SMITH GARDNER & ASSOCIATES INC, S-1, 1998-09-10

SMITH GARDNER & ASSOCIATES INC
S-1, 1998-09-10

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 10, 1998

REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

SMITH-GARDNER & ASSOCIATES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 7372 65-0090038
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1615 SOUTH CONGRESS AVENUE
DELRAY BEACH, FLORIDA 33445-6368
(561) 265-2700
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)

GARY G. HEGNA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SMITH-GARDNER & ASSOCIATES, INC.
1615 SOUTH CONGRESS AVENUE
DELRAY BEACH, FLORIDA 33445-6368
(561) 265-2700
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
------------------------

COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
BRUCE I. MARCH STEPHEN A. RIDDICK
AKERMAN, SENTERFITT & EIDSON, P.A PIPER & MARBURY L.L.P.
450 EAST LAS OLAS BOULEVARD 36 SOUTH CHARLES STREET
FORT LAUDERDALE, FL 33301 BALTIMORE, MD 21201
(954) 463-2700 (410) 539-2530
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

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 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]

CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================================
PROPOSED MAXIMUM
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value............................... $40,000,000 $11,800
======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Act.

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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. INFORMATION CONTAINED
HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.

================================================================================
<PAGE> 2

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.

SUBJECT TO COMPLETION
, 1998

[Logo]

Smith-Gardner & Associates, Inc.

Common Stock
------------------------

Of the shares of Common Stock being offered hereby,
shares are being sold by Smith-Gardner & Associates, Inc.
("Smith-Gardner" or the "Company") and shares are being sold
by certain shareholders of the Company (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any proceeds
from the sale of shares by the Selling Shareholders. Prior to this Offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for a discussion of the factors to
be considered in determining the initial public offering price. The Company
intends to make application for quotation of the Common Stock on the Nasdaq
National Market under the symbol "SGAI."
------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------

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

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
, 1998.

BT Alex. Brown SoundView Technology Group, Inc.

THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3

[GRAPHICS AND PHOTOS OF THE COMPANY TO BE INSERTED ON INSIDE FRONT COVER]

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

MACS, MACSII, AND THE MACSIMUM ARE REGISTERED TRADEMARKS OF THE COMPANY.
THE COMPANY ALSO HAS APPLIED FOR THE REGISTRATION OF EUROMACS, WEBMACS AND
MACSIII. ALL OTHER TRADEMARKS OR TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE
THE PROPERTY OF THEIR RESPECTIVE OWNERS.

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the consolidated financial statements and the notes thereto ("Consolidated
Financial Statements") appearing elsewhere in this Prospectus. Unless the
context otherwise requires, all references to "Smith-Gardner" or the "Company"
include Smith-Gardner & Associates, Inc. and its subsidiaries. Unless otherwise
indicated, all information contained in this Prospectus (i) assumes that the
Underwriters' over-allotment option is not exercised and (ii) gives effect to
the following transactions upon the consummation of this Offering, (a) the
conversion of $12.0 million aggregate principal amount of convertible debentures
(the "Convertible Debentures") into 22,556.14 shares of convertible
participating preferred stock, par value $0.01 per share (the "Convertible
Preferred Stock"), and 12,000 shares of redeemable preferred stock, par value
$0.01 per share (the "Redeemable Preferred Stock"), (b) the simultaneous
conversion of the Convertible Preferred Stock into 2,255,614 shares of Common
Stock and the redemption of the Redeemable Preferred Stock and (c) the issuance
of promissory notes (the "Promissory Notes") by the Company to its three
existing shareholders, Allan J. Gardner, Wilburn W. Smith and Thomas Quigley
(the "Existing Shareholders"), in an aggregate amount representing the estimated
individual income tax liability of each of the Existing Shareholders for the
period beginning January 1, 1998 and ending on the earlier of the date of the
consummation of this Offering or a voluntary S Corporation revocation (the
"Distribution") (the conversion of the Convertible Debentures and the
Convertible Preferred Stock, the redemption of the Redeemable Preferred Stock in
connection with the consummation of this Offering and the Distribution are
referred to collectively as the "Concurrent Transactions").

THE COMPANY

Smith-Gardner & Associates, Inc. is a leading provider of mission-critical,
enterprise-wide software solutions, and related hardware and services, to the
non-store marketing industry. The Company's clients in the non-store marketing
industry are traditional direct marketing companies and Internet-only retailers,
as well as wholesalers, fulfillment houses and retailers with significant
non-store sales channels. The Company's MACS family of software products
("MACS") is designed to automate non-store commerce activities, including
advertising analysis, sales, telemarketing, ordering, merchandising,
procurement, electronic and Internet commerce, warehousing, shipping, accounting
and systems operation. The MACS products also provide managers and sales
personnel with real-time operations, inventory and customer data to improve both
management decision making and customer service.

Since its inception in 1988, management of the Company has concentrated on
providing software-based systems and services to leading non-store marketing
companies and to retailers, wholesalers and fulfillment houses with significant
non-store sales channels. By focusing on this market, management believes that
the Company has been able to develop a significant industry expertise that has
been incorporated in the functionality of the Company's products and services.
The Company's MACS II and MACS III products offer over 3,000 functional options,
process up to 200,000 transactions per day and are used primarily by companies
with high-volume non-store commerce operations. WebMACS, the Company's new
Internet commerce solution, is a highly scalable system that enables real-time
interactive customer ordering, and automates processing and back-office
operations for companies selling products or services over the Internet. WebMACS
incorporates both the functionality and scalability of MACS II and MACS III.

The Company's solutions are used by more than 185 clients located primarily
in North America, Europe and Australia. Smith-Gardner's client base includes
companies such as Barnes & Noble, Coldwater Creek, Inc., Cyberian Outpost,
Egghead.com, Hammacher Schlemmer, Hickory Farms, Inc., Lego, Micro Warehouse,
Nordstrom, QVC Network and Time Life, Inc.

3
<PAGE> 5

The non-store marketing industry encompasses companies selling products
directly to customers through channels other than in-store sales, such as
catalogs, direct mail, television, radio, print media and the Internet. Over the
last ten years, a number of large retailers such as Macy's, Bloomingdale's,
Nordstrom and Saks Fifth Avenue have entered the non-store marketing industry by
establishing significant catalog sales operations. Recently, the non-store
marketing industry has expanded to include Internet-only retailers and a large
number of retailers, wholesalers and distributors adding Web-based sales
channels. According to a study sponsored by the Direct Marketing Association
("DMA"), this industry accounted for approximately $1.2 trillion in sales in
1997. Within the non-store marketing industry, Internet commerce is the fastest
growing segment, with a compound annual revenue growth of almost 250% over the
last three years.

As a result of the growth in Internet commerce and the increased use of
non-store marketing channels, many marketers need to enhance their information
technology solutions. Smith-Gardner believes that these companies seek solutions
that can help them effectively manage their order flow from Web pages and other
non-store channels, while simultaneously centralizing and automating their
back-office operations. These solutions must also be integrated seamlessly with
the companies' existing systems, applications and databases.

Smith-Gardner's strategy is to expand its client base within the non-store
marketing industry and to provide best-of-breed solutions to companies entering
the non-store marketing industry. To achieve this objective, the Company intends
to: (i) aggressively market its WebMACS product and capitalize on the rapid
growth in Internet commerce; (ii) extend its current product offerings onto new
platforms such as Windows NT and UNIX; (iii) develop a global market presence;
(iv) expand its direct sales force to generate sales of new products and
intensify its sales effort to existing clients; (v) continue the enhancement of
its service offerings; and (vi) pursue strategic opportunities.

The Company was incorporated as a Florida corporation in 1988. The
Company's principal offices are located at 1615 South Congress Avenue, Delray
Beach, Florida 33445-6368 and the telephone number at that location is (561)
265-2700.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."

THE OFFERING

Common Stock offered by the Company....... shares

Common Stock offered by the Selling
Shareholders.............................. shares

Common Stock to be outstanding after this
Offering.................................. shares (1)

Use of proceeds........................... Repayment of indebtedness and
accrued interest and general
corporate purposes. See "Use of
Proceeds."

Proposed Nasdaq National Market symbol.... SGAI

- ---------------
(1) Based on the number of shares of Common Stock outstanding as of
, 1998. Does not include (i) 850,000 shares of Common Stock
reserved for issuance under the Company's Stock Option Plan adopted in 1996
(the "1996 Stock Option Plan"), pursuant to which options to purchase
777,140 shares of Common Stock, at an exercise price of $2.53 per share,
were outstanding at June 30, 1998 and (ii) 1,000,000 shares of Common Stock
reserved for issuance under the Company's 1998 Stock Option Plan (the "1998
Stock Option Plan," and together with the 1996 Stock Option Plan, the
"Plans"), pursuant to which options to purchase 538,003 shares of Common
Stock, at an exercise price of $10.00 per share or the initial public
offering price upon the consummation of this Offering, were outstanding at
June 30, 1998. See "Management -- Stock Option Plans."

4
<PAGE> 6

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

Interest expense:
Interest on outstanding debt........ -- (39) (1,200) (1,200) (1,500) (600) (900)
Amortization of original issue
discount(1)....................... -- (32) (960) (960) (660) (480) (180)
Interest income....................... 26 50 129 42 109 50 36
------- ------- ------- ------- ------- ------- -------
Total net interest income
(expense).................. 26 (21) (2,031) (2,118) (2,051) (1,030) (1,044)
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... 4,352 3,730 2,081 (2,032) (3,348) (310) (34)
Pro forma income tax (expense) benefit
(unaudited)(2)...................... (1,672) (1,425) (1,155) 360 948 (124) (210)
------- ------- ------- ------- ------- ------- -------
Pro forma net income (loss)
(unaudited)(2)...................... $ 2,680 $ 2,305 $ 926 $(1,672) $(2,400) $ (434) $ (244)
======= ======= ======= ======= ======= ======= =======
Pro forma basic and diluted net loss
per share (unaudited)(2)............ $ (0.46) $ (0.05)
======= =======
Number of shares used in calculating
pro forma basic and diluted net loss
per share........................... 5,263 5,263
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1998
---------------------------- -------------------------
AS ADJUSTED
1995 1996 1997 ACTUAL (3)
------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................... $ -- $ 60 $ 169 $ 1,877 $
Working capital................................ 1,175 1,233 16 873
Total assets................................... 4,717 3,666 3,135 7,113
Convertible debt and accrued interest(1)....... 9,510 11,670 13,830 14,910
Stockholders' deficit(1)....................... (7,667) (9,699) (13,048) (13,074)
</TABLE>

(Footnotes on next page)

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<PAGE> 7

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

(1) The fair value of the conversion features of the Convertible Debentures has
been determined to be $3.5 million based on the difference between the
stated interest rates and the estimated market rate of such Convertible
Debentures on the date of issuance. The amount is included in additional
paid-in capital in the accompanying consolidated balance sheets, with the
resulting original issue discount ("OID") on the convertible debt being
amortized over the term of the note. This interest expense is a non-cash
item.
(2) As a result of its election to be treated as an S Corporation for income tax
purposes, the Company has not been subject to federal or certain state
income taxes. Immediately prior to or contemporaneously with this Offering,
the Company's S Corporation status will terminate and thereafter the Company
will be subject to federal and certain state taxes at applicable rates for a
C corporation. The unaudited pro forma income tax (expense) benefit
presented in the consolidated statements of operations represents the
estimated taxes that would have been recorded had the Company been a C
corporation for income tax purposes for each of the periods presented.
(3) Adjusted to (a) give retroactive effect to the Concurrent Transactions and
(b) give effect to the sale by the Company of shares of Common Stock
offered hereby at an assumed initial public offering price of $
and after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company. See "Use of Proceeds."

6
<PAGE> 8

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should consider the following factors
carefully in evaluating an investment in the Common Stock offered hereby. This
Prospectus contains "forward-looking statements" relating to, without
limitation, future performance and plans and objectives of management for future
operations that are based on the beliefs of, assumptions made by and information
currently available to the Company's management. The words "expect," "estimate,"
"anticipate," "believe," "intend," "plan" and similar expressions and variations
thereof are intended to identify forward-looking statements. The cautionary
statements set forth in this "Risk Factors" section and elsewhere in this
Prospectus identify important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those expressed in or implied by such
forward-looking statements.

Dependence on Principal Product Line. The Company currently derives
substantially all of its revenue from sales of its MACS family of products and
related services and hardware. The Company expects to continue to focus on
non-store marketing companies as its primary source of clients. Any factor
adversely affecting the market for non-store commerce systems in general, or the
Company's products in particular, could adversely affect the Company's business,
financial condition or results of operations. The Company's future performance
will depend in large part on the successful development, introduction and client
acceptance of new and enhanced versions of MACS. There can be no assurance that
the Company will be successful in marketing and selling MACS or in developing
and introducing new or enhanced versions of MACS. Any factor adversely affecting
the sale of the Company's MACS family of products or other new products,
including delays in development, software flaws, incompatibility with
industry-leading hardware platforms or operating systems, or negative ratings of
the Company's products could have a material adverse effect on the Company's
business, financial condition or results of operations. See
"Business -- Products."

Dependence on the Non-Store Marketing Industry. The Company currently
derives substantially all of its revenue from licensing its applications
software, selling related maintenance, consulting and training services to
companies in the non-store marketing industry and selling hardware. The
Company's clients include a range of organizations in the non-store marketing
industry, but during the Company's most recent fiscal year a substantial
majority of the Company's revenue was generated from the licensing and sale of
its products and services to traditional direct marketers, such as mail order
catalog companies. The success of the Company's clients, particularly the mail
order catalog companies, is directly related to general economic conditions
affecting consumer purchases from non-store marketers. In addition, because of
the capital expenditures required in connection with an investment in the
Company's products and services, the Company believes that demand for its
products could be disproportionately affected by fluctuations, disruptions,
instability or downturns in the non-store marketing industry and general
economic conditions in the United States and Europe, which may cause clients and
potential clients to delay, cancel or reduce any planned expenditures for the
Company's software products and services. Any resulting decline in demand for
the Company's products and services could have a material adverse effect on the
Company's business, financial condition or results of operations.

Dependence on Proprietary Technology. The Company's success and ability to
compete are dependent largely upon its proprietary technology. The Company
relies on a combination of trade secret, copyright and trademark law,
nondisclosure agreements and technical measures to protect its proprietary
technology. The Company enters into confidentiality agreements with all of its
employees, as well as with its clients and potential clients seeking proprietary
information, and limits access to and distribution of its software,
documentation and other proprietary information. There can be no assurance that
the steps taken by the Company in this regard will be adequate to deter
misappropriation or independent third-party development of its technology. In
addition, the laws of some foreign countries do not protect proprietary
technology rights to the same extent as do the

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<PAGE> 9

laws of the United States. There can be no assurance that third parties will not
assert infringement claims in the future or, if infringement claims are
asserted, that such claims will be resolved in the Company's favor. Any
infringement claims resolved against the Company could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business -- Proprietary Rights and Licenses."

Fluctuations in Quarterly Performance; Seasonality; Recent Losses. The
Company's revenue and operating results have varied substantially from quarter
to quarter. The Company's quarterly operating results may continue to fluctuate
due to a number of factors, including: (i) the timing, size and nature of the
Company's individual license transactions; (ii) the timing of the introduction
and the market acceptance, if any, of new products or product enhancements by
the Company or its competitors; (iii) timeliness of such product introductions
relative to any announced timetable; (iv) the size and timing of individual
orders; (v) deferral of orders by clients in anticipation of new products or
product upgrades; (vi) technological changes in the operating systems upon which
the Company's products run; (vii) changes in the Internet adversely affecting
Internet commerce; (viii) the relative proportions of revenue derived from
license fees, hardware, maintenance, consulting and other recurring revenue and
professional services; (ix) hardware/software revenue mix; (x) ability to
procure and delivery of hardware system components within a required time
period; (xi) changes in the Company's operating expenses; (xii) the timing and
magnitude of software upgrades, if any, by the Company's clients; (xiii) price
changes in the Company's products; (xiv) personnel changes; and (xv)
fluctuations in economic and financial market conditions. Fluctuations in
operating results may also occur as a result of the Company's business strategy
to focus on developing and selling customized applications to larger customers
to meet such customers' specific requirements. The Company believes it will be
difficult to predict the timing of these types of sales because they involve
both designing the solution to meet the client's needs and convincing the client
to purchase the products, and other risks over which the Company has little or
no control. The Company is generally unable to adjust its spending quickly
enough to compensate for unexpected shortfalls in revenue. Consequently, a
significant shortfall in revenue in any quarter could adversely impact the
Company's operating results for that quarter. As a result, the Company believes
that period-to-period comparisons of its operating results will not necessarily
be meaningful and should not be relied upon as an indication of future
performance.

The timing, size and nature of individual license transactions are also
important factors in the Company's quarterly operating results. Many such
license transactions involve large dollar amounts, and the sales cycles for
these transactions are often lengthy and unpredictable. There can be no
assurance that the Company will be successful in closing large license
transactions on a timely basis or at all. The Company generally has realized
lower revenue in the fourth calendar quarter of the year than in the other
quarters. The Company believes that this has been due primarily to the tendency
of many of the Company's clients to avoid implementing a new system or an
upgrade of an existing system during the holiday season, typically the busiest
time of year for substantially all of the Company's clients. Due to all of the
foregoing factors, the Company believes that period to period comparisons of its
operating results are not necessarily meaningful and that such comparisons
cannot be relied upon as indicators of future performance.

Furthermore, the Company experienced net losses of $2.0 million and $3.3
million for fiscal years 1996 and 1997, respectively. Such losses resulted
primarily from costs incurred in connection with the Company's international
expansion, including the opening of offices in the United Kingdom and Australia,
product development with respect to MACS III, EuroMACS, WebMACS, MiniMACS and
other products, and reorganization of the Company's marketing, support and sales
operations. There can be no assurance that the Company will be profitable in the
future, that future revenue and operating results will not vary substantially or
that the Company's operating results will not be below the expectations of
public market analysts and investors. In either case, the price of the Common
Stock could be materially adversely affected by fluctuations in the Company's
quarterly performance or future losses of the Company.

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<PAGE> 10

Management of Growth. The Company's business has grown significantly in
size and complexity over the past five years. For example, from 1995 to 1998,
the number of employees increased from 168 to 249, and the Company expects to
hire additional personnel during 1998. The growth in the size and complexity of
the Company's business as well as its client base has placed, and any additional
growth would be expected to continue to place, a significant strain on the
Company's management, operations and resources. The Company anticipates that
continued growth, if any, will require it to recruit, hire and retain a
substantial number of new research and development, managerial, finance, sales,
marketing and support personnel. There can be no assurance that the Company will
be successful at recruiting, hiring or retaining such personnel. The Company's
ability to compete effectively and to manage future growth, if any, will depend
on its ability to implement and improve operational, financial and management
information systems on a timely basis and to expand, train, motivate and manage
its work force. There can be no assurance that the Company's personnel, systems,
procedures and controls will be adequate to support the Company's operations.
Furthermore, one element of the Company's growth strategy is to seek
acquisitions of businesses, products and technologies that are complementary to
those of the Company. There can be no assurance that the Company will be able to
fully integrate any such acquired businesses with the Company's existing
operations, operate any such businesses profitably or otherwise implement its
growth strategy. If the Company's management is unable to manage growth
effectively, the Company's business, financial condition or results of
operations could be materially adversely affected.

Expansion into New Markets. As the non-store marketing industry continues
to evolve, it is expected that there will be an increase in the number of
marketers utilizing non-store based sales and marketing functions in which
automation plays a key role in the sales process. With the rapid growth of
Internet commerce and the continued growth of the non-store marketing industry
in general, the Company expects to target clients to whom it has not previously
sold its products and who sell their products in markets in which the Company
has not previously participated. There can be no assurance that the Company will
be able to sell products to these new market participants. In addition, some of
the Company's existing clients will expand their activities into markets in
which the Company has limited or no experience. There can be no assurance that
the Company will be able to successfully expand its business with these existing
clients. If the Company is unable to sell products to these new market
participants and develop its business with its existing clients entering new
markets, the Company's growth plans would be curtailed which could have a
materially adverse effect on the Company's business, financial condition or
results of operations.

Rapid Technological Change. The market for the Company's products and
services is characterized by rapidly changing technology, evolving industry
standards and new product introductions. The Company's future success will
depend in part upon its ability to enhance its existing products and services
and to develop and introduce new products and services to meet changing industry
and client requirements. There can be no assurance that the Company will be able
to avoid the obsolescence of its products due to rapid technological change and
evolving industry standards. The process of developing software products such as
those offered by the Company is extremely complex and is expected to become
increasingly complex and expensive in the future. The Company is currently
developing a number of new software products including, among others, MACS for
UNIX, MACS for Windows NT ("MACS for NT") and MiniMACS. There can be no
assurance that the Company will successfully complete the development of such
new products in a timely fashion or that the Company's current or future
products will satisfy the needs of the non-store marketing industry. In
addition, certain of the Company's clients request customization of the
Company's software products to address unique characteristics of their
businesses or computing environments. The Company's commitment to customization
could place a burden on the Company's resources or delay the delivery or
installation of products which, in turn, could materially adversely affect the
Company's relationship with significant clients or otherwise materially
adversely affect its business, financial condition or results of operations. The
Company's ability to remain competitive and respond to technological change is
also dependent, to a lesser degree, upon the Omnidex software,

9
<PAGE> 11

which the Company licenses from Dynamic Information System Corporation ("DISC")
and incorporates in MACS. In the event that Omnidex or other products from
similar such vendors have design defects or flaws, or if such products are
unexpectedly delayed in their introduction or become obsolete subsequent to
release, the Company's business, financial condition or operating results could
be materially adversely affected. Such material adverse effects could diminish
the Company's reputation, credibility and relationships with its current and
prospective clients. There can also be no assurance that products or services
developed by others will not adversely affect the Company's competitive position
or render its products noncompetitive or obsolete.

Dependence on Third Parties. Development and implementation of the
Company's MACS software depends on proprietary technology licensed from third
parties. The implementation of MACS is dependent on Omnidex by DISC. The
introduction and increased market acceptance of other operating systems that are
incompatible with the Company's products, or the failure of the Hewlett-Packard
("HP") MPE/iX operating system to continue to receive market acceptance, could
materially adversely affect the market for the Company's products. MACS also
relies on certain proprietary features of the IMAGE database management system
developed by HP. MACS for UNIX and MACS for NT, which are currently under
development by the Company, will be dependent on the Raima, and, if integrated,
Oracle and SQL Server databases. The introduction and increased market
acceptance of database management systems that are incompatible with the
Company's products, or the failure of HP3000 products to achieve continued
market acceptance, could adversely affect the market for the Company's products.
In the event the Company's current platform becomes obsolete, there can be no
assurance that the Company would be able to license in a timely fashion, or at
all, a database with similar features and on terms acceptable to the Company.
Any failure of the Company to license such a database would adversely affect its
business, financial condition or results of operations. See
"Business -- Products" and "-- Products Under Development."

Dependence on Hardware Sales. In conjunction with the licensing of MACS
products, the Company resells a variety of hardware developed and manufactured
by third parties in order to provide the Company's clients with an integrated
solution. The Company obtains all of the HP hardware sold by it pursuant to a
distribution agreement with Client Systems, Inc., an HP distributor. Revenue
from such hardware sales can amount to a significant portion of the Company's
total revenue in any period. For fiscal years ended December 31, 1996 and
December 31, 1997 and for the six months ended June 30, 1998, revenue derived
from the sale of HP equipment amounted to 30.0%, 26.6% and 25.4%, respectively,
of the Company's total revenue. As the market for the distribution of hardware
products becomes more competitive, the Company's clients may choose to purchase
such hardware directly from the manufacturers or distributors of such products,
with a resultant decrease in the Company's revenue derived from the sales of
such products. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Products."

Competition. The market for non-store marketing software is competitive,
rapidly evolving and highly sensitive to new product introductions and marketing
efforts by industry participants. The market is also highly fragmented and
served by enterprise resource planning ("ERP") software providers, electronic
commerce software providers, consulting firms, point solution providers targeted
at the non-store marketing industry and other software companies. Some of these
companies serve only their respective local markets or specific client types.
Much of the Company's competition stems from information systems developed and
serviced internally by its competitors' in-house management information systems
("MIS") departments. Many of the Company's present and potential future
competitors may have significantly greater resources, generate higher revenue
and have greater name recognition than the Company. In addition, as the Company
expands into new segments of the non-store marketing industry, such as Internet
commerce, the Company will face competition from other software companies, MIS
departments and unforeseen and unpredictable sources. There can be no assurance
that the Company's competitors will not develop products

10
<PAGE> 12

comparable or superior to those developed by the Company or adapt more quickly
than the Company to new technologies, evolving industry trends or changing
client requirements. It is also possible that alliances among competitors may
emerge and rapidly acquire significant market share. Increased competition may
result in price reductions, reduced gross margins and loss of market share, any
of which could materially adversely affect the Company's business, financial
condition or results of operations. There can be no assurance that the Company
will be able to compete effectively against current and future competitors. See
"Business -- Competition."

Product Defects and Product Liability. The Company's software products are
highly complex and sophisticated and could from time to time contain design
defects or software errors that could be difficult to detect and correct.
Errors, bugs or viruses may result in loss of or delay in market acceptance or
loss of client data as well as diminish the Company's reputation, credibility
and relationships with its current clients and any prospective clients. There
can be no assurance that, despite testing by the Company and its clients, errors
will not be found in the Company's products, which errors could result in a
delay in or the prevention of the applicable software product from attaining
broad market acceptance and thus could have a material adverse effect upon the
Company's business, financial condition or results of operations. The Company's
products are frequently used by its clients to perform mission-critical
functions. Therefore, design defects, software errors, misuse of the Company's
products, incorrect data from external sources or other potential problems
within or outside of the Company's control that may arise from the use of the
Company's products could result in financial or other damage to the Company's
clients. Although the Company's license agreements with its clients typically
contain provisions designed to limit the Company's exposure to such potential
claims, the provisions may not effectively protect the Company against such
claims and the liability and costs associated therewith. Although the Company
maintains general liability insurance coverage, including coverage for errors or
omissions, there can be no assurance that such coverage will continue to be
available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim. Accordingly, any such claim could have a material
adverse effect upon the Company's business, financial condition or results of
operations.

Dependence on Key Personnel. The Company's business involves the delivery
of services and is labor intensive. The Company's success will depend in large
part upon its ability to attract, recruit, hire, retain and motivate highly
skilled employees. There is significant competition for employees with the
skills required to perform the services offered by the Company. There can be no
assurance that the Company will be able to attract and retain sufficient numbers
of highly skilled employees in the future. The loss of Gary G. Hegna, the
Company's President and Chief Executive Officer, Allan J. Gardner, the Company's
Executive Vice President -- Advanced Technologies, Wilburn W. Smith, the
Company's Executive Vice President -- Sales, or a significant number of the
Company's highly skilled employees, could have a material adverse effect on the
Company's business, financial condition or results of operations, including its
ability to attract employees, obtain new clients and perform installations. The
Company does not hold a key person insurance policy on the lives of any of its
executive officers or directors and has not entered into employment agreements
with any of its executive officers. See "Management."

Risks Associated with International Operations. The Company intends to
expand its international sales activity as part of its business strategy. In
order to increase international sales, the Company must establish additional
foreign operations and hire additional personnel. This will require significant
management attention and financial resources and could materially adversely
affect the Company's business, financial condition or results of operations. In
addition, there can be no assurance that the Company will be able to maintain or
increase international market demand for the Company's products. In addition,
the Company's international business may be subject to a variety of risks,
including difficulties in collecting international accounts receivable or
obtaining U.S. export licenses, potentially longer payment cycles, increased
costs associated with maintaining international marketing efforts, the
introduction of non-tariff barriers and higher duty rates and

11
<PAGE> 13

difficulties in enforcement of contractual obligations and intellectual property
rights. There can be no assurance that such factors will not have a material
adverse effect on the Company's future international sales and, consequently, on
the Company's business, financial condition or results of operations.

Control by Existing Management and Shareholders. Upon completion of this
Offering, Wilburn W. Smith and Allan J. Gardner, the founders of the Company,
together with the holders of the Convertible Debentures (Advent VII L.P., Advent
Atlantic and Pacific II L.P., Advent Industrial II L.P., Advent New York L.P.,
Chestnut Capital International III Limited Partnership and TA Venture Investors
Limited Partners (each a "Lender" and collectively the "Lenders")), will
beneficially own approximately % of the Company's outstanding Common Stock.
As a practical matter, these shareholders, if acting together, would have the
ability to elect the Company's directors and may have the ability to determine
the outcome of corporate actions requiring shareholder approval, irrespective of
how other shareholders of the Company may vote. This concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Management" and "Principal and Selling Shareholders."

No Public Market; Volatility of Stock Price. Prior to this Offering, there
has been no public market for the Common Stock, and there can be no assurance
that an active trading market will develop or be sustained after this Offering
or that the market price of the Common Stock will not decline below the initial
public offering price. The initial public offering price will be determined by
negotiations among the Company, the Selling Shareholders and the Representatives
of the Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. Investors should be
aware that market prices for securities of software companies such as the
Company are highly volatile. Moreover, from time to time, the stock market
experiences significant price and volume volatility that may affect the market
price of the Common Stock for reasons unrelated to the Company's performance.

Absence of Dividends. Although the Company has made distributions in the
past to its shareholders in part to offset their tax liability with respect to
the Company's S Corporation earnings, the Company does not anticipate paying
cash dividends in the foreseeable future. See "Dividend Policy" and "S
Corporation Status."

Dilution. Purchasers of shares of Common Stock in this Offering will
suffer an immediate and substantial dilution in the net tangible book value of
their Common Stock from the initial public offering price. See "Dilution."

Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of the shares in the public market could adversely affect the market
price of the Common Stock and could impair the Company's ability to raise
capital through sale of its equity securities. Upon completion of the Offering,
the Company will have outstanding shares of Common Stock
(assuming no exercise of options outstanding under the Plans). Of these shares,
the shares sold in the Offering will be freely tradable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless they are purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act (which
sales would be subject to certain limitations and restrictions described below).
The remaining shares are "restricted shares" under Rule 144
(the "Restricted Shares"). Restricted Shares may be sold in the public market
only if registered under the Securities Act or if they qualify for an exemption
from registration under Rule 144, Rule 144(k) or Rule 701 promulgated under the
Securities Act. The Company and the holders of shares of
Common Stock have agreed not to offer, pledge, sell, offer to sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Common Stock until
180 days after the

12
<PAGE> 14

date of this Prospectus, subject to certain exceptions without the prior written
consent of BT Alex. Brown Incorporated.

After the completion of the Offering, the Company intends to file a
Registration Statement on Form S-8 (the "Form S-8") under the Securities Act to
register the 850,000 shares and 1,000,000 shares of Common Stock issued or
reserved for issuance under the 1996 Stock Option Plan and the 1998 Stock Option
Plan, respectively. After the date of such filing, if not otherwise subject to a
lock-up agreement, shares purchased pursuant to such plans and options generally
would be available for resale in the public market upon vesting and/or exercise
of options or awards, subject to the restrictions of Rule 144 applicable to
affiliates of the Company. See "Management -- Stock Option Plans" and "Shares
Eligible for Future Sale."

Anti-takeover Provisions. The Articles of Incorporation provide for a
classified Board of Directors, and members of the Board of Directors may be
removed only for cause upon the affirmative vote of holders of at least
two-thirds of the shares of capital stock of the Company entitled to vote. In
addition, shares of the Company's Preferred Stock may be issued in the future
without further shareholder approval and upon such terms and conditions, and
having such rights, privileges and preferences, as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of any holders of Preferred Stock that may
be issued in the future. The Company has no present plans to issue any shares of
Preferred Stock subsequent to the consummation of this Offering. These
provisions, together with certain provisions of Florida law and other provisions
of the Articles of Incorporation and Bylaws, may have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management of
the Company, including transactions in which shareholders might otherwise
receive a premium for their shares over then current market prices. In addition,
these provisions may limit the ability of shareholders to approve transactions
that they may deem to be in their best interests. See "Description of Capital
Stock -- Certain Anti-takeover Effects."

Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. Beginning in the Year 2000, these date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates. As
a result, prior to January 1, 2000 computer systems and/or software used by many
companies may need to be upgraded to become Year 2000 compliant. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance. The Company's MACS system is fully Year 2000
compliant. The original design of MACS featured a four position century field
which provided century independence. The only exception to this feature was the
GTS programs developed by a third-party and incorporated into MACS to provide
general ledger and accounts payable functions. GTS provided Year 2000 compliant
code to the Company in August 1998. The Company is now in the process of testing
and distributing the GTS Year 2000 compliant programs to its clients. The
company has also reviewed its internal support systems and, to the extent
possible, its vendors' systems to confirm Year 2000 compliance. Any failure of
the Company or its suppliers or clients to be Year 2000 compliant could have a
material adverse effect on the Company's business, financial condition or
results of operations.

13
<PAGE> 15

USE OF PROCEEDS

The net proceeds to the Company from the sale of the
shares of Common Stock offered by the Company (at an assumed initial public
offering price of $ per share), are estimated to be approximately
$ million after deducting estimated underwriting discounts and offering
expenses payable by the Company ($ million if the Underwriters' over-
allotment option is exercised in full). The Company will not receive any
proceeds from the sale of Common Stock offered by the Selling Shareholders.

The Company anticipates that it will use $12.0 million of the net proceeds
of this Offering to redeem all of the Redeemable Preferred Stock to be issued
upon the conversion of the Convertible Debentures and approximately $4.2 million
of the proceeds to pay accrued interest due and payable on the Convertible
Debentures. The maturity date of the Convertible Debentures is December 1, 1999
with regard to $6.0 million in aggregate principal amount and December 1, 2000
with regard to the remaining $6.0 million in aggregate principal amount, unless
the Company consummates an initial public offering prior thereto, in which case
the maturity dates would be accelerated to the date of such initial public
offering. The Convertible Debentures accrued interest at a rate of 10% per annum
through June 30, 1997 and began accruing interest at a rate of 15% per annum
thereafter. The Company anticipates that a portion of the net proceeds will be
used to effect the Distribution. At June 30, 1998, the estimated Distribution
would have been approximately $400,000. The balance of the net proceeds of this
Offering will be used for working capital and other general corporate purposes.
A portion of such proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. The Company is not currently a party to any agreement, arrangement
or understanding with respect to any such transaction and is not currently
engaged in discussions with any party concerning any such possible transaction.
Pending such uses, the Company intends to invest the net proceeds of this
Offering in short-term, interest-bearing investment grade securities,
certificates of deposit or obligations issued or guaranteed by the United States
government.

DIVIDEND POLICY

The Company currently intends to retain any future earnings to finance the
growth and development of its business and does not anticipate paying any
dividends in the foreseeable future. Any payment of dividends in the future will
be subject to the discretion of the Company's Board of Directors and will depend
upon, among other things, the Company's financial condition, capital
requirements, earnings, restrictions under loan agreements and other factors the
Board of Directors may deem relevant.

As an S Corporation, the Company has paid dividends to its shareholders
from time to time in part to partially fund or offset their tax liability with
respect to S Corporation earnings. In 1995, in connection with the sale of the
Convertible Debentures, the Company paid an aggregate dividend to its
shareholders in the amount of $12.0 million.

14
<PAGE> 16

S CORPORATION DISTRIBUTION AND
CONVERSION TO C CORPORATION STATUS

Since January 1, 1989, the Company has been a corporation subject to income
taxation under Subchapter S of the Internal Revenue Code of 1986, as amended
(the "Code"). As a result, substantially all of the Company's net income has
been attributed, for income tax purposes, directly to the Company's shareholders
rather than to the Company. The Company's S corporation status will terminate in
connection with this Offering and, thereupon, the Company will make the
Distribution to the Existing Shareholders in the form of the Promissory Notes.
The estimated aggregate principal amount of the Promissory Notes will change
depending upon the date of this Offering or a voluntary S Corporation
revocation. At June 30, 1998, the estimated aggregate principal amount of the
Promissory Notes would have been approximately $400,000. Purchasers of Common
Stock in this Offering will not receive any portion of the Promissory Notes.

Following the termination of its S Corporation status, the Company will be
subject to corporate income taxation on an accrual basis under Subchapter C of
the Code. In connection with the termination of its S Corporation status, the
Company has estimated an available net deferred tax asset of approximately
$630,000. This is also an estimate subject to change, dependent upon the date of
this Offering or earlier S Corporation revocation date. The majority of this net
deferred tax asset will be recorded in accordance with Statement of Financial
Accounting Standards No. 109. A valuation allowance may be required to offset
the net deferred tax asset if it is more likely than not that all or some
portion of the deferred tax asset will not be realized.

The S Corporation shareholders have agreed to indemnify the Company for any
possible taxes related to lost S Corporation status in prior years (subject to
certain adjustments). In addition, the S Corporation shareholders have agreed to
revoke the S Corporation status prior to this Offering, if necessary, in order
to provide income tax benefit to the C Corporation for certain accrued expenses.

15
<PAGE> 17

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) on an
actual basis as of June 30, 1998, and (ii) on an as adjusted basis (a) to give
retroactive effect to the Concurrent Transactions and (b) to give effect to the
application of the net proceeds from the sale of shares of Common Stock pursuant
to this Offering (at an assumed initial public offering price of $ per
share), as set forth in "Use of Proceeds." The following table should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Convertible debt:
Convertible debt.......................................... $ 11,310 $ --
Accrued interest payable.................................. 3,600 --
Redeemable preferred stock, 10,000,000 shares authorized:
Redeemable convertible participating preferred stock,
$0.01 par value; none issued;
shares issued and outstanding as adjusted.............. -- --
Redeemable participating preferred stock, $0.01 par value;
none issued; shares issued and
outstanding as adjusted................................ -- --
Stockholders' deficit:
Common stock, $0.01 par value. 50,000,000 shares
authorized; 5,263,100 shares issued and outstanding
actual; shares issued and
outstanding as adjusted(1)............................. 53
Additional paid-in capital.................................. 3,489
Accumulated deficit......................................... (16,616)
-------- -------
Total stockholders' deficit............................... (13,074)
-------- -------
Total capitalization.............................. $ 1,836 $
======== =======
</TABLE>

- ---------------
(1) Does not include (i) 850,000 shares of Common Stock reserved for issuance
under the 1996 Stock Option Plan, pursuant to which options to purchase
777,140 shares of Common Stock, at an exercise price of $2.53 per share,
were outstanding at June 30, 1998 and (ii) 1,000,000 shares of Common Stock
reserved for issuance under the 1998 Stock Option Plan, pursuant to which
options to purchase 538,003 shares, at an exercise price of $10.00 per share
or the initial public offering price upon the consummation of this Offering,
were outstanding at June 30, 1998. See "Management -- Stock Option Plans."

16
<PAGE> 18

DILUTION

The pro forma deficit in net tangible book value of the Company at June
30, 1998, was approximately $ , or $ per share. Net tangible book value
dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in this Offering and the pro forma net
tangible book value per share of Common Stock immediately after completion of
this Offering. After giving effect to the Concurrent Transactions and the sale
by the Company of shares of Common Stock (at an assumed initial public
offering price of $ per share) and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
June 30, 1998, would have been $ or $ per share. This represents an
immediate increase in net tangible book value of $ per share to the Existing
Shareholders and an immediate dilution in the net tangible book value of $ per
share to purchasers of Common Stock in this Offering. The following table
illustrates the per share dilution to new investors:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at June 30, 1998........ $
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after this
Offering..................................................
--------
Net tangible book value dilution per share to new
investors................................................. $
========
</TABLE>

The following table summarizes, after giving effect to the Concurrent
Transactions, the number of shares of Common Stock previously purchased from the
Company, the total consideration paid and the average price per share paid to
the Company by the Existing Shareholders and by new investors, at an assumed
initial public offering price of $ per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........ % $ % $
New investors................ -- -- -- -- $
------- ------- ------- -------
Total................... 100.0% $ 100.0%
======= ======= ======= =======
</TABLE>

After giving retroactive effect to the Concurrent Transactions, the sale of
shares by the Selling Shareholders in this Offering will cause the number of
shares held by the Existing Shareholders as of June 30, 1998 to be reduced to
shares, or % of total shares of Common Stock to be
outstanding after this Offering, and the pro forma number of shares held by new
investors as of June 30, 1998 to be shares, or % of the
total shares of Common Stock to be outstanding after this Offering. See
"Principal and Selling Shareholders."

The foregoing discussion and tables assume no exercise of stock options
outstanding on June 30, 1998. As of June 30, 1998, there were options
outstanding to purchase a total of 777,140 shares of Common Stock under the 1996
Stock Option Plan at an exercise price of $2.53 per share and 538,003 shares of
Common Stock under the 1998 Stock Option Plan at an exercise price of $10.00 per
share or the initial public offering price upon the consummation of this
Offering.

17
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below as of December 31,
1995, 1996 and 1997 and for each of the years in the five year period ended
December 31, 1997 are derived from the Consolidated Financial Statements of the
Company which have been audited by KPMG Peat Marwick LLP, independent public
accountants. The Company's consolidated balance sheets as of December 31, 1996
and 1997, and consolidated statements of operations for the years ended December
31, 1995, 1996 and 1997 appear elsewhere in this Prospectus. The Company's
consolidated balance sheets as of December 31, 1993, 1994 and 1995 and
consolidated statements of operations for the years ended December 31, 1993 and
1994 are not included in this Prospectus. The selected condensed consolidated
financial data as of June 30, 1998 and for the six month periods ended June 30,
1997 and 1998 have been derived from the unaudited condensed consolidated
financial statements of the Company which appear elsewhere in this Prospectus.
In the opinion of management, the Company's unaudited condensed consolidated
financial statements have been prepared on a basis consistent with the audited
consolidated financial statements which appear elsewhere in this Prospectus and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information set forth therein. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the Consolidated
Financial Statements and Notes thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Computer software............................... $ 4,908 $ 6,551 $ 7,440 $ 6,379 $ 5,247 $ 3,601 $ 4,649
Computer hardware............................... 13,530 11,988 12,795 6,923 7,981 4,905 5,076
Support......................................... 833 2,159 3,343 4,038 4,100 2,033 2,434
Services........................................ 398 767 1,350 1,188 1,324 482 1,501
------- ------- ------- ------- ------- ------- -------
Total revenue............................. 19,669 21,465 24,928 18,528 18,652 11,021 13,660
Cost of sales and services:
Computer software............................... 250 1,082 1,654 1,032 1,667 829 1,171
Computer hardware............................... 9,352 8,586 9,760 5,358 5,847 3,775 3,858
Support......................................... 963 1,956 2,491 3,141 3,271 1,443 1,563
Services........................................ 768 727 1,016 902 1,104 534 1,006
------- ------- ------- ------- ------- ------- -------
Total cost of sales and services.......... 11,333 12,351 14,921 10,433 11,889 6,581 7,598
------- ------- ------- ------- ------- ------- -------
Gross Profit...................................... 8,336 9,114 10,007 8,095 6,763 4,440 6,062
Operating expenses:
General and administrative...................... 1,671 3,246 3,206 4,775 4,567 2,096 2,917
Research and development........................ 1,929 1,609 2,166 2,254 2,011 883 1,061
Sales and marketing............................. 410 508 523 980 1,482 741 1,074
------- ------- ------- ------- ------- ------- -------
Total operating expenses.................. 4,010 5,363 5,895 8,009 8,060 3,720 5,052
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations..................... 4,326 3,751 4,112 86 (1,297) 720 1,010
Other income (expense):
Interest expense:
Interest on outstanding debt.................... -- (39) (1,200) (1,200) (1,500) (600) (900)
Amortization of original issue discount(1)...... -- (32) (960) (960) (660) (480) (180)
Interest income................................... 26 50 129 42 109 50 36
------- ------- ------- ------- ------- ------- -------
Total interest income (expense), net...... 26 (21) (2,031) (2,118) (2,051) (1,030) (1,044)
------- ------- ------- ------- ------- ------- -------
Net income (loss)................................. 4,352 3,730 2,081 (2,032) (3,348) (310) (34)
Pro forma income tax (expense) benefit
(unaudited)(2).................................. (1,672) (1,425) (1,155) 360 948 (124) (210)
------- ------- ------- ------- ------- ------- -------
Pro forma net income (loss) (unaudited)(2)........ $ 2,680 $ 2,305 $ 926 $(1,672) $(2,400) $ (434) $ (244)
======= ======= ======= ======= ======= ======= =======
Pro forma basic and diluted net loss per share
(unaudited)(2).................................. $ (0.46) $ (0.05)
======= =======
Weighted average number of shares used in
calculating pro forma basic and diluted net loss
per share....................................... 5,263 5,263
======= =======
</TABLE>

18
<PAGE> 20

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1998
---------------------------- -----------------------
(UNAUDITED)
AS ADJUSTED
1995 1996 1997 ACTUAL (3)
------- ------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ -- $ 60 $ 169 $ 1,877 $ 1,877
Working capital........................................... 1,175 1,233 16 873 873
Total assets.............................................. 4,717 3,666 3,135 7,113 7,113
Convertible debt and accrued interest(1).................. 9,510 11,670 13,830 14,910 15,600
Stockholders' deficit(1).................................. (7,667) (9,699) (13,048) (13,074) (9,699)
</TABLE>

- ---------------
(1) The fair value of the conversion features of the Convertible Debentures has
been determined to be $3.5 million based on the difference between the
stated interest rates and the estimated market rate of such Convertible
Debentures on the date of issuance. The amount is included in additional
paid-in capital in the accompanying consolidated balance sheets, with the
resulting OID on the convertible debt being amortized over the term of the
note. This interest expense is a non-cash item.
(2) As a result of its election to be treated as an S Corporation for income tax
purposes, the Company has not been subject to federal or certain state
income taxes. Immediately prior to or contemporaneously with this Offering,
the Company's S Corporation status will terminate and thereafter the Company
will be subject to federal and certain state taxes at applicable rates for a
C corporation. The unaudited pro forma income tax (expense) benefit
presented in the consolidated statements of operations represents the
estimated taxes that would have been recorded had the Company been a C
corporation for income tax purposes for each of the periods presented.
(3) Adjusted to (a) give retroactive effect to the Concurrent Transactions and
(b) give effect to the sale by the Company of shares of Common Stock
offered hereby at an assumed initial public offering price of $ and
after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company.

19
<PAGE> 21

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

OVERVIEW

The Company is a leading provider of mission-critical, enterprise-wide
software solutions, and related hardware and services, to the non-store
marketing industry. The Company's clients in the non-store marketing industry
are traditional direct marketing companies and Internet-only retailers, as well
as wholesalers, fulfillment houses and retailers with significant non-store
sales channels. The Company's MACS family of software products is designed to
automate non-store commerce activities, including advertising analysis, sales,
telemarketing, ordering, merchandising, procurement, electronic and Internet
commerce, warehousing, shipping, accounting and systems operation. The MACS
products also provide managers and sales personnel with real-time operations,
inventory and customer data to improve both management decision making and
customer service.

During 1996, the Company effected an internal reorganization which included
adding support, development and sales resources to generate future increases in
new customer installations, improve client services and develop new software
products such as WebMACS, MACS for UNIX and MACS for NT. This reorganization was
precipitated by a decline in new customer sales which began in 1995 and
continued in 1996. In turn, this decline led to a decrease in total revenue from
1995 to 1996. Primarily because of this reorganization, the Company experienced
losses in 1996 and 1997.

In 1997, new client revenue increased by 108.3% while upgrade revenue
declined by 41.2%, resulting in virtually no change in the Company's total
revenue from 1996 to 1997. The decline in upgrade revenue was primarily a result
of lower new client sales in 1995 and 1996. In 1997, the Company's net loss was
attributable to a number of factors, including the Company's continued
investment in infrastructure. To accommodate its new client sales and to fuel
potential future revenue growth, the Company increased its number of
installation and support personnel, added salespeople, continued the development
of its UNIX and Windows NT products, and started the development of WebMACS. In
addition, the Company opened offices in the United Kingdom and Australia to
expand its presence abroad.

Since January 1998, the Company has experienced a continued increase in new
client sales. Management expects upgrade revenue to increase in the second half
of 1998, as compared to 1997. Total revenue increased 23.9% during the six
months ended June 30, 1998, compared to the same period in 1997, which resulted
in increased income from operations in the first half of 1998. The revenue
growth in 1998 is attributable to a number of factors, including clients seeking
to replace systems that are not Year 2000 compliant, the Company's greater focus
on services revenue, increasing sales of WebMACS and increasing demand for MACS
in Europe. In late 1998, management expects to make generally available its
MiniMACS product, which runs on the Windows NT operating system.

The Company generates revenue from four principal sources: (i) license fees
for its software products; (ii) sales of related computer hardware components;
(iii) software support; and
20
<PAGE> 22

(iv) services consisting of consulting, training and custom programming. System
revenue, which includes software license fees and hardware components, is
generated by sales to new and existing clients.

The Company's revenue and long-term growth are largely dependent on the
sale of its systems to new clients. These new system sales have a fairly
predictable implementation cycle. System sales to new clients represented 47.7%
of total revenue during the six months ended June 30, 1998, and increased 57.5%
from the six months ended June 30, 1997. System upgrades represented 23.5% of
total revenue for the six months ended June 30, 1998. System upgrades consist
primarily of additional software user license fees and central processing unit
("CPU") upgrades for its existing clients. System upgrades typically have short
sales cycles and therefore are fairly unpredictable.

The Company recognizes revenue in accordance with Statement of Position
("SOP") 97-2, Software Revenue Recognition. Under this provision, hardware and
software license fees for new systems are recognized as revenue upon the
completion of the software installation and when collectibility is probable.
Revenue relating to system upgrades is recognized upon installation, provided
that all significant obligations have been met. Revenue from hardware and
software components sold separately is recognized upon receipt by the client.

Each new system client executes a contract which identifies the number of
licensed MACS users, hardware configuration, and pricing for the software
license and support services. The contract also contains pricing provisions for
supplemental software user licenses and CPU upgrades. The Company typically
receives a deposit equal to 25% of the system selling price upon contract
signing and an additional 25% prior to installation of the system. The balance
is generally payable in two installments, one of which is payable upon
installation of the software and the balance upon operation of the installed
system. The differences between amounts received and amounts recognized are
recorded as deferred revenue.

The Company's MACS product contains software utilities developed and owned
by third parties. The Company pays sublicense fees to such third parties upon
the sale of the Company's product. Prior to July 1997, the Company included
revenue from such sublicensing products in software license revenue and the
corresponding costs were included in costs of license fees. For all systems
installed subsequent to June 1997, these sublicense fees were invoiced
separately to clients and included in hardware revenue, with the associated
sublicense fee costs reflected in costs of hardware.

Support services are billed monthly, in advance, and revenue from such
services is recognized ratably over the contract term. The Company's software
support agreements typically have one-year terms, are automatically renewed
annually and may be terminated at the discretion of the client. Historically,
more than 95% of all clients utilizing the Company's software have renewed their
support agreements.

Training and consulting services are performed on a time-and-materials
basis and revenue is recognized as the services are completed. Contract
programming services are generally short-term in nature and performed on a
fixed-fee basis. When performed in conjunction with a sale to a new client,
contract programming revenue is recognized upon delivery and receipt of a signed
client acknowledgment that hardware and software have been installed.
Programming services performed for existing clients are recognized upon receipt
of final payment.

In accordance with Statement of Financial Accounting Standards No. 86,
software development costs are expensed as incurred until technological
feasibility of the software is established, after which any additional costs are
capitalized. To date, the Company has expensed all software development costs
because development costs incurred subsequent to the establishment of
technological feasibility have been minimal.

In October 1997, the American Institute of Certified Public Accountants
issued SOP 97-2, Software Revenue Recognition, which superseded SOP 91-1. The
Company adopted SOP 97-2 for
21
<PAGE> 23

software transactions entered into in 1997. SOP 97-2 generally requires revenue
earned on software arrangements involving multiple elements to be allocated to
each element based on the relative fair values of the elements. The revenue
allocated to hardware and software products generally is recognized upon
installation and when collectibility is probable. The revenue allocated to
postcontract customer support is consistent with fees charged for renewals and
is recognized ratably over the term of the support. Revenue allocated to service
elements is recognized as the services are performed. The adoption of SOP 97-2
did not have a material impact on the Company's results of operations.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationship of certain statement of operations items to total revenue:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Computer software..................................... 29.9% 34.4% 28.1% 32.7% 34.0%
Computer hardware..................................... 51.3 37.4 42.8 44.5 37.2
Support............................................... 13.4 21.8 22.0 18.4 17.8
Services.............................................. 5.4 6.4 7.1 4.4 11.0
----- ----- ----- ----- -----
Total revenue.................................. 100.0 100.0 100.0 100.0 100.0
Cost of sales and services:
Computer software..................................... 6.6 5.6 8.9 7.5 8.6
Computer hardware..................................... 39.2 28.9 31.4 34.3 28.2
Support............................................... 10.0 16.9 17.5 13.1 11.4
Services.............................................. 4.1 4.9 5.9 4.8 7.4
----- ----- ----- ----- -----
Total cost of sales and services............... 59.9 56.3 63.7 59.7 55.6
----- ----- ----- ----- -----
Gross profit............................................ 40.1 43.7 36.3 40.3 44.4
Operating expenses:
General and administrative............................ 12.8 25.8 24.5 19.0 21.3
Research and development.............................. 8.7 12.1 10.8 8.0 7.8
Sales and marketing................................... 2.1 5.3 7.9 6.7 7.9
----- ----- ----- ----- -----
Income (loss) from operations........................... 16.5 0.5 (6.9) 6.6 7.4
Other income (expense):
Interest expense:
Interest on outstanding debt........................ (4.8) (6.4) (8.1) (5.4) (6.6)
Amortization of original issue discount............. (3.9) (5.3) (3.5) (4.4) (1.3)
Interest income....................................... 0.5 0.2 0.6 0.4 0.3
----- ----- ----- ----- -----
Total interest expense, net.................... (8.2) (11.5) (11.0) (9.4) (7.6)
----- ----- ----- ----- -----
Net income (loss) before pro forma income tax (expense)
benefit............................................... 8.3 (11.0) (17.9) (2.8) (0.2)
Pro forma for income tax (expense) benefit.............. (4.6) 2.0 5.1 (1.1) (1.6)
----- ----- ----- ----- -----
Pro forma net income (loss)............................. 3.7% (9.0)% (12.8)% (3.9)% (1.8)%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

Computer Software. Sales of computer software licenses accounted for
approximately 34.0% of the Company's total revenue for the six months ended June
30, 1998. Computer software license fees consist of license fees for the new
installation of the Company's MACS software and related modules and additional
user license fees, and CPU upgrades for its existing clients. Computer software
license fees are based on the number of users and type and number of CPUs.
Computer software license fees increased 29.1% to $4.6 million during the six
months ended June 30, 1998, compared to $3.6 million for the same period in
1997. This improvement resulted from an increase

22
<PAGE> 24

in computer software sales to new and existing clients. New client computer
software sales increased from $1.9 million for the six months ended June 30,
1997 to $2.8 million for the same period in 1998, and computer software upgrades
increased from $1.7 million to $1.8 million for the same time period.

Computer Hardware. Sales of computer hardware accounted for approximately
37.2% of the Company's total revenue for the six months ended June 30, 1998.
Sales of computer hardware consists of sales of computer systems, peripheral
components and third-party software. Computer hardware revenue increased 3.5% to
$5.1 million for the six months ended June 30, 1998, compared to $4.9 million
for the six months ended June 30, 1997. Computer hardware revenue relating to
new client sales increased 68.8% to $2.7 million for the six months ended June
30, 1998, compared to $1.6 million for the same period in 1997. This increase
resulted from increases in new system sales partially offset by declining
computer hardware prices. Computer hardware upgrades decreased by 51.6% to
$822,000 for the six months ended June 30, 1998, compared to $1.7 million for
the same period in 1997.

Support. Support revenue accounted for approximately 17.8% of the Company's
total revenue during the six months ended June 30, 1998. Support revenue
consists of fees for technical support services and product enhancements for the
MACS software and integrated third-party software utilities. Support revenue
typically represents 20% to 40% of the underlying license fee each year. Support
revenue increased 19.7% to $2.4 million during the six months ended June 30,
1998, compared to $2.0 million for the six months ended June 30, 1997. This
increase resulted from the addition of new clients in the last half of 1997 and
the first six months of 1998, as well as support fee increases related to
software user license upgrades.

Services. Services revenue accounted for approximately 11.0% of the
Company's revenue for the six months ended June 30, 1998. Services revenue
consists principally of revenue derived from training, consulting, and custom
programming. Services revenue increased 211.2% to $1.5 million in the six months
ended June 30, 1998, compared to $482,000 in 1997. This improvement was due to
increases in new client software modifications, custom interfaces to third-party
products and consulting services.

Total Revenue. Total revenue increased 23.9% to $13.7 million for the six
months ended June 30, 1998, compared to $11.0 million in 1997. New client sales
increased 58.5% to $6.5 million from $4.1 million for the six months ended June
30, 1997. This increase was primarily due to higher average revenue per
installation than during the six months ended June 30, 1997 as the result of a
material contract with the United States Mint. Revenue from client system and
component upgrades decreased by 27.3% to $3.2 million for the six months ended
June 30, 1998, compared to $4.4 million for the same period in 1997, due to
lower new client sales in prior years.

Cost of Computer Software. Cost of computer software, which includes
third-party computer software sublicense cost and salaries allocated to the
installation and implementation of the computer software, increased 41.3% to
$1.2 million during the six months ended June 30, 1998, compared to $829,000 for
the six months ended June 30, 1997. This increase resulted from higher personnel
costs related to increased installations of new systems and sales to new
clients. This personnel cost increase was partially offset by a 98% reduction in
computer software sublicense fees which have been billed separately and excluded
from cost of license fees since June 1997. Cost of computer software as a
percentage of total revenue increased to 8.6% from 7.5% for the six months ended
June 30, 1997. Cost of computer software as a percentage of computer software
revenue increased to 25.2% from 23.0% for the six months ended June 30, 1997.
These increases are directly related to the additional resources added to
accommodate the increase in new client license fee revenue.

Cost of Computer Hardware. Cost of computer hardware, which consists of
purchases of computer systems, peripheral components and third-party software,
increased 2.2% to $3.9 million for the six months ended June 30, 1998, compared
to $3.8 million for the same period in 1997. This

23
<PAGE> 25

increase was related to the 3.5% increase in computer hardware revenue from the
six months ended June 30, 1997. Cost of computer hardware as a percentage of
total revenue decreased to 28.2% from 34.3% for the six months ended June 30,
1997, due primarily to a shift in sales mix reducing the relative contribution
of computer hardware sales. Cost of computer hardware as a percentage of
computer hardware revenue decreased to 76.0% for the six months ended June 30,
1998 from 77.0% for the same period in 1997. This decrease primarily resulted
from the increase in new client sales, which generally provided higher computer
hardware gross margins than those for upgrade sales, and the sale of third-party
computer software utilities, which are sold at higher margins than computer
hardware system components.

Cost of Support. Cost of support consists primarily of personnel costs
associated with the support of the Company's MACS product and third-party
computer software packages and the cost of MACS user documentation distributed
to clients. Cost of support increased 8.3% to $1.6 million for the six months
ended June 30, 1998, compared to $1.4 million in 1997. This increase was related
to the addition of personnel to support new client sales. Cost of support as a
percentage of total revenue decreased to 11.4% from 13.1% for the six months
ended June 30, 1997. Cost of support as a percentage of support revenue
decreased to 64.2% from 71.0% for the same period in 1997. This decrease
primarily resulted from increased support fees from new clients without
proportionate additions to support personnel.

Cost of Services. Cost of services, which consists of salaries for
professional services employees, and allocated salaries for training and
programming personnel, increased 88.4% to $1.0 million during the six months
ended June 30, 1998, compared to $534,000 for the six months ended June 30,
1997. This increase was due to the addition of professional services employees
and a greater allocation of programming personnel related to the increases in
custom programming revenue. Cost of services as a percentage of total revenue
increased to 7.4% from 4.8% for the six months ended June 30, 1997. Cost of
services as a percentage of services revenue decreased to 67.0% from 110.7% for
the six months ended June 30, 1997. This decrease was related to the increased
demand for professional services and custom programming, and the resulting
increase in the utilization of available resources and the implementation of new
pricing.

Total Cost of Sales and Services. Total cost of sales and services
increased by 15.4% to $7.6 million for the six months ended June 30, 1998,
compared to $6.6 million during the first six months of 1997. This increase
resulted from the increased personnel cost associated with the increases in the
cost of computer software and services.

General and Administrative. General and administrative expenses include the
cost of the Company's finance, human resources, information services, and
administrative functions. General and administrative expenses increased 39.2% to
$2.9 million for the six months ended June 30, 1998, compared to $2.1 million
during the first six months of 1997. This increase was due to expenses
associated with new offices in the United Kingdom and Australia which were
opened during the second half of 1997, increases in administrative personnel
related to an expanding workforce and client base, and higher communication,
equipment and office expenses associated with more employees. General and
administrative expenses as a percentage of total revenue increased to 21.3% for
the six months ended June 30, 1998 from 19.0% for the six months ended June 30,
1997, reflecting the Company's increased investment in personnel and
infrastructure.

Research and Development. Research and development expenses include cost
associated with the development of new products and enhancements of existing
products. Such expenses consist primarily of employee salaries and benefits,
consulting expenses (including amounts paid to subcontractors for development
work), and the cost of development tools. Research and development expenses
increased 20.1% to $1.1 million during the six months ended June 30, 1998,
compared to $883,000 for the six months ended June 30, 1997. This increase was
primarily due to ongoing development of the WebMACS, UNIX and Windows NT
products and existing product enhancements. Research and development expenses as
a percentage of total revenue were 7.8% for

24
<PAGE> 26

the six month period ended June 30, 1998 and 8.0% for the same period in 1997.
Research and development expenses as a percentage of computer software license
fees were 23.9% for the six months ended June 30, 1998 and 24.5% for the same
period in 1997.

Sales and Marketing. Sales and marketing expenses include personnel cost,
sales commissions related to the sale and marketing of the Company's products
and services, and the cost of advertising, public relations and participation in
industry conferences and trade shows. Sales and marketing expenses increased by
45.0% to $1.1 million for the six months ended June 30, 1998, compared to
$741,000 for the same period in 1997. This increase resulted from increased
sales, modifications to the Company's sales commission plan and expanded
marketing and advertising programs. Sales and marketing expenses as a percentage
of total revenue increased to 7.9% for the six months ended June 30, 1998 from
6.7% for the six months ended June 30, 1997.

Income (Loss) From Operations. As a result of the foregoing factors, the
Company's income from operations increased by $289,000 to $1.0 million for the
six months ended June 30, 1998, as compared to $721,000 for the six months ended
June 30, 1997.

Other Income (Expense), Net. Net interest expense, which includes interest
on the Convertible Debentures, amortization of original issue discount ("OID")
related to the conversion feature of the Convertible Debentures and interest
income on available cash, was consistent between the six month periods ended
June 30, 1998 and 1997. See "Liquidity and Capital Resources" and Notes 6(a) and
6(b) of Notes to Consolidated Financial Statements.

Pro Forma Income Tax (Expense) Benefit. The pro forma effective tax rate
for the six months ended June 30, 1998 was a provision of 620.0% compared to a
benefit of 40.0% for the six months ended June 30, 1997. Effective pro forma
income tax rates differ from the federal statutory rates because of the
following: (i) OID is not deductible for federal and state income tax purposes;
(ii) the effect of state income taxes; and (iii) the full valuation of net
losses of foreign subsidiaries. Also, pro forma effective rates vary between
periods because of the differing effects the OID and net losses of foreign
subsidiaries have on pro forma income before income taxes.

Pro Forma Net Income (Loss). As a result of the above factors, the
Company's pro forma net loss for the six months ended June 30, 1998 decreased by
$190,000 to $244,000 from $434,000 for the same period in 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Computer Software. Computer software fees decreased 17.7% to $5.2 million
for the year ended December 31, 1997, compared to $6.4 million for the year
ended December 31, 1996. This change was due to a decrease in revenue from
system upgrades of $2.3 million from $4.4 million in 1996 to $2.1 million in
1997, and an increase in new client sales of $1.1 million from $2.0 million in
1996 to $3.1 million in 1997. This increase in new client sales during 1997 was
due to changes in the Company's sales process and the addition of new sales
resources.

Computer Hardware. Computer hardware revenue increased 15.3% to $8.0
million in 1997, compared to $6.9 million in 1996. Computer hardware revenue
relating to new client sales increased 175.0% to $4.4 million for the year ended
December 31, 1997, compared to $1.6 million in 1996. Revenue from hardware
upgrades decreased by 32.1% to $3.6 million for the year ended December 31,
1997, compared to $5.3 million in 1996.

Support. Support revenue increased 1.5% to $4.1 million during the year
ended December 31, 1997, compared to $4.0 million in 1997. This increase
primarily resulted from the addition of new clients.

Services. Services revenue increased 11.4% to $1.3 million in 1997,
compared to $1.2 million in 1996. This increase was primarily due to additional
software modifications for new and existing clients and a greater demand for
consulting services.

25
<PAGE> 27

Total Revenue. Total revenue increased 0.7% to $18.7 million in 1997,
compared to $18.5 million in 1996. New client sales increased 108.3% to $7.5
million in 1997 from $3.6 million for the year ended December 31, 1996. Revenue
from client system and component upgrades decreased by 41.2% to $5.7 million for
the year ended December 31, 1997, compared to $9.7 million for 1996.

Cost of Computer Software. Cost of computer software increased 61.7% to
$1.7 million in 1997, compared to $1.0 million in 1996. This increase resulted
from the addition of personnel required to support new client sales volume. Cost
of computer software as a percentage of total revenue increased to 8.9% from
5.6% for the year ended December 31, 1996. Cost of computer software as a
percentage of computer software revenue increased to 31.8% from 22.2% in 1996.
This increase was primarily due to the increase in personnel during 1997 to
accommodate future anticipated sales.

Costs of Computer Hardware. Cost of computer hardware increased 9.1% to
$5.8 million during the year ended December 31, 1997, compared to $5.4 million
in 1996. This increase was related to the 15.9% increase in computer hardware
revenue from 1996. Cost of computer hardware as a percentage of total revenue
increased to 31.4% from 28.9% in 1996. Cost of computer hardware as a percentage
of computer hardware revenue decreased to 73.3% from 77.4% for the year ended
December 31, 1997. This decrease primarily resulted from an increase in new
client sales, which generally provide higher computer hardware gross margins
than those for upgrade sales, and the sale of third-party computer software
utilities, which are sold at higher margins than computer hardware system
components.

Cost of Support. Cost of support increased 4.1% to $3.3 million in 1997,
compared to $3.1 million in 1996, due to the addition of personnel to support
new clients and the cost of MACS user documentation distributed to clients
during 1997. Cost of support as a percentage of total revenue increased to 17.5%
from 16.9% in 1996. Cost of support as a percentage of support revenue increased
to 79.8% from 77.8% in 1996.

Cost of Services. Cost of services increased 22.4% to $1.1 million in 1997,
compared to $902,000 in 1996. This increase was primarily due to the hiring of
additional professional services personnel during 1997 and a greater allocation
of programming personnel utilized for custom programming. Cost of services as a
percentage of total revenue increased to 5.9% in 1997 from 4.9% in 1996. Cost of
services as a percentage of services revenue increased to 83.4% from 75.5% in
1996. The increase was due to utilization of newly trained professional services
personnel in 1997.

Total Cost of Sales and Services. Total cost of sales and services
increased by 14.0% to $11.9 million for the year ended December 31, 1997,
compared to $10.4 million in 1996. This increase resulted primarily from the
increase in new clients during 1997.

General and Administrative. General and administrative expenses decreased
4.4% to $4.6 million for the year ended December 31, 1997, compared to $4.8
million during 1996. This was related to a decrease in bad debt expense offset
by increased expenditures associated with new offices in the United Kingdom and
Australia, and various other administrative expenses. General and administrative
expenses as a percentage of total revenue decreased to 24.5% in 1997 from 25.8%
in 1996.

Research and Development. Research and development expenses decreased 10.8%
to $2.0 million in 1997, compared to $2.3 million in 1996. As a percentage of
total revenue, research and development expenses declined to 10.8% in 1997,
compared to 12.2% in 1996, due to a shift in development personnel toward
revenue generating computer software modifications. As a percentage of computer
software license fee revenue, research and development expenses increased to
38.3% in 1997, compared to 35.3% in 1996, as a result of reduced computer
software license fee revenue.

Sales and Marketing. Sales and marketing expenses increased 51.2% to $1.5
million in 1997, compared to $980,000 in 1996, primarily as a result of
increases in sales personnel and commissions associated with the increase in new
client computer software revenue. Also in 1997, the Company

26
<PAGE> 28

incurred additional expenses associated with establishing a separate marketing
department. The marketing function was formerly performed by the sales
department. As a percentage of total revenue, sales and marketing expenses
increased to 7.9% in 1997, compared to 5.3% in 1996.

Income (Loss) From Operations. As the result of the above factors, the
Company's income (loss) from operations declined by $1.4 million resulting in a
$1.3 million loss from operations in 1997, compared to income from operations of
$86,000 in 1996. The loss in 1997 resulted from the decline in revenue from
system upgrades, as well as expenses associated with opening new offices in the
United Kingdom and Australia, and hiring additional support, sales and marketing
personnel.

Other Income (Expense), Net. Net interest expense decreased by 3.2% to $2.0
million in 1997, compared to $2.1 million in 1996. This decrease was due to an
increase in interest income related to higher cash balances during 1997. See
"Liquidity and Capital Resources" and Notes 6(a) and 6(b) of Notes to
Consolidated Financial Statements.

Pro Forma Income Tax (Expense) Benefit. The pro forma effective tax rate
for the year ended December 31, 1997 was a benefit of 28.3% compared to a
benefit of 17.7% for the year ended December 31, 1996. Effective pro forma
income tax rates differ from the federal statutory rates because of the
following: (i) OID is not deductible for federal and state income tax purposes;
(ii) the effect of state income taxes; and (iii) the full valuation of net
losses of foreign subsidiaries. Also, pro forma effective rates vary between
periods because of the differing effects the OID and net losses of foreign
subsidiaries have on pro forma income before income taxes.

Pro Forma Net Income (Loss). As a result of the above factors, the
Company's pro forma net loss for the year ended December 31, 1997 increased by
$728,000 to $2.4 million from $1.7 million in 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Computer Software. Computer software license fees decreased 14.3% to $6.4
million in 1996, compared to $7.4 million in 1995. While new client computer
software revenue increased by $430,000 during 1996, computer software license
fees relating to upgrades decreased by $1.5 million.

Computer Hardware. Computer hardware revenue decreased 45.9% to $6.9
million in 1996, compared to $12.8 million in 1995. Computer hardware revenue
relating to new client sales decreased 23.8% from $2.1 million in 1995 to $1.6
million in 1996. Computer hardware upgrades decreased by 50.5% from $10.7
million in 1995 to $5.3 million in 1996. Computer hardware revenue decreased in
1996 due to fewer client upgrades and reduction in the cost of hardware
components.

Support. Support revenue increased 20.8% to $4.0 million in 1996, compared
to $3.3 million in 1995. This increase resulted from the addition of new clients
and the commencement of the Company's major account support program, which
provides dedicated services at a premium price.

Services. Services revenue decreased 12.0% to $1.2 million in 1996,
compared to $1.4 in 1995. This decrease was primarily due to a reduction in
custom software programming during 1996.

Total Revenue. Total revenue decreased 25.7% to $18.5 million in 1996,
compared to $24.9 million in 1995. New client revenue was consistent year to
year with $3.6 million in 1996 compared to $3.7 million in 1995. This decrease
in 1996 revenue was largely related to lower client system and component upgrade
revenue during 1996, which decreased by 41.2% from $16.5 million in 1995 to $9.7
million in 1996. Reduced new client sales revenue in 1995 contributed to a
reduction in system upgrades during 1996.

Cost of Computer Software. Cost of computer software decreased 37.7% to
$1.0 million in 1996, compared to $1.7 million in 1995. This decrease was
primarily due to lower computer software sublicense fees attributable to lower
computer software revenue and lower payroll costs due to a reduced employee head
count in the Company's installation department. Cost of computer

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<PAGE> 29

software as a percentage of total revenue decreased to 5.6% from 6.6% in 1995.
Cost of computer software as a percentage of computer software revenue decreased
to 16.2% from 22.2% in 1995.

Cost of Computer Hardware. Cost of computer hardware decreased 45.1% to
$5.4 million in 1996, compared to $9.8 million in 1995. This decrease was
primarily due to the 45.9% decrease in hardware revenue from 1995. Cost of
computer hardware as a percentage of total revenue decreased to 28.9% from 39.2%
in 1995. Cost of computer hardware as a percentage of computer hardware revenue
increased to 77.4% from 76.3% in 1995.

Cost of Support. Cost of support increased 26.1% to $3.1 million in 1996,
compared to $2.5 million in 1995. This increase was due to an increase in the
number of employees required to support new clients added in 1995 and 1996. Cost
of support as a percentage of total revenue increased to 17.0% from 10.0% in
1995. Cost of support as a percentage of support revenue increased to 77.8% from
74.5% in 1995. These increases were generated by costs associated with
additional support personnel.

Cost of Services. Cost of services decreased 11.2% to $902,000 in 1996,
compared to $1.0 million in 1995. This decrease was related to a reduction in
product development personnel engaged in custom programming activities in 1996.
Cost of services as a percentage of total revenue increased to 4.9% from 4.1% in
1995. Cost of services as a percentage of services revenue increased to 75.9%
from 75.3% in 1995.

Total Cost of Sales and Services. Total cost of revenue decreased by 30.1%
to $10.4 million for the year ended December 31, 1996, compared to $14.9 million
in 1995. This decrease was primarily due to a decrease in the cost of computer
hardware.

General and Administrative. General and administrative expenses increased
49.0% to $4.8 million in 1996, compared to $3.2 million in 1995. This increase
was primarily due to additional personnel costs associated with an expanding
client base and projected growth. Also contributing to the increase were
additional computer equipment, facility and maintenance expenses and increased
bad debt expenses. General and administrative expenses as a percentage of total
revenue increased to 25.8% from 12.9% in 1995, due to higher cost in proportion
to growth of revenue.

Research and Development. Research and development expenses increased 4.1%
to $2.3 million in 1996, compared to $2.2 million in 1995. This increase in
development costs was principally due to purchased research and development
relating to the conversion of MACS to the UNIX and Windows NT operating systems.
As a percentage of total revenue, research and development expenses increased to
12.1% in 1996, compared to 8.7% in 1995 due to the decrease in revenue during
1996. As a percentage of computer software revenue, research and development
expenses increased to 35.3% in 1996, compared to 29.1% in 1995 due to reduced
computer software revenue in 1996.

Sales and Marketing. Sales and marketing expenses increased by 87.3% to
$980,000 in 1996, compared to $523,000 in 1995. This increase primarily resulted
from the addition of technical sales support personnel and management to
facilitate new sales. In addition, there was a decrease in marketing funds
received from Hewlett-Packard (awarded based on a percentage of hardware
purchases each month) which are used to defray marketing and advertising
expenditures. Due to the substantial decrease in hardware purchases from 1995,
marketing funds received in 1996 decreased by $170,000. Sales and marketing
expenses as a percentage of total revenue increased to 5.3% from 2.1% in 1995.

Income (Loss) From Operations. As a result of the foregoing factors, the
Company's income (loss) from operations decreased by $4.0 million resulting in
$86,000 of income from operations in 1996 as compared to income from operations
of $4.1 million in 1995.

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<PAGE> 30

Other Income Expense, Net. Net interest expense increased 4.3% to $2.1
million in 1996, compared to $2.0 million in 1995. This increase was primarily
due to lower interest income during 1996 as a result of lower cash balances
throughout the year. See "Liquidity and Capital Resources" below and Notes 6(a)
and 6(b) of Notes to Consolidated Financial Statements.

Pro Forma Income Tax (Expense) Benefit. The pro forma effective tax rate
for 1996 was a benefit of 17.7% compared to a provision of 55.5% in 1995.
Effective pro forma income tax rates differ from the federal statutory rates
because of the following: (i) OID is not deductible for federal and state income
tax purposes and (ii) the effect of state income taxes.

Pro Forma Net Income (Loss). As a result of the above factors, the
Company's pro forma net income (loss) in 1996 declined by $2.6 million from pro
forma net income of $926,000 in 1995 compared to a loss of $1.7 million in 1996.

QUARTERLY INFORMATION

The following table sets forth certain unaudited financial data for each of
the Company's last six calendar quarters and such data expressed as a percentage
of the Company's total revenue for the respective quarters. The information has
been derived from unaudited consolidated financial statements that, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such quarterly
information. The operating results for any quarter are not necessarily
indicative of the results to be expected for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Computer software............................ $1,128 $2,473 $ 978 $ 667 $ 2,077 $ 2,572
Computer hardware............................ 1,660 3,245 1,421 1,655 1,717 3,359
Support...................................... 1,061 972 1,031 1,036 1,220 1,214
Services..................................... 302 180 641 201 517 984
------ ------ ------ ------- ------- -------
Total revenue......................... 4,151 6,870 4,071 3,559 5,531 8,129
Cost of sales and services:
Computer software............................ 343 486 376 462 571 601
Computer hardware............................ 1,293 2,482 990 1,081 1,312 2,546
Support...................................... 727 716 827 1,001 720 842
Services..................................... 279 255 272 299 427 579
------ ------ ------ ------- ------- -------
Total cost of sales and services...... 2,642 3,939 2,465 2,843 3,030 4,568
------ ------ ------ ------- ------- -------
Gross profit................................... 1,509 2,931 1,606 716 2,501 3,561
Operating expenses:
General and administrative................... 821 1,274 1,006 1,465 1,407 1,510
Research and development..................... 424 459 561 567 485 576
Sales and marketing.......................... 350 391 325 416 521 554
------ ------ ------ ------- ------- -------
Total operating expenses.............. 1,595 2,124 1,892 2,448 2,413 2,640
------ ------ ------ ------- ------- -------
(Loss) income from operations.................. (86) 807 (286) (1,732) 88 921
Other income (expense):
Interest expense:
Interest on outstanding debt................. (300) (300) (450) (450) (450) (450)
Amortization of original issue discount...... (240) (240) (90) (90) (90) (90)
Interest income.............................. 19 30 35 25 16 20
------ ------ ------ ------- ------- -------
Total interest expense, net........... (521) (510) (505) (515) (524) (520)
------ ------ ------ ------- ------- -------
Net (loss) income.............................. (607) 297 (791) (2,247) (436) 401
Pro forma income tax benefit (expense)......... 172 (84) 224 636 (2,696) 2,486
------ ------ ------ ------- ------- -------
Pro forma net (loss) income.................... ($ 435) $ 213 ($ 567) ($1,611) ($3,132) $ 2,887
====== ====== ====== ======= ======= =======
</TABLE>

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<PAGE> 31

Interest expense:
Interest on outstanding debt.................. (7.2) (4.4) (11.1) (12.6) (8.1) (5.5)
Amortization of original issue discount....... (5.8) (3.5) (2.2) (2.5) (1.6) (1.1)
Interest income................................. 0.5 0.4 0.9 0.7 0.3 0.2
----- ----- ----- ----- ----- -----
Total interest expense, net............ 12.5 7.5 12.4 14.4 9.4 6.4
----- ----- ----- ----- ----- -----
Net (loss) income............................... (14.6) 4.2 (19.4) (63.1) (7.7) 4.9
Pro forma income tax benefit (expense).......... 4.1 (1.2) 5.5 17.9 (48.7) 30.6
----- ----- ----- ----- ----- -----
Pro forma net (loss) income..................... (10.5)% 3.0% (13.9)% (45.2)% (56.4)% 35.5%
===== ===== ===== ===== ===== =====
</TABLE>

SEASONALITY

The Company generally has realized lower revenue in the fourth quarter of
the year than in the other quarters. The Company believes that this has been due
primarily to the tendency of many of the Company's clients to avoid implementing
a new system or an upgrade of an existing system during the holiday season,
typically the busiest time of year for substantially all of the Company's
clients. Due to all of the foregoing factors, the Company believes that period
to period comparisons of its operating results are not necessarily meaningful
and that such comparisons cannot be relied upon as indicators of future
performance.

LIQUIDITY AND CAPITAL RESOURCES

On December 19, 1994, the Company entered into a Debenture Purchase
Agreement (the "Debenture Agreement") with the Lenders in connection with the
Convertible Debentures. Principal on the Convertible Debentures is payable in
two equal installments of $6.0 million on December 1, 1999 and December 1, 2000,
and bore interest at 10% through June 30, 1997 and began accruing interest at
15% thereafter. Interest is payable quarterly in arrears and commenced on March
31, 1995. The Debenture Agreement provides for a default rate of interest of 20%
on all principal amounts not paid within 15 days of the date due. At December
31, 1997, the Company was not in compliance with certain debt covenants. The
Lenders waived all applicable default remedies pertaining to the interest
payments they were entitled to enforce against the Company under the Debenture
Agreement and waived compliance by the Company with respect to such covenants
through the earlier of (i) the consummation of an initial public offering or
(ii) January 1, 2000. In order to maintain sufficient working capital for the
Company's needs, the Company has agreed with

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<PAGE> 32

the Lenders to defer all interest payments becoming due and payable through the
earlier of (i) the consummation of an initial public offering or (ii) January 1,
2000.

On June 30, 1997, the Convertible Debentures became convertible at the
option of a majority in interest of the Lenders into the Convertible Preferred
Stock and the Redeemable Preferred Stock. The fair value of the conversion
features of the Convertible Debentures has been determined to be $3.5 million
based on the difference between the stated interest rates and the estimated
market rate of such Debentures upon the date of issuance. This amount is
included in additional paid-in capital in the accompanying consolidated balance
sheets, with the resulting original issue discount ("OID") on the loan being
amortized over the term of the note. Non-cash interest expense related to the
amortization of the OID was $960,000, $960,000 and $660,000 in 1995, 1996 and
1997, respectively. See Note 6(b) of Notes to Consolidated Financial Statements.

During the past three fiscal years and the six month period ended June 30,
1998, the Company has financed its operations and growth with funds generated by
operations. At June 30, 1998, the Company's primary sources of liquidity
consisted of cash, cash equivalents and short-term investments totaling $1.9
million.

The Company's operating activities have provided cash for the six months
ended June 30, 1998 and years ended December 31, 1997, 1996 and 1995 of $2.0
million, $540,000, $87,000, and $3.2 million, respectively. For the six months
ended June 30, 1998, the Company's operating cash was provided by net income
(excluding the non-cash expense relating to the amortization of OID), continued
deferral of interest payments due under the Convertible Debentures, client
deposits received in advance of recognized revenue, and increased accounts
payable and accrued expenses partially offset by increases to accounts
receivable and inventory. In 1997 and 1996, the Company's primary source of
operating cash was provided by the deferral of interest payments due under the
Convertible Debentures. In 1995, cash from operating activities was generated
primarily by the Company's net income.

Cash used in investing activities was approximately $345,000, $234,000,
$251,000 and $360,000 for the six months ended June 30, 1998 and in years ended
December 31, 1997, 1996 and 1995, respectively. This cash was used for capital
expenditures in the ordinary course of business. The Company's capital
expenditures relate primarily to purchases of computers, printers and software
to support the Company's operations, as well as furniture, fixtures and
leasehold improvements. The Company expects its rate of purchases of property
and equipment will increase as its employee base grows.

No cash was provided or used by financing activities for the six months
ended June 30, 1998. Cash used in financing activities totaled $200,000 in 1997,
which consisted of repayment of advances from officers made during 1996. During
1996, financing activities provided $225,000 through advances from officers and
repayment of employee loans. Cash used in financing activities totaled
approximately $15.1 million during 1995, primarily due to distributions to
stockholders totaling approximately $15.3 million.

As of June 30, 1998, the Company had working capital of approximately
$873,000 as compared to working capital of approximately $16,000 and $1.2
million at December 31, 1997 and 1996, respectively. The change in working
capital from December 31, 1997 to June 30, 1998, resulted primarily from an
increase in current assets of $3.8 million due to cash generated from operations
and increases in accounts receivable and inventory, offset by an increase in
current liabilities of $2.9 million due to increases in accounts payable,
accrued expenses and deferred revenue. The $1.2 million decrease in working
capital during the year ended December 31, 1997 from December 31, 1996 primarily
resulted from a decrease in current assets of $560,000 due to lower accounts
receivable and an increase in current liabilities of $660,000 resulting from
increases in accounts payable, accrued expenses and deferred revenue.

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<PAGE> 33

The Company has been developing its software and new products which has
resulted in minimal working capital at December 31, 1997. The Company plans to
increase revenue and profitability by marketing software applications and
increasing sales in the United States, United Kingdom and Australia. During the
six months ended June 30, 1998, the Company increased software revenue due to
certain major contracts that were entered into in 1998. In addition, the Company
received a waiver to defer the payment of interest on the Convertible Debentures
through the earlier of (i) the consummation of an initial public offering or
(ii) January 1, 2000. Based on the new contracts, the interest waiver received
and the Company's anticipated operating results, management believes there will
be sufficient funding to meet its required operating expenditures.

A portion of the estimated net proceeds of this Offering will be used to
provide the Company with working capital to support potential growth. The
Company believes that estimated net proceeds of this Offering remaining after
repayment of indebtedness and the Distribution, together with its current cash
balances and cash flow from operations, will be sufficient to meet its working
capital and capital expenditure requirements for at least the next eighteen
months.

The Company may, in the future, acquire businesses or products
complementary to the Company's business, or otherwise obtain the right to use
complementary technologies, although there can be no assurance that any such
acquisitions will be made. The need for cash to finance additional working
capital or to make acquisitions may cause the Company to seek additional equity
or debt financing. There can be no assurance that such financing will be
available, or that the Company's need for higher levels of working capital will
not have a material adverse effect on the Company's business, financial
condition or results of operations.

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the Year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, prior to
January 1, 2000, computer systems and/or software used by many companies may
need to be upgraded to comply with such Year 2000 requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance. The Company's MACS system is fully Year 2000
compliant. The original design of MACS featured a four position century field
which provided century independence. The only exception to this feature was the
GTS programs developed by a third-party and incorporated into MACS to provide
general ledger and accounts payable functions. GTS provided Year 2000 compliant
code to the Company in August 1998. The Company is now in the process of testing
and distributing the GTS Year 2000 compliant programs to its clients. The
company has also reviewed its internal support systems and, to the extent
possible, its vendors' systems to confirm Year 2000 compliance. Any failure of
the Company or its suppliers or clients to be Year 2000 compliant could result
in a material adverse effect on the Company's business, financial condition and
results of operations.

ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997 and establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires all items to be recognized under
accounting standards as components of comprehensive income to be reported in a
separate financial statement. The Company does not believe that the adoption of
SFAS No. 130 will have a significant impact on the Company's financial
reporting.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS

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<PAGE> 34

No. 131 is effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. The Company does not believe that the adoption of SFAS No. 131
will have a significant impact on the Company's financial reporting.

In March 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 98-5 (SOP 98-5) "Reporting on the Costs of
Start-Up Activities." Pursuant to the provisions of SOP 98-5, all costs
associated with start-up activities, including organizational costs, should be
expensed as incurred. Companies that previously capitalized such costs are
required to write-off the unamortized portion of such costs as a cumulative
effect of a change of accounting principle. The Company has an immaterial amount
of these costs and the adoption of SOP 98-5 will not have a significant impact
on the Company's financial statements.

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires an entity to recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The Company does not believe that the adoption
of SFAS No. 133 will have a significant impact on the Company's financial
reporting.

FORWARD LOOKING INFORMATION

This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that actual events or results may differ
materially from such forward-looking statements. In evaluating such statements,
prospective investors should specifically consider the various factors
identified in this Prospectus, including the matters set forth under "Risk
Factors", which could cause actual results to differ materially from those
indicated by such forward-looking statements.

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<PAGE> 35

BUSINESS

GENERAL

INDUSTRY BACKGROUND

Historically, the non-store marketing industry in the United States
principally consisted of companies engaged in marketing and selling their
products and services through traditional direct marketing channels, such as
catalogs, direct mailings, print ads, telemarketing, television or radio.
Typically, the selling process involved marketers contacting and soliciting
potential customers through these traditional direct marketing channels. Those
customers ordered their products by mail, paid by check and received purchased
products by carrier thereafter. This process normally took four to six weeks due
to lengthy processing times and slow delivery via postal service. As the
non-store marketing industry matured, the sales process evolved to include
toll-free telephone numbers for ordering and customer service, faster delivery
methods and customers' increasing preference to pay by credit card. Until the
mid 1980s, the non-store marketing industry remained dominated by companies
selling exclusively through traditional direct marketing channels.

In the last decade, many companies selling exclusively through traditional
direct marketing channels achieved significant success due to their ability to
address growing customer demand for greater convenience and more personalized
service. As a result, many retailers which had previously sold only through
retail outlets entered the non-store marketing industry. Examples of such
retailers include Macy's, Bloomingdale's, Nordstrom and Saks Fifth Avenue, which
currently market and sell their products through retail outlets as well as
catalogs, direct mailings and other non-store marketing channels. The advantages
of non-store marketing for retailers include an increased ability to target
existing clients, better customer service and decreased costs of operations.

With the emergence and acceptance of the Internet as a business-to-business
and business-to-consumer sales channel and the rapid growth in interactive
Internet commerce, the non-store marketing industry has expanded to include a
much broader range of companies. In addition to the traditional non-store
marketers, direct sales over the Internet has become a new, important sales

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<PAGE> 36

channel for a wide range of retailers and manufacturers who traditionally relied
predominantly on in-store sales, large in-house direct sales organizations,
independent distributors, or person-to-person solicitation. Also, the emergence
of Internet-only marketers has further expanded the non-store marketing
industry. Examples of these retailers, manufacturers and Internet-only marketers
include Amazon.com, Compaq, Cyberian Outpost, Dell and Egghead.com. The growth
in interactive Internet commerce coupled with increasing competition among
store-based and non-store-based retailers and marketers have significantly
increased the use of non-store, direct marketing strategies and expanded the
range of marketers and retailers deploying such strategies.

The Non-Store Marketing Industry Today

The non-store marketing industry encompasses those companies selling
products directly to customers through direct channels other than in-store
sales, such as catalogs, direct mail, TV infomercials, radio, print ads,
outbound telemarketing, the Internet and other non-store based channels.
According to a recent study sponsored by the DMA, these marketing channels
accounted for approximately $1.2 trillion in annual sales in the United States
in 1997.

According to the DMA, the fastest growing segment within the non-store
marketing industry is interactive marketing over the Internet. Companies using
this marketing channel distribute advertising over the Internet via Web-sites or
paid advertisements on targeted third-party sites or browsers and frequently
offer customers the convenience of purchasing merchandise directly through
Internet commerce applications. Since 1994, the interactive marketing segment
has experienced compound annual revenue growth of almost 250%, from
approximately $44 million in 1994 to approximately $1.9 billion in 1997. The DMA
forecasts that interactive sales over the Internet will increase by 74.7% per
year to reach approximately $31.3 billion by 2002. Expenditures for interactive
marketing are expected to increase 66.1% annually to reach $3.5 billion in 2002.

The Non-Store Marketing Software Market

As a result of the growth in Internet commerce and the increased use of
non-store marketing channels, many marketers need to enhance their information
technology solutions to accommodate these new sales channels. The Company
believes that such companies seek information technology solutions that can help
them effectively manage their order flow from web pages and other non-store
channels while simultaneously centralizing and automating their back-office
operations and managing all aspects of their non-store marketing operations.
These solutions must be able to integrate seamlessly with the other systems or
applications that these companies currently use, and must enable real-time
information flow to help managers target potential customers, analyze sales and
product strategies, enhance and access customer service records and synchronize
key data. Non-store marketing companies, Internet-only retailers and companies
complementing their existing sales strategies with non-store marketing channels
require systems that are flexible and that support innovative new marketing
initiatives and methods of operation which may be implemented in the future.
Since certain non-store marketing segments, particularly the Internet commerce
segment, are growing rapidly, non-store marketing systems must also be highly
scalable and efficient.

Current technology alternatives for the non-store marketing and sales
function are typically comprised of general purpose or retail-oriented
enterprise resource planning ("ERP") software and electronic commerce add-on
applications without real-time access to enterprise databases. This technology
solution is prevalent among companies that traditionally sell through
wholesalers, distributors, in-house sales forces or retail outlets. Another
common technology alternative consists of point solutions targeted to the
non-store marketing industry, but with limited breadth and depth of
functionality. These point solutions tend to be difficult to use and do not help
managers access and leverage the enterprise knowledge residing in company
databases. In-house technology solutions are also common in the non-store
marketing industry, especially among larger companies. These in-house solutions
are typically expensive to develop, modify and maintain and require a
sophisticated in-house software development staff. Also, technology development
is typically not the
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<PAGE> 37

core strength of non-store marketing companies, and in-house software often
lacks the vision and perspective to keep up with technological change. As a
result, management of the Company believes that a significant opportunity exists
for third-party technology providers to offer enterprise-wide, best-of-breed
software solutions designed specifically for the non-store marketing and sales
function.

THE SMITH-GARDNER SOLUTION

The Company's principal software-based solution is the MACS family of
products ("MACS"). MACS is an enterprise-wide, mission-critical software
solution developed specifically for the non-store marketing industry. MACS helps
managers of non-store commerce companies operate their businesses more
effectively and efficiently by automating operations and making available
real-time information relating to nearly every facet of these companies'
operations. MACS incorporates analytical tools, best-of-breed methodologies,
in-depth functionality and enterprise-wide information flow. The Company also
provides extensive customer support services, custom development and integration
services, consulting, installation and training.

The Company's WebMACS product, a real-time interactive Internet commerce
solution first installed in November 1997, positions the Company to benefit from
the strong growth in the Internet commerce segment of the non-store marketing
industry. WebMACS provides all the back-office features needed to manage sales
transactions over the Internet including real-time customer access to back
office data such as inventory availability, order status and customer service
functions. WebMACS enables Internet marketers to effectively manage order flow
from Web pages and other non-store channels while simultaneously integrating
marketing, sales and back-office operations.

With the introduction of EuroMACS, the Company offers a solution targeted
at non-store marketing companies based abroad. EuroMACS is specifically designed
to address issues that are unique to these companies, such as value-added tax
requirements, multiple currencies, international document formats, local banking
and shipping carrier interfaces, and different mailing and address formats.

The Company's solutions are designed to provide its clients with the
following benefits:

Fully Integrated and Highly Functional Solutions. MACS supports all of the
major areas of the non-store marketing and sales functions including advertising
analysis, merchandising, sales, purchasing, accounting, telemarketing, ordering,
electronic and Internet commerce, warehousing, shipping, production and systems
operation. MACS enables real-time information flow that supports marketing and
database analytics and sophisticated management reports. MACS also eliminates
potential errors arising from the maintenance of multiple unsynchronized
databases. In addition to approximately 3,000 standard features, the Company's
software solutions offer approximately 1,500 customization options and enable
its users to tailor this solution to their changing business needs and processes
without disrupting the underlying data model and interrupting the business.

Versatility and Open Technology Environment. The MACS solutions use open
technology and readily integrate with many third-party systems and software
applications. While MACS runs on the HP3000, the solution is ODBC compliant,
which enables the exchange of data with other common computing platforms used by
manufacturers and retailers, such as IBM's AS400 and various other systems. MACS
has been successfully integrated with software solutions provided by third-party
vendors such as Island Pacific, Manhattan Associates, PeopleSoft and Great
Plains.

High Volume Internet Commerce Capability. WebMACS provides an Internet
commerce solution which incorporates the scalability and functionality of MACS
II and MACS III and can accommodate the Internet commerce requirements of very
large retailers. WebMACS enables traditional retailers, manufacturers,
Internet-only marketers and other non-store marketing companies to add a high
volume Internet commerce channel to their marketing and sales activities without
changing their core ERP systems.

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Processing Scalability and Reduced Operating Costs. MACS enables companies
to process up to 200,000 non-store orders per day, minimize overhead costs,
enhance decision support and data analytics, improve the efficiency and quality
of customer services and streamline overall operations. MACS can also reduce the
operating costs that would otherwise be associated with the ongoing maintenance
and updating of legacy, batch and mainframe systems.

STRATEGY

The Company's objective is to become the world's leading provider of
software solutions for the non-store marketing industry. The Company's strategy
to achieve this objective includes the following:

Capitalize on Internet Commerce Growth. The Company intends to expand its
marketing and sales of WebMACS to existing customers, new Internet retailers and
other Internet commerce participants. WebMACS, which was first installed in
November 1997, offers a sophisticated, highly scalable technology solution for
Internet commerce activities. Internet commerce is the fastest growing segment
in the non-store marketing industry and experienced a compound annual revenue
growth of nearly 250% from 1994 to 1997. To date, the Company has sold WebMACS
to more than 35 clients including companies such as Cyberian Outpost and
Egghead.com.

Extend Product Offerings Across New Platforms. The Company is focusing its
product development resources on porting MACS functionality on to additional
platforms including Windows NT and UNIX. In addition, the Company has developed
interfaces with software solutions provided by other companies such as
PeopleSoft, Inc., Great Plains, Manhattan Associates, Inc. and Island Pacific,
and intends to continue to develop interfaces to additional third-party software
solutions. With the introduction of MACS for NT, MACS for UNIX and MiniMACS, the
Company believes that it can leverage its position as an industry leader and
grow its business across a broader base of technology platforms.

Develop Global Markets. The Company seeks to further develop its
international presence and sales. The Company opened offices in the United
Kingdom and Australia in mid-1997 and has since added approximately 25 employees
to its international operations. The Company plans to add additional offices in
Western Europe in the future. In January 1998, the Company first installed
EuroMACS, a MACS product specifically designed for non-store marketing companies
located abroad. The Company intends to leverage its strong domestic presence to
increase its sales in international markets, particularly in Europe and
Australia.

Increase Sales to Existing Clients. Historically, the Company has focused
primarily on sales to new clients and has not actively marketed its optional
product modules to existing clients. The Company is creating a product
management team responsible for marketing and selling to its existing clients
new MACS modules such as Point of Sale and Assembly. This team will also market
professional services to existing clients to meet the changing needs of such
clients.

Expand Direct Sales Force. The Company intends to increase the size of its
current sales force in order to expand its marketing of existing products and
modules. In addition, the Company has created separate sales teams and intends
to hire additional sales personnel to market and sell new products, such as
MiniMACS and WebMACS. The Company also intends to add offices in Western Europe
and to hire additional sales personnel to service international markets.

Expand Service Offerings. The Company's consulting and service offerings
are critical components of its client-driven solution. The Company will continue
to expand its comprehensive consulting and client support services to facilitate
the timely installation, implementation and effective utilization of its
products. For example, the Company plans to offer regional training seminars to
its clients throughout the United States. The Company also is developing a
users-only Web site to provide its clients with the Company's internal knowledge
databases to resolve client issues.

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<PAGE> 39

Pursue Strategic Opportunities. The Company believes that the market for
software which automates non-store marketing operations is highly fragmented and
rapidly evolving, with many new product introductions and many large and small
industry participants. These factors create both the need and the opportunity to
effect strategic transactions, including acquisitions, alliances or other
partnerships, in order to increase the breadth of the Company's product
offerings, establish new sales and marketing channels and exploit evolving
market opportunities. While the Company presently has no commitments to effect
any such transactions, it intends to pursue such opportunities in order to
enhance further its competitive position as the marketplace evolves.

PRODUCTS

The MACS family of products offers an integrated, flexible, modular
solution for front and back-office operations, decision support analytics,
Internet commerce marketing and transaction processing functionality. MACS I,
the first version of MACS, was installed in 1990. The Company released MACS II
in June 1994, and completed the last version upgrade in July 1997. Compared to
MACS I, MACS II offered several new features and functions as well as an
expansion of its internal database. In June 1998, the Company released MACS III,
which incorporates approximately 300 new enhancements, and introduced several
new products and optional modules. Other products included in the MACS family
are WebMACS and EuroMACS, which were introduced by the Company in November 1997
and January 1998, respectively.

The following chart summarizes the current MACS products and typical users:

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION OF FUNCTIONS TYPICAL USERS
- ------- ------------------------ -------------
<S> <C> <C>
MACS II/ Capable of automating and integrating all Non-store marketing companies and
MACS III major areas of non-store marketing companies traditional retailers selling through
that sell through catalogs, direct mail, non- store marketing channels, with
telemarketing, print ads, telephone, mail, daily transaction volumes of up to
television, radio and other non-store 200,000.
channels; includes over 3,000 functions
encompassing advertising, sales,
merchandising, purchasing, accounting,
telemarketing, ordering, electronic commerce,
warehousing, shipping, production and systems
operation; displays real-time management
information by maintaining mini data marts for
each functional area.

WEBMACS Web-based order fulfillment system that Non-store marketing companies,
incorporates all features and functions of retailers, wholesalers and
MACS II/MACS III; offers web customers manufacturers selling through the
real-time, secure information including Internet, with daily transaction
inventory availability, order status and volumes of up to 200,000.
customer service functions; helps Internet
marketers integrate their marketing, sales and
back office operations and manage nearly all
aspects of non-store marketing operations.

EUROMACS MACS modified to accommodate the needs of International-based non-store marketing
clients located abroad in areas relating to companies and traditional retailers
value-added tax requirements, international selling through non-store marketing
mailing address formats, and interfacing with channels, with daily transaction
international shipping carriers and banking volumes of up to 200,000.
institutions.
</TABLE>

The prices of MACS II, MACS III, WebMACS and EuroMACS range from $30,000 to
$2.7 million, depending on the number of users and CPUs required.

38
<PAGE> 40

In addition to the current MACS products, there are a number of optional
modules available to MACS users. The following chart summarizes the functions
and benefits of the more widely used MACS modules:

<TABLE>
<CAPTION>
MODULE DESCRIPTION OF FUNCTIONS BENEFITS
------ ------------------------ --------
<S> <C> <C>
VISUALMACS Uses Windows-based, drag-and-drop, Ease and efficiency of use.
point-and-click technology with
multi-tasking capabilities in a
client/server environment.

POINT OF SALE Interfaces with catalog customer database Enables companies to run a store and a
and facilitates the display of separate non-store marketing company via one
store inventories; provides cash register centralized database.
processing and optional drop shipping of
unavailable items.

ASSEMBLY Facilitates the procurement of raw Enables non-store marketing companies
materials and creates bills of materials to to run light manufacturing operations.
track assembly process; tracks costs of
assembly (including labor and machine time)
and forecasts demand for raw materials.

CONTINUITY Enables negative option-type promotions and Streamlines operations of non-store
facilitates monthly club programs, customer marketing companies that sell books,
maintenance procedures and other incentive records, videos and other continuing-
programs. demand products.

INSTALLMENT Facilitates installment payments, returns Enables billing of customers' credit
BILLING and cancellations. cards in multiple installments.

OUTBOUND Uses existing selection criteria and MACS Enables companies to become more
TELEMARKETING database to create campaigns; automates proactive in selling to existing
customer service and solicitation customers and prospects.
functions.
</TABLE>

Pricing for the MACS modules is based on individual user requirements and
needs.

MACS operates in a HP Series 3000, MPE/iX environment. The HP3000 is a
scalable, fully upward compatible computer system in which all hardware upgrades
are performed at the CPU site. The main programming language used for MACS is
COBOL, although some functionality is written in C++ and Visual Basic. The data
structure used is the fully SQL-compatible Turbo Image DBMS.

All HP3000 systems provide high online transaction processing performance
and functionality and support major networking protocols such as OSI, TCP/IP,
SNA, and OSF/DCE. The Company has developed its own TCP/IP Application Program
Interface ("API"), which serves as the foundation to communicate directly
between MACS and the Internet. This socket-based API also has the ability to
communicate with other Windows-based applications. WebMACS requires a Microsoft
Internet information server and communicates with the HP3000 through the
Company's own API. The API enables MACS to communicate with other platforms
through an exchange of data from the HP3000 to other databases such as Oracle
and Microsoft Access.

39
<PAGE> 41

Products Under Development

The Company is currently developing a number of new products in response to
demands presented by companies in the non-store marketing industry including:

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION OF FUNCTIONS TYPICAL USERS
------- ------------------------ -------------
<S> <C> <C>
MACS FOR UNIX Full-featured version of MACS III that Non-store marketing companies and
runs on a UNIX platform. traditional retailers selling through
non-store marketing channels and using
a UNIX platform.

MACS FOR NT Full-featured version of MACS III that Non-store marketing companies and
runs on a Windows NT platform. traditional retailers selling through
non-store marketing channels and using
a Windows NT platform.

MINIMACS Provides only basic functions of MACS and Small non-store marketing companies
runs on a Windows NT platform. processing up to approximately 1,000
orders per day.
</TABLE>

The Company expects to introduce these products during the next twelve to
eighteen months.

CLIENTS

The Company's clients include traditional direct marketing companies,
retailers and manufacturers with significant non-store marketing operations,
fulfillment houses and Internet-only retailers. The Company generally targets
leading non-store marketing companies in their respective industry segments. The
Company has sold MACS to more than 185 clients. The following is a
representative list of the Company's clients as of June 30, 1998 generally
categorized by industry segment:

APPAREL/SHOES GENERAL MERCHANDISE/GIFTS
Coldwater Creek, Inc. Brookstone, Inc.
Delias Hammacher Schlemmer
Huntington Clothiers, Inc. Lego Direct Marketing, Inc.
Nine West Group Levenger Tools
Nordstrom, Inc. Miles Kimball Company

COMPUTER SOFTWARE/HARDWARE TV HOME SHOPPING
Broderbund Software Arcadia
Creative Computers The Shopping Channel
Cyberian Outpost, Inc. Littlewoods
Egghead.com, Inc. QVC Network, Inc.
Micro Warehouse
Multiple Zones International Inc. OTHERS
KAO Infosystems Co.
EDUCATIONAL SUPPLIES/BOOKS Genesis Direct, Inc.
Marboro Books Corp. (Barnes & Noble) Maritz, Inc.
Rodale Press, Inc. United Methodist Publishing House
Time Life, Inc. United States Mint

FOOD AND BEVERAGE
Cushman Fruit Company
Ethel M. Chocolates
Hickory Farms, Inc.
Wine Enthusiast
</TABLE>

None of the Company's clients accounted for more than 10% of the Company's
revenue in 1997. In 1997, the Company's three largest clients, Genesis Direct,
Inc., Delias and KAO Infosystems Co., in the aggregate accounted for 17.3% of
the Company's revenue. In 1996, the Company's three largest clients, QVC
Network, Inc., Micro Warehouse and Coldwater Creek, accounted for 21.2% of the
revenue of the Company, with QVC Network, Inc. accounting for 10.7% of such
revenue. For the

40
<PAGE> 42

six months ended June 30, 1998, the United States Mint was responsible for
approximately 18.7% of the Company's revenue.

CLIENT SERVICES

Client Support

The Company believes that a high level of service and support is critical
to its success and an important competitive advantage. The Company's
installation teams consist of a project manager, a technical lead, two support
analysts and as many installers or trainers as are required for a given
installation. The installation teams configure the system for new clients, which
involves installing the hardware and software, setting all the proper control
switches, training the client's executives and managers, and resolving all
installation issues for up to three to six months after the client begins
processing orders through the system. Thereafter, the Company transitions the
client to its standard support services provided by the Company. The Company's
installation teams completed 34 installations of MACS products in 1997, and the
Company expects to complete approximately 50 installations in 1998.

The Company's client support function is responsible for servicing its
clients after the initial implementation project is complete. The Company has
client support operations in the United States and the United Kingdom and
currently supports approximately 150 clients in over 15 countries. These
operations enable the Company to respond more quickly and effectively to the
needs of its multinational and international clients. Approximately 95% of
current MACS users participate in the Company's support services program.

The Company believes that a close and active service and support
relationship is important to client satisfaction and also provides the Company
with information regarding evolving client requirements. For example, the
Company assigns to each of its clients a client coordinator whose primary
responsibility is to act as a liaison between the client and the Company. In
addition, the Company provides telephone support from 8:00 a.m. to 9:00 p.m.
(EST) weekdays and 24 hours-a-day for emergencies and uses electronic bulletin
boards and other forms of electronic distribution to provide clients with the
latest information regarding the Company's products.

In general, the Company provides two kinds of support: standard and major
account. The Company's standard support services provide complete, full time
technical support. When a client calls the Company with a question or issue, it
is initially reviewed and analyzed by the client coordinator and then sent on to
the appropriate specialty team for resolution. More complex issues can then be
referred to one of the Company's technical support teams and, if necessary, to
the Company's programming unit. The Company provides its clients with telephone
support to give timely responses to systems issues. The Company continually
communicates with its clients through newsletters and seminars, and client
coordinators provide weekly reports to each client detailing the status of the
account. Event schedules, product enhancement requests and electronic mail are
available to clients on the Company's Internet web site as well.

The Company also offers major account support services, which provide
premier technical service for its larger clients through the assignment of a
dedicated account manager and team of support personnel. For these clients, the
Company maintains a copy of their production software environment on the
Company's client support system to enable the account manager to expedite the
resolution of all client issues. The Company believes that such services build a
strong strategic relationship which enhances the future business prospects of
the Company.

Support contracts are typically service agreements pursuant to which
clients pay a monthly fee based on a percentage of the total software license
fee. Installation and training are included in the initial license fee.
Depending on the services delivered, support services typically are priced from
20% to 40% of the total license fee per year and include, without charge, any
new version releases of software. Major account services are typically priced
based on the level of support services provided.

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<PAGE> 43

As of June 30, 1998, the Company employed 95 client support services
personnel, consisting of 25 implementation, 51 standard support and 19 major
account support personnel.

Consulting and Customization

The Company's consultants conduct site examinations and assist clients in
developing and implementing advanced MACS strategies. With significant
experience in the non-store marketing industry, the Company's consultants
provide practical and proven direction in developing strategies which apply
best-practice MACS methodologies that meet the client's requirements. Depending
on the client's needs, the Company offers:

- Requirements analysis and MACS software evaluation services;

- Advanced MACS methodology consulting;

- Benchmarking and other advanced strategy workshops involving clients and
industry experts;

- Integration services and technical consulting in areas such as data
conversion, system interfaces and database/network tuning;

- Project management services intended to lead the client through the
implementation activities required to achieve successfully the client's
business objectives; and

- Custom programming for system enhancements and system interfacing.

Consulting and customization services are delivered directly by the Company
but are also delivered in conjunction with third-party service providers such as
systems integrators and specialist consulting firms. Consulting and
customization services are typically delivered on a fixed price and
not-to-exceed basis or occasionally on a time and materials basis.

Training and Education

The Company offers a variety of standard and customized training and
education services, both at client sites and at the Company's headquarters in
Delray Beach, Florida. Upon the installation of MACS, the Company provides a two
week training course for each client's staff. The training curriculum is
delivered by specialists who utilize proven education techniques and advanced
technology. The Company also offers 48 courses per year for training in the
application of its MACS products through the MACS Academy. The Company also
offers a "train the trainer" program in which the Company trains client
employees designated as trainers within their organization. These trainers are
educated in both training techniques and the optimal use of the Company's
products. The Company believes its train-the-trainer methodology is a crucial
element in the success of its implementations, which often span multiple
departments, plants and countries. Continuing education and training is
delivered through standard courses with package prices or can be contracted for
on a time and materials basis.

SALES AND MARKETING

The Company markets and sells its products and services to new prospects
and existing clients primarily through its direct sales force. These personnel
are trained in the Company's products and service offerings and in the
operations of the Company's clients. The Company's personnel use a
"consultative" selling approach, because the sales process requires an
understanding of the non-store marketing industry as well as comprehensive
computer and systems expertise.

The Company's sales force is supported by marketing personnel who generate
and qualify leads through advertising and marketing campaigns, produce product
literature, periodic newsletters and direct mail campaigns, arrange attendance
at trade shows and conventions, and sponsor seminars. The marketing department
also supports the sales force with appropriate documentation or presentation and
demonstration materials for use during the sales process. The Company also
supports its direct sales and marketing force with a group of systems
engineering professionals, many of whom also possess vertical market and
practical MACS expertise.
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<PAGE> 44

As of June 30, 1998, the Company employed 20 sales and marketing personnel
(17 domestically and 3 internationally), consisting of 9 sales representatives
and 11 marketing and other support personnel.

The Company's method of marketing and selling to a new prospect consists of
identifying the prospect, qualifying the prospect and, if the prospect is
qualified, preparing and presenting a sales proposal. The prospecting process
includes placing advertisements in trade publications, acquiring mailing lists,
telemarketing, direct mailing, conducting seminars and participating in trade
shows to generate leads for the direct sales force. Once a prospect is
qualified, the appropriate direct sales personnel visit the prospect to
understand the prospect's specific requirements. This process usually results in
the preparation of a written proposal describing the hardware, software and
services that meet the prospect's requirements. While the Company's sales
personnel generally make the initial sales contact, large and complex
installations generally involve the use of the Company's professional services
group. This group works closely with the sales team to identify the optimal
configuration of MACS required for such prospects. This sales cycle typically
ranges from three to six months.

The Company has executed a hardware resale agreement with Client Systems,
Inc., a distributor of HP products. The Company also has a strategic
relationship with Hewlett-Packard consisting of cooperative marketing and sales
activities in the non-store market industry. Currently, the Company is one of
the leading resellers of the HP3000 products.

The MACS user community and the Company have organized an international
MACS users' group whose advisory committee plays an important role in helping
the Company develop and refine its MACS products and services strategies. In
addition, the Company hosts an annual MACS world conference which includes
presentations by the Company and clients concerning the features and
capabilities of the Company's products. The Company also participates in trade
conferences worldwide to promote global sales and use of the MACS products. All
of these conferences include workshops, round table discussions and special
sessions devoted to products, technologies and MACS methodologies. More than 250
attendees participated in the Company's 1998 MACS World Conference held in
Deerfield Beach, Florida.

RESEARCH AND DEVELOPMENT

The Company's research and development function is performed by the
business analysis, programming, quality control and advanced technologies teams.
The business analysis group performs the functional and technical requirements
for the enhancements that are requested either from the Company's clients or
internal product management group. The programming group is responsible for the
MACS software maintenance and enhancement process. The Company uses a version
and patch approach to software release control and uniformly maintains a current
version of each of its products, which is not subject to enhancements, and a
development version, which is regularly enhanced. The Company releases quarterly
patch updates of its current versions upon code corrections and believes that
this process maximizes the stability of its products, which is critical to the
day-to-day operations of a non-store marketing company. The quality control
group tests the software each time it passes through the business and
programming groups and performs regression testing prior to the release of any
patch updates or new releases. The advanced technologies group is responsible
for the identification and initial development of new technology opportunities.

The Company follows a structured development methodology to ensure the
timely and cost-effective production of high-quality software. The Company has a
formal process through which clients may have input as to modifications of the
Company's products and believes that this input helps it deliver a leading
industry solution to its current and prospective clients.

As of June 30, 1998, the research and development staff consisted of 64
employees. From time to time, the Company has also engaged outside consultants
in its product development efforts. Total expenses for research and development
in the fiscal years ended December 31, 1995, 1996 and 1997

43
<PAGE> 45

were approximately $2.2 million, $2.3 million and $2.0 million, respectively. No
software development costs were capitalized in fiscal 1995, 1996 or 1997. The
Company anticipates that it will continue to commit substantial resources to
product development in the future.

COMPETITION

The market for non-store commerce software is competitive, rapidly evolving
and highly sensitive to new product introductions and marketing efforts by
industry participants. This market is also highly fragmented and served by ERP
software providers, electronic commerce software providers, consulting firms and
point solution providers targeting the non-store marketing industry. The
Company's products also compete with information systems developed and serviced
internally by in-house MIS departments. Although the Company believes that none
of its competitors currently compete against the Company in all industry
segments, there can be no assurance that such competitors will not compete
against the Company in the future in additional industry segments. Many of the
Company's potential future competitors may have significantly greater financial,
technical and marketing resources, generate higher revenues and may have greater
name recognition than does the Company. In addition, as the Company expands into
new segments of the non-store marketing industry, such as Internet commerce, it
will face competition from other software companies, MIS departments and
unforeseen sources. Compared with the Company, these competitors may have
greater resources, operating experience, credibility and relationships in such
new segments. Although the Company believes that it currently competes favorably
in all industry segments and against all competitors, there can be no assurance
that it will do so in the future.

PROPRIETARY RIGHTS AND LICENSES

The Company primarily relies on a combination of copyright, trademark and
trade secret laws, unpatented proprietary know-how, license agreements,
non-disclosure and other contractual provisions and technical measures to
protect its proprietary rights in its products and technology. The Company
typically distributes its software products under software license agreements
which contain, among other things, provisions limiting the use, copying and
transfer of the licensed program. The licensees typically obtain a copy of the
Company's source code in connection with the licensee's use of the MACS
products. The Company has obtained a United States copyright registration for
the source code of its MACS II software.

The Company currently has operations in the United States, Australia and
the United Kingdom, and its products are licensed for use by clients in over 15
countries. The Company has registered MACS, MACSII and THE MACSIMUM as
trademarks in the United States. The Company also has applied for the
registration as trademarks in the United States of EUROMACS, MACSIII and
WEBMACS. The Company believes that international protection and enforcement of
intellectual property rights for software products in particular may be more
limited than in the United States. Specifically, intellectual property laws in
certain countries may not protect software companies from the loss of
intellectual property rights through reverse engineering.

The Company has entered into several agreements regarding the integration
of the intellectual property of third parties into its products. Parties to such
agreements include Cognos, First Logic, GTS and DISC.

The Company generally enters into confidentiality agreements with employees
and clients which limit rights and access to, and distribution of any
proprietary or confidential information. Furthermore, employees execute
agreements requiring disclosure and assignment to the Company of all of the
intellectual property rights associated with any ideas, concepts, techniques,
inventions, processes, or works of authorship relating to the business of the
Company and developed or created during the course of performing work for the
Company or its clients.

The Company does not believe that any of its products infringe the
proprietary rights of third parties. There can be no assurance that the steps
taken by the Company to protect its proprietary

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<PAGE> 46

rights will be adequate to prevent misappropriation of its technology or
development by others of similar technology. Because the software development
industry is characterized by rapid technological change, however, the Company
believes that factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements, industry
reputation and client support are more important to establishing and maintaining
a leadership position than the various legal protections available for its
technology.

LEGAL PROCEEDINGS

In November 1995, Robelle Consulting Ltd. ("Robelle") filed suit against
the Company and Allan J. Gardner in United States District Court for the
Southern District of Florida. Robelle alleges copyright and trademark
infringement, breach of contract, and unfair competition arising out of the
Company's distribution of two of Robelle's software products which had been
incorporated as part of MACS. Robelle seeks, among other relief, an
indeterminate amount of damages. In January 1998, Robelle was granted summary
judgement with respect to its copyright infringement claim, but was denied
summary judgement as to its claim for statutory damages for such infringement.
The matter is scheduled to be tried in April 1999. The Company is unable to
predict the outcome of the matter at this time. However, management believes
that an unfavorable outcome in this matter would not have a material adverse
effect on the Company's business, financial condition or results of operations.

In February 1998, the Company filed a suit against Robelle in Circuit Court
in Palm Beach County, Florida. The Company alleges that Robelle breached the
terms of a VAR License Agreement by and between Robelle and the Company by
failing to provide the Company with a copy of the source code for one of
Robelle's software products which Robelle was required to provide to the Company
upon Robelle's termination of such Agreement. The matter is in preliminary
stages of discovery and the Company is awaiting a decision as to whether the
matter will proceed in federal or state court. The Company is unable to predict
the outcome of the matter at this time. However, management believes that an
unfavorable outcome in this matter would not have a material adverse effect on
the Company's business, financial condition or results of operations.

From time to time, the Company is involved in other legal proceedings
incidental to the conduct of its business. The Company believes that this other
litigation, individually or in the aggregate, to which it is currently a party
is not likely to have a material adverse effect on the Company's business,
financial condition or results of operations.

EMPLOYEES

As of July 15, 1998, the Company had a total of 222 full-time employees in
the United States: 64 in product development, 17 in sales and marketing, 31 in
training and professional services, 95 in client support services and 15 in
management, administration and finance. In addition, as of July 15, 1998, the
Company had 25 employees in the United Kingdom and 2 employees in Australia.
None of the Company's employees are subject to a collective bargaining
agreement, and the Company has not experienced any work stoppages. The Company
believes that its employee relations are good.

FACILITIES

The Company is headquartered in Delray Beach, Florida, where it leases
approximately 46,000 square feet of office space pursuant to a lease which
expires in July 2001. The Company also leases office space in various other
locations in the United States, United Kingdom and Australia to house certain of
its marketing and sales activities. The Company is currently seeking additional
facilities domestically and internationally to accommodate additional marketing
and sales activities, and believes that it will be able to obtain such space on
commercially reasonable terms.

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<PAGE> 47

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

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

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Allan J. Gardner....................... 52 Co-Chairman of the Board and Executive Vice
President -- Advanced Technologies
Wilburn W. Smith....................... 52 Co-Chairman of the Board and Executive Vice
President -- Sales
Gary G. Hegna.......................... 57 President, Chief Executive Officer and Director
Martin K. Weinbaum..................... 36 Chief Financial Officer, Vice
President -- Finance
Timothy Edkin.......................... 46 Vice President -- Product Development
Sharon Gardner......................... 31 Vice President -- Marketing
Deborah L. Longo....................... 38 Vice President -- Client Support Services
Jacqueline Morby....................... 62 Director Nominee
</TABLE>

Allan J. Gardner, a co-founder of the Company, has served in a variety of
capacities during his tenure with the Company. From December 1988 to April 1996,
Mr. Gardner served as Vice President and Secretary. From January 1997 to the
present, Mr. Gardner has served as Executive Vice President -- Advanced
Technologies. From December 1994 until the present, Mr. Gardner has served as a
director of the Company, becoming Co-Chairman of the Board in May 1996. During
his tenure with the Company, Mr. Gardner has also been the chief architect of
the Company's software products. From 1980 to 1988, Mr. Gardner was President of
BSA Incorporated ("BSA"), a catalog management software company. BSA was
acquired by Acxiom Corp. in 1986. Mr. Gardner served on Acxiom's Board of
Directors from 1986 to 1988. Since 1966, Mr. Gardner has worked in the data
processing industry, and since 1980 exclusively in the direct marketing segment
of the non-store marketing industry. Sharon Gardner, the Company's Vice
President -- Marketing, is Mr. Gardner's daughter.

Wilburn W. Smith, a co-founder of the Company, has served in a variety of
capacities during his tenure with the Company. From December 1988 to April 1996,
Mr. Smith has served as President and Treasurer of the Company. From November
1996 to the present, Mr. Smith has served as Executive Vice President - Sales.
From December 1994 to the present, he has served as a director of the Company,
becoming Co-Chairman of the Board in May 1996. Since his tenure with Bell Labs,
now known as Lucent Technologies, in the early 1960's, Mr. Smith has worked
exclusively in the direct marketing industry. Prior to his tenure with the
Company, Mr. Smith was a founder of Brook Smith Associates, the predecessor
company of BSA, and owned and managed several other direct marketing companies.

Gary G. Hegna has served as the President, Chief Executive Officer and a
director of the Company since May 1996. Mr. Hegna also serves as Chairman of
Smith-Gardner UK and Smith-Gardner Australia. From January 1992 to February
1996, Mr. Hegna served as the Chairman, President and Chief Executive Officer of
OpenConnect Systems, Inc., a software company based in Dallas, Texas. From
January 1987 to January 1992, Mr. Hegna served as President and Chief Executive
Officer of ICL North America, a Dallas based manufacturer of computer systems
and telecommunications equipment. Mr. Hegna has also served in various
management and executive roles for Xerox Corporation, Data General Corporation,
Prime Computer Incorporated and Encore Computer.

46
<PAGE> 48

Martin K. Weinbaum has served as the Company's Vice President -- Finance
and Chief Financial Officer since January 1997, and the Company's Secretary and
Treasurer since May 1996. Since October 1997, Mr. Weinbaum has served as a
director of Smith-Gardner UK and Smith-Gardner Australia. From October 1994 to
March 1995, Mr. Weinbaum served as Controller of MediBar Medical Industries, a
diagnostic medical services provider located in Boca Raton, Florida. From
January 1994 to October 1994, Mr. Weinbaum served as the Chief Financial Officer
of Interactive Technologies Company, a pet food wholesale company located in
Fort Lauderdale, Florida. From November 1989 to December 1993, Mr. Weinbaum
served as the Vice President -- Finance and Chief Financial Officer of Aspen
Marine Group/Hawk Marine Power, a high performance engine and boat manufacturer
located in Greenback, Tennessee. From 1984 to 1988, Mr. Weinbaum, who is a
certified public accountant, engaged in public accounting with the firms of
Levitsky & Berney, P.C. and Coopers & Lybrand.

Timothy Edkin has served as the Company's Vice President -- Product
Development since July 1996. Mr. Edkin's responsibilities include coordinating
the design, development, testing and delivery of the Company's MACS software.
Prior to joining the Company, Mr. Edkin was a consultant to Computer Perfection,
a software support company located in Boca Raton, Florida, from October 1994 to
April 1996. From December 1982 to October 1994, Mr. Edkin served as the Director
of MIS-Support and Development of Business Application Software for Siemens, AG,
a telephone interconnect company located in Boca Raton, Florida.

Sharon Gardner has served as the Vice President -- Marketing of the Company
since September 1997. Ms. Gardner's responsibilities include coordinating the
Company's marketing, communications, advertising, training, documentation,
professional services and product management functions. From September 1990 to
September 1997, Ms. Gardner was the Company's Vice President -- Client Services.
From September 1985 to September 1990, Ms. Gardner served in marketing and
client services capacities in a catalog fulfillment house. Allan J. Gardner, the
Company's Co-Chairman, is Ms. Gardner's father.

Deborah L. Longo has served as the Company's Vice President -- Client
Support Services since August 1997. Ms. Longo's responsibilities include
coordinating the Company's client support and installation functions. From May
1994 to September 1997, Ms. Longo served as Director of Client Services for
MorTech, a software company located in Little Rock, Arkansas. From July 1986 to
May 1994, Ms. Longo held various positions including Group Director, Client
Services, with Acxiom Corp., a software company located in Ocean, New Jersey.

Jacqueline Morby has been nominated and has agreed to become a director of
the Company upon completion of this Offering. Since 1978, Ms. Morby has served
as Managing Director of TA Associates, Inc., the managing general partner of
each of the Lenders. Ms. Morby presently serves as a director of ANSYS, Inc.,
Boron, LePore & Associates, Inc., NxTrend Technologies, Inc., Ontrack Computer
Systems, Inc., AVL, Inc. and Pacific Life Insurance Company.

The Company currently intends to add two additional independent directors
to its Board of Directors (the "Board"). To date, the Company has not selected
such directors.

The Board is divided into three classes, each of whose members will serve
for a staggered three-year term. Following this Offering and the appointment of
the two additional independent directors, the Board will consist of two Class I
Directors (Ms. Morby and one of the two independent directors to be appointed),
two Class II Directors (Mr. Hegna and one of the two independent directors to be
appointed) and two Class III Directors (Messrs. Smith and Gardner). At each
annual meeting of shareholders, a class of directors will be elected for a
three-year term to succeed the director or directors of the same class whose
terms are then expiring. The initial terms of the Class I Directors, Class II
Directors and Class III Directors expire upon the election and qualification of
successor directors at the annual meeting of shareholders held during the
calendar years 1999, 2000 and 2001, respectively. Each officer of the Company
serves at the discretion of the Board.

47
<PAGE> 49

BOARD COMMITTEES

Following the consummation of this Offering, the Board intends to establish
an Audit Committee and a Compensation Committee, each of which will be comprised
initially of the Company's independent directors. The Audit Committee will have
responsibility for reviewing audit plans and discussing audit work, internal
controls and related matters with the Company's independent public accountants,
reviewing the annual audit report and any accompanying recommendations and
nominating independent public accountants to perform the annual audit. The
Compensation Committee will have responsibility for reviewing the compensation
of the Company's executive officers, making recommendations to the Board and
administering the Plans. See "Management -- Stock Option Plans."

The Board may from time to time establish certain other committees to
facilitate the management of the Company.

DIRECTOR COMPENSATION

As compensation for serving on the Board, directors who are not also
employees of the Company will receive an annual fee of $5,000 and $750 for each
meeting of the Board or any committee thereof in which they participate in
person. Directors are also eligible to receive options to purchase shares of
Common Stock pursuant to the 1998 Stock Option Plan. See "Management -- Stock
Option Plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended December 31, 1997, the Company had no
Compensation Committee or other committee of the Board performing similar
functions. Decisions concerning compensation of executive officers were made by
certain executive officers of the Company. It is contemplated that the Board
will establish a Compensation Committee consisting of non-employee directors
following consummation of this Offering.

48
<PAGE> 50

EXECUTIVE COMPENSATION

The following table presents certain information concerning compensation
paid or accrued by the Company for services rendered during the fiscal year
ended December 31, 1997 by the Company's Chief Executive Officer and the four
other most highly compensated executive officers of the Company (collectively,
the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION(1) SECURITIES
------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(2)
- --------------------------- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
Gary G. Hegna............................. $225,000 $50,000 -- $ 475
President and Chief Executive Officer
Allan J. Gardner.......................... 250,000 -- -- --
Executive Vice President -- Advanced
Technologies
Wilburn W. Smith.......................... 250,000 -- -- --
Executive Vice President -- Sales
Timothy Edkin............................. 107,811 3,000 20,375(3) 539
Vice President -- Product Development
Sharon Gardner............................ 104,965 5,000 361(3) --
Vice President -- Marketing
</TABLE>

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

(1) The column for "Other Annual Compensation" has been omitted because there is
no compensation required to be reported in such column. The aggregate amount
of perquisites and other personal benefits provided to each Named Executive
Officer is less than 10% of the total annual salary and bonus of such
officer.
(2) Represents cash payments to the respective Named Executive Officer under the
Company's Profit Sharing Plan.
(3) Consists of options issued under the 1996 Stock Option Plan at an exercise
price of $2.53 per share.

49
<PAGE> 51

Option Grants in Last Fiscal Year

The following table sets forth certain information for the fiscal year
ended December 31, 1997, with respect to grants of stock options to each of the
Named Executive Officers.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM(1)
UNDERLYING EMPLOYEES OR BASE EXPIRATION ------------------------
NAME OPTIONS IN FISCAL YEAR PRICE DATE 5% 10%
- ---- ---------- -------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gary G. Hegna........ -- -- -- -- -- --
Allan J. Gardner..... -- -- -- -- -- --
Wilburn W. Smith..... -- -- -- -- -- --
Timothy Edkin........ 20,375 13% $2.53/sh. (2) $84,578.32 $134,676.84
Sharon Gardner....... 361 * $2.53/sh. (3) 2,075.75 3,305.28
</TABLE>

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

* Less than 1% of total options granted.
(1) The dollar amounts under these columns represent the potential realizable
value of each option granted, assuming that the market price of the Common
Stock appreciates in value from the date of grant at the 5.0% and 10.0%
annual rates of appreciation presented and therefore are not intended to
forecast possible future appreciation, if any, of the price of the Common
Stock.
(2) Of the 20,375 options, 20,000 expire on January 6, 2007, 122 expire on April
15, 2007, 109 expire on July 15, 2007, 72 expire on October 15, 2007 and 72
expire on December 15, 2007.
(3) Of the 361 options, 114 expire on April 15, 2007, 103 expire on July 15,
2007, 72 expire on October 15, 2007 and 72 expire on December 15, 2007.

OPTION HOLDINGS AND FISCAL YEAR END OPTION VALUES

The following table sets forth information regarding stock options held by
the Named Executive Officers at December 31, 1997.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gary G. Hegna................. 185,295 308,825 $185,295 $308,825
Allan J. Gardner.............. -- -- -- --
Wilburn W. Smith.............. -- -- -- --
Timothy Edkin................. 1,313 22,063 1,313 22,063
Sharon Gardner................ 17,500 22,861 17,500 22,861
</TABLE>

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

(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values are based on the estimated fair market value
of the Common Stock as of December 31, 1997 of $3.53 per share.

STOCK OPTION PLANS

Under the 1996 Stock Option Plan, 850,000 shares of Common Stock are
reserved for issuance upon the exercise of stock options granted thereunder.
Under the 1998 Stock Option Plan (together with the 1996 Stock Option Plan, the
"Plans"), 1,000,000 shares of Common Stock are reserved for issuance upon the
exercise of stock options granted thereunder. The Plans are designed as a means

50
<PAGE> 52

to attract, retain and motivate directors and key employees. The Board intends
to establish a committee (the "Compensation Committee") consisting of two or
more independent directors to administer and interpret the Plans.

Options are granted under the respective Plans on such terms and at such
prices as determined by the Board or the Compensation Committee. Each option is
for a term of not less than five years or more than ten years, as determined by
the Board or the Compensation Committee. However, in the event of a change of
control (as such term is defined in the respective Plans), all outstanding
options become immediately exercisable. Options granted under the Plans are not
transferable other than by will or by the laws of descent and distribution.

The Company has outstanding options to purchase an aggregate of 777,140
shares of Common Stock under the 1996 Stock Option Plan at June 30, 1998. The
exercise price of each of these options is $2.53 per share.

Under the 1998 Stock Option Plan, 1,000,000 shares of Common Stock are
reserved for issuance upon the exercise of stock options granted thereunder. The
Company has granted under the 1998 Stock Option Plan options to purchase an
aggregate of 538,003 shares of Common Stock at an exercise price of $10.00 per
share or the initial public offering price upon the consummation of this
Offering. The 538,003 options have been granted to executive officers of the
Company as follows: 200,000 options to Mr. Hegna, 72,124 options to Mr.
Weinbaum, 109,534 options to Ms. Gardner, 76,512 options to Mr. Edkin and 79,833
options to Ms. Longo. Such options become exercisable at the rate of 25% on the
first anniversary of the date of grant and at the rate of 6.25% per quarter
thereafter.

401(k) PLAN AND PROFIT SHARING PLAN

The Company currently maintains a 401(k) employee savings retirement plan
(the "401(k) Plan") which is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended. The 401(k) Plan covers Company
employees who, as of the enrollment eligibility dates under the 401(k) Plan, are
at least 18 years of age and elect to participate in the 401(k) Plan. All
Company contributions to the 401(k) Plan vest immediately. Benefits will
normally be distributed to an employee upon (i) the employee reaching age
59 1/2; (ii) the employee's retirement; (iii) the employee's death or
disability; (iv) the termination of the employee's employment with the Company;
(v) the termination of the 401(k) Plan or (vi) a requested withdrawal due to
financial hardship. The Company also maintains a profit sharing plan (the
"Profit Sharing Plan"), which was adopted in 1997. Pursuant to the Profit
Sharing Plan, the Company has discretion to issue cash awards and/or stock
options to employees at the end of each quarter based on a percentage of their
salary.

EMPLOYMENT CONTRACTS

The Company has no employment agreements with any of its executive
officers. However, the Company has entered into non-competition agreements with
each of its executive officers. These agreements provide that such executive
officers will not (i) engage, directly or indirectly, in activities which are
competitive with the business of the Company or (ii) solicit, directly or
indirectly, any employees or customers of the Company to terminate their
relationship with the Company.

51
<PAGE> 53

CERTAIN TRANSACTIONS

CONVERSION OF DEBENTURES

On December 19, 1994, the Company sold Convertible Debentures in an
aggregate principal amount of $12.0 million to the Lenders pursuant to a
Debenture Purchase Agreement (the "Debenture Purchase Agreement"), by and among
the Company, Wilburn Smith, Allan Gardner and the Lenders. Under the terms of
the Debenture Purchase Agreement, interest accrued on the unpaid principal
balance of the Convertible Debentures at the rate of 10% per annum through June
30, 1997, and thereafter at the rate of 15% per annum until December 1, 2000
(the "Maturity Date"), or such earlier date on which the Convertible Debentures
are converted into shares of Preferred Stock of the Company. Interest is payable
on the last day of each calendar quarter and the principal balance is payable in
two equal installments of $6.0 million on December 1, 1999 and the Maturity
Date. The Debenture Purchase Agreement also provides for mandatory prepayment of
the entire outstanding principal balance and accrued interest upon certain
specified events including the consummation of an initial public offering of the
Company's Common Stock. The Company may prepay the outstanding principal amount
of the Convertible Debentures and accrued interest, in whole but not in part,
without penalty, at any time upon sixty days' prior written notice, subject to
the Lenders' conversion rights described below.

The Debenture Purchase Agreement provides that Lenders holding a majority
interest in the Convertible Debentures may, at any time after June 30, 1997,
require the Company to convert all outstanding Convertible Debentures into
22,556.14 shares of the Company's Convertible Preferred Stock and one share of
Redeemable Preferred Stock of the Company for each $1,000 in principal amount of
the Convertible Debentures being converted (the "Debenture Conversion"). The
Convertible Preferred Stock may be converted into shares of Common Stock at any
time upon the vote of the majority of holders of such shares at a conversion
rate of 100 shares of Common Stock for each share of Convertible Preferred Stock
(the "Conversion Rate"), subject to adjustments upon certain events. In
addition, the Convertible Preferred Stock shall be converted at the Conversion
Rate upon the closing of an underwritten public offering of Common Stock which
results in net proceeds to the Company of at least $20.0 million (a "Qualified
IPO"). Furthermore, the Company is required to redeem all shares of Redeemable
Preferred Stock upon the closing of any initial public offering, at a redemption
price of $1,000 per share (the "Redemption Price"), subject to adjustments upon
certain events. See "Description of Capital Stock -- Preferred Stock." Upon the
Debenture Conversion, the Company is also required to increase the number of
members of its Board of Directors from three to five, and the Lenders have the
right to designate one person for election to the Board and to require that
Wilburn Smith and Allan Gardner vote their shares of Common Stock to elect such
person.

The Lenders have agreed to convert all of the Convertible Debentures into
Convertible Preferred Stock and Redeemable Preferred Stock subject to and upon
the consummation of the Offering. Accordingly, the Lenders are thereafter
required to convert the Convertible Preferred Stock into 2,255,614 shares of
Common Stock at the Conversion Rate, and the Company is required to redeem all
of the Redeemable Preferred Stock at the Redemption Price. Subject to and upon
the consummation of the Offering, the Lenders will receive (i) in the aggregate
2,255,614 shares of Common Stock upon the Lenders' payment of the Conversion
Rate and (ii) $12.0 million plus accrued interest under the Convertible
Debentures upon the Company's redemption of all Redeemable Preferred Stock. See
"Use of Proceeds."

In connection with the sale of the Convertible Debentures, Mr. Smith and
Mr. Gardner each received a $5.7 million distribution and Mr. Quigley received a
$600,000 distribution from the Company in 1995.

52
<PAGE> 54

Other Related Party Transactions

On December 31, 1996, Wilburn Smith and Allan Gardner each loaned $100,000
to the Company. These loans, including all accrued interest, were repaid in full
in 1997.

The Promissory Notes will be issued by the Company to the Existing
Shareholders in an aggregate amount representing the estimated individual income
tax liability for each of the Existing Shareholders for the period beginning
January 1, 1998 and ending on the earlier of the date of the consummation of
this Offering or a voluntary S Corporation revocation (the "Termination Date").
At June 30, 1998, the estimated Distribution would have been approximately
$400,000.

In addition, the Existing Shareholders and the Company intend to enter into
an Agreement for Tax Indemnification (the "Tax Indemnification Agreement")
immediately prior to the consummation of this Offering. The Tax Indemnification
Agreement provides that the Existing Shareholders will be indemnified by the
Company with respect to any federal and state income tax liability (including
penalties, interest and any taxes resulting from the payments under the
indemnity) incurred by the Existing Shareholders as a result of a final
determination of an adjustment to the Company's tax returns for any period
ending prior to the Termination Date. The Tax Indemnification Agreement also
provides that the Existing Shareholders will indemnify the Company from and
against any and all taxes of the Company (i) for any periods ending prior to the
Termination Date for which it is determined that the Company was not an S
Corporation, and (ii) for any and all taxes arising from adjustments to the
Company's tax returns which increase the Company's tax liability for a taxable
period ending after the Termination Date and decrease the Existing Shareholders'
tax liability for a taxable period ending prior to the Termination Date,
provided however that the indemnity provided by the Existing Shareholders is
limited to any federal and state refunds they receive as a result of a loss of S
Corporation status or other tax adjustments for such taxable periods.

Any future transactions between the Company and its officers, directors and
affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties. Such transactions with such persons
will be subject to approval by a majority of the Company's outside directors or
will be consistent with policies approved by such outside directors.

53
<PAGE> 55

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information with respect to the beneficial
ownership of shares of the Company's Common Stock as of June 30, 1998, and as
adjusted to reflect the sale of the shares offered hereby, and the conversion of
all of the outstanding shares of Redeemable Preferred Stock of the Company into
shares of Common Stock, by: (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of the Common Stock; (ii)
each director of the Company;(iii) each Named Executive Officer; (iv) all
executive officers and directors of the Company as a group; and (v) each other
Selling Shareholder. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(2) NUMBER OF AFTER OFFERING(2)
--------------------- SHARES -------------------
NAME AND ADDRESS(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------- ---------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Allan J. Gardner........................ 2,500,000 33.2%
Wilburn W. Smith........................ 2,500,000 33.2%
Thomas Quigley.......................... 263,100 3.5%
Gary G. Hegna...........................
Martin K. Weinbaum......................
Timothy Edkin...........................
Sharon Gardner..........................
Deborah L. Longo........................
TA Associates, Inc. (3)................. 2,255,614 30.1%
All directors and executive officers as
a group (7 persons)................... 5,000,000 66.5%
</TABLE>

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

* Less than 1.0% of outstanding shares.
(1) Unless otherwise indicated, the address of each of the parties listed is
1615 South Congress Avenue, Delray Beach, Florida 33445-6368.
(2) Pursuant to the rules of the Commission, certain shares of the Company's
Common Stock that a beneficial owner has the right to acquire within 60 days
of the date of this Prospectus pursuant to the exercise of stock options or
warrants are deemed to be outstanding for the purpose of computing the
percentage ownership of such owner but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. The
2,255,614 shares of Common Stock issuable to TA Associates, Inc. in
connection with the Concurrent Transactions are considered outstanding for
the purpose of calculating percentage ownership of the listed parties.
(3) TA Associates, Inc., as the sole general partner of each of the Lenders, has
voting and dispositive control over all securities held by each of the
Lenders. Accordingly, upon the consummation of this Offering and the
Concurrent Transactions, all outstanding shares of Convertible Preferred
Stock owned by the Lenders will be converted into 2,255,614 shares of Common
Stock, which will be deemed to be beneficially owned by TA Associates, Inc.
The address of TA Associates, Inc. is 125 High Street, Suite 2500, Boston,
MA 02110. Jacqueline Morby, a director nominee of the Company, is Managing
Director of TA Associates, Inc. TA Associates, Inc. will not receive any
portion of the Promissory Notes.

54
<PAGE> 56

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, $0.01 par value per share, and 10,000,000 shares of Preferred
Stock, $0.01 par value per share.

The following summary description of the Company's capital stock is not
intended to be complete and is qualified in its entirety by reference to the
provisions of applicable law and to the Company's Articles of Incorporation and
Bylaws filed as exhibits to the registration statement of which this Prospectus
is a part.

COMMON STOCK

As of June 30, 1998, there were 5,263,100 shares of Common Stock
outstanding held by three shareholders. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the shares of
Common Stock offered hereby and the conversion of all of the outstanding shares
of the Company's Preferred Stock into Common Stock, there will be
shares of Common Stock outstanding upon the consummation of
this Offering. In addition, as of June 30, 1998, there were outstanding stock
options to purchase an aggregate of 1,315,143 shares of Common Stock.

Except as described below under "Description of Capital Stock -- Certain
Anti-takeover Effects," holders of Common Stock are entitled to one vote for
each share held on all matters submitted to a vote of shareholders, and do not
have cumulative voting rights. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of any outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and other
liabilities of the Company, subject to the prior rights of any outstanding
Preferred Stock. Holders of the Common Stock have no preemptive, subscription,
redemption or conversion rights, nor are they entitled to the benefit of any
sinking fund. The outstanding shares of Common Stock are, and the shares offered
by the Company in this offering will be, when issued and paid for, validly
issued, fully paid and nonassessable. The rights, powers, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.

PREFERRED STOCK

As of the date of this Prospectus, there are no shares of Preferred Stock
outstanding, (the "Preferred Stock"). In connection with the consummation of the
Offering, the outstanding Convertible Debentures will be automatically converted
into 22,556.14 shares of Convertible Preferred Stock and 12,000 shares of
Redeemable Preferred Stock. Simultaneously in connection therewith, the
22,556.14 shares of Convertible Preferred Stock will be converted into 2,255,614
shares of Common Stock, and the 12,000 shares of Redeemable Preferred Stock will
be redeemed by the Company for an aggregate redemption amount of $12.0 million.
As a result, upon the consummation of the Offering, there will be no shares of
Preferred Stock outstanding. For a summary of the material terms of the
outstanding Preferred Stock, see Note 7 of Notes to Consolidated Financial
Statements.

The Board of Directors is authorized, subject to any limitations prescribed
by law, without further shareholder approval, to issue from time to time up to
an aggregate of 10,000,000 shares of Preferred Stock, in one or more series.
Each such series of Preferred Stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the Board of Directors, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights. The shareholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in
55
<PAGE> 57

order to eliminate delays associated with a shareholder vote on specific
issuances. The rights of the holders of Common Stock will be subject to the
rights of holders of any Preferred Stock issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could adversely affect the
voting power or other rights of the holders of Common Stock, and could make it
more difficult for a third-party to acquire, or discourage a third-party from
attempting to acquire, a majority of the outstanding voting stock of the
Company. The Company has no present plans to issue any shares of Preferred
Stock, other than as required in the Concurrent Transactions.

REGISTRATION RIGHTS

Following the consummation of the Offering, the Lenders will hold 2,255,614
shares of Common Stock which will be "restricted" securities within the meaning
of the Securities Act and may not be sold in the absence of registration under
the Securities Act or an exemption therefrom. Pursuant to a Registration Rights
Agreement dated December 19, 1994, by and between the Company and the Lenders,
the Company granted to the Lenders registration rights with respect to the
2,255,614 shares of Common Stock (the "Registrable Shares") to be held by the
Lenders upon consummation of the Offering. On any two occasions where fifty
percent in interest of the Lenders notify the Company in writing of their intent
for public sale of any portion of the Registrable Shares with an aggregate
anticipated offering price of at least $5.0 million, the Company shall use its
best efforts to register such securities under the Securities Act. In addition,
in the event that the Company may register its stock, the Company shall use its
best efforts to register the Registrable Shares. The Company may in certain
circumstances defer such registrations, and any underwriters with respect to
such sale shall have the right, subject to certain limitations, to limit the
number of shares included in such registrations. All of the expenses incurred in
connection with such registrations and offerings (other than underwriting and
selling commissions) and the reasonable fees and expenses of not more than one
independent counsel for the Lenders in an amount not to exceed $10,000 shall be
borne by the Company. The Company has agreed to indemnify the Lenders against
liabilities under the Securities Act in certain circumstances in connection with
any such registration.

LIMITATION OF LIABILITY AND INDEMNIFICATION

To the fullest extent permitted by the Florida Business Corporation Act
(the "Florida Act"), the Company's Articles of Incorporation provide that
directors of the Company shall not be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director.
Generally, the Florida Act permits indemnification of a director or officer upon
a determination that he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.

The Articles of Incorporation and the Bylaws of the Company provide for the
indemnification of the Company's directors and officers and any person who is or
was serving at the request of the Company as a director, officer, employee,
partner (limited or general) or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or other
enterprise, including service with respect to an employee benefit plan to the
fullest extent authorized by, and subject to the conditions set forth in the
Florida Act against all expenses, liabilities and losses (including attorneys'
fees, judgments, fines, ERISA taxes, excise taxes, or penalties, charges,
expenses and amounts paid or to be paid in settlement), except that the Company
will indemnify a director or officer in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Company's Board of Directors. The indemnification provided
under the Bylaws includes the right to be paid by the Company the expenses
(including attorneys' fees) in advance of any proceeding for which
indemnification may be had in advance of its final disposition, provided that
the payment of such expenses (including attorneys' fees) incurred by a director
or officer in advance of the final disposition of a proceeding

56
<PAGE> 58

may be made only upon delivery to the Company of an undertaking by or on behalf
of such director or officer to repay all amounts so paid in advance if it is
ultimately determined that such director or officer is not entitled to be
indemnified. Pursuant to the Bylaws, if a claim for indemnification is not paid
by the Company within 60 days after a written claim has been received by the
Company, the claimant may at any time thereafter bring an action against the
Company to recover the unpaid amount of the claim and, if successful in whole or
in part, the claimant will be entitled to be paid also the expense of
prosecuting such action.

The Company intends to enter into indemnification agreements, which are
consistent with the Articles of Incorporation and the Bylaws of the Company,
with certain of its directors and officers. The Company has also applied for
director and officer liability insurance on behalf of its directors and
officers.

CERTAIN ANTI-TAKEOVER EFFECTS

The Company's Articles of Incorporation and Bylaws contain certain
provisions that are intended to enhance the likelihood of continuity and
stability in the composition of the Company's Board of Directors and in the
policies formulated by the Board of Directors. In addition certain provisions of
Florida law may hinder or delay an attempted takeover of the Company other than
through negotiation with the Board of Directors. These provisions could have the
effect of discouraging certain attempts to acquire the Company or remove
incumbent management even if some or a majority of the Company's shareholders
were to deem such an attempt to be in their best interest, including attempts
that might result in the shareholders' receiving a premium over the market price
for the shares of Common Stock held by shareholders.

Classified Board of Directors; Removal; Vacancies. The Articles of
Incorporation provide that the Board of Directors is divided into three classes
of directors serving staggered three-year terms. The classification of directors
has the effect of making it more difficult for shareholders to change the
composition of the Board of Directors in a relatively short period of time. The
Articles of Incorporation further provides that directors may be removed only
for cause and then only by the affirmative vote of the holders of at least
two-thirds of the entire voting power of all the then-outstanding shares of
stock of the Company entitled to vote generally in the election of directors,
voting together as a single class. In addition, vacancies and newly created
directorships resulting from any increase in the size of the Board of Directors
may be filled only by the affirmative vote of a majority of the directors then
in office (even if such directors do not constitute a quorum) or by a sole
remaining director. The foregoing provisions could prevent shareholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.

Advance Notice Provisions for Shareholder Proposals and Shareholder
Nominations of Directors. The Bylaws establish an advance notice procedure with
regard to the nomination, other than by the Board of Directors, of candidates
for election to the Board of Directors and with regard to certain matters to be
brought before an annual meeting of shareholders of the Company. Although the
Bylaws do not give the Company's Board of Directors any power to approve or
disapprove shareholder nominations for the election of directors or any other
business desired by shareholders to be conducted at an annual meeting, the
Bylaws (i) may have the effect of precluding a nomination for the election of
directors or precluding the conduct of certain business at a particular meeting
if the proper procedures are not followed or (ii) may discourage or deter a
third-party from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company, even if the
conduct of such solicitation or such attempt might be beneficial to the Company
and its shareholders.

Special Shareholders' Meetings. Under the Articles of Incorporation and the
Bylaws, special meetings of the shareholders, unless otherwise prescribed by
statute, may be called only (i) by the Board of Directors or by the Chairman or
President of the Company or (ii) by shareholders of the

57
<PAGE> 59

Company upon the written request of the holders of at least 80% of the
securities of the Company outstanding and entitled to vote generally in the
election of directors.

Limitations on Shareholder Action by Written Consent. The Articles of
Incorporation also provide that any action required or permitted to be taken at
a shareholders' meeting may be taken without a meeting, without prior notice and
without a vote, if the action is taken by persons who would be entitled to vote
at a meeting and who hold shares having voting power equal to not less than the
greater of (a) 80% of the voting power of all shares of each class or series
entitled to vote on such action or (b) the minimum number of votes of each class
or series that would be necessary to authorize or take the action at a meeting
at which all shares of each class or series entitled to vote were present and
voted.

Provisions of Florida Law. The Company is governed by two Florida statutes
that may deter or frustrate takeovers of Florida corporations. The Florida
Control Share Act generally provides that shares acquired in excess of certain
specified thresholds will not possess any voting rights unless such voting
rights are approved by a majority of a corporation's disinterested shareholders.
The Florida Affiliated Transactions Act generally requires supermajority
approval by disinterested shareholders of certain specified transactions between
a public corporation and holders of more than 10% of the outstanding voting
shares of the corporation (or their affiliates). Florida law also authorizes the
Company to indemnify the Company's directors, officers, employees and agents
under certain circumstances and to limit the personal liability of corporate
directors for monetary damages, except where the directors (i) breach their
fiduciary duties and (ii) such breach constitutes or includes certain violations
of criminal law, a transaction from which the directors derived an improper
personal benefit, certain unlawful distributions or certain other reckless,
wanton or willful acts or misconduct.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is .

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no public market for the securities
of the Company. Upon completion of this Offering, the Company will have
outstanding shares of Common Stock (assuming no exercise of
the underwriters' over-allotment option or options outstanding under the
Company's stock option plans). Of these shares, the shares
sold in the Offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless they are purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act (which sales would be subject to
certain limitations and restrictions described below). The remaining
shares are "restricted shares" under Rule 144 (the "Restricted Shares"). The
Restricted Shares may be sold in the public market only if registered under the
Securities Act or if they qualify for an exemption from registration under Rule
144, Rule 144(k) or Rule 701 promulgated under the Securities Act. The Company
and the holders of all remaining shares have agreed not to offer, pledge,
sell, offer to sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock until 180 days after the date of this
Prospectus, subject to certain exceptions. As a result of the contractual
restrictions described herein and the provisions of Rule 144, Rule 144(k) and
Rule 701, the Restricted Shares will be available for sale in the public market
as follows: (i) no shares will be available for immediate sale on the date of
this Prospectus, and (ii) approximately shares will become
eligible for sale 180 days after the date of this Prospectus (assuming no
release from the lock-up agreements) upon expiration of lock-up agreements,
subject to the restrictions of Rule 144 applicable to affiliates of the Company.

58
<PAGE> 60

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for a least one year (including the holding
period of any prior owner except an affiliate) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (approximately shares immediately
after the Offering) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of a Form 144
with respect to such sale. Sales under Rule 144 are subject to the availability
of current public information about the Company. Under Rule 144(k), a person who
is not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or notice
filing provisions of Rule 144. Unless otherwise restricted, "144(k) shares" may
therefore be sold immediately upon the completion of the Offering. Under Rule
701 under the Securities Act, persons who purchase shares upon exercise of
options granted prior to the Offering are entitled to sell such shares 90 days
after the Offering in reliance on Rule 144, without having to comply with the
holding period requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the volume limitation or notice filing provisions
of Rule 144.

After the completion of this Offering, the Company intends to file a
Registration Statement on Form S-8 (the "Form S-8") under the Securities Act to
register the 1,850,000 shares of Common Stock reserved for issuance under the
1996 Stock Option Plan and the 1998 Stock Option Plan. After the date of such
filing, if not otherwise subject to a lock-up agreement, shares purchased
pursuant to such plans and options generally would be available for resale in
the public market upon vesting and exercise of options or awards, subject to the
restrictions of Rule 144 applicable to affiliates of the Company. See
"Management--Stock Option Plans."

Prior to this Offering, there has been no public market for the Common
Stock and no determination can be made as to the effect, if any, that the sale
or availability for sale of additional shares of the Common Stock will have on
the market price of the Common Stock prevailing from time to time. Nevertheless,
sales of substantial amounts of the shares in the public market could adversely
affect the market price of the Common Stock and could impair the Company's
ability to raise capital through sale of its equity securities.

59
<PAGE> 61

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives, BT
Alex. Brown Incorporated and SoundView Technology Group, Inc. (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Shareholders the following respective numbers of shares of Common Stock
at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated.................................
SoundView Technology Group, Inc.............................
--------
Total.............................................
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of the Common Stock offered hereby
if any of such shares are purchased.

The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the public offering price and other
selling terms may be changed by the Representatives.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
each of them shown in the above table bears to , and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the shares are being offered.

To facilitate the Offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with the Offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such over-
allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the syndicate of Underwriters, also may reclaim
selling concessions allowed to an Underwriter or dealer, if the syndicate
repurchases shares distributed by that Underwriter or dealer.

The Underwriting Agreement contains covenants of indemnity and contribution
among the Underwriters, the Company and the Selling Shareholders regarding
certain liabilities, including liabilities under the Securities Act.

Allan J. Gardner, Wilburn W. Smith and certain other holders of the Common
Stock have agreed not to pledge, offer, sell or otherwise dispose of, subject to
certain exceptions, any of such shares of

60
<PAGE> 62

Common Stock for a period of 180 days after the date of this Prospectus, without
the prior written consent of BT Alex. Brown Incorporated.

The Representatives have advised the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations among the Company, the Selling
Shareholders and the Representatives. Among the factors to be considered in such
negotiations will be prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company, the Selling Shareholders and
the Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Akerman, Senterfitt & Eidson, P.A., Miami, Florida. Certain legal
matters in connection with the sale of the Common Stock offered hereby will be
passed upon for the Underwriters by Piper & Marbury L.L.P., Baltimore, Maryland.

EXPERTS

The consolidated financial statements and schedule of the Company as of
December 31, 1996 and 1997 and for each of the years in the three-year period
ended December 31, 1997, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and upon the authority
of said firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to such Registration Statement and the exhibits and schedules
thereto. The summaries in this Prospectus of additional information included in
the Registration Statement or any exhibit thereto are qualified in their
entirety by reference to such information or exhibit. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.

The Registration Statement and the exhibits and schedules thereto, may be
inspected, without charge, at the public reference facility maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Seven World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such materials can also be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005 or on the Commission's site on the Internet at
http://www.sec.gov.

61
<PAGE> 63

SMITH-GARDNER & ASSOCIATES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997
and (unaudited) June 30, 1998............................. F-3
Consolidated Statements of Operations for the three-year
period ended December 31, 1997 and (unaudited) for the six
months ended June 30, 1997 and 1998....................... F-4
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Equity (Deficit) for the three-year period
ended December 31, 1997 and (unaudited) six months ended
June 30, 1998............................................. F-5
Consolidated Statements of Cash Flows for the three-year
period ended December 31, 1997 and (unaudited) for the six
months ended June 30, 1997 and 1998....................... F-6
Notes to Consolidated Financial Statements.................. F-6 -- F-19
Schedule of Valuation and Qualifying Accounts............... F-20
</TABLE>

F-1
<PAGE> 64

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Smith-Gardner & Associates, Inc.:

We have audited the consolidated financial statements of Smith-Gardner &
Associates, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Smith-Gardner & Associates, Inc. and subsidiaries as of December 31, 1996 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.

/s/ KPMG PEAT MARWICK LLP

Fort Lauderdale, Florida
April 24, 1998, except as to the
last paragraph of note 8 which is
as of June 30, 1998 and note 14(b)
which is as of September 8, 1998

F-2
<PAGE> 65

SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 60,217 168,590 1,876,512
Accounts receivable, net of allowance for doubtful
accounts of $936,347 in 1996, $469,227 in 1997 and
(unaudited) $468,211 in 1998....................... 2,689,739 1,845,225 3,157,415
Inventory............................................ 12,866 219,963 950,089
Prepaid expenses and other current assets............ 165,449 135,382 166,443
------------ ------------ ------------
Total current assets.......................... 2,928,271 2,369,160 6,150,459
Property and equipment, net............................ 683,590 685,319 881,775
Other assets........................................... 54,330 80,576 81,047
------------ ------------ ------------
$ 3,666,191 3,135,055 7,113,281
============ ============ ============

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................... $ 280,027 548,350 1,163,425
Accrued expenses..................................... 1,055,227 1,420,990 1,722,381
Deferred revenue..................................... 160,388 383,378 2,391,458
Advances due to officers............................. 200,000 -- --
------------ ------------ ------------
Total current liabilities..................... 1,695,642 2,352,718 5,277,264
Convertible debt....................................... 10,470,000 11,130,000 11,310,000
Accrued interest payable............................... 1,200,000 2,700,000 3,600,000
------------ ------------ ------------
Total liabilities............................. 13,365,642 16,182,718 20,187,264

Commitments and contingencies (notes 4 and 12)

Redeemable preferred stock, 10,000,000 shares
authorized:
Redeemable convertible participating preferred stock,
$.01 par value; none issued........................ -- -- --
Redeemable participating preferred stock, $.01 par
value; none issued................................. -- -- --

Stockholders' deficit:
Common stock, $0.01 par value. Authorized 50,000,000
shares; issued and outstanding
5,263,100 shares................................... 52,631 52,631 52,631
Additional paid-in capital........................... 3,481,562 3,481,562 3,489,058
Accumulated deficit.................................. (13,233,644) (16,581,856) (16,615,672)
------------ ------------ ------------
Total stockholders' deficit................... (9,699,451) (13,047,663) (13,073,983)
------------ ------------ ------------
$ 3,666,191 3,135,055 7,113,281
============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 66

SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Computer software....................... $7,440,453 6,378,923 5,246,712 3,601,376 4,648,543
Computer hardware....................... 12,794,711 6,923,420 7,980,936 4,904,922 5,075,470
Support................................. 3,343,216 4,037,966 4,100,488 2,032,934 2,434,125
Services................................ 1,350,417 1,188,468 1,324,074 482,477 1,501,415
---------- ---------- ----------- ---------- -----------
Total revenue..................... 24,928,797 18,528,777 18,652,210 11,021,709 13,659,553
---------- ---------- ----------- ---------- -----------
Cost of sales and services:
Computer software....................... 1,654,355 1,031,161 1,667,272 829,238 1,171,267
Computer hardware....................... 9,760,388 5,357,947 5,846,543 3,775,128 3,857,722
Support................................. 2,490,514 3,141,395 3,271,268 1,443,026 1,562,695
Services................................ 1,016,342 902,077 1,104,195 533,888 1,005,751
---------- ---------- ----------- ---------- -----------
Total cost of sales and
services........................ 14,921,599 10,432,580 11,889,278 6,581,280 7,597,435
---------- ---------- ----------- ---------- -----------
Gross profit...................... 10,007,198 8,096,197 6,762,932 4,440,429 6,062,118
Operating expenses:
General and administrative.............. 3,205,785 4,775,430 4,567,292 2,095,743 2,916,687
Research and development................ 2,166,225 2,254,206 2,010,858 883,126 1,060,648
Sales and marketing..................... 523,382 980,371 1,482,061 740,893 1,074,374
---------- ---------- ----------- ---------- -----------
Total operating expenses.......... 5,895,392 8,010,007 8,060,211 3,719,762 5,051,709
---------- ---------- ----------- ---------- -----------
Income (loss) from operations..... 4,111,806 86,190 (1,297,279) 720,667 1,010,409
Other income (expense):
Interest expense:
Interest on outstanding debt.......... (1,200,000) (1,200,000) (1,500,000) (600,000) (900,000)
Amortization of original issue
discount............................ (960,000) (960,000) (660,000) (480,000) (180,000)
Interest income......................... 128,542 41,814 109,067 49,711 35,775
---------- ---------- ----------- ---------- -----------
Net income (loss)................. $2,080,348 (2,031,996) (3,348,212) (309,622) (33,816)
========== ========== =========== ========== ===========
Pro forma data:
Net income (loss) before income tax
(expense) benefit..................... $2,080,348 (2,031,996) (3,348,212) (309,622) (33,816)
Pro forma income tax (expense) benefit
(unaudited)........................... (1,154,543) 359,819 948,427 (123,986) (209,638)
---------- ---------- ----------- ---------- -----------
Pro forma net income (loss)
(unaudited)........................... $ 925,805 (1,672,177) (2,399,785) (433,608) (243,454)
========== ========== =========== ========== ===========
Pro forma basic and diluted net loss per
share (unaudited)..................... $ (0.46) $ (0.05)
=========== ===========
Weighted average shares outstanding used
in calculating pro forma basic and
diluted net loss per share............ 5,263,100 5,263,100
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 67

SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)

THREE-YEAR PERIOD ENDED DECEMBER 31, 1997 AND (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------
RETAINED TOTAL
REDEEMABLE COMMON STOCK ADDITIONAL EARNINGS STOCKHOLDERS'
PREFERRED ------------------- PAID-IN (ACCUMULATED EQUITY
STOCK SHARES AMOUNT CAPITAL DEFICIT) (DEFICIT)
---------- --------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... $ -- 5,263,100 $52,631 3,481,562 1,968,004 5,502,197
Net income for the year ended
December 31, 1995.............. -- -- -- -- 2,080,348 2,080,348
Shareholders' distributions...... -- -- -- -- (15,250,000) (15,250,000)
---- --------- ------- --------- ----------- -----------
Balance, December 31, 1995......... -- 5,263,100 52,631 3,481,562 (11,201,648) (7,667,455)
Net loss for the year ended
December 31, 1996.............. -- -- -- -- (2,031,996) (9,699,451)
---- --------- ------- --------- ----------- -----------
Balance, December 31, 1996......... -- 5,263,100 52,631 3,481,562 (13,233,644) (9,699,451)
Net loss for the year ended
December 31, 1997.............. -- -- -- -- (3,348,212) (3,348,212)
---- --------- ------- --------- ----------- -----------
Balance, December 31, 1997......... -- 5,263,100 52,631 3,481,562 (16,581,856) (13,047,663)
Net loss for the six months ended
June 30, 1998 (unaudited)...... -- -- -- -- (33,816) (33,816)
Non-cash compensation expense
(unaudited).................... -- -- -- 7,496 -- --
---- --------- ------- --------- ----------- -----------
Balance, June 30, 1998
(unaudited).................... $ -- 5,263,100 $52,631 3,489,058 (16,615,672) (13,081,479)
==== ========= ======= ========= =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 68

SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ------------------------
1995 1996 1997 1997 1998
------------ ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net income (loss).......................... $ 2,080,348 (2,031,996) (3,348,212) (309,622) (33,816)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization.......... 131,638 184,772 232,548 112,661 148,615
Amortization of original issue
discount............................. 960,000 960,000 660,000 480,000 180,000
Non-cash compensation expense.......... -- -- -- -- 7,496
Bad debt expense (recovery)............ 219,350 771,567 485,185 240,719 (1,017)
Change in assets and liabilities:
Accounts receivable.................. 1,829,057 (156,177) 359,329 (385,553) (1,311,174)
Inventory............................ (168,748) 292,086 (207,097) (96,074) (730,126)
Prepaid expenses and other current
assets............................. (46,374) 249,524 30,067 (13,696) (31,061)
Other assets......................... -- (4,330) (26,246) -- (472)
Accrued interest payable............. -- 1,200,000 1,500,000 600,000 900,000
Accounts payable..................... (1,908,950) (581,374) 268,323 1,368,853 615,075
Other accrued expenses............... (489,281) (194,900) 552,243 (2,648) 301,391
Deferred revenue..................... 622,043 (602,363) 36,510 299,102 2,008,080
------------ ---------- ---------- ---------- ----------
Net cash provided by operating
activities......................... 3,229,083 86,809 542,650 2,293,742 2,052,991
------------ ---------- ---------- ---------- ----------
Cash flows used in investing activities:
Capital expenditures....................... (360,126) (251,192) (234,277) (117,097) (345,069)
------------ ---------- ---------- ---------- ----------
Net cash used in investing
activities......................... (360,126) (251,192) (234,277) (117,097) (345,069)
------------ ---------- ---------- ---------- ----------
Cash flows (used in) provided by financing
activities:
Distributions to stockholders.............. (15,250,000) -- -- -- --
Increase in cash overdraft................. 122,973 -- -- -- --
Advances from officers..................... -- 200,000 -- -- --
Proceeds from repayment of employees
loans.................................... 74,000 24,600 -- -- --
Repayment of advances from officers........ (2,600) -- (200,000) -- --
------------ ---------- ---------- ---------- ----------
Net cash (used in) provided by
financing activities............... (15,055,627) 224,600 (200,000) -- --
------------ ---------- ---------- ---------- ----------
Net (decrease) increase in cash and
cash equivalents................... (12,186,670) 60,217 108,373 2,176,645 1,707,922
Cash and cash equivalents at beginning of
year....................................... 12,186,670 -- 60,217 60,217 168,590
------------ ---------- ---------- ---------- ----------
Cash and cash equivalents at end of year..... $ -- 60,217 168,590 2,236,862 1,876,512
============ ========== ========== ========== ==========
Supplemental cash flow information:
Cash paid during the year for interest..... $ 1,200,000 -- -- -- --
============ ========== ========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 69

SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND JUNE 30, 1998 (UNAUDITED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) DESCRIPTION OF BUSINESS

Smith-Gardner & Associates, Inc. (the "Company") was incorporated on
December 13, 1988 under the laws of the state of Florida. The Company primarily
licenses a computer software package it designed and developed to automate
companies that sell through catalogs, media advertisement, direct mail or
broadcast advertisements, and also sells the computer hardware required to use
the software. The Company also provides consulting, training, programming and
technical support services.

The Company opened two satellite offices in Sydney, Australia (SGA Pty.)
and Cambridge, England (SGA Ltd.) in September 1997 and June 1997, respectively.
These offices are separately incorporated and are wholly owned subsidiaries of
the Company.

(b) CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

The consolidated financial statements include the accounts of the Company
and its two wholly owned subsidiaries SGA Pty. and SGA Ltd. All significant
intercompany balances and transactions have been eliminated in consolidation.

(d) INVENTORY

Inventory consists of computer hardware. It is stated at the lower of cost
or market as determined on a specific identification basis.

(e) PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated on the
straight-line basis over the estimated useful lives of the assets which range
from five to seven years. Leasehold improvements are amortized on the
straight-line basis over the shorter of the lease term or estimated useful life
of the asset.

The Company implemented the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" effective January 1, 1996. The Company
reviews its long-lived assets (property and equipment) for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected cash flows, undiscounted and without
interest, is less than the carrying amount of the asset, an impairment loss is
recognized as the amount by which the carrying amount of the asset exceeds its
fair value. There were no impaired assets at December 31, 1996 and 1997.

(f) SOFTWARE DEVELOPMENT COSTS

The Company accounts for software development costs under Statement of
Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed" ("FAS 86"). Under FAS 86, the
costs associated with software development are required

F-7
<PAGE> 70
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to be capitalized after technological feasibility has been established. Costs
incurred by the Company subsequent to the establishment of technological
feasibility have been insignificant and, as a result, the Company has not
capitalized any development costs.

(g) REVENUE RECOGNITION

Prior to 1997, the Company followed the provisions of Statement of Position
(SOP) 91-1. Revenue from computer hardware and software sales was recognized
upon installation and substantial fulfillment of all obligations under the sales
contract. Revenues related to consulting, training and technical support were
recognized upon completion of the services.

In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued SOP 97-2, Software Revenue Recognition, which superseded SOP
91-1. The Company adopted SOP 97-2 for software transactions entered into in
1997. SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. The revenue allocated to hardware and
software products generally is recognized upon installation and substantial
fulfillment of all obligations under the sales contract. The revenue allocated
to postcontract customer support is consistent with fees charged for renewals
and is recognized ratably over the term of the support. Revenue allocated to
service elements is recognized as the services are performed. The adoption of
SOP 97-2 did not have a material impact on the Company's results of operations.

At December 31, 1996 and 1997, the Company had deferred revenue recorded in
the accompanying consolidated balance sheets related to customer support and
services paid in advance.

(h) FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of fair value of
certain financial instruments. Cash and cash equivalents, accounts receivable,
inventory and prepaid expenses and other current assets, as well as accounts
payable, accrued expenses and other current liabilities, as reflected in the
consolidated financial statements, approximate fair value because of the
short-term maturity of these instruments. The estimated fair value of the
Company's long-term debt instrument approximates the carrying amount as the
interest rate approximates the Company's current borrowing rate for similar debt
instruments of comparable maturity.

Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

(i) INCOME TAXES

The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code (the "Code"). Accordingly, the taxable income (loss)
of the Company is reported on the individual income tax returns of the
stockholders. The only states in which the Company does business in that do not
recognize S corporation status are California and New Jersey. The Company
started doing business in these states in 1997. The 1997 California and New
Jersey income tax expense is immaterial to the consolidated financial statements
for the year ended December 31, 1997. Therefore the consolidated statements of
operations do not include federal or state income tax expense.

F-8
<PAGE> 71
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For the foreign entities, there is no charge for corporation tax or
provision for deferred tax, due to the availability of accumulated tax losses of
approximately $212,850 as of December 31, 1997.

The Company intends to terminate its S corporation status prior to the
planned public stock offering discussed in note 14(a). In connection with this
termination the Company will record income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES.

The unaudited pro forma net (loss) income presented in the consolidated
statements of operations reflects the pro forma effects for income taxes as if
the Company had been a taxable entity for all periods presented.

(j) PRO FORMA NET LOSS AND PRO FORMA NET LOSS PER SHARE COMPUTATIONS (UNAUDITED)

The pro forma net loss presented in the consolidated statements of
operations reflects the pro forma effects for income taxes as if the Company had
been a taxable entity for all periods presented.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per Share. SFAS
128 specifies new standards designed to improve the earnings per share ("EPS")
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements and increasing
the comparability of EPS data on an international basis. SFAS 128 is effective
for financial statements issued for periods ending after December 15, 1997. The
adoption of SFAS 128 in 1997 did not have a significant impact on the Company's
reported EPS.

Pro forma basic and diluted net loss per share was computed by dividing net
loss by the weighted average number of shares of common stock outstanding for
each period presented.

Diluted net loss per share does not consider convertible securities or
common stock equivalents since their effect would be anti-dilutive.

In accordance with Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin No. 98, certain common stock and common stock equivalents
issued for nominal consideration prior to the initial filing of a registration
statement relating to an IPO are treated as outstanding for the entire period.
The Company had no nominal issuances during this period.

(k) FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's foreign subsidiaries, which began
operations in 1997, is their respective local currencies. The translation of the
applicable foreign currencies into U.S. dollars is performed for balance sheet
accounts using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using average rates of exchange prevailing
during the year. Adjustments resulting from the translation of foreign currency
financial statements were immaterial (approximately $5,000) as of and for the
year ended December 31, 1997 and were recorded in the consolidated statements of
operations.

(l) USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.

F-9
<PAGE> 72
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(m) RECLASSIFICATIONS

Certain 1995 and 1996 amounts have been reclassified to conform to the 1997
presentation.

(n) YEAR 2000 (UNAUDITED)

Management believes their internal computer systems are Year 2000
compliant. The Year 2000 issue results from computer programs being written
using two digits rather than four to define the applicable year. The Company's
products are Year 2000 compliant except for the GTS accounting module which is
integrated in the MACS family of products. GTS provided Year 2000 compliant code
to the Company in August 1998. The Company is now in the process of testing and
distributing the GTS Year 2000 compliant programs to its clients. The Company
has also reviewed its internal support systems and to the extent possible, its
vendors' systems to confirm Year 2000 compliance. Any failure of the Company or
its suppliers or clients to be "Year 2000" compliant could have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company has expensed all costs associated with these systems
changes as the costs are incurred.

(o) UNAUDITED INTERIM FINANCIAL INFORMATION

The unaudited consolidated balance sheet as of June 30, 1998, the unaudited
consolidated statements of operations and cash flows for the six months ended
June 30, 1997 and 1998 and the unaudited consolidated statement of redeemable
preferred stock and stockholders' deficit for the six months ended June 30, 1998
include, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the Company's consolidated
financial position, results of operations and cash flows. Operating results for
the six months ended June 30, 1998 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 1998.

(2) LIQUIDITY

The Company has been developing its software and new products which has
resulted in losses for the years ended December 31, 1996 and 1997. In addition,
at December 31, 1997 the Company had minimal working capital in the amount of
$16,442.

The Company plans to increase sales and profitability by marketing software
applications and increasing sales in the United States, United Kingdom and
Australia. During the six months ended June 30, 1998, the Company has increased
software revenue due to some major contracts that were entered into in 1998
(unaudited). In addition, the Company received a waiver to defer the payment of
interest on its convertible debt through the earlier of (i) the consummation of
an initial public offering or (ii) January 1, 2000. Based on the new contracts,
the interest waiver received and the Company's anticipated operating results,
management believes there will be sufficient funding to meet its required
operating expenditures. In addition, if necessary, the Company will reduce its
planned capital expenditures and other operating expenses in order to meet its
obligations.

F-10
<PAGE> 73
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) PROPERTY AND EQUIPMENT, NET

Property and equipment, net at December 31, consists of the following:

<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Office equipment.......................................... $ 948,563 1,144,364
Office furnishings and fixtures........................... 110,264 131,553
Leasehold improvements.................................... 15,016 32,179
---------- ---------
1,073,843 1,308,096
Less accumulated depreciation and amortization............ 390,253 622,777
---------- ---------
$ 683,590 685,319
========== =========
</TABLE>

(4) OPERATING LEASES

During 1994, the Company entered into an agreement to lease office
facilities under a noncancelable operating lease commencing January 1995 and
expiring December 2001 with an option to renew for one five-year term. The lease
contains certain incentives including rent abatements, rent discounts, leasehold
improvement reimbursements, cash allowances and scheduled base rent increases
over the term of the lease. Generally accepted accounting principles require
that the full costs of a lease be recognized ratably over the term of the lease.
Accordingly, the Company has recorded a deferred credit ($248,219 and $235,440
at December 31, 1996 and 1997, respectively) to reflect the excess of rent
expense over cash payments (see note 5). In addition to the base rent payment,
the Company pays a monthly allocation of the building's operating expenses.

Future minimum lease payments under the office facilities lease as of
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998.............................................. $ 401,222
1999.............................................. 406,297
2000.............................................. 425,365
2001.............................................. 445,411
----------
Total minimum lease payments.............................. $1,678,295
==========
</TABLE>

Rental expense, including operating leases with lease terms of less than
one year, was $552,893, $597,905 and $630,786 during 1995, 1996 and 1997,
respectively.

(5) ACCRUED EXPENSES

Accrued expenses at December 31, 1996 and 1997 consists of the following:

<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Sales tax payable........................................... $ 20,513 92,011
Sales tax contingencies..................................... 614,783 614,783
Deferred rent............................................... 248,219 235,440
Accrued payroll............................................. 4,831 95,215
Accrued legal............................................... -- 109,000
Accrued vacation............................................ 99,978 132,162
Other....................................................... 66,903 142,379
---------- ---------
$1,055,227 1,420,990
========== =========
</TABLE>

F-11
<PAGE> 74
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) CONVERTIBLE DEBT

(a) DEBENTURE PURCHASE AGREEMENT

On December 19, 1994, the Company entered into a Debenture Purchase
Agreement (the "Agreement") with various partnerships (the "Lenders") in
connection with the private placement of $12,000,000 convertible subordinated
debentures (the "Debentures"). Principal on the Debentures is payable in two
equal installments of $6,000,000 on December 1, 1999 and December 1, 2000, and
bore interest at 10 percent through June 30, 1997 and 15 percent through
maturity. A portion of this borrowing was attributed to its conversion feature
due to the difference between the stated rates and the estimated market rate at
the time of issuance. [See note 6(b).] Interest is payable quarterly in arrears
and commenced on March 31, 1995. The Agreement provides for a default rate of
interest of 20 percent on all principal amounts not paid within 15 days of the
date due. At December 31, 1997, the Company was not in compliance with certain
debt covenants. The Lenders waived any remedies on default against the Company
as outlined in the Agreement and waived compliance by the Company with respect
to such covenants through the earlier of (i) the consummation of an initial
public offering or (ii) January 1, 2000. The Company has agreed with the Lenders
to defer all quarterly interest payments due or payable in order to maintain
sufficient working capital for the Company's needs through the earlier of (i)
the consummation of an initial public offering or (ii) January 1, 2000

On June 30, 1997 the Debentures became convertible at the option of a
majority in interest of the Lenders into 22,556.14 shares of the Company's
redeemable convertible participating preferred stock and one share of redeemable
preferred stock for each $1,000 of principal outstanding. The redeemable
convertible participating preferred stock is convertible to common stock at the
rate of 100 shares of common stock for each share of preferred stock. See note
6(b) for valuation of conversion features. See redemption features of preferred
stock in note 7.

There have been no conversions in respect to these Debentures to date. No
partial conversions of the Debentures are permitted. The amount of redeemable
preferred stock received upon conversion shall be reduced by the amount of
debenture principal prepaid prior to conversion. With respect to the common
stock issuable upon conversion of the redeemable convertible participating
preferred stock, holders of the Debentures have (i) certain registration rights
regarding a public offering of the Company's common stock; and (ii) the right of
first refusal and the right of participation regarding the sales of certain
common stock to third parties.

Principal on the Debentures may be prepaid in whole, but not in part, by
the Company at any time and is subject to mandatory prepayment upon the
consummation of (i) the substantial sale of the Company's assets or capital
stock; (ii) an initial public offering of the Company's common stock under the
Securities Act of 1933; or (iii) the merger or consolidation of the Company with
another entity.

F-12
<PAGE> 75
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) ORIGINAL ISSUE DISCOUNT

The fair value of the conversion feature of the $12,000,000 debentures
discussed in note 6(a) was determined to be $3,481,562 based on the difference
between the stated interest rates and the market rate of such debentures
estimated to be 18 percent on date of issuance. The amount is included in
additional paid-in capital in the accompanying consolidated balance sheets, with
the resulting original issue discount (OID) on the loan being amortized over the
term of the note to achieve an 18% effective interest rate. Convertible debt is
comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1995 1996 1997
----------- ------------ ----------
<S> <C> <C> <C>
Stated principal balance..................... $12,000,000 12,000,000 12,000,000
Unamortized OID.............................. (2,490,000) (1,530,000) (870,000)
----------- ---------- ----------
Convertible debt............................. $ 9,510,000 10,470,000 11,130,000
=========== ========== ==========
</TABLE>

(7) PREFERRED STOCK

In connection with the issuance of $12,000,000 of Debentures [see note
6(a)], the Company amended its Articles of Incorporation by designating 22,557
shares of authorized preferred stock as redeemable convertible participating
preferred stock (the "redeemable convertible preferred stock"). Holders of the
redeemable convertible preferred stock are entitled to receive (i) dividends at
the same rate as dividends are paid with respect to the common stock based on
the number of shares of common stock into which such shares of redeemable
convertible preferred stock is then convertible; and (ii) $31.90 per share
cumulative dividend per year through November 30, 1999 ($15.95 per share for the
year ended December 1, 2000) less the amount of common stock dividends paid.

The redeemable convertible preferred stock is redeemable at the option of
the Company between December 1, 2000 and December 1, 2001 at the fair market
value per share.

Each share of redeemable convertible preferred stock entitles the holder to
such number of votes per share as shall equal the number of shares of common
stock into which such share of redeemable convertible preferred stock is then
convertible. Shares of redeemable convertible preferred stock are convertible
into shares of common stock at the option of holders of a majority in interest
of the redeemable convertible preferred stock or automatically upon the closing
of an underwritten public offering of the Company's common stock pursuant to an
effective registration statement under the Securities Act of 1933 in which the
net proceeds equal or exceeds $20,000,000. Shares of redeemable convertible
preferred stock are currently convertible into shares of common stock at an
initial conversion rate of 100 shares of common stock for each share of
preferred stock, whereby each share of convertible preferred stock is valued for
conversion purposes at $532.00 per share.

In addition, as part of the aforementioned amendment to its articles of
incorporation, the Company designated 12,000 shares of authorized preferred
stock as redeemable preferred stock. The holders of the redeemable preferred
stock are not entitled to receive any cash dividends nor any voting rights or
powers. The redeemable preferred stock series may be redeemed at any time at the
option of the Company and are subject to mandatory redemption upon the closing
date of an initial public offering or upon any conversion of the Debentures
resulting from the Company's voluntary prepayment. At the election of the
holders of a majority of the redeemable preferred stock, the Company shall
redeem one-half of all shares of redeemable preferred stock on December 1, 1999

F-13
<PAGE> 76
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and the remaining shares on December 1, 2000. Regardless of the nature of
redemption, all redeemable preferred stock is redeemed at a redemption price of
$1,000 per share.

The redeemable preferred stockholders have liquidation preference of $1,000
per share to any convertible preferred and common stockholder. The convertible
preferred and common stockholders share ratably in the proceeds from any
liquidation of assets.

(8) EMPLOYEE BENEFIT AND STOCK OPTIONS PLANS

The Company maintains an employee retirement savings plan (the "Plan")
under Internal Revenue Code Section 401(k). The Plan is available to all
full-time employees over 21 years of age with more than three months of
employment. Effective April 1994, the Company provides matching contributions
which vest to the employees immediately and range from 10 percent to 35 percent,
depending on years of service of the matchable deferrals of each participant
entitled to matching contributions, not to exceed 2.8 percent of the
participant's compensation. There was $22,907, $39,069 and $46,573 provided by
the Company in matching contributions for the years ended December 31, 1995,
1996 and 1997, respectively.

SGA Ltd., also maintains an employee benefit plan (the "Ltd. Plan"). This
is an employee-directed plan which allows the employee to set aside from 1 to 5
percent of their salary to be deposited to a fund of their choice. SGA Ltd. will
match the employee's contribution up to 5 percent. The Ltd. Plan is very similar
to the Plan for the Company.

On April 1, 1996 the Company adopted a stock-option plan. Under this plan,
the Company may grant options for up to 800,000 shares of common stock. An
option's maximum term is ten years. Each option vests as follows: 25 percent one
year after the date of grant and the balance in successive equal quarterly
installments of 6.25 percent each, at the end of each of the next 12 calendar
quarters subsequent to the date of grant. During 1996 and 1997, 214,000 and
155,000 options, respectively, were granted to employees. Of these options,
50,586 were exercisable at December 31, 1997. In addition, on April 1, 1996,
under the stock-option plan 494,120 options to purchase common stock were
granted to an executive officer of the Company. The options vests as follows:
82,353 shares one year after the grant date; 20,588 shares at the end of each of
the next 12 calendar quarters subsequent to the vesting commencement date;
82,355 shares upon the earlier to occur of (a) March 21, 2006, or (b) the market
value of the Company's outstanding stock has equaled or exceeded $100 million
for 30 days; and the remaining 82,356 shares upon the earlier to occur of (a)
March 21, 2006 or (b) the market value of the Company's outstanding stock has
equaled or exceeded $150 million for 30 days. At December 31, 1997, the officer
had 144,117 of exercisable options, none of which were exercised.

The fair market value of the underlying stock related to these options was
estimated to be $2.53 and $3.53 as of the grant dates in 1996 and 1997,
respectively. The Company applies APB Opinion No. 25 in accounting for its
stock-option plan. Stock compensation expense is recognized at the date options
are vested when the excercise price is lower than fair market value at the date
of grant. There was no compensation expense recorded in 1996 and 1997. Had the
Company determined compensation cost based on fair value at the grant date for
its stock options under Statement No. 123, the Company's net loss for the year
ended December 31, 1997 would have increased by $311,525. There would have been
no effect for the year ended December 31, 1996.

F-14
<PAGE> 77
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The weighted-average fair value per share of options granted to employees
was estimated at $1.60 and (unaudited) $2.61, for the year ended December 31,
1997 and six months ended June 30, 1998, respectively. The fair value of each
option was estimated at the date of grant using the minimum value method with
the following assumptions used:

<TABLE>
<S> <C>
Expected life........................................ 5 years
Dividends............................................ None
Interest rate........................................ 6% in 1996 and 5.45% in 1997
and 5.46% at June 30, 1998 (unaudited)
</TABLE>

Stock option activity since inception is indicated as follows:

<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
EXERCISE CONTRACTUAL
SHARES PRICE LIFE (YEARS)
------- -------- -------------
<S> <C> <C> <C>
Outstanding at inception........................... -- $ --
Granted..................................... 708,120 2.53
Forfeited................................... (77,000) 2.53
-------
Balance outstanding at December 31, 1996......... 631,120 2.53
Granted..................................... 155,000 2.53
Forfeited................................... (34,000) 2.53
-------
Balance outstanding at December 31, 1997......... 752,120 2.53
=======
Exercisable at December 31, 1997................. 194,703 $2.53 8.79
=======
</TABLE>

In April 1998, the board of directors increased the amount of authorized
options to be granted in the future from 800,000 to 850,000.

In April 1998, an additional 30,766 shares were granted at $2.53 per share
and 5,746 shares were forfeited. As options are vested, compensation expense for
these shares will be recorded for the difference between the exercise price and
the fair market value on the date of grant.

Effective June 30, 1998, the Company adopted an additional stock-option
plan (1998 Stock-Option Plan). Under this plan the Company may grant options for
up to 1,000,000 shares of common stock. The Company has granted 538,003 options
on June 30, 1998 under the 1998 Stock-Option Plan at an exercise price of $10.00
per share or in the event of an initial public offering, the initial public
offering price.

(9) RELATED PARTY TRANSACTIONS

Due to officers represents noninterest-bearing loans amounting to $200,000.
These amounts were repaid by the Company in 1997.

In connection with the issuance of convertible debt (see note 6), certain
of the Company's senior executives entered into noncompete agreements, which
expire upon the third anniversary date of the termination of the executives'
employment.

F-15
<PAGE> 78
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) INCOME TAXES

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1995 1996 1997 1997 1998
----------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income taxes as reported
$ -- -- -- -- --
Pro forma adjustment
(unaudited)....................... (1,154,543) 359,819 948,427 (123,986) (209,638)
----------- ------- ------- -------- --------
Pro forma income tax
(expense) benefit
(unaudited)....................... $(1,154,543) 359,819 948,427 (123,986) (209,638)
=========== ======= ======= ======== ========
</TABLE>

The unaudited pro forma income tax (expense) benefit presented on the
consolidated statements of operations represents the estimated taxes that would
have been recorded had the Company been a C corporation for income tax purposes
for each of the periods presented. The pro forma income tax (expense) benefit is
as follows (unaudited):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER, 31, JUNE 30,
-------------------------------- -------------------
1995 1996 1997 1997 1998
----------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pro forma (unaudited):
Current:
Federal........................ $(1,130,042) 62,798 897,416 18,851 (201,551)
State.......................... (228,669) 12,609 187,580 3,733 (40,948)
Deferred:
Federal........................ 172,413 229,124 (108,897) (130,581) 32,620
State.......................... 31,755 55,288 (27,672) (15,989) 241
----------- ------- -------- -------- --------
Total pro forma................ $(1,154,543) 359,819 948,427 (123,986) (209,638)
=========== ======= ======== ======== ========
</TABLE>

F-16
<PAGE> 79
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of income tax (expense) benefit calculated using the
statutory federal income tax rate and the pro forma income tax (expense) benefit
is as follows (unaudited):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income tax (expense) benefit
using statutory tax rate...... $ (707,318) 690,879 1,138,392 105,272 11,497
Effect of:
State and local income
taxes, net of federal
income tax............... $ (129,963) 44,812 105,539 (8,089) (26,866)
Change in valuation
allowance................ $ -- -- (61,263) -- (110,150)
Difference between US and
non-US tax rates......... $ -- -- (27,221) -- (49,437)
Original issue discount
amortization............. $ (326,400) (326,400) (224,400) (163,200) (61,200)
Change in effective tax
rates.................... $ 13,462 (43,379) 22,256 (55,254) 30,061
Other, net................. $ (4,324) (6,093) (4,876) (2,715) (3,543)
----------- -------- --------- ---------- ----------
Pro forma income tax
(expense) benefit..... $(1,154,543) 359,819 948,427 (123,986) (209,638)
=========== ======== ========= ========== ==========
</TABLE>

The Company will issue promissory notes to its existing shareholders in an
aggregate amount representing the estimated individual income tax liability for
each of the existing shareholders for the period beginning January 1, 1998 and
ending on the earlier of the date of an initial public offering or voluntary S
Corporation revocation. The distribution was estimated to approximate $400,000
(unaudited) as of June 30, 1998.

(11) BUSINESS AND CREDIT CONCENTRATIONS

The Company currently derives substantially all of its revenue from sales
of its MACS family of products and related services and hardware. Any factor
adversely affecting the sale of the Company's MACS products or other new
products, could have a material affect on the Company's business, financial
condition and results of operations.

The Company sells its products primarily to customers located in the United
States. Continuing relationships are maintained with most customers through
product-support arrangements and sales of system upgrades.

During 1995, 1996 and 1997, the Company purchased approximately 80 percent,
74 percent and 65 percent, respectively, of its computer hardware from Hewlett
Packard. At December 31, 1996 and 1997, the Company owed this supplier
approximately $79,000 and $98,000, respectively. The Company's software products
are designed for use only on Hewlett Packard equipment. Accordingly, any adverse
change in the product pricing or the operations of Hewlett Packard could
significantly effect the operating results of the Company. However, the Company
is currently in the process of engineering its product to operate on multiple
platforms.

No single customer accounted for more than 10 percent of total revenue for
the three-year period ended December 31, 1997. However, there were accounts
receivable from two customers at December 31, 1996, each of which exceeded 10
percent of total accounts receivable for approximately $1,043,000. These amounts
were collected during the year ended December 31, 1997.

F-17
<PAGE> 80
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company estimates an allowance for doubtful accounts generally based on
an analysis of collections in prior years, the credit worthiness of its
customers as well as general economic conditions. Consequently, an adverse
change in those factors could effect the Company's estimate of its bad debts.

(12) COMMITMENTS AND CONTINGENCIES

(a) LEGAL PROCEEDINGS

The Company is involved in various claims and legal actions arising in the
ordinary course of business. If the plaintiff's claims are probable, the
appropriate amount is accrued in the consolidated financial statements. In the
opinion of management, the ultimate disposition of matters not accrued will not
have a material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.

During 1995, the Company settled a litigation claim for $265,000 plus legal
expenses. This litigation related to a claim by a former customer for alleged
breach of contract.

(b) COMMITMENTS

The Company has committed to fund the operations of SGA Ltd. and SGA Pty.
for a period of at least one year. The Company does not believe this to be a
risk since the costs associated with operating these subsidiaries are minimal.

(13) LINE OF CREDIT AND PURCHASE-OPTION AGREEMENT

On December 20, 1996, the Company entered into a Line of Credit and
Purchase Option Agreement (the "Agreement") with Infocam, Limited ("Infocam").
Infocam was located in the United Kingdom and served as a distributor of the
Company's products. Under this Agreement, the Company had the exclusive option
to purchase Infocam for a period of one year. The line of credit agreement was
subject to a maximum of $250,000 and was payable on demand at a per-annum
interest rate of prime plus one point (9.25 percent at December 31, 1996). This
line of credit was terminated as of June 9, 1997. As of December 31, 1996 and
1997, $50,089 and $0, respectively, was due to the Company under this Agreement.
In addition, as of December 31, 1996, the Company had a noninterest-bearing note
receivable due from Infocam of $10,000 which was due and payable upon demand and
a trade receivable of $180,631. The Company fully reserved for all amounts due
at December 31, 1996. These amounts were subsequently written-off in 1997.

(14) SUBSEQUENT EVENTS

(a) PLANNED INITIAL PUBLIC OFFERING

The Company intends to conduct an initial public offering (IPO) with an
investment banking firm estimated to be completed in October 1998. There is no
assurance that the IPO will occur.

(b) AUTHORIZATION OF COMMON AND PREFERRED STOCK

In September 1998, the Company increased the capital stock to 50,000,000
shares of common stock at $.01 par value per share and 10,000,000 shares of
preferred stock at $.01 par value per share. The consolidated financial
statements retroactively effect these increases in authorized capital stock.

F-18
<PAGE> 81
SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(15) NEW ACCOUNTING PRONOUNCEMENTS

In June 1997 the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. SFAS No. 130 requires all
items to be recognized under accounting standards as components of comprehensive
income to be reported in a separate financial statement. The Company does not
believe that the adoption of SFAS No. 130 will have a significant impact on the
Company's financial reporting.

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. The Company does not believe that the adoption of SFAS No. 131
will have a significant impact on the Company's financial reporting.

In March 1998, the AICPA issued Statement of Position 98-5 (SOP 98-5)
"Reporting on the Costs of Start-Up Activities." Pursuant to the provisions of
SOP 98-5, all costs associated with start-up activities, including organization
costs, should be expensed as incurred. Companies that previously capitalized
such costs are required to write-off the unamortized portion of such costs as a
cumulative effect of a change of accounting principle. The Company has an
immaterial amount of these costs and the adoption of SOP 98-5 will not have a
significant impact on the Company's financial statements.

F-19
<PAGE> 82

SCHEDULE II
SMITH-GARDNER & ASSOCIATES, INC.

VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING BAD DEBT BALANCE AT
OF YEAR EXPENSE DEDUCTIONS END OF YEAR
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Description:
Reserves and allowances deducted from assets
accounts:
1995:
Allowance for doubtful accounts........ $175,505 261,615 (104,710)(a) 332,410
======== ======= ======== ========
Description:
Reserves and allowances deducted from assets
accounts:
1996:
Allowance for doubtful accounts........ $332,410 765,674 (161,739)(a) 936,347
======== ======= ======== ========
Description:
Reserves and allowances deducted from assets
accounts:
1997:
Allowance for doubtful accounts........ $936,347 102,815 (569,936)(a) 469,227
======== ======= ======== ========
</TABLE>

- ---------------
(a) Charges to the reserve account for uncollectible amounts written off and
recoveries which occurred during the year.

F-20
<PAGE> 83

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

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH 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 ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 7
Use of Proceeds........................... 14
Dividend Policy........................... 14
S Corporation Distribution and Conversion
to C Corporation Status................. 15
Capitalization............................ 16
Dilution.................................. 17
Selected Consolidated Financial Data...... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 20
Business.................................. 34
Management................................ 46
Certain Transactions...................... 52
Principal and Selling Shareholders........ 54
Description of Capital Stock.............. 54
Shares Eligible for Future Sale........... 58
Underwriting.............................. 60
Legal Matters............................. 61
Experts................................... 61
Additional Information.................... 61
Index to Combined Financial Statements.... F-1
</TABLE>

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

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

[LOGO]

Smith-Gardner & Associates, Inc.

Common Stock

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

PROSPECTUS
-------------------

BT Alex. Brown

SoundView Technology
Group, Inc.

, 1998

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 84

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following sets forth fees and expenses payable by the Company (other
than underwriting discounts and commissions) in connection with the issuance and
distribution of the Common Stock being registered. All amounts are estimated
except for the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers, Inc. ("NASD") filing fee and the NASDAQ
National Market listing fee.

<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Securities and Exchange Commission registration fee.........
NASD filing fee.............................................
Nasdaq National Market listing fees.........................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Printing and engraving expenses.............................
Registrar and transfer agent fees...........................
Directors and officers insurance annual premium.............
Miscellaneous expenses......................................
--------
Total.............................................
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Articles of Incorporation and the Company's Bylaws provide
that the Company shall, to the fullest extent permitted by law, indemnify all
directors of the Company, as well as any officers or employees of the Company to
whom the Company has agreed to grant indemnification.

Section 607.0850(1) of the Florida Business Corporation Act (the "FBCA")
provides that a Florida corporation, such as the Company, shall have the power
to indemnify any person who was or is a party to any proceeding (other than an
action by, or in the right of, the corporation), by reason of the fact that he
is or was a director, officer, employee, or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against liability
incurred in connection with such proceeding, including any appeal thereof, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.

Section 607.0850(2) of the FBCA provides that a Florida corporation shall
have the power to indemnify any person, who was or is a party to any proceeding
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the

II-1
<PAGE> 85

court in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.

Section 607.850 of the FBCA further provides that: (i) to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any claim, issue, or matter therein, he
shall be indemnified against expense actually and reasonably incurred by him in
connection therewith; (ii) indemnification provided pursuant to Section 607.0850
is not exclusive; and (iii) the corporation may purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 607.0850.

Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.

Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (B) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of the corporation to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of the
corporation, or willful misconduct; or (E) in a proceeding by or in the right of
someone other than the corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property.

In addition, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
directors, officers and controlling persons of the Company against certain
liabilities, including liabilities under the Securities Act, under certain
circumstances.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

None.

II-2
<PAGE> 86

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as exhibits to this registration
statement:

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Form of Articles of Incorporation of the Company, as
amended.*
3.2 Form of By-Laws of the Company, as amended.*
4.1 Form of Certificate of Common Stock.*
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A.*
10.1 Smith-Gardner & Associates, Inc.'s Stock Option Plan.*
10.2 Form of Stock Option Agreement pursuant to Smith-Gardner &
Associates, Inc.'s Stock Option Plan.*
10.3 Smith-Gardner & Associates, Inc.'s 1998 Stock Option Plan.*
10.4 Form of Stock Option Agreement pursuant to Smith-Gardner &
Associates, Inc.'s 1998 Stock Option Plan.*
10.5 Smith-Gardner & Associates, Inc.'s 401(k)/Profit Sharing
Plan.*
10.6 Debenture Purchase Agreement dated December 19, 1994.*
10.7 Form of Convertible Debentures Due 2000.*
10.8 Registration Rights Agreement dated December 19, 1994.*
10.9 Non-Competition Agreement by and between Smith-Gardner &
Associates, Inc. and Wilburn Smith.*
10.10 Non-Competition Agreement by and between Smith-Gardner &
Associates, Inc. and Allan Gardner.*
10.11 Form of Non-Compete Agreement executed by Smith-Gardner &
Associates, Inc.'s key employees.*
10.12 Lease Agreement dated July 1, 1994, by and between Arbous
Associates, Ltd. and Smith-Gardner & Associates, Inc.*
10.13 Agreement dated March 17, 1998, by and between Client
Systems, Inc. and Smith-Gardner & Associates, Inc.*
10.14 Agreement dated February 8, 1994, by and between Cognos
Corporation and Smith-Gardner & Associates, Inc.*
10.15 Agreement dated December 29, 1989, by and between Dynamic
Information Systems Corporation and Smith-Gardner &
Associates, Inc.*
10.16 Form of Indemnity Agreement by and between Smith-Gardner &
Associates, Inc. and each of its Directors.*
10.17 Form of Agreement for Tax Indemnification.
11.1 Statement of Computation of Per Share Earnings.*
21.1 Subsidiaries of Smith-Gardner & Associates, Inc.*
23.1 Consent of KPMG Peat Marwick LLP.*
23.2 Consent of Akerman, Senterfitt & Eidson, P.A. (included in
its opinion filed as Exhibit 5.1).*
24.1 Power of Attorney (included as part of the Signature Page to
this Registration Statement).*
27.1 Financial Data Schedule.*
</TABLE>

- ---------------
* To be filed by amendment.

(b) Financial Statement Schedules.

Schedules have been omitted because the information required to be set
forth therein is not applicable or is included elsewhere in the Financial
Statements or notes thereto.

ITEM 17. UNDERTAKINGS.

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

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 provisions described under Item 14 of this
Registration Statement, or otherwise, the Registrant has been advised that in

II-3
<PAGE> 87

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.

The undersigned Registrant hereby undertakes that:

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

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

II-4
<PAGE> 88

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Smith-Gardner & Associates, Inc., has duly caused this Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Delray Beach, State of Florida on this 9th day of
September, 1998.

SMITH-GARDNER & ASSOCIATES, INC.

By: /s/ GARY G. HEGNA
------------------------------------
Gary G. Hegna
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gary G. Hegna and Martin K. Weinbaum, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any 462(b)
Registration Statement, 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, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
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, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>

/s/ GARY G. HEGNA President, Chief Executive September 9, 1998
- --------------------------------------------------- Officer and Director
Gary G. Hegna (Principal Executive
Officer)

/s/ MARTIN K. WEINBAUM Vice President -- Finance, September 9, 1998
- --------------------------------------------------- Chief Financial Officer,
Martin K. Weinbaum Secretary and Treasurer
(Principal Financial and
Accounting Officer)

/s/ ALLAN GARDNER Executive Vice President -- September 9, 1998
- --------------------------------------------------- Advanced Technologies and
Allan Gardner Co-Chairman of the Board

/s/ WILBURN SMITH Executive Vice President -- September 9, 1998
- --------------------------------------------------- Sales and Co-Chairman of the
Wilburn Smith Board
</TABLE>

II-5
<PAGE> 89

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Form of Articles of Incorporation of the Company, as
amended.*
3.2 Form of By-Laws of the Company, as amended.*
4.1 Form of Certificate of Common Stock.*
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A.*
10.1 Smith-Gardner & Associates, Inc.'s Stock Option Plan.*
10.2 Form of Stock Option Agreement pursuant to Smith-Gardner &
Associates, Inc.'s Stock Option Plan.*
10.3 Smith-Gardner & Associates, Inc.'s 1998 Stock Option Plan.*
10.4 Form of Stock Option Agreement pursuant to Smith-Gardner &
Associates, Inc.'s 1998 Stock Option Plan.*
10.5 Smith-Gardner & Associates, Inc.'s 401(k)/Profit Sharing
Plan.*
10.6 Debenture Purchase Agreement dated December 19, 1994.*
10.7 Form of Convertible Debentures Due 2000.*
10.8 Registration Rights Agreement dated December 19, 1994.*
10.9 Non-Competition Agreement by and between Smith-Gardner &
Associates, Inc. and Wilburn Smith.*
10.10 Non-Competition Agreement by and between Smith-Gardner &
Associates, Inc. and Allan Gardner.*
10.11 Form of Non-Compete Agreement executed by Smith-Gardner &
Associates, Inc.'s key employees.*
10.12 Lease Agreement dated July 1, 1994, by and between Arbous
Associates, Ltd. and Smith-Gardner & Associates, Inc.*
10.13 Agreement dated March 17, 1998, by and between Client
Systems, Inc. and Smith-Gardner & Associates, Inc.*
10.14 Agreement dated February 8, 1994, by and between Cognos
Corporation and Smith-Gardner & Associates, Inc.*
10.15 Agreement dated December 29, 1989, by and between Dynamic
Information Systems Corporation and Smith-Gardner &
Associates, Inc.*
10.16 Form of Indemnity Agreement by and between Smith-Gardner &
Associates, Inc. and each of its Directors.*
10.17 Form of Agreement for Tax Indemnification.
11.1 Statement of Computation of Per Share Earnings.*
21.1 Subsidiaries of Smith-Gardner & Associates, Inc.*
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Akerman, Senterfitt & Eidson, P.A. (included in
its opinion filed as Exhibit 5.1).*
24.1 Power of Attorney (included as part of the Signature Page to
this Registration Statement).*
27.1 Financial Data Schedule.*
</TABLE>

- ---------------
* To be filed by amendment.

<PAGE> 1

EXHIBIT 11

SMITH-GARDNER & ASSOCIATES, INC.

PRO FORMA PER SHARE COMPUTATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<S> <C>
PRO FORMA BASIC AND DILUTED

Weighted average common shares outstanding, exclusive of
nominal issuances prior to the IPO........................ 5,263,100
Nominal common shares and equivalents issued prior to the
IPO assumed to be outstanding for the entire period....... --
------------
Weighted average common shares outstanding, exclusive at end
of year................................................... 5,263,100
============
Pro forma net loss.......................................... $ (2,399,785)
============
Pro forma basic and diluted net loss per share.............. $ (0.46)
============
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Stockholders
Smith-Gardner & Associates, Inc.:

We consent to the use of report included herein and to the reference to our
firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.

Fort Lauderdale, Florida
September 9, 1998