POWER SPECTRA INC /CA/, S-2, 1998-02-09

POWER SPECTRA INC /CA/
S-2, 1998-02-09
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH

Previous: SMITH BARNEY MUNI FUNDS, NSAR-B, 1998-02-09

Next: FIRSTBANK CORP, SC 13G, 1998-02-09

As Filed with the Securities and Exchange Commission on February 6, 1998
Registration No. 333-________
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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

POWER SPECTRA, INC.
(Name of registrant in its charter)

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

California 94-2687782
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)

Power Spectra, Inc.
919 Hermosa Court
Sunnyvale, CA 94086
(408) 737-7977
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

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

Gordon H. Smith
Power Spectra, Inc.
919 Hermosa Court
Sunnyvale, CA 94086
(408) 737-7977
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)

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

Copies to:
Grover T. Wickersham
Debra K. Weiner
Grover T. Wickersham, P.C.
430 Cambridge Avenue, Suite 100
Palo Alto, CA 94306

Approximate date of commencement of proposed sale to the public: As
soon as practicable after the Registration Statement becomes effective.

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.

If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box.

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

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

<PAGE>

CALCULATION OF REGISTRATION FEE
===================================================================================================================
Proposed Proposed
maximum maximum
Title of each class of Amount to offering price aggregate Registration
securities to be registered be registered per unit (1)(2) offering price(2) fee
- ---------------------------- ------------------------- --------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Common Stock (3) 16,525,998(4) $0.5625 $ 9,295,874 $ 27,423
- ---------------------------- ------------------------- --------------------- -------------------- ------------------
<FN>
(1) These figures are estimates made solely for the purpose of calculating the
registration fee pursuant to Rule 457(c).

(2) Proposed maximum offering price is based on the closing bid price of the
Common Stock on the NASD OTC Electronic Bulletin Board on February 4,
1998.

(3) Registered for resale by certain Selling Shareholders.

(4) Pursuant to Rule 416, there are also being registered an indeterminate
number of additional shares of Common Stock issuable pursuant to the
anti-dilution provisions of the warrants owned by certain of the Selling
Shareholders.
</FN>
</TABLE>

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

The registrant hereby amends the 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>

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.

<PAGE>

Subject to completion dated February 6, 1998

16,525,998 Shares
POWER SPECTRA, INC.
Common Stock

All of the 16,525,998 shares (the "Shares") of common stock, no par
value (the "Common Stock") of Power Spectra, Inc. (the "Company") offered hereby
are offered for resale by the holders thereof (the "Selling Shareholders"), or
by their pledgees, donees, transferees or other successors in interest
(sometimes referred to as the "Sellers"). Of the Shares offered for resale by
the Selling Shareholders (i) 12,988,363 Shares were acquired by certain Selling
Shareholders in various private placements conducted during 1996 and 1997 (the
"Private Placements"), (ii) 2,709,186 Shares are issuable upon exercise of
warrants that were issued to investors in a 1996 Private Placement (the
"Investors' Warrants"); and (iii) 828,449 Shares are issuable upon exercise of
warrants that were issued to the agents or their transferees who assisted in
various private placements (the "Agents' Warrants").

The Shares may be offered by the Sellers from time to time in brokerage
transactions (which may include block transactions), in the over-the-counter
market or negotiated transactions at prices and terms prevailing at the times of
such sales, at prices related to such market prices or at negotiated prices.
Such shares may be sold directly to purchasers, through broker-dealers acting as
agents for the Sellers or to broker-dealers who may purchase the Sellers' Shares
as principals and thereafter sell the Shares from time to time in the
over-the-counter market, in negotiated transactions or otherwise, or by a
combination of these methods. Broker-dealers who effect these transactions may
receive compensation in the form of discounts or commissions from the Sellers or
from the purchasers of the Shares for whom the broker-dealers may act as an
agent or to whom them may sell as a principal, or both. The Shares may also be
sold pursuant to Rule 144 under the Securities Act rather than pursuant to this
Prospectus, assuming all of the conditions of that Rule are met.

The Company will not receive any part of the proceeds from the resale
of the Shares by the Sellers. The Company will, however, receive the net
proceeds from the exercise of the Investors' Warrants and the Agents' Warrants,
when and to the extent they are exercised. The Company will bear the costs
relating to the registration of the Shares, estimated to be approximately
$56,000. The Sellers and broker-dealers, if any, acting in connection with such
sales, might be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act and any commission received by them and any profit on the
resale of such securities might be deemed to be underwriting discounts and
commissions under the Securities Act.

The Company's Common Stock is currently traded on the NASD OTC
Electronic Bulletin Board under the symbol "PWSP." The closing bid price of the
Company's Common Stock on the OTC Electronic Bulletin Board on February 4, 1998
was $0.5625.

The securities offered hereby are speculative, involve a high degree of
risk and should not be purchased by any investors who cannot afford the loss of
their entire investment or by persons who require current income. See "Risk
Factors" on Page 9 .

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

The date of this Prospectus is _______, 1998.

<PAGE>

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at its regional offices located at 7
World Trade Center, Suite 1300, New York, New York 10048, and at Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, the Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.

The Company has filed with the Commission a Registration Statement on
Form S-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Act with respect to the securities offered hereby. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. The Registration Statement, including exhibits thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all
or any part thereof may be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
be obtained by mail at prescribed rates from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.

<PAGE>

INFORMATION INCORPORATED BY REFERENCE

The following documents heretofore filed by the Company with the
Commission are by this reference incorporated in and made a part of this
Prospectus:

(i) The Annual Report on Form 10-K for the year ended December
31, 1996 (the 1996 Form 10-K"), filed pursuant to Section
13 of the Exchange Act (including documents incorporated
therein by reference);

(ii) The Quarterly Reports on Form 10-Q for the periods ended
March 31, 1997, June 30, 1997 and September 30, 1997,
filed pursuant to Section 13 of the Exchange Act;

(iii) The following specific portions of the Annual Report to
Shareholders for the Year Ended December 31, 1996 and/or
its 1996 Form 10-K and the Quarterly Report on Form 10-Q
for the period ended September 30, 1997:

(a) Description of the business of the Company;

(b) Financial statements and related notes
thereto for the year ended December 31, 1996
and the period ended September 30, 1997;

(c) Information relating to industry
segments, classes of similar products or
services, foreign and domestic operations
and export sales (not applicable);

(d) Market price and dividends on the
Company's Common Stock and related
stockholder matters;

(e) Selected financial data;

(f) Supplementary financial information
(not applicable);

(g) Management's Discussion and Analysis of
Financial Condition and Results of
Operations; and

(h) Information concerning disagreements
with accountants on accounting and financial
disclosure (not applicable).

Only those portions of the 1996 Form 10-K and September 30, 1997 Form
10-Q specifically referred to above are deemed to be part of the registration
statement of which this Prospectus is a part.

This Prospectus incorporates documents by reference which are not
presented herein or

3
<PAGE>

delivered herewith. The Company hereby undertakes to furnish without charge to
each person, including any beneficial owner, to whom this Prospectus is
delivered, upon the written or oral request of such person, a copy of any
documents described above, other than certain exhibits to such documents.
Request should be addressed to: Power Spectra, Inc., 919 Hermosa Court,
Sunnyvale, California 94086, Attention: Chief Financial Officer, telephone (408)
737-7977.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that the statement is modified or
superseded by a statement contained in any other subsequently filed document
which is incorporated or is deemed to be incorporated by reference herein. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, any securities in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication that there has
been no change in the facts herein set forth since the date hereof.

ANNUAL AND QUARTERLY REPORTS

This Prospectus is accompanied by a copy of the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, and its Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997, each as filed with the
Commission.

<PAGE>

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus and the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, its Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997, all of
which are incorporated by reference herein include certain statements that may
be deemed to be "forward-looking statements" within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. All statements, other
than statements of historical facts, included in this Prospectus that address
activities, events or developments that the Company expects, believes or
anticipates will or may occur in the future, including, but not limited to, such
matters as future product development, business development, marketing
arrangements, future revenue from contracts, business strategies, expansion and
growth of the Company's operations and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate in the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors discussed
below, general economic and business conditions, the business opportunities (or
lack thereof) that may be presented to and pursued by the Company, changes in
law or regulations and other factors, many of which are beyond the control of
the Company. Prospective investors are cautioned that any such statements are
not guarantees of future performance and that actual results or developments may
differ materially from those projected in the forward-looking statements.

5
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference.

The Company

Power Spectra, Inc. (the "Company") develops, designs and markets
ground penetrating radar ("GPR") systems and laser-based measurement and motion
sensor products. The Company's systems and products incorporate its patented and
proprietary core technology, specialized Gallium Arsenide ("GaAs") semiconductor
switches. The Company's Bulk Avalanche Semiconductor Switch ("BASS(TM)") and
PSIristor(TM) have enabled the development of the Company's mobile and airborne
(i.e., "stand-off") GPR systems for three-dimensional imaging of underground
objects. The Company is pursuing several new business opportunities that take
advantage of its systems' ability to emit intense, directed radar pulses capable
of penetrating the earth's surface. The Company's radar technology has scanned
below the surface of the earth and rendered precise three-dimensional images of
small subterranean minerals and metal or plastic bodies. The Company believes,
based on preliminary tests, that the technology underlying its GPR systems has
significant potential for use in mineral and fossil fuel recovery, underground
surveying and detection of residual warfare explosives, although until used in
full-scale commercial operations, there can be no assurance that the technology
and products will prove commercially viable.

Until 1996, the Company primarily focused its core GaAs technology on
military applications. In mid-1996, the Company redirected its efforts in order
to exploit what management believed to be the potentially significantly greater
opportunities for commercial application of its core technology. Since mid-1996,
the Company has been transitioning the application of its core technology from
military to commercial applications.

The Company is currently developing specialized GPR systems for (i)
mineral and fossil fuel exploration and recovery; (ii) underground pipeline and
infrastructure mapping; and (iii) land mine and unexploded ordnance detection.
The Company has also developed an easy-to-use laser-based measurement and motion
sensor system that employs its core technology.

In order to exploit the new business opportunities, the Company has
engaged in the following activities:

It has entered into a Development, Sale and License Agreement with
LandRay Technology, Inc. ("LandRay"), a privately-held company in which the
Company is a principal shareholder and strategic partner. Under the development
agreement, the Company is developing its ultra-wideband ("UWB") GPR system for
remote sensing, detection, location and imaging of subterranean metal deposits
and geophysical profiles to aid in the exploration and extraction of minerals
and fossil fuels. In a preliminary study, the Company has proven the feasibility
of the proprietary impulse generator technology it developed to aid in the
detection and location of gold in quartz at depths of 10 feet; however there is
no assurance that the preliminary results achieved in limited testing to date
will translate into commercially viable equipment and technology. The
development agreement contemplates the development of three systems: (i)
"Seeker," which is a compact, hand-held device for use in underground mines for
metal detection through 10 or more feet of rock; (ii) a "Borehole-to-Borehole"
(and tunnel-to-tunnel) system, which is intended to be GPR for use in mining and
fossil fuel exploration; and (iii) "Imager," which is contemplated to be an
imaging system for precise location and three-dimensional imaging of metal
deposits. The three development products are independent. While LandRay has been
minimally funded and paid the Company under the development agreement to
continue the development of the "Seeker" imaging system, there is no assurance
that LandRay will be able to raise the funds necessary to fund the Company's
completed development of the Seeker, or the other systems currently under
development.

6
<PAGE>

The Company has also entered into a joint venture with PEAC Airborne
Technologies, Inc. ("PEAC") for the marketing and implementation of a
helicopter-mounted GPR system that potentially could be used for locating and
mapping buried pipelines and infrastructures. The PEAC venture has not yet been
funded, and there is no assurance that it will successfully be launched.

The Company has internally developed a vehicle-mounted radar ("VMR")
system for locating and mapping buried utilities and other objects such as
unexploded ordnance, land mines and hazardous waste containers. Key aspects of
the Company's approach include the use of an array of sensing elements and, in
contrast to most GPR systems, the array will stand off well above the ground.
The Company's approach combines its proprietary GaAs technology with affordable
supercomputer power to realize performance benchmarks the Company believes are
well beyond the capabilities of existing GPRs. The Company expects initially to
install the VMR system on a truck; however, it is the Company's intention
ultimately to mount the VMR on a low-flying helicopter, which, the Company
believes, could be expected to dramatically increase the speed of data
acquisition of the system. Because this technology and application are only now
being developed, there is no assurance that the Company will be able to
successfully commercial its VMR system, that it will gain market acceptance or
that it will prove to be a profitable line of business for the Company.

In addition, the Company is marketing its laser-based measurement and
motion-sensor systems to commercial concerns, state highway authorities and
industrial manufacturing and research programs. In its new markets, the Company
intends to pursue lease, toll and royalty revenue streams.

The Company was incorporated in the State of California in 1979. Its
principal executive offices are located at 919 Hermosa Court, Sunnyvale,
California 94086, and its telephone number is (408) 737-7977.

The Offering
<S> <C>
Common Stock Offered by the Selling Shareholders ...................... 16,525,998 Shares
Common Stock Outstanding............................................... 24,016,036 shares as of February 4, 1998 (1)
Risk Factors .......................................................... An investment herein involves a high degree of
risk and should not be considered by investors
who cannot afford to lose their entire
investment. See "Risk Factors."
Use of Proceeds ....................................................... The Company will receive no proceeds from the
sale of the Shares offered hereby by the
Selling Shareholders
NASD OTC Electronic Bulletin Board
Trading Symbol ...................................................... PWSP
<FN>
- ----------
(1) Does not include (i) up to 1,693,186 shares issuable upon exercise of
outstanding options granted pursuant to the Company's stock option plans;
(ii) up to 3,537,635 shares issuable upon exercise of outstanding
warrants, the underlying shares of which are being registered hereby; or
(iii) up to 2,109,255 shares issuable upon conversion of outstanding
convertible Series A and B Preferred Stock. Assuming conversion of all
outstanding Series A and Series B Preferred Stock, all of which shares are
currently convertible and available for sale pursuant to Rule 144, and
exercise of all outstanding warrants being registered, the Company would
have 31,356,112 shares of Common Stock outstanding.

</FN>
</TABLE>
7
<PAGE>

<TABLE>

Summary Financial Information

The following table reflects selected financial data for the five
fiscal years ended December 31, 1996. The selected financial data as of and for
each of the years in the five-year period ended December 31, 1996, are derived
from the audited financial statements of the Company. The financial statements
as of December 31, 1995 and 1996, and for the years then ended, have been
audited by Grant Thornton LLP, Independent Accountants, and are incorporated by
reference into this Prospectus. The financial statements for the year ended
December 31, 1994 have been audited by Ernst & Young LLP, independent auditors,
and are incorporated by reference into this Prospectus. The selected financial
data presented below for 1992 and 1993, and as of December 31,1994 were derived
from the Company's audited financial statements for those periods, but are not
presented elsewhere in this Prospectus or incorporated by reference. The summary
financial data as of and for the nine months ended September 30, 1996 and 1997
have been derived from the Company's unaudited financial statements which, in
the opinion of management, reflect all adjustments (consisting solely of normal
recurring adjustments), necessary for a fair presentation of the results for
these periods and as of such dates. The summary financial data provided below
for the nine months ended September 30, 1997 are not necessarily indicative of
the future results of operations or financial performance of the Company. The
data set forth below should be read in conjunction with the financial statements
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference from the
Company's annual reports on Form 10-K and quarterly reports on Form 10-Q
incorporated herein by reference.

<CAPTION>
Statements of Operations Data:
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996* 1997*
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues ............. $5,635,697 $6,052,692 $3,060,098 $1,429,625 $1,000,114 $652,000 $668,000
---------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss)
applicable to common shares (786,139) 146,293 (1,216,907) (2,751,425) (3,983,752) (2,991,000) (1,866,000)
Net income (loss)
per common
share(1) ................... ($0.08) $0.01 ($0.12) ($0.25) ($0.26) ($0.19) ($0.10)
Weighted average
shares outstanding(1) .. 9,801,598 9,890,553 10,014,163 11,181,541 15,622,268 15,402,445 18,934,600
</TABLE>

<TABLE>
Balance She et Data:
<CAPTION>
December 31, September 30,
----------------------------------------------------------------------------- ----------
1992 1993 1994 1995 1996 1997*
---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current assets ......... $1,794,321 $1,908,681 $ 661,045 $2.929,050 $1,205,439 $ 987,000
Current liabilities .... 1,729,520 524,393 585,769 962,314 992,441 1,164,000
Working capital
(deficit) ........... 64,801 1,384,288 75,276 1,966,736 212,998 (177,000)
Total assets ........... 2,339,927 2,362,679 1,289,955 3,442,208 1,672,827 1,375,000
Stockholders' equity ... 610,407 1,838,286 704,186 2,479,894 680,386 211,000
<FN>
- -----------
* Rounded to the nearest thousand, except per share information.

(1) Based upon the weighted average number of Common shares outstanding during
the period, excluding shares issuable upon exercise of outstanding options
and warrants or conversion of the Series A and Series B Preferred Stock.
The effect of inclusion of such shares would be anti-dilutive.
</FN>
</TABLE>

No cash dividends on Common Stock have been paid by the Company since
its inception. The Company has no plans for payment of cash dividends on Common
Stock in the foreseeable future, and intends to retain its earnings, if any, for
the development of its business. The Company is required to pay cash dividends
on its Series A Preferred Stock issued in 1994, and on its Series B Preferred
Stock issued in 1995.

<PAGE>

RISK FACTORS

An investment in the Company involves a high degree of risk. In
addition to the other information contained in this Prospectus, prospective
investors should carefully consider the following Risk Factors in evaluating the
Company and its business before purchasing any of the shares of Common Stock
offered hereby. Purchase of the securities offered hereby should not be
considered by persons unable to afford the loss of their entire investment. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results of operations could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus and information incorporated by
reference in this Prospectus. See "Disclosure Regarding Forward-Looking
Statements."

History of Losses; Accumulated Deficit. Since its inception, the
Company has generally operated at a loss since government contract revenues,
which represent most of the historical revenues of the Company, and other
sources of income were insufficient to cover general and administrative,
research and development and other costs incurred by the Company. The Company
recorded net losses of ($3,788,299), ($2,562,230) and ($1,112,507) for the years
ended December 31, 1996, December 31, 1995 and December 31, 1994, respectively.
At September 30, 1997, the Company had an accumulated deficit of approximately
$16,930,000. The Company expects that it will continue to incur losses until its
contract revenues increase substantially from current levels or the Company
begins to receive significant product sales and license and/or royalty income.
There is no assurance that the Company will achieve profitable operations in the
foreseeable future, if at all.

Dependence on LandRay Contract. The Company's relationship with LandRay
Technology, Inc. ("LandRay") has been a significant source of revenues since the
first contract was awarded to the Company in 1996. The Company recognizes
revenue from its contract with LandRay based upon attainment of milestones
delineated in the contract. Should the current contract with LandRay terminate
for any reason, it would be necessary to find alternative sources of revenue,
and there is no assurance that the Company would be successful in accomplishing
this result. If the Company is not successful in replacing the revenue and cash
generated by the LandRay contracts, the Company will continue to experience
significant operating losses and significant negative cash flow. Although the
Company has substantially reduced the size of its operations over the last two
years, there can be no assurance that the Company's revenues and proceeds from
the equity financings will be sufficient to allow the Company to support its
operating expenses.

Need to Successfully Launch and Fund New Ventures. The Company believes
it must continue to seek and obtain other sources of revenue to continue
operations. Since its inception nearly all of the Company's revenues have come
from defense-related research and development contracts related to the BASS
development and applications. The Company currently is seeking to exploit its
technology in commercial and industrial applications. In the commercial and
industrial markets, the Company has identified a number of promising, new
applications that include radar systems for gathering high resolution data on
underground pipelines and other utilities, laser-based measurement systems,
hazardous waste detection and subterranean oil and mineral detection for
geological exploration. During 1996, the Company entered into two ventures,
LandRay Technologies, Inc. and PEAC Airborne Technologies, Ltd., in order to
develop and exploit new business opportunities which the Company believes are
possible based upon its ultra-wideband ground penetrating radar ("UWB GPR")
technology. As of the date

9
<PAGE>

hereof, the PEAC venture has not been funded and it continues to seek initial
funding. However the Company's venture with LandRay has progressed during 1997.
The Company's initial 50% interest in LandRay has been and continues to be
reduced based on new fund raising initiatives by LandRay. The purpose of the
LandRay venture is to develop UWB GPR systems for remote sensing, detection,
location and imaging of subterranean metal deposits and geophysical profiles to
aid in the exploration of minerals and fossil fuels. Among LandRay's objectives
are to (i) prove the feasibility of the Company's proprietary impulse generator
technology for the exploration of metal, mineral and oil and gas formations, and
(ii) develop and exploit systems using the Company's technology. To date, the
Company has been successful in meeting the established technical milestones
under its contract with LandRay. On October 9, 1997, the Company announced that
it had located gold deposits through eight feet of quartz and that its finds
exceeded 100 troy ounces. To date, finds have exceeded 200 troy ounces of gold.
There is no assurance, however, that LandRay and the Company will continue to be
successful in this regard, or that the technology and equipment can be
successfully applied to commercial operations. Failure of LandRay and the
Company to continue to adequately demonstrate such feasibility and thus garner
new business, will have a material adverse impact on the Company's revenues and
cash flows. Both the PEAC and LandRay ventures will require additional
significant funding in order to enable the Company and its strategic partners to
carry out their respective plans of operations. There can be no assurances that
the proposed PEAC joint venture will be consummated, that the PEAC and LandRay
ventures will be able to raise adequate funding on acceptable terms, that the
Company will be able to successfully enter into any additional suitable
strategic partnership or joint venture arrangements or that such arrangements,
when entered into, will prove to be beneficial for the Company and its
shareholders. There also can be no assurance that the proposed joint venture
agreements, if consummated, will generate sufficient revenues to replace the
existing LandRay contract when it expires. Failure to succeed in one or more
strategic partnerships or joint venture relationships could have a material
adverse effect on the Company's plan of operations and results.

Expiration of Air Force Contract. The Company's contract with the
United States Air Force expired in June 1996, and such contract has been a
significant source of revenues since it was awarded to the Company in 1990. With
the termination of the Air Force Contract, the Company has found it necessary to
shift its focus to industrial products to find alternative sources of revenue,
and there is no assurance that the Company will be successful in accomplishing
this result. If the Company is not successful in replacing the revenue and cash
generated by the Air Force contract, the Company will continue to experience
significant operating losses and significant negative cash flow. Although the
Company has substantially reduced the size of its operations since expiration of
the Air Force Contract, there can be no assurance that the Company's revenues
and proceeds from equity financings, if any, will be sufficient to allow the
Company to support its operating expenses.

Product Development and Enhancements. The development of high power
switching components and products is a complex engineering effort involving
significant risk. While the Company believes it has completed development of its
core technology, significant additional development efforts must be made in
order to achieve commercial acceptance of its products.

10
<PAGE>

Such efforts will require substantial additional capital, the source and timing
of which is unknown. There is no assurance that the Company will succeed in
raising the needed capital or in the product development efforts, even if the
necessary funding is raised.

Complex Manufacturing Process. The manufacture of semiconductor-based
power switching devices is highly complex and sensitive to a wide variety of
factors, including the level of contaminants in the manufacturing environment,
impurities in the materials used and the performance of personnel and equipment.
The Company has periodically experienced yield problems, and there can be no
assurance that these problems will not reoccur. Should the Company experience
protracted production delays attributable to manufacturing complexity, its
ability to deliver products would be materially affected.

Dependence on Facilities. The Company does not expect to be able to
remain in its current facilities in the long-term. Appropriate manufacturing and
executive office space in Silicon Valley is extremely limited and there is no
assurance that the Company will be able to secure adequate facilities on terms
that are acceptable to the Company, if at all. This circumstance could cause
delays in the manufacture and delivery of the Company's products and could have
a material adverse impact on the Company's results of operations.

Dependence on Government Contracts. Historically, a material portion of
the Company's business resulted from contracts with or for government agencies.
The Company expects to continue to be dependent upon such contracts for a small
portion of its revenues for the foreseeable future. Government contracts
generally provide for the termination or adjustment of material terms of such
contracts at the election of the government, and the government may pursue
contractual, administrative, civil and criminal remedies for improper or illegal
activities associated with obtaining and performing government contracts.
Administrative remedies include suspension, debarment or ineligibility of all or
part of a company from receiving government contracts and government-approved
subcontracts. Any such action by the government could have a material adverse
impact upon the Company's business. Moreover, general political and economic
conditions, which cannot be accurately predicted, directly and indirectly affect
the quantity and allocation of expenditures by governmental agencies. Therefore,
cutbacks in the federal budget could have a material adverse impact on the
Company's results of operations so long as the Company remains dependent on
government contracts.

Limitations on Protection of Intellectual Property. The Company
believes its ability to compete effectively with other companies may be
materially dependent upon the proprietary nature of its technologies. The
Company holds a number of domestic patents covering various aspects of its
BASS(TM) technology but has no patents pending on its PSIristorTM technology as
it was transferred from Russia, and the Company holds an exclusive worldwide
license for its manufacture and use outside the former Soviet Union. The Company
has applied for multiple patents on its GPR Seeker and Electro-optical range
finder. To date, one patent each has been granted on these devices and several
more are pending. There is no assurance that any additional patents will be
granted to the Company or that the Company's patents will provide meaningful
protection from competition. Moreover, there can be no assurance that any
patents will be upheld

11
<PAGE>

by a court should the Company seek to enforce its rights against an infringer or
that the Company will have sufficient resources to prosecute its patent and
other intellectual property rights. Furthermore, issuance of a valid patent does
not prevent other companies from independently developing technology similar to
the Company's, and there can be no assurance that any particular aspect of the
Company's technology will not be found to infringe the claims of other existing
patents. In addition to patent protection, the Company relies to a significant
extent on proprietary know-how and trade secrets particularly with respect to
its PSIristor, which it considers a highly proprietary invention.

Future Reliance upon Distributors. Historically, the Company has relied
primarily on direct sales and, to a lesser extent, upon manufacturers'
representatives to sell and distribute its commercial products. In order to
materially increase revenues and achieve sustained profitability (of which there
is no assurance) as the Company continues to commercialize its products, it
expects that it will be required to depend to a far greater degree upon
distributors. While any particular distributor may have an extensive
distribution network, distributors typically represent other third-party
suppliers, including competitors of the Company, to whom it may devote greater
time, effort and attention. There can be no assurance that the Company will
successfully establish the requisite distribution relationships or that those
relationships will result in increased revenues.

Competition. The markets for the Company's products are highly
competitive and characterized by rapid technological change, periodic shortages
of materials and variations in manufacturing yields and efficiencies. The
Company's competitive position is affected by all of these factors and by
industry competition for effective sales and distribution channels. The
Company's potential and existing competitors include major ultrasonic proximity
sensor vendors, a small number of which dominate the market. Most of the
Company's competitors have substantially greater financial, technical, marketing
and other resources than does the Company. Principal competitive factors include
price, performance, features and benefits. The Company expects that its markets
will become more competitive in the future, and there is no assurance that the
Company will be able to successfully compete in its selected markets.

Volatility of Stock Price. The market price of the Common Stock is
highly volatile as the stock is thinly traded. Other factors such as variations
in the Company's operating results and announcements of technological
innovations or price reductions by the Company, its competitors or providers of
alternative products and processes may cause the market price of the Common
Stock to fluctuate. In addition, the securities markets have recently
experienced substantial price and volume fluctuations that have particularly
affected technology-based companies, and resulted in changes in the market
prices of the stocks of many companies that have not been directly related to
the operating performance of those companies. The price of the Company's Common
Stock is particularly susceptible to extreme fluctuation because of thin trading
volume in the Common Stock and lack of widely available pricing information.

Shares Eligible for Future Sale. Sales of the Company's Common Stock in
the public market could adversely affect the market price of the Company's
Common Stock. The Company

12
<PAGE>

is registering a total of 16,525,998 shares on the registration statement of
which this Prospectus is a part, of which 12,988,363 shares are currently
outstanding and the remaining shares are issuable upon exercise of outstanding
warrants. Registration of such shares would result in such shares becoming
freely tradable without restriction (except for shares purchased by affiliates)
immediately upon the effectiveness of such registration statement. In addition,
holders of the approximately 2,060,046 shares of Common Stock purchased in a
private placement in March 1996 can be sold in the public market pursuant to
Rule 144 (subject to the conditions and limitations of Rule 144) and will be
eligible for sale pursuant to Rule 144(k) by non-affiliates in March 1998; and
holders of an aggregate of 2,109,255 shares of Common Stock issuable upon
conversion of outstanding Series A and Series B Preferred Stock, and holders of
an additional 3,358,326 shares of Common Stock purchased in September 1995 may
sell such shares under Rule 144(k), subject to the exception that affiliates of
the Company may not rely upon Rule 144(k) but who may, nevertheless sell such
Common Stock pursuant to Rule 144. The availability of such shares for sale
could adversely affect the market price of the Common Stock.

No Assurance of Nasdaq Trading. The Company's Common Stock is currently
traded in dealer transactions on the NASD OTC Bulletin Board(R), an
over-the-counter market in which liquidity is typically limited and price
volatility can be great. The OTC Bulletin Board is generally considered to be a
less efficient market because, among other reasons, it does not automatically
provide real time quotation. The Company's Common Stock is currently not
eligible for quotation on The Nasdaq SmallCap MarketSM, and there is no
assurance that the Company will meet the eligibility requirements for quotation
on Nasdaq in the foreseeable future. Moreover, on August 22, 1997, the
Securities and Exchange Commission adopted final regulations effecting the
changes proposed by The Nasdaq Stock Market, which changes have made the listing
and maintenance requirements more stringent for entry and maintenance of
securities to be quoted on the Nasdaq SmallCap Market. Until the Common Stock is
approved for Nasdaq trading, if ever, holders of the Common Stock will be
required to sell their securities through the facilities of the OTC Bulletin
Board. As a result, the purchasers of the Shares may find it difficult to
dispose of their Shares when they desire to do so.

USE OF PROCEEDS

The Shares being offered hereby are being offered for resale by the
Selling Shareholders, or by their pledgees, donees, transferees or other
successors in interest, and the Company will receive no proceeds from the resale
of the shares of Common Stock being offered hereby.

To the extent Selling Shareholders exercise the Investors' Warrants or
the Agents' Warrants, of which there is no assurance, the Company will receive
the exercise price applicable thereto. Such proceeds, if any, will be applied to
working capital and used for general corporate purposes. The exercise price of
the Investors' Warrants is $0.25 with respect to 1,354,593 Investors' Warrants
and $1.10 with respect to an equal number of Investors' Warrants; the exercise
price of the Agents' Warrants ranges from $0.25 to $1.32 per share. There is no
assurance that any warrants will be exercised prior to their respective
expiration dates.

13
<PAGE>

SELLING SHAREHOLDERS

An aggregate of 16,525,998 Shares of Common Stock may be offered by
certain security holders of the Company (the "Selling Shareholders") who
acquired these Shares in private transactions. Of these Shares, (i) 12,988,363
Shares were acquired by certain Selling Shareholders in the Private Placements
in 1996 and 1997, (ii) 2,709,186 Shares are issuable upon exercise of the
Investors' Warrants that were acquired in a 1996 private placement; and (iii)
828,449 Shares are issuable upon exercise of the Agents' Warrants issued to
agents who assisted in various placements of securities, or their transferees.

The Selling Shareholders, or their pledgees, donees, transferees or
other successors in interests, may offer the Shares owned by them for sale as
principals for their own accounts at any time and from time to time, in the
over-the-counter market at prices prevailing at the time of sale. The Selling
Shareholders, or their pledgees, donees, transferees or other successors in
interests, may also offer the Shares in private sales at prices to be negotiated
or pursuant to Rule 144, if the conditions of the Rule are then satisfied. The
Company will not receive any of the proceeds from the sale of such securities.
Selling Shareholders are not obligated to reimburse the Company any portion of
the expenses incurred by the Company in this offering.

<TABLE>

The following table sets forth the name of each such security holder
for whom the Company is registering Shares of Common Stock for resale to the
public and (ii) the number of shares of Common Stock beneficially owned by each
such holder as of December 31, 1997 and after the offering (assuming the sale of
all of their Shares offered hereby). To the extent the Shares represent shares
issuable upon exercise of warrants, such exercise must take place prior to the
sale of the Shares offered hereby. Material relationships between certain of the
Selling Shareholders and the Company are set forth in the footnotes to the
table. Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to community property
laws, where applicable. The footnotes follow the table.

(Footnotes begin on page 18.)

14
<PAGE>

Beneficial Ownership
Number of Following Offering(3)
Beneficially Owned Shares ----------------------
Prior to the to be Number of Percent
Name Offering(1) Sold(2) Shares Owned
- ------------------------------------ ------------------ ----------- -------- -----
William B. Cormack ................. 923,876 (11) 589,804 334,072 1.4%
Barry Reder ........................ 769,471 (12) 125,500 640,971 2.7
Alex. Brown & Co., Ttee FBO
Barry Reder IRA ................ 12,000 (13) 40,000 80,000 *
Katherine H. Reder (Barry Reder,
Custodian, U/CUMGA) ............ 13,000 (14) 3,000 10,000 *
Elizabeth S. Reder (Barry Reder,
Custodian, U/CUMGA) ............ 13,000 (14) 3,000 10,000 *
Robert and Justyna Cromarty ........ 379,268 (15) 25,000 354,268 1.5
Oxcal Venture Fund, LP.............. 111,747 (16) 47,727 64,020 *
Gene J. Kennedy .................... 752,755 (17) 76,000 676,755 2.5
Michael L. Meyers .................. 264,200 (18) 109,700 154,500 *
William G. Van Horn ................ 677,985 (19) 327,653 120,614 (19) *
William G. Van Horn Ttee
William G. Van Horn
Revocable Trust ................ 229,718 (20) 229,718 0 0
John H. Van Horn ................... 1,240 (21) 1,240 0 0
Joseph D. Van Horn ................. 3,000 (22) 3,000 0 0
Edgar E. Sharp ..................... 150,000 (23) 50,000 100,000 *
Paul Escobosa ...................... 378,500 (24) 160,500 178,000 (24) *
Paul and Laura Escobosa ............ 378,500 (25) 31,500 0 (25) 0
Pensco Pension Services, Inc. FBO
Paul Escobosa IRA .............. 25,500 (26) 8,500 17,000 *
Richard S. Smolan Trust ............ 236,000 (27) 146,000 90,000 *
Robert W. Lishman, Jr. ............. 278,777 (28) 109,566 169,206 *
Charles C. Thieriot Revocable
Trust .......................... 102,273 (29) 34,091 68,182 *
European Industries
Establishment .................. 185,270 (30) 121,250 64,020 *
Jeffrey A. Bernstein ............... 75,000 (31) 25,000 50,000 *
Hugh L. McEntire ................... 75,000 (31) 25,000 50,000 *
B. Castle Smith .................... 75,000 (31) 25,000 50,000 *
Gordon H. Smith .................... 221,424 (32) 15,000 206,424 *
Francis Dinkelspiel and Gary
Wayne .......................... 60,000 (33) 20,000 40,000 *
Henson L. Jones, Jr. ............... 44,500 (34) 5,000 39,500 *
Steven Dinkelspiel ................. 55,000 (35) 18,500 37,000 *
Sugarman Family Partners ........... 36,864 (36) 11,364 25,500 *
Jonathan R. Bass ................... 80,500 (37) 60,500 20,000 *
Michael B. Combs ................... 5,000 (38) 5,000 0
William J. Skibbe .................. 22,500 (39) 7,500 15,000 *
Kent T. Baum ....................... 60,854 (40) 47,218 13,636 *
Michael I. and Charlotte Gamble 15,000 (41) 5,000 10,000 *

<PAGE>

Melville P. Steil Jr., Ttee of
Johanna E. Steil Marital
Trust .......................... 10,200 (42) 3,400 6,800 *
Melville P. Steil Jr., Ttee of
Johanna E. Steil Credit
Trust .......................... 10,200 (42) 3,400 6,800 *
Peter J. Steil ..................... 56,900 (42) 25,000 25,100 (42) *
Texas Capital Securities ........... 66,387 (43) 56,387 10,000 *
Alan R. Stephenson and
Janice A. Saunders ............. 200,000 200,000 0 0
Kenneth J. Smith ................... 1,000,000 1,000,000 0 0
California Central Trust Bank Ttee
FBO Frederick S. Moore ......... 270,861 (44) 100,000 100,861 (44) *
Frederick S. Moore Living Trust
UA Dtd Feb. 24, 1992 ........... 270,861 (45) 70,000 100,861 (45) *
David J. Cerini .................... 53,333 53,333 0 0
Max F. Cerini ...................... 51,666 26,666 25,000 *
Carey Orr Cook ..................... 13,333 13,333 0 0
Drury J. Gallagher ................. 798,666 (46) 448,666 300,000 (46) 1.3
Francis L. Gallagher, Ttee
Drury J. Gallagher Trust FBO
Children ....................... 50,000 (47) 50,000 0 0
Glenbrook Capital LLP .............. 40,000 (48) 40,000 0 0
Tom Juda & Nancy Juda Living
Trust UA Dtd May 3, 1995 ....... 66,666 66,666 0 0
Preston Plumb ...................... 27,000 27,000 0 0
Janet Blakeman ..................... 99,000 93,000 6,000 *
Harold T. Bowling (49) ............. 26,753 13,500 13,253 *
Charles R. Breyer .................. 26,933 (50) 26,933 0 0
Kang N. Chan ....................... 100,000 100,000 0 0
Richard Chisholm ................... 101,000 (51) 101,000 0 0
Joyce Goldstein Revocable
Trust .......................... 40,400 (52) 40,400 0 0
Francis A. Hayman, Jr. ............. 32,816 32,816 0 0
Gordon L. Holmes ................... 80,800 (53) 80,800 0 0
Frank and Jacqueline Hussan ........ 136,350 (54) 136,350 0 0
James A. Lovell (55) ............... 43,253 30,000 13,253 *
Magowan Investment Co. Plan
"C" ............................ 53,866 (56) 53,866 0 0
Kenneth T. Miller Ttee U/A Dtd 10/23/80 by Kenneth T.
Miller Trust ................... 101,000 (57) 101,000 0 0
Philip W. Moffit ................... 134,666 (58) 134,666 0 0

<PAGE>

<FN>
- ------------------
* Less than 1%.
(1) Beneficial Ownership includes shares deemed to be beneficially owned by the
Selling Shareholder pursuant to Rule 13d-3 under the Securities Exchange
Act of 1934, as amended. Assuming effectiveness of the registration
statement of which this Prospectus is a part, any as-yet unexercisable
warrants will be exercisable as of the effective date and such warrant
shares, which are registered for resale hereby, are included in the
beneficial ownership information provided in this table.
(2) Shares to be Sold assumes, where indicated in the footnotes, exercise of
outstanding warrants and sale of the underlying shares.
(3) Beneficial Ownership Following Offering assumes sale of all shares
indicated to be sold, of which there is no assurance.
(4) The named Selling Shareholder is a fund that holds securities for a large
number of beneficial owners of such fund.
(5) The Selling Shareholder is a fund of Smith Barney Mutual Fund Management,
Inc., a company affiliated with the Travelers Group, Inc. Includes (i)
2,000,000 shares of Common Stock held in the name of Barnett & Co., also a
Smith Barney Mutual Funds Management, Inc. fund, and as such may be deemed
to be under common control with the Selling Shareholder; and (ii) 1,363,636
shares issuable upon exercise of outstanding warrants. Beneficial Ownership
after the Offering also reflects sales by Barnett & Co. See Note (6).
(6) Includes (i) 2,727,272 shares of Common Stock held in the name of Smith
Barney Security & Growth Fund; and (ii) 1,363,636 shares of Common Stock
issuable upon exercise of outstanding warrants held by Smith Barney
Security & Growth Fund. Beneficial Ownership after the Offering also
reflects sales by Smith Barney Security & Growth Fund. See Note (5).
(7) Includes 510,000 shares of Common Stock issuable upon exercise of
outstanding warrants.

17
<PAGE>

(8) Includes (i) 394,364 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock, of which 17,925 are jointly held with Mr.
Holmgren's spouse; (ii) 40,000 shares beneficially owned by Mr. Holmgren's
minor children, as to Mr. Holmgren may be deemed to be the beneficial owner
but as to which he disclaims beneficial ownership; and (iii) 200,000 shares
issuable upon exercise of outstanding warrants. (9) Includes (i) 10,000
shares of Common Stock owned by Mr. Leisses' spouse, as to which he may be
deemed to be the beneficial owner; and (ii) 32,010 shares of Common Stock
issuable upon conversion of outstanding Preferred Stock. Does not include
warrant shares owned by Mr. Leisses' adult children. See Note (10).
(10) Includes 16,005 shares of Common Stock issuable upon exercise of
outstanding warrants.
(11) Includes (i) 89,628 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock and (ii) 256,471 shares of Common Stock
issuable upon exercise of outstanding warrants. Mr. Cormack has acted as a
selling agent for the Company's private placements of securities.
(12) Includes (i) 48,600 shares of Common Stock jointly held with Mr. Reder's
spouse; (ii) 25,608 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock; (iii) 82,500 shares of Common Stock issuable
upon exercise of outstanding warrants; (iv) 128,163 shares of Common Stock
held in IRA accounts for Mr. Reder's benefit, including 8,163 shares of
Common Stock issuable upon conversion of outstanding Preferred Stock and
40,000 shares of Common Stock issuable upon conversion of outstanding
warrants held in such accounts; (iv) 20,000 shares of Common Stock and
6,000 shares issuable upon exercise of outstanding warrants held in
custodial accounts for Mr. Reder's two children, for whom he serves as
custodian, as to which he may be deemed to be the beneficial owner and as
to which he disclaims beneficial ownership. See Notes (13) and (14).
(13) Includes 40,000 shares of Common Stock issuable upon exercise of
outstanding warrants. See Note 12.
(14) Includes 3,000 shares of Common Stock issuable upon exercise of outstanding
warrants. See Note 12.
(15) Includes (i) 104,839 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock, of which 40,819 shares are held in Mr.
Cromarty's individual name; and (ii) 25,000 shares issuable upon exercise
of outstanding warrants.
(16) Includes(i) 64,020 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock; and (ii) 47,727 shares of Common Stock
issuable upon exercise of outstanding warrants. Grover T. Wickersham, a
partner in the law firm of Grover T. Wickersham, P.C., legal counsel to the
Company, may be deemed to be a beneficial owner of the Selling Shareholder
because of his investment control. He disclaims such beneficial ownership.
(17) Includes (i) 100,499 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock, of which 74,891 are held in an IRA account for
Mr. Kennedy's benefit; (ii) 50,000 shares issuable upon exercise of
outstanding options; (iv) 6,400 shares of Common Stock held in Mr.
Kennedy's IRA account; and (iv) 10,000 shares issuable upon exercise of
outstanding warrants. Mr. Kennedy is a member of the Company's Board of
Directors.
(18) Includes 39,700 shares of Common Stock issuable upon exercise of
outstanding warrants.
(19) Includes (i) 300,000 shares in the name of Mr. Van Horn, as Trustee of his
revocable trust; and (ii) 257,371 shares issuable upon exercise of
outstanding warrants, of which 129,718 are held in the name of Mr. Van
Horn, as Trustee of his revocable trust. Beneficial Ownership After the
Offering also reflects sales by the revocable trust. Mr. Van Horn has acted
as selling agent in connection with the Company's private placements of
securities. See Note (20).
(20) Includes 129,718 shares of Common Stock issuable upon exercise of
outstanding warrants.
(21) Includes 1,240 shares of Common Stock issuable upon exercise of outstanding
warrants.
(22) Includes 3,000 shares of Common Stock issuable upon exercise of outstanding
warrants.
(23) Includes 50,000 shares of Common Stock issuable upon exercise of
outstanding warrants.
(24) Includes (i) 91,000 shares of Common Stock jointly held with Mr. Escobosa's
spouse; (ii) 17,000 shares of Common Stock held in an IRA account for Mr.
Escobosa's benefit; and (iii) 100,500 shares of Common Stock issuable upon
exercise of outstanding warrants, of which 31,500 shares are held jointly
with Mr. Escobosa's spouse and 8,500 are held in Mr. Escobosa's IRA
account. Beneficial Ownership after the Offering reflects sales by Mr. and
Mrs. Escobosa, for shares held jointly, and through Mr. Escobosa's IRA
account. See Notes (25) and (26).

18
<PAGE>
(25) Includes (i) 170,000 shares of Common Stock held individually by Mr.
Escobosa; (ii) 17,000 shares of Common Stock held in an IRA account for the
benefit of Mr. Escobosa, individually; and (iii) 100,500 shares of Common
Stock issuable upon exercise of outstanding warrants, of which 10,500 are
held by Mr. Escobosa individually and 8,500 are held in Mr. Escobosa's IRA
account. Beneficial Ownership after the Offering reflects sales by Mr.
Escobosa individually and through his IRA account. See Notes (24) and (26).
(26) Includes 8,500 shares of Common Stock issuable upon exercise of outstanding
warrants. See Notes (24) and (25).
(27) Includes 46,000 shares of Common Stock issuable upon exercise of
outstanding warrants.
(28) Includes (i) 19,206 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock; and (ii) 89,566 shares of Common Stock
issuable upon exercise of outstanding warrants.
(29) Includes 34,091 shares of Common Stock issuable upon exercise of
outstanding warrants.
(30) Includes (i) 64,020 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock; and (ii) 21,250 shares of Common Stock
issuable upon exercise of outstanding warrants.
(31) Includes 25,000 shares of Common Stock issuable upon exercise of
outstanding warrants.
(32) Includes (i) 180,008 shares of Common Stock issuable upon exercise of
currently exercisable stock options; and (ii) 5,000 shares of Common Stock
issuable upon exercise of outstanding warrants. Admiral Smith is the
Company's Chairman of the Board and Chief Executive Officer.
(33) Includes 20,000 shares of Common Stock issuable upon exercise of
outstanding warrants.
(34) Includes 5,000 shares of Common Stock issuable upon exercise of outstanding
warrants.
(35) Includes 18,500 shares of Common Stock issuable upon exercise of
outstanding warrants.
(36) Includes 11,364 shares of Common Stock issuable upon exercise of
outstanding warrants. Does not include shares owned individually by Michael
Sugarman, M.D., the general partner.
(37) Includes 10,500 shares of Common Stock issuable upon exercise of
outstanding warrants.
(38) Includes 5,000 shares of Common Stock issuable upon exercise of outstanding
warrants.
(39) Includes 7,500 shares of Common Stock issuable upon exercise of outstanding
warrants.
(40) Includes 7,218 shares of Common Stock issuable upon exercise of outstanding
warrants.
(41) Includes 5,000 shares of Common Stock issuable upon exercise of outstanding
warrants. Does not include 8,163 shares of Common Stock issuable upon
conversion of outstanding Preferred Stock or 12,486 shares of Common Stock
issued for director services held by Mr. Gamble, individually.
(42) The Johanna E. Steil Marital Trust and the Johanna E. Steil Credit Trust
are trusts for the benefit of Peter J. Steil and members of his family.
Other shares deemed to be beneficially owned by Mr. Steil include (i) 1,000
shares of Common Stock in trust for his minor son; (ii) 1,000 shares of
Common Stock in trust for his minor daughter; (iii) 1,500 shares of Common
Stock owned by his spouse; (iv) 36,500 shares of Common Stock owned by him,
individually; (v) 3,700 shares of Common Stock held as custodian for his
minor son; (vi) 5,700 shares of Common Stock held as custodian for his
minor daughter; (vii) 1,000 shares owned by his mother-in-law. Beneficial
Ownership by the Johanna E. Steil Marital Trust and the Johanna E. Steil
Credit Trust each include 3,400 shares of Common Stock issuable upon
exercise of outstanding warrants. To the extent provided in the trust
instruments, Mr. Steil disclaims beneficial ownership of the shares owned
by the respective Trusts. Shares Beneficially Owned by Mr. Steil following
the offering include sales by the Marital Trust and the Credit Trust.
(43) Texas Capital Securities has acted as agent in connection with certain
private placements of the Company's securities. Includes 56,387 shares
issuable upon exercise of outstanding warrants. The beneficial owners of
Texas Capital Securities are Albert Sydney Bowers, III, Patrick Smetek,
David Smetek, Thomas Buckley, Thomas Recklang and Mike McGinnis.
(44) Includes 51,861 shares of Common Stock issuable upon conversion of
outstanding Preferred Stock. Also includes 70,000 shares of Common Stock
held in the name of Frederick S. Moore Living Trust UA Dtd Feb. 24, 1992
and Beneficial Ownership After the Offering reflects sales by the Living
Trust. See Note (45).
(45) Includes (i) 200,861 shares of Common Stock in the name of California
Central Trust Bank Ttee FBO Frederick S. Moore, of which 51,861 shares are
issuable upon conversion of outstanding Preferred Stock. Beneficial
Ownership After the Offering reflects sales by California Central Trust
Bank as Trustee. See Note (44).
(46) Includes (i) 50,000 shares of Common Stock held in the name of Francis L.
Gallagher, Ttee Drury J. Gallagher Trust FBO Children, as to which Drury
Gallagher may be deemed to be the beneficial owner but as to which he
disclaims beneficial ownership. Beneficial Ownership After the Offering
reflects sales by the Trustee for the

19
<PAGE>

Children's Trust. See Note (47).
(47) Does not include shares held directly by Drury J. Gallagher. See Note (46).
(48) Glenbrook Capital LLP is a limited liability partnership, the general
partner of which is Wickersham Asset Management.
(49) Mr. Bowling is a member of the Company's Board of Directors.
(50) Includes 267 shares of Common Stock issuable upon exercise of outstanding
warrants.
(51) Includes 1,000 shares of Common Stock issuable upon exercise of outstanding
warrants.
(52) Includes 400 shares of Common Stock issuable upon exercise of outstanding
warrants.
(53) Includes 800 shares of Common Stock issuable upon exercise of outstanding
warrants.
(54) Includes 1,350 shares of Common Stock issuable upon exercise of outstanding
warrants.
(55) Mr. Lovell is a member of the Company's Board of Directors.
(56) Includes 533 shares of Common Stock issuable upon exercise of outstanding
warrants.
(57) Includes 1,000 shares of Common Stock issuable upon exercise of outstanding
warrants.
(58) Includes 1,333 shares of Common Stock issuable upon exercise of outstanding
warrants.
(59) Includes 267 shares of Common Stock issuable upon exercise of outstanding
warrants.
(60) Includes 300 shares of Common Stock issuable upon exercise of outstanding
warrants.
(61) Includes 1,285 shares of Common Stock issuable upon exercise of outstanding
warrants.
(62) Includes 85,000 shares of Common Stock issuable upon exercise of currently
exercisable outstanding options. Mr. Byer is the Company's President and
Chief Operating Officer.
(63) Includes (i) 50,000 shares of Common Stock issuable upon exercise of
currently exercisable outstanding options; and (ii) 13,333 shares held in
the name of Lois Rutledge (aka Lois Pauly), Mr. Pauly's spouse, which she
owns as her separate property. Mr. Pauly disclaims beneficial ownership of
such shares. Beneficial Ownership After the Offering reflects sales of Mrs.
Pauly's shares. See Note (64). Mr. Pauly is a member of the Company's Board
of Directors.
(64) Lois Rutledge is also known as Lois Pauly, her married name. Includes (i)
174,295 shares of Common Stock held by John Pauly, Mrs. Pauly's spouse, as
his separate property; and (ii) 50,000 shares issuable upon exercise of
currently exercisable outstanding options granted to Mr. Pauly. Mrs. Pauly
disclaims beneficially ownership of such shares. Beneficial Ownership After
the Offering reflects sales of Mr. Pauly's shares. See Note (63).
(65) Includes 118,029 shares of Common Stock issuable upon exercise of
outstanding warrants. Morgan Fuller has acted as selling agent in
connection with certain of the Company's private placements of securities.

</FN>
</TABLE>
20
<PAGE>

DESCRIPTION OF SECURITIES

General

As of February 4, 1998, the Company is authorized to issue up to
55,000,000 shares of Common Stock, and 5,000,000 shares of Preferred Stock. As
of the date hereof, there are approximately 24,016,036 shares of Common Stock
issued and outstanding, held by approximately 700 shareholders of record; 791
shares of Series A Preferred Stock, held by 13 shareholders of record; and 1,143
shares of Series B Preferred Stock outstanding, held by 25 shareholders of
record.

Common Stock

The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted by shareholders. Upon giving notice as
required by law shareholders are entitled to cumulate votes in the election of
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor, subject to the preferences of the holders of the Preferred Stock, if
any. In the event of the liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities, subject to prior
distribution rights of the holders of Preferred Stock, if any, then outstanding.
Holders of shares of Common Stock, as such, have no conversion, preemptive or
other subscription rights, and there are no redemption provisions applicable to
the Common Stock. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable.

Preferred Stock

Shares of Preferred Stock may be issued from time to time in one or
more series with such designations, voting powers, if any, preferences and
relative, participating, optional or other special rights, and such
qualifications, limitations and restrictions thereof, as are determined by
resolution of the Board of Directors. The issuance of such shares of Preferred
Stock, while providing desired 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, holders of 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 value
of the Common Stock.

Series A Preferred Stock

In July 1993, the Company designated 1,500 shares of the Preferred
Stock as Series A. The holders of the Series A Preferred are entitled to receive
cumulative dividends at the rate of 10% of the original purchase price of the
Series A Preferred per annum, payable on a calendar quarterly basis, in
preference to any dividends on the Common Stock.

21
<PAGE>

The Series A Preferred is convertible, at the option of the holder, at
any time after the date of issuance, into shares of Common Stock at a conversion
price of $1.225. Each share of the Series A Preferred will be automatically
converted into Common Stock if at any time the holders of at least 67% of the
outstanding Series A Preferred vote to convert all such Preferred into Common
Stock.

The Series A Preferred is now subject to redemption at the option of
the Company. In the event that the Company redeems the Series A Preferred on or
before April 7, 1998, the redemption price will be equal to 106% of the original
purchase price of the Series A Preferred ($1,000), plus accumulated but unpaid
dividends to the date of redemption; thereafter, the redemption price shall be
equal to the original price of the Series A Preferred plus accumulated but
unpaid dividends to the date of redemption.

Each holder of the Series A Preferred has the right to vote that number
of shares equal to the number of shares of Common Stock issuable upon conversion
of such holder's Series A Preferred. The Series A Preferred shall vote with the
Common Stock on all matters, except as may be required under applicable law and
as follows. The Company is precluded, without first obtaining the approval of a
majority of the outstanding shares of the Series A Preferred, voting as a
separate class, from (i) engaging in any merger, consolidation, sale of
substantially all of its assets, or other reorganization in which the- holders
of Series A Preferred would not receive their full liquidation preference; (ii)
declaring any dividends on the Common Stock (except dividends payable solely in
Common Stock) while any Series A Preferred is outstanding; (iii) authorizing or
issuing shares of any class or series having rights, preferences, or privileges
senior to the Series A Preferred with respect to dividends, liquidation, or
redemption, or issuing any convertible debt instruments or debt instruments
together with warrants which if converted or exercised would have a preference
or priority as to dividends, liquidation, or redemption senior to the Series A
Preferred; (iv) amending the rights, preferences, privileges, or restrictions of
the Series A Preferred; or (v) reclassifying any shares of Common Stock or any
other shares of capital stock into shares having any preference or priority as
to dividends, liquidation, or redemption superior to the Series A Preferred.

In the event of any liquidation or winding up of the Company, the
holders of the Series A Preferred are entitled to receive, in preference to the
holders of Common Stock, an amount equal to the original purchase price per
share ($1,000) of the Series A Preferred plus accumulated but unpaid dividends.

Series B Preferred Stock

In September 1994, the Company designated 1,200 shares of the Preferred
Stock as Series B. All holders of the Series B Preferred are entitled to receive
cumulative dividends at the rate of 10% of the original purchase price of the
Series B Preferred per annum, payable on a calendar quarterly basis, after any
dividend payments required to be made to the Series A Preferred Stock, and in
preference to any dividends on the Common Stock.

The Series B Preferred is convertible, at the option of the holder, at
any time after the date

22
<PAGE>

of issuance, into shares of Common Stock at a conversion price of $0.781 per
share. Each share of the Series B Preferred will be automatically converted into
Common Stock if at any time the holders of at least 67% of the outstanding
Series B Preferred approve the conversion.

The Series B Preferred is subject to redemption at the option of the
Company at any time. In the event that the Company redeems the Series B
Preferred before January 13, 2000, the redemption price will be equal to 106% of
the original purchase price of the Series B Preferred ($1,000), plus accumulated
but unpaid dividends to the date of redemption; thereafter, the redemption price
shall be equal to the original price of the Series B Preferred plus accumulated
but unpaid dividends to the date of redemption.

Each holder of the Series B Preferred has the right to vote that number
of shares equal to the number of shares of Common Stock issuable upon
conversion. The Series B Preferred Stockholders are entitled to vote with the
holders of the Series A Preferred Stock and holders of Common Stock together as
a single class on all matters, except as may be required under applicable law
and as follows. The Company is precluded, without first obtaining the approval
of a majority of the outstanding shares of the Series B Preferred, voting as a
separate class, from (i) engaging in any merger, consolidation, sale of
substantially all of its assets, or other reorganization in which the holders of
Series B Preferred would not receive their full liquidation preference; (ii)
declaring any dividends on the Common Stock (except dividends payable solely in
Common Stock) while any Series B Preferred is outstanding; (iii) authorizing or
issuing shares of any class or series having rights, preferences, or privileges
senior to the Series B Preferred with respect to dividends, liquidation, or
redemption, or issuing any convertible debt instruments or debt instruments
together with warrants which if converted or exercised would have a preference
or priority as to dividends, liquidation, or redemption senior to the Series B
Preferred; (iv) amending or repealing any provision of, or adding any provision
to, the Company's articles of incorporation or by-laws if such action would
alter or change the preferences, rights, privileges, or powers of, or the
restrictions provided for the benefit of, the Series B Preferred materially and
adversely; or (v) reclassifying any shares of Common Stock or any other shares
of capital stock into shares having any preference or priority as to dividends,
liquidation preference, or redemption rights superior to any such preference or
priority of the Series B Preferred.

In the event of any liquidation or winding up of the Company, the
holders of the Series B Preferred are entitled to receive, in preference to the
holders of Common Stock but subject to the rights of the Series A Preferred
Stock on liquidation, an amount equal to the original purchase price per share
($1,000) of the Series B Preferred plus accumulated but unpaid dividends.

Warrants; Price Anti-Dilution

Between September 1995 and March 1996, the Company issued Warrants to
purchase Common Stock, which were issued as a component of Units of Common Stock
and Warrants sold to investors through a private placement. Each Warrant
entitles the holder to purchase one-half of one share of Common Stock and is
exercisable through September 11, 2005, subject to the satisfaction of one or
both of the following conditions:

23
<PAGE>

(i) 50% of the total number of Warrants held by the investor will
become exercisable if, within three years of September 11, 1995 (the "Original
Issuance Date"), the Company issues Common Stock or securities convertible into
Common Stock at a price below the Unit Offering Price of $1.10. The exercise
price of such Warrants vested in accordance with this paragraph (i) is equal to
the price offered to the investors in the subsequent financing. This condition
has been satisfied, and the warrants are exercisable at $0.25 per share, which
is equal to 100% of the price of shares sold in a private placement in April
1997.

(ii) 50% of the total number of Warrants held by the investor will
become exercisable if, within two years of the Original Issuance Date, the
Company's Common Stock is not quoted on the Nasdaq SmallCap Market (or, at the
Company's sole discretion, the Nasdaq National Market). The exercise price of
such Warrants vested in accordance with this paragraph (ii) will be equal to the
Unit Offering Price of $1.10. This condition has been satisfied, and the
warrants are exercisable at $1.10 per share.

A total of 2,709,186 shares of Common Stock are issuable upon exercise
of these Warrants.

In connection with the private placement issuance of Common Stock in
1995 and 1996, the Company issued for services rendered warrants to acquire
225,765 shares of Common Stock at $1.32 per share. The warrants are fully
exercisable and expire March 26, 2001. In addition, the Company issued to the
selling agent in a private placement warrants to purchase Common Stock entitling
the holders thereof to purchase an aggregate of 218,500 shares of Common Stock.
These warrants are exercisable at $0.25 per share (equal to the offering price
of the shares) and will be exercisable until March 31, 2002. In connection with
the closing of a private placement, the Company issued an additional 160,000
warrants, exercisable at $0.375 per share (equal to the offering price of the
shares in the subject offering), which warrants are exercisable until November
13, 2002. A further 160,000 warrants, also exercisable at $0.375 per share, were
also issued. These warrants expire on November 13, 2002.

24
<PAGE>

PLAN OF DISTRIBUTION

This Prospectus covers the resale of all or a portion of the Shares by
the Selling Shareholders, or by their pledgees, donees, transferees or other
successors in interest. Such sales may be made on one or more exchanges (if the
Common Stock is then listed, which it is not as of the date hereof) or in the
over-the-counter market, or otherwise at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The Shares may be sold by one or more of the following: (i) a
block trade in which the broker or dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (ii) purchase by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(iii) an exchange distribution in accordance with the rules of such exchange, if
the Company's Common Stock is then listed on an exchange, which it is not as of
the date hereof; (iv) ordinary brokerage transactions and transactions in which
the broker solicits purchasers, (iv) in negotiated transactions or otherwise, or
a combination of such methods. In effecting sales, brokers or dealers engaged by
the Selling Shareholders may arrange for other brokers or dealers to
participate. Brokers or dealers will receive commissions or discounts from
Selling Shareholders in amounts to be negotiated immediately prior to the sale.

The Common Stock covered by this Prospectus may be sold under Rule 144
instead of under this Prospectus. In general, under Rule 144, "restricted
securities" may be sold after a one-year holding period in ordinary market
transactions through a broker or with a market maker subject to volume
limitations as follows: within any three-month period, a number of shares may be
sold which does not exceed the greater of 1% of the number of outstanding shares
of Common Stock or the average of the weekly trading volume of the Common Stock
during the four calendar weeks prior to such sale. Sales under Rule 144 require
the filing of a Form 144 with the Securities and Exchange Commission. However,
if the shares have been held for more than two years by a person who is not an
"affiliate", there is no limitation on the manner of sale or the volume of
shares that may be sold and no such filing is required.

The Selling Shareholders have been advised by the Company that during
the time each is engaged in distribution of the Common Stock covered by this
Prospectus, each must comply with Rule 10b-5, Rule 102, Rule 104 and Rule 105
under the Exchange Act, and pursuant thereto: (i) each must not engage in any
stabilization activity in connection with the Company's securities; (ii) each
must furnish each broker through which the Common Stock covered by this
Prospectus may be offered the number of copies of this Prospectus and the
accompanying Annual Report and Quarterly Report which are required by each
broker; and (iii) each must not bid for or purchase any securities of the
Company or attempt to induce any person to bid for or purchase any of the
Company's securities or engage in certain short selling activities other than as
permitted under the Exchange Act.

The Company will amend or supplement this Prospectus in the following
circumstances and to the following extent: (i) if the securities are to be sold
at a price other than the prevailing market price, to disclose such price; (ii)
if the securities are to be sold in block transactions and

25
<PAGE>

the purchaser intends to resell, to disclose the nature and extent of such
arrangements; or (iii) if the compensation to be paid to broker-dealers is other
than usual and customary discounts, concessions or commissions, to disclose the
terms of such broker-dealer compensation. In the above-circumstances, no offers
or sales may be made by the Selling Shareholder until an effective amendment or
prospectus supplement is available.

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

The Company will not receive any portion of the proceeds of the Common
Stock sold by the Selling Shareholders. There is no assurance that the Selling
Shareholders will sell any or all of the Common Stock offered hereby.

LEGAL MATTERS

The validity of the Securities offered hereunder will be passed upon
for the Company by Grover T. Wickersham, P.C., Palo Alto, California.

EXPERTS

The financial statements of the Company at December 31, 1996 and 1995
and for the years then ended have been incorporated herein by reference in
reliance upon the report of Grant Thornton LLP, Independent Certified Public
Accountants, and upon the authority of said firm as experts in auditing and
accounting.

The financial statements of the Company for the year ended December 31,
1994 have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon (which contains an explanatory paragraph describing
conditions that raise substantial doubt about the Company's ability to continue
as a going concern as described in Note 1 to the financial statements) included
therein and incorporated herein by reference. Such statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.

26
<PAGE>

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

No person is authorized to give any information or to make any
representations other than those contained in this Prospectus, and if given or
made must not be relied upon as having been authorized. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Shares offered by this Prospectus or an offer to sell or a
solicitation of an offer to buy the Shares in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstance create any implication that there have been no changes in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to this date.

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

TABLE OF CONTENTS

Page
----
Additional Information .................... 2
Incorporation of Certain Information
by Reference ............................ 3
Annual and Quarterly Reports .............. 4
Disclosure Regarding Forward-Looking
Statements .............................. 5
Prospectus Summary ........................ 6
Risk Factors .............................. 9
Use of Proceeds ........................... 13
Selling Shareholders ...................... 14
Description of Securities ................. 21
Plan of Distribution ...................... 25
Legal Matters ............................. 26
Experts ................................... 26

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

16, 525,998 Shares

POWER SPECTRA, INC.

Common Stock

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

PROSPECTUS

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

, 1998

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

<PAGE>

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

The expenses payable by the Registrant in connection with the issuance
and distribution of the securities being registered are estimated to be as
follows:

SEC registration fee ......................................... $27,423
Accounting fees and expenses ................................. 5,000*
Legal fees and expenses ...................................... 20,000*
Blue sky legal fees and expenses ............................. 1,000*
Miscellaneous expenses ....................................... 3,000*
--------
Total .................................................. $56,423
========
- --------------
* Estimated expenses

Item 15. Indemnification of Directors and Officers

As permitted by the General Corporation Law of California (the
"Corporations Code"), the Company's Articles of Incorporation eliminate, to the
fullest extent permitted under California law, the personal liability of a
director to the Company for monetary damages in an action brought by or in the
right of the Company for breach of a directors' duties to the Company and its
shareholders. Under current California law, liability is not eliminated for (i)
acts or omissions that involve intentional misconduct or a knowing and culpable
violation of law; (ii) acts or omissions that a director believed to be contrary
to the best interest of the corporation or its shareholders or that involve the
absence of good faith on the part of the director; (iii) any transaction from
which a director derived an improper personal benefit; (iv) acts or omissions
that show a reckless disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware, or should have
been aware, in the ordinary course of performing a director's duties, of a risk
of serious injury to the corporation or its shareholders; (v) acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its shareholders; (vi)
contracts or other transaction between corporations and directors having
interrelated directors in violation of Section 310 of the Corporations Code; and
(vii) distributions, loans or guarantees made in violation of Section 316 of the
Corporations Code.

In addition, the Company's Articles of Incorporation and Bylaws provide
for indemnification, to the fullest extent permitted under the Corporations
Code, of directors, officers and agents of the Company and persons who serve at
the request of the Company as a

II-1

<PAGE>

director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.

The Company has also entered into indemnification agreements with its
directors and executive officers, as permitted under the Bylaws. The
indemnification agreements provide that the directors and executive officers
will be indemnified to the fullest extent permitted by applicable law against
all expenses (including attorneys' fees), judgments, fines and amounts
reasonably paid or incurred by them for settlement in any threatened, pending or
completed action, suit or proceeding, including any derivative action, on
account of their services as a director or executive officer of the Company of
any subsidiary of the Company or of any other company or enterprise in which
they are serving at the request of the Company. No indemnification will be
provided under the indemnification agreements, however, to any director or
executive officer in certain limited circumstances, including knowingly
fraudulent, deliberately dishonest or willful misconduct.

Insofar as indemnification for liabilities under the Securities Act of
1933, as amended (the "Act") may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.

II-2
<PAGE>

Item 16. Exhibits

3.0(1) Amended and Restated Articles of Incorporation of the
Registrant, as filed with the California Secretary of State,
November 28, 1988.

3.1(9) Certificate of Amendment of Amended and Restated Articles of
Incorporation of the Registrant, as filed with the California
Secretary of State, August 30, 1993.

3.2(9) Certificate of Determination of Preferences of Series A
Preferred Stock of the Registrant, as filed with the
California Secretary of State, August 30, 1993.

3.3(7) Certificate of Determination of Preferences of Series B
Preferred Stock of the Registrant , as filed with the
California Secretary of State, January 4, 1995.

3.4(11) Certificate of Amendment of Amended and Restated Articles of
Incorporation of the Registrant, as filed with the California
Secretary of State, April 4, 1997.

3.5(3) Bylaws of Registrant.

5.1 Opinion of Grover T. Wickersham, P.C. re legality

10.0(2)(6) 1986 Incentive Stock Option Plan as amended and forms of
incentive and non-statutory stock option agreements.

10.1(4) Research Agreement between Registrant and The Boeing Company.

10.2(3) Form of Indemnification Agreement, entered into by the
Registrant with each of its executive officers and directors.

10.3(3)(6) 1989 Director Incentive Stock Plan.

10.4(6)(8) 1991 Director Stock Plan.

10.5(5)(6) Director Option Plan.

10.6(9) Power Spectra, Inc. Series A Securities Purchase Agreement,
dated April 7, 1993.

10.7(7) Power Spectra, Inc. Series B Securities Purchase Agreement,
dated January 13, 1995.

10.8 Ground Penetrating Radar Development Agreement dated June 19,
1996, between the Registrant and European Industries
Associates.

II-3
<PAGE>

10.9(10) GPR Systems Development, Sale and License Agreement dated
December 17, 1996 between the Registrant and LandRay
Technologies, Inc.

10.10(11) Letter Agreement amending GPR Systems Development, Sale and
License Agreement dated March 13, 1997 between the Registrant
and LandRay Technologies, Inc.

10.11(11) Registration Rights Agreement, dated April 11, 1997 among the
Registrant and certain investors.

10.12 Registration Rights Agreement, dated, variously, September 30,
1997, October 31, 1997 and November 13, 1997 among the
Registrant and certain investors.

10.13(12) Research Agreement between the Registrant and The Boeing
Company, as amended September 17, 1997

11.1(11) Computation of Loss per Share.

13.1 Registrant's Annual Report on Form 10-K for its fiscal year
ended December 31, 1996.

13.2 Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1997.

13.3 Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1997.

13.4 Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1997.

23.1 Consent of Grant Thornton LLP, independent certified public
accountants (see page II-9 of the Registration Statement)

23.2 Consent of Ernst & Young LLP, independent auditors (see page
II-10 of the Registration Statement)

23.3 Consent of Grover T. Wickersham, P.C. (included in Exhibit
5.1, above)

25 Power of Attorney (included on page II-7 of the Registration
Statement)
(See footnotes on following page.)

II-4
<PAGE>

- -----------
(1) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988.
(2) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 filed September 1, 1989 (No. 33-30855).
(3) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989.
(4) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988. Confidential treatment granted
as to portions of this agreement.
(5) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 filed on January 21, 1993 (No. 33-57280).
(6) Managerial contract or compensatory plan or arrangement in which the
Company's directors or officers participate.
(7) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
(8) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 filed on December 26, 1996 (No. 33-18837).
(9) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
(10) Confidential treatment has been requested as to portions of this Agreement.
(11) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
(12) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the Period Ended September 30, 1997.

Item 17. Undertakings

(a) Rule 415 Offering

The Registrant hereby undertakes:

(1) To file during any period in which offers or
sales
are being made, a post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section
10(a)(3) of the Securities Act
of 1933, as amended (the " Securities Act");

(ii) Reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;

(iii) Include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;

II-5
<PAGE>

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in the registration
statement.

(2) That for purposes of determining any liability
under the Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.

(b) Filings Incorporating Subsequent Exchange Act Documents by
Reference

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934, as amended) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer 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, 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.

II-6
<PAGE>

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Sunnyvale, California, on February 4, 1998.

POWER SPECTRA, INC.

By: /s/ Gordon H. Smith
----------------------------------------------
Gordon H. Smith
Chairman of the Board and Chief Executive
Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Gordon H. Smith and Edward J.
Lamb, and each of them, his attorneys-in-fact and agents, each with full power
of substitution, for him/her and in his/her name, place and stead, in any and
all capacities, to sign any or all amendments to this Registration Statement on
Form S-2, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
with this Registration Statement, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that any of
said attorneys-in-fact and agents, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

(Principal Executive Officer)

/s/ Gordon H. Smith Chief Executive Officer February 4, 1998
- ------------------------------- and Chairman of the Board
Gordon H. Smith

II-7
<PAGE>

(Principal Financial and
Accounting Officer)

/s/ Edward J. Lamb Chief Financial Officer,
- ------------------------------- Controller and Secretary February 4, 1998
Edward J. Lamb

/s/ Harold T. Bowling Director February 4, 1998
- -------------------------------
Harold T. Bowling

/s/ James A. Glaze Director February 4, 1998
- -------------------------------
James A. Glaze

/s/ Jay W. Hubbard Director February 4, 1998
- -------------------------------
Jay W. Hubbard

/s/ Gene J. Kennedy Director February 4, 1998
- -------------------------------
Gene J. Kennedy

/s/ James A. Lovell, Jr. Director February 4, 1998
- -------------------------------
James A. Lovell, Jr.

/s/ John W. Pauly Director February 4, 1998
- -------------------------------
John W. Pauly

II=8

GROVER T. WICKERSHAM
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
430 CAMBRIDGE AVENUE, SUITE 100
PALO ALTO, CALIFORNIA 94306
GROVER T. WICKERSHAM TELEPHONE: (650) 323-6400
DEBRA K. WEINER FAX: (650) 323-1108

February 5, 1998

Power Spectra, Inc.
919 Hermosa Court
Sunnyvale, CA 94086

Gentlemen:

We refer to the Registration Statement on Form S-2 (the "Registration
Statement") of Power Spectra, Inc., a California corporation (the "Company"),
filed with the Securities and Exchange Commission (the "Commission") on or about
February 6, 1998 covering the registration under the Securities Act of 1933, as
amended (the "Act") of an aggregate of 16,525,998 shares of common stock, no par
value, of the Company (the "Shares") for resale by certain selling shareholders
of the Company (the "Selling Shareholders").

We have examined the Registration Statement, the Articles of
Incorporation and Bylaws of the Company and such records, certificates and other
documents as we have considered necessary or appropriate for the purposes of
this opinion.

Based on the foregoing, it is our opinion that:

1. The Company is duly organized, validly existing and in good
standing under the laws of the State of California; and

2. The Shares issued to the Selling Shareholders or issuable
upon exercise of outstanding warrants as described in the Registration Statement
are duly authorized and are (or will be, when issued in accordance with the
terms of the respective instruments) validly issued, fully paid and
nonassessable.

We hereby consent to the use of our name in the Registration Statement
under the caption "Legal Matters," as counsel who will pass upon the legality of
the Shares for the Company and to the filing of this opinion as an exhibit to
the Registration Statement. In giving this consent, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or the Rules and Regulations promulgated thereunder.

This opinion is rendered solely for your benefit and for the benefit of
the purchasers of

<PAGE>

the Shares being registered on the Registration Statement in connection with the
subject transaction and is not to be otherwise used, circulated, quoted or
referred to without our prior written consent.

Very truly yours,

Grover T. Wickersham, P.C.

Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-2 of our report dated
February 21, 1997 (except for Note 10, as to which the date is April 10, 1997),
which appears on page F-1 of the Annual Report on Form 10-K for the Year Ended
December 31, 1996 of Power Spectra, Inc., which is incorporated by reference in
this Registration Statement and Prospectus. We also consent to the reference of
our firm under the captions "Summary Financial Information" and "Experts" in the
Registration Statement and Prospectus.

Grant Thornton LLP

San Jose, California
February 5, 1998

II-9

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference of our firm under the captions "Summary Financial
Information" and "Experts" in the Registration Statement (Form S-2) and related
Prospectus of Power Spectra, Inc. for the registration of 16,525,998 shares of
its common stock and to the incorporation by reference therein of our report
dated February 17, 1995 (except for Note 3, as to which the date is April 7,
1995), with respect to the financial statements of Power Spectra, Inc. included
in its Annual Report (Form 10-K) for the year ended December 31, 1996, filed
with the Securities and Exchange Commission.

Ernst & Young LLP

San Jose, California
February 5, 1998

II-10