TELENETICS CORP, S-3/A, 2000-09-28

TELENETICS CORP
S-3/A, 2000-09-28
TELEPHONE & TELEGRAPH APPARATUS

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<PAGE>

As filed with the Securities and Exchange Commission on September 28, 2000
Registration No. 333-42218
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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

AMENDMENT NO. 1
TO
FORM S-3

REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933

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

TELENETICS CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)

CALIFORNIA 33-0061894
------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

25111 ARCTIC OCEAN
LAKE FOREST, CA 92630
(949) 455-4000
------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including
Area Code, Of Registrant's Principal Executive Offices)

TERRY PARKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TELENETICS CORPORATION
25111 ARCTIC OCEAN
LAKE FOREST, CA 92630
(949) 455-4000
----------------------------------------------------------
(Name, Address, Including Zip Code, And Telephone Number,
Including Area Code, Of Agent For Service)

Copies to:
LARRY A. CERUTTI, ESQ.
CRISTY LOMENZO PARKER, ESQ.
RUTAN & TUCKER, LLP
611 ANTON BOULEVARD, 14TH FLOOR
COSTA MESA, CALIFORNIA 92626
(714) 641-5100

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

>From time to time after this Registration Statement becomes effective.

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

If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]

If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]

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

<PAGE>

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

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Shares Amount to Aggregate Price Aggregate Registration
to be Registered be Registered(1) per Unit(2) Offering Price(2) Fee(3)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, no par value 2,080,857 (4) $4.20 $8,739,599.40 $2,307.25
===================================================================================================================
</TABLE>

(1) In the event of a stock split, stock dividend or similar transaction
involving common stock of the Registrant, in order to prevent dilution, the
number of shares registered shall be automatically increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act
of 1933.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, on the basis of
the high and low reported prices of the Registrant's common stock on
July 18, 2000.

(3) A registration fee in the amount of $2,331.65 has previously been paid.

(4) Represents shares of common stock being offered by selling security
holders, including shares issuable upon exercise of outstanding options and
warrants to purchase shares of common stock of the Registrant.

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

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

<PAGE>

SUBJECT TO COMPLETION DATED SEPTEMBER 28, 2000

PROSPECTUS

Telenetics Corporation

2,080,857 Shares of Common Stock

The shares of common stock, no par value, being offered pursuant to this
prospectus are being offered by the selling security holders identified in this
prospectus for their own accounts. We will not receive any proceeds from the
sale of the shares by the selling security holders. However, we will receive the
proceeds from any exercises of stock purchase warrants or options that are
exercised with cash by the selling security holders in exchange for shares of
common stock being offered pursuant to this prospectus.

Our common stock trades on the Nasdaq SmallCap Market under the symbol
"TLNT." See "Plan of Distribution" beginning on page 21 for a more detailed
discussion of the intended methods of sale.

Our principal executive offices are located at 25111 Arctic Ocean, Lake
Forest, California 92630, and we may be reached at (949) 455-4000.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.

The information in this prospectus is not complete and may be changed. The
selling security holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission, of which this
prospectus is a part, is declared effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.

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

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

, 2000

<PAGE>

You should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with
information that is different. This document may be used only when it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

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

TABLE OF CONTENTS

PAGE
----

Available Information...................................................... 3
Incorporation of Certain Documents by Reference............................ 4
Risk Factors............................................................... 5
Special Note Regarding Forward-Looking Statements.......................... 12
Description of Capital Stock............................................... 13
Resales of Shares Covered by This Prospectus............................... 14
Use of Proceeds............................................................ 15
Principal and Selling Security Holders..................................... 16
Plan of Distribution....................................................... 21
Indemnification of Directors and Officers.................................. 22
Legal Matters.............................................................. 24
Experts.................................................................... 24
Transfer Agent and Registrar............................................... 24

<PAGE>

AVAILABLE INFORMATION

We are subject to the informational requirements of the Securities Exchange
Act of 1934, or the Exchange Act. We file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission, or SEC. Our SEC filings are available to the public over the
Internet at the SEC's website at http://www.sec.gov. Our web site is at
http://www.telenetics.com.

You may also read and copy any document we file with the SEC at its public
reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's Midwest Regional Offices at 500 West Madison Street, Chicago, Illinois
60606 and Northeast Regional Office at 7 World Trade Center, New York, New York
10048. You can also obtain copies of such material at prescribed rates from the
Public Reference Section of the SEC at its principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities.

This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information specifically incorporated by reference
or provided in this prospectus. We have not authorized anyone else to provide
you with different information. The selling security holders may not make an
offer of the shares being offered hereby in any state where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this document.

All trademarks or trade names referred to in this prospectus are the
property of their respective owners.

<PAGE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we will file
later with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below:

o Annual Report on Form 10-KSB for the year ended December 31,
1999.

o Quarterly Report on Form 10-QSB for the quarter ended March
31, 2000.

o Quarterly Report on Form 10-QSB/A No. 1 for the quarter
ended March 31, 2000.

o Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2000.

o Current Report on Form 8-K filed with the SEC on January 21,
2000.

o Current Report on Form 8-K/A No. 1 filed with the SEC on
March 22, 2000.

o Current Report on Form 8-K filed with the SEC on
September 27, 2000.

We also incorporate by this reference any subsequent filings we make with
the SEC prior to the termination of this offering pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act. Such documents filed with the SEC after
the date of this prospectus are made a part of this prospectus as of the date
such documents are filed with the SEC.

Any statement in a document incorporated or deemed to be incorporated by
reference in this prospectus is deemed to be modified or superseded to the
extent that a statement contained in this prospectus, or in any other document
we subsequently file with the SEC, modifies or supersedes such statement. If any
statement is so modified or superseded, it does not constitute a part of this
prospectus, except as so modified or superseded.

You may request a copy of the documents incorporated by reference in this
prospectus, other than exhibits to such documents, at no cost, by writing to or
telephoning us at the following address:

Telenetics Corporation
Attention: David Stone, Chief Financial Officer
25111 Arctic Ocean
Lake Forest, California 92630
(949) 455-4000

<PAGE>

RISK FACTORS

An investment in our common stock involves a high degree of risk. In
addition to the other information contained in this prospectus, the following
factors should be considered carefully in evaluating our business and prospects.

WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT WHICH MAY CONTINUE IN THE
FUTURE AND WHICH MAY ADVERSELY IMPACT OUR BUSINESS AND OUR SHAREHOLDERS.

We have incurred net losses in each fiscal year since our inception, with
the exception of the fiscal year ended March 31, 1998, in which we realized
nominal net income of $94,000. For the nine month transition period ended
December 31, 1998, we reported a net loss of $249,000. Our accumulated deficit
through December 31, 1999 was $12.8 million, and as of that date we had a total
shareholders' equity of $663,000. We realized a net loss of $1.1 million for the
twelve months ended December 31, 1999, as compared to incurring a net loss of
$204,000 for the twelve months ended December 31, 1998. For the six months ended
June 30, 2000, we reported a net loss of $3.9 million. Our accumulated deficit
through June 30, 2000 was approximately $16.8 million, and as of that date we
had a total shareholders' equity of approximately $4.4 million. We expect our
losses to continue during the remaining two quarters of 2000. We also expect
that our losses may continue further into the future. There is no assurance that
we will attain profitable operations in the future.

WE MAY NEED AND BE UNABLE TO OBTAIN ADDITIONAL FUNDING ON SATISFACTORY TERMS,
WHICH COULD DILUTE OUR SHAREHOLDERS OR IMPOSE BURDENSOME FINANCIAL RESTRICTIONS
ON OUR BUSINESS.

Historically, we have relied upon cash from financing activities to fund
most of the cash requirements of our operating and investing activities.
Although we have been able to generate some cash from our operating activities
in the past, there is no assurance we will be able to continue to do so in the
future. While we believe that cash flow from operations and our financing
available through our equity line of credit with HHL will be adequate to fund
our continuing operations for the next twelve months, we further believe that
additional sources of liquidity through debt and/or equity financing may be
required to fund our plans to exploit the technology we obtained in connection
with our acquisition of eflex and to fund other plans for future growth. Any
future financing may not be available on a timely basis, in sufficient amounts
or on terms acceptable to us. Any future financing may also dilute existing
shareholders. Any debt financing or other financing of securities senior to
common stock will likely include financial and other covenants that will
restrict our flexibility. At a minimum, we expect these covenants to include
restrictions on our ability to pay dividends on our common stock. Any failure to
comply with these covenants would have a material adverse effect on our
business, prospects, financial condition, results of operations and cash flows.

If adequate funds are not available, we may also be required to delay,
scale back or eliminate our product development efforts or to obtain funds
through arrangements with strategic partners or others that may require us to
relinquish rights to certain of our technologies or potential products or other
assets. Accordingly, the inability to obtain such financing could result in a
significant loss of ownership and/or control of our proprietary technology and
other important assets and could also adversely affect our ability to continue
our product development efforts, which we believe contribute significantly to
our competitive advantage. If any of such circumstances were to arise, our
business, prospects, financial condition, results of operations and cash flows
could be materially and adversely affected.

<PAGE>

OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY NEGATIVELY IMPACT OUR STOCK PRICE.

Our quarterly results have varied significantly in the past and will likely
continue to do so in the future due to a variety of factors, many of which are
beyond our control, including the timing and nature of revenues from product
sales that are recognized during any particular quarter, the impact of price
competition on our average selling prices, the availability and pricing of
components for our products, market acceptance of new product introductions by
us and our competitors, the timing of expenditures in anticipation of future
sales, product returns, the financial health of our customers, the overall state
of the modem and wireless communication and device products industry and
economic conditions generally. The volume and timing of orders received during a
quarter are difficult to forecast. As a result, it is likely that in some future
periods our operating results will be below the expectations of securities
analysts and investors. If this happens, the trading price of our common stock
would likely be materially and adversely affected.

OUR OPERATING RESULTS ARE SIGNIFICANTLY DEPENDENT UPON THE ACCEPTANCE BY THE
UTILITY INDUSTRY OF OUR SYSTEM.

We offer automatic meter reading, or AMR, and other remote monitoring
products and services and data generated from such services to utilities,
transportation industry and other such entities. Our success will be almost
entirely dependent upon whether these parties accept our solution for their AMR
or other data acquisition requirements and whether they allow us to install
wireless data networks for servicing a substantial number of endpoint monitoring
devices including utility meters. The automation of utility meter reading and
data distribution is a relatively new and rapidly changing market. We believe
that, as the utility industry becomes more competitive through various
deregulation and privatization initiatives, there will be an increased need for
more accurate, timely and efficient collection of consumption and other
operating data. This will ultimately accelerate the adoption of AMR, data
collection and data distribution systems and techniques. However, this is
entirely dependent upon decisions made by utilities, other utility industry
participants and utility customers over whom we have no control. We cannot
accurately predict the size of this market or our potential growth. Our system
is one possible solution for AMR and data distribution. It has not been adopted
as an industry standard and it may not be adopted on a broad scale. Competing
systems have been and likely will continue to be selected by utilities and other
potential clients. In the event utilities, other utility industry participants
and utility customers do not adopt our technology or do so less rapidly than
expected by us, our future financial results, including our ability to service
our indebtedness and achieve positive cash flow or profitability, will be
materially and adversely affected.

Participants in the utility industry have historically been cautious and
deliberate in making decisions concerning the adoption of new technology. This
process, which can take up to several years to complete, may include the
formation of evaluation committees, a review of different technical options,
technology trials, equipment testing and certification, performance and cost
justifications, regulatory review, one or more requests for vendor quotes and
proposals, budgetary approvals and other steps. Although deregulation and
privatization initiatives may ultimately accelerate the adoption of our
technology, the timing and extent of such adoption cannot be predicted. Only a
limited number of utilities have made a commitment to purchase our products and
services to date. If we do not enter into additional product and/or service
contracts or enter into contracts on terms favorable to us, our business,
operating results, financial condition, cash flows and our ability to service
our indebtedness will be materially and adversely affected.

<PAGE>

OUR LACK OF DIVERSIFICATION MAY AFFECT OUR BUSINESS IF DEMAND IS REDUCED.

A substantial portion of our business is centered on the sale of modems and
similar data communication devices, which typically accounts for over 90% of our
total revenues. Although our customers typically standardize the unique or
special components that are manufactured for them by or through us to be
incorporated in the customers' end product, in most cases we do not have
long-term contracts with our customers. Accordingly, we are highly dependent on
the successful sales of these types of products. A significant reduction in
sales of these products resulting from changes in the industry, including the
entry of new competitors into the market, from the introduction of new or
improved technology or an unanticipated shift in the needs of our customers, or
for other reasons, would have a material adverse effect on our business,
prospects, financial condition, results of operations and cash flows.

WE RELY ON A RELATIVELY LIMITED NUMBER OF CUSTOMERS, AND THE LOSS OF ANY
SIGNIFICANT CUSTOMER COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS AND
FINANCIAL CONDITION.

We derive a significant portion of our revenues from a relatively limited
number of customers. We anticipate that our five or six largest customers will
continue to account for the majority of our revenues for the foreseeable future.
The loss of any one or more of these major customers would likely have a
material adverse effect on our business, prospects, financial condition, results
of operations and cash flows.

OUR BUSINESS COULD SUFFER IF WE ARE UNABLE TO OBTAIN COMPONENTS OF OUR PRODUCTS
FROM OUTSIDE SUPPLIERS.

The major components of our products include circuit boards,
microprocessors, chipsets and memory components. Most of these components are
available from multiple sources. However, certain components used in our
products are currently obtained from single or limited sources. Certain modem
chipsets used in our data communications products have been in short supply and
are frequently on allocation by semiconductor manufacturers. Similar to others
in the modem industry, we have, from time to time, experienced difficulty in
obtaining certain components. We do not have guaranteed supply arrangements with
any of our suppliers, and there can be no assurance that these suppliers will
continue to meet our requirements. Shortages of components could not only limit
our production capacity but also could result in higher costs due to the higher
costs of components in short supply or the need to utilize higher cost

<PAGE>

substitute components. An extended interruption in the supply of any of these
components or a reduction in their quality or reliability would have a material
adverse effect on our financial condition and results of operations. While we
believe that with respect to our single source components we could obtain
similar components from other sources, we could be required to alter product
designs to use alternative components. There can be no assurance that severe
shortages of components will not occur in the future that could increase the
cost or delay the shipment of our products and have a material adverse effect on
our financial condition and results of operations. Significant increases in the
prices of these components could also have a material adverse effect on our
results of operations because we may not be able to adjust product pricing to
reflect the increases in component costs.

WE RELY HEAVILY ON OUR KEY EMPLOYEES, AND THE LOSS OF THEIR SERVICES COULD
MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.

Our success is highly dependent upon the continued services of key members
of our management, including our Chairman of the Board, Shala Shashani, our
President and Chief Executive Officer, Terry Parker, our Chief Operating
Officer, John McLean, and our Chief Financial Officer, David Stone. The loss of
Ms. Shashani, Mr. Parker, Mr. McLean or Mr. Stone or one or more other key
members of management could have a material adverse effect on us. We have not
entered into any employment agreement with any executive officer of our company
other than a written employment offer with Mr. Stone and an employment agreement
with Mr. McLean in his capacity as President of our company's telemetry
division. We do not maintain key-man life insurance policies on any member of
management.

THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE, AND OUR GROWTH PROSPECTS
COULD BE MATERIALLY AND ADVERSELY AFFECTED IF WE ARE UNSUCCESSFUL IN OUR EFFORTS
TO COMPETE.

Electronics, communications and utility product companies are beginning to
develop various wireless network meter reading systems as a result of the
deregulation of the electric utility industry and the potential market for other
applications once a common infrastructure is in place. A number of these systems
currently compete, and others may in the future compete, with our system.
Deregulation will likely cause competition to increase. We believe that at this
time our most significant direct competitor in the marketplace is Itron, an
established manufacturer and seller of hand-held and drive-by AMR equipment for
utilities. Itron is currently providing to customers its Genesis(TM) system, a
wireless radio network marketed as similar to ours for meter reading purposes.
There are other potential alternative solutions to our network meter reading
services, including traditional wireless solutions. Many of our present and
potential future competitors may have substantially greater financial,
marketing, technical and manufacturing resources, name recognition and
experience than us. Our competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements or to devote
greater resources to the development, promotion and sale of their products and
services than us. While we believe our technology, including AirWave(TM), is
widely regarded as competitive at the present time, our competitors may
successfully develop products, technologies or software that are better or more
cost effective. In addition, current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves

<PAGE>

or with third parties that increase their ability to address the needs of our
prospective customers. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. In addition, if we achieve significant success it
could draw additional competitors into the market. Providers of wireless
services may in the future choose to enter our markets. Such existing and future
competition could materially and adversely affect the pricing for our products
and services and our ability to sign new services contracts and maintain
existing agreements. Competition for services relating to non-utility
applications may be more intense than competition for network meter reading
services, and additional competitors may emerge as we continue to develop
non-utility applications. We may be unable to compete successfully against
current and future competitors, and any failure to do so would have a material
adverse effect on our business, operating results, financial condition and cash
flows.

OUR INABILITY TO SUCCESSFULLY DEVELOP AND EXPAND OUR SYSTEM COULD MATERIALLY AND
ADVERSELY AFFECT OUR BUSINESS.

Our initial target market is the monitoring, control and automation of
utilities' electric, gas and water meters and distribution networks. Unforeseen
problems may occur with respect to our technology, products or services, and we
may not successfully complete the development and commercial implementation of
our technology on a wide scale. We must continue to expand and upgrade our
ability to implement successfully our wireless networks. We may not be able to
develop successfully a full range of endpoint devices. Our future success will
also depend, in part, on our ability to enhance our existing hardware, software
and wireless communications technology. Significant technological advances occur
rapidly and frequently in the telecommunications industry. The advent of
computer-linked electronic networks, fiber optic transmission, advanced data
digitization technology, cellular and satellite communications capabilities,
specialized mobile radio services and other commercial mobile radio services
have radically expanded communications capabilities and market opportunities.
Future advances may render our technology obsolete or less cost effective than
competitive systems or erode our market position. Competitors may be capable of
offering significant cost savings or other benefits to our customers.
Consequently, we may be unable to offer competitive services or obtain
appropriate new technologies on a timely basis or on satisfactory terms. Our
future performance will also depend significantly on our ability to respond to
future regulatory changes. We must make continued substantial investments to
develop our technology. Development schedules for technology products are
subject to uncertainty, and there can be no assurance that we will meet our
product development schedules. We have previously experienced significant delays
and cost overruns in the design and manufacture of new products and are
currently experiencing delays on certain new product production. There can be no
assurance that delays or cost overruns will not be experienced in the future.
Delays can be caused by a number of factors, including changes in product design
or definition during the development stage, changes in customer requirements,
unexpected behavior of products under certain conditions, failure of third-party
components to meet specifications or lack of availability of such components,
and other factors. Delays in the availability of new products, or the inability
to successfully develop products that meet customer needs, could result in
increased competition, the loss of revenue or increased costs, any of which
would have a material adverse effect on our business, prospects, financial
condition, results of operations and cash flows.

<PAGE>

BECAUSE WE BELIEVE THAT PROPRIETARY RIGHTS ARE MATERIAL TO OUR SUCCESS,
MISAPPROPRIATION OF THESE RIGHTS OR CLAIMS OF INFRINGEMENT OR LEGAL ACTIONS
RELATED TO INTELLECTUAL PROPERTY COULD ADVERSELY IMPACT OUR FINANCIAL CONDITION.

We do not hold any patents. We currently rely on a combination of
contractual rights, copyrights, trademarks and trade secrets to protect our
proprietary rights. Historically, our management believed that because of the
rapid pace of technological change in the modem and wireless communication and
device products industry, the legal intellectual property protection for our
products was a less significant factor in our success than the knowledge,
abilities and experience of our employees, the frequency of our product
enhancements, the effectiveness of our marketing activities and the timeliness
and quality of our support services. However, we now believe that several of our
current products and some products in development could benefit from patent
protection. Accordingly, we have retained the services of a patent and trademark
law firm to file patent applications for those products with the United States
Patent and Trademark Office and have several patents pending. Although we rely
to a great extent on trade secret protection for much of our technology, there
can be no assurance that our means of protecting our proprietary rights will be
adequate or that our competitors or customers will not independently develop
comparable or superior technologies or obtain unauthorized access to our
proprietary technology.

We own, license or have otherwise obtained the right to use certain
technologies incorporated in our products, including certain technology we
acquired through our recent acquisition of eflex. In addition, we purchase modem
chipsets that incorporate sophisticated modem technology. We may receive
infringement claims from third parties relating to our products and
technologies. In such event, we intend to investigate the validity of any such
claims and, if we believe the claims have merit, we intend to respond through
licensing or other appropriate actions. Certain of these claims may relate to
technology included in modem chipsets or other components purchased by us from
third party vendors for incorporation into our products. In such event, we would
forward these claims to the appropriate vendor. If we or our component
manufacturers were unable to license or otherwise provide any such necessary
technology on a cost-effective basis, we could be prohibited from marketing
products containing that technology, incur substantial costs in redesigning
products incorporating that technology, or incur substantial costs defending any
legal action taken against us, all of which could have a material adverse effect
on our business, prospects, financial condition, results of operations and cash
flows.

THERE ARE RISKS THAT OUR PRODUCTS MAY BE RETURNED BY OUR CUSTOMERS.

We are exposed to the risk of product returns from our customers as a
result of returns due to defective products or product components. Returned used
products are tested, repaired and used as warranty replacements. Products
returned to us due to faulty work by our subcontractors are returned to the
subcontractors for credit against future purchase orders. Historically, product
returns have not had a material impact on our operations or financial condition.
While we believe that product returns should not be material in future periods,
it is expected that a relatively modest number of returns will continue.
However, there can be no assurance that significant levels of product returns
will not occur in the future, which may have a material adverse effect on our
operations.

<PAGE>

OUR FAILURE TO MANAGE GROWTH EFFECTIVELY COULD IMPAIR OUR BUSINESS.

Our strategy envisions a period of rapid growth that may put a strain on
our administrative and operational resources. While we believe that we have
established a significant infrastructure to support growth, our ability to
effectively manage growth will require us to continue to expand the capabilities
of our operational and management systems and to attract, train, manage and
retain qualified engineers, technicians, salesperson and other personnel. There
can be no assurance that we will be able to do so. If we are unable to
successfully manage our growth, our business, prospects, financial condition,
results of operations and cash flows could be adversely affected.

OUR STOCK PRICE IS SUBJECT TO SIGNIFICANT VOLATILITY WHICH COULD RESULT IN
LITIGATION AGAINST US.

The trading prices of our common stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in our operating
results, material announcements of technological innovations, price reductions,
significant customer orders or establishment of strategic partnerships by us or
our competitors or providers of alternative products, general conditions in the
modem and data communications industry, or other events or factors, many of
which are beyond our control. In addition, the stock market as a whole and
individual stocks have experienced extreme price and volume fluctuations, which
have often been unrelated to the performance of the related corporations. Our
operating results in future quarters may be below the expectations of market
makers, securities analysts and investors. In any such event, the price of our
common stock will likely decline, perhaps substantially. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has occurred against the issuing company. There can be
no assurance that such litigation will not occur in the future with respect to
our company. Such litigation could result in substantial costs and a diversion
of management's attention and resources, which could have a material adverse
effect on our business, prospects, financial condition, results of operations
and cash flows. Any adverse determination in such litigation could also subject
us to substantial liabilities.

OUR INABILITY TO SHIP ORDERS ON A TIMELY BASIS COULD MATERIALLY AND ADVERSELY
IMPACT OUR BUSINESS, PROSPECTS, FINANCIAL CONDITION, RESULTS OF OPERATIONS
AND CASH FLOWS.

We have previously experienced and are currently experiencing problems
associated with under-capitalization and engineering and production delays,
including the inability to ship products in a timely manner, which in some
cases has caused customers to cancel a portion or all of their orders. The
cancellation of orders may damage our reputation and could cause us to lose
existing customers or prevent us from obtaining new customers. Accordingly,
the failure to deliver products on time could have a material adverse
affect on our business, prospects, financial condition, results of operations
and cash flows.

<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, or the Securities Act, and
Section 21E of the Exchange Act. We intend that such forward-looking statements
be subject to the safe harbors created thereby. These forward-looking statements
generally include the plans and objectives of management for future operations,
including plans and objectives relating to our future economic performance. The
forward-looking statements and associated risks may include, relate to or be
qualified by other important factors, including, without limitation:

o market growth;

o new competition;

o competitive pricing;

o new technologies;

o our ability to successfully implement our future business plans;

o statements about our business strategy and our expansion strategy;

o our ability to attract strategic partners and alliances;

o uncertainties relating to economic conditions in the markets in
which we currently operate and in which we intend to operate in the
future;

o our ability to hire and retain qualified personnel;

o our ability to obtain capital, if required;

o the risk that if we are unable to ship products in a timely manner
due to under-capitalization or other reasons, customers may cancel
all or a portion of their orders;

o our ability to successfully implement our brand-building campaign;

<PAGE>

o the risks of uncertainty of trademark and other intellectual
property protections;

o the risks associated with our strategy of growth through
acquisitions, including whether we have the financial, human and
other resources needed to identify and pursue acquisition
opportunities and integrate acquired products and businesses into
our operations;

o our beliefs regarding the demand for our products and our
competitive advantages;

o the negative impact of economic slowdowns and recessions;

o the risk that if our revenues or earnings fail to meet securities
analysts' expectations, there could be an immediate and significant
impact on the trading price of our common stock;

o volatility of the trading price of our common stock that may be due
to factors that impact the overall market and are unrelated to our
performance;

o risks associated with existing and future governmental regulation
to which we are subject; and

o international customs, standards, approvals and political and
economic uncertainties that may adversely affect our ability to
ship our products internationally in a timely and profitable
manner.

We do not undertake to update, revise or correct any forward-looking
statements.

Results actually achieved may differ materially from expected results in
these statements. Several of these risks are discussed in greater detail in the
"Risk Factors" section. Any of the factors described above or in the "Risk
Factors" section could cause our financial results, including our net income
(loss) or growth in net income (loss), to differ materially from prior results
or from those expressed or implied by these forward-looking statements.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 25,000,000 shares of common stock,
no par value per share, and 5,000,000 shares of undesignated preferred stock, no
par value per share. As of July 11, 2000, there were 15,248,502 shares of
common stock outstanding held by approximately 471 holders of record and no
shares of preferred stock outstanding. The following is a description of the
capital stock of our company.

<PAGE>

COMMON STOCK

The holders of outstanding shares of our common stock are entitled to
receive dividends out of assets legally available therefor at times and in
amounts as the board of directors may from time to time determine, subordinate
to any preferences that may be granted to the holders of preferred stock.
Holders of common stock are entitled to one vote per share on all matters on
which the holders of common stock are entitled to vote.

The common stock is not entitled to preemptive rights and may not be
redeemed or converted. Upon liquidation, dissolution or winding-up of the
company, the assets legally available for distribution to shareholders are
divided among the holders of the common stock in proportion to the number of
shares of common stock held by each of them, after payment of all of our debts
and liabilities and the rights of any outstanding class or series of preferred
stock to have priority to distributed assets.

All outstanding shares of common stock are, and the shares of common stock
to be issued in this offering will be, when issued and delivered, validly
issued, fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subordinate to any series of preferred stock that we
may issue in the future.

PREFERRED STOCK

Preferred stock may be issued from time to time in one or more series, and
our board of directors, without action by the holders of common stock, may fix
or alter the voting rights, redemption provisions, dividend rights, dividend
rates, claims to our assets superior to those of holders of our common stock,
conversion rights and any other rights, preferences, privileges and restrictions
of any wholly unissued series of preferred stock. The board of directors,
without shareholder approval, can issue shares of preferred stock with rights
that could adversely affect the rights of the holders of common stock. No shares
of preferred stock presently are outstanding. The issuance of shares of
preferred stock could adversely affect the voting power of the holders of common
stock and could have the effect of making it more difficult for a third party to
acquire, or could discourage or delay a third party from acquiring, a majority
of our outstanding stock.

RESALES OF SHARES COVERED BY THIS PROSPECTUS

This prospectus covers the resale of shares of our company's common stock
that are either outstanding or are issuable upon exercise of outstanding options
or warrants. This prospectus does not cover the sale or other transfer of
options or warrants or the issuance of shares of common stock to holders of
options or warrants upon exercise. If a selling security holder transfers such
holder's warrants or options prior to exercise, the transferee of the warrants
or options may not sell the shares of common stock issuable upon exercise of the
warrants or options pursuant to this prospectus unless this prospectus is
appropriately amended or supplemented by us.

<PAGE>

Certain of the options and warrants contain anti-dilution and adjustment
provisions providing for the adjustment of the underlying shares and/or the
exercise price upon the occurrence of certain events, including
recapitalizations, reclassifications, share dividends, share splits or
combinations, mergers or acquisitions or similar transactions. In the event of
the liquidation, dissolution or winding up of our company, holders of the
options and warrants will not be entitled to receive any of our assets available
for distribution to the holders of common stock.

In the event of any reclassification, capital reorganization or other
similar change of our outstanding common stock, any consolidation or merger
involving our company (other than a consolidation or merger which does not
result in any reclassification, capital reorganization or other similar change
in the outstanding common stock) or a sale or conveyance to another corporation
of all or substantially all of the property of our company, certain of the
options and warrants will thereupon become exercisable for the kind and number
of shares of stock or other securities, assets or cash to which a holder of the
number of shares of common stock issuable (at the time of such reclassification,
reorganization, consolidation, merger or sale) upon exercise of such option or
warrant would have been entitled upon such reclassification, reorganization,
consolidation, merger or sale. However, this prospectus covers only our common
stock, and any other securities received upon exercise of the options and
warrants are not covered hereby.

For the life of the options and warrants, the holders thereof have the
opportunity to profit from a rise in the market price of our common stock
without assuming the risk of ownership of the shares of common stock issuable
upon the exercise of the options and warrants. The holders of the options and
warrants may be expected to exercise at times when the exercise price is less
than the market price for our common stock, with resulting dilution in the
interests of our shareholders. Further, the terms on which we could obtain
additional capital during the life of the options and warrants may be adversely
affected.

USE OF PROCEEDS

We will not receive any proceeds from the sale of the shares of common
stock offered hereby by the selling security holders; rather, the selling
security holders will receive those proceeds directly. However, we will receive
cash infusions of capital if and when the selling security holders exercise
their warrants or options with cash in exchange for shares of common stock
offered hereby. We plan to use any proceeds for the general corporate purposes
of our company.

<PAGE>

PRINCIPAL AND SELLING SECURITY HOLDERS

Overview

The shares included in this prospectus may be offered for sale from time to
time during the period the registration statement remains effective, by or for
the accounts of the selling security holders described in the table below. The
selling security holders currently hold unregistered shares of our common stock
and/or options or warrants for the purchase of our common stock. The shares of
common stock being offered by the selling security holders were acquired from us
in private placement transactions or were or may be acquired from us pursuant to
the exercise of warrants or options issued in private placement transactions.

Based on information provided to us by each principal and selling security
holder, the following table shows, as of July 11, 2000:

o The name of each selling security holder, each person known by us
to own beneficially more than five percent, in the aggregate, of
the outstanding shares of our common stock as of the date of the
table, and each of our directors and our Chief Executive Officer;

o The number of shares and the percentage each named person or
entity beneficially owns before this offering based on our common
stock outstanding as of the date of the table;

o How many shares of common stock each selling security holder may
resell under this prospectus; and

o Assuming each selling security holder sells all the shares it is
entitled to sell under this prospectus, how many shares of common
stock and the percentage the selling security holder will
beneficially own after completion of the offering, based on our
common stock outstanding as of the date of the table.

Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
Except as indicated, we believe each person possesses sole voting and investment
power with respect to all of the shares of common stock owned by such person,

<PAGE>

subject to community property laws where applicable. In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options or warrants held by that
person that are currently exercisable or are exercisable within 60 days
after the date of the table are deemed outstanding. Such shares, however,
are not deemed outstanding for the purpose of computing the percentage
ownership of any other person or group.

We will not receive any of the proceeds from the sale of the shares of
common stock offered by the selling security holders, but we will receive
proceeds from the exercise of options and warrants to purchase common stock to
the extent that such common stock is included in the shares being offered
pursuant to this prospectus.

<TABLE>
<CAPTION>
Shares of Common Shares of Common
Stock Beneficially Stock Being Shares of Common Stock
Owned Prior Offered Pursuant Beneficially Owned
Name of Beneficial Owner to this Offering to this Prospectus After this Offering(1)
--------------------------- --------------------- ------------------ ----------------------
Number Percent Number Percent
------------ ------- --------- -------

<S> <C> <C> <C> <C> <C>
Michael A. Armani 2,157,477(2) 14.15% - 2,157,477 14.15%
Shala Shashani 1,622,477(3) 10.61% - 1,622,477 10.61%
Terry S. Parker 768,750(4) 4.85% - 768,750 4.85%
William Saunders 768,750(5) 4.85% - 768,750 4.85%
Frank R. Ribelin 584,300(6) 3.79% 400,000 184,300 1.19%
George Levy, M.D. 438,002(7) 2.85% - 438,002 2.85%
Michael Associates 347,000 2.28% 347,000 - -
John D. McLean 209,257(8) 1.37% 34,527 175,000 1.14%
M.H. Meyerson & Co., Inc. 200,000(9) 1.30% 200,000 - -
George F. Rombach 183,750(10) 1.20% 100,000(11) 83,750 *
Thomas Povinelli 177,664(12) 1.16% - 177,664 1.16%
Brookstreet Securities 150,000(13) * 180,000(14) - -
Corporation
David Markowski 108,500(15) * 108,500 - -
Stewart Adams, Ltd. 100,000(16) * 100,000 - -
Deborah Picou 105,000(17) * 100,000(17) 5,000 *
Carl H. Shaifer 95,723(18) * 8,000 87,723 *
Stansbury-Kennedy Trust 83,750(19) * 60,000 23,750 *
Baritex, Inc. 81,200(20) * 81,200 - -
Donald F. Mehloff 74,000 * 24,000 50,000 *
Philip G. Seastrom 60,000 * 60,000 - -
Eli Schneidman 60,000 * 60,000 - -
Edmund P. Finamore 52,000(21) * - 52,000 *
Ananda Capital Partners, Inc. 50,000(22) * 50,000 - -
Michael L. Tittle 35,000 * 5,000 30,000 *
William C. Kosoff 33,385(23) * 15,385 18,000 *

<PAGE>

Shares of Common Shares of Common
Stock Beneficially Stock Being Shares of Common Stock
Owned Prior Offered Pursuant Beneficially Owned
Name of Beneficial Owner(1) to this Offering to this Prospectus After this Offering(2)
--------------------------- --------------------- ------------------ ----------------------
Number Percent Number Percent
------------ ------- --------- -------

Danny G. Snow 31,071(24) * 5,000 26,071 -
Kenneth S. Hiniker, TTEE
Ken Hiniker Intervivos Trust
(utad 4/2/85) 20,000 * 20,000 - -
Stephen D. Lutz 15,000 * 15,000 - -
Scott Lyng 12,500 * 5,000 7,500 -
Web Commerce Corporation 12,500 * 12,500 - -
William VanDercreek 11,000 * 9,000 2,000 *
W. Scott Newbern 10,000 * 8,000 2,000 *
Micro-Data Systems, Inc. 10,000(25) * 10,000 - -
Stilger Investments LLC 10,000 * 10,000 - -
Aaron W. Weingarten 10,000 * 10,000 - -
Vrej Isaoglu 10,000 * 10,000 - -
Edward G. Grinacoff 9,000 * 5,000 4,000 *
Howard E. Greenberg 8,000 * 8,000 - -
Mark J. Schlossberg 5,000 * 5,000 - -
Mark A. Raifman 3,000 * 3,000 - -
Cary A. Palulis 3,000 * 3,000 - -
Klamt Family Trust 2,745(26) * 2,745 - -
Samuel L. Guillory D. M.D. 2,000 * 2,000 - -
J. Michael Christiansen 2,000(27) * 2,000 - -
Douglas C. MacLellan 2,000(28) * 2,000 - -
All directors and executive
officers of our company as a
group (7 persons) 5,401,370(29) 33.47% - 5,401,370 33.47%
</TABLE>

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

* Less than 1%.

(1) Assumes all shares offered are sold pursuant to this prospectus.

(2) As of July 11, 2000, Mr. Armani was a director and the Chairman of the
Board, President and Chief Executive Officer of our company. Effective
September 8, 2000, Mr. Armani became Chairman Emeritus and remained
a director of our company.

(3) As of July 11, 2000, Ms. Shashani was a director of our company. On
September 8, 2000, Ms. Shashani became Chairman of the Board of our
company. Includes an aggregate of 20,000 shares of common stock
underlying options and 20,000 shares of common stock underlying
warrants.

(4) Mr. Parker is a director of our company and is an executive officer,
director and 50% shareholder of Saunders & Parker, Inc., a consultant
to our company. On September 8, 2000, Mr. Parker became President and
Chief Executive Officer of our company. Includes an aggregate of 600,000
shares of common stock underlying options held by Saunders & Parker, Inc.

(5) Mr. Saunders is an advisor to our board of directors and is an executive
officer, director and 50% shareholder of Saunders & Parker, Inc., a
consultant to our company. Includes an aggregate of 600,000 shares of
common stock underlying options held by Saunders & Parker, Inc.

<PAGE>

(6) Mr. Ribelin is an employee of our company. Includes 175,000 shares of
common stock underlying options.

(7) Dr. Levy is a director of our company. Includes an aggregate of 20,000
shares of common stock underlying options, 77,500 shares of common stock
underlying warrants, 65,700 shares held in a trust and 10,000 shares of
common stock held by Dr. Levy's spouse.

(8) Mr. McLean was appointed as our Chief Operating Officer on September 8,
2000, served as our Acting Chief Operating Officer since July 17, 2000
and has been an employee since January 2000. Includes 100,000 shares
of common stock underlying options.

(9) M.H. Meyerson & Co., Inc. is a consultant to our company and is an
NASD-registered broker-dealer. Includes 175,000 shares underlying
warrants.

(10) Mr. Rombach is an employee of our company, our Assistant Secretary and
our former principal accountant. Includes an aggregate of 100,000 shares
of common stock underlying options and an aggregate of 83,750 shares of
common stock held by Stansbury-Kennedy Trust, a trust of which Mr.
Rombach is a beneficiary and which trust is a selling security holder.

(11) Represents shares of common stock underlying options.

(12) Mr. Povinelli is a director of our company. Includes 20,000 shares of
common stock underlying options granted to Mr. Povinelli and 50,000
shares of common stock underlying options granted to Gilman & Ciocia,
Inc. (Nasdaq:GTAX), a company for which Mr. Povinelli serves as a
director and executive officer. Also includes 80,000 shares of common
stock owned by Gilman & Ciocia, Inc.

(13) Brookstreet Securities Corporation is a consultant to our company and is
an NASD-registered broker-dealer. Stanley C. Brooks is president and
owner of a 99.5% interest in Brookstreet Securities Corporation. Includes
60,000 shares of common stock underlying options.

(14) Includes 90,000 shares of common stock underlying options, of which
30,000 shares have not yet vested. The remaining 30,000 shares are
scheduled to vest and become exercisable in increments of 7,500 shares
per month commencing October 3, 2000; however, we have agreed to register
the remaining shares for resale pursuant to this prospectus.

(15) Includes 96,000 shares of common stock underlying warrants.

(16) Stewart Adams, Ltd. has acted as a consultant to our company.

(17) Includes 100,000 shares of common stock underlying warrants.

(18) Mr. Shaifer is an advisor to our board of directors and a former director
of our company. Includes 25,800 shares of common stock underlying
warrants and 20,000 shares of common stock underlying options.

(19) Mr. Rombach, a selling security holder and employee of our company, is a
beneficiary of the Stansbury-Kennedy Trust.

(20) Baritex, Inc. acted as a finder in connection with our May private
placement of common stock. Joseph Riccio is the owner of Baritex, Inc.
Represents shares of common stock underlying warrants.

(21) Mr. Finamore is a director of our company. Represents shares of common
stock underlying options.

(22) Ananda Capital Partners, Inc. is a consultant to our company. Represents
shares of common stock underlying options.

(23) Mr. Kosoff is an employee of our company.

(24) Includes 7,500 shares of common stock underlying warrants.

(25) Daniel Plenzo is the beneficial owner of the shares of common stock
held by Micro-Data Systems, Inc.

<PAGE>

(26) Bob Klamt, a trustee of the Klamt Family Trust, is a consultant to our
company.

(27) Mr. Christiansen is Vice President, Investment Banking Group of
Prudential Securities Incorporated, an NASD-registered broker-dealer.
Represents shares underlying warrants.

(28) Represents shares underlying warrants.

(29) Includes 77,500 shares of common stock underlying warrants and 812,000
shares of common stock underlying options.

<PAGE>

PLAN OF DISTRIBUTION

GENERAL

Shares of common stock offered through this prospectus may be sold from
time to time by the selling security holders or by pledgees, donees, transferees
or other successors in interest to the selling security holders. However, such
pledgees, donees, transferees or other successors may not offer common stock
through this prospectus unless and until we supplement this prospectus to
disclose their names.

Sales may be made on the Nasdaq SmallCap Market, on 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 private transactions, or in a
combination of these methods. The selling security holders will act
independently of us in making decisions with respect to the form, timing, manner
and size of each sale. We are not aware of any existing arrangements between any
selling security holder and any other shareholder, broker, dealer, underwriter
or agent relating to the sale or distribution of shares of common stock which
may be sold by selling security holders through this prospectus. Selling
security holders may be deemed underwriters in connection with resales of their
shares.

The common shares may be sold in one or more of the following manners:

o 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;

o purchases by a broker or dealer for its account under this
prospectus; or

o ordinary brokerage transactions and transactions in which the
broker solicits purchases.

In effecting sales, brokers or dealers engaged by the selling security
holders may arrange for other brokers or dealers to participate. Except as
disclosed in a supplement to this prospectus, no broker-dealer will be paid more
than a customary brokerage commission in connection with any sale of the common
shares by the selling security holders. Brokers or dealers may receive
commissions, discounts or other concessions from the selling security holders in
amounts to be negotiated immediately prior to the sale. The compensation to a
particular broker-dealer may be in excess of customary commissions. Profits on
any resale of the common shares as a principal by such broker-dealers and any
commissions received by such broker-dealers may be deemed to be underwriting
discounts and commissions under the Securities Act. Any broker-dealer
participating in such transactions as agent may receive commissions from the
selling security holders (and, if they act as agent for the purchaser of such
common shares, from such purchaser).

<PAGE>

Broker-dealers may agree with the selling security holders to sell a
specified number of common shares at a stipulated price per share, and, to the
extent a broker-dealer is unable to do so acting as agent for the selling
security holders, to purchase as principal any unsold common shares at a price
required to fulfill the broker-dealer commitment to the selling security
holders. Broker-dealers who acquire common shares as principal may thereafter
resell such common shares from time to time in transactions (which may involve
crosses and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with such resales may pay to or receive from the purchasers of such common
shares commissions computed as described above. Brokers or dealers who acquire
common shares as principal and any other participating brokers or dealers may be
deemed to be underwriters in connection with resales of the common shares.

In addition, any common shares covered by this prospectus which qualify for
sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus.

The selling security holders will pay all commissions and their own
expenses, if any, associated with the sale of the common shares, other than the
expenses associated with preparing this prospectus and the registration
statement of which it is a part.

Our company will not receive any of the proceeds from the sale of the
common shares offered hereby, although we will receive cash infusions of capital
if and when the selling security holders purchase our common stock for cash in
accordance with the terms of their options and warrants.

Certain of the selling security holders, on the one hand, and our company,
on the other hand, each have agreed to indemnify the other and their respective
officers, directors and other controlling persons against certain liabilities in
connection with this registration, including liabilities under the Securities
Act, and to contribute to payments such persons may be required to make in
respect thereof.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

<PAGE>

o for acts or omissions that involve intentional misconduct or
a knowing and culpable violation of law;

o for acts or omissions that a director believes to be contrary to
the best interests of our company or our shareholders or that
involve the absence of good faith on the part of the director;

o for any transaction for which a director derived an improper
personal benefit;

o for acts or omissions that show a reckless disregard for the
director's duty to our company or our 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 our company or our shareholders;

o for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty
to our company or our shareholders; and

o for engaging in transactions described in the California
Corporations Code or California case law which result in
liability, or approving the same kinds of transactions.

Our Restated and Amended Articles of Incorporation also provide that our
company is authorized to provide indemnification to its agents, as defined in
Section 317 of the California Corporations Code, through our Restated and
Amended Bylaws or through agreements with such agents or both, for breach of
duty to our company and our shareholders, in excess of the indemnification
otherwise permitted by Section 317 of the California Corporations Code, subject
to the limits on such excess indemnification set forth in Section 204 of the
California Corporations Code.

<PAGE>

o by our board of directors by a majority vote of a quorum
consisting of directors who were not parties to the action, suit
or proceeding which is the subject of the request for
indemnification, or

o if such a quorum is not obtainable, or, even if obtainable, a
majority vote of a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or

o by a majority of the shareholders.

Certain of the selling security holders and our company each have agreed to
indemnify the other and their respective officers, directors and other
controlling persons against certain liabilities in connection with this
registration, including liabilities under the Securities Act, and to contribute
to payments such persons may be required to make in respect thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of our company
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.

LEGAL MATTERS

Certain legal matters with respect to the legality of the shares offered
pursuant to this prospectus will be passed upon for us by Rutan & Tucker, LLP,
Costa Mesa, California.

EXPERTS

The financial statements of Telenetics Corporation and the financial
statements of eflex Wireless, Inc. incorporated by reference in this prospectus
have been audited by BDO Seidman, LLP, independent certified public accountants,
to the extent and for the periods set forth in their reports incorporated by
reference in this prospectus, and are incorporated in reliance upon such reports
given upon the authority of BDO Seidman, LLP as experts in accounting and
auditing.

TRANSFER AGENT AND REGISTRAR

The stock transfer agent and registrar for our common stock is American
Stock Transfer & Trust Company.

<PAGE>

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION.

The following table sets forth the estimated expenses in connection with the
offering described in this Registration Statement:

SEC registration ................................. $ 2,332
NASD filing fee................................... 0
Printing and engraving expenses................... 1,500
Legal fees and expenses........................... 25,000
Blue Sky fees and expenses........................ 2,500
Accounting fees and expenses...................... 5,000
Miscellaneous..................................... 500
----------

Total....................................... $ 36,832
==========

All of the above expenses will be paid by the Registrant.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Our Restated and Amended Articles of Incorporation provide that the
liability of our company's directors for monetary damages shall be eliminated to
the fullest extent permissible under California law. This is intended to
eliminate the personal liability of a director for monetary damages in an action
brought by or in the right of our company for breach of a director's duties to
our company or our shareholders except for liability: (i) for acts or omissions
that involve intentional misconduct or a knowing and culpable violation of law;
(ii) for acts or omissions that a director believes to be contrary to the best
interests of our company or our shareholders or that involve the absence of good
faith on the part of the director; (iii) for any transaction for which a
director derived an improper personal benefit; (iv) for acts or omissions that
show a reckless disregard for the director's duty to our company or our
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 our company or our shareholders; (v) for acts or omissions
that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to our company or our shareholders; and (vi)
for engaging in transactions described in the California Corporations Code or
California case law which result in liability, or approving the same kinds of
transactions.

II - 1

<PAGE>

Our Restated and Amended Bylaws provide for indemnification of our
officers, directors, employees, and other agents to the extent and under the
circumstances permitted by California law. In all cases where indemnification is
permitted by the Restated and Amended Bylaws, a determination to indemnify such
person must be made when ordered by a court and must be made in a specific case
upon a determination that indemnification is required or proper in the
circumstances. Such determination must be made: (a) by our board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
action, suit or proceeding which is the subject of the request for
indemnification, or (b) if such a quorum is not obtainable, or, even if
obtainable, a majority vote of a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or (c) by a majority of the
shareholders.

To the extent indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.

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<PAGE>

ITEM 16. EXHIBITS.

EXHIBIT NO. DESCRIPTION
----------- -----------

3.1 Restated and Amended Articles of Incorporation of the Registrant
(2)

3.2 Certificate of Determination of Rights, Preferences, Privileges
and Restrictions of Series A 7.0% Convertible Redeemable Preferred
Stock of the Registrant (2)

3.3 Certificate of Determination of Rights, Preferences, Privileges
and Restrictions of Series B Convertible Preferred Stock of the
Registrant (2)

3.4 Certificate of Determination of Rights, Preferences, Privileges
and Restrictions of Series C 7.0% Convertible Preferred Stock of
the Registrant (3)

3.5 Restated and Amended By-Laws of the Registrant (2)

3.6 Amendment to Restated and Amended By-Laws effective as of
June 6, 2000 (9)

3.7 Amendment to Restated and Amended By-Laws effective as of
September 8, 2000 (10)

4.1 Form of Share Purchase Agreement for March 2000 private
placement (9)

4.2 Form of Share Purchase Agreement for May 2000 private
placement (9)

4.3 Consulting Agreement dated as of June 27, 2000 between the
Registrant and Ananda Capital Partners, Inc. (9)

4.4 Form of Common Stock Purchase Warrant dated as of June 30, 2000
made by the Registrant in connection with Settlement Agreement
dated as of June 30, 2000 by and among the Registrant, Drake &
Drummond, Inc., David Markowski, Global Financial Group, Inc.
and Michael Markowski

4.5 Settlement Agreement dated as of June 30, 2000 by and among
the Registrant, Drake & Drummond, Inc., David Markowski, Global
Financial Group, Inc. and Michael Markowski (9)

4.6 Non-Qualified Stock Option dated as of January 3, 2000 made by the
Registrant in favor of George F. Rombach (9)

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<PAGE>

4.7 Letter Agreement dated as of January 3, 2000 by and between the
Registrant and M.H. Meyerson & Co., Inc. (9)

4.8 First Amendment to Letter Agreement dated as of January 3, 2000 by
and between the Registrant and M.H. Meyerson & Co., Inc. (9)

4.9 Non-Qualified Stock Option dated as of January 3, 2000 made by the
Registrant in favor of Brookstreet Securities Corporation (9)

4.10 Letter Agreement dated as of December 10, 1999 by and between the
Registrant and Brookstreet Securities Corporation (9)

4.11 First Amendment to Letter Agreement dated March 10, 2000 between
the Registrant and Brookstreet Securities Corporation (9)

4.12 Consulting Agreement dated April 28, 2000 between the Registrant
and Bob Klamt

4.13 Form of Common Stock Purchase Warrants made by the Registrant
in favor of Baritex, Inc.

5.1 Opinion of Rutan & Tucker, LLP

10.1 Letter of Intent dated May 28, 1998 by and between Duquesne Light
Company and the Registrant (1)

10.2 Subcontract dated June 10, 1998 between Sargent Electric Company
and the Registrant (1)

10.3 Marketing and Technology Agreement dated July 13, 1998 by and
between the Registrant and Duquesne Light Company (1)

10.4 Loan and Security Agreement dated as of April 2, 1999 between
Celtic Capital Corporation and the Registrant (2)

10.5 Asset Purchase Agreement dated April 5, 1999 between Greenland
Corporation and the Registrant (2)

10.6 Commercial Lease dated April 12, 1999 between Mark IV Capital
Properties, Inc. and the Registrant (2)

10.7 Telenetics Corporation Stock Purchase Warrant between the
Registrant and SMC Communications Group, Inc. (1)

10.8 Amendment to Compromise Agreement and Mutual Release dated
December 30, 1997 by and between the Registrant, SMC
Communications Group, Inc. and Shala Shashani doing business as
SMC Group (1)

10.9 Security Agreement dated December 31, 1997 by and between the
Registrant and SMC Communications Group, Inc. (1)

10.10 Amendment to Security Agreement dated March 30, 1998 by and
between the Registrant and SMC Group (1)

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<PAGE>

10.11 Technology Transfer Agreement dated October 29, 1997 by and
between the Registrant and SMC Communications Group, Inc. (1)

10.12 Promissory Note dated as of January 7, 2000 from the Registrant in
favor of Saunders & Parker, Inc. for $136,444.90 (4)

10.13 Non-Qualified Stock Option dated January 7, 2000 issued by the
Registrant to John D. McLean (4)

10.14 Non-Qualified Stock Option dated January 7, 2000 issued by the
Registrant to Saunders & Parker, Inc. (4)

10.15 Registration Rights Agreement dated January 7, 2000 between the
Registrant and John D. McLean (4)

10.16 Registration Rights Agreement dated January 7, 2000 between the
Registrant and Saunders & Parker, Inc. (4)

10.17 Registration Rights Agreement between the Registrant and Terry S.
Parker (4)

10.18 Registration Rights Agreement dated January 7, 2000 between the
Registrant and William C. Saunders (4)

10.19 Employment Agreement dated January 7, 2000 between the Registrant
and John D. McLean (4)

10.20 Consulting Agreement dated January 7, 2000 between the Registrant
and Saunders & Parker, Inc. (4)

10.21 Promissory Note dated as of January 7, 2000 from the Registrant in
favor of John D. McLean for $107,500 (4)

10.22 Asset Purchase Agreement effective as of June 1, 1999 by and among
the Registrant, Sunnyvale General Devices and Instruments, Inc.
and Frank R. Ribelin (5)

10.23 Stock Purchase Agreement dated as of January 7, 2000 between the
Registrant, Edward L. Didion, John D. McLean, William C. Saunders
and Terry S. Parker (4)

10.24 Shareholder Agreement dated as of January 7, 2000 by and among the
Registrant, Michael A. Armani, Dr. George Levy, Shala Shashani,
Thomas Povinelli, Ed Finamore, Terry S. Parker, William C.
Saunders, John D. McLean and Edward L. Didion (4)

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<PAGE>

10.26 Telenetics Corporation 1998 Stock Option Plan (6)

10.27 Telenetics Corporation 1999 Employee Stock Purchase Plan (7)

10.28 Telenetics Corporation 2000 Stock Option Plan (7)

10.29 First Amendment to Stock Purchase Agreement dated as of May 31,
2000 among the Registrant, Edward L. Didion, John D. McLean,
William C. Saunders and Terry S. Parker

16.1 Letter on Change in Certifying Accountant from George F.
Rombach (3)

21.1 Subsidiaries of the Registrant (8)

23.1 Consent of BDO Seidman, LLP, Independent Certified Public
Accountants

23.2 Consent of Rutan & Tucker, LLP (contained in the opinion included
as Exhibit 5.1)

24.1 Power of Attorney (contained on the signature page to the initial
filing of this registration statement)

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

(1) Filed as an exhibit to the Registrant's Form 10-KSB for the fiscal year
ended March 31, 1998 and incorporated herein by reference.

(2) Filed as an exhibit to the Registrant's Form 10-KSB for the nine months
ended December 31, 1998 and incorporated herein by reference.

(3) Filed as an exhibit to the Registrant's Form 8-K for January 20, 1999
and incorporated herein by reference.

(4) Filed as an exhibit to the Registrant's Form 8-K for January 7, 2000
and incorporated herein by reference.

(5) Filed as an exhibit to the Registrant's Form 8-K for June 30, 1999 and
incorporated herein by reference.

(6) Filed as an exhibit to the Registrant's definitive proxy statement for
the period June 4, 1999 and incorporated herein by reference.

(7) Filed as an exhibit to the Registrant's definitive proxy statement for
the period June 6, 2000 and incorporated herein by reference.

(8) Filed as an exhibit to the Registrant's Form 10-KSB for the year
ended December 31, 1999 and incorporated herein by reference.

(9) Filed as an exhibit to the Registrant's Registration Statement on
Form S-3 (Registration No. 333-42218) and incorporated herein by
reference.

(10) Filed as an exhibit to the Registrant's Form 8-K for September 8,
2000 and incorporated herein by reference.

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<PAGE>

ITEM 17. UNDERTAKINGS.

The undersigned 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 (the "Securities Act");

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

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

(2) That, for determining liability under the Securities Act, each such
post-effective amendment shall be treated as 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 file a post-effective amendment to remove from registration any of
the securities being registered that remain unsold at the termination of the
offering.

Insofar as indemnification for liabilities arising under the Securities Act
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 SEC 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.

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<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lake Forest, State of
California, as of September 27, 2000.

TELENETICS CORPORATION

By: /s/ Terry S. Parker
------------------------------------------
Terry S. Parker
President and Chief Executive Officer

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<PAGE>

Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement on Form S-3 has been signed by the
following persons in the capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Shala Shashani Chairman of the Board and Director September 27, 2000
-------------------------
Shala Shashani

/s/ Terry S. Parker President, Chief Executive Officer September 27, 2000
------------------------- and Director (principal executive
Terry S. Parker officer)

/s/ David Stone Chief Financial Officer and September 27, 2000
------------------------- Secretary (principal accounting
David Stone officer)

/s/ Michael A. Armani Director September 27, 2000
-------------------------
Michael A. Armani

/s/ Bradley L. Jacobs Director September 27, 2000
-------------------------
Bradley L. Jacobs

/s/ Edmund P. Finamore Director September 27, 2000
-------------------------
Edmund P. Finamore

/s/ George Levy Director September 27, 2000
-------------------------
George Levy, M.D.

/s/ Thomas Povinelli Director September 27, 2000
-------------------------
Thomas Povinelli
</TABLE>

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<PAGE>

EXHIBITS

EXHIBIT NO. DESCRIPTION
----------- -----------

4.12 Consulting Agreement dated April 28, 2000 between the Registrant
and Bob Klamt

4.13 Form of Common Stock Purchase Warrants made by the Registrant
in favor of Baritex, Inc.

5.1 Opinion of Rutan & Tucker, LLP

10.29 First Amendment to Stock Purchase Agreement dated as of May 31,
2000 among the Registrant, Edward L. Didion, John D. McLean,
William C. Saunders and Terry S. Parker

23.1 Consent of BDO Seidman, LLP, Independent Certified Public
Accountants

23.2 Consent of Rutan & Tucker, LLP (contained in the opinion
included as Exhibit 5.1)

II - 10