB-2 (File No. 333-39425) with
respect to the Shares and Warrants has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. The Company has complied with the conditions for the
use of Form SB-2. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462 (b) of the Act,
herein referred to as the "Registration Statement," which shall be deemed to
include all information omitted therefrom in reliance upon Rule 430A and
contained in the Prospectus referred to below, has become effective under the
Act and no post-effective amendment to the Registration Statement has been filed
as of the date of this Agreement. "Prospectus" means (a) the form of prospectus
first filed with the Commission pursuant to Rule 424(b) or (b) if none is thus
filed, the last preliminary prospectus included in the Registration Statement
filed prior to the time it becomes effective or filed pursuant to Rule 424(a)
under the Act that is delivered by the Company to the Underwriters for delivery
to purchasers of the Shares and Warrants, together with the term sheet or
abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7)
under the Act. Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus."

            (b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement.

            (c) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
Common Stock and Warrants to be issued and sold by the Company have been duly
authorized and when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; the shares of Common Stock issuable upon
exercise of the Warrants have been duly authorized and reserved for issuance
upon exercise of the Warrants and will when issued as contemplated by the
instrument evidencing the Warrants be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with respect to
any shares of Common Stock or the issue and sale thereof.

            (d) The Warrant Agreement and Warrants have been duly authorized;
and when the Warrants are delivered and paid for pursuant to this Agreement, the
Warrant Agreement and the Warrants will have been duly executed and delivered.












                                      -2-

<PAGE>   3


            (e) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct as of the date appearing thereunder, giving
effect to the pro forma and other adjustments specified. All of the Shares and
Warrants conform to the description thereof contained in the Registration
Statement. The form of certificates for the Shares and Warrants conform to the
corporate law of the jurisdiction of the Company's incorporation. There are no
securities of the Company convertible into, or exchangeable for, shares of the
Company's capital stock, nor is the Company obligated to issue any such shares
or securities, except as disclosed in the Prospectus.

            (f) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares and
Warrants nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and will
conform, to the requirements of the Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will not
omit, to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus, or any such amendment or supplement, in reliance
upon, and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representative, specifically for use in
the preparation thereof.

            (g) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present fairly
the financial position and the results of operations and cash flows of the
Company, at the indicated dates and for the indicated periods. Such financial
statements and related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the periods
involved, except as disclosed herein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The pro forma financial
statements and other pro forma financial information included in the
Registration Statement and the Prospectus present fairly the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, have been properly
compiled on the pro forma bases described therein, and, in the opinion of the
Company, the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions or
circumstances referred to therein.

            (h) Ernst & Young LLP, who have audited certain of the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.

            (i) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise










                                      -3-

<PAGE>   4

which if determined adversely to the Company might result in any material
adverse change in the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company or which might prevent the consummation of the transactions contemplated
hereby, except as set forth in the Registration Statement.

            (j) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) described above, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement), or with
respect to licensed properties and assets, the rights of the respective
licensors, or which are not material in amount. The Company occupies its leased
properties under valid and binding leases.

            (k) The Company has filed all Federal, State, local and foreign
income tax returns which have been required to be filed (subject to allowable
extensions of time to file) and has paid all taxes indicated by said returns and
all assessments received by it to the extent that such taxes have become due.
All tax liabilities have been adequately provided for in the financial
statements of the Company.

            (l) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, and otherwise
than as may be described therein, there has not been any material adverse change
or any development involving a prospective material adverse change in or
affecting the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise), or prospects of the Company,
whether or not occurring in the ordinary course of business, and there has not
been any material transaction entered into or any material transaction that is
probable of being entered into by the Company, other than transactions in the
ordinary course of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented. The Company has no
material contingent obligations disclosure of which would be required by
generally accepted accounting principles, that are not disclosed in the
Company's financial statements which are included in the Registration Statement.

            (m) The Company is not, and with the giving of notice or lapse of
time or both, will not be, in violation of or in default under its Certificate
of Incorporation or By-Laws or under any agreement, lease, contract, indenture
or other instrument or obligation to which it is a party or by which it, or any
of its properties, is bound and which default is of material significance in
respect of the Company or the business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company is a party, or of the Certificate
of Incorporation or By-Laws of the Company or any order, rule or regulation,
applicable to the Company, of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction, except for
such additional steps as may be necessary to qualify the Shares and Warrants for
public offering by the Underwriters under state securities or Blue Sky laws.














                                      -4-

<PAGE>   5

            (n) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares and Warrants for
public offering by the Underwriters under state securities or Blue Sky laws) has
been obtained or made and is in full force and effect.

            (o) The Company holds all material licenses, certificates and
permits from governmental authorities which are necessary to the conduct of its
business; and the Company has not infringed any patents, patent rights, trade
names, trademarks or copyrights, which infringement would have a material
adverse effect on the Company or the business, management, properties, assets,
rights, operations, condition (financial or otherwise) or prospects of the
Company. The Company knows of no material infringement by others of patents,
patent rights, trade names, trademarks or copyrights owned by or licensed to the
Company.

            (p) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the Shares and Warrants to facilitate the sale or resale thereof. The
Company acknowledges that the Underwriters may engage in passive market making
transactions in the Shares on The Nasdaq Stock Market in accordance with
Regulation M under the Exchange Act.

            (q) The Company has caused each officer and director and specific
shareholders of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person shall agree not to offer, sell
or otherwise dispose of any Common Stock, or any other securities convertible,
exchangeable or exercisable for Common Stock owned by such person for a period
of 18 months after the date of this Agreement, directly or indirectly, except
with the prior written consent of SouthWall Capital Corp. pursuant to transfers
exempt from the registration requirements of the Act, so long as the transferee
executes and delivers to SouthWall Capital Corp. an agreeemnt to be bound.
("Lockup Agreements").

            (r) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940 and the rules and regulations
of the Commission thereunder ("1940 Act").

            (s) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.








                                      -5-

<PAGE>   6


            (t) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of its business and the
value of its properties and as is customary for companies engaged in similar
industries.

            (u) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.

            (v) No holder of any outstanding securities issued by the Company
has any right (i) to require the Company to register such securities under the
Act at any time prior to the end of the eighteenth month following the month
that includes the date on which the Registration Statement becomes effective
("Effective Date"), or (ii) to elect to participate in any registration by the
Company of such securities.

            (w) The Company is not obligated to pay a fee (such as a finders'
fee or consulting fee) to any person in connection with the introduction of the
Company to the Representative, or to any other person who will purchase
securities directly from the Company in connection with the offering to which
the Registration Statement relates.

            (x) During the period of twelve months ending on the date of this
Agreement, the Company has not paid any compensation of any nature to any person
other than the Representative in consideration of obtaining or arranging funding
for the Company from any source, or rendering consulting services to it.

            (y) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of doing Business with Cuba, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"), whichever
date is later, or if the information reported or incorporated by reference in
the Prospectus, if any, concerning the Company's business with Cuba or with any
person or affiliate located in Cuba changes in any material way, the Company
will provide the Department notice of such business or change, as appropriate,
in a form acceptable to the Department.













                                      -6-


<PAGE>   7




2.          PURCHASE, SALE AND DELIVERY OF THE FIRM SECURITIES.

            (a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per Share and $_____ per Warrant,
less an underwriting discount of 10% in each case, the number of Firm Securities
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof.

            (b) Payment for the Firm Securities to be sold hereunder is to be
made in same day funds via wire transfer to the order of the Company against
delivery of certificates therefor to the Representative for the several accounts
of the Underwriters. Such payment and delivery are to be made at the offices of
SouthWall Capital Corp., 110 Wall Street, 15th Floor, New York, New York, at
10:00 a.m., New York time, on the third business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day" means
a day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and not permitted by law or executive
order to be closed.) The certificates for the Firm Securities will be delivered
in such denominations and in such registrations as the Representative requests
in writing not later than the second full business day prior to the Closing
Date, and will be made available for inspection by the Representative at least
one business day prior to the Closing Date.

            (c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the several Underwriters to purchase the
Option Shares and/or Option Warrants at the price per Share and per Warrant as
set forth in the first paragraph of this Section 2. The option granted hereby
may be exercised in whole or in part by giving written notice at any time before
the close of business on the 45th day after the date of this Agreement, by you,
as Representative of the several Underwriters, to the Company, setting forth the
number of Option Shares and/or Option Warrants as to which the several
Underwriters are exercising the option, the names and denominations in which the
Option Shares and/or Option Warrants are to be registered and the time and date
at which such certificates are to be delivered. The time and date at which
certificates for Option Securities are to be delivered shall be determined by
the Representative but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option Closing
Date"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The number of Option Shares and/or Option Warrants to be purchased
by each Underwriter shall be in the same proportion to the respective total
numbers thereof being purchased as the respective numbers of Firm Shares and/or
Firm Warrants being purchased by such Underwriter bears to the respective total
numbers thereof, adjusted by you in such manner as to avoid fractional Shares or
Warrants. The option with respect to the Option Shares and/or Option Warrants
granted hereunder may be exercised only to cover over-allotments in the sale of
the Firm Shares and/or Firm Warrants by the Underwriters. You, as Representative
of the several Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To the
extent, if any, that








                                      -7-

<PAGE>   8

the option is exercised, payment for the Option Shares and/or Option Warrants
shall be made on the Option Closing Date in New York Clearing House funds by
certified or bank cashier's check drawn to the order of the Company against
delivery of certificates therefor at the offices of SouthWall Capital Corp., 110
Wall Street, New York, New York.

3. OFFERING BY THE UNDERWRITERS.

            It is understood that the several Underwriters are to make a public
offering of the Firm Securities as soon as the Representative deems it advisable
to do so. The Firm Securities are to be initially offered to the public at the
initial public offering price set forth in the Prospectus. The Representative
may from time to time thereafter change the public offering price and other
selling terms. To the extent, if at all, that any Option Securities are
purchased pursuant to Section 2 hereof, the Underwriters will offer them to the
public on the foregoing terms.

            It is further understood that you will act as the Representative for
the Underwriters in the offering and sale of the Shares and Warrants in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Underwriters.

4. COVENANTS OF THE COMPANY.

            The Company covenants and agrees with the several Underwriters that:

            (a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representative containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representative shall not
previously have been advised and timely furnished with a copy or to which the
Representative shall have reasonably and timely objected in writing or which is
not in compliance with the Rules and Regulations.

            (b) The Company will advise the Representative promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.

            (c) The Company will cooperate with the Representative in
endeavoring to qualify the Shares and Warrants for sale under the securities
laws of such jurisdictions as the Representative may reasonably have designated
in writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided the








                                      -8-

<PAGE>   9

Company shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representative may reasonably request for distribution of the Shares and
Warrants.

            (d) The Company will deliver to, or upon the order of, the
Representative, from time to time, as many copies of any Preliminary Prospectus
as the Representative may reasonably request. The Company will deliver to, or
upon the order of, the Representative during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representative may
reasonably request. The Company will deliver to the Representative at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representative such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representative
may reasonably request.

            (e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"), and
the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares and Warrants as contemplated in
this Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.

            (f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earning
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and will
advise you in writing when such statement has been so made available.

            (g) The Company will, within 120 days after the Registration
Statement becomes effective, file Form 8-A or another appropriate form with the
Securities and Exchange Commission to register the Common Stock under the
Securities Exchange Act of 1934, as amended. The Company will use its best
efforts to maintain that registration in effect for at least five years, to
comply with the reporting requirements of Section 15 of that Act, and otherwise
to make available








                                      -9-

<PAGE>   10

current public information about the Company within the meaning of Rule
15c(2)(11) under that Act.

            (h) The Company will, for a period of five years from the Closing
Date, deliver to the Representative copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Securities
Exchange Act of 1934, as amended.

            (i) The Company will, for a period of two years from the Closing
Date, provide to the Representative on a timely basis copies of all internal
financial and operating reports (including information regarding outstanding
purchase orders) that are prepared on a monthly basis for Company management.

            (j) Other than sales of shares of Common Stock upon exercise of
stock options, no offering, sale, short sale or other disposition of any Common
Stock or other securities convertible into or exchangeable or exercisable for,
or derivative of, Common Stock (or agreement for such) will be made for a period
of 180 days after the date of this Agreement, directly or indirectly, by the
Company otherwise than hereunder or with the prior written consent of SouthWall
Capital Corp.

            (k) The Company will use its best efforts, subject to notice of
issuance, to arrange that the Shares and Warrants be listed for trading on the
NASDAQ National Market or the NASDAQ Small-Cap Market.

            (l) The Company will use its best efforts to register with the
Corporate Record Savings and Annual Report Information Service published by
Standard & Poor's Corporation, and maintain that registration until at least the
fifth anniversary of the Effective Date.

            (m) The Company shall apply the net proceeds of its sale of the
Shares and Warrants as set forth in the Prospectus.

            (n) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Securities in such a manner as
would require the Company to register as an investment company under the 1940
Act.

            (o) The Company will, during the five-year period following the date
on which the Registration Statement becomes effective, maintain a transfer agent
reasonably satisfactory to the Representative and, if necessary under the
jurisdiction of incorporation of the Company, a registrar for the Common Stock.
At the Representative's written request, the Company will instruct the transfer
agent to provide copies of the Company's stock transfer sheets to the
Underwriter once each month.

            (p) The Company shall retain as its independent certified public
accountants the firm of Ernst & Young LLP or another accounting firm of
recognized national standing acceptable to the Representative, and as its legal
counsel the firm of Gray Cary Ware & Freidenrich or another firm acceptable to
the Representative expert in securities law matters and in regulatory matters
applicable to the Company's business. The Company shall give the accounting firm
so retained the









                                      -10-

<PAGE>   11

responsibility to examine and report on the financial statements and financial
exhibits to be included in the Registration Statement. The Company shall at its
expense cause that accounting firm to review (but not audit) the Company's
regularly prepared financial statements for each of its first three fiscal
quarters in each fiscal year, prior to the time at which the Company makes any
public announcement of quarterly operating results and prior to the time the
Company files its Quarterly Report on Form 10-Q or 10-QSB.

            (q) Upon request of the Representative, the Company will use its
best efforts to (i) cause the election of a person designated by the
Representative to serve as a member of the Company's Board of Directors, or (ii)
cause a person so designated to be appointed as a non-voting advisor to the
Board of Directors who is invited to attend all meetings of the Board of
Directors, whichever is requested by the Representative. The Company shall not
be obligated to maintain the service of any such person in either capacity
beyond the fifth anniversary of the Effective Date. In the case of the person
serving as a Director, the Company will cause that person to be covered by the
same officers' and directors' liability insurance policy as covers the other
members of the Company's Board of Directors.

            (r) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.

            (s) Prior to the first anniversary of the Effective Date, the
Company will not file a registration statement under the Securities Act on Form
S-8 (or a similar or successor form) in respect of any shares of Common Stock,
options or warrants to acquire shares of the Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock.

            (t) Prior to the second anniversary of the Effective Date, the
Company will not sell, offer for sale or offer to sell any securities of which
it is the issuer in reliance on the exemption from registration under the Act
afforded by Regulation S promulgated under the Act.

            (u) The Company will obtain, and maintain in effect at all times
until the earlier of (i) the second anniversary of the Effective Date and (ii)
the termination of his employment with the Company, a policy of "key-man" life
insurance on the life of John Anthony Whalen, Jr. providing a death benefit to
the Company of at least $100,000.



5.          COSTS AND EXPENSES.

            The Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder and in connection
with the transactions contemplated hereby, including without limitation (i) all
expenses incident to the issuance and delivery of the Shares and Warrants
(including all printing and engraving costs), (ii) all fees and expenses of the
registrar and transfer agent of the Common Stock, (iii) all necessary issue,
transfer and other stamp taxes in connection with the issuance and sale of the
Shares and Warrants to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public












                                      -11-


<PAGE>   12

accountants and other advisors, (v) all costs and expenses incurred in
connection with the printing, filing, shipping and distribution of the
Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), each preliminary prospectus and the
Prospectus, and all amendments and supplements thereto, and this Agreement, (vi)
all filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters (including fees and disbursements of the Representative's legal
counsel) in connection with qualifying or registering (or obtaining exemptions
from the qualification or registration of) all or any part of the Common Shares
for offer and sale under the Blue Sky laws, and, if requested by the
Representatives, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Shares and Warrants, (viii) the listing fees of
the Nasdaq Stock Market, if applicable, and (ix) all other fees, costs and
expenses referred to in Item 25 of Part II of the Registration Statement. Except
as provided in this Section 5 and in Section 8 hereof, the Underwriters shall
pay their own expenses, including the fees and disbursements of their counsel,
provided that if this Agreement shall not be consummated because the conditions
in Section 6 hereof are not satisfied, or because this Agreement is terminated
by the Representative pursuant to Section 11 hereof, or by reason of any
failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on its part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or omission of
any Underwriter, for all out-of-pocket expenses that shall have been reasonably
incurred by the Representatives and the Underwriters in connection with the
proposed purchase and the offering and sale of the Common Shares, including but
not limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges. To the date of this
Agreement the Company has paid the Underwriter a total of $45,000 against its
obligation to pay expenses as provided in this Section 5.

6.          CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.

            The several obligations of the Underwriters to purchase the Firm
Securities on the Closing Date and the Option Securities, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company contained herein, and to the performance by the Company of its covenants
and obligations hereunder and to the following additional conditions:

            (a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Common Stock or Warrants.







                                      -12-

<PAGE>   13


            (b) The Representative shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Gray Cary Ware &
Freidenrich, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the effect that:

                         (i) The Company has been duly organized and is validly
            existing as a corporation in good standing under the laws of the
            State of Delaware, with corporate power and authority to own or
            lease its properties and conduct its business as described in the
            Registration Statement; the Company is duly qualified to transact
            business in each jurisdiction in which such counsel has been
            informed by an appropriate officer of the Company that the Company
            has employees, operates facilities or has assets.

                        (ii) The Company has authorized and outstanding capital
            stock as set forth under the caption "Capitalization" in the
            Prospectus; the outstanding shares of Common Stock have been duly
            authorized and validly issued and are fully paid and non-assessable;
            the Common Stock and Warrants conform to the description thereof
            contained in the Prospectus; the certificates for the Common Stock
            and Warrants, assuming they are in the form filed with the
            Commission, are in due and proper form; the Firm Shares, and the
            Option Shares if any, have been duly authorized and will be validly
            issued, fully paid and non-assessable when issued and paid for as
            contemplated by this Agreement, and the shares of Common Stock
            issuable upon exercise of the Warrants have been duly authorized and
            will when issued as contemplated by the instrument evidencing the
            Warrants be validly issued, fully paid and non-assessable; and no
            preemptive rights of stockholders exist with respect to any shares
            of Common Stock or the issue or sale thereof.

                        (iii) Except as described in or contemplated by the
            Prospectus, to the knowledge of such counsel, there are no
            outstanding securities of the Company convertible or exchangeable
            into or evidencing the right to purchase or subscribe for any shares
            of capital stock of the Company and there are no outstanding or
            authorized options, warrants or rights of any character obligating
            the Company to issue any shares of its capital stock or any
            securities convertible or exchangeable into or evidencing the right
            to purchase or subscribe for any shares of such stock; and except as
            described in the Prospectus, to the knowledge of such counsel, no
            holder of any securities of the Company or any person other than the
            Representative has the right, contractual or otherwise, which has
            not been satisfied or effectively waived, to cause the Company to
            sell or otherwise issue to them, or to permit them to underwrite the
            sale of, any shares of Common Stock or the right to have any Common
            Stock or other securities of the Company included in the
            Registration Statement or the right, as a result of the filing of
            the Registration Statement, to require registration under the Act of
            any shares of Common Stock or other securities of the Company.

                        (iv) The Registration Statement has become effective
            under the Act and, to the knowledge of such counsel no stop order
            proceedings with respect thereto have been instituted or are pending
            or threatened under the Act.











                                      -13-


<PAGE>   14

                        (v) The Registration Statement, the Prospectus and each
            amendment or supplement thereto and document incorporated by
            reference therein comply as to form in all material respects with
            the requirements of the Act and the applicable rules and regulations
            thereunder (except that such counsel need express no opinion as to
            the financial statements and related schedules therein).

                        (vi) The statements under the captions "Description of
            Securities" and "Shares Eligible for Future Sale" in the Prospectus,
            insofar as such statements constitute a summary of documents
            referred to therein or matters of law, fairly summarize in all
            material respects the information called for with respect to such
            documents and matters.

                        (vii) Such counsel does not know of any contracts or
            documents required to be filed as exhibits to the Registration
            Statement or described in the Registration Statement or the
            Prospectus which are not so filed or described as required, and such
            contracts, and summaries of documents in the Registration Statement
            and the Prospectus, are accurate in all material respects.

                        (viii) Such counsel knows of no material legal or
            governmental proceedings pending or threatened against the Company
            except as set forth in the Prospectus.

                        (ix) The execution and delivery of this Agreement and
            the consummation of the transactions herein contemplated do not and
            will not conflict with or result in a breach of any of the terms or
            provisions of, or constitute a default under, the Certificate of
            Incorporation or By-Laws of the Company, or any agreement or
            instrument known to such counsel to which the Company is a party or
            by which the Company may be bound.

                        (x) This Agreement has been duly authorized, executed
            and delivered by the Company.

                        (xi) No approval, consent, order, authorization,
            designation, declaration or filing by or with any regulatory,
            administrative or other governmental body is necessary in connection
            with the execution and delivery of this Agreement and the
            consummation of the transactions herein contemplated (other than as
            may be required by the NASD or as required by State securities and
            Blue Sky laws as to which such counsel need express no opinion)
            except such as have been obtained or made, specifying the same.

                        (xii) The Company is not, and will not become, as a
            result of the consummation of the transactions contemplated by this
            Agreement, and application of the net proceeds therefrom as
            described in the Prospectus, required to register as an investment
            company under the 1940 Act.

            In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act),
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or







                                      -14-

<PAGE>   15

necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel in each instance need express no view as to financial statements,
schedules and statistical information therein). With respect to such statement,
Gray Cary Ware & Freidenrich may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification
and without responsibility for the contents of the Registration Statement or
Prospectus, except as set forth in such opinion.

            (c) The Representative shall have received from Piper & Marbury
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (ii), (iii), (iv) and (x) of Paragraph (b) of this Section 6,
and that the Company is a duly organized and validly existing corporation under
the laws of the State of Delaware. In rendering such opinion, Piper & Marbury
L.L.P. may rely as to all matters governed other than by the laws of the State
of Delaware or Federal laws on the opinion of counsel referred to in Paragraph
(b) of this Section 6. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became effective under
the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Piper &
Marbury L.L.P. may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.

            (d) The Representative shall have received at or prior to the
Closing Date from Piper & Marbury L.L.P. a memorandum or summary, in form and
substance satisfactory to the Representative, with respect to the qualification
for offering and sale by the Underwriters of the Common Stock and Warrants under
the State securities or Blue Sky laws of such jurisdictions as the
Representative may reasonably have designated to the Company.

            (e) The Representative shall have received, on each of the dates
hereof, the Closing Date and the Option Closing Date, as the case may be, a
letter dated the date hereof, the Closing Date or the Option Closing Date, as
the case may be, in form and substance satisfactory to the Representative, of
Ernst & Young LLP confirming that they are independent public accountants within
the meaning of the Act and the applicable published Rules and Regulations
thereunder and stating that in their opinion the financial statements and
schedules examined by them and included in the Registration Statement comply in
form in all material respects with the applicable accounting










                                      -15-

<PAGE>   16

requirements of the Act and the related published Rules and Regulations; and
containing such other statements and information as is ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the financial
statements and certain financial and statistical information contained in the
Registration Statement and Prospectus.

            (f) The Representative shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates
executed on behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to the effect that, as of the Closing Date or
the Option Closing Date, as the case may be:

                         (i) The Registration Statement has become effective
            under the Act and no stop order suspending the effectiveness of the
            Registration Statement has been issued, and no proceedings for such
            purpose have been taken or are, to his knowledge, contemplated by
            the Commission;

                        (ii) The representations and warranties of the Company
            contained in Section 1 hereof are true and correct as of the Closing
            Date or the Option Closing Date, as the case may be;

                        (iii)  All filings required to have been made pursuant
            to Rules 424 or 430A under the Act have been made;

                        (iv) He or she has carefully examined the Registration
            Statement and the Prospectus and, in his or her opinion, as of the
            effective date of the Registration Statement, the statements
            contained in the Registration Statement were true and correct, and
            such Registration Statement and Prospectus did not omit to state a
            material fact required to be stated therein or necessary in order to
            make the statements therein not misleading, and since the effective
            date of the Registration Statement, no event has occurred which
            should have been set forth in a supplement to or an amendment of the
            Prospectus which has not been so set forth in such supplement or
            amendment; and

                        (v) Since the respective dates as of which information
            is given in the Registration Statement and Prospectus, there has not
            been any material adverse change or any development involving a
            prospective material adverse change in or affecting the condition,
            financial or otherwise, of the Company or the earnings, business,
            management, properties, assets, rights, operations, condition
            (financial or otherwise) or prospects of the Company, whether or not
            arising in the ordinary course of business, other than operating
            losses reasonably to be anticipated in light of the disclosures
            contained in the Registration Statement.

            (g) The Company shall have furnished to the Representative such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representative may reasonably have requested.

            (h) The Firm Securities and Option Securities, if any, have been
approved for designation upon notice of issuance on the Nasdaq Small Cap Market.











                                      -16-

<PAGE>   17


            (i) The Lockup Agreements described in Section 3 (m) have been
delivered and are in full force and effect.

            The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representative and to Piper & Marbury
L.L.P., counsel for the Underwriters.

            If any of the conditions in this Section 6 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, the
obligations of the Underwriters hereunder may be terminated by the
Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.

            In such event, the Company and the Underwriters shall not be under
any obligation to each other (except to the extent provided in Sections 5 and 8
hereof).

7.          CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.

            The obligations of the Company to sell and deliver the Common Stock
and Warrants to be delivered as and when specified in this Agreement are subject
to the conditions that at the Closing Date or the Option Closing Date, as the
case may be, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and in effect or proceedings therefor initiated
or threatened.

8.          INDEMNIFICATION.

            (a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Common Stock and Warrants, whether or not such
Underwriter or controlling person is a party to any action or proceeding;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, (i) in reliance upon and in
conformity with written information furnished to the Company by or through the
Representative specifically for use in the preparation thereof, or (ii) which
was corrected in an amendment or supplement thereto subsequently filed, the
prior uncorrected version thereof not having been distributed by the









                                      -17-

<PAGE>   18

Representative. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.

            (b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse on demand any legal or other expenses reasonably incurred by the
Company or any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representative
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.

            (c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying







                                      -18-

<PAGE>   19

party shall have failed to assume the defense and employ counsel acceptable to
the indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section 8(a) and
by the Company in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action or proceeding of which indemnification may be sought hereunder (whether
or not any indemnified party is an actual or potential party to such claim,
action or proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action or proceeding.

            (d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Common Stock
and Warrants. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.

            The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or










                                      -19-

<PAGE>   20

liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the shares of
Common Stock and Warrants purchased by such Underwriter, and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.

            (e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.

            (f) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Common Stock and/or Warrants and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
8.

9.          DEFAULT BY UNDERWRITERS.

            If on the Closing Date or the Option Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the Common
Stock and/or Warrants which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of the
Company), you, as Representative of the Underwriters, shall use your reasonable
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company such amounts as may be
agreed upon and upon the terms set forth herein, the Firm Securities or Option
Securities, as the case may be, which the defaulting Underwriter or Underwriters
failed to purchase. If during such 36 hours you, as such Representative, shall
not have procured such other Underwriters, or any others, to purchase the Firm
Securities or Option Securities, as the case may be, agreed to be purchased by
the defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares of Common Stock or Warrants with respect to which such default shall
occur does not exceed 10% respectively of the Firm Shares or Firm Warrants, or
of the Option Shares or Option Warrants, as the case may be,










                                      -20-
<PAGE>   21

covered hereby, the other Underwriters shall be obligated, severally, in
proportion to the respective numbers of Firm Securities or Option Securities, as
the case may be, which they are obligated to purchase hereunder, to purchase the
Firm Securities or Option Securities, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the 10% limitation in
clause (a) is exceeded, the Company or you as the Representative of the
Underwriters will have the right, by written notice given within the next
36-hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriters or of the
Company except to the extent provided in Section 8 hereof. In the event of a
default by any Underwriter or Underwriters, as set forth in this Section 9, the
Closing Date or Option Closing Date, as the case may be, may be postponed for
such period, not exceeding seven days, as you, as Representative, may determine
in order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.

10.         NOTICES.

            All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: If to the Underwriters, to SouthWall Capital Corp, 110
Wall Street, 15th Floor, New York, New York 10005, with a copy to Piper &
Marbury L.L.P., attention: Robinson Markel, Esq., 1251 Avenue of the Americas,
1251 Avenue of the Americas, New York, New York 10020-1104; if to the Company,
to C2i Solutions, Inc., attention: President, 4747 Morena Boulevard, Suite 101,
San Diego, California 92117, with a copy to Gray Cary Ware & Freidenrich,
attention: Douglas J. Rein, Esq., 4365 Executive Drive, Suite 1600, San Diego,
California 92121-2189. Any of the parties just identified may change its address
to which communications hereunder are to be directed, by communicating notice of
the address change in the manner set forth above, which notice shall be
effective upon receipt.

11.         TERMINATION.

            This Agreement may be terminated by you by notice to the Company as
follows:

            (a) at any time prior to the earlier of (i) the time the Firm Shares
and Firm Warrants are released by you for sale by notice to the Underwriters, or
(ii) 11:30 a.m. on the first business day following the date of this Agreement;

            (b) at any time prior to the Closing Date if any of the following
has occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not arising in the ordinary
course of business; (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such







                                      -21-

<PAGE>   22

outbreak, escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your reasonable judgment, make
it impracticable to market the Common Stock or Warrants or to enforce contracts
for the sale thereof; (iii) suspension of trading in securities generally on the
New York Stock Exchange or the American Stock Exchange or limitation on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such Exchange; (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company;
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) the suspension by the Commission of trading in the Common
Stock or (vii) the taking of any action by any governmental body or agency in
respect of its monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States; or

            (c)  as provided in Sections 6 and 9 of this Agreement.

12.         SUCCESSORS.

            This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any shares of Common Stock or Warrants
from any Underwriter shall be deemed a successor or assign merely because of
such purchase.

13.         INFORMATION PROVIDED BY UNDERWRITERS.

            The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.

14.         MISCELLANEOUS.

            The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Common Stock
and Warrants under this Agreement.

            This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

            This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.








                                      -22-
<PAGE>   23


            If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.

                                          Very truly yours,

                                          C2I SOLUTIONS, INC.


                                          By ________________________________
                                             President


The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written.

SOUTHWALL CAPITAL CORP.

____________________________________

____________________________________


As Representative[s] of the several
Underwriters listed on Schedule I


By:_________________________________
   Authorized Officer






















                                      -23-
<PAGE>   24

                                   SCHEDULE I



                            SCHEDULE OF UNDERWRITERS



                                                       Number of Firm Shares
                                                        and Firm Warrants
Underwriter                                              to be Purchased

SouthWall Capital Corp.

















                                                         __________

                          Total                          __________





                                      -24-


<PAGE>   1
                                                                     EXHIBIT 1.2

                                WARRANT AGREEMENT

                                 BY AND BETWEEN

                               C2i SOLUTIONS, INC.

                                       AND

                             SOUTHWALL CAPITAL CORP.

                        DATED AS OF _________ __, 199[8]


<PAGE>   2
                                WARRANT AGREEMENT


            WARRANT AGREEMENT dated as of ___________ __, 199[8] by and between
C2i SOLUTIONS, INC., a Delawarecorporation (the "Company"), and SOUTHWALL
CAPITAL CORP. (the "Representative") (the Company and the Representative are
referred to collectively herein as the "Parties").


            The Company proposes to issue to the Representative warrants as
hereinafter described (the "Warrants") to purchase up to an aggregate of 100,000
shares of the Company's Common Stock, $0.001 par value per share (the "Common
Stock"), subject to adjustment as provided in Section 8 hereof (such 100,000
shares, as adjusted, being hereinafter referred to as the "Shares"), each
warrant entitling the holder ("Holder") thereof to purchase one Common Share.
All capitalized terms used herein and not otherwise defined herein shall have
the same meanings as in that certain underwriting agreement, of even date
herewith, by and between the Company and the Representative (the "Underwriting
Agreement").

            NOW, THEREFORE, in consideration of the following promises and
mutual agreements and for other good and valuable consideration, the Parties
agree as follows:

            1. ISSUANCE OF WARRANTS; FORM OF WARRANT. On the Closing Date the
Company will issue, sell and deliver the Warrants to the Representative or its
bona fide officers for an aggregate price of $100. The Warrants shall be issued
to the Representative or such designees in the amounts set forth on Schedule I
attached hereto. The form of the Warrant and of the form of election to purchase
Shares to be attached thereto shall be substantially as set forth on Exhibit A
attached hereto. The Warrants shall be executed on behalf of the Company by the
manual or facsimile signature of the present or any future President or any Vice
President of the Company, under its corporate seal, affixed or in facsimile, and
attested by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of the Company. The Representative and each
other Holder, severally and not jointly, represents and warrants to the Company
that (i) such Holder is acquiring the Warrants, and any Shares acquired upon
exercise of any Warrants, for such Holder's own account and not with a view to,
or for sale in connection with, any distribution of the Warrants or any shares
of Common Stock, unless such distribution is registered or exempt from
registration under the Securities Act of 1933, as amended (the "Act"), and any
applicable state and foreign securities or blue sky laws and (ii) such Holder is
aware that the Warrants and the Shares have not been registered under the Act or
the securities or blue sky laws of any state or other jurisdiction, and that the
Warrants may not be exercised and the Warrants and the Shares may not be resold
(and the Holder covenants not to resell them) unless they are registered under
applicable Federal and state securities laws or unless exemptions from all such
applicable registration requirements are available, and that the Warrants and
the Shares will be legended to indicate the foregoing restrictions.

            2. REGISTRATION. The Warrants shall be numbered and shall be
registered in a Warrant register (the "Warrant Register"). The Company shall be
entitled to treat the registered holder of any Warrant on the Warrant Register
as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the




                                       1

<PAGE>   3

part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or are to be registered in the name of
a fiduciary or the nominee of a fiduciary. The Warrants shall be registered
initially in the name of the Representative in such denominations as the
Representative may request in writing from the Company; provided, however, that
the Representative may designate that all or a portion of the Warrants be issued
in varying amounts directly to its bona fide officers and not to the
Representative. Such designation will only be made by the Representative if it
determines that such issuances would not violate the interpretation of the Board
of Governors of the National Association of Securities Dealers, Inc. (the
"NASD"), relating to the review of corporate financing arrangements.


            3. TRANSFER OF WARRANTS. The Warrants will not be sold, transferred,
assigned or hypothecated, in part or in whole, prior to the first anniversary of
the effective date of the Registration Statement (the "Effective Date"), and
thereafter only to bona fide officers, directors, shareholders, employees or
registered representatives of the Representative or of securities broker-dealers
that participated in the Offering, upon written request to the Company
(including a certificate of the Holder that the transferee is a permitted
transferee under this Section 3) delivered in accordance with Section 12 hereof
and upon delivery of the Warrant Certificate to the Company with the form of
assignment at the end thereof duly endorsed by the Holder or by its duly
authorized attorney or representative. In all cases of transfer by an attorney,
the original power of attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited with the Company. In case of transfer by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the persons
entitled thereto. Any of the Warrants may be exchanged at the option of its
Holder for other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock upon surrender of the Warrants to the Company or its duly
authorized agent. The Company may require payment of a sum sufficient to cover
all taxes and other governmental charges that may be imposed in connection with
any transfer, exchange or other disposition of the Warrants or Shares. However,
the Company shall have no obligation to cause Warrants or Shares to be
transferred on its books to any person, if such transfer would violate the Act,
the rules and regulations promulgated thereunder (the "Rules and Regulations")
or applicable state securities laws, rules and regulations.


            4. TERM OF WARRANTS; EXERCISE OF WARRANTS.


               (a) TERM OF WARRANTS. Each Warrant entitles the registered owner
thereof to purchase one fully paid and nonassessable Share at a purchase price
of $[7.50] per Share (as adjusted from time to time pursuant to the provisions
hereof, the "Exercise Price") at any time from the first anniversary of the
Effective Date until 5:00 p.m., New York City time, on _________ __, 200[2] (the
"Warrant Expiration Date").

               (b) EXERCISE OF WARRANTS. The Exercise Price and the Shares 
issuable upon exercise of Warrants are subject to adjustment upon the occurrence
of certain events, pursuant to the provisions of Section 8 of this Agreement.
Subject to the provisions of this Agreement, and in addition to the right to
surrender Warrants without any cash payment as set forth in subsection (c)
below, each Holder shall have the right, which may be exercised as set forth in
such Warrants, to 


                                       2
<PAGE>   4

purchase from the Company (and the Company shall issue and sell to such Holder)
the number of fully-paid and nonassessable Shares specified in such Warrants,
upon surrender to the Company, or its duly authorized agent, of such Warrants,
with the form of election to purchase attached thereto duly completed and
signed, with signatures guaranteed by a member firm of a national securities
exchange, a commercial bank (not a savings bank or savings and loan association)
or trust company located in the United States or a member of the NASD and upon
payment to the Company of the Exercise Price, as adjusted in accordance with the
provisions of Section 8 of this Agreement, for the number of Shares in respect
of which such Warrants are then exercised and upon compliance with the
requirements of the Act, the Rules and Regulations and applicable state
securities laws, rules and regulations. No adjustment shall be made for any cash
dividends paid to shareholders of record before the date on which the Warrants
are exercised. Upon each surrender of Warrants, payment of the Exercise Price
and compliance with the requirements of the Act, the Rules and Regulations and
applicable state securities laws, rules and regulations, the Company shall issue
and cause to be delivered with all reasonable dispatch, but in no event later
than seven (7) trading days following such surrender, to or (subject to Section
3) upon the written order of the Holder of such Warrants and (subject to Section
3) in such name or names as such Holder may designate, a certificate or
certificates for the number of full Shares so purchased upon the exercise of
such Warrants, together with cash, as provided in Section 9 of this Agreement,
in respect of any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such Shares as of the date of the surrender of Warrants, payment of
the Exercise Price and compliance with the requirements of the Act, the Rules
and Regulations and applicable state securities laws, rules and regulations as
aforesaid; provided, however, that if, at the date of surrender of such
Warrants, the transfer books for the Common Stock or other class of securities
issuable upon the exercise of such Warrants shall be closed, the certificates
for the Shares shall be issuable as of the date on which such books shall next
be opened (whether before, on or after the Warrant Expiration Date) and until
such date the Company shall be under no duty to deliver any certificate for such
Shares; provided, further, however, that the transfer books of record, unless
otherwise required by law, shall not be closed at any one time for a period
longer than twenty (20) days. The rights of purchase represented by the Warrants
shall be exercisable, at the election of the Holder(s) thereof, either in full
or from time to time in part and, in the event that any Warrant is exercised in
respect of less than all of the Shares issuable upon such exercise at any time
prior to the Warrant Expiration Date, a new Warrant or Warrants will be issued
for the remaining number of Shares specified in the Warrant so surrendered.

               (c) PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price may
be made in cash, by wire transfer of immediately available funds or by certified
check or official bank check payable to the order of the Company.

               (d) CASHLESS EXERCISE. In lieu of any cash payment, the Holder of
the Warrants shall have the right at any time and from time to time to exercise
the Warrants in full or in part by surrendering the Warrants in exchange for the
number of Shares equal to the product of (x) the number of shares as to which
the Warrants are being exercised multiplied by (y) a fraction, the numerator of
which is the Market Price (as defined in Section 8(d) below) of the Shares less
the Exercise Price and the denominator of which is the Market Price of the
Shares.


                                       3

<PAGE>   5

            5. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the issuance of Shares upon the exercise of
Warrants; provided, however, that the Company shall not be required to pay any
taxes payable in respect of any transfer involved in the issue or delivery of
any certificates for Shares in a name other than that of the Holder of Warrants
in respect of which such Shares are issued, which taxes shall be paid by the
Holder.


            6. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall
be mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence reasonably satisfactory to the Company of ownership of
such Warrant and of such mutilation, loss, theft or destruction of such Warrant
and indemnity and affidavit of loss, if requested, reasonably satisfactory to
the Company. An applicant for such substitute Warrants shall also comply with
such other reasonable regulations and pay such other reasonable charges and
expenses as the Company may prescribe.


            7. RESERVATION OF SHARES, ETC. The Company has reserved, and shall
at all times keep reserved, out of the authorized and unissued shares of Common
Stock, a number of shares sufficient to provide for the exercise of the rights
of purchase represented by the outstanding Warrants. The transfer agent for the
Common Stock and any transfer agent for the Company's securities issuable upon
the exercise of the Warrants ("Transfer Agent") will be irrevocably authorized
and directed at all times until the Warrant Expiration Date to reserve such
number of authorized and unissued shares as shall be required for such purpose.
The Company will keep a copy of this Agreement on file with each Transfer Agent.
The Company will supply each Transfer Agent with duly executed certificates for
such purpose and will itself provide or make available any cash distributable as
provided in Section 9 of this Agreement. All Warrants surrendered in the
exercise in compliance with this Agreement of the rights thereby evidenced shall
be canceled, and such canceled Warrants shall constitute sufficient evidence of
the number of Shares that are issuable upon the exercise of such Warrants. No
shares of Common Stock shall be subject to reservation in respect of unexercised
Warrants after the Warrant Expiration Date.


            8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES. The Exercise
Price and the number and kind of securities issuable upon exercise of each
Warrant shall be subject to adjustment from time to time upon the happening of
certain events, as follows:


               (a) If the Company (i) declares a dividend on its Common Stock in
Common Stock or makes a distribution to all holders of its Common Stock in
Common Stock without charge to such holders, (ii) subdivides its outstanding
Common Stock, (iii) combines its outstanding Common Stock into a smaller number
of Common Stock or (iv) issues by reclassification of its Common Stock other
securities of the Company (including any such reclassification in connection
with a consolidation or merger in which the Company is the surviving entity, but
excluding those referred to in paragraph (b) below), the number and kind of
shares of Common Stock purchasable upon exercise of each Warrant immediately
prior thereto shall be adjusted so that the Holder of each Warrant shall be
entitled to receive the kind and number of shares of Common Stock or other
securities of the Company which such Holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such Warrant been exercised immediately prior to the happening of such event
or any 


                                       4
<PAGE>   6

record date with respect thereto. Such adjustment shall be made whenever any of
the events listed above shall occur. An adjustment made pursuant to this
paragraph (a) shall become effective immediately after the effective date of
such event retroactive to immediately after the record date, if any, for such
event.

               (b) If the Company issues rights, options or warrants to all 
holders of its Common Stock, without any charge to such holders, entitling them
to subscribe for or to purchase shares of Common Stock at a price per share
lower than the then current Market Price per Common Share at the record date
mentioned below (as defined in paragraph (d) below), the Holders of unexercised
Warrants as of such record date, upon exercise of such Warrants, shall receive
the same rights, options or warrants which such Holder would have received or
have been entitled to receive after such issuance, had such Warrants been
exercised immediately prior to such issuance or any record date with respect
thereto. Such adjustment shall be made whenever such rights, options or warrants
are issued as described above, and shall become effective retroactively to
immediately after the record date for the determination of shareholders entitled
to receive such rights, options or warrants.

               (c) If the Company distributes to all holders of its Common 
Stock, without any charge to such holders, shares of its stock other than Common
Stock or evidences of its indebtedness or assets (excluding cash dividends and
dividends or distributions referred to in paragraph (a) or (b) above) or rights,
options or warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock (excluding those
referred to in paragraph (a) or (b) above), then in each case the Holders of
unexercised Warrants as of the record date mentioned below, upon exercise of
such warrants, shall receive the same distribution which such Holder would have
received or have been entitled to receive after such distribution, had such
Warrants been exercised immediately prior to such distribution or any record
date with respect thereto. Such adjustment shall be made whenever any such
distribution is made as described above, and shall become effective on the date
of distribution retroactive to immediately after the record date for the
determination of shareholders entitled to receive such distribution.

               (d) For the purpose of any computation under paragraph (b) of 
this Section 8, the current "Market Price" per Common Share at any date shall be
the average of the daily closing prices for fifteen (15) consecutive trading
days commencing twenty (20) trading days before the date of such computation.
The closing price for each day shall be the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average of the
closing bid and asked prices regular way for such day, in either case on the
principal national securities exchange on which the shares are listed or
admitted to trading, or if they are not listed or admitted to trading on any
national securities exchange, but are traded in the over-the-counter market, the
closing sale price of the Common Stock or, in case no sale is publicly reported,
the average of the representative closing bid and asked quotations for the
Common Stock on The Nasdaq National or SmallCap Market or any comparable system,
or if the Common Stock is not listed on The Nasdaq Stock Market or a comparable
system, the closing sale price of the Common Stock or, in case no sale is
publicly reported, the average of the closing bid and asked prices as furnished
by two members of the NASD selected from time to time by the Company for that
purpose.

               (e) No adjustment in the number of Shares purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one percent 



                                       5
<PAGE>   7

(1%) in the number of Shares purchasable upon the exercise of each Warrant;
provided, however, that any adjustments which by reason of this paragraph (e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment but not later than three (3) years after the happening
of the specified event or events. All calculations shall be made to the nearest
one thousandth of a share.

               (f) Whenever the number of Shares purchasable upon exercise of
each Warrant is adjusted, as herein provided, the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of Shares
purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of shares so
purchasable immediately thereafter.

               (g) For the purpose of this Section 8, the term "Common Stock"
shall mean (i) the class of stock designated as the Common Stock of the Company
at the date of this Agreement or (ii) any other class of stock resulting from
successive changes or reclassifications of such shares consisting solely of
changes in par value, or from no par value to par value, or from par value to no
par value. If at any time, as a result of an adjustment made pursuant to
paragraph (a) above, the Holders become entitled to purchase any shares of
capital stock of the Company other than Common Stock, thereafter the number of
such other shares so purchasable upon exercise of each Warrant and the Exercise
Price of such shares shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in paragraphs (a) through (f), inclusive, and
paragraphs (h) through (m), inclusive, of this Section 8, and the provisions of
Sections 4, 5, 7 and 10 hereof, with respect to the Shares, shall apply on like
terms to any such other shares.

               (h) Upon the expiration of any rights, options, warrants or
conversion rights or exchange privileges that caused adjustments under this
Section 8, such adjustments with respect to any Warrants that have not been
exercised shall, upon such expiration, be readjusted and shall thereafter be
such as they would have been had such rights, options, warrants or conversion
rights or exchange privileges never existed.

               (i) The Company may, at its option at any time during the term of
the Warrants, reduce the then current Exercise Price to any amount deemed
appropriate by the Board of Directors of the Company.

               (j) Whenever the number of Shares issuable upon the exercise of
each Warrant or the Exercise Price of such Shares is adjusted, as herein
provided, the Company shall promptly mail by first class-mail, postage prepaid,
to each Holder notice of such adjustment or adjustments. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the Holder to whom the Company failed to mail such
notice or whose notice was defective. A certificate of an officer of the
Company, on behalf of the Company, that such notice has been mailed shall be
prima facie evidence of the facts stated therein. After any such adjustment, the
Company shall prepare a certificate setting forth the number of Shares issuable
upon the exercise of each Warrant and the Exercise Price of such Warrant after
such adjustment, setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall, except as provided below, be conclusive as
to the correctness of such adjustment and each Holder shall have the right to
inspect such certificate during reasonable business hours. Any 


                                       6
<PAGE>   8

determination as to whether an adjustment is required pursuant to this Section
8, or as to the amount of any such adjustment, shall be initially made in good
faith by the Board of Directors of the Company. If the Holders of a majority of
the then outstanding Warrants shall, in the exercise of their discretion, object
to such determination, the amount of such adjustment shall be made by an
independent accounting or investment banking firm selected by the Holders of a
majority of the then outstanding Warrants and reasonably acceptable to the
Company.

               (k) Except as provided in this Section 8, no adjustment in
respect of any dividends shall be made during the term of a arrant or upon the
exercise of a Warrant.

               (l) If the Company consolidates with or merges into another
corporation or if the Company sells or conveys all or substantially all its
property to another corporation, or if the Company enters into a statutory share
exchange with another Company pursuant to which its Common Stock is exchanged
for, or changed into, securities or property of another Company, the Company or
such successor or purchasing corporation (or an affiliate of such successor or
purchasing corporation), as the case may be, agrees that each Holder shall have
the right thereafter upon payment of the Exercise Price in effect immediately
prior to such action to purchase upon exercise of each Warrant the kind and
amount of shares and other securities and property (including cash) which such
Holder would have owned or been entitled to receive after the happening of the
consolidation, merger, sale, conveyance or share exchange had such Warrant been
exercised immediately prior to such action. The provisions of this paragraph (l)
shall apply to successive consolidations, mergers, sales, conveyances or share
exchanges.

               (m) Notwithstanding any adjustment in the Exercise Price or the
number or kind of shares purchasable upon the exercise of the Warrants pursuant
to this Agreement, certificates for Warrants issued prior or subsequent to such
adjustment may continue to express the same price and number and kind of shares
as are initially issuable pursuant to this Agreement.


            9. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractions of Shares on the exercise of Warrants. If more than one Warrant
is presented for exercise in full at the same time by the same Holder, the
number of Shares issuable upon the exercise thereof shall be computed on the
basis of the aggregate number of Shares issuable on exercise of the Warrants so
presented. If any fraction of a Share would, except for the provisions of this
Section 9, be issuable on the exercise of any Warrants (or specified portions
thereof), the Company shall purchase such fraction for an amount in cash equal
to the same fraction of the current Market Price per share of Common Stock
(determined as provided in Section 8(d) of this Agreement) on the date of
exercise.


            10. REGISTRATION RIGHTS.

               (a) DEMAND REGISTRATION RIGHTS.

                  (i) The Company covenants and agrees with the Representative
         and any other or subsequent Holders of the Registrable Securities (as
         defined in paragraph (f) of this Section 10) that, upon the written
         request of the then Holder(s) of Warrants, Registrable Securities, or
         both, representing at least a majority of the shares of Common Stock
         underlying the Warrants originally issued to the Representative or its
         designees, made at any time within the period 

                                       7
<PAGE>   9

         commencing one (1) year and ending five (5) years after the Effective
         Date, the Company will file as promptly as practicable and, in any
         event, within 60 days after receipt of such written request, at its
         expense (other than (x) all underwriters', broker-dealers', placement
         agents' and similar selling discounts, commissions and fees relating to
         the sale of the Holder's Registrable Shares, (y) any costs and expenses
         of counsel, accountants or other advisors retained by the Holder and
         (z) all transfer, franchise, capital stock and other taxes, if any,
         applicable to the Holder's Registrable Shares (collectively, "Holders'
         Expenses"), all of which shall be paid by the Holder(s)), no more than
         once (except as otherwise provided below), a post-effective amendment
         (the "Amendment") to the Company's Registration Statement on Form S-1,
         Registration No. 333------ as filed with the Securities and Exchange
         Commission on November 4, 1997, or a new registration statement on an
         appropriate form under the Act, registering or qualifying the
         Registrable Securities for sale in accordance with the intended method
         of sale or other disposition described in such request. Within fifteen
         (15) days after receiving any such notice, the Company shall give
         notice to the other Holders of the outstanding Warrants or Registrable
         Securities advising that the Company is proceeding with such Amendment
         or registration statement and offering to include the Registrable
         Securities of such Holders. The Company shall not be obligated to any
         other such Holder unless that other Holder accepts such offer by notice
         in writing to the Company within twenty (20) days thereafter. The
         Company will use its best efforts, through its officers, directors,
         auditors and counsel in all matters necessary or advisable, to file and
         cause such Amendment or registration statement to become effective as
         promptly as practicable (but in any event within 90 days of the initial
         filing of such Amendment or registration statement) and for a period of
         12 months thereafter to reflect in the Amendment or registration
         statement financial statements which are prepared in accordance with
         Section 10(a)(3) of the Act and any facts or events arising that,
         individually, or in the aggregate, represent a fundamental or material
         change in the information set forth in the Amendment or registration
         statement to enable Holders of the Registrable Securities registered to
         sell such Registrable Securities. If any registration pursuant to this
         paragraph (a) is an underwritten offering, the Holders of a majority of
         the Registrable Securities to be included in such registration shall be
         entitled to select the underwriter or managing underwriter (in the case
         of a syndicated offering) of such offering, subject to the Company's
         approval (not to be unreasonably withheld.)

                  (ii) Anything in this Section 10(a) to the contrary
         notwithstanding, if the Company's securities proposed to be registered
         for sale are to be distributed in an underwritten offering and the
         managing underwriter shall advise the Company in writing that, in its
         opinion, the amount of securities to be offered should be limited in
         order to assure a successful offering, the amount of Registrable Shares
         to be included in such Amendment or registration statement shall be so
         limited and shall be allocated among the persons selling such
         securities in the following order of priority: (1) first to be
         registered will be the securities subject to any demand or piggyback
         registration rights granted by the Company before the Effective Date,
         (2) next to be registered will be the Registrable Shares in proportion,
         as nearly as practicable, to the number of Registrable Shares desired
         and eligible to be sold by each Holder of such Registrable Shares and
         (3) next to be registered will be any other shares of Common Stock
         subject to similar demand or piggyback registration rights granted by
         the Company in proportion, as nearly as practicable, to the number of
         shares of Common Stock desired and eligible to be sold by 

                                       8
<PAGE>   10


         each holder of such Common Stock. In the event that, (x) pursuant to
         the preceding sentence, the managing underwriter limits the number of
         Registrable Shares that the Holders desire to have registered, and (y)
         the Company does not thereafter effect a registration to include the
         Registrable Shares that the Holders were not then permitted to sell
         within 180 days after the effective date of the Amendment or
         registration statement from which the Holders have been excluded, then,
         at any time after such 180-day period until the period ending five
         years after the Effective Date, the Holders of a majority of such
         Registrable Securities not so included may make a request to the
         Company for registration under the Act of all or part of such
         Registrable Securities not so included in accordance with Section
         10(a)(ii).

                  (iii) Notwithstanding anything in this Section 10(a) to the
         contrary, the Company will not be required to file an Amendment or
         registration statement (i) at a time when the audited financial
         statements required to be included therein are not available, which
         time shall be limited to the period commencing 135 days after the end
         of the Company's third quarter and ending 90 days after the end of such
         fiscal year, or (ii) for the period beginning with the filing of a
         registration statement under the Act with respect to a public offering
         by the Company of its securities and ending 180 days after the closing
         of such public offering, or (iii) if in the reasonable opinion of the
         Company it would adversely impact the Company in its capital raising
         plans or otherwise (in which latter case filing may be delayed for up
         to 135 days).

         (b) PIGGYBACK REGISTRATION RIGHTS. The Company covenants and agrees
with the Representative and any other Holders or subsequent Holders of the
Registrable Securities that if, at any time within the period commencing one (1)
year and ending five (5) years after the Effective Date, it proposes to file a
new registration statement with respect to the public sale of Common Stock for
cash (other than in connection with an offering to the Company's employees, an
acquisition, merger or similar transaction, an employee benefit plan, an
exchange offer or a dividend reinvestment plan) under the Act in a primary
registration on behalf of the Company and/or in a secondary registration on
behalf of holders of such securities and the registration form to be used may be
used for registration of the Registrable Securities, the Company will give
written notice at least 30 days prior to the date by which holders of the
Registrable Securities must elect to participate in the registration of
securities to the Holders of Warrants or Registrable Securities (regardless
whether some of the Holders have theretofore availed themselves of the right
provided in Section 10(a) of this Agreement) at the addresses appearing on the
records of the Company of its intention to file a registration statement and
will offer to use its reasonable efforts to include in such registration
statement any of the Registrable Securities, subject to paragraphs (i) and (ii)
of this paragraph (b), such number of Registrable Securities with respect to
which the Company has received written requests for inclusion therein within
twenty (20) days after the giving of notice by the Company. All registrations
requested pursuant to this paragraph (b) are referred to herein as "Piggyback
Registrations". All Piggyback Registrations pursuant to this paragraph (b) will
be made solely at the Company expense, except 




                                       9

<PAGE>   11

for the Holders' Expenses, which shall be paid by the Holder. If the securities
or blue sky laws of any jurisdiction in which the securities so registered are
proposed to be offered would require the Holder's payment of greater
registration expenses than those otherwise required by this Section 10 and if
the Company shall determine, in good faith, that the offering of such securities
in such jurisdiction is necessary for the successful consummation of the
registered offering, then the Holder shall either agree to pay the portion of
the registration expenses required by the securities or blue sky laws of such
jurisdiction to be paid by the Holder or withdraw his request for inclusion of
his Registrable Shares in such registration.

                  (i) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
            Registration is part of an underwritten primary registration for the
            Company, and the managing underwriter(s) for such offering advise(s)
            the Company in writing that, in its opinion, the amount of
            securities to be offered should be limited in order to assure a
            successful offering, the amount of Registrable Shares to be included
            in such registration statement shall be so limited and shall be
            allocated among the persons selling such securities in the following
            order of priority: (1) first to be registered will be the securities
            the Company proposes to sell, (2) next to be registered will be the
            securities subject to any demand or other piggyback registration
            rights granted by the Company before the Effective Date, (3) next to
            be registered will be the Registrable Shares in proportion, as
            nearly as practicable, to the number of Registrable Shares desired
            and eligible to be sold by each Holder of such Registrable Shares
            and (4) next to be registered will be any other shares of Common
            Stock subject to similar demand or piggyback registration rights
            granted by the Company in proportion, as nearly as practicable, to
            the number of shares of Common Stock desired and eligible to be sold
            by each holder of such shares of Common Stock.

                  (ii) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
            Registration is part of an underwritten secondary registration for
            holders of securities of the Company (other than pursuant to Section
            10(a)) and not a primary registration for the Company, and the
            managing underwriter(s) for such offering advise(s) the Company in
            writing that, in its opinion, the amount of securities to be offered
            should be limited in order to assure a successful offering, the
            amount of Registrable Shares to be included in such registration
            statement shall be so limited and shall be allocated among the
            persons selling such securities in the following order of priority:
            (1) first to be registered will be the securities subject to any
            demand or other piggyback registration rights granted by the Company
            before the Effective Date, (2) next to be registered will be the
            Registrable Shares in proportion, as nearly as practicable, to the
            number of Registrable Shares desired and eligible to be sold by each
            Holder of such Registrable Shares and (3) next to be registered will
            be any other shares of Common Stock subject to similar demand or
            piggyback registration rights granted by the Company in proportion,
            as nearly as practicable, to the number of shares of Common Stock
            desired and eligible to be sold by each holder of such shares of
            Common Stock.


         Notwithstanding the provisions of this Section 10(b), the Company
shall have the right at any time and for any reason or for no reason after it
shall have given written notice pursuant to 



                                       10
<PAGE>   12

this Section 10(b) (irrespective of whether a written request for inclusion of
any such securities has been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but before the
effective date thereof and, thereupon, shall be relieved from its obligation to
proceed with such registration. If any registration pursuant to this paragraph
(b) is an underwritten offering, the Company shall be entitled to select the
underwriter or managing underwriter(s) (in the case of a syndicated offering) of
such offering.

            (c) OTHER REGISTRATION RIGHTS. In addition to the rights above
provided, during the period commencing one (1) year and ending five (5) years
after the Effective Date, the Company will cooperate with the then Holders of
the Registrable Securities in preparing and signing one (but not more than one)
registration statement, in addition to the registration statements discussed
above, required in order to sell or transfer the Registrable Securities and will
supply all information required therefor, but the then Holders shall pay the
costs and expenses of such additional registration (including all of the
Company's reasonable out-of-pocket costs and expenses); provided, however, that
if the Company elects to register or qualify additional shares of Common Stock,
the cost and expense of such registration statement will be pro rated between
the Company and the Holders of the Registrable Securities according to the
aggregate sales price of the securities being issued. However, the Company will
not be required to file a registration statement pursuant to this paragraph
(c)(i) at a time when the audited financial statements required to be included
therein are not available, which time shall be limited to the period commencing
135 days after the end of the Company's third quarter and ending 90 days after
the end of such fiscal year, or (ii) for the period beginning with the filing of
a registration statement under the Act with respect to a public offering by the
Company of its securities and ending 180 days after the closing of such public
offering, or (iii) if in the reasonable opinion of the Company it would
adversely impact the Company in its capital raising plans or otherwise (in which
latter case filing may be delayed for up to 135 days).

            (d) ACTION TO BE TAKEN BY THE COMPANY. In connection with the
registration of Registrable Securities in accordance with paragraphs (a), (b) or
(c) of this Section 10, the Company agrees to:

                  (i) Bear the expenses of any registration or qualification
            under paragraphs (a) or (b) of this Section 10, including, but not
            limited to, legal, accounting and printing fees; provided, however,
            that in no event shall the Company be obligated to pay any of the
            Holders' Expenses, which shall be paid by the Holders; and

                  (ii) Use its reasonable efforts to register or qualify the
            Registrable Securities included in an Amendment or registration
            statement for offer or sale under state securities or Blue Sky laws
            of such jurisdictions in which the Underwriters or such Holders
            shall reasonably request and do all other acts or things necessary
            or advisable to effect the registration or qualification of the
            Registrable Securities covered by such Amendment or registration
            statement in the various states; provided, however, that no
            registration or qualification shall be required in any jurisdiction
            where, as a result thereof, the Company would be subject to service
            of general process, to taxation as a foreign corporation doing
            business in such jurisdiction, to any requirement that it qualify
            generally to do business as a foreign corporation in such
            jurisdiction, or to any requirement that it 


                                       11
<PAGE>   13

            agree to restrictions on future actions by the Company to which it 
            is not then subject.

            (e) ACTION TO BE TAKEN BY THE HOLDERS. Any written request to
exercise registration rights pursuant to paragraphs (a) or (b) of this Section
10 shall contain, as applicable, (i) a description of the proposed plan of
distribution of the Registrable Securities, including the name of any
underwriters, the amounts underwritten and any material relationship between any
proposed underwriter and the Company, (ii) the full name and address of the
Holder, the number of Warrants, Registrable Securities and other securities of
the Company owned by such Holder and the number proposed to be registered and
(iii) a description of any position, office, or other material relationship
which the Holder has had within the past three years with the Company or any of
its predecessors or affiliates.

            In addition, in connection with the registration of Registrable
Securities in accordance with paragraphs (a), (b) or (c) of this Section 10, the
Company's obligation shall be conditioned as to each such public offering upon a
timely receipt by the Company in writing of:

                  (i) Information as to participating Holders (to the extent
            required by the Rules and Regulations) and the terms of such public
            offering furnished by or on behalf of each Holder intending to make
            a public offering of such Holder's Registrable Securities;

                  (ii) Such other information as the Company may reasonably
            require from such Holders, or any underwriter for any of them, for
            inclusion in such Registration Statement; and

                  (iii) All documents reasonably requested by any underwriter in
            connection with the offering and any other documents customary in
            similar offerings, signed and delivered by such Holder, including,
            without limitation, underwriting agreements, custody agreements,
            powers of attorney, indemnification agreements, and agreements
            restricting other sales of securities.

            (f) For purposes of this Section 10, (i) the term "Holder" shall
include holders of Registrable Shares received upon exercise of Warrants (but
excluding a holder all of whose Registrable Shares could be sold in reliance
upon the exemption from registration under the Act afforded by Rule 144), and
(ii) the term "Registrable Securities" shall mean the Shares, if issued (but
excluding Shares already sold on a public market), until five years after the
Effective Date.

            (g) The Holders agree that, upon receipt of any notice from the
Company of the happening of any of the following: (i) the issuance by the
Securities and Exchange Commission of any stop order denying or suspending the
effectiveness of any Amendment or registration statement covering Registrable
Shares or the initiation or threatening of any proceeding for that purpose, (ii)
the Company's receipt of any stop order denying registration or suspending the
qualification of the Registrable Securities for sale or the initiation or
threatening of any proceeding for such purpose or (iii) the happening of any
event that makes any statement made in such Amendment or registration statement,
the related prospectus or any document incorporated by reference therein untrue
or that requires any change in such Amendment or registration statement,
prospectus or document incorporated by reference therein to make the 



                                       12
<PAGE>   14

statements not include an untrue statement of material fact or not omit any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, the Holders
shall discontinue the disposition of Registrable Securities until the Holders
receive a supplemental or amended prospectus from the Company or until the
Company advises such Holders in writing that the Holders may resume the use of
such prospectus, and have received copies of any additional or supplemental
filings which are incorporated by reference in the prospectus. If the Company so
directs, such Holders will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in the Holders' possession, of the
prospectus covering the Registrable Securities at the time the Holders received
the notice. Upon the occurrence of such event, the Company shall immediately
take such action, by amendment or otherwise, as may be necessary in order that
the ability to resume sale of the Registrable Securities and the use of such
prospectus is promptly restored.

         11. NOTICES TO HOLDERS.

            (a) Nothing in this Agreement or in any Warrants shall be construed
as conferring upon the Holders the right to vote or to receive dividends or to
consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of directors of the Company or any other matter, or
any rights whatsoever as shareholders of the Company prior to the exercise
hereof and such Holder becoming a holder of record of Shares; provided, however,
that in the event that any meeting of shareholders shall be called, the Company
shall cause a notice thereof to be sent by first-class mail, postage prepaid, at
least twenty (20) days prior to the date fixed as a record date or the date of
closing the transfer books in relation to such meeting, to each registered
Holder of Warrants at such Holder's address appearing on the Warrant Register.

            (b) If the Company intends to make any distribution on its shares of
Common Stock (or other securities which may be issuable in lieu thereof upon the
exercise of Warrants), including, without limitation, any such distribution to
be made in connection with a consolidation or merger in which the Company is the
surviving entity, or to issue subscription rights or warrants to holders of its
shares of Common Stock, the Company shall cause a notice of its intention to
make such distribution to be sent by first-class mail, postage prepaid, at least
twenty (20) days prior to the date fixed as a record date or the date of closing
the transfer books in relation to such distribution, to each registered Holder
of Warrants at such Holder's address appearing on the Warrant Register, but
failure to mail or to receive such notice or any defect therein or in the
mailing thereof shall not affect the validity of any action taken in connection
with such distribution.

         12. NOTICES. Any notice pursuant to this Agreement to be given by
the Holder of any Warrant or the holder of any Share to the Company shall be
sufficiently given or made three business days after sent by first-class mail,
postage prepaid, addressed as follows or to such other address as the Company
may designate by notice given in accordance with this Section 12, to the Holders
of Warrants or the holders of Shares:

                              C2i Solutions, Inc.
                              4747 Morena Boulevard, Suite 101
                              San Diego, California 92117
                              Attention: John Anthony Whalen, Jr., President



                                       13
<PAGE>   15

            Notices or demands authorized by this Agreement to be given or made
by the Company to or on the Holder of any Warrant or the holder of any Share
shall be sufficiently given or made (except as otherwise provided in this
Agreement) if sent by first-class mail, postage prepaid, addressed to such
Holder or such holder of Shares at the address of such Holder or such holder of
Shares as shown on the Warrant Register or the books of the Company, as the case
may be.

            13. SECURITIES LAW RESTRICTIONS. (1) The Holder acknowledges that
the Warrant and the shares to be issued upon exercise thereof are being acquired
solely for the Holder's own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell, transfer, assign
or otherwise dispose of this Warrant or any of those shares except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended (the "Act"), or any state securities laws. Upon exercise of this
Warrant, the Holder shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the shares issuable upon its exercise are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
Any certificate evidencing a Warrant or shares issued upon exercise of a Warrant
may be stamped or imprinted with legends setting forth the restrictions on
transfer arising under applicable federal and state securities laws.

            14. GOVERNING LAW. This Agreement and each Warrant issued hereunder
shall be governed by and construed in accordance with the substantive laws of
the State of New York. The Company hereby agrees to accept service of process by
notice given to it pursuant to the provisions of Section 12 hereof.

            15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
such counterparts together shall constitute one and the same instrument.

            IN WITNESS WHEREOF, the Parties have caused this Agreement to be
duly executed as of the day, month and year first above written.



                                           C2I SOLUTIONS, INC.



                                           By:
                                              ----------------------------------
                                              Its:
                                                  ------------------------------


                                           SOUTHWALL CAPITAL CORP.



                                           By:
                                              ----------------------------------
                                              Its:
                                                  ------------------------------


                                       14



<PAGE>   16




                                   SCHEDULE I


<TABLE>
<CAPTION>
NAME OF
INITIAL HOLDER                                                    NUMBER OF
- --------------                                                    WARRANTS
                                                                  ---------
<S>                                                                <C>    
SouthWall Capital Corp.                                            100,000

            Total                                                  100,000

</TABLE>





                                       i


<PAGE>   17



                                    EXHIBIT A

                                 FORM OF WARRANT

THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION IS AVAILABLE AND AN
OPINION OF COUNSEL TO SUCH EFFECT REASONABLY ACCEPTABLE TO THE ISSUER IS
DELIVERED.


      Void after 5:00 p.m. New York, New York Time, on _______ __, 200[2].

                               WARRANT TO PURCHASE
                                    SHARES OF
                                  COMMON STOCK

                                       OF

                               C2i SOLUTIONS, INC.


            This is to certify that, FOR VALUE RECEIVED, SOUTHWALL CAPITAL CORP.
or its registered assigns pursuant to Section (d) hereof ("Holder"), is entitled
to purchase, subject to the provisions of this Warrant, from C2i SOLUTIONS,
INC., a Delaware corporation (the "Company"), 100,000 fully paid, validly issued
and nonassessable shares of Common Stock, par value $.001 per share ("Common
Stock"), at the exercise price of $[7.50] per share until _______ __, 200[2].
The number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for each share of Common Stock are subject to
adjustment from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares," and the exercise price
for a share of Common Stock, as adjusted from time to time, is hereinafter
sometimes referred to as the "Exercise Price."

            (a) EXERCISE OF WARRANT. The Warrant may be exercised in whole or in
part at any time or from time to time commencing on _________ __, 199[8] and
continuing until 5:00 P.M. New York time on ________ __, 200[2] (the "Expiration
Date"), provided, however, that if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day. The Warrant may be
exercised by presentation and surrender to the Company at its principal office,
or at the office of its stock transfer agent, if any, with the Purchase Form
annexed hereto, duly executed (with signature guaranteed if required by the
Company or, if any, its stock transfer agent) and accompanied by payment of the
Exercise Price for the number of Warrant Shares specified in such form and any
applicable taxes. The purchase price 



                                       1
<PAGE>   18

for any Warrant Shares purchased pursuant to the exercise of this Warrant shall
be paid in full upon such exercise in cash, by certified or bank check or by
wire transfer of immediately available funds. Alternatively, this Warrant may be
exchanged for Warrant Shares as described in Section (k) hereof. As soon as
practicable after each such exercise of this Warrant, but not later than seven
(7) business days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or the
Holder's designee (subject to the terms of this Warrant). If the Warrant should
be exercised in part only, the Company shall, upon surrender of the Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of the Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
together with the exercise price thereof and taxes as aforesaid in cash, by
certified or bank check or by wire transfer of immediately available funds and
the investment letter described below, the Holder shall be deemed to be the
holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
physically delivered to the Holder. Each stock certificate so delivered shall be
in such denomination as may be reasonably requested by the Holder hereof and
shall be registered in the name of the Holder or such other name as shall be
designated by the Holder (subject to the terms of this Warrant). The Company
shall pay all expenses, taxes and other charges payable in connection with the
preparation, execution and delivery of stock certificates pursuant to this
Section (a), except that, in case such stock certificates shall be registered in
a name or names other than the name of the Holder of this Warrant, funds
sufficient to pay all stock transfer taxes which shall be payable upon the
execution and delivery of such stock certificate or certificates shall be paid
by the Holder hereof to the Company.

            In order to assure the availability of an exemption from
registration under the federal or applicable state securities laws, the Company
may condition the exercise of this Warrant upon the Holder delivering to the
Company an investment letter in the form as customarily used by the Company from
time to time in connection with the exercise of unregistered options and
warrants issued by the Company. It is further understood that certificates for
the Warrant Shares, if any, to be issued upon exercise of the Warrant may
contain a restrictive legend in accordance with Section (j) hereof.

            (b) RESERVATION OF SHARES. The Company shall at all times reserve
for issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall be required for issuance and delivery upon exercise
of this Warrant.

            (c) FRACTIONAL SHARES. Fractional shares or scrip representing
fractional shares may be issued upon the exercise of this Warrant.
Alternatively, the Company may, at its option, with respect to any fraction of a
share issuable upon any exercise hereof, pay to the Holder an amount in cash
equal to such fraction multiplied by the greater of (i) the initial Exercise
Price per share or (ii) the current market value of the shares of the Company's
Common Stock. The "current market value" of a share of Common Stock for this
purpose shall be the average of the daily closing prices for fifteen (15)
consecutive trading days 


                                       2
<PAGE>   19

commencing twenty (20) trading days before the date of such computation. The
closing price for each day shall be the last reported sale price regular way or,
in case no such reported sale takes place on such day, the average of the
closing bid and asked prices regular way for such day, in either case on the
principal national securities exchange on which the shares are listed or
admitted to trading, or if they are not listed or admitted to trading on any
national securities exchange, but are traded in the over-the-counter market, the
closing sale price of the Common Stock or, in case no sale is publicly reported,
the average of the representative closing bid and asked quotations for the
Common Stock on The Nasdaq National or SmallCap Market or any comparable system,
or if the Common Stock is not listed on The Nasdaq Stock Market or a comparable
system, the closing sale price of the Common Stock or, in case no sale is
publicly reported, the average of the closing bid and asked prices as furnished
by two members of the NASD selected from time to time by the Company for that
purpose.

            (d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant
is exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for a number (reasonably requested by the Holder) of Warrants of
lesser denominations entitling the Holder thereof to purchase in the aggregate
the same number of shares of Common Stock purchasable hereunder. Subject to
Section (j) hereof, the Holder may transfer or assign this Warrant, in whole or
in part and from time to time. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed (with signature guaranteed, if
required by the Company or its stock transfer agent) and funds sufficient to pay
any transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee or assignees named in such instrument of
assignment and this Warrant shall promptly be canceled. This Warrant may be
divided into or combined with other Warrants which carry the same rights upon
presentation at the principal office of the Company or at the office of its
stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants into
which this Warrant may be divided or exchanged, and the term "Holder" includes
any subsequent holder or holders of this Warrant or any warrant for which this
Warrant is exchanged or into which it is divided. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and in the case of loss, theft or destruction, of reasonable
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor, date and amount. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not the original Warrant shall be at any time enforceable by anyone.

            (e) RIGHTS OF THE HOLDER. Subject to the provisions of Section (l),
the Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or equity (including, without
limitation, any rights to dividends) and the rights of the Holder with respect
to the shares of Common Stock purchasable pursuant to this Warrant 


                                       3


<PAGE>   20

are limited to those expressed in the Warrant and are not enforceable against
the Company except to the extent set forth herein.

            (f) ANTI-DILUTION PROVISIONS. So long as this Warrant shall be
outstanding, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as provided in
the Warrant Agreement of even date herewith ("Warrant Agreement") pursuant to
which this Warrant was issued.

            (g) REGISTRATION RIGHTS. The Company shall register Warrant Shares
under the Securities Act of 1933 in accordance with the provisions of the
Warrant Agreement.

            (h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall declare any dividend or make any
distribution upon the Common Stock, or (ii) if the Company shall generally offer
to the holders of the Common Stock, whether or not pursuant to any holders'
right of first refusal with respect to the purchase of new securities issued by
the Company, for subscription or purchase by them any shares of any class of the
Company's capital stock or any other rights to purchase shares of the Company's
capital stock, or (iii) if the Company proposes to register under the Securities
Act of 1933, as amended, any shares of its Common Stock pursuant to one or more
demand, piggyback or incidental registration rights granted to its stockholders,
or (iv) if any capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder of this Warrant, at least 30 days prior to the date
specified in (x), (y) or (z) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or offer
for subscription or purchase, (y) such reorganization, reclassification,
consolidation, merger, sale, lease, transfer, dissolution, liquidation or
winding up is to take place and the date, if any is to be fixed, as of which the
holders of the Common Stock or other capital stock of the Company shall receive
cash or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up, or
(z) the date by which holders of the Warrant Shares must elect to exercise their
right to participate in the registration of securities pursuant to clause (iii)
above, or purchase securities by the Company pursuant to the offering referred
to in clause (ii) above.

            (i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, conversion or capital reorganization of outstanding shares of
the Common Stock of the Company, or in case of any consolidation or merger of
the Company with or into another corporation (other than a merger with another
corporation in which merger the Company is the continuing corporation and which
does not result in any reclassification or capital reorganization of outstanding
shares of Common Stock of the Company issuable upon exercise of this Warrant) or
in case of any sale, lease or conveyance to another corporation of 



                                       4
<PAGE>   21

the property of the Company substantially as an entirety, the Company shall, as
a condition precedent to such transaction, cause effective provisions to be made
so that the Holder shall have the right thereafter by exercising this Warrant at
any time prior to the expiration of this Warrant, to purchase the kind and
amount of shares of stock and other securities and property receivable upon such
reclassification or capital reorganization and consolidation, merger, sale or
conveyance which would have been deliverable to the Holder of this Warrant on
the effective date of the reclassification, reorganization or merger had the
Holder exercised the Warrant immediately prior to the event described in this
Section (i). Any such provision shall include provision for subsequent
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section (i) shall similarly apply to successive reclassifications or capital
reorganizations of shares of the Common Stock and to successive consolidations,
mergers, sales or conveyances. In the event that in connection with any such
capital reorganization or reclassification, consolidation, merger, sale or
conveyance, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of paragraph (1) of Section (f) hereof.

            (j) SECURITIES LAW COMPLIANCE.

                (1) The Holder of this Warrant, by acceptance hereof,
                acknowledges that this Warrant and the Warrant Shares to be
                issued upon exercise hereof are being acquired solely for the
                Holder's own account and not as a nominee for any other party,
                and for investment, and that the Holder will not offer, sell,
                transfer, assign or otherwise dispose of this Warrant or any
                Warrant Shares to be issued upon exercise hereof except under
                circumstances that will not result in a violation of the
                Securities Act of 1933, as amended (the "Act"), or any state
                securities laws. Upon exercise of this Warrant, the Holder
                shall, if requested by the Company, confirm in writing, in a
                form satisfactory to the Company, that the shares of Common
                Stock so purchased are being acquired solely for the Holder's
                own account and not as a nominee for any other party, for
                investment, and not with a view toward distribution or resale.

                (2) If deemed necessary by counsel to the Company, this Warrant,
                and all Warrant Shares issued upon exercise hereof shall be
                stamped or imprinted with legends setting forth the restrictions
                on transfer arising under applicable federal and state
                securities laws.

            (k) CASHLESS EXERCISE OF WARRANT.

                (1) RIGHT TO CONVERT. As an alternative to payment of the
                Exercise Price in cash, the Holder shall have the right at any
                time and from time to time to convert this Warrant into shares
                of Common Stock (the "Conversion Right"). Upon exercise of the
                Conversion Right, the Company shall deliver to the Holder
                (without payment by the Holder of any Exercise Price or of any
                other cash or other consideration) that number of shares of
                Common Stock which is 

                                       5
<PAGE>   22


                equal to the product of (x) the number of shares as to which the
                Warrants are being exercised multiplied by (y) a fraction, the
                numerator of which is the current market price of that number of
                shares less the Exercise Price and the denominator of which is
                the current market price of that number of shares. For purposes
                hereof, the current market value of the shares of the Company's
                Common Stock shall be determined in accordance with Section (c)
                hereof.

                (2) METHOD OF EXERCISE. The Conversion Right may be exercised by
                the Holder by the surrender of this Warrant at the principal
                office of the Company together with a written statement
                specifying that the Holder thereby intends to exercise the
                Conversion Right. Certificates for the shares of Common Stock
                issuable upon exercise of the Conversion Right, together with a
                replacement Warrant evidencing the unconverted balance, shall be
                delivered to the Holder within five (5) days following the
                Company's receipt of this Warrant together with the aforesaid
                written statement.

            (l) REPRESENTATIONS OF THE HOLDER.

                (i) The Holder hereby represents and warrants to the Company
                that it has substantial knowledge, skill and experience in
                making investment decisions of the type represented by this
                Warrant and the Warrant Shares, it is capable of evaluating the
                risk of its investment in this Warrant and the Warrant Shares
                and is able to bear the economic risk of such investment,
                including the risk of losing the entire investment, that it is
                acquiring this Warrant and the Warrant Shares for its own
                account, and that this Warrant and the Warrant Shares are being
                acquired by it for investment and not with a present view to any
                distribution thereof in violation of applicable securities law.
                If the Holder should in the future decide to dispose of any of
                this Warrant and the Warrant Shares, it is understood that it
                may do so only in compliance with the Act and appliance state
                securities laws. The Holder represents and warrants that it is
                an "accredited investor" as defined in Rule 501(a) under the
                Act.

                (ii) The Holder understands that (i) this Warrant and the
                Warrant Shares have not been registered under the Act by reason
                of their issuance in a transaction exempt from the registration
                requirements of the Act, (ii) this Warrant and the Warrant
                Shares must be held indefinitely unless a subsequent disposition
                thereof is registered under the Act and applicable state
                securities laws or is exempt from such registrations (and
                evidence satisfactory to the Company is provided by such Holder
                of the availability of such exemptions, including the delivery
                to the Company of opinions of counsel to such Holder, which
                opinions and counsel is satisfactory to the Company), and (iii)
                this Warrant and the Warrant Shares may bear a legend to such
                effect.

            (m) AMENDMENTS. Neither the Warrant nor any term hereof may be
changed, waived, discharged or terminated without the prior written consent of
the Holder.



                                       6
<PAGE>   23

            (n) NO IMPAIRMENT. The Company will not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of any
Holder.

            (o) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York.

            (p) NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, addressed (a) if to the Holder; to SouthWall Capital Corp., 110
Wall Street, New York, New York 10005, Attention: President, or (b) if to the
Company, to C2i Solutions, Inc., 4747 Morena Boulevard, Suite 101, San Diego,
California 92117, Attention: John Anthony Whalen, Jr., President and Chief
Executive Officer, or at such other address as the Company shall have furnished
to the Holder in writing.

            IN WITNESS WHEREOF, C2i Solutions, Inc. has caused this Warrant to
be executed by its officer thereunto duly authorized.

Dated:  _________ __, 199[7]

                                              C2i SOLUTIONS, INC.

                                              By:
                                                 -------------------------------
                                              Name: John Anthony Whalen, Jr.
                                              Title: President and Chief 
                                                     Executive Officer


                                       7
<PAGE>   24



                                  PURCHASE FORM

            Dated _____________, ____ The undersigned hereby irrevocably elects
to exercise its rights pursuant to this Warrant to the extent of purchasing
________________ shares of Common Stock of C2i Solutions, Inc., and hereby makes
payment of $________________, in cash, in payment of the exercise price thereof.

                                       OR

            The undersigned hereby irrevocably elects to exercise its rights
pursuant to this Warrant to the extent of converting this Warrant (or the
appropriate portion thereof as the case may be) into ______________ shares of
Common Stock.


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


                     INSTRUCTIONS FOR REGISTRATION OF STOCK

Name
- --------------------------------------------------------------------------------
                  (Please typewrite or print in block letters)

Address
- --------------------------------------------------------------------------------

Signature
- --------------------------------------------------------------------------------


                                       8


<PAGE>   25



                                 ASSIGNMENT FORM


            FOR VALUE RECEIVED, ______________________________________ hereby
sells, assigns and transfers unto

Name
- --------------------------------------------------------------------------------
                  (Please typewrite or print in block letters)

Address
- --------------------------------------------------------------------------------

the right to purchase Common Stock of C2i Solutions, Inc. (the "Company"),
represented by this Warrant to the extent of __________ shares as to which such
right is exercisable and does hereby irrevocably constitute and appoint as
Attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.

Date________________, ___

Signature__________________________________




                                       9

<PAGE>   1

                                                                    EXHIBIT 1.3



                               SERVICES AGREEMENT

                                     PARTIES


This Services Agreement ("Agreement") is made by and among SOUTHWALL CAPITAL
CORP., a New York corporation ("SouthWall"), C2i SOLUTIONS, INC., a Delaware
corporation ("C2i") and the following individuals who are officers, directors
and principal shareholders of C2i: John Anthony Whelan, Jr. ("Whelan"), Frank J.
Vukmanik ("Vukmanik"), Clyde Wooten ("Wooten"), Konrad Witt ("Witt"), Diane E.
Hessler ("Hessler"), Hal H. Beretz ("Beretz"), Kim P. Goh ("Goh") and David
Tendler ("Tendler"). Whelan, Vukmanik, Wooten and Witt are sometimes
collectively referred to below as "Principals," and the Principals together with
Hessler, Beretz, Goh and Tendler collectively as "Shareholders."

                                     RECITAL

SouthWall and C2i have entered into an Underwriting Agreement relating to the
offering ("OFFERING") by C2i of 1,000,000 shares of its Common Stock and
1,000,000 redeemable warrants to purchase shares of Common Stock. C2i wishes to
avail itself of certain services that SouthWall is able to provide, and
SouthWall wishes to obtain preferential rights with respect to certain future
securities offerings by C2i and the Shareholders.

                                   AGREEMENTS


A.  CONSULTING SERVICES.


    1.  NATURE OF SERVICES. SouthWall shall render investment banking and
        financial consulting services ("Services") to C2i during the term set
        forth below. The Services shall include:

        a.  rendering strategic and financial advice in connection with any
            future proposed financing transactions;

        b.  strategic and financial advice in connection with any future
            proposed business combination transactions or joint ventures,
            including, if required, identification and introduction of potential
            counterparties;

        c.  initiation of strategic business initiatives; and

        d.  such other services as the Company may reasonably request.








                                       1

<PAGE>   2



    2.  TIME AND PERSONNEL. SouthWall shall devote such amounts of time as are
        reasonably required to the performance of the Services, and shall make
        available qualified personnel for their performance.

    3.  COMPENSATION. As compensation for the services described in the
        preceding paragraph, SouthWall shall be entitled to a fee of $3,000 per
        month payable on the first business day (meaning a day on which banks in
        New York City are open for the regular transaction of business) of each
        month included in the term in which the Services are to be provided. In
        addition, should SouthWall introduce to C2i the counterparty to a
        business combination or joint venture transaction consummated by the
        Company, it shall be entitled to a finder's fee computed according to
        $1,000,000 (or fraction) increments in the value of consideration
        involved in the transaction as follows: 5% of the first increment, 4% of
        the second, 3% of the third, 2% of the fourth, and 1% of the fifth and
        any additional increments (or fractions). The finder's fee shall be
        payable at the closing of the transaction..

B.  UNDERWRITING SERVICES.

    1.  OBLIGATION. Should the Company, or any one or more of the Principals,
        determine to offer securities issued by the Company to the public in a
        transaction requiring registration of the offering under the Securities
        Act of 1933, as amended ("ACT"), such determination being made at any
        time on or prior to the third anniversary of the effective date of the
        registration statement under the Act relating to the Offering, The
        Company or Principal(s) (as the case may be) shall offer SouthWall the
        opportunity to serve as underwriter with respect to each offering thus
        proposed to be made, subject in all respects to the provisions of
        paragraph 2 of this section B.

    2.  TERMS.

        a.  INITIAL NOTICE. The Company, and/or each Principal proposing to make
            the offering, shall notify SouthWall in writing (an "Initial
            Notice"), stating the type and quantity of securities proposed to be
            offered.

        b.  NOTICE OF ACCEPTANCE. If SouthWall wishes to act as underwriter with
            respect to the proposed offering, it shall deliver a written notice
            of acceptance to each person from whom it received an Initial Notice
            within 30 days after its receipt thereof. The notice of acceptance
            shall be accompanied by SouthWall's proposed underwriting letter of
            intent in customary form, setting forth the terms and conditions it
            proposes for the offering.

        c.  TERMINATION PAYMENT. Should SouthWall comply in all respects with
            the provisions of clauses a. and b. of this paragraph ERROR!
            REFERENCE SOURCE NOT FOUND., and should the person(s) giving the
            Initial Notice nonetheless determine to use the services of an
            underwriter other than SouthWall in









                                       2

<PAGE>   3

            connection with the proposed offering, those person(s) shall, prior
            to signing a letter of intent or similar document looking toward
            such a transaction, pay SouthWall the sum of $35,000 ("Termination
            Payment") as consideration for the termination of the obligation
            under paragraph 1 of this section B.. If the initial notice was
            given by more than one person, each shall be responsible for the
            payment of a portion of the Termination Payment pro rata according
            to the percentage of the total number of Company-issued securities
            specified in the Initial Notice given by each.

        d.  EFFECT OF PAYMENT, Upon receipt of the full amount of the
            Termination Payment, the provisions of this section B shall become
            null and void and without further effect, as to both the offering
            that was the subject of the Initial Notice and any subsequent
            offerings by the Company and the Principals of Company-issued
            securities.

        e.  EFFECT OF LATE ACCEPTANCE. A notice of acceptance given after the
            time limited in clause b. of this paragraph 2 shall be deemed a
            rejection of the offer contained in the Initial Notice.

C.  BROKER/DEALER SERVICES.

    1.  OBLIGATION. Should any of the Shareholders determine to offer securities
        issued by the Company to the public in a transaction not requiring
        registration under the Act (each such individual making such
        determination a "Selling Shareholder"), including a transaction ("Rule
        144 Sale") exempt from such registration by reason of Rule 144
        promulgated under the Act ("Rule 144"), such determination being made at
        any time on or prior to the fourth anniversary of the effective date of
        the registration statement under the Act relating to the Offering, that
        Selling Shareholder shall offer SouthWall the opportunity to act, at its
        election, as broker with respect to the proposed transaction, or as
        dealer purchasing the offered securities for its own account, subject in
        all respects to the provisions of paragraph 2 of this section C.

    2.  TERMS.

        a.  SALE NOTICE. Each Shareholder shall notify SouthWall in writing
            ("Sale Notice") promptly after making the determination to sell any
            Company-issued securities. Each Sale Notice shall state the type and
            quantity of securities proposed to be sold, the price at which the
            Selling Shareholder proposes to sell them if not at market price,
            and the exemption from registration under the Act upon which the
            Selling Shareholder proposes to rely, if any. If the Selling
            Shareholder has received a bona fide proposal from a broker or
            dealer other than SouthWall relating to the securities proposed to
            be sold, the Sale Notice shall specify the securities pricing and
            other relevant terms of that proposal.








                                       3

<PAGE>   4


        b.  EXCEPTION. If (i) the provisions of this section C would require two
            or more Selling Shareholders to give a Sale Notice relating to a
            Rule 144 Sale, and (ii) in the opinion of legal counsel to any such
            Selling Shareholder, those Selling Shareholders would (solely by
            reason of complying with the obligation imposed by paragraph 1 of
            this section C) be deemed "acting in concert" within the meaning of
            that phrase as used in paragraph (e)(3)(vi) of Rule 144, and (iii)
            the quantity limit applicable to the proposed sale under paragraph
            (e) of Rule 144 would be lower than the aggregate number of
            securities proposed to be sold by all such Selling Shareholders,
            none of those Selling Shareholders shall be obligated to give a Sale
            Notice or otherwise to comply with the provisions of this section C
            in respect of the proposed sale.

        c.  NOTICE OF ACCEPTANCE. If SouthWall wishes to act as broker or dealer
            with respect to the proposed offering, it shall deliver by verified
            facsimile transmission or electronic mail a notice of acceptance to
            each person from whom it received a Sale Notice within one business
            day (that is, a day on which banks in New York City are open for the
            regular transaction of business) after its receipt thereof. The text
            of the notice of acceptance shall contain SouthWall's proposal for
            the securities pricing and other relevant terms on which it proposes
            to act as broker or dealer. If the terms proposed in the notice of
            acceptance are at least as favorable to the Selling Shareholder as
            the alternative terms of the bona fide proposal from another broker
            or dealer specified in the Sale Notice, or if the Sale Notice
            specified no such alternative terms, the Selling Shareholder shall
            sell the securities that were the subject of the Sale Notice to or
            through SouthWall as proposed in the Sale Notice.

        d.  EFFECT OF LATE ACCEPTANCE. A notice of acceptance given after the
            time limited in clause c. of this paragraph 3 shall be deemed a
            rejection of the offer contained in the Sale Notice.

D.  MISCELLANEOUS.

    1.  NOTICES. All notices and other communications given under this Agreement
        shall be in writing unless otherwise specified, and shall be effective
        only upon receipt. The address used for any notice shall be as specified
        below each signature, or to another address of which the person
        addressed has given notice to the Company or of which the Company has
        given notice to all the Principals, as the case may be.

    2.  ENTIRE AGREEMENT. This Agreement is the parties' entire agreement
        relating to its subject matter. It supersedes all prior agreements,
        written or oral, relating to that subject matter.

    3.  MODIFICATION AND WAIVER. This Agreement may be amended, modified,
        superseded, canceled, renewed or extended, and the terms and conditions
        of this











                                       4
<PAGE>   5


        Agreement may be waived, only by a written instrument signed by all
        parties or, in the case of a waiver, the party waiving compliance.

    4.  GOVERNING LAW. This Agreement shall be governed and construed in
        accordance with the laws of the State of New York applicable to
        agreements made and to be performed entirely within that State.

    5.  NO ASSIGNMENT. This Agreement is not assignable except by operation of
        law.

    6.  COUNTERPARTS. This Agreement may be executed in two or more
        counterparts, each of which shall be deemed an original but all of which
        together shall constitute one and the same instrument.

IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of each of
the undersigned on and as of January __, 1998.

                                   SIGNATURES

SOUTHWALL CAPITAL CORP.                    C2i SOLUTIONS, INC

By                                         By
  --------------------------                 --------------------------
Its                                        Its
   -------------------------                  -------------------------

Address: 110 Wall Street                   Address: 4747 Morena Boulevard
         New York, New York 10005                  San Diego, California 92117
Telephone: (212) 785-7222                  Telephone: (619) 490-1555
Facsimile: (212) 785-8388                  Facsimile: (619) 490-1563
e-mail: [email protected]                e-mail:



- ----------------------------               ----------------------------
John Anthony Whelan, Jr.                   Diane E. Hessler
Address:                                   Address:

Telephone:                                 Telephone:
Facsimile:                                 Facsimile:
e-mail:                                    e-mail:



- ----------------------------               ----------------------------
Frank J. Vukmanik                          David Tendler
Address:                                   Address:

Telephone:                                 Telephone:
Facsimile:                                 Facsimile:
e-mail:                                    e-mail:











                                       5

<PAGE>   6


- ----------------------------               ----------------------------
Kim P. Goh                                 Hal H. Beretz
Address:                                   Address:

Telephone:                                 Telephone:
Facsimile:                                 Facsimile:
e-mail:                                    e-mail:



- ----------------------------
Clyde Wooten
Address:

Telephone:
Facsimile:
e-mail:






















                                       6




<PAGE>   1
                                                                     EXHIBIT 4.1

                                WARRANT AGREEMENT



            THIS WARRANT AGREEMENT is entered into as of December __, 1997, by
and between C2i Solutions, Inc., a Delaware corporation (the "Company"), and
American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent")
with respect to the following facts:

            A. The Company may issue up to 1,150,000 Redeemable Warrants (the
"Warrants") in connection with a public offering of up to 1,150,000 shares of
the Company's Common Stock, $.001 par value (the "Common Stock") and 1,150,000
Warrants pursuant to an underwriting agreement (the "Underwriting Agreement")
dated December __, 1997, between the Company and SouthWall Capital Corp.
("SouthWall").

            B. Each Warrant initially entitles the Registered Holder thereof to
purchase one share of Common Stock.

            C. The Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the Registered Holders thereof.

            NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:

            SECTION 1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:

                (a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage.

                (b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 40 Wall
Street, New York, New York 10005.

                (c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duty executed by the
Registered Holder thereof or his attorney duly authorized in writing, and (b)
payment in cash, or by official bank or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price.


                                       1
<PAGE>   2


                (d) "Initial Warrant Exercise Date" shall mean December __,
1998.

                (e) "Purchase Price" shall mean the purchase price to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $        , subject to adjustment from time to time pursuant to the
provisions of Section 9 hereof, and subject to the Company's right to reduce the
Purchase Price for all of the outstanding Warrants for all or a portion of the
remaining period prior to the Warrant Expiration Date upon notice to all
Registered Holders of Warrants.

                (f) "Redemption Price" shall mean the price at which the Company
may, at its option in accordance with the terms hereof, redeem the Warrants,
which price shall be $0.01 per Warrant.

                (g) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.

                (h) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.

                (i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on the earlier of (i) December __, 2002 or, (ii) the Redemption Date (as
defined in Section 8), provided that if such date shall in the State of New York
be a holiday or a day on which banks are authorized or required to close, then
5:00 p.m. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized or required to
close. Upon notice to all Registered Holders, the Company shall have the right
to extend the Warrant Expiration Date.

            SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.

                (a) A Warrant initially shall entitle the Registered Holder of
the Warrant Certificate representing such Warrant to purchase one share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.

                (b) The Warrants will immediately be separately transferable
from the shares of Common Stock sold with such Warrants in the public offering.

                (c) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President, Chairman or a Vice
President and by its Secretary or an Assistant Secretary, the Warrant
Certificates shall be countersigned, issued and delivered by the Warrant Agent.

                (d) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations 


                                       2
<PAGE>   3

representing up to an aggregate of 1,250,000 shares of Common Stock, subject to
adjustment as described herein, upon the exercise of Warrants in accordance with
this Agreement.

                (e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6, (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; and (v) at the option of the Company, in
such form as may be approved by the its Board of Directors, to reflect any
adjustment or change in the Purchase Price, the number of shares of Common Stock
purchasable upon exercise of the Warrants, or the Target Price(s) (as defined in
Section 8) therefor made pursuant to the terms hereof.

            SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.

                (a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage or to the requirements of Section 2(c). The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or destroyed
Warrant Certificates) and issued in registered form. Warrant Certificates shall
be numbered serially with the letter W on Warrants of all denominations.

                (b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of the
Company's seal. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issue and delivery thereof, such Warrant Certificates may nevertheless
be countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4(a) hereof.



                                       3
<PAGE>   4

            SECTION 4. EXERCISE.

                (a) Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Warrant as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date, the Warrant Agent
shall deposit the proceeds received from the exercise of a Warrant and shall
notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five days after the date of such notice from
the Warrant Agent, the Warrant Agent, on behalf of the Company, shall cause to
be issued and delivered by the Transfer Agent, to the person or persons entitled
to receive the same, a certificate or certificates for the shares of Common
Stock deliverable upon such exercise (plus a Warrant Certificate for any
remaining unexercised Warrants of the Registered Holder), unless prior to the
date of issuance of such certificates the Company shall instruct the Warrant
Agent to refrain from causing such issuance of certificates pending clearance of
checks received in payment of the Purchase Price pursuant to such Warrants.
Notwithstanding the foregoing, in the case of payment made in the form of a
check drawn on an account of such investment banks and brokerage houses as the
Company shall approve in writing to the Warrant Agent, certificates shall
immediately be issued without prior notice to the Company or any delay. Upon the
exercise of any Warrant and clearance of the funds received, the Warrant Agent
shall promptly remit the payment received for the Warrant (the "Warrant
Proceeds") to the Company or as the Company may direct in writing, subject to
the provisions of Sections 4(b) and 4(c) hereof.

                (b) If at the Exercise Date, (i) the market price of the
Company's Common Stock is greater than the then Purchase Price of the Warrant,
(ii) the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc. ("NASD") as designated in writing on the
Warrant Certificate Subscription Form, (iii) the Warrant was not held in a
discretionary account, (iv) disclosure of compensation arrangements was made
both at the time of the original offering of the Warrant and at the time of
exercise, and (v) the solicitation of the exercise of the Warrant was not in
violation of Regulation M (as such rule or any successor rule may be in effect
as of such time of exercise) promulgated under the Securities Exchange Act of
1934, then the Warrant Agent, simultaneously with the distribution of the
Warrant Proceeds to the Company shall, on behalf of the Company, pay from the
Warrant Proceeds, a fee of 4% (the "SouthWall Fee") of the Purchase Price to
SouthWall (of which a portion may be reallowed by SouthWall to the dealer who
solicited the exercise). If requested by the Company or the Warrant Agent,
SouthWall will confirm that the conditions specified above have been satisfied
prior to the payment of the SouthWall Fee. SouthWall shall reimburse the Warrant
Agent, upon request, for its reasonable expenses relating to compliance with
this section 4(b). In addition, SouthWall and the Company, at such party's own
expense, may at any time during business hours, examine the records of the
Warrant Agent, including its ledger of original Warrant Certificates returned to
the Warrant Agent upon exercise of Warrants.



                                       4
<PAGE>   5

            SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.

                (a) The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes, liens and charges created by
the Company with respect to the issue thereof (other than those which the
Company shall promptly pay or discharge), and that upon issuance such shares
shall be listed on each national securities exchange on which the other shares
of outstanding Common Stock of the Company are then listed or shall be eligible
for inclusion on the Nasdaq National Market or the Nasdaq SmallCap Market, if
the other shares of outstanding Common Stock of the Company are so included.

                (b) The Company covenants that if any securities to be reserved
for the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws. With respect to any such securities laws, however, Warrants may
not be exercise by, or shares of Common Stock issued to, any Registered Holder
in any state in which such exercise would be unlawful.

                (c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided, however, that if the shares of Common
Stock are to be delivered in a name other than the name of the Registered Holder
of the Warrant Certificate representing any Warrant being exercised, then no
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.

                (d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will maintain with the Warrant Agent a statement
setting forth the name and address of the Transfer Agent of the Company for
shares of Common Stock issuable upon exercise of the Warrants.

            SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.

                (a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporation Office, and upon
satisfaction of the terms and provisions thereof, the Company shall execute and
the Warrant Agent shall countersign, issue and deliver in exchange therefor the
Warrant 

                                       5


<PAGE>   6

Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.

                (b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.

                (c) Any Warrant Certificates presented for registration,
transfer, or for exchange shall be accompanied by a written instrument or
instruments of transfer or exchange, and any Warrant Certificate presented for
exercise shall be accompanied by the completed subscription form on the reverse
thereof, in all cases in form satisfactory to the Company and the Warrant Agent,
duly executed by the Registered Holder or his attorney-in-fact duly authorized
in writing.

                (d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company or the Warrant Agent may require payment by such holder of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith.

                (e) All Warrant Certificates surrendered for exercise or for
transfer or exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or at the
direction of the Company, disposed of or destroyed.

                (f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.

            SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the registered Holder in lieu thereof
a new Warrant Certificate of like tenor representing an equal aggregate number
of Warrants. Applicants for a substitute Warrant Certificate shall comply with
such other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.


                                       6
<PAGE>   7


            SECTION 8. REDEMPTION.

                (a) Subject to the provisions of paragraph 2(f) hereof, with the
consent of SouthWall on not less than thirty (30) days notice given after
December ___, 1998 (the "Redemption Notice") to Registered Holders of the
Warrants being redeemed, the Warrants may be redeemed, at the option of the
Company, at a redemption price of $0.01 per Warrant, but only if the Market
Price of the Common Stock shall exceed 150% of the then current Purchase Price
(the "Target Price"), subject to adjustment as set forth in Section 8(f) below,
on all twenty of the trading days ending on the third day prior to the date the
Redemption Notice is given. "Market Price" shall mean the last reported sale
price of the Common Stock as reported by the primary exchange on which the
Common Stock is traded, if the Common Stock is traded on a national securities
exchange, or by Nasdaq, if the Common Stock is traded on the Nasdaq National
Market or Nasdaq Small Cap Market, or if not so traded or reported, by the
National Quotation Bureau, Inc. All Warrants must be redeemed if any are
redeemed. The date fixed for redemption of the Warrants is referred to herein as
the "Redemption Date."

                (b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall request
the Warrant Agent to mail a Redemption Notice to each of the Registered Holders
of the Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth day before the date fixed for redemption, at each Registered Holder's
last address as shall appear on the records maintained pursuant to Section 6(b).
Any notice mailed in the manner provided herein shall be conclusively presumed
to have been duly given whether or not the Registered Holder receives such
notice.

                (c) The Redemption Notice shall specify (i) the Redemption
Price, (ii) the Redemption Date, (iii) the place where the Warrant Certificates
shall be delivered and the Redemption Price paid, (iv) that SouthWall will
assist each Registered holder of a Warrant in connection with the exercise
thereof, and (v) that the right to exercise the Warrant shall terminate at 5:00
P.M. (New York Time) on the business day immediately preceding the Redemption
Date. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption except
as to Registered Holder (a) to whom notice was not mailed or (b) whose notice
was defective. An affidavit of the Warrant Agent that notice of redemption has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.

                (d) From and after the Redemption Date, the Company shall, at
the place specified in the Redemption Notice, upon presentation and surrender to
the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. Any right to exercise a
Warrant shall terminate at 5:00 P.M. (New York time) on the business day
immediately preceding the Redemption Date. From and after the Redemption Date
and upon the deposit or setting aside by the Company of sum sufficient to redeem
all the Warrants called for redemption, such Warrants shall expire and become
void and all rights hereunder and under the Warrant Certificates, except the
right to receive payment of the Redemption Price, shall cease.



                                       7
<PAGE>   8

                        (e) If the shares of the Company's Common Stock are
subdivided or combined into a greater or smaller number of shares of
Common Stock, the Target Price shall be proportionally adjusted by the ratio
which the total number of shares of Common Stock outstanding immediately prior
to such event bears to the total number of shares of Common Stock to be
outstanding immediately after such event.

            SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF
COMMON STOCK OR WARRANTS.

                (a) Subject to the exceptions referred to in Section 9(g) below,
in the event the Company shall, at any time or from time to time after the date
hereof, issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such Change of Shares. Such
adjustment shall be made successively whenever such an issuance is made.

            Upon each adjustment of the Purchase Price pursuant to this Section
9, the total number of shares of Common Stock purchasable upon the exercise of
each Warrant shall (subject to the provisions contained in Section 9(b) hereof)
be such number of shares (calculated to the nearest tenth) purchasable at the
Purchase Price in effect immediately prior to such adjustment multiplied by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment.

                (b) The Company may elect, upon any adjustment of the Purchaser
Price hereunder, to adjust the number Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become the number of Warrants (calculated to the nearest tenth) determined
by multiplying the number one by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof if required by 


                                       8
<PAGE>   9

the Company) new Warrant Certificates evidencing the number of Warrants to which
such Holder shall be entitled after such adjustment.

                (c) In case of any reclassification, capital reorganization or
other similar change of outstanding shares of Common Stock, or in a case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations of the Company under this
Agreement. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganizations and other changes of outstanding
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.

                (d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(f) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, and the number of shares purchasable
and the Redemption Price therefor were expressed in the Warrant Certificates
when the same were originally issued.

                (e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Chief Financial Officer or the Secretary or an
Assistant Secretary, of the Company setting forth (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant after such adjustment and, if the Company shall have elected to
adjust the number of Warrants, the number of Warrants to which the Registered
Holder of each Warrant shall then be entitled, and the adjustment in Redemption
Price resulting therefrom, and (iii) a brief statement of the facts accounting
for such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary 




                                       9
<PAGE>   10

first class mail to SouthWall and to each Registered Holder of Warrants at such
holder's last address as it shall appear on the registry books of the Warrant
Agent. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity thereof except as to the holder of record to
whom the Company failed to mail such notice, or except as to a holder whose
notice was defective. The affidavit of an officer of the Warrant Agent that such
notice has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.

                (f) The Purchase Price will be reduced by $0.25 for every Two
Hundred Thousand Dollars ($200,000) that the Company's pre-tax earnings for its
Core Business for the fiscal year ended December 31, 1998 is less than Three
Million Dollars ($3,000,000); but in no event will the provisions of this
Section 9(f) result in a Purchase Price of less than Two Dollars ($2.00). There
shall be no prorations for earnings shortfalls that are not divisible by 200,000
(so that, for example, earnings of $350,000 below the $3,000,000 target would
result in a $.25 reduction in the Purchase Price and earnings of $190,000 below
the $3,000,000 target would result in no reduction in the Purchase Price). As
used in this Section, the term "Core Business" shall mean the sale of products
or services to address the Year 2000 problem or that are associated with data
reengineering projects (including, without limitation, data and system
reengineering and conversion tasks for customers), and shall include any
activities in these areas resulting from any acquisitions of businesses that are
included in the Company's financial statements for the fiscal year ending
December 31, 1998. All determinations pursuant to this section will be based on
the Company's financial statements, prepared in accordance with generally
accepted accounting principles consistently applied, that have been audited by
the Company's independent auditors. Any such adjustment will be made within 20
days after such financial statements are filed with the SEC and, in any event,
prior to June 30, 1999.

                (g) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the effective date of
the IPO and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include only shares of such class designated in
the Company's Certificate of Incorporation as Common Stock on the effective date
of the IPO or (i) in the case of any reclassification, change consolidation,
merger, sale or conveyance of the character referred to in Section 9(c) hereof,
the stock, securities or property provided for in such section or (ii) in the
case of any reclassification or change in the outstanding shares of Common Stock
issuable upon exercise of the Warrants as a result of a subdivision or
combination or consisting of a change in par value, or from par value to no par
value, or from no par value to par value, such shares of Common Stock as so
reclassified or changed.

                (h) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.



                                       10
<PAGE>   11


                (i) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise of his Warrants. Such grant by the Company to the
holders of the Warrants shall be in lieu of any adjustments which otherwise
might be called for pursuant to this Section 9.

            SECTION 10. Fractional Warrants and Fractional Shares. If the number
of shares of Common Stock purchasable upon the exercise of each Warrant is
adjusted pursuant to Section 9 hereof, the Company nevertheless shall not be
required to issue fractions of shares, upon exercise of the Warrants or
otherwise, or to distribute certificates that evidence fractional shares. With
respect to any fraction of a share called for upon the exercise of any Warrant,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:

                (a) If the Common Stock is listed on a national securities
exchange or is traded on the Nasdaq National Market, the current marker value
shall be the last reported sale price of the Common Stock on such exchange or
market on the last business day prior to the date of exercise of the Warrant or
if no such sale is made on such day, the average of the closing bid and asked
prices for such day on such exchange or market; or

                (b) If the Common Stock is not listed on a national securities
exchange or is not traded on the Nasdaq National Market, the current market
value shall be the mean of the last reported bid and asked prices reported by
the Nasdaq SmallCap Market or, if not traded thereon, by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of this
Warrant; or

                (c) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.

            SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Warrants, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value,
consolidation, merger or conveyance or otherwise), or to receive notice of
meetings, or to receive dividends or subscription rights, until such holder




                                       11
<PAGE>   12

shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.

            SECTION 12. Rights of Action. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of the Warrants,
and any Registered Holder of a Warrant, without consent of the Warrant Agent or
of the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided, and subject to the
limitations, in the Warrant Certificate and this Agreement.

            SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant,
by his acceptance thereof, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:

                (a) The Warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the Warrant
Agent and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and

                (b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 6 hereof.

            SECTION 14. Cancellation of Warrant Certificates. If the Company
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be delivered to the
Warrant Agent and canceled by it and retired. The Warrant Agent shall also
cancel the Warrant Certificate or Warrant Certificates following exercise of any
or all of the Warrants represented thereby or delivered to it for transfer or
exchange.

            SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent shall
not, by issuing and delivering Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby or
of any securities or other property delivered upon exercise of any Warrant or
whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.

            The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. The
Warrant Agent 



                                       12
<PAGE>   13

shall not (i) be liable for any recital or statement of facts contained herein
or for any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.

            The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.

            Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board, President, any Vice President, its Chief Financial
Officer, its Secretary, or Assistant Secretary (unless other evidence in respect
thereof is herein specifically prescribed). The Warrant Agent shall not be
liable for any action taken, suffered or omitted by it in accordance with such
notice, statement, instruction, request, direction, order or demand believed by
it to be genuine.

            The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses and liabilities, including judgments, costs
and counsel fees, for anything done or omitted by the Warrant Agent in the
execution of its duties and powers hereunder except losses, expenses and
liabilities arising as a result of the Warrant Agent's negligence or willful
misconduct.

            The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company that is a registered
transfer agent under the Securities Exchange Act of 1934. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the 



                                       13
<PAGE>   14

effective date of any such appointment, the Company shall file notice thereof
with the resigning Warrant Agent and shall forthwith cause a copy of such notice
to be mailed to the Registered Holder of each Warrant Certificate.

            Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.

            The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.

            SECTION 16. Modification of Agreement. Subject to the provisions of
Section 4(b), the Warrant Agent and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; (ii) to reflect an
increase in the number of Warrants to be governed by this Agreement resulting
from a subsequent public offering of Company securities which includes warrants
having the same terms and conditions as the Warrants originally covered by or
subsequently added to this Agreement under this Section 16; or (iii) that they
may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Warrant Certificates; provided, however, that this
Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders of Warrants
Certificates representing not less than 50% of the Warrants then outstanding;
and provided, further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant, or the Purchase Price therefor, or
the acceleration of the Warrant Expiration Date, shall be made without consent
in writing of the Registered Holder of the Warrant Certificate representing such
Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed or are made in compliance with applicable law.

            SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 4747 Morena Blvd., Suite 101, San Diego, California
92121, attention: Chief Financial Officer, or at such other address as may have
been furnished to the Warrant Agent in writing by the Company; if to the Warrant
Agent, at its Corporate Office.



                                       14
<PAGE>   15


            SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws.

            SECTION 19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.

            SECTION 20. Termination. This Agreement shall terminate at the close
of business on the earlier of the Warrant Expiration Date or the date upon which
all Warrants have been exercised, except that the Warrant Agent shall account to
the Company for cash held by it and the provisions of Section 15 hereof shall
survive such termination.

            SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.

                                           C2i SOLUTIONS, INC.



                                           By:
                                              ----------------------------------





                                           AMERICAN STOCK TRANSFER & 
                                           TRUST COMPANY



                                           By:
                                              ----------------------------------
                                                      Authorized Officer




                                       15

<PAGE>   16

                                    EXHIBIT A

                      [FORM OF FACE OF WARRANT CERTIFICATE]

No.  W                                                             ____ Warrants

                        VOID AFTER DECEMBER ___, 2002 AND
                          SUBJECT TO EARLIER REDEMPTION

                WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK

                               C2i SOLUTIONS, INC.

            This certifies that, FOR VALUE RECEIVED, _____________ or registered
assigns (the "Registered Holder") is the owner of the number of Warrants
("Warrants") specified above. Each Warrant represented hereby initially entitles
the Registered Holder to purchase, subject to the terms and conditions set forth
in this Warrant Certificate and the Warrant Agreement (as hereinafter defined),
one fully paid and nonassessable share of Common Stock, $.001 value ("Common
Stock"), of C2i Solutions, Inc., a Delaware corporation (the "Company"), at any
time prior to the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of the
American Stock Transfer & Trust Company, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $_____________ (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to the Company.

            This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated December __,
1997, by and among the Company and the Warrant Agent.

            In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.

            Each Warrant represented hereby is exercisable after December __,
1998 at the option of the Registered Holder, but no fractional shares of Common
Stock will be issued. In the case of the exercise of less than all the Warrants
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Warrants.

            The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
December __, 2002, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.


                                      A-1
<PAGE>   17



            The Company shall not be obligated to deliver any securities
pursuant to the exercise of the Warrants represented hereby unless a registered
statement under the Securities Act of 1933, as amended, with respect to such
securities is effective. The Company has covenanted and agreed that it will file
a registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Warrants are outstanding . The Warrants represented hereby shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.

            This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with payment of any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.

            Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.

            The Warrants represented hereby may be redeemed at the option of the
Company, at a redemption price of $.01 per Warrant at any time, provided the
Market Price (as defined in the Warrant Agreement) for the Common Stock shall
exceed 150% of the then current Purchase Price on all twenty of the trading days
ending on the third day prior to the date the Redemption Notice is given. Notice
of redemption shall be given not later than the thirtieth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after the
date fixed for redemption, the Registered Holder shall have no rights with
respect to the Warrants represented hereby except to receive the $.01 per
Warrant upon surrender of this Warrant Certificate.

            Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.

            The Company has agreed to pay a fee of 4% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
the Warrants represented hereby.

            This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.

            This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.


                                      A-2
<PAGE>   18


            IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to by duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.

Dated:
     ---------------------------------



                                                  C2i SOLUTIONS, INC.




                                                  By:
                                                     ---------------------------

                                                  By:
                                                     ---------------------------



[seal]

Countersigned:

American Stock Transfer & Trust Company
          as Warrant Agent



By:
   ------------------------------------
            Authorized Officer




                                      A-3

<PAGE>   19



                    [FORM OF REVERSE OF WARRANT CERTIFICATE]

                                SUBSCRIPTION FORM

                     To Be Executed by the Registered Holder
                          in Order to Exercise Warrants



            The undersigned Registered Holder hereby irrevocably elects to
exercise ___________ Warrants represented by this Warrant Certificate, and to
purchase the shares of Common Stock issuable upon the exercise of such Warrants,
and requests that certificates for such securities shall be issued in the name
of



    PLEASE PRINT OR TYPE (i) NAME, (ii) ADDRESS AND (iii) SOCIAL SECURITY OR
                        TAXPAYER ID NUMBER OF TRANSFEREE


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

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

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

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




and be delivered to



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

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

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

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

                     [please print or type name and address]

            and if such number of Warrants shall not be all the Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Warrants be registered in the name of , and delivered to, the
Registered Holder at the address stated below.

            Unless designated below, the undersigned represents that the
exercise of the Warrants evidenced hereby was solicited by a member of the
National Association of Securities Dealers, 


                                      A-4
<PAGE>   20

Inc. If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of another NASD member
firm or indicating "unsolicited," it will be assumed that the exercise was
solicited by SouthWall Capital Corp.







                                                   -----------------------------
                                                       (Name of NASD Member)





Dated:                             X
      ------------------------       -------------------------------------------

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

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




                                          --------------------------------------
                                              Taxpayer Identification Number



                                          --------------------------------------
                                                   Signature Guaranteed



            THIS SIGNATURE TO THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME
AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.


                                      A-5
<PAGE>   21



                                   ASSIGNMENT

       To Be Executed by the Registered Holder in Order to Assign Warrants



            FOR VALUE RECEIVED, ________________________ hereby sells, assigns 
and transfers unto



    PLEASE PRINT OR TYPE (i) NAME, (ii) ADDRESS AND (iii) SOCIAL SECURITY OR
                        TAXPAYER ID NUMBER OF TRANSFEREE



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

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

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

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








                _______________________________ of the Warrants represented by
this Warrant Certificate, and hereby irrevocably constitutes and appoints
______________________________________________Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.



Dated:                                    X
      -------------------------------         ----------------------------------




                                          --------------------------------------
                                          Signature Guaranteed



            THIS SIGNATURE TO THE ASSIGNMENT FORM MUST CORRESPOND TO THE NAME AS
WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
MEMBER OF THE MEDALLION STAMP PROGRAM.





                                      A-6




<PAGE>   1
                                                                     EXHIBIT 5.1

                    [GRAY CARY WARE FREIDENRICH LETTERHEAD]

ATTORNEYS AT LAW
4365 EXECUTIVE DRIVE, SUITE 1600
SAN DIEGO, CA 92121-2189
TEL: (619) 677-1400
FAX: (619) 677-1477
                                                                   OUR FILE NO:
http://www.gcwf.com                                                103015-152695


                               December 10, 1997

Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549

     Re:  C2i Solutions, Inc.
          Registration Statement on Form SB-2 (No. 333-39425)

Ladies and Gentlemen:

     As counsel to C2i Solutions, Inc., a Delaware corporation (the "Company"),
we are rendering this opinion in connection with a proposed sale of those
certain shares of the Company's newly issued Common Stock, $0.001 par value per
share, and Redeemable Warrants, as set forth in the Registration Statement on
Form SB-2 (No. 333-39425) to which this opinion is being filed as Exhibit 5.1
(the "Securities"). We have examined all instruments, documents and records
which we deemed relevant and necessary for the basis of our opinion hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to the originals of all documents submitted to us as copies.

     We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance, or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.

     Based on such examination, we are of the opinion that the Securities
identified in the above-referenced Registration Statement will be, upon
effectiveness of the Registration Statement and receipt by the Company of
payment therefor, duly authorized, validly issued, fully paid and
nonassessable. 



<PAGE>   2
GRAY CARY WARE & FREIDENRICH

December 10, 1997
Page Two


     We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.


                                        Respectfully submitted,




                                        /s/ GRAY CARY WARE & FREIDENRICH
                                        GRAY CARY WARE & FREIDENRICH
                                        A Professional Corporation


<PAGE>   1
                                                                EXHIBIT 10.4

June 1, 1997

John Anthony Whalen, Jr.
5951 Germaine Lane
La Jolla, CA 92037

Dear John,

This letter sets forth the basic terms and conditions of your employment with
Challenge 2000 International LLC ("C2i"). By signing this letter, you will be
agreeing to these terms. It is important that you understand clearly both what
your benefits are and what is expected of you by C2i.

     1. DUTIES. Your duties generally will include, but are not limited to,
those duties normally performed by a President & CEO. You may be assigned other
duties as needed and your duties may change from time to time on reasonable
notice, based on the needs of C2i and your skills, as determined by C2i. You
will report directly to the Board of Directors, and/or Members.

     As an employee, you are required to exercise your specialized expertise,
independent judgment and discretion to provide high-quality services. You are
required to follow company policies and procedures adopted from time to time by
C2i and to take such general direction as you may be given from time to time.

     2. HOURS OF WORK. As an exempt employee, you are expected to work the
number of hours required to get the job done. At a minimum, you are generally
expected to be present during the normal working hours of C2i, 8AM to 5PM
local time. Your primary office will be 4747 Morena Blvd., Suite 101, San
Diego, CA 92117.

     3. SALARY. Please see Exhibit A.

     4. EMPLOYEE BENEFITS. As they become available, you will be eligible for
the Health Care Plan and such other plans which are generally applicable to
your job classification. You will be eligible for paid vacations, holidays and
other employee benefits which are generally applicable to employees. These
benefits are subject to change.
<PAGE>   2


     5.  PROPRIETARY RIGHTS; DUTY TO DISCLOSE. Employee hereby acknowledges and
agrees to be bound by the enclosed provisions of C2i's "Non-Disclosure
Agreement". Employee agrees, during and after the term for this employment, not
to reveal confidential information, or trade secrets to any person, firm,
corporation, or entity. Should Employee reveal or threaten to reveal this
information, the Company shall be entitled to an injunction restraining the
Employee from disclosing same, or from rendering any services to any entity to
whom said information has been or is threatened to be disclosed. The right to
secure an injunction is not exclusive, and the Company may pursue any other
remedies it has against the Employee for a breach or threatened breach of this
condition, including the recovery of damages from the Employee.

     6.  DISPUTE RESOLUTION PROCEDURE. The parties agree that any dispute
arising out of the employment relationship between them, including the
termination of that relationship, shall be resolved in a court of law in the
state of California. The burden of proof for demonstrating cause is on the
Company.

     7.  GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with and subject to the laws of the State of California.
Any dispute or action between employees and Company resulting out of this
Agreement must be brought in the jurisdiction of the State of California or it
is void.

     8.  NO ASSIGNMENT. This Agreement may not be assigned by the employee
without the written consent of C2i.

     9.  INTEGRATED AGREEMENT. This Agreement supersedes any prior agreements,
representations or promises of any kind, whether written, oral, express or
implied between the parties hereto with respect to the subject matter herein.
It constitutes the full, complete and exclusive agreement between you and C2i
with respect to the subject matters herein.

    10.  NOTICES. All notices or other communications provided for by this
Agreement shall be made in writing and shall be deemed properly delivered with
(i) delivered personally or (ii) by the mailing of such notice by registered or
certified mail, postage prepaid, to the parties at the addresses set forth on
the signature page of this Agreement (or to such other address as one party
designates to the other in writing).

    11.  COUNTERPARTS. This agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

    12.  SEVERABILITY. If any provision of this Agreement is declared invalid
by any court or tribunal, that provision is deemed deleted from this Agreement
as though such provision had never been included herein. The remaining
provisions of the Agreement shall remain in effect.

    13.  TERMS OF EMPLOYMENT. The term of this Agreement is for a period five
years commencing on the date that you sign this Agreement, unless earlier
terminated pursuant to this Section. Notwithstanding anything to the contrary
herein, C2i may terminate your employment with


                                       2
<PAGE>   3
cause; provided, however, that if your are terminated with cause within five 
years of the date that you sign this Agreement, you will receive six month's 
notice or six month's salary continuation, payable in accordance with C2i's 
standard payroll practices, in lieu of notice.

        If you resign you shall not be entitled to salary continuation.
Upon any termination, or resignation, you shall be entitled to payment for 
accrued vacation and for salary and bonuses accrued for service actually 
rendered prior to the date of such termination. For purposes of this Agreement 
"cause" shall mean (i) a willful failure by you to substantially perform your
duties, other than a failure resulting from your complete or partial incapacity
due to physical or mental illness or impairment, or (ii) a willful act by you
which constitutes gross misconduct and which is materially injurious to C2i.


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

        I accept and agree to the terms of employment set forth in this 
agreement.


/s/ JOHN ANTHONY WHALEN, JR.   6/1/97 
- ---------------------------- / ------
John Anthony Whalen, Jr.        Date



Enclosure:NDA



                                       3
<PAGE>   4
                                   EXHIBIT A


1.  SALARY.  You will be paid a monthly base salary of $12,500.00. Generally,
    your salary will be reviewed annually, however, C2i reserves the right to
    increase your compensation. Your salary will be paid in accordance with the
    normal payroll practices of C2i.

2.  BONUS.  You also will be eligible to earn a bonus for 1997 and the years
    forthcoming during the term of your employment. The bonus will be set by
    C2i's Board of Directors, in its discretion.

3.  STOCK OPTIONS.  You are granted options to acquire 62,000 shares of C2i
    units, at $2.50 per share, vesting monthly over 36 months. The option shall
    be subject to the terms of the unit, or stock option agreement between you
    and the Company in the form of the stock option agreement.

4.  EXPENSES.  Business expenses incurred on behalf of the Company shall be
    reimbursed in a timely manner.




I hereby accept and agree to the terms set forth in Exhibit A:


/s/ JOHN ANTHONY WHALEN, JR.     6/1/97 
- ---------------------------- / -----------
John Anthony Whalen, Jr.          Date



                                       4

<PAGE>   1
                                                                    EXHIBIT 10.5

                                [C2i LETTERHEAD]


August 4, 1997

Messrs. David Tendler and Hal H. Beretz
Tendler Beretz LLC
150 East 52nd Street
NY, NY 10022
FAX 212-867-3739

Dear Gentlemen,

We are pleased to offer you the position of Members of the Board of Directors
of Challenge 2000 International LLC. Your membership is contingent upon


1.   The company obtaining sufficient Directors' and Officers' insurance
     approved by you, which will be funded with the use of proceeds of our
     planned IPO. 

2.   The completion of your due diligence.

3.   A Board of Seven members including the Chairman/CEO, SVP Sales &
     Marketing, & SVP Operations-CTO; all other members will be outside
     directors.

This recommendation regarding the "inside members" of the Board is twofold:

1. It is commonplace to have the senior officers on California, high tech
   companies
2. It was part of the agreed upon responsibilities upon hiring.

We also offer you:

     1.   An option to purchase one hundred seventy five thousand (175,000)
          shares of common stock for $2.50 per share vesting monthly in 1/48th
          monthly increments, over four years.

     2.   A referral fee of four and a half percent (4.5%) for sales that are
          consummated without an "RFP" process

     3.   A referral fee of two percent (2%) for all sales that are determined
          by an "RFP" process


<PAGE>   2
Messrs. David Tendler and Hal H. Beretz
August 4, 1997
Page 2

     4.  Reimbursement of air fare, lodging and meals for all Advisors' and
         Board of Directors' meetings

Initially, while acting as an Advisor to the company, you will perform
Directors' functions including introductions, strategic planning, and
consulting to management. We agree that you would be temporarily more effective
as Advisor in introducing the company to prospects. Parenthetically, the
unvested options would expire upon the earlier of ten (10) years from the date
of grant, or sixty (60) days following the conclusion of your service as a
director. The vested options may be exercised up to ten years from vesting.

As you are aware, we are in the concluding stages of negotiations with
investment bankers. One of the negative aspects of the Meyerson offer was a
reverse stock split of 2:3, which may be enforced if we do not receive another
more suitable offer. In fairness to all, all shareholders and optionholders
will adjust their shares proportionally.

If this offer is acceptable, please indicate your approval by signing below,
and return this document by FAX to (619) 490-1563.

We look forward to a long and profitable relationship, and appreciate your
willingness to join us.

Sincerely,

/s/ JOHN ANTHONY WHALEN, JR.
- ----------------------------
John Anthony Whalen, Jr.
President & CEO

Accepted and Approved:

/s/ DAVID TENDLER                       /s/ HAL H. BERETZ
- ------------------------------------    ----------------------------------------
David Tendler                            Hal H. Beretz

      8-7-97                                  8-7-97
- ------------------------------------    ----------------------------------------
Date:                                   Date:    


<PAGE>   1
                                                                    EXHIBIT 10.6

                                                                  
                                [C2i Letterhead]


August 20, 1997

Mr. Kim P. Goh, President
High Point 88, Inc.
630 Fifth Avenue, 20th Floor
New York, NY 10111

Dear Kim,

We are pleased to offer you the position of Member of the Board of Directors of
Challenge 2000 International LLC. Your membership is contingent upon the
following:

1.      The company obtaining sufficient Directors' and Officers' insurance
approved by you, which will be funded with the use of proceeds of our planned
IPO.

2.      The completion of your due diligence.

We also offer you:

1.      An option to purchase ten thousand (10,000) shares of common stock for
$2.50 per share vesting monthly in 1/48th monthly increments, over four years.

2.      A referral fee of four and one-half percent (4.5%) for all sales that
are consummated without an "RFP" process.

3.      A referral fee of two percent (2%) for all sales that are determined by
an "RFP" process.

4.      Reimbursement of air fare, lodging and meals for all Advisors' and
Board of Directors' meetings.

Initially, while acting as an Advisor to the company, you will perform
Directors' functions including introductions, strategic planning, and
consulting to management. We agree that you would be temporarily more effective
as Advisor in introducing the company to prospects. Parenthetically, the
options will expire upon the earlier of ten (10) years from the date of grant,
or sixty (60) days following the conclusion of your service as a director.
<PAGE>   2
Page 2
Mr. Kim P. Goh



If this offer is acceptable, please indicate your approval by signing below,
and return this document by FAX.

We look forward to a long and profitable relationship, and appreciate your
willingness to join us.

Sincerely,



John Anthony Whalen, Jr.
President and CEO



   
Accepted and Approved:


/s/ KIM P. GOH
- ------------------------------
Kim P. Goh


- ------------------------------
Date
    

<PAGE>   1

                                                                    EXHIBIT 10.7


                                                    C2i




To:     Kim P. Goh                     Fax:     201-332-8163
- -------------------------------------------------------------------------------

From:   John Anthony Whalen, Jr.       Date:    11/03/97
- -------------------------------------------------------------------------------

Re:     Stock Options                  Pages:   1 of 1
- -------------------------------------------------------------------------------


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

[ ] Urgent   [ ] For Review   [ ] Please Comment   [X] Please Reply  
[ ] Please Recycle 

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

Notes: As discussed this morning, I offer you an additional option to purchase
and additional 77,500 shares of C2i Solutions, Inc. under the identical terms
and conditions of your previous option.

This increase is attributable to your commitment to increase your participation
in strategic decision making, provide referrals to potential clients, and
assumption of a larger and more influential role within the Board of Directors.

Please indicate your acceptance below. Thank you again for your cooperation.



/s/ KIM P. GOH
- -----------------------------
Kim P. Goh    11/3/97



<PAGE>   1
                                                                   Exhibit 11.1


                              C2i Solutions, Inc.

                 Statement re: Computation of Per Share Losses

<TABLE>
<CAPTION>
                                    Period from       
                                     inception
                                   (September 17,
                                   1996) through                  Nine Months
                                      December                 Ended September 30,
                                      31, 1996                        1997
                                  --------------               -------------------

<S>                              <C>                            <C>

Net loss                                 (44,338)                   (1,434,894)

Common stock                           1,050,000                     1,050,000

Shares related to SAB No. 83           1,824,255                     1,824,255
                                       ---------                     ---------
Shares used in computing pro
  forma net loss per share             2,874,255                     2,874,255
                                       =========                     =========

Pro forma net loss per share              $(0.02)                       $(0.50)
                                       =========                     =========

</TABLE>

<PAGE>   1
                                                                   Exhibit 23.1



               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated February 28, 1997
(except for the first and second paragraphs of Note 1 and all of Note 4, as to
which the date is November 3, 1997) in Amendment No. 1 to the Registration
Statement (Form SB-2 No. 333-39425) and related Prospectus of C2i Solutions,
Inc. 


                                             /s/ ERNST & YOUNG LLP
                                             ERNST & YOUNG LLP

San Diego, California
December 12, 1997

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FROM INCEPTION (SEPTEMBER 17, 1996) THROUGH DECEMBER 31, 1996 FOR
THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH INFORMATION CONTAINED IN THE REGISTRATION STATEMENT FILED ON
FORM SB-2.
</LEGEND>
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   OTHER                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1996             DEC-31-1997
<PERIOD-START>                             SEP-17-1996             JAN-01-1997
<PERIOD-END>                               DEC-31-1996             SEP-30-1997
<CASH>                                          16,467                  65,863
<SECURITIES>                                         0                       0
<RECEIVABLES>                                    9,797                  36,478
<ALLOWANCES>                                         0                       0
<INVENTORY>                                          0                       0
<CURRENT-ASSETS>                               125,587                 110,783
<PP&E>                                          21,633                  47,690
<DEPRECIATION>                                   4,148                  11,612
<TOTAL-ASSETS>                                 144,397                 242,638
<CURRENT-LIABILITIES>                           31,235                 151,254
<BONDS>                                              0                       0
                                0                       0
                                          0                       0
<COMMON>                                         1,050                   2,391
<OTHER-SE>                                     156,450               1,568,225
<TOTAL-LIABILITY-AND-EQUITY>                   144,397                 242,638
<SALES>                                          9,798                  32,250
<TOTAL-REVENUES>                                 9,798                  79,283
<CGS>                                            6,300                  22,065
<TOTAL-COSTS>                                   54,136               1,512,577
<OTHER-EXPENSES>                                     0                       0
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                                   0                       0
<INCOME-PRETAX>                               (44,338)             (1,433,294)
<INCOME-TAX>                                         0                   1,600 
<INCOME-CONTINUING>                           (44,338)             (1,434,894)
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                  (44,338)             (1,434,894)
<EPS-PRIMARY>                                    (.02)                   (.50)
<EPS-DILUTED>                                    (.02)                   (.50)
        

</TABLE>


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