SMITH GARDNER & ASSOCIATES INC
S-1/A, 1999-01-11
PREPACKAGED SOFTWARE
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<PAGE>   1
 
   
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 11, 1999
    
                                                      REGISTRATION NO. 333-63125
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
   
                                AMENDMENT NO. 2
    
                                       TO
 
                                    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.  [ ]
    
 
   
    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
   
                                                                JANUARY 11, 1999
    
 
                                4,410,000 Shares
 
                              (Smith-Gardner Logo)
 
   
                                  Common Stock
    
                            ------------------------
 
   
     Of the 4,410,000 shares of Common Stock being offered hereby, 4,000,000
shares are being sold by Smith-Gardner & Associates, Inc. ("Smith-Gardner" or
the "Company") and 410,000 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 $8.00 and $10.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Common Stock has been approved for quotation 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 $750,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
    661,500 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
                    , 1999.
 
BT Alex. Brown                                        SoundView Technology Group
 
               THE DATE OF THIS PROSPECTUS IS             , 1999.
<PAGE>   3
 
[GRAPHIC DESCRIPTION FOR INSIDE FRONT COVER]
[COMPANY LOGO]
 
     MAILORDER AND CATALOGING SYSTEM (MACS(R)) AND WEBORDER(TM) are suites of
software modules that provide a fully integrated, mission critical
enterprise-wide business system to the non-store marketing industry.
 
     Smith-Gardner's family of software products offers a full range of
functions to automate non-store commerce including advertising and sales,
merchandising and purchasing, telemarketing and ordering, electronic and
Internet commerce, warehousing and shipping, production and operations,
accounting and enterprise-wide decision support. The MACS database is at the
core of all non-store marketing and sales functions.
 
[circular representation]
 
         WebOrder for Internet Commerce
         API to Other Best of Breed Applications
         Peoplesoft (GL/AP/HR)
         Manhattan Associates (WMS)
         Great Plains (GL/AP)
         Island Pacific Retail
         MACS Unix
         Enterprise MACS
         MACS NT
         EuroMACS
         Functional Modules
         MACS Database
[photos of computer screens]
 
     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, WEBORDER, 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 (the "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
$.01 per share and $1,000 per share preference value (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, each of whom is a Selling Shareholder in this Offering
(collectively the "Selling Shareholders" or 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 manufacturers, 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 the Company's 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, manufacturers 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. WebOrder, 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. WebOrder incorporates both the functionality and
scalability of MACS II and MACS III.
 
     The Company's solutions are used by more than 200 clients located primarily
in North America, Europe and Australia. Smith-Gardner's client base includes
companies such as Barnes & Noble, Coldwater Creek, Cyberian Outpost,
Egghead.com, Hammacher Schlemmer, Hickory Farms, Lego, Micro Warehouse,
Nordstrom, QVC Network and Time Life.
 
                                        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, manufacturers 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 WebOrder 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.......     4,000,000 shares
 
Common Stock offered by the Selling
Shareholders..............................       410,000 shares
 
Common Stock to be outstanding after this
  Offering................................    11,518,714 shares (1)
 
Use of proceeds...........................    Repayment of indebtedness and
                                              accrued interest, expansion of the
                                              Company's marketing and sales
                                              resources, further international
                                              expansion and general corporate
                                              purposes. See "Use of Proceeds."
 
Proposed Nasdaq National Market symbol....    SGAI
 
- ---------------
   
(1) 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 776,300 shares of
    Common Stock at an exercise price of $2.53 per share and options to purchase
    35,113 shares of Common Stock at an exercise price of $4.53 per share (or
    the initial public offering price upon the consummation of this Offering
    prior to July 1, 1999) were outstanding at December 31, 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
    602,041 shares of Common Stock, at an exercise price of $4.53 per share (or
    the initial public offering price upon the consummation of this Offering
    prior to July 1, 1999) were outstanding at December 31, 1998. See
    "Management -- Stock Option Plans."
    
 
                                        4
<PAGE>   6
 
               SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
   
<TABLE>
<CAPTION>
                                                                                                     NINE MONTHS ENDED
                                                    YEAR ENDED DECEMBER 31,                            SEPTEMBER 30,
                                 --------------------------------------------------------------   ------------------------
                                    1993         1994         1995         1996         1997         1997          1998
                                 ----------   ----------   ----------   ----------   ----------   -----------   ----------
                                                                                                  (UNAUDITED)
<S>                              <C>          <C>          <C>          <C>          <C>          <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................     $19,669      $21,465      $24,929      $18,529      $18,652      $15,093       $24,749
Cost of sales and services.....      11,333       12,351       14,922       10,433       11,889        9,046        13,128
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Gross profit...................       8,336        9,114       10,007        8,096        6,763        6,047        11,621
Operating expenses:
  General and administrative...       1,671        3,246        3,206        4,776        4,567        3,102         4,646
  Research and development.....       1,929        1,609        2,166        2,254        2,011        1,444         1,638
  Sales and marketing..........         410          508          523          980        1,482        1,066         1,653
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
        Total operating
          expenses.............       4,010        5,363        5,895        8,010        8,060        5,612         7,937
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Income (loss) from
  operations...................       4,326        3,751        4,112           86       (1,297)         435         3,684
 
Interest expense:
  Interest on outstanding
    debt.......................          --          (39)      (1,200)      (1,200)      (1,500)      (1,050)       (1,350)
  Amortization of original
    issue discount(1)..........          --          (45)      (1,378)      (1,378)        (680)        (680)           --
Interest income................          26           50          129           42          109           84            68
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
        Total net interest
          income (expense).....          26          (34)      (2,449)      (2,536)      (2,071)      (1,646)       (1,282)
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Net income (loss)..............      $4,352       $3,717       $1,663      $(2,450)     $(3,368)     $(1,211)       $2,402
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Net income (loss) per share:
  Basic........................       $0.83        $0.71        $0.32       $(0.47)      $(0.64)      $(0.23)        $0.46
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
  Diluted......................       $0.83        $0.50        $0.32       $(0.47)      $(0.64)      $(0.23)        $0.40
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Weighted average shares used in
  calculating net income (loss)
  per share:
    Basic......................       5,263        5,263        5,263        5,263        5,263        5,263         5,263
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
    Diluted....................       5,263        7,519        5,263        5,263        5,263        5,263         8,081
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Pro forma data:
  Net income (loss) before
    income
    tax (expense) benefit......      $4,352       $3,717       $1,663      $(2,450)     $(3,368)     $(1,211)       $2,402
Pro forma income tax (expense)
  benefit (unaudited)(2).......      (1,672)      (1,425)      (1,155)         360          948          312        (1,053)
                                 ----------   ----------   ----------   ----------   ----------   ----------    ----------
Pro forma net income (loss)
  (unaudited)(2)...............      $2,680       $2,292         $508      $(2,090)     $(2,420)       $(899)       $1,349
                                 ==========   ==========   ==========   ==========   ==========   ==========    ==========
Pro forma net (loss) income per
  share (unaudited)(2)(3):
    Basic......................                                                          $(0.13)                     $0.29
                                                                                     ==========                 ==========
    Diluted....................                                                          $(0.13)                     $0.27
                                                                                     ==========                 ==========
Number of shares used in
  calculating pro forma net
  (loss) income per share:
    Basic......................                                                           7,519                      7,519
                                                                                     ==========                 ==========
    Diluted....................                                                           7,519                      8,081
                                                                                     ==========                 ==========
</TABLE>
    
 
   
<TABLE>
<CAPTION>
                                                                                                 SEPTEMBER 30, 1998
                                                             DECEMBER 31,                     -------------------------
                                           ------------------------------------------------                 AS ADJUSTED
                                            1993      1994      1995      1996       1997       ACTUAL          (3)
                                           -------   -------   -------   -------   --------   -----------   -----------
                                                                                                            (UNAUDITED)
<S>                                        <C>       <C>       <C>       <C>       <C>        <C>           <C>
BALANCE SHEET DATA:
Cash and cash equivalents................  $   132   $12,187   $    --   $    60   $    169    $  3,567       $20,524
Working capital..........................    1,180    13,614     1,175     1,233         16       3,062        19,266
Total assets                                 3,005    18,580     4,717     3,666      3,135      11,245        27,828
Convertible debt and accrued
  interest(1)............................       --     8,603     9,942    12,520     14,700      16,050             0
Stockholders' equity (deficit)(1)........    1,381     5,488    (8,099)  (10,550)   (13,918)    (11,567)       20,312
</TABLE>
    
 
                            (Footnotes on next page)
 
                                        5
<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 from the date of issuance (December 19, 1994) to the date it first
    became convertible (June 30, 1997). 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 4,000,000 shares of Common
    Stock offered and sold by the Company hereby at an assumed initial public
    offering price of $9.00 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 Product Development.  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 possible 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 nMACS. The
Company has only recently developed and commenced sales of WebOrder. 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. The
Company's continued growth is highly dependent on the success of such products,
and a failure of any one of such products to achieve market acceptance could
have a material adverse effect on the Company's business, financial condition or
results of operations. 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, 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
 
                                        7
<PAGE>   9
 
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 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 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) the timeliness of such product
introductions relative to any announced timetable; (iv) the size and timing of
individual orders; (v) the 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) the hardware/software revenue
mix; (x) the 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
 
                                        8
<PAGE>   10
 
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 $2.5 million and $3.4
million for fiscal years 1996 and 1997, respectively. Such losses resulted
primarily from interest expense and original issue discount relating to the
Convertible Debentures which equaled $2.6 million and $2.2 million in 1996 and
1997, respectively, 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, WebOrder,
nMACS 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.
    
 
     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 255, and the Company expects to
hire additional personnel during 1999. 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 in 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
 
                                        9
<PAGE>   11
 
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.
 
     Dependence on Third Parties.  The 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 the fiscal years ended December 31, 1996 and
December 31, 1997 and for the nine months ended September 30, 1998, revenue
derived from the sale of HP equipment amounted to 32.4%, 29.3% and 27.3%,
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 resulting 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
                                       10
<PAGE>   12
 
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 continues its
expansion 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
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
 
                                       11
<PAGE>   13
 
   
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 difficulties in enforcement of contractual obligations and intellectual
property rights and risks associated with the Company's non-use of any hedging
instruments to protect against possible currency fluctuations. 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 the 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 59.5% 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."
 
   
     Benefits of the Offering to Existing Shareholders and the Lenders.  Upon
the completion of this Offering and the sale of shares of Common Stock by the
Existing Shareholders, the Existing Shareholders will, in the aggregate,
beneficially own 4,853,100 shares of outstanding Common Stock, which shares will
represent approximately 42.1% of the Company's total outstanding Common Stock.
The Existing Shareholders have paid an average of $.01 per share for the Common
Stock held by them, as compared to an assumed initial public offering price of
$9.00 per share, representing an increase in the market price per share of
$8.99, or an aggregate increase of approximately $43.6 million. Furthermore, a
portion of the net proceeds of the Offering will be used to effect the
Distribution to the Existing Shareholders, which is estimated to be
approximately $850,000 subject to adjustment based on the Company's cash
earnings through the date of its conversion to C corporation status. Upon
consummation of this Offering, the Lenders will receive (i) $12.0 million of the
net proceeds of this Offering as a result of the redemption of all of the
Redeemable Preferred Stock, (ii) approximately $4.2 million of the proceeds to
pay accrued interest due and payable, and (iii) 2,255,614 shares of Common Stock
upon the conversion of the Convertible Preferred Stock, which shares will
represent 19.6% of the Company's outstanding Common Stock upon completion of
this Offering. This Offering will also create a public market for the resale,
and substantially increase the market value, of shares held by the Existing
Shareholders and Lenders, as well as shares held by various executive officers
of the Company.
    
 
     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.
                                       12
<PAGE>   14
 
     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. The net tangible book
value dilution per share to new investors is expected to be $7.24. 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 this Offering,
the Company will have 11,518,714 shares of Common Stock outstanding (assuming no
exercise of options outstanding under the Plans). Of these shares, the 4,410,000
shares sold in this 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 (the resales of which
would be subject to certain limitations and restrictions described below). The
remaining 7,108,714 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 the Securities Act. The Company and the holders of such
7,108,714 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 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. These exceptions include: (i) the
prior written consent of BT Alex. Brown Incorporated, (ii) grants or awards of
shares of Common Stock authorized under the Plans at the time of the
effectiveness of the Registration Statement, (iii) bona fide gifts or similar
transfers or devises for estate planning, charitable and other related purposes,
in any such case only to persons who agree to be bound by the restrictions to
which the transferor is subject, and (iv) as consideration for future
acquisitions.
    
 
     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 1,850,000 shares of Common Stock issued or reserved for issuance
under the Plans. 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. 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. There are no shares
of Preferred Stock currently outstanding and 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
 
                                       13
<PAGE>   15
 
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 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 provider and
incorporated into MACS to provide general ledger and accounts payable functions.
 
     The Company's MACS products have been determined to be fully Year 2000
compliant, except for the GTS programs. The Company performed tests of all major
functionality within the MACS family of software products, specifically those
areas which utilize date fields. GTS provided Year 2000 compliant code to the
Company in September 1998. With respect to the GTS programs, the Company has
identified all changes necessary to integrate the Year 2000 compliant code into
MACS. The Company has completed the internal functional specifications for the
necessary changes and expects them to be incorporated into a new version of MACS
to be released in early 1999. The Company anticipates total expenditures for
time and materials to implement such changes to be less than $40,000. In the
event that the Company is unable to remedy the Year 2000 issue with respect to
the GTS programs prior to January 1, 2000, the Company may be subject to
liability in the event that any defects occur in MACS.
 
     The Company has also reviewed all material vendor systems for Year 2000
compliance and, except as indicated below, either confirmed that these systems
are Year 2000 compliant or obtained Year 2000 compliance statements from the
respective vendor. All of the Company's network software is Year 2000 compliant
except NT Server 4.0, Backoffice Server and Raptor Firewall. All of the
Company's desktop software is Year 2000 compliant except Windows 95, Visual C++,
Visual Basic and Word 6.0. With respect to such noncompliant software, the
Company expects to obtain updated versions which are compliant early in 1999.
The Company anticipates total expenditures for time and materials to make such
systems Year 2000 compliant to be approximately $10,000. In addition, the
Company has reviewed all of its internal systems including its hardware and
software systems, its embedded systems, networks, accounting systems, and
development, testing, training and demonstration platforms for Year 2000
compliance. The Company has upgraded all internal systems to Year 2000 compliant
operating system versions where compliance statements were not provided for such
systems. There were no material costs incurred by the Company in connection with
testing its vendor or internal systems. All of the Company's non-IT systems are
Year 2000 compliant. Any failure of the Company or its suppliers or clients to
be Year 2000 compliant, however, could have a material adverse effect on the
Company's business, financial condition or results of operations.
 
                                       14
<PAGE>   16
 
                                USE OF PROCEEDS
 
     The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered by the Company (at an assumed initial public offering price
of $9.00 per share), are estimated to be approximately $32.7 million after
deducting estimated underwriting discounts and offering expenses payable by the
Company ($38.3 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 $4.7 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 December 31, 1998, the estimated
Distribution would have been approximately $850,000 subject to adjustment based
on the Company's cash earnings through the date of its conversion to C
corporation status. The balance of the net proceeds of this Offering will be
used for the Company's expansion of marketing and sales resources, further
international expansion, working capital and other general corporate purposes.
To date, the Company does not have a quantified business plan with respect to
the expansion of its marketing and sales resources and its facilities and
business abroad. A portion of the net proceeds of this Offering 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 approximately $15.3 million. In September 1998,
the Company paid an aggregate dividend to its shareholders in the aggregate
amount of $70,610 to offset their 1997 tax liability.
    
 
                                       15
<PAGE>   17
 
                         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, pursuant to an
agreement to be entered into with the Existing Shareholders, 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 December 31, 1998, the estimated aggregate principal amount of
the Promissory Notes would have been approximately $850,000. 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 $1.5
million. 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 Internal Revenue Service is currently auditing the Company's tax
returns for fiscal 1995. The Existing Shareholders have agreed to indemnify the
Company for any possible taxes owed by the Company. 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.
 
                                       16
<PAGE>   18
 
                                 CAPITALIZATION
 
     The following table sets forth the capitalization of the Company (i) on an
actual basis as of September 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 by
the Company pursuant to this Offering (at an assumed initial public offering
price of $9.00 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>
                                                                SEPTEMBER 30, 1998
                                                              ----------------------
                                                               ACTUAL    AS ADJUSTED
                                                              --------   -----------
                                                                  (IN THOUSANDS)
<S>                                                           <C>        <C>
Convertible debt:
  Convertible debt..........................................  $ 12,000     $     0
  Promissory Notes..........................................        --         850
  Accrued interest payable..................................     4,050           0
Redeemable preferred stock, $.01 par value; 10,000,000
  shares authorized:
  Convertible preferred stock, none issued;.................        --          --
  Redeemable preferred stock, $1,000 per share preference
     value; none issued;....................................        --          --
Stockholders' deficit:
  Common stock, $0.01 par value. 50,000,000 shares
     authorized; 5,263,100 shares issued and outstanding
     actual; 11,518,714 shares issued and outstanding as
     adjusted(1)............................................        53         115
Additional paid-in capital..................................     3,501      36,168
Accumulated deficit.........................................   (15,121)    (15,971)
                                                              --------     -------
  Total stockholders' (deficit) equity......................   (11,567)     20,312
                                                              --------     -------
          Total capitalization..............................  $  4,483     $21,162
                                                              ========     =======
</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
    776,300 shares of Common Stock at an exercise price of $2.53 per share and
    options to purchase 35,113 shares of Common Stock at an exercise price of
    $4.53 per share (or the initial public offering price upon the consummation
    of this Offering prior to July 1, 1999) were outstanding at December 31,
    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 602,041
    shares, at an exercise price of $4.53 per share (or the initial public
    offering price upon the consummation of this Offering prior to July 1, 1999)
    were outstanding at December 31, 1998. See "Management -- Stock Option
    Plans."
    
 
                                       17
<PAGE>   19
 
                                    DILUTION
 
   
     The pro forma deficit in net tangible book value of the Company at
September 30, 1998, was approximately $12,791,796, or $(1.70) 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 net tangible book value per share of Common Stock as adjusted
immediately after completion of this Offering. After giving effect to the
Concurrent Transactions and the sale by the Company of 4,000,000 shares of
Common Stock (at an assumed initial public offering price of $9.00 per share)
and the application of the estimated net proceeds therefrom, the net tangible
book value of the Company as of September 30, 1998, would have been $20,312,564
or $1.76 per share. This represents an immediate increase in net tangible book
value of $3.46 per share to the Existing Shareholders and Lenders (which will
collectively receive 2,255,614 shares of Common Stock in connection with the
Concurrent Transactions) and an immediate dilution in the net tangible book
value of $7.24 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.............             $   9.00
  Pro forma net tangible book value per share at 
     September 30, 1998.....................................  $  (1.70)
  Increase per share attributable to new investors..........      3.46
                                                              --------
As adjusted net tangible book value per share after this
  Offering..................................................                 1.76
                                                                         --------
Net tangible book value dilution per share to new
  investors.................................................             $   7.24
                                                                         ========
</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 $9.00 per share:
 
<TABLE>
<CAPTION>
                           SHARES PURCHASED         TOTAL CONSIDERATION
                        ----------------------    ------------------------    AVERAGE PRICE
                          NUMBER       PERCENT      AMOUNT         PERCENT      PER SHARE
                        -----------    -------    -----------      -------    -------------
<S>                     <C>            <C>        <C>              <C>        <C>
Existing Shareholders
  and Lenders.........    7,518,714       65.3%   $ 3,553,213          9.0%      $  0.47
New investors
  purchasing shares
  from the Company....    4,000,000       34.7     36,000,000         91.0       $  9.00
                        -----------    -------    -----------      -------
     Total............   11,518,714      100.0%   $39,553,213        100.0%
                        ===========    =======    ===========      =======
</TABLE>
 
     After giving retroactive effect to the Concurrent Transactions, the sale of
shares by the Existing Shareholders in this Offering will cause the number of
shares held by the Existing Shareholders and Lenders as of September 30, 1998 to
be reduced to 7,108,714 shares, or 61.7% 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 September 30, 1998 to be 4,410,000 shares, or 38.3% 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 September 30, 1998. As of December 31, 1998, under the 1996 Stock
Option Plan there were options outstanding to purchase a total of 776,300 shares
of Common Stock at an exercise price of $2.53 per share and options to purchase
35,113 shares of Common Stock at an exercise price of $4.53 per share (or the
initial public offering price upon the consummation of this Offering prior to
July 1, 1999). As of December 31, 1998, under the 1998 Stock Option Plan there
were options outstanding to purchase a total of 602,041 shares of Common Stock
at an exercise price of $4.53 per share or the initial public offering price
upon the consummation of this Offering prior to July 1, 1999.
    
 
                                       18
<PAGE>   20
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
   
     The selected consolidated financial data set forth below as of December 31,
1993, 1994, 1995, 1996 and 1997 and as of September 30, 1998 and for each of the
years in the five year period ended December 31, 1997 and for the nine months
ended September 30, 1998 are derived from the Consolidated Financial Statements
of the Company which have been audited by KPMG LLP, independent public
accountants. The Company's consolidated balance sheets as of December 31, 1996
and 1997 and September 30, 1998, and consolidated statements of operations for
the years ended December 31, 1995, 1996 and 1997 and nine months ended September
30, 1998 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 for the nine
months ended September 30, 1997 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.
    
 
                                       19
<PAGE>   21
 
   
<TABLE>
<CAPTION>
                                                                                                  NINE MONTHS ENDED
                                                 YEAR ENDED DECEMBER 31,                            SEPTEMBER 30,
                              --------------------------------------------------------------   ------------------------
                                 1993         1994         1995         1996         1997         1997          1998
                              ----------   ----------   ----------   ----------   ----------   -----------   ----------
                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)                (UNAUDITED)
<S>                           <C>          <C>          <C>          <C>          <C>          <C>           <C>
STATEMENT OF OPERATIONS
  DATA:
Revenue:
  Computer software.........      $4,908       $6,551       $6,594       $5,932       $5,084       $4,417        $8,615
  Computer hardware.........      13,530       11,988       13,641        7,370        8,144        6,489         9,853
  Support...................         833        2,159        3,343        4,038        4,100        3,064         3,817
  Services..................         398          767        1,351        1,189        1,324        1,123         2,464
                              ----------   ----------   ----------   ----------   ----------   ----------    ----------
        Total revenue.......      19,669       21,465       24,929       18,529       18,652       15,093        24,749
Cost of sales and services:
  Computer software.........         250        1,082          808          585        1,504        1,042         1,930
  Computer hardware.........       9,352        8,586       10,607        5,805        6,010        4,929         7,309
  Support...................         963        1,956        2,491        3,141        3,271        2,270         2,282
  Services..................         768          727        1,016          902        1,104          805         1,607
                              ----------   ----------   ----------   ----------   ----------   ----------    ----------
        Total cost of sales
          and services......      11,333       12,351       14,922       10,433       11,889        9,046        13,128
                              ----------   ----------   ----------   ----------   ----------   ----------    ----------
Gross Profit................       8,336        9,114       10,007        8,096        6,763        6,047        11,621
Operating expenses:
  General and
    administrative..........       1,671        3,246        3,206        4,776        4,567        3,102         4,646
  Research and development..       1,929        1,609        2,166        2,254        2,011        1,444         1,638
  Sales and marketing.......         410          508          523          980        1,482        1,066         1,653
                              ----------   ----------   ----------   ----------   ----------   ----------    ----------
        Total operating
          expenses..........       4,010        5,363        5,895        8,010        8,060        5,612         7,937
                              ----------   ----------   ----------   ----------   ----------   ----------    ----------
Income (loss) from
  operations................       4,326        3,751        4,112           86       (1,297)         435         3,684
Other income (expense):
Interest expense:
  Interest on outstanding
    debt....................          --          (39)      (1,200)      (1,200)      (1,500)      (1,050)       (1,350)
  Amortization of original
    issue discount(1).......          --          (45)      (1,378)      (1,378)        (680)        (680)           --
Interest income.............          26           50          129           42          109           84            68
                              ----------   ----------   ----------   ----------   ----------   ----------    ----------
        Total interest
          income (expense),
          net...............          26          (34)      (2,449)      (2,536)      (2,071)      (1,646)       (1,282)
                              ----------   ----------   ----------   ----------   ----------   ----------    ----------
Net income (loss)...........      $4,352       $3,717       $1,663      $(2,450)     $(3,368)     $(1,211)       $2,402
                              ==========   ==========   ==========   ==========   ==========   ==========    ==========
Net income (loss) per share:
  Basic.....................       $0.83        $0.71        $0.32       $(0.47)      $(0.64)      $(0.23)        $0.46
                              ==========   ==========   ==========   ==========   ==========   ==========    ==========
  Diluted...................       $0.83        $0.49        $0.32       $(0.47)      $(0.64)      $(0.23)        $0.40
                              ==========   ==========   ==========   ==========   ==========   ==========    ==========
Weighted average shares used
  in calculating net income
  (loss) per share:
    Basic...................       5,263        5,263        5,263        5,263        5,263        5,263         5,263
                              ==========   ==========   ==========   ==========   ==========   ==========    ==========
    Diluted.................       5,263        7,519        7,519        5,263        5,263        5,263         8,081
                              ==========   ==========   ==========   ==========   ==========   ==========    ==========
Pro forma data:
  Net income (loss) before
    income
    tax (expense) benefit...      $4,352       $3,717       $1,663      $(2,450)     $(3,368)     $(1,211)       $2,402
Pro forma income tax
  (expense) benefit
  (unaudited)(2)............      (1,672)      (1,425)      (1,155)         360          948          312        (1,053)
                              ----------   ----------   ----------   ----------   ----------   ----------    ----------
Pro forma net income (loss)
  (unaudited)(2)............      $2,680       $2,292         $508      $(2,090)     $(2,420)       $(899)       $1,349
                              ==========   ==========   ==========   ==========   ==========   ==========    ==========
Pro forma net (loss) income
  per share
  (unaudited)(2)(3):
    Basic...................                                                          $(0.13)                     $0.29
                                                                                  ==========                 ==========
    Diluted.................                                                          $(0.13)                     $0.27
                                                                                  ==========                 ==========
Weighted average number of
  shares used in calculating
  pro forma net (loss)
  income per share:
    Basic...................                                                           7,519                      7,519
                                                                                  ==========                 ==========
    Diluted.................                                                           7,519                      8,081
                                                                                  ==========                 ==========
</TABLE>
    
 
                                       20
<PAGE>   22
 
   
<TABLE>
<CAPTION>
                                                         DECEMBER 31,                         SEPTEMBER 30, 1998
                                       ------------------------------------------------     -----------------------
                                                                                                       AS ADJUSTED
                                        1993      1994      1995      1996       1997        ACTUAL        (3)
                                       -------   -------   -------   -------   --------     --------   ------------
                                                        (IN THOUSANDS)                                 (UNAUDITED)
<S>                                    <C>       <C>       <C>       <C>       <C>          <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents............  $   132   $12,187   $    --   $    60   $    169     $  3,567     $20,524
Working capital......................    1,180    13,614     1,175     1,233         16        3,062      19,266
Total assets.........................    3,005    18,580     4,717     3,666      3,135       11,245      27,828
Convertible debt and accrued
  interest(1)........................       --     8,603     9,942    12,520     14,700       16,050           0
Stockholders' equity (deficit)(1)....    1,381     5,488    (8,099)  (10,550)   (13,918)     (11,567)     20,312
</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 from the date of
    issuance (December 19, 1994) to the date the security first became
    convertible (June 30, 1997). 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 4,000,000 shares of Common
    Stock offered hereby at an assumed initial public offering price of $9.00
    and after deducting the underwriting discounts and commissions and estimated
    offering expenses payable by the Company.
 
                                       21
<PAGE>   23
 
                    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.
 
     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. WebOrder, 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.
WebOrder incorporates both the functionality and scalability of MACS II and MACS
III.
 
     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 WebOrder, 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 107.2% while upgrade revenue
declined by 40.9%, 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 WebOrder. 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. Total revenue increased 64.0% during the nine months ended
September 30, 1998, compared to the same period in 1997, which resulted in
increased income from operations in the first nine months 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 WebOrder and increasing demand for MACS
in Europe. In early 1999, management expects to make generally available its
nMACS 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 (iv) services consisting of consulting, training and
custom programming. System revenue, which
                                       22
<PAGE>   24
 
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 35.6%
of total revenue during the nine months ended September 30, 1998, and increased
49.7% from the nine months ended September 30, 1997. System upgrades represented
39.0% of total revenue for the nine months ended September 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 believes that computer hardware upgrades are generally
performed during the one to two-year period following a new sale. During 1993
and 1994, the Company experienced a high level of new customer revenue,
resulting in substantial upgrades in 1995 and 1996. In 1995 and 1996, new
customer revenue declined substantially, thus causing hardware and software
upgrade revenue to decline in fiscal 1997 and the nine months ended September
30, 1998. The Company believes that upgrades are dictated solely by the business
requirements of individual clients and, therefore, the Company is unable to
accurately predict or explain the actual mix between software and hardware
upgrades.
 
   
     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 when the
hardware and software has been delivered and installed, the fee is fixed and
determinable and the 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.
 
     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.
 
                                       23
<PAGE>   25
 
     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 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>
                                                                                      NINE MONTHS
                                                                                         ENDED
                                                          YEAR ENDED DECEMBER 31,    SEPTEMBER 30,
                                                          -----------------------    --------------
                                                          1995     1996     1997     1997     1998
                                                          -----    -----    -----    -----    -----
<S>                                                       <C>      <C>      <C>      <C>      <C>
Revenue:
  Computer software.....................................   26.5%    32.0%    27.2%    29.3%    34.8%
  Computer hardware.....................................   54.7     39.8     43.7     43.0     39.8
  Support...............................................   13.4     21.8     22.0     20.3     15.4
  Services..............................................    5.4      6.4      7.1      7.4     10.0
                                                          -----    -----    -----    -----    -----
         Total revenue..................................  100.0    100.0    100.0    100.0    100.0
Cost of sales and services:
  Computer software.....................................    3.2      3.2      8.1      6.9      7.8
  Computer hardware.....................................   42.5     31.3     32.2     32.7     29.5
  Support...............................................   10.0     17.0     17.5     15.0      9.2
  Services..............................................    4.1      4.9      5.9      5.3      6.5
                                                          -----    -----    -----    -----    -----
         Total cost of sales and services...............   59.8     56.4     63.7     59.9     53.0
                                                          -----    -----    -----    -----    -----
Gross profit............................................   40.2     43.6     36.3     40.1     47.0
Operating expenses:
  General and administrative............................   12.9     25.8     24.5     20.6     18.8
  Research and development..............................    8.7     12.2     10.8      9.6      6.6
  Sales and marketing...................................    2.1      5.3      7.9      7.1      6.7
                                                          -----    -----    -----    -----    -----
         Total operating expenses.......................   23.7     43.3     43.2     37.3     32.1
Income (loss) from operations...........................   16.5      0.3     (6.9)     2.8     14.9
Other income (expense):
  Interest expense:
    Interest on outstanding debt........................   (4.8)    (6.5)    (8.0)    (7.0)    (5.5)
    Amortization of original issue discount.............   (5.5)    (7.4)    (3.6)    (4.5)      --
  Interest income.......................................    0.5      0.2      0.6      0.6      0.3
                                                          -----    -----    -----    -----    -----
         Total interest expense, net....................   (9.8)   (13.7)   (11.0)   (10.9)    (5.2)
                                                          -----    -----    -----    -----    -----
Net income (loss) before pro forma income tax (expense)
  benefit...............................................    6.7    (13.4)   (17.9)    (8.1)     9.7
Pro forma provision for income tax (expense) benefit....   (4.6)     1.9      5.1      2.1     (4.3)
                                                          -----    -----    -----    -----    -----
Pro forma net income (loss).............................    2.1%   (11.5)%  (12.8)%   (6.0)%    5.4%
                                                          =====    =====    =====    =====    =====
</TABLE>
    
 
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
 
     Computer Software.  Sales of computer software licenses accounted for
approximately 34.8% of the Company's total revenue for the nine months ended
September 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.
                                       24
<PAGE>   26
 
   
Computer software license fees are based on the number of users and type and
number of CPUs. The Company periodically updates or modifies its software
pricing in response to changes in market conditions or costs of sale. Effective
July 1, 1998, the Company changed its MACS software pricing from a tier-based
(by CPU and number of users) to a user based structure with a provision for
additional license fees for multiple CPUs. This was done to enable the Company's
clients to more accurately forecast future license upgrade costs and facilitate
new client sales. The Company cannot predict what effect, if any, this pricing
change will have on MACS software license revenues. Computer software license
fees increased 95.1% to $8.6 million during the nine months ended September 30,
1998 compared to $4.4 million for the same period in 1997. This improvement
resulted from an increase in computer software sales to both new and existing
clients including material contracts with United States Mint in the second
quarter of 1998 and Multiple Zones in the third quarter of 1998. These two
contracts amounted to 37.4% of revenue for the nine months ended September 30,
1998. The Company does not believe the pricing change had a material effect on
this increase in computer software revenue. New client computer software sales
increased from $2.6 million for the nine months ended September 30, 1997 to $3.9
million for the same period in 1998, and computer software upgrades increased
from $1.8 million to $4.7 million for the same time period.
    
 
   
     Computer Hardware.  Sales of computer hardware accounted for approximately
39.8% of the Company's total revenue for the nine months ended September 30,
1998. Sales of computer hardware consists of sales of computer systems,
peripheral components and third-party software. Computer hardware revenue
increased 51.8% to $9.9 million for the nine months ended September 30, 1998,
compared to $6.5 million for the nine months ended September 30, 1997. Computer
hardware revenue relating to new client sales increased 49.5% to $4.9 million
for the nine months ended September 30, 1998, compared to $3.3 million for the
same period in 1997. This increase resulted from increases in new system sales.
Computer hardware upgrades increased by 54.2% to $5.0 million for the nine
months ended September 30, 1998, compared to $3.2 million for the same period in
1997. The increase in 1998 resulted from many of the Company's larger clients
performing major system upgrades.
    
 
     Support.  Support revenue accounted for approximately 15.4% of the
Company's total revenue during the nine months ended September 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 17% of the underlying license fee each year.
Support revenue increased 24.6% to $3.8 million during the nine months ended
September 30, 1998, compared to $3.1 million for the nine months ended September
30, 1997. The increase resulted from the addition of new clients in the last
half of 1997 and the first nine months of 1998, as well as support fee increases
related to software user license upgrades.
 
     Services.  Services revenue accounted for approximately 10.0% of the
Company's revenue for the nine months ended September 30, 1998. Services revenue
consists principally of revenue derived from training, consulting, and custom
programming. Services revenue increased 119.4% to $2.5 million in the nine
months ended September 30, 1998, compared to $1.1 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 64.0% to $24.7 million for the nine
months ended September 30, 1998, compared to $15.1 million in 1997. New client
sales increased 49.7% to $8.8 million from $5.9 million for the nine months
ended September 30, 1997. The increase was due to higher average revenue per
installation than during nine the months ended September 30, 1997 as a result of
a material contract with the United States Mint. Revenue from client system and
component upgrades increased by 92.3% to $9.7 million for the nine months ended
September 30, 1998, compared to $5.0 million for the same period in 1997 due to
increased new client sales in 1997 and clients performing major system upgrades.
    
 
                                       25
<PAGE>   27
 
     Cost of Computer Software.  Cost of computer software, which includes
installation and training salaries directly related to new software sales and
subcontractor fees, increased 85.2% to $1.9 million during the nine months ended
September 30, 1998, compared to $1.0 for the nine months ended September 30,
1997. The increase resulted from higher personnel costs related to increased
installations of new systems and sales to new clients. Cost of computer software
as a percentage of total revenue increased to 7.8% from 6.9% for the nine months
ended September 30, 1997. Cost of computer software as a percentage of software
license fees decreased to 22.4% from 23.6% for the nine months ended September
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 48.3% to $7.3 million for the nine months ended September 30, 1998,
compared to $4.9 million for the same period in 1997. This increase was related
to the 51.8% increase in computer hardware revenue from the nine months ended
September 30, 1997. Costs of computer hardware as a percentage of total revenue
decreased to 29.5% from 32.7% for the nine months ended September 30, 1997, due
primarily to a shift in sales mix reducing the relative contribution of computer
hardware sales. Costs of computer hardware as a percentage of computer hardware
revenue decreased to 74.2% from 76.0% for the nine months ended September 30,
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 sales 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 remained consistent at $2.3 million for the nine
month periods ended September 30, 1998 and September 30, 1997. Cost of support
as a percentage of total revenue decreased to 9.2% from 15.0% for the nine
months ended September 30, 1997. Cost of support as a percentage of support
revenue decreased to 59.8% from 74.1% for the same period in 1997. The reduction
resulted from additional support fees from new clients and increased utilization
of existing 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 99.5% to $1.6 million during the nine months
ended September 30, 1998, compared to $806,000 for the nine months ended
September 30, 1997. The 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 6.5% from 5.3% for the nine months ended September
30, 1997. Cost of services as a percentage of services revenue decreased to
65.2% from 71.7% for the nine months ended September 30, 1997. The 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 45.1% to $13.1 million for the nine months ended September 30,
1998, compared to $9.0 million during the first nine months of 1997. This
increase resulted primarily from higher hardware cost in the amount of $2.4
million associated with increased hardware sales, and $1.6 million in additional
personnel cost associated with sales growth during 1998.
    
 
   
     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 49.8% to
$4.6 million for the nine months ended September 30, 1998, compared to $3.1
million during the first nine months of 1997. This increase was primarily due to
$800,000 of expenses associated with new offices in the United Kingdom and
Australia which were opened during the second half of 1997, $270,000 in
additional personnel cost
    
 
                                       26
<PAGE>   28
 
   
due to increases in administrative personnel related to an expanding workforce
and client base, and $400,000 of additional communication, equipment and office
expenses as a result of more employees. General and administrative expenses as a
percentage of total revenue decreased to 18.8% for the nine months ended
September 30, 1998 from 20.6% for the nine months ended September 30, 1997.
    
 
     Research and Development.  Research and development expenses include costs
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 13.4% to $1.6 million during the nine months ended September 30, 1998,
compared to $1.4 for the nine months ended September 30, 1997. This increase was
primarily due to ongoing development of the WebOrder, UNIX and Windows NT
products and existing product enhancements. Research and development costs as a
percentage of total revenue decreased to 6.6% for the nine months ended
September 30, 1998 from 9.6% nine months ended September 30, 1997. Research and
Development expenses as a percentage of computer software license fees were
19.0% for the nine months ended September 30, 1998 and 32.7% for the same period
in 1997.
 
     Sales and Marketing.  Sales and marketing expenses include personnel costs,
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
55.1% to $1.7 million for the nine months ended September 30, 1998, compared to
$1.1 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 decreased to 6.7% for the nine months ended September 30, 1998 from 7.1%
for the nine months ended September 30, 1997.
 
     Income (Loss) from Operations.  As a result of the foregoing factors, the
Company's income from operations increased by $3.2 million to $3.7 million for
the nine months ended September 30, 1998 as compared to $435,000 for the nine
months ended September 30, 1997.
 
   
     Other Income (Expense), Net.  Net interest expense, which includes interest
on the Convertible Debentures, amortization of original discount ("OID") related
to the conversion feature of the Convertible Debentures and interest income on
available cash, decreased 22.1% to $1.3 million during the nine months ended
September 30, 1998, compared to $1.6 million in 1997. The decrease was due to a
reduction of OID which was fully amortized as of June 30, 1997. No OID
amortization was recorded during the nine months ended September 30, 1998. 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 nine months ended September 30, 1998 was a provision of 43.8% compared
to a benefit of 25.8% for the nine months ended September 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 income increased by $2.2 million to $1.3 million from a
loss of $899,000 for the same period in 1997.
    
 
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
 
     Computer Software. Computer software fees decreased 14.3% to $5.1 million
for the year ended December 31, 1997, compared to $5.9 million for the year
ended December 31, 1996. This change was due to a decrease in revenue from
system upgrades of $2.0 million from $4.1 million in 1996 to $2.1 million in
1997, and an increase in new client sales of $1.1 million from $1.9 million in
1996 to $3.0 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.
 
                                       27
<PAGE>   29
 
   
     Computer Hardware. Computer hardware revenue increased 10.5% to $8.1
million in 1997, compared to $7.4 million in 1996. Computer hardware revenue
relating to new client sales increased 157.6% to $4.5 million for the year ended
December 31, 1997, compared to $1.7 million in 1996. Revenue from hardware
upgrades decreased by 34.9% to $3.7 million for the year ended December 31,
1997, compared to $5.6 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 1996. 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.
 
   
     Total Revenue. Total revenue increased 0.7% to $18.7 million in 1997,
compared to $18.5 million in 1996. New client sales increased 107.2% 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 40.9% 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 157.3% to
$1.5 million in 1997, compared to $584,000 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 8.1% from 3.2%
for the year ended December 31, 1996. Cost of computer software as a percentage
of computer software revenue increased to 29.6% from 9.9% 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 3.5% to
$6.0 million during the year ended December 31, 1997, compared to $5.8 million
in 1996. This increase was related to the 10.5% increase in computer hardware
revenue from 1996. Cost of computer hardware as a percentage of total revenue
increased to 32.2% from 31.3% in 1996. Cost of computer hardware as a percentage
of computer hardware revenue decreased to 73.8% from 78.8% for the year ended
December 31, 1996. 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 17.0% 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 75.9% 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 of
$285,000 offset by increased expenses associated with new offices in the United
Kingdom and Australia totaling $300,000, and $185,000 relating to other
    
 
                                       28
<PAGE>   30
 
   
administrative expenses. The significant account receivable write-offs in 1997
were primarily attributable to (i) a $382,000 write off of remaining outstanding
invoices and advances to a former distributor of the Company's products and (ii)
an additional $103,000 write off based on a year-end analysis of outstanding
accounts receivable. 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
39.6% in 1997, compared to 38.0% 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 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 18.4% to
$2.1 million in 1997, compared to $2.5 million in 1996. This decrease was due to
a reduction of OID which was fully amortized as of June 30, 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 28.2% compared to a
benefit of 14.7% 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
$329,000 to $2.4 million from $2.1 million in 1996.
    
 
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
 
     Computer Software. Computer software license fees decreased 10.0% to $5.9
million in 1996, compared to $6.6 million in 1995. While new client computer
software revenue increased by $470,000 during 1996, computer software license
fees relating to upgrades decreased by $1.1 million.
 
   
     Computer Hardware. Computer hardware revenue decreased 46.0% to $7.4
million in 1996, compared to $13.6 million in 1995. Computer hardware revenue
relating to new client sales decreased 23.6% from $2.3 million in 1995 to $1.7
million in 1996. Computer hardware upgrades decreased by 50.5% from $11.4
million in 1995 to $5.6 million in 1996. Computer hardware revenue decreased in
1996 due to fewer client upgrades and reduction in the cost of hardware
components.
    
 
                                       29
<PAGE>   31
 
     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 41.5% 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 27.6% to
$584,000 in 1996, compared to $808,000 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 software as a percentage
of total revenue remained the same at 3.2% for 1996 and 1995. Cost of computer
software as a percentage of computer software revenue decreased to 9.9% from
12.2% in 1995.
 
     Cost of Computer Hardware. Cost of computer hardware decreased 45.3% to
$5.8 million in 1996, compared to $10.6 million in 1995. This decrease was
primarily due to the 46.0% decrease in hardware revenue from 1995. Cost of
computer hardware as a percentage of total revenue decreased to 31.3% from 42.5%
in 1995. Cost of computer hardware as a percentage of computer hardware revenue
increased to 78.8% from 77.8% 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. The expense accruals for bad debt in 1996 were attributable
to a $240,000 reserve for outstanding invoices and advances to a former
distributor of the Company's products, and an additional $363,000 relating to
the Company's year-end analysis of outstanding accounts receivable. 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
 
                                       30
<PAGE>   32
 
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 12.2% 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 38.0% in 1996,
compared to 32.9% 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.
 
   
     Other Income (Expense), Net. Net interest expense increased 3.5% to $2.5
million in 1996, compared to $2.4 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 14.7% compared to a provision of 69.5% 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 $508,000 in 1995 compared to a loss of $2.1 million in 1996.
    
 
                                       31
<PAGE>   33
 
QUARTERLY INFORMATION
 
     The following table sets forth certain unaudited financial data for each of
the Company's last seven 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,   SEP. 30,
                                        1997       1997       1997       1997       1998       1998       1998
                                      --------   --------   --------   --------   --------   --------   --------
                                                                    (IN THOUSANDS)
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>        <C>
Revenue:
  Computer software.................   $1,103     $2,335     $  978    $   667    $ 2,077    $ 2,572    $  3,967
  Computer hardware.................    1,685      3,383      1,421      1,655      1,717      3,359       4,778
  Support...........................    1,061        972      1,031      1,036      1,220      1,214       1,383
  Services..........................      302        180        641        201        517        984         962
                                       ------     ------     ------    -------    -------    -------    --------
         Total revenue..............    4,151      6,870      4,071      3,559      5,531      8,129      11,090
Cost of sales and services:
  Computer software.................      318        348        376        462        571        703         656
  Computer hardware.................    1,318      2,620        990      1,081      1,312      2,546       3,451
  Support...........................      727        716        827      1,001        720        740         822
  Services..........................      279        255        272        299        427        579         601
                                       ------     ------     ------    -------    -------    -------    --------
         Total cost of sales and
           services.................    2,642      3,939      2,465      2,843      3,030      4,568       5,530
                                       ------     ------     ------    -------    -------    -------    --------
Gross profit........................    1,509      2,931      1,606        716      2,501      3,561       5,560
Operating expenses:
  General and administrative........      821      1,275      1,006      1,465      1,407      1,510       1,729
  Research and development..........      424        459        561        567        485        576         577
  Sales and marketing...............      350        391        325        416        521        554         579
                                       ------     ------     ------    -------    -------    -------    --------
         Total operating expenses...    1,595      2,125      1,892      2,448      2,413      2,640       2,885
                                       ------     ------     ------    -------    -------    -------    --------
(Loss) income from operations.......      (86)       806       (286)    (1,732)        88        921       2,675
Other income (expense):
Interest expense:
  Interest on outstanding debt......     (300)      (300)      (450)      (450)      (450)      (450)       (450)
  Amortization of original issue
    discount........................     (340)      (340)        --         --         --         --          --
  Interest income...................       19         30         35         25         16         20          32
                                       ------     ------     ------    -------    -------    -------    --------
         Total interest expense,
           net......................     (621)      (610)      (415)      (425)      (434)      (430)       (418)
                                       ------     ------     ------    -------    -------    -------    --------
Net (loss) income...................     (707)       196       (701)    (2,157)      (346)       491       2,257
Pro forma income tax benefit
  (expense).........................      172        (84)       224        636        215       (198)     (1,070)
                                       ------     ------     ------    -------    -------    -------    --------
Pro forma net (loss) income.........   $ (535)    $  112     $ (477)   $(1,521)   $  (131)   $   293    $  1,187
                                       ======     ======     ======    =======    =======    =======    ========
</TABLE>
    
 
                                       32
<PAGE>   34
 
   
<TABLE>
<CAPTION>
                                                                       QUARTER ENDED
                                         --------------------------------------------------------------------------
                                         MAR. 31,   JUNE 30,   SEP. 30,   DEC. 31,   MAR. 31,   JUN. 30,   SEP. 30,
                                           1997       1997       1997       1997       1998       1998       1998
                                         --------   --------   --------   --------   --------   --------   --------
<S>                                      <C>        <C>        <C>        <C>        <C>        <C>        <C>
Revenue:
  Computer software....................    26.6%      34.0%      24.0%      18.8%      37.5%      31.7%      35.8%
  Computer hardware....................    40.5       49.3       34.9       46.5       31.0       41.3       43.1
  Support..............................    25.6       14.1       25.3       29.1       22.1       14.9       12.5
  Services.............................     7.3        2.6       15.8        5.6        9.4       12.1        8.6
                                          -----      -----      -----      -----      -----      -----      -----
         Total revenue.................   100.0      100.0      100.0      100.0      100.0      100.0      100.0
Cost of sales and services:
  Computer software....................     7.7        5.1        9.2       13.0       10.3        8.7        5.9
  Computer hardware....................    31.7       38.1       24.3       30.4       23.7       31.3       31.1
  Support..............................    17.5       10.4       20.3       28.1       13.0        9.1        7.4
  Services.............................     6.7        3.7        6.8        8.4        7.7        7.1        5.4
                                          -----      -----      -----      -----      -----      -----      -----
         Total cost of sales and
           services....................    63.6       57.3       60.6       79.9       54.7       56.2       49.8
                                          -----      -----      -----      -----      -----      -----      -----
Gross profit...........................    36.4       42.7       39.4       20.1       45.3       43.8       50.2
Operating expenses:
  General and administrative...........    19.8       18.6       24.7       41.2       25.4       18.6       15.6
  Research and development.............    10.2        6.7       13.8       15.9        8.8        6.8        5.2
  Sales and marketing..................     8.4        5.7        8.0       11.7        9.4        7.1        5.2
                                          -----      -----      -----      -----      -----      -----      -----
         Total operating expenses......    38.4       31.0       46.5       68.8       43.6       32.5       26.0
                                          -----      -----      -----      -----      -----      -----      -----
(Loss) income from operations..........    (2.0)      11.7       (7.1)     (48.7)       1.7       11.3       24.2
 
Other income (expense):
 
Interest expense:
  Interest on outstanding debt.........     7.2        4.4       11.1       12.6        8.1        5.5        4.1
  Amortization of original issue
    discount...........................     8.2        4.9         --         --         --         --         --
  Interest income......................    (0.5)      (0.4)      (0.9)      (0.7)      (0.3)      (0.2)      (0.3)
                                          -----      -----      -----      -----      -----      -----      -----
         Total interest expense, net...    14.9        8.9       10.2       11.9        7.8        5.3        3.8
                                          -----      -----      -----      -----      -----      -----      -----
Net (loss) income......................   (16.9)       2.8      (17.3)     (60.6)      (6.1)       6.0       20.4
Pro forma income tax benefit
  (expense)............................     4.1       (1.2)       5.5       17.9        3.9       (2.4)      (9.6)
                                          -----      -----      -----      -----      -----      -----      -----
Pro forma net (loss) income............   (12.8)%     (1.6)%    (11.8)%    (42.7)%     (2.2)%      3.6%      10.8%
                                          =====      =====      =====      =====      =====      =====      =====
</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) March 31, 2000. In order to maintain sufficient working capital for the
Company's needs, the Company has agreed with
    
 
                                       33
<PAGE>   35
 
   
the Lenders to defer all interest and principal payments due or payable through
the earlier of (i) the consummation of an initial public offering or (ii) March
31, 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 OID on the loan being amortized from the date of
issuance through June 30, 1997. Non-cash interest expense related to the
amortization of the OID was $1,378,276, $1,378,276 and $679,697 in 1995, 1996
and 1997, respectively. See Note 6(b) of Notes to Consolidated Financial
Statements.
    
 
     During the past three fiscal years and the nine month period ended
September 30, 1998, the Company has financed its operations and growth with
funds generated by operations. At September 30, 1998, the Company's primary
sources of liquidity consisted of cash, cash equivalents and short-term
investments totaling $3.6 million.
 
   
     The Company's operating activities have provided cash for the nine months
ended September 30, 1998 and years ended December 31, 1997, 1996 and 1995 of
$4.4 million, $543,000, $87,000, and $3.2 million, respectively. For the nine
months ended September 30, 1998, the Company's operating cash was provided by
net income, 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 $522,000, $234,000,
$251,000, and $360,000 for the nine months ended September 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.
    
 
   
     For the nine months ended September 30, 1998, cash used in financing
activities totaled $445,000, which consisted of distributions to stockholders
and deferred offering costs. 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. The distributions during
the year were comprised of amounts totaling $12 million made in accordance with
the terms of the Convertible Debentures, and other distributions totaling $3.3
million based on the Company's estimated net income for 1995. Historically, as
an S Corporation, the Company has distributed all profits earned during the year
to its shareholders. The Company made distributions in excess of shareholders'
equity because the cash was available for such purpose. Such distributions have
not affected the Company's ability to meet its current obligations.
    
 
   
     As of September 30, 1998, the Company had working capital of approximately
$3.1 million 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 September 30, 1998, resulted primarily from an
increase in current assets of $7.5 million due to cash generated from operations
and increases in accounts receivable and inventory, offset by an increase in
current liabilities of $4.4 million due to increases in accounts payable,
accrued expenses and deferred revenue. Accounts receivable increased by
approximately $3.5 million from December 31, 1997 to
    
 
                                       34
<PAGE>   36
 
   
September 30, 1998, and by $3.9 million as compared to September 30, 1997. This
increase was primarily attributable to three large upgrade sales in September
totaling $3.4 million and increasing sales by the Company's UK office. Deferred
revenue increased by approximately $1.3 million from December 31, 1997 to
September 30, 1998 and increased by $1.4 million from September 30, 1997. The
increase for the period ending September 30, 1998 compared to the 1997 period
was primarily due to higher new client sales activity in 1998. Deferred revenue
represents amounts billed to clients for which revenue may not be recognized.
The Company anticipates accounts receivable associated with the three large
upgrade sales to be paid in full by January 15, 1999. Deferred revenue as of
September 30, 1998 had been recognized at December 31, 1998. 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.
    
 
     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
nine months ended September 30, 1998, the Company increased software revenue due
to certain major contracts that were entered into in 1998 and to system
upgrades. 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 and to system upgrades, 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 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 provider and
incorporated into MACS to provide general ledger and accounts payable functions.
 
     The Company's MACS products have been determined to be fully Year 2000
compliant, except for the GTS program. The Company performed tests of all major
functionality within the MACS family of software products, specifically those
areas which utilize date fields. GTS provided Year 2000 compliant code to the
Company in September 1998. With respect to the GTS programs, the
 
                                       35
<PAGE>   37
 
Company has identified all changes necessary to integrate the Year 2000
compliant code into MACS. The Company has completed the internal functional
specifications for the necessary changes and expects them to be incorporated
into a new version of MACS to be released in early 1999. The Company anticipates
total expenditures for time and materials to implement such changes to be less
than $40,000. In the event that the Company is unable to remedy the Year 2000
issue with respect to the GTS programs prior to January 1, 2000, the Company may
be subject to liability in the event that any defects occur in MACS.
 
     The Company has also reviewed all material vendor systems for Year 2000
compliance and, except as indicated below, either confirmed that these systems
are Year 2000 compliant or obtained Year 2000 compliance statements from the
respective vendor. All of the Company's network software is Year 2000 compliant
except NT Server 4.0, Backoffice Server and Raptor Firewall. All of the
Company's desktop software is Year 2000 complaint except Windows 95, Visual C++,
Visual Basic and Word 6.0. With respect to such noncompliant software, the
Company expects to obtain updated revisions which are compliant early in 1999.
The Company anticipates total expenditures for time and materials to make such
systems Year 2000 compliant to be approximately $10,000. In addition, the
Company has reviewed all of its internal systems including its hardware and
software systems, its embedded systems, networks, accounting systems, and
development, testing, training and demonstration platforms for Year 2000
compliance. The Company has upgraded all internal systems to Year 2000 compliant
operating system versions where compliance statements were not provided for such
systems. There were no material costs incurred by the Company in connection with
testing its vendor or internal systems. All of the Company's non-IT systems are
Year 2000 compliant. Any failure of the Company or its suppliers or clients to
be Year 2000 compliant, however, 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 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
 
                                       36
<PAGE>   38
 
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.
 
                                       37
<PAGE>   39
 
                                    BUSINESS
 
GENERAL
 
     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 manufacturers, 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.
 
     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, manufacturers 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.
WebOrder, 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. WebOrder incorporates both the functionality and scalability
of MACS II and MACS III. The Company's solutions are used by more than 200
clients located primarily in North America, Europe and Australia.
 
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
 
                                       38
<PAGE>   40
 
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
                                       39
<PAGE>   41
 
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 WebOrder 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. WebOrder 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. WebOrder 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. The current MACS customer base is presently limited to buying MACS on
either HP 3000 computer systems or on any platform that supports Microsoft's NT
operating system. The development phase for MACS on UNIX operating system
platforms is expected to be completed by the end of 1999. The Company believes
that the entire non-store market can be addressed by its present platforms,
because NT platforms address the lower end of the market and the HP 3000
platform addresses the mid to large tier clients.
 
                                       40
<PAGE>   42
 
     High Volume Internet Commerce Capability. WebOrder 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. WebOrder 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.
 
     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 WebOrder to existing customers, new Internet retailers
and other Internet commerce participants. WebOrder, 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 WebOrder
to more than 35 clients including companies such as Cyberian Outpost and Hickory
Farms.
 
     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 nMACS, 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
nMACS and WebOrder. The Company also intends to add offices in Western Europe
and to hire additional sales personnel to service international markets.
 
                                       41
<PAGE>   43
 
     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.
 
     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 WebOrder 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.
 
WEBORDER   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>
 
                                       42
<PAGE>   44
 
     The prices of MACS II, MACS III, WebOrder and EuroMACS range from $30,000
to $2.7 million, depending on the number of users and CPUs required.
 
     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. WebOrder 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.
 
                                       43
<PAGE>   45
 
  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.
 
NMACS           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 200 clients. The following is a
representative list of the Company's clients as of November 30, 1998 generally
categorized by industry segment:
 
<TABLE>
<S>                                                    <C>
 
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 18.6% of
the Company's revenue. In 1996, the Company's three largest clients, QVC
Network, Inc., Micro Warehouse and Coldwater Creek, Inc. accounted for 21.2% of
the revenue of the Company, with QVC Network, Inc. accounting for 10.7% of such
revenue. For
    
 
                                       44
<PAGE>   46
 
the nine months ended September 30, 1998, the United States Mint was responsible
for approximately 11.8% and Multiple Zones was responsible for 10.4% 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 32 installations of MACS products in 1997. The
Company completed 46 installations in 1998, based on the Company's receipt of a
signed contract or a letter of intent accompanied by a cash deposit of at least
10% of the purchase price under the proposed contract.
    
 
     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 170 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 at
17% 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.
 
                                       45
<PAGE>   47
 
     As of September 30, 1998, the Company employed 100 client support services
personnel, consisting of 27 implementation, 56 standard support and 17 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.
                                       46
<PAGE>   48
 
     As of September 30, 1998, the Company employed 28 sales and marketing
personnel (24 domestically and 4 internationally), consisting of 14 sales
representatives and 14 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 September 30, 1998, the research and development staff consisted of
56 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

                                       47
<PAGE>   49
 
1997 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
WEBORDER. 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

                                       48
<PAGE>   50
 
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
judgment with respect to its copyright infringement claim for one of the Robelle
products, but was denied summary judgment as to its claim for statutory damages
for such infringement and denied several of its damages claims. The matter is
scheduled to be tried in April 1999. The Company believes that the only matter
that remains to be litigated is the amount of actual damages, which the Company
believes is an immaterial amount. 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 wrongfully
terminated its VAR License Agreement with the Company and breached the terms
thereof. Robelle has denied any wrongdoing and the matter is in preliminary
stages of discovery, with the possible consolidation of this state court action
with the federal court action involving Robelle. 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 September 30, 1998, the Company had a total of 228 full-time
employees in the United States: 56 in product development, 24 in sales and
marketing, 34 in training and professional services, 100 in client support
services and 14 in management, administration and finance. In addition, as of
September 30, 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 annual rent under such lease is approximately
$390,000. The Company also leases office space in the United Kingdom and
Australia to house its operations abroad. The annual rent under such leases is
approximately $82,000 and $24,000, respectively. The Company also leases office
space in Boulder, Colorado and Plano, Texas for certain of its marketing and
sales activities. The annual rent under such leases is
    
 
                                       49
<PAGE>   51
 
   
$3,600 and $4,500, respectively. The aggregate annual facility lease payments of
the Company during the fiscal year ended December 31, 1998 was $493,296. The
Company is currently seeking additional facilities domestically and abroad to
accommodate additional marketing and sales activities, and believes that it will
be able to obtain such space on commercially reasonable terms.
    
 
                                       50
<PAGE>   52
 
                                   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.......................     53      Co-Chairman of the Board and Executive Vice
                                                      President -- Advanced Technologies
Wilburn W. Smith.......................     58      Co-Chairman of the Board and Executive Vice
                                                      President -- Sales
Gary G. Hegna..........................     58      President, Chief Executive Officer and Director
Martin K. Weinbaum.....................     37      Chief Financial Officer, Vice
                                                    President -- Finance
Timothy Edkin..........................     46      Vice President -- Product Development
Sharon Gardner.........................     32      Vice President -- Marketing
Deborah L. Longo.......................     39      Vice President -- Client Support Services
Francis H. Zenie.......................     64      Director
Jacqueline Morby.......................     61      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 April 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
 
                                       51
<PAGE>   53
 
roles for Xerox Corporation, Data General Corporation, Prime Computer
Incorporated and Encore Computer.
 
     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.
 
   
     Francis H. Zenie became a director of the Company in December 1998. From
1981 to September 1996, Mr. Zenie served as President, Chief Executive Officer
and a director of Zymark Corporation, a provider of laboratory automation
solutions. Mr. Zenie presently serves as a director of Cognitoy LLC, InSite
Marketing Technology, Inc., Kinematix Incorporated, Process Packaging & Control,
Inc., Sensors for Medicine and Science, Inc., SEQ Ltd. and PCI LabSolutions.
    
 
     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., HVL, Inc. and
Pacific Life Insurance Company.
 
   
     Mr. Zenie currently serves as the Company's only independent director.
Within 90 days after the date of this Prospectus, the Company will add one
additional independent director to its Board of Directors (the "Board"). To
date, the Company has not selected such director.
    
 
     Upon the completion of this Offering, the Board will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Following this Offering and the
                                       52
<PAGE>   54
 
   
appointment of the two independent directors, the Board will consist of two
Class I Directors (Ms. Morby and Mr. Zenie), two Class II Directors (Mr. Hegna
and the independent director 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.
    
 
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, $750 for each
meeting of the Board or any committee thereof in which they participate in
person, an initial grant of options to purchase 15,000 shares of Common Stock
pursuant to the 1998 Stock Option Plan at an exercise price of $4.53 per share
(or at the initial public offering price upon the consummation of this Offering
prior to July 1, 1999), and options to purchase 5,000 shares of Common Stock to
be awarded annually thereafter. See "Management -- Stock Option Plans."
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
   
     During the fiscal year ended December 31, 1998, the Company had no
Compensation Committee or other committee of the Board performing similar
functions. Decisions concerning compensation of executive officers were made by
the Board of Directors of the Company consisting of Messrs. Gardner, Hegna and
Smith. It is contemplated that the Board will establish a Compensation Committee
consisting of non-employee directors following consummation of this Offering.
Messrs. Smith and Gardner each loaned $100,000 to the Company, which loans were
repaid in full in 1997. See "Certain Transactions."
    
 
                                       53
<PAGE>   55
 
EXECUTIVE COMPENSATION
 
   
     The following table presents certain information concerning compensation
paid or accrued by the Company for services rendered during the fiscal years
ended December 31, 1998 and 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           YEAR    SALARY     BONUS      OPTIONS      COMPENSATION(2)
- ---------------------------           ----   --------   -------   ------------   ---------------
<S>                                   <C>    <C>        <C>       <C>            <C>
Gary G. Hegna.......................  1998   $225,000   $82,000     200,000          $   --
President and Chief Executive         1997    225,000    50,000                         475
  Officer
Allan J. Gardner....................  1998    250,000        --          --              --
Executive Vice President -- Advanced  1997    250,000        --          --              --
  Technologies
Wilburn W. Smith....................  1998    250,000        --          --              --
Executive Vice President -- Sales     1997    250,000        --          --              --
Timothy Edkin.......................  1998    112,875        --      77,017(3)        3,787
Vice President -- Product             1997    107,811     3,000      20,375(4)          539
  Development
Sharon Gardner......................  1998    108,792        --     110,021(5)        3,658
Vice President -- Marketing           1997    104,965     5,000         361(4)
</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 113 options issued at an exercise price of $2.53 per share, and
    76,904 options issued at the initial public offering price.
    
   
(4) Consists of options issued under the 1996 Stock Option Plan at an exercise
    price of $2.53 per share.
    
   
(5) Consists of 105 options issued at an exercise price of $2.53 per share, and
    109,916 options issued at the initial public offering price.
    
 
                                       54
<PAGE>   56
 
  Option Grants in Last Fiscal Year
 
   
     The following table sets forth certain information for the fiscal year
ended December 31, 1998, 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(2)
                       UNDERLYING     EMPLOYEES       OR BASE    EXPIRATION   -----------------------
NAME                    OPTIONS     IN FISCAL YEAR   PRICE(1)       DATE          5%          10%
- ----                   ----------   --------------   ---------   ----------   ----------   ----------
<S>                    <C>          <C>              <C>         <C>          <C>          <C>
Gary G. Hegna........   200,000            29%              --        (3)     $2,932,010   $4,668,735
Allan J. Gardner.....        --            --               --        --              --           --
Wilburn W. Smith.....        --            --               --        --              --           --
Timothy Edkin........    77,017            12%              (4)       (5)      1,128,250    1,796,550
Sharon Gardner.......   110,021            16%              (6)       (7)      1,612,149    2,567,077
</TABLE>
    
 
- ---------------
 
   
(1) Except as otherwise indicated, the exercise price of all outstanding options
    granted in the fiscal year ended December 31, 1998 is the initial public
    offering price.
    
   
(2) 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. An assumed initial public offering price of 9.00 per share is used as
    the starting point in calculating the referenced 5% and 10% rates of
    appreciation.
    
   
(3) All 200,000 options expire on June 29, 2008.
    
   
(4) The exercise price for 113 shares of Common Stock subject to options granted
    in the fiscal year ended December 31, 1998 is $2.53 per share.
    
   
(5) Of the 77,017 options, 158 expire on December 14, 2008, 113 expire on April
    14, 2008, 116 expire on July 14, 2008, 118 expire on October 14, 2008 and
    76,512 expire on June 29, 2008.
    
   
(6) The exercise price for 105 shares of Common Stock subject to options granted
    in the fiscal year ended December 31, 1998 is $2.53 per share.
    
   
(7) Of the 110,021 options, 105 expire on April 14, 2008, 109,534 expire on June
    29, 2008, 108 expire on July 14, 2008, 118 expire on October 14, 2008 and
    156 expire on December 14, 2008.
    
 
  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, 1998.
    
 
               OPTION HOLDINGS AND FISCAL YEAR END OPTION VALUES
 
   
<TABLE>
<CAPTION>
                                    NUMBER OF SECURITIES                 VALUE OF UNEXERCISED
                                   UNDERLYING UNEXERCISED                IN-THE-MONEY OPTIONS
                                OPTIONS AT DECEMBER 31, 1998            AT DECEMBER 31, 1998(1)
                                -----------------------------        -----------------------------
NAME                            EXERCISABLE     UNEXERCISABLE        EXERCISABLE     UNEXERCISABLE
- ----                            -----------     -------------        -----------     -------------
<S>                             <C>             <C>                  <C>             <C>
Gary G. Hegna.................    339,708          354,413            2,197,908        2,293,049
Allan J. Gardner..............         --               --                   --               --
Wilburn W. Smith..............         --               --                   --               --
Timothy Edkin.................     12,202           88,190               78,945          570,591
Sharon Gardner................     27,634          122,749              178,789          794,183
</TABLE>
    
 
- ---------------
 
   
(1) There was no public trading market for the Common Stock as of December 31,
    1998. Accordingly, these values are based on the estimated fair market value
    of the Common Stock of $4.53 per share for options issued before June 30,
    1998, and the initial public offering price for options issued thereafter.
    
 
                                       55
<PAGE>   57
 
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
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 811,413
shares of Common Stock under the 1996 Stock Option Plan at December 31, 1998.
The exercise price of options to purchase 776,300 shares of such Common Stock is
$2.53 per share, while the exercise price of options to purchase the remaining
35,113 shares of such Common Stock is $4.53 per share (or the initial public
offering price upon the consummation of this Offering prior to July 1, 1999).
    
 
   
     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. As
of December 31, 1998, the Company has granted under the 1998 Stock Option Plan
options to purchase an aggregate of 602,041 shares of Common Stock at an
exercise price of $4.53 per share (or the initial public offering price upon the
consummation of this Offering prior to July 1, 1999). Options to purchase an
aggregate of 538,003 shares of Common Stock 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"). 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 standard non-competition
agreements with each of its executive officers except for Messrs. Smith and
Gardner who have executed separate non-competition agreements. The standard
agreements provide that during such executive officer's employment with the
Company, such executive officer 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. As to Messrs. Smith and Gardner,
each has agreed to not compete with the Company or solicit any employees of the
Company for three years following termination of employment with the Company.
 
                                       56
<PAGE>   58
 
                              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. 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." Notwithstanding the
expiration of these rights upon completion of this Offering, the Company and the
Lenders currently anticipate that Jacqueline Morby, the Managing Director of TA
Associates, Inc., will be elected as a director of the Company. Upon the
Debenture Conversion and prior to the consummation of this Offering, 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 this 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.
                                       57
<PAGE>   59
 
   
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 December 31, 1998, the estimated aggregate principal amount of the Promissory
Notes would have been approximately $850,000.
    
 
     In addition, the Existing Shareholders and the Company have entered 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 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 such Termination Date and decrease the Existing
Shareholders' tax liability for a taxable period ending prior to such
Termination Date.
 
     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.
 
                                       58
<PAGE>   60
 
                       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 December 31, 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    33.3%     200,000    2,300,000    20.0%
Wilburn W. Smith......................   2,500,000    33.3%     200,000    2,300,000    20.0%
Thomas Quigley (3)....................     351,100     4.6%      10,000      341,100     2.9%
Gary G. Hegna (4).....................     339,708     4.3%          --      339,708     2.9%
Martin K. Weinbaum (5)................      14,637       *           --       14,637       *
Timothy Edkin (6).....................      12,202       *           --       12,202       *
Sharon Gardner (7)....................      27,634       *           --       27,634       *
Deborah L. Longo (8)..................       7,521       *           --        7,521       *
TA Associates, Inc. (9)...............   2,171,028    28.9%          --    2,171,028    18.8%
Chestnut Capital International III
  Limited Partnership(10).............      84,586     1.1%          --       84,586       *
All directors and executive officers
  as a group (7 persons)..............   5,752,802    71.8%          --    5,342,802    44.5%
</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 2,171,028 shares of Common Stock issuable to TA
     Associates, Inc. and the 84,586 shares of Common Stock issuable to Chestnut
     Capital International III Limited Partnership in connection with the
     Concurrent Transactions are considered outstanding for the purpose of
     calculating percentage ownership of the listed parties.
 (3) Includes 88,000 shares of Common Stock subject to options which are
     exercisable prior to February 15, 1999.
 (4) Consists of 339,708 shares of Common Stock subject to options which are
     exercisable prior to February 15, 1999.
 (5) Consists of 14,637 shares of Common Stock subject to options which are
     exercisable prior to February 15, 1999.
 (6) Consists of 12,202 shares of Common Stock subject to options which are
     exercisable prior to February 15, 1999.
 
                                       59
<PAGE>   61
 
 (7) Consists of 27,634 shares of Common Stock subject to options which are
     exercisable prior to February 15, 1999.
 (8) Consists of 7,521 shares of Common Stock subject to options which are
     exercisable prior to February 15, 1999.
   
 (9) Includes (i)1,127,807 shares of Common Stock owned by Advent VII L.P., (ii)
     671,420 shares of Common Stock owned by Advent Atlantic and Pacific II
     Limited Partnership, (iii) 242,103 shares of Common Stock owned by Advent
     Industrial II Limited Partnership, (iv) 112,781 shares of Common Stock
     owned by Advent New York L.P., and (v) 16,917 shares of Common Stock owned
     by TA Venture Investors, L.P. Advent VII L.P., Advent Atlantic and Pacific
     II Limited Partnership, Advent Industrial II Limited Partnership, Advent
     New York L.P., and TA Venture Investors, L.P. are part of an affiliated
     group of investment partnerships referred to, collectively, as the TA
     Associates Group. The general partner of Advent VII, L.P. is TA Associates
     VII, L.P. The general partner of each of Advent New York L.P., and Advent
     Industrial II Limited Partnership is TA Associates VI, L.P. The general
     partner of Advent Atlantic and Pacific II Limited Partnership is TA
     Associates AAP II Partners, L.P. The general partner of each of TA
     Associates VII, L.P., TA Associates VI, L.P. and TA Associates AAP II
     Partners, L.P. is TA Associates, Inc. In such capacity, TA Associates, Inc.
     exercises sole voting and investment power with respect to all of the
     shares held of record by the named investment partnerships, with the
     exception of those shares held by TA Venture Investors, L.P.; individually
     no stockholder, director or officer of TA Associates, Inc. is deemed to
     have or share such voting or investment power. Principals and employees of
     TA Associates, Inc. (including Ms. Morby, a director of the Company)
     comprise the general partners of TA Venture Investors, L.P. In such
     capacity, Ms. Morby may be deemed to share voting and investment power with
     respect to the 16,917 shares held of record by TA Venture Investors, L.P.
     Ms. Morby disclaims beneficial ownership of all shares held of record by TA
     Venture Investors, L.P. with the exception of 2,447 shares. The address of
     TA Associates, Inc. is 175 High Street, Boston, Massachusetts 02110.
    
   
(10) Includes 84,586 shares of Common Stock held by Chestnut Capital
     International III Limited Partnership. Messrs. Jonathan J. Flemming,
     Michael F. Schiaro, Peter A. Schober and John A. Turner are the general
     partners of MVP Capital Limited Partnership ("MVP"). MVP has voting and
     investment power to act for Chestnut Capital International III L.P. The
     address of Chestnut Capital International III Limited Partnership is 175
     High Street, Boston, Massachusetts 02110.
    
 
                                       60
<PAGE>   62
 
                          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 by reference to the provisions of
applicable law and to the forms of the Company's Amended and Restated Articles
of Incorporation (the "Articles of Incorporation") and the Company's Bylaws, as
amended (the "Bylaws"), which will become effective upon the consummation of
this Offering and are filed as exhibits to the registration statement of which
this Prospectus is a part.
    
 
COMMON STOCK
 
   
     As of December 31, 1998, there were 5,263,100 shares of Common Stock
outstanding held by the three Selling 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 11,518,714 shares of Common Stock outstanding upon the consummation of
this Offering. In addition, as of December 31, 1998, there were outstanding
stock options to purchase an aggregate of 1,378,341 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
 
                                       61
<PAGE>   63
 
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 this 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 this 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 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 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 may be made only
upon delivery to the
    
 
                                       62
<PAGE>   64
 
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 has also applied for director and officer liability insurance
on behalf of its directors and officers.
 
CERTAIN ANTI-TAKEOVER EFFECTS
 
   
     The Articles of Incorporation and the 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 Bylaws 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 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 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 By-laws also
provide that any action required or permitted to be taken at a shareholders'
meeting may be taken without a meeting,
    
                                       63
<PAGE>   65
 
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 BankBoston, N.A.
    
 
                        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 11,518,714 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 4,410,000 shares sold in this 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 7,108,714 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 7,108,714 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. These exceptions consist of (i) the
prior written consent of BT Alex. Brown Incorporated, (ii) grants or awards of
shares of Common Stock authorized under the Plans at the time of the
effectiveness of the Registration Statement, (iii) bona fide gifts or similar
transfers or devises for estate planning, charitable and other related purposes,
in any such case only to persons who agree to be bound by the restrictions to
which the transferor is subject, and (iv) as consideration for future
acquisitions. 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 7,108,714 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-
    
 
                                       64
<PAGE>   66
 
   
up agreements, subject to the restrictions of Rule 144 applicable to affiliates
of the Company. Although BT Alex. Brown Incorporated has no intention of waiving
the lock-up restriction, in the event of such waiver, 7,108,714 shares of Common
Stock may be sold beginning 90 days after the effective date of this Offering.
    
 
   
     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 115,187 shares
immediately after this 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 this
Offering. Under Rule 701 under the Securities Act, persons who purchase shares
upon exercise of options granted prior to this Offering are entitled to sell
such shares 90 days after this 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
Plans. 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.
 
                                       65
<PAGE>   67
 
                                  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.............................................  4,410,000
                                                              =========
</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 661,500
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 4,410,000, 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 4,410,000 shares are being offered.
    
 
   
     To facilitate this 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 this 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.
 
   
     The Company has agreed that until 180 days after the date of this
Prospectus, it will not, without the prior written consent of BT Alex. Brown
Incorporated, sell, offer to sell, issue or otherwise
    
 
                                       66
<PAGE>   68
 
   
distribute any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock, subject to certain
limited exceptions. In addition, 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
Common Stock or any securities convertible into or exercisable or exchangeable
for shares of Common Stock for a period of 180 days after the date of this
Prospectus. These exceptions consist of: (i) the prior written consent of BT
Alex. Brown Incorporated, (ii) grants or awards of shares of Common Stock
authorized under the Plans at the time of the effectiveness of the Registration
Statement, (iii) bona fide gifts or similar transfers or devises for estate
planning, charitable and other related purposes, in any such case only to
persons who agree to be bound by the restrictions to which the transferor is
subject, and (iv) as consideration for future acquisitions.
    
 
     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.
 
   
     At the request of the Company, the Underwriters have reserved up to 5% of
the shares of Common Stock being offered hereby for sale at the initial public
offering price to certain employees of the Company, their business affiliates
and related parties who have expressed an interest in purchasing shares of
Common Stock in the Offering. Such purchases will be made under the same terms
and conditions as will be offered by the Underwriters in the Offering. There can
be no assurance that any of the reserved shares will be so purchased. Any
reserved shares not so purchased will be offered to the general public on the
same basis as the other shares of Common Stock offered hereby.
    
 
     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 as of September 30, 1998 and for each of the
years in the three-year period ended December 31, 1997 and for the nine months
ended September 30, 1998, have been included herein and in the Registration
Statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in auditing and accounting.
    
 
                                       67
<PAGE>   69
 
                             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.
 
                                       68
<PAGE>   70
 
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
                   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 September 30, 1998 and (unaudited) proforma balance
  sheet as of September 30, 1998............................      F-3
Consolidated Statements of Operations for each of the years
  in the three-year period ended December 31, 1997 and for
  the nine months ended September 30, 1998 and (unaudited)
  for the nine months ended September 30, 1997..............      F-4
Consolidated Statements of Redeemable Preferred Stock and
  Stockholders' Equity (deficit) for each of the years in
  the three-year period ended December 31, 1997 and nine
  months ended September 30, 1998...........................      F-5
Consolidated Statements of Cash Flows for each of the years
  in the three-year period ended December 31, 1997 and for
  the nine months ended September 30, 1998 and (unaudited)
  for the nine months ended September 30, 1997..............      F-6
Notes to Consolidated Financial Statements..................  F-7 -- F-21
Schedule of Valuation and Qualifying Accounts...............     F-22
</TABLE>
    
 
                                       F-1
<PAGE>   71
 
                          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 September 30, 1998 and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1997 and
for the nine months ended September 30, 1998, 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, presents fairly, in all material
respects, the information set forth therein.
    
 
   
/s/ KPMG LLP
    
 
Fort Lauderdale, Florida
   
January 6, 1999
    
 
                                       F-2
<PAGE>   72
 
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
   
<TABLE>
<CAPTION>
                                           DECEMBER 31,                                              PROFORMA
                                    --------------------------   SEPTEMBER 30,   PROFORMA[1(l)]    SEPTEMBER 30,
                                        1996          1997           1998          ADJUSTMENTS         1998
                                    ------------   -----------   -------------   ---------------   -------------
                                                                                   (UNAUDITED)      (UNAUDITED)
<S>                                 <C>            <C>           <C>             <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents.......  $     60,217       168,590      3,566,943               --        3,566,943
  Accounts receivable, net of
    allowance for doubtful
    accounts of $936,347 in 1996,
    $469,227 in 1997 and $515,080
    in 1998.......................     2,689,739     1,845,225      5,392,013               --        5,392,013
  Inventory.......................        12,866       219,963        700,981               --          700,981
  Prepaid expenses and other
    current assets................       165,449       135,382        164,458               --          164,458
                                    ------------   -----------    -----------      -----------      -----------
    Total current assets..........     2,928,271     2,369,160      9,824,395               --        9,824,395
Deferred offering costs...........            --            --        374,360               --          374,360
Property and equipment, net.......       683,590       685,319        969,815               --          969,815
Other assets......................        54,330        80,576         76,441               --           76,441
                                    ------------   -----------    -----------      -----------      -----------
                                    $  3,666,191     3,135,055     11,245,011               --       11,245,011
                                    ============   ===========    ===========      ===========      ===========
 
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable................  $    280,027       548,350      3,282,317               --        3,282,317
  Accrued expenses................     1,055,227     1,420,990      1,817,947               --        1,817,947
  Deferred revenue................       160,388       383,378      1,662,183               --        1,662,183
  Advances due to officers........       200,000            --             --               --               --
  Promissory notes................            --            --             --          850,000          850,000
                                    ------------   -----------    -----------      -----------      -----------
    Total current liabilities.....     1,695,642     2,352,718      6,762,447          850,000        7,612,447
Convertible debt..................    11,320,303    12,000,000     12,000,000      (12,000,000)              --
Accrued interest payable..........     1,200,000     2,700,000      4,050,000               --        4,050,000
                                    ------------   -----------    -----------      -----------      -----------
    Total liabilities.............    14,215,945    17,052,718     22,812,447      (11,150,000)      11,662,447
Redeemable preferred stock,
  10,000,000 shares authorized:
  Convertible participating
    preferred stock, $.01 par
    value; none issued............            --            --             --               --               --
  Redeemable preferred stock,
    $.01 par value, none issued
    and (unaudited) proforma
    issued and outstanding 12,000
    shares at $1,000 per share
    preference value..............            --            --             --       12,000,000       12,000,000
Commitments and contingencies
  (notes 4 and 12)
Stockholders' deficit:
  Common stock, $0.01 par value.
    Authorized 50,000,000 shares;
    issued and outstanding
    5,263,100 shares and
    (unaudited) proforma issued
    and outstanding 7,518,714
      shares......................        52,631        52,631         52,631           22,556           75,187
  Additional paid-in capital......     3,481,562     3,481,562      3,500,582          (22,556)       3,478,026
  Accumulated deficit.............   (14,083,947)  (17,451,856)   (15,120,649)        (850,000)     (15,970,649)
                                    ------------   -----------    -----------      -----------      -----------
    Total stockholders' deficit...   (10,549,754)  (13,917,663)   (11,567,436)        (850,000)     (12,417,436)
                                    ------------   -----------    -----------      -----------      -----------
                                    $  3,666,191     3,135,055     11,245,011               --       11,245,011
                                    ============   ===========    ===========      ===========      ===========
</TABLE>
    
 
See accompanying notes to consolidated financial statements.
 
                                       F-3
<PAGE>   73
 
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED
                                                 YEAR ENDED DECEMBER 31,                     SEPTEMBER 30,
                                        -----------------------------------------      --------------------------
                                           1995           1996           1997             1997           1998
                                        -----------    -----------    -----------      -----------    -----------
                                                                                       (UNAUDITED)
<S>                                     <C>            <C>            <C>              <C>            <C>
Revenue:
  Computer software...................  $ 6,593,819      5,932,255      5,083,442        4,416,392      8,615,378
  Computer hardware...................   13,641,345      7,370,088      8,144,206        6,489,102      9,852,980
  Support.............................    3,343,216      4,037,966      4,100,488        3,064,321      3,816,666
  Services............................    1,350,417      1,188,468      1,324,074        1,123,136      2,463,658
                                        -----------    -----------    -----------      -----------    -----------
    Total revenue.....................   24,928,797     18,528,777     18,652,210       15,092,951     24,748,682
                                        -----------    -----------    -----------      -----------    -----------
Cost of sales and services:
  Computer software...................      807,721        584,493      1,504,002        1,042,021      1,929,781
  Computer hardware...................   10,607,022      5,804,615      6,009,813        4,928,800      7,309,016
  Support.............................    2,490,514      3,141,395      3,271,268        2,270,114      2,282,286
  Services............................    1,016,342        902,077      1,104,195          805,611      1,606,872
                                        -----------    -----------    -----------      -----------    -----------
    Total cost of sales and
      services........................   14,921,599     10,432,580     11,889,278        9,046,546     13,127,955
                                        -----------    -----------    -----------      -----------    -----------
    Gross profit......................   10,007,198      8,096,197      6,762,932        6,046,405     11,620,727
Operating expenses:
  General and administrative..........    3,205,785      4,775,430      4,567,292        3,101,864      4,645,885
  Research and development............    2,166,225      2,254,206      2,010,858        1,443,874      1,637,973
  Sales and marketing.................      523,382        980,371      1,482,061        1,065,822      1,652,919
                                        -----------    -----------    -----------      -----------    -----------
    Total operating expenses..........    5,895,392      8,010,007      8,060,211        5,611,560      7,936,777
                                        -----------    -----------    -----------      -----------    -----------
    Income (loss) from operations.....    4,111,806         86,190     (1,297,279)         434,845      3,683,950
Other income (expense):
  Interest expense:
    Interest on outstanding debt......   (1,200,000)    (1,200,000)    (1,500,000)      (1,050,000)    (1,350,000)
    Amortization of original
    issue discount....................   (1,378,276)    (1,378,276)      (679,697)        (679,697)            --
  Interest income.....................      128,542         41,814        109,067           84,433         67,867
                                        -----------    -----------    -----------      -----------    -----------
    Net income (loss).................  $ 1,662,072     (2,450,272)    (3,367,909)      (1,210,419)     2,401,817
                                        ===========    ===========    ===========      ===========    ===========
Net income (loss) per share:
  Basic...............................  $      0.32          (0.47)         (0.64)           (0.23)          0.46
                                        ===========    ===========    ===========      ===========    ===========
  Diluted.............................  $      0.32          (0.47)         (0.64)           (0.23)          0.40
                                        ===========    ===========    ===========      ===========    ===========
Weighted average shares used in
  calculating net income (loss) per
  share:
    Basic.............................    5,263,100      5,263,100      5,263,100        5,263,100      5,263,100
                                        ===========    ===========    ===========      ===========    ===========
    Diluted...........................    5,263,100      5,263,100      5,263,100        5,263,100      8,081,408
                                        ===========    ===========    ===========      ===========    ===========
Pro forma data:
  Net income (loss) before income
    tax (expense) benefit.............  $ 1,662,072     (2,450,272)    (3,367,909)      (1,210,419)     2,401,817
  Pro forma provision for income tax
    (expense) benefit (unaudited).....   (1,154,543)       359,819        948,427          311,835     (1,053,186)
                                        -----------    -----------    -----------      -----------    -----------
  Pro forma net income (loss)
    (unaudited).......................  $   507,529     (2,090,453)    (2,419,482)        (898,584)     1,348,631
                                        ===========    ===========    ===========      ===========    ===========
  Pro forma net (loss) income per
    share (unaudited):
      Basic...........................                                $     (0.13)                    $      0.29
                                                                      ===========                     ===========
      Diluted.........................                                $     (0.13)                    $      0.27
                                                                      ===========                     ===========
  Weighted average shares outstanding
    used in calculating pro forma net
    (loss) income per share
    (unaudited):
      Basic...........................                                  7,518,714                       7,518,714
                                                                      ===========                     ===========
      Diluted.........................                                  7,518,714                       8,081,408
                                                                      ===========                     ===========
</TABLE>
    
 
See accompanying notes to consolidated financial statements.
 
                                       F-4
<PAGE>   74
 
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND
                         STOCKHOLDERS' EQUITY (DEFICIT)
   
   FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1997 AND
    
                      NINE MONTHS ENDED SEPTEMBER 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        1,954,253       5,488,446
  Net income for the year ended
    December 31, 1995..........       --             --       --              --        1,662,072       1,662,072
  Shareholders distribution....       --             --       --              --      (15,250,000)    (15,250,000)
                                    ----      ---------   -------      ---------      -----------     -----------
Balance, December 31, 1995.....       --      5,263,100   52,631       3,481,562      (11,633,675)     (8,099,482)
  Net loss for the year ended
    December 31, 1996..........       --             --       --              --       (2,450,272)     (2,450,272)
                                    ----      ---------   -------      ---------      -----------     -----------
Balance, December 31, 1996.....       --      5,263,100   52,631       3,481,562      (14,083,947)    (10,549,754)
  Net loss for the year ended
    December 31, 1997..........       --             --       --              --       (3,367,909)     (3,367,909)
                                    ----      ---------   -------      ---------      -----------     -----------
Balance, December 31, 1997.....       --      5,263,100   52,631       3,481,562      (17,451,856)    (13,917,663)
  Net income for the nine
    months ended September 30,
    1998.......................       --             --       --              --        2,401,817       2,401,817
  Non-cash compensation
    expense....................       --             --       --          19,020               --          19,020
  Shareholders distribution....       --             --       --              --          (70,610)        (70,610)
                                    ----      ---------   -------      ---------      -----------     -----------
Balance, September 30, 1998....     $ --      5,263,100   $52,631      3,500,582      (15,120,649)    (11,567,436)
                                    ====      =========   =======      =========      ===========     ===========
</TABLE>
    
 
See accompanying notes to consolidated financial statements.
 
                                       F-5
<PAGE>   75
 
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
<TABLE>
<CAPTION>
                                                                                               NINE MONTHS ENDED
                                                       YEAR ENDED DECEMBER 31,                   SEPTEMBER 30,
                                               ----------------------------------------    -------------------------
                                                   1995           1996          1997          1997           1998
                                               ------------    ----------    ----------    -----------    ----------
                                                                                           (UNAUDITED)
<S>                                            <C>             <C>           <C>           <C>            <C>
Cash flows provided by operating activities:
  Net income (loss)..........................  $  1,662,072    (2,450,272)   (3,367,909)   (1,210,419)     2,401,817
  Adjustments to reconcile net income (loss)
    to net cash provided by operating
    activities:
    Depreciation and amortization............       131,638       184,772       232,548       172,516        237,492
    Amortization of original issue
      discount...............................     1,378,276     1,378,276       679,697       679,697             --
    Non-cash compensation expense............            --            --            --            --         19,020
    Bad debt expense (recovery)..............       219,350       771,567       485,185       (65,293)        45,852
    Change in assets and liabilities:
      Accounts receivable....................     1,829,057      (156,177)      359,329     1,271,854     (3,592,641)
      Inventory..............................      (168,748)      292,086      (207,097)     (206,874)      (481,018)
      Prepaid expenses and other current
        assets...............................       (46,374)      249,524        30,067       (94,345)       (29,076)
      Other assets...........................            --        (4,330)      (26,246)      (17,631)         4,135
      Accrued interest payable...............            --     1,200,000     1,500,000     1,050,000      1,350,000
      Accounts payable.......................    (1,908,950)     (581,374)      268,323       455,925      2,733,966
      Other accrued expenses.................      (489,281)     (194,900)      552,243        33,386        396,957
      Deferred revenue.......................       622,043      (602,363)       36,510       104,721      1,278,805
                                               ------------    ----------    ----------    ----------     ----------
        Net cash provided by operating
          activities.........................     3,229,083        86,809       542,650     2,173,537      4,365,309
                                               ------------    ----------    ----------    ----------     ----------
Cash flows used in investing activities:
  Capital expenditures.......................      (360,126)     (251,192)     (234,277)     (189,302)      (521,986)
                                               ------------    ----------    ----------    ----------     ----------
        Net cash used in investing
          activities.........................      (360,126)     (251,192)     (234,277)     (189,302)      (521,986)
                                               ------------    ----------    ----------    ----------     ----------
Cash flows (used in) provided by financing
  activities:
  Distributions to stockholders..............   (15,250,000)           --            --            --        (70,610)
  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)           --             --
  Deferred offering costs....................            --            --            --            --       (374,360)
                                               ------------    ----------    ----------    ----------     ----------
        Net cash (used in) provided by
          financing activities...............   (15,055,627)      224,600      (200,000)           --       (444,970)
                                               ------------    ----------    ----------    ----------     ----------
        Net (decrease) increase in cash and
          cash equivalents...................   (12,186,670)       60,217       108,373     1,984,235      3,398,353
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     2,044,452      3,566,943
                                               ============    ==========    ==========    ==========     ==========
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>   76
 
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
               DECEMBER 31, 1996 AND 1997 AND SEPTEMBER 30, 1998
    
 
(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.
 
(C) PRINCIPLES OF CONSOLIDATION
 
     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. The Company has no impaired assets.
    
 
(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 to be capitalized after
technological feasibility has been established. Technological feasibility was
established when the product design and working model of the software product
was completed and
 
                                       F-7
<PAGE>   77
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
confirmed by testing the software product. 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, substantial fulfillment of all obligations under the sales
contract and when collectibility was probable. 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 vendor
specific objective evidence (VSOE) of the relative fair values of the elements.
VSOE is determined by the price charged when the element is sold separately. For
an element not yet being sold separately, VSOE is determined using managements
best estimate based on development costs to date of the element. The revenue
allocated to hardware and software products generally is recognized when the
hardware and software has been delivered and installed, the fee is fixed and
determinable and the 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.
    
 
     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 California and New Jersey
income tax expense is
    
 
                                       F-8
<PAGE>   78
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
immaterial to the consolidated financial statements for the year ended December
31, 1997 and for the nine months ended September 30, 1998. Therefore the
consolidated statements of operations do not include federal or state income tax
expense.
    
 
   
     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 $574,192 as of September 30, 1998.
    
 
     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) BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
 
     The Company has presented net income (loss) per share pursuant to SFAS No.
128, Earnings Per Share and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98.
 
     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.
 
     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.
 
   
     Basic net income (loss) per share was computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding for
each period presented. Diluted net income (loss) per share was computed by
giving effect to common stock equivalents as if they were outstanding for the
entire period. Incremental shares and adjustments to net income (loss) are
determined using the if converted and treasury stock methods for the nine months
ended September 1998 as follows:
    
 
                                       F-9
<PAGE>   79
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
<TABLE>
<S>                                                         <C>
Net income................................................      $2,401,817
Plus: interest expense on
  convertible debt........................................       1,350,000
Less: preferred stock dividends assuming conversion of
  preferred stock.........................................        (539,656)
                                                                ----------
                                                                $3,212,161
                                                                ==========
Weighted average shares outstanding.......................       5,263,100
Common stock equivalents..................................       2,818,308
                                                                ----------
                                                                 8,081,408
                                                                ==========
Basic net income (loss) per share.........................      $     0.46
                                                                ==========
Diluted net income (loss) per share.......................      $     0.40
                                                                ==========
</TABLE>
    
 
   
     Common stock equivalents were not considered for the years ended December
31, 1995, 1996 and 1997 since their effect would be antidilutive.
    
 
(K) PRO FORMA NET INCOME (LOSS) AND PRO FORMA NET INCOME (LOSS) PER SHARE
     COMPUTATIONS (UNAUDITED)
 
     The pro forma net income (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 the periods presented.
 
   
     Pro forma basic and diluted net income (loss) per share for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 was computed
by dividing pro forma net income (loss) by the weighted average number of shares
of common stock outstanding. It reflects the impact of the conversion of
preferred stock and S corporation distribution as described in note 1(l) as
follows:
    
   
    
 
   
<TABLE>
<CAPTION>
                                                                              NINE MONTHS
                                                               YEAR ENDED        ENDED
                                                              DECEMBER 31,   SEPTEMBER 30,
                                                                  1997           1998
                                                              ------------   -------------
<S>                                                           <C>            <C>
Pro forma net (loss) income.................................  $(2,419,482)     1,348,631
Add: interest expense on convertible debt...................    2,179,697      1,350,000
Less: preferred stock dividends assuming conversion of
  preferred stock...........................................     (719,541)      (539,656)
                                                              -----------      ---------
                                                              $  (959,326)     2,158,975
                                                              ===========      =========
Weighted average shares outstanding.........................    7,518,714      7,518,714
Add: common stock equivalents...............................           --        562,694
                                                              -----------      ---------
                                                                7,518,714      8,081,408
                                                              ===========      =========
  Basic pro forma net (loss) income per share...............  $     (0.13)     $    0.29
                                                              ===========      =========
  Diluted pro forma net (loss) income per share.............  $     (0.13)     $    0.27
                                                              ===========      =========
</TABLE>
    
 
                                      F-10
<PAGE>   80
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
(L) UNAUDITED PROFORMA ADJUSTMENTS AND PROFORMA CONSOLIDATED BALANCE SHEET
    
 
   
     The proforma adjustments and proforma consolidated balance sheet at
September 30, 1998 reflect the conversion of the convertible debt to redeemable
convertible participating preferred stock and redeemable preferred stock and the
simultaneous conversion of the convertible participating preferred stock to
common stock which occurs, upon the closing of an initial public offering, as
described in note 6(a). In addition, it reflects the promissory note which will
be issued for the S corporation distribution as described in note 10. This
amount is estimated at $850,000. This amount is subject to significant
adjustment based on cash earnings through date of conversion to C corporation
status. The adjustment to accumulated deficit reflects the promissory note that
will be issued upon the S-corporation revocation.
    
 
(M) 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 for the years ended December 31, 1997 and for the nine
months ended September 30, 1998 were ($5,000) and $9,500, respectively. Such
amounts were recorded in the consolidated statements of operations for each
period.
 
     The Company does not enter into transactions that may result in foreign
currency risk. All transactions are made based on the Company's local currency.
Therefore, the Company does not utilize hedging instruments.
 
(N) 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.
 
(O) RECLASSIFICATIONS
 
   
     Certain 1995 and 1996 amounts have been reclassified to conform to the
current presentation.
    
 
(P) 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 have been determined by the Company to be 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 September
1998. With respect to the GTS programs, the Company has identified all changes
necessary to integrate the year 2000 compliant code into MACS. The Company has
completed the internal functional specifications for the necessary changes and
is in the process of testing the new code in the Company's software. The Company
expects these changes to be incorporated into a new version of MACS to be
released in early 1999. If the Company is unable to remedy the year 2000 issue
with respect to the GTS programs prior to January 1, 2000, the Company may be
subject to liability in the event any defects occur in MACS.
    
 
                                      F-11
<PAGE>   81
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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.
 
(Q) UNAUDITED INTERIM FINANCIAL INFORMATION
 
   
     The unaudited consolidated statements of operations and cash flows for the
nine months ended September 30, 1997 include, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the Company's consolidated results of operations and cash flows. In
addition, operating results for the nine months ended September 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
resulted in losses for the years ended December 31, 1996 and 1997. This has
resulted in an accumulated deficit of $(15,120,649) at September 30, 1998.
    
 
   
     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 nine months ended September 30, 1998, the Company had
increased software revenue due to some major contracts that were entered into in
1998. In addition, the Company received a waiver to defer the payment of
principal and interest on its convertible debt through the earlier of (i) the
consummation of an initial public offering or (ii) March 31, 2000. Based on the
new contracts, the 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.
    
 
(3) PROPERTY AND EQUIPMENT, NET
 
   
     Property and equipment, net consists of the following:
    
 
   
<TABLE>
<CAPTION>
                                              DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,
                                                  1996           1997           1998
                                              ------------   ------------   -------------
<S>                                           <C>            <C>            <C>
Office equipment............................   $  948,563     1,144,364       1,580,287
Office furnishings and fixtures.............      110,264       131,553         177,142
Leasehold improvements......................       15,016        32,179          65,758
                                               ----------     ---------       ---------
                                                1,073,843     1,308,096       1,823,187
Less accumulated depreciation and
  amortization..............................      390,253       622,777         853,372
                                               ----------     ---------       ---------
                                               $  683,590       685,319         969,815
                                               ==========     =========       =========
</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 sched-
 
                                      F-12
<PAGE>   82
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
uled 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, $235,440 and $212,655 at December 31, 1996, 1997 and
September 30, 1998 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. During 1997, the
Company also entered into lease agreements for office facilities in the United
Kingdom and Sydney which expire in 2003.
    
 
   
     Future minimum lease payments under these office facilities leases as well
as equipment leases as of September 30, 1998 are as follows:
    
 
   
<TABLE>
<CAPTION>
              THREE MONTHS ENDED DECEMBER 31,
              -------------------------------
<S>                                                           <C>
          1998..............................................  $  218,457
YEAR ENDING DECEMBER 31,
          1999..............................................     597,435
          2000..............................................     552,822
          2001..............................................     542,348
          2002..............................................      96,938
          2003..............................................      18,849
                                                              ----------
Total minimum lease payments................................  $2,026,849
                                                              ==========
</TABLE>
    
 
   
     Rental expense, including operating leases with lease terms of less than
one year, was $552,893, $597,905, $669,543 and $918,054 during 1995, 1996, 1997
and for the nine months ended September 30, 1998, respectively.
    
 
(5) ACCRUED EXPENSES
 
   
     Accrued expenses consists of the following:
    
 
   
<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                 ----------------------   SEPTEMBER 30,
                                                    1996        1997          1998
                                                 ----------   ---------   -------------
<S>                                              <C>          <C>         <C>
Sales tax payable..............................  $   20,513      92,011       348,554
Sales tax contingencies........................     614,783     614,783       614,783
Deferred rent..................................     248,219     235,440       212,655
Accrued payroll................................       4,831      95,215       185,253
Accrued legal..................................          --     109,000       100,000
Accrued vacation...............................      99,978     132,162       147,162
Other..........................................      66,903     142,379       209,540
                                                 ----------   ---------     ---------
                                                 $1,055,227   1,420,990     1,817,947
                                                 ==========   =========     =========
</TABLE>
    
 
(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 bears interest at 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).
    
 
                                      F-13
<PAGE>   83
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
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 September 30, 1998, 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) March 31,
2000. The Company has agreed with the Lenders to defer all interest and
principal 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) March 31, 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 ("convertible preferred
stock") and one share of redeemable participating preferred stock ("redeemable
preferred stock") for each $1,000 of principal outstanding. The convertible
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 convertible 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.
 
(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 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 from the issue date (December 19, 1994) to the date it first becomes
convertible (June 30, 1997) to achieve an 18 percent effective interest rate.
Convertible debt is comprised of the following:
    
 
   
<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                -----------------------   SEPTEMBER 30,
                                                   1996         1997          1998
                                                ----------   ----------   -------------
<S>                                             <C>          <C>          <C>
Stated principal balance......................  12,000,000   12,000,000    12,000,000
Unamortized OID...............................    (679,697)          --            --
                                                ----------   ----------    ----------
Convertible debt..............................  11,320,303   12,000,000    12,000,000
                                                ==========   ==========    ==========
</TABLE>
    
 
                                      F-14
<PAGE>   84
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(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
22,556.14 shares of authorized preferred stock as convertible preferred stock.
Holders of the 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 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 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 convertible preferred stock is then convertible. Shares
of 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 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 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 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, $46,573 and $71,442
provided by the Company in matching contributions for the years ended December
31, 1995, 1996, 1997 and for the nine months ended September 30, 1998,
respectively.
    
 
                                      F-15
<PAGE>   85
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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. Provisions of the Ltd. Plan
are substantially the same as the Plan.
 
   
     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, 1997 and the nine months
ended September 30, 1998, 214,000, 155,000 and 39,843 options, respectively,
were granted to employees. Of these options, 105,983 were exercisable at
September 30, 1998. 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 vest 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. 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. At September 30, 1998,
the Company has granted 538,003 options under the 1998 Stock-Option Plan at an
exercise price of $4.53 per share or in the event of an initial public offering
prior to July 1, 1999, the initial public offering price.
    
 
   
     At September 30, 1998, the officer had 205,881 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, $3.53 and $4.53 as of the grant
dates in 1996, 1997 and 1998 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 exercise price is lower than
fair market value at the date of grant. There was no compensation expense
recorded in 1996 and 1997. Stock compensation expense for the nine months ended
was $19,020. Had the Company determined compensation cost based on fair value at
the grant date for its stock options under Statement No. 123, there would have
been no effect for the year ended December 31, 1996. The Company's net loss for
the year ended December 31, 1997 would have increased by $311,525. The Company's
net income for the nine months ended September 30, 1998 would have decreased by
$202,880.
    
 
   
     The weighted-average fair market value per share of options granted to
employees was estimated at $1.60 and $2.54, for the year ended December 31, 1997
and nine months ended September 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 4.76% at September 30, 1998
</TABLE>
    
 
                                      F-16
<PAGE>   86
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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
  Granted..................................     30,607        2.53
  Granted..................................    547,239    4.53 or IPO
                                                             price
  Forfeited................................     (6,427)
                                             ---------
Balance outstanding at September 30,
  1998.....................................  1,323,539
                                             =========
Exercisable at September 30, 1998..........    311,864    $   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.
 
   
     Subsequent to September 30, 1998, additional options to purchase 89,915
shares were granted at $4.53 per share or in the event of an initial public
offering prior to July 1, 1999, at the initial public offering price.
    
 
   
     The amount of compensation expense in the future reflected for options
issued as of December 31, 1998 is as follows:
    
 
   
<TABLE>
<CAPTION>
                        (UNAUDITED)
                 YEARS ENDING DECEMBER 31,
                 -------------------------
<S>                                                           <C>
          1999..............................................   43,612
          2000..............................................   34,447
          2001..............................................   23,494
          2002..............................................    1,513
</TABLE>
    
 
(9) RELATED PARTY TRANSACTIONS
 
   
     Due to officers represents non-interest 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-17
<PAGE>   87
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(10) INCOME TAXES
 
<TABLE>
<CAPTION>
                                                                           NINE MONTHS ENDED
                                          YEARS ENDED DECEMBER 31,           SEPTEMBER 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    311,835   (1,053,186)
                                       -----------   -------   -------    -------   ----------
Pro forma income tax (expense)
  benefit (unaudited)................  $(1,154,543)  359,819   948,427    311,835   (1,053,186)
                                       ===========   =======   =======    =======   ==========
</TABLE>
 
     The unaudited proforma income tax (expense) benefit presented on the
consolidated statements of operations represent 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 proforma income tax (expense) benefit is
as follows (unaudited):
 
<TABLE>
<CAPTION>
                                                                          NINE MONTHS ENDED
                                         YEARS ENDED DECEMBER 31,           SEPTEMBER 30,
                                     --------------------------------    --------------------
                                        1995        1996       1997       1997        1998
                                     -----------   -------   --------    -------   ----------
<S>                                  <C>           <C>       <C>         <C>       <C>
Pro forma (unaudited):
  Current:
     Federal.......................  $(1,130,042)   62,798    897,416    356,432     (855,177)
     Foreign.......................           --        --         --         --           --
     State.........................     (228,669)   12,609    187,580     54,207     (173,392)
  Deferred:
     Federal.......................      172,413   229,124   (108,897)   (98,586)     (24,617)
     State.........................       31,755    55,288    (27,672)      (218)          --
                                     -----------   -------   --------    -------   ----------
          Total pro forma..........  $(1,154,543)  359,819    948,427    311,835   (1,053,816)
                                     ===========   =======   ========    =======   ==========
</TABLE>
 
     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>
                                                                           NINE MONTHS ENDED
                                        YEARS ENDED DECEMBER 31,             SEPTEMBER 30,
                                   ----------------------------------    ---------------------
                                      1995         1996       1997         1997        1998
                                   -----------   --------   ---------    --------   ----------
<S>                                <C>           <C>        <C>          <C>        <C>
Income tax (expense) benefit
  using statutory tax rate.......  $  (565,104)   833,092   1,145,089     411,542     (816,617)
Effect of:
  State and local income taxes,
     net of federal income tax...  $  (129,963)    44,812     105,539      35,635     (114,439)
  Change in valuation allowance..  $        --         --     (61,263)     (1,865)     (94,452)
  Difference between US and
     non-US tax rates............  $        --         --     (27,221)     (1,155)     (28,405)
  Original issue discount
     amortization................  $  (468,614)  (468,614)   (231,097)   (231,096)          --
  Change in effective tax
     rates.......................  $    13,462    (43,379)     22,256     102,564        8,150
  Other, net.....................  $    (4,324)    (6,093)     (4,876)     (3,790)      (7,423)
                                   -----------   --------   ---------    --------   ----------
     Pro forma effective tax
       (expense) benefit.........  $(1,154,543)   359,819     948,427     311,835   (1,053,186)
                                   ===========   ========   =========    ========   ==========
</TABLE>
    
 
                                      F-18
<PAGE>   88
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company will issue promissory notes to its existing shareholders in an
aggregate amount representing the estimated individual 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.
 
(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. In 1998 the Company began
purchasing its hardware from a distributor of Hewlett Packard due to a change in
Hewlett Packard's distribution channels. Seventy-four percent of its computer
hardware was purchased from this distribution for the nine months ended
September 30, 1998. The Company owed this supplier $1,629,318 at September 30,
1998. 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 year ended December 31, 1997 and 1995. One customer accounted for 10.7
percent of total revenue for the year ended December 31, 1996. In addition,
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. Two customers accounted for 22 percent of the company's revenue for the
nine months ended September 30, 1998. Accounts receivable related to these
customers at September 30, 1998 was $2,703,164.
    
 
     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.
 
                                      F-19
<PAGE>   89
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(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 not
significant.
 
(C) TAX LIABILITY
 
     The Internal Revenue Service ("IRS") is currently auditing the Company's
tax returns for fiscal 1995. One issue the IRS is reviewing is whether the
issuance of the Convertible Debentures in December 1994 resulted in the Company
failing to qualify as an S corporation. In the event the IRS determines that the
Company did not qualify as an S corporation or fiscal 1995 or any fiscal year
thereafter, the Company would be subject to a significant tax liability. The
shareholders have agreed to indemnify the Company for any tax liability of the
Company. To the extent the shareholders are unable to fulfill such
indemnification and satisfy all outstanding tax liability to which the Company
is subject, the Company's business, financial condition or results of operations
could be materially adversely affected.
 
(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
$50,089 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) 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.
    
 
   
(15) SUBSEQUENT EVENTS -- PLANNED INITIAL PUBLIC OFFERING
    
 
   
     The Company intends to conduct an initial public offering (IPO) with an
investment banking firm estimated to be completed in February 1999. There is no
assurance that the IPO will occur.
    
 
   
(16) 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.
 
                                      F-20
<PAGE>   90
               SMITH-GARDNER & ASSOCIATES, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     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.
 
     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.
 
                                      F-21
<PAGE>   91
 
                        SMITH-GARDNER & ASSOCIATES, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
   
 FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 1997 AND THE
                      NINE MONTHS ENDED SEPTEMBER 30, 1998
    
 
   
<TABLE>
<CAPTION>
                                                               BALANCE
                                                                 AT        CHARGED                     BALANCE
                                                              BEGINNING       TO                       AT END
                                                                 OF        BAD DEBT                      OF
                                                               PERIOD      EXPENSE     DEDUCTIONS      PERIOD
                                                              ---------   ----------   ----------      -------
<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     765,676      (161,739)(a)   936,347
                                                              ========     =======      ========       =======
Description:
  Reserves and allowances deducted from assets accounts:
    1997:
      Allowance for doubtful accounts.......................  $936,347     102,816      (569,936)(a)   469,227
                                                              ========     =======      ========       =======
Description:
  Reserves and allowances deducted from assets accounts:
    Nine months ended September 30, 1998:
      Allowance for doubtful accounts.......................  $469,227     184,836      (138,983)(a)   515,080
                                                              ========     =======      ========       =======
</TABLE>
    
 
- ---------------
 
(a) Charges to the reserve account collectible amounts written off and
    recoveries which occurred during the year.
 
                                      F-22
<PAGE>   92
 
[Company logo]
 
     Smith-Gardner's more than 200 clients include traditional direct marketing
companies, Internet-only retailers, manufacturers, fulfillment houses and
retailers with significant non-store sales channels.
 
[Hickory Farms logo]            [Miles Kimball logo]            [Genesis Direct]
 
[MicroWarehouse logo]   [Levenger logo]   [The United Methodist Publishing House
logo]
 
[Delia's logo]                                           [Cyberian Outpost logo]
 
[Frontgate logo]           [Nordstrom logo]          [The Shopping Channel logo]
 
[Hammacher Schlemmer logo]                                [Wine Enthusiast logo]
 
[Rodale Press logo]                                       [Coldwater Creek logo]
 
[Harold's logo]                                        [Five Mountain Gems logo]
 
[My Twinn logo]                                        [Creative Computers logo]
<PAGE>   93
 
- ------------------------------------------------------
- ------------------------------------------------------
 
    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...........................   15
Dividend Policy...........................   15
S Corporation Distribution and Conversion
  to C Corporation Status.................   16
Capitalization............................   17
Dilution..................................   18
Selected Consolidated Financial Data......   19
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations..............................   22
Business..................................   38
Management................................   51
Certain Transactions......................   57
Principal and Selling Shareholders........   59
Description of Capital Stock..............   61
Shares Eligible for Future Sale...........   64
Underwriting..............................   66
Legal Matters.............................   67
Experts...................................   67
Additional Information....................   68
Index to Consolidated Financial
  Statements..............................  F-1
</TABLE>
    
 
                             ---------------------
 
   
UNTIL                   , 1999 (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.
    
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
 
                                4,410,000 Shares
 
                              (Smith-Gardner Logo)
   
    
   
                                  Common Stock
    
                              -------------------
 
                                   PROSPECTUS
                              -------------------
                                 BT Alex. Brown
 
                              SoundView Technology
                                     Group
   
                                           , 1999
    
 
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE>   94
 
                                    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.........  $ 11,800
NASD filing fee.............................................     5,000
Nasdaq National Market listing fees.........................    46,360
Legal fees and expenses.....................................   250,000
Accounting fees and expenses................................   250,000
Printing and engraving expenses.............................   150,000
Registrar and transfer agent fees...........................     3,000
Directors and officers insurance annual premium.............     5,000
Miscellaneous expenses......................................    28,840
                                                              --------
          Total.............................................  $750,000
                                                              ========
</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>   95
 
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>   96
 
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  Amended and Restated Articles of Incorporation of the
          Company, as amended.*
     3.2  Form of Amended and Restated Articles of Incorporation of
          the Company.**
     3.3  By-Laws of the Company, as amended.*
     3.4  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 Debenture Due 2000 issued to Advent VII
          L.P.*
    10.8  Form of Convertible Debenture Due 2000 issued to Advent
          Atlantic and Pacific II L.P.*
    10.9  Form of Convertible Debenture Due 2000 issued to Advent
          Industrial II L.P.*
    10.10 Form of Convertible Debenture Due 2000 issued to Advent New
          York L.P.*
    10.11 Form of Convertible Debenture Due 2000 issued to Chestnut
          Capital International.*
    10.12 Form of Convertible Debenture Due 2000 issued to TA Venture
          Investors Limited.*
    10.13 Registration Rights Agreement dated December 19, 1994.*
    10.14 Non-Competition Agreement by and between Smith-Gardner &
          Associates, Inc. and Wilburn Smith.*
    10.15 Non-Competition Agreement by and between Smith-Gardner &
          Associates, Inc. and Allan Gardner.*
    10.16 Form of Non-Compete Agreement executed by Smith-Gardner &
          Associates, Inc.'s key employees.*
    10.17 Lease Agreement dated July 1, 1994, by and between Arbors
          Associates, Ltd. and Smith-Gardner & Associates, Inc.**
    10.18 Agreement dated March 17, 1998, by and between Client
          Systems, Inc. and Smith-Gardner & Associates, Inc.*
    10.19 Agreement dated February 8, 1994, by and between Cognos
          Corporation and Smith-Gardner & Associates, Inc.*
    10.20 Agreement dated December 29, 1989, by and between Dynamic
          Information Systems Corporation and Smith-Gardner &
          Associates, Inc.*
    10.21 Tax Indemnification Agreement.*
    11.1  Statement of Computation of Per Share Earnings.***
    21.1  Subsidiaries of Smith-Gardner & Associates, Inc.**
    23.1  Consent of KPMG LLP.**
    23.2  Consent of Akerman, Senterfitt & Eidson, P.A. (included in
          its opinion filed as Exhibit 5.1).**
    23.3  Consent of Jacqueline C. Morby to become a director.*
    24.1  Power of Attorney (included as part of the Signature Page to
          this Registration Statement).*
    27.1  Financial Data Schedule.***
</TABLE>
    
 
- ---------------
   
   * Previously filed.
    
   
  ** Filed herewith.
    
   
 *** Previously filed and amended hereby.
    
   
**** 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.
 
                                      II-3
<PAGE>   97
 
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
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>   98
 
                                   SIGNATURES
 
   
     Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Smith-Gardner & Associates, Inc., has duly caused this Amendment No. 2 to
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 11th day of January, 1999.
    
 
                                          SMITH-GARDNER & ASSOCIATES, INC.
 
                                          By: /s/ GARY G. HEGNA
                                            ------------------------------------
                                            Gary G. Hegna
                                            President and Chief Executive
                                              Officer
 
   
     Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement on Form S-1 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            January 11, 1999
- ---------------------------------------------------  Officer and Director
Gary G. Hegna                                        (Principal Executive
                                                     Officer)
 
*                                                    Vice President -- Finance,            January 11, 1999
- ---------------------------------------------------  Chief Financial Officer,
Martin K. Weinbaum                                   Secretary and Treasurer
                                                     (Principal Financial and
                                                     Accounting Officer)
 
*                                                    Executive Vice President --           January 11, 1999
- ---------------------------------------------------  Advanced Technologies and
Allan Gardner                                        Co-Chairman of the Board
 
*                                                    Executive Vice President --           January 11, 1999
- ---------------------------------------------------  Sales and Co-Chairman of the
Wilburn Smith                                        Board
 
                                                     Director
- ---------------------------------------------------
Francis H. Zenie
</TABLE>
    
 
- ---------------
 
* Pursuant to a Power of Attorney granted to Gary G. Hegna by such person.
 
                                      II-5
<PAGE>   99
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
EXHIBIT                           DESCRIPTION
- -------                           -----------
<C>       <S>
     1.1  Form of Underwriting Agreement.****
     3.1  Amended and Restated Articles of Incorporation of the
          Company, as amended.*
     3.2  Form of Amended and Restated Articles of Incorporation of
          the Company.**
     3.3  By-Laws of the Company, as amended.*
     3.4  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 Debenture Due 2000 issued to Advent VII
          L.P..*
    10.8  Form of Convertible Debenture Due 2000 issued to Advent
          Atlantic and Pacific II L.P.*
    10.9  Form of Convertible Debenture Due 2000 issued to Advent
          Industrial II L.P.*
    10.10 Form of Convertible Debenture Due 2000 issued to Advent New
          York L.P.*
    10.11 Form of Convertible Debenture Due 2000 issued to Chestnut
          Capital International.*
    10.12 Form of Convertible Debenture Due 2000 issued to TA Venture
          Investors Limited.*
    10.13 Registration Rights Agreement dated December 19, 1994.*
    10.14 Non-Competition Agreement by and between Smith-Gardner &
          Associates, Inc. and Wilburn Smith.*
    10.15 Non-Competition Agreement by and between Smith-Gardner &
          Associates, Inc. and Allan Gardner.*
    10.16 Form of Non-Compete Agreement executed by Smith-Gardner &
          Associates, Inc.'s key employees.*
    10.17 Lease Agreement dated July 1, 1994, by and between Arbors
          Associates, Ltd. and Smith-Gardner & Associates, Inc.**
    10.18 Agreement dated March 17, 1998, by and between Client
          Systems, Inc. and Smith-Gardner & Associates, Inc.*
    10.19 Agreement dated February 8, 1994, by and between Cognos
          Corporation and Smith-Gardner & Associates, Inc.*
    10.20 Agreement dated December 29, 1989, by and between Dynamic
          Information Systems Corporation and Smith-Gardner &
          Associates, Inc.*
    10.21 Tax Indemnification Agreement.*
    11.1  Statement of Computation of Per Share Earnings.***
    21.1  Subsidiaries of Smith-Gardner & Associates, Inc.**
    23.1  Consent of KPMG LLP.**
    23.2  Consent of Akerman, Senterfitt & Eidson, P.A. (included in
          its opinion filed as Exhibit 5.1).**
    23.3  Consent of Jacqueline C. Morby to become a director.*
    24.1  Power of Attorney (included as part of the Signature Page to
          this Registration Statement).*
    27.1  Financial Data Schedule.***
</TABLE>
    
 
- ---------------
   
   * Previously filed.
    
   
  ** Filed herewith.
    
   
 *** Previously filed and amended hereby.
    
   
**** To be filed by amendment.
    

<PAGE>   1
                                                                     EXHIBIT 3.2

                                    FORM OF
                              AMENDED AND RESTATED
                            ARTICLES OF INCORPORATION

                                       OF

                        SMITH-GARDNER & ASSOCIATES, INC.

         Pursuant to Sections 607.1003 and 607.1007 of the Florida Business
Corporation Act, the Articles of Incorporation of Smith-Gardner & Associates,
Inc., originally filed with the Secretary of State of Florida on December 8,
1988, are hereby amended and restated in their entirety as follows.

                                    ARTICLE I
                                      NAME

         The name of the corporation is Smith-Gardner & Associates, Inc.
(hereinafter called the "Corporation").

                                   ARTICLE II
                      PRINCIPAL OFFICE AND MAILING ADDRESS

         The principal office and mailing address of the Corporation is 1615
South Congress Street, Delray Beach, Florida 33445.

                                   ARTICLE III
                                  CAPITAL STOCK

         The aggregate number of shares of all classes of capital stock that the
Corporation is authorized to issue is sixty million (60,000,000) shares
consisting of (i) fifty million (50,000,000) shares of common stock, par value
$0.01 per share (the "Common Stock") and (ii) ten million (10,000,000) shares of
preferred stock, par value $0.01 per share (the "Preferred Stock").

         The designations and the preferences, limitations and relative rights
of the Common Stock and the Preferred Stock of the Corporation are as follows:

A.       PROVISIONS RELATING TO THE COMMON STOCK.

         1.       VOTING RIGHTS.

                  (a) Except as otherwise required by law or as may be provided
by the resolutions of the Board of Directors authorizing the issuance of any
class or series of Preferred Stock, as provided in Section B of this Article
III, all rights to vote and all voting power shall be vested



<PAGE>   2




exclusively in the holders of the Common Stock.

                  (b) The holders of the Common Stock shall be entitled to one
vote per share on all matters submitted to a vote of shareholders, including,
without limitation, the election of directors.

         2. DIVIDENDS. Except as otherwise provided by law or as may be provided
by the resolutions of the Board of Directors authorizing the issuance of any
class or series of Preferred Stock, as provided in Section B of this Article
III, the holders of the Common Stock shall be entitled to receive when, as and
if provided by the Board of Directors, out of funds legally available therefor,
dividends payable in cash, stock or otherwise.

         3. LIQUIDATING DISTRIBUTIONS. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, and after
payment or provision for payment of the debts and other liabilities of the
Corporation, and except as may be provided by the resolutions of the Board of
Directors authorizing the issuance of any class or series of Preferred Stock, as
provided in Section B of this Article III, the remaining assets of the
Corporation shall be distributed pro-rata to the holders of the Common Stock.

B.       PROVISIONS RELATING TO THE PREFERRED STOCK.

         1. GENERAL. The Preferred Stock may be issued from time to time in one
or more classes or series, the shares of each class or series to have such
designations, powers, preferences, rights, qualifications, limitations and
restrictions thereof as are stated and expressed herein and in the resolution or
resolutions providing for the issuance of such class or series adopted by the
Board of Directors as hereinafter prescribed.

         2. PREFERENCES. Authority is hereby expressly granted to and vested in
the Board of Directors to authorize the issuance of the Preferred Stock from
time to time in one or more classes or series, to determine and take necessary
proceedings fully to effect the issuance and redemption of any such Preferred
Stock, and, with respect to each class or series of the Preferred Stock, to fix
and state by the resolution or resolutions from time to time adopted providing
for the issuance thereof the following:

                  (a) whether or not the class or series is to have voting
rights, full or limited, or is to be without voting rights;

                  (b) the number of shares to constitute the class or series and
the designations thereof;

                  (c) the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;




                                        2


<PAGE>   3





                  (d) whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the time or
times at which and the terms and conditions upon which, such shares shall be
redeemable and the manner of redemption;

                  (e) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and if such retirement or
sinking fund or funds be established, the annual amount thereof and the terms
and provisions relative to the operation thereof;

                  (f) the dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to the
payment of the dividends payable on any other class or classes or series of
stock, whether or not such dividend shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;

                  (g) the preferences, if any, and that amounts thereof that the
holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;

                  (h) Whether or not and the circumstances under which the
shares of any class or series shall be convertible into, or exchangeable for,
the shares of any other class or classes or of any other series of the same or
any other class or classes of the Corporation and the conversion price or prices
or ratio or ratios or the rate or rates at which such conversion or exchange may
be made, with such adjustments, if any, as shall be stated and expressed or
provided for in such resolution or resolutions; and

                  (i) such other special rights and protective provisions with
respect to any class or series as the Board of Directors may deem advisable.

         The shares of each class or series of the Preferred Stock may vary from
the shares of any other class or series thereof in any or all of the foregoing
respects. The Board of Directors may increase the number of shares of Preferred
Stock designated for any existing class or series by a resolution adding to such
class or series authorized and unissued shares of the Preferred Stock not
designated for any other class or series. The Board of Directors may decrease
the number of shares of Preferred Stock designated for any existing class or
series by a resolution, subtracting from such class or series unissued shares of
the Preferred Stock designated for such class or series and the shares so
subtracted shall become authorized, unissued and undesignated shares of the
Preferred Stock.








                                        3


<PAGE>   4




                                   ARTICLE IV
                                    DIRECTORS

         The Board of Directors of the Corporation shall consist of at least one
Director, with the exact number of Directors to be fixed from time to time in
the manner provided in the Company's Bylaws. Directors may only be removed for 
cause. "Cause" shall mean any intentional or grossly reckless conduct that is 
harmful to the Corporation, such as misuse of confidential information, 
competing against the Corporation, a serious violation of due care or fiduciary 
duties or other gross abuse of office.


                                    ARTICLE V
                           REGISTERED OFFICE AND AGENT

         The street address of the Corporation's registered office is 1615 South
Congress Street, Delray Beach, Florida 33445. The name of the Corporation's
registered agent at that office is Wilburn W. Smith.

                                   ARTICLE VI
                                 INDEMNIFICATION

         The Corporation shall indemnify and shall advance expenses on behalf of
its officers and directors, to the fullest extent now or hereafter permitted by
law.

         IN WITNESS WHEREOF, the undersigned has executed these Amended and
Restated Articles of Incorporation this ____ day of ____________, 199__.

                                     SMITH-GARDNER & ASSOCIATES, INC.



                                     By:
                                        --------------------------------------
                                         Gary G. Hegna
                                         Chief Executive Officer and President






















                                        4









<PAGE>   1
                                                                     EXHIBIT 3.4



















                                    AMENDED

                                     BYLAWS

                                       OF

                        SMITH-GARDNER & ASSOCIATES, INC.

                             (A Florida Corporation)





<PAGE>   2
                                     INDEX


                                                                      PAGE
                                                                     NUMBER
                                                                     ------

ARTICLE ONE - OFFICES

   1.   Registered Office ........................................      1
   2.   Other Offices ............................................      1

ARTICLE TWO - MEETINGS OF SHAREHOLDERS

   1.   Place ....................................................      1
   2.   Time of Annual Meeting ...................................      1
   3.   Call of Special Meetings .................................      1
   4.   Conduct of Meetings ......................................      1
   5.   Notice and Waiver of Notice ..............................      2
   6.   Business of Special Meeting ..............................      2
   7.   Quorum ...................................................      2
   8.   Voting Per Share .........................................      3
   9.   Voting of Shares .........................................      3
   10.  Proxies ..................................................      3
   11.  Shareholder List .........................................      4
   12.  Action Without Meeting....................................      4
   13.  Fixing Record Date .......................................      4
   14.  Inspectors and Judges . ..................................      5
   15.  Voting for Directors .....................................      5

ARTICLE THREE - DIRECTORS

   1.   Number, Election and Term ................................      5
   2.   Vacancies ................................................      6 
   3.   Powers ...................................................      6
   4.   Place of Meetings ........................................      6
   5.   Annual Meeting ...........................................      6
   6.   Regular Meetings .........................................      6
   7.   Special Meetings and Notice ..............................      6
   8.   Quorum; Required Vote; Presumption   
          of Assent ..............................................      7
   9.   Action Without Meeting ...................................      7
   10.  Conference by Telephone or Similar 
          Communications Equipment Meetings ......................      7
   11.  Committees ...............................................      7


                                       i
<PAGE>   3



   12.  Compensation of Directors ................................      8
   13.  Chairman of the Board ....................................      8

ARTICLE FOUR - OFFICERS

   1.   Positions ................................................      8
   2.   Election of Specified Officers by Board...................      8
   3.   Election or Appointment of Other 
          Officers ...............................................      8
   4.   Salaries .................................................      8
   5.   Term; Resignation ........................................      9
   6.   President ................................................      9
   7.   Vice Presidents ..........................................      9
   8.   Secretary ................................................      9
   9.   Treasurer ................................................      9
   10.  Other Officers, Employees and Agents......................     10

ARTICLE FIVE - CERTIFICATES FOR SHARES

   1.   Issue of Certificates ....................................     10
   2.   Legends for Preferences and Restrictions
          on Transfer ............................................     10
   3.   Facsimile Signatures .....................................     11
   4.   Lost Certificates ........................................     11
   5.   Transfer of Shares .......................................     11
   6.   Registered Shareholders ..................................     11
   7.   Redemption of Control Shares .............................     12

ARTICLE SIX - GENERAL PROVISIONS

 
   1.   Dividends ................................................     12
   2.   Reserves .................................................     12
   3.   Checks ...................................................     12
   4.   Fiscal Year ..............................................     12
   5.   Seal .....................................................     12
   6.   Gender ...................................................     12

ARTICLE SEVEN - AMENDMENTS OF BYLAWS ............................      12












                                       ii



<PAGE>   4

                                    FORM OF

                        SMITH-GARDNER & ASSOCIATES. INC.

                                 AMENDED BYLAWS

                                  ARTICLE ONE

                                    OFFICES

          Section 1. REGISTERED OFFICE. The registered office of Smith-Gardner &
Associates, Inc., a Florida corporation (the "Corporation"), shall be located
in the City of Delray Beach, State of Florida, unless otherwise designated by
the Board of Directors.

          Section 2. OTHER OFFICES. The Corporation may also have offices at
such other places, either within or without the State of Florida, as the Board
of Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.

                                  ARTICLE TWO

                            MEETINGS OF SHAREHOLDERS

          Section 1. PLACE. All annual meetings of shareholders shall be held at
such place, within or without the State of Florida, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.

         Section 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided that there shall be an annual meeting held every
year at which the shareholders shall elect a Board of Directors and transact
such other business as may properly be brought before the meeting.

          Section 3. CALL OF SPECIAL MEETINGS. Special meetings of the
shareholders shall be held if called by the Board of Directors, the President,
or if the holders of not less than eighty percent (80%) of all the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting sign, date, and deliver to the Secretary one or more written
demands for the meeting describing the purpose or purposes for which it is to be
held.

         SECTION 4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and special meetings of shareholders and shall be
given full discretion in


<PAGE>   5



establishing the rules and procedures to be followed in conducting the meetings,
except as otherwise provided by law or in these Bylaws.

          Section 5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided
by law, written or printed notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the day of the meeting, either personally or by first-class
mail, by or at the direction of the President, the Secretary, or the officer or
person calling the meeting, to each shareholder of record entitled to vote at
such meeting. If the notice is mailed at least thirty (30) days before the date
of the meeting, it may be done by a class of United States mail other than
first-class. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid. If a meeting is adjourned to another time and/or place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless THE BOARD
of Directors, after adjournment, fixes a new record date for the adjourned
meeting. Whenever any notice is required to be given to any shareholder, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether signed before, during or after the time of the meeting stated
therein, and delivered to the Corporation for inclusion in the minutes or filing
with the corporate records, shall be equivalent to the giving of such notice.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the shareholders need be specified in any written waiver of
notice. Attendance of a person at a meeting shall constitute a waiver of (a)
lack of or defective notice of such meeting, unless the person objects at the
beginning to the holding of the meeting or the transacting of any business at
the meeting, or (b) lack of defective notice of a particular matter at a meeting
that is not within the purpose or purposes described in the meeting notice,
unless the person objects to considering such matter when it is presented.

         Section 6. BUSINESS OF SPECIAL MEETING. Business transacted at any
special meeting shall be confined to the purposes stated in the notice thereof.

          Section 7. QUORUM. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting only if a quorum of these shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or by law, a majority of the shares entitled to vote on the matter
by each voting group, represented in person or by proxy, shall constitute a
quorum at any meeting of shareholders, but in no event shall a quorum consist of
less than one-third (1/3) of the shares of each voting group entitled to vote.
If less than a majority of outstanding shares entitled to vote are represented
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. After a quorum has been established at
any shareholders' meeting, the subsequent withdrawal of shareholders, so as to
reduce the number of shares entitled to vote at the meeting below the number
required for a quorum, shall not affect the validity of any action taken at the
meeting or any adjournment thereof.


                                       2




<PAGE>   6




Once a share is represented for any purpose at a meeting, it is deemed present
for quorum purposes for the remainder of the meeting and for any adjournment of
that meeting unless a new record date is or must be set for that adjourned
meeting.

          Section 8. VOTING PER SHARE. Except as otherwise provided in the
Articles of Incorporation or by law, each shareholder is entitled to one (1)
vote for each outstanding share held by him on each matter voted at a
shareholders' meeting.

          Section 9. VOTING OF SHARES. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be presumed to be fully authorized to vote such shares. Shares held by an 
adminitrator, executor, guardian, personal representative, or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by such person without the transfer thereof into his name. If shares stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting shall have the following effect: (a) if only one
votes, in person or by proxy, his act binds all; (b) if more than one vote, in
person or by proxy, the act of the majority so voting binds all; (c) if more
than one vote, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (d) if the instrument or order so filed shows that
any such tenancy is held in unequal interest, a majority or a vote evenly split
for purposes hereof shall be a majority or a vote evenly split in interest. The
principles of this paragraph shall apply, insofar as possible, to execution of
proxies, waivers, consents, or objections and for the purpose of ascertaining
the presence of a quorum.

          SECTION 10. PROXIES. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the corporation may appoint a proxy to vote or otherwise act for
him by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have



                                       3


<PAGE>   7




been transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation or such other officer or agent which is authorized to tabulate
votes, and shall be valid for up to 11 months, unless a longer period is
expressly provided in the appointment form. The death or incapacity of the
shareholder appointing a proxy does not affect the right of the Corporation to
accept the proxy's authority unless notice of the death or incapacity is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. An appointment
of a proxy is revocable by the shareholder unless the appointment is coupled
with an interest.

         Section 11. SHAREHOLDER LIST. After fixing a record date for a meeting
of shareholders, the Corporation shall prepare an alphabetical list of the names
of all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the Corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held, or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or his agent or attorney is entitled on written demand to inspect
the shareholders' list (subject to the requirements of law), during regular
business hours and at his expense, during the period it is available for
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or his agent or attorney is
entitled to inspect the list at any time during the meeting or any adjournment.

         Section 12. ACTION WITHOUT MEETING. Any action required by law to be
taken at a meeting of shareholders, or any action that may be taken at a meeting
of shareholders, may be taken without a meeting or notice if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock constituting 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 that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
with respect to the subject matter thereof, and such consent shall have the same
force and effect as a vote of shareholders taken at such a meeting.

         Section 13. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
(60) days, and, in case of a meeting of shareholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders



                                       4
<PAGE>   8




entitled to receive payment of a dividend, the date on which the notice of the
meeting is mailed or the date on which the resolutions of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this Section 13, such determination shall apply to any adjournment thereof,
except where the Board of Directors fixes a new record date for the adjourned
meeting or as required by law.

         Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournment(s) thereof. If any inspector or inspectors, or judge or judges, are
not appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors or judges. In case any person who may be appointed as an
inspector or judge fails to appear or act, the vacancy may be filled by the
Board of Directors in advance of the meeting, or at the meeting by the person
presiding thereat. The inspectors or judges, if any, shall determine the number
of shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.

         Section 15. VOTING FOR DIRECTORS. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.

                                 ARTICLE THREE

                                   DIRECTORS

         Section 1. NUMBER, ELECTION AND TERM. The business and affairs of the 
Corporation shall be managed by or under the direction of a Board of Directors.
The number of directors which shall constitute the whole board shall be not more
than twelve (12) nor less than one (1), the exact number of directors to be
determined from time to time by resolution adopted by affirmative vote of a
majority of the entire Board of Directors. The directors shall be divided into
three classes designated Class I, Class II, and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. The initial term of the
Class I directors shall expire at the first annual meeting of shareholders of
the Corporation, the initial term of the Class II directors shall expire at the
second annual meeting of shareholders of the Corporation and the initial term of
the Class III directors shall expire at the third annual meeting of
shareholders. At each such annual meeting of shareholders, successors to the
class of directors whose term expires at such annual meeting shall be elected
for a three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any additional director
of any class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of that
class, but in no case will a decrease in the number of directors shorten the
term of any incumbent director. A director shall hold office until the annual
meeting for the year in which his or her term expires and until his or her
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Directors may
only be removed only for cause. "Cause" shall mean any intentional or grossly
reckless conduct that is harmful to the Corporation, such as misuse of
confidential information, competing against the Corporation, a serious violation
of due care or fiduciary duties or other gross abuse of office. The initial
Board of Directors of the Corporation immediately shall consist of six (6)
directors. Notwithstanding Article 7 to the contrary, this Article 3 may not be
amended or repealed unless approved by the affirmative vote of not less than
two-thirds of the outstanding shares of the Corporation entitled to vote in an
election of directors.

                                       5

<PAGE>   9



          Section 2. VACANCIES. A director may resign at any time by giving
written notice to the Corporation, the Board of Directors or the Chairman of the
Board. Such resignation shall take effect when the notice is delivered unless
the notice specifies a later effective date, in which event the Board of
Directors may fill the pending vacancy before the effective date if they provide
that the successor does not take office until the effective date. Any vacancy
occurring in the Board of Directors and any directorship to be filled by reason
of an increase in the size of the Board of Directors shall be filled by the
affirmative vote of a majority of the current directors though less than a
quorum of the Board of Directors, or may be filled by an election at an annual
or special meeting of the shareholders called for that purpose, unless otherwise
provided by law. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, or until the next election of one
or more directors by shareholders if the vacancy is caused by an increase in the
number of directors.

          Section 3. POWERS, Except as provided in the Articles of Incorporation
and by law, all corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of, its Board of Directors.

          Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.

          Section 5. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held, without call or notice, immediately following
each annual meeting of shareholders.

          Section 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors may also be held without notice at such time and at such place as
shall from time to time be determined by the Board of Directors.

          Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board
of Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
Written notice of special meetings of the Board of Directors shall be given to
each director at least forty-eight (48) hours before the meeting. Except as
required by statute, neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting. Notices to directors shall be
in writing and delivered personally or mailed to the directors at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given at the time when the same shall be received. Notice to
directors may also be given by telegram, teletype or other form of electronic
communication. Notice of a meeting of the Board of Directors need not be given
to any director who signs a written waiver of notice before, during or after the
meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting and a waiver of any and all objections to the place of
the




                                       6

<PAGE>   10



meeting, the time of the meeting and the manner in which it has been called or
convened, except when a director states, at the beginning of the meeting or
promptly upon arrival at the meeting, any objection to the transaction of
business because the meeting is not lawfully called or convened.

         Section 8. QUORUM; REQUIRED VOTES PRESUMPTION OF ASSENT. A majority of
the number of directors fixed by, or in the manner provided in, these bylaws
shall constitute a quorum for the transaction of business; provided, however,
that whenever, for any reason, a vacancy occurs in the Board of Directors, a
quorum shall consist of a majority of the remaining directors until the vacancy
has been filled. The act of a majority of the directors present at a meeting at
which a quorum is present when the vote is taken shall be the act of the Board
of Directors. A director of the Corporation who is present at a meeting of the
Board of Directors or a committee of the Board of Directors when corporate
action is taken shall be presumed to have assented to the action taken, unless
he objects at the beginning of the meeting, or promptly upon his arrival, to
holding the meeting or transacting specific business at the meeting, or he votes
against or abstains from the action taken.

         Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or a committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this section is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.

         Section 10. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT
MEETINGS. Members of the Board of Directors may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation in such a meeting shall constitute presence in
person at the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
the meeting is not lawfully called or convened.

         Section 11. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by statute. Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Article Three, may designate one or more
directors as alternate members of any committee, who may act in the place and
stead of any absent member or members at any meeting of such committee.
Vacancies in the membership of a committee



                                       7


<PAGE>   11




shall be filled by the Board of Directors at a regular or special meeting of the
Board of Directors. The executive committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required. The
designation of any such committee and the delegation thereto of authority shall
not operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law.

         Section 12. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.

         Section 13. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, choose a chairman of the board who shall preside at meetings of the
shareholders and of the directors and shall be an ex officio member of all
standing committees. The Chairman of the Board shall have such other powers and
shall perform such other duties as shall be designated by the Board of
Directors. The Chairman of the Board shall be a member of the Board of Directors
but no other officers of the Corporation need be a director. The Chairman of the
Board shall serve until his successor is chosen and qualified, but he may be
removed at any time by the affirmative vote of a majority of the Board of
Directors.

                                  ARTICLE FOUR

                                    OFFICERS

         Section 1. POSITIONS. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary and a Treasurer, and, if
elected by the Board of Directors by resolution, a Chairman of the Board. Any
two or more offices may be held by the same person.

         Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a President, one or more Vice Presidents, a Secretary, and a Treasurer.

         Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the President of the Corporation. The Board of Directors
shall be advised of appointments by the President at or before the next
scheduled Board of Directors meeting.

         Section 4. SALARIES. The salaries of all officers of the Corporation to
be elected by the Board of Directors pursuant to Article Four, Section 2 hereof
shall be fixed


                                       8

<PAGE>   12

from time to time by the Board of Directors or pursuant to its discretion. The
salaries of all other elected or appointed officers of the Corporation shall be
fixed from time to time by the President of the Corporation or pursuant to his
direction.

         Section 5. TERM; RESIGNATION. The officers of the Corporation shall
hold office until their successors are chosen and qualified. Any officer or
agent elected or appointed by the Board of Directors or the President of the
Corporation may be removed, with or without cause, by the Board of Directors.
Any officers or agents appointed by the President of the Corporation pursuant to
Section 3 of this Article Four may also be removed from such officer positions
by the President, with or without cause. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise shall be filled by
the Board of Directors, or, in the case of an officer appointed by the President
of the Corporation, by the President or the Board of Directors. Any officer of
the Corporation may resign from his respective office or position by delivering
notice to the Corporation. Such resignation is effective when delivered unless
the notice specifies a later effective date. If a resignation is made effective
at a later date and the Corporation accepts the future effective date, the Board
of Directors may fill the pending vacancy before the effective date if the Board
provides that the successor does not take office until the effective date.

         Section 6. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. In the absence of the Chairman of
the Board or in the event the Board of Directors shall not have designated a
chairman of the board, the President shall preside at meetings of the
shareholders and the Board of Directors.

         Section 7. VICE PRESIDENTS. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors shall prescribe or as the President may
from time to time delegate.

         Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, affix the same to any instrument requiring it.

         Section 9. TREASURER. The Treasurer shall have the custody of corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in

                                       9


<PAGE>   13





books belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the President and
the Board of Directors at its regular meetings or when the Board of Directors so
requires an account of all his transactions as treasurer and of the financial
condition of the Corporation unless otherwise specified by the Board of
Directors, the Treasurer shall be the Corporation's Chief Financial Officer.

         Section 10. OTHER OFFICERS, EMPLOYEES AND AGENTS. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to him by the Board of Directors, the officer so appointing him
and such officer or officers who may from time to time be designated by the
Board of Directors to exercise such supervisory authority.

                                  ARTICLE FIVE

                            CERTIFICATES FOR SHARES

         Section 1. ISSUE OF CERTIFICATES. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled; and
such certificates shall be signed by the Chairman of the Board, President or a
Vice President, and by the Secretary or an Assistant Secretary of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof.

         Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer and there shall be set forth or fairly summarized
upon the certificate, or the certificate shall indicate that the Corporation
will furnish to any shareholder upon request and without charge, a full
statement of such restrictions. If the Corporation issues any shares that are
not registered under the Securities Act of 1933, as amended, and registered or
qualified under the applicable state securities laws, the transfer of any such
shares shall be restricted substantially in accordance with the following
legend:



                                       10




<PAGE>   14



                  "THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
         ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED
         FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER
         THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT
         HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF
         COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
         REQUIRED.

          Section 3. FACSIMILE SIGNATURES. The signatures of the Chairman of the
Board, the President or a Vice President and the Secretary or Assistant
Secretary upon a certificate may be facsimiles, if the certificate is manually
signed by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of the issuance.

          Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.

          Section 5. TRANSFER OF SHARES. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompamied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.

          Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive rights of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof except as otherwise provided by the laws of the State of
Florida.



                                       11


<PAGE>   15




          Section 7. REDEMPTION OF CONTROL SHARES. As provided by the Florida
Business Corporation Act, if a person acquiring control shares of the
Corporation does not file an acquiring person statement with the Corporation,
the Corporation may redeem the control shares at fair market value at any time
during the 60-day period after the last acquisition of such control shares. If a
person acquiring control shares of the Corporation files an acquiring person
statement with the Corporation, the control shares may be redeemed by the
Corporation only if such shares are not accorded full voting rights by the
shareholders as provided by law.

                                  ARTICLE SIX

                               GENERAL PROVISIONS

         Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, or its own shares pursuant to law and subject to the provisions
of the Articles of Incorporation.

         Section 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.

         Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.

         Section 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by the Board of Directors and may be changed from time to time by
resolution of the Board of Directors.

         Section 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.

         Section 6. GENDER. All words used in these Bylaws in the masculine
gender shall extend to and shall include the feminine and neuter genders.

                                 ARTICLE SEVEN

                              AMENDMENTS OF BYLAWS

          Unless otherwise provided by law, these Bylaws may be altered, amended
or repealed or new Bylaws may be adopted by action of the Board of Directors.


                                       12






<PAGE>   1
                                                                     EXHIBIT 4.1

COMMON STOCK

COMMON STOCK
SG

THIS CERTIFIES THAT ____________________
IS THE OWNER OF _______________________

SEE REVERSE FOR CERTAIN DEFINITIONS

CUSIP 832059 10 9


INCORPORATED UNDER THE LAWS
OF THE STATE OF FLORIDA

___________________________
PRESIDENT

___________________________
SECRETARY

COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR


BY
___________________________
AUTHORIZED SIGNATURE



FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
Smith-Gardner & Associates, Inc. transferable on the books of the Corporation by
the holder hereof in person or by duly authorized Attorney upon surrender of
this Certificate properly endorsed. This Certificate is not valid until
countersigned and registered by the Transfer Agent and Registrar.
      
      IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.

      Dated:

<PAGE>   1
                                                                     EXHIBIT 5.1


                       AKERMAN, SENTERFITT & EIDSON, P.A.
                          450 EAST LAS OLAS BOULEVARD
                           FORT LAUDERDALE, FL 33301
                                 (954) 463-2700
                                        


                                January 8, 1999


Smith-Gardner & Associates, Inc.
1615 South Congress Avenue 
Delray Beach, Florida 33445-6368

Ladies and Gentlemen:

     Smith-Gardner & Associates, Inc., a Florida corporation (the "Company"), 
has filed with the Securities and Exchange Commission a Registration Statement
on Form S-1, as amended (Registration No. 333-63125) (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Act"). The
Registration Statement relates to the sale by the Company of up to 5,071,500
shares (the "Shares") of the Company's Common Stock, $0.01 par value per share,
including: (i) 4,000,000 shares of Common Stock to be sold by the Company to
underwriters for whom BT Alex. Brown Incorporated is acting as representative
(the "Underwriters") and up to 661,500 shares of Common Stock which the
Underwriters will have an option to purchase from the Company solely for the
purpose of covering over-allotments (together, the "Company Shares"); and (ii)
410,000 shares of Common Stock to be sold to the Underwriters by certain selling
shareholders identified in the Registration Statement (the "Selling
Shareholder Shares"). We have acted as counsel to the Company in connection with
the preparation and filing of the Registration Statement.

     In connection with the Registration Statement, we have examined, considered
and relied upon copies of the following documents: (i) the Company's Amended and
Restated Articles of Incorporation, as amended to date, and the Company's
Bylaws, as amended to date; (ii) resolutions of the Company's Board of Directors
authorizing the offering and the issuance of the Shares to be sold by the
Company and related matters; (iii) the Registration Statement and schedules and
exhibits thereto; and (iv) such other documents and instruments that we have
deemed necessary for the expression of the opinions herein contained. In making
the foregoing examinations we have assumed, without investigation, the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals, the conformity to authentic original documents of all documents
submitted to us as copies, and the veracity of the documents. As to various
questions of fact material to the opinion expressed below, we have relied solely
upon the representations or certificates of officers and/or directors of the
Company and upon documents, records and instruments furnished to us by the
Company, without independently verifying the accuracy of such certificates,
documents, records or instruments.

     Based upon the foregoing examination, and subject to the qualifications set
forth below, we are of the opinion that: (a) the Company Shares have been duly
authorized and, when issued, delivered and paid for in accordance with the terms
of the Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement, will be validly issued, fully paid and non-assessable, and (b) the
Selling Shareholder Shares have been duly authorized and are validly issued,
fully paid and nonassessable.



<PAGE>   2
     Although we have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement, our engagement has been
limited to certain matters about which we have been consulted. Consequently,
there may exist matters of a legal nature involving the Company in which we have
not been consulted and have not represented the Company. We express no opinion
as to the laws of any jurisdiction other than the General Corporation Law of the
State of Delaware and the laws of the State of Florida. The opinions expressed
herein concern only the effect of the laws (excluding the principles of conflict
of laws) of the State of Florida as currently in effect. This opinion letter
is limited to the matters stated herein and no opinions may be implied or
inferred beyond the matters expressly stated herein. The opinions expressed
herein are given as of this date, and we assume no obligation to update or
supplement our opinions to reflect any facts or circumstances that may come to
our attention or any change in law that may occur or become effective at a later
date.

     We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.



                                         Sincerely,

                                         AKERMAN, SENTERFITT & EIDSON, P.A.

                                         /s/ Akerman, Senterfitt & Eidson, P.A.




<PAGE>   1
                                                                    EXHIBIT 10.5

                          QUARTERLY PROFIT SHARING PLAN

                              FOR THE EMPLOYEES OF

                        SMITH-GARDNER & ASSOCIATES, INC.









            1. PURPOSE - The plan has been established to provide eligible
                  employees with an opportunity to participate in Company
                  profits on a quarterly basis.

            2. CONTRIBUTIONS BY COMPANY - Contributions will be determined based
                  on the performance of the Company, current and projected cash
                  position, new customer contracts, order backlog and other
                  pertinent financial data. The profit sharing pool will be
                  established at the sole discretion of management.

            3. FORM OF COMPENSATION - Profit sharing may be awarded in the form
                  of cash, stock options, a combination of both or any other
                  form of compensation management deems appropriate. The
                  composition of the profit sharing pool may vary from quarter
                  to quarter.

            4. METHOD OF CALCULATION - The profit sharing distribution to each
                  employee will be determined by dividing the employee's
                  eligible (see exclusions below) gross payroll by the company's
                  eligible gross quarterly payroll and applying the resulting
                  percentage to the established profit sharing pool.

            5. ELIGIBILITY - Employees must be employed as of the first business
                  day of the quarter and remain employed through the last
                  business day of the quarter. However, should an employee be
                  terminated for any reason subsequent to the end of the quarter
                  but prior to the issuance of the profit sharing distribution,
                  the employee will not be eligible to receive a distribution.
                  If an employee has taken an approved, unpaid leave of absence
                  during the quarter, the employee will be eligible to receive a
                  profit sharing distribution based on gross pay earned during
                  that quarter.

            6. TIMING OF ISSUANCE - Profit sharing distributions will be made
                  the first pay period after the end of the quarter for which
                  the distribution is being made.





<PAGE>   1
                                                                   EXHIBIT 10.17



                                LEASE AGREEMENT

                                    BETWEEN

                            ARBORS ASSOCIATES, LTD.,
                         a Florida limited partnership

                                  as Landlord

                                      AND

                       SMITH GARDNER AND ASSOCIATES, INC.

                                   as Tenant

                               DATED JULY 1, 1994


                        for 46,125 rentable square feet

                                     in the

                               Arbors Office Park
                      1615 South Congress Avenue Building
                          Delray Beach, Florida 33444



<PAGE>   2


                               TABLE OF CONTENTS
                               -----------------

                                                                           PAGE
                                                                           ----

1.  Premises..................................................................1

2.  Term......................................................................1

3.  Rental....................................................................2
    (a)      Base Rental......................................................2
    (b)      Additional Rental................................................3
             (i)      Operating Expenses......................................3
             (ii)     Real Estate Taxes.......................................5
    (c)      Payment of Proportionate Share...................................6
    (d)      Dispute of Operating Expenses....................................7
    (e)      Adjustments to Operating Expenses................................7
    (f)      Other Charges....................................................8
    (g)      Place of Payment.................................................8
    (h)      Free Rent; Additional Free Rent..................................8

4.  Construction..............................................................8
    (a)      Improvements to be Constructed...................................8
    (b)      Work Prior to Commencement Date..................................9
    (c)      Availability of Premises Prior to Commencement Date..............9
    (d)      Substantial Completion...........................................9
    (e)      Condition of Premises............................................9
    (f)      Overload........................................................10

5.  Use of the Premises......................................................10
    (a)      Use.............................................................10
    (b)      Advertisement...................................................10
    (c)      Solicitation....................................................10
    (d)      Care............................................................10
    (e)      Noise; Odors....................................................11

6.  Alterations..............................................................11
    (a)      Prohibition.....................................................11
    (b)      Indemnification.................................................11
    (c)      Compliance and Supervision of Alterations.......................12
    (d)      Landlord's Property.............................................12
    (e)      Wiring..........................................................12

7.  Mechanics' Liens.........................................................12

8.  Maintenance and Repair...................................................13
    (a)      Tenant's Maintenance............................................13
    (b)      Landlord's Maintenance..........................................14



                                       i
<PAGE>   3



    (c)      Inspection......................................................14

9.  Common Areas.............................................................15
    (a)      Grant...........................................................15
    (b)      Parking.........................................................15
    (c)      Right to Change Common Areas....................................15

10. Building Services........................................................16
    (a)      Electric........................................................16
    (b)      Water...........................................................16
    (c)      Air-Conditioning and Heat.......................................16
    (d)      Janitor Service.................................................17
    (e)      Elevator Service................................................17
    (f)      Interruption of Services........................................17
    (g)      Energy Curtailment..............................................18
    (h)      Normal Business Hours...........................................18
    (i)      Holidays........................................................18
    (j)      Life Support....................................................18

11. Estoppel Certificates....................................................19

12. Indemnification; Waiver of Claims........................................19

13. Insurance................................................................19
    (a)      Tenant's Insurance..............................................20
    (b)      Landlord as Additional Insured..................................20
    (c)      Landlord's Insurance............................................20
    (d)      Increase in Premiums............................................21

14. Waiver of Subrogation....................................................21

15. Holding Over.............................................................21

16. Assignment and Sublease..................................................21

17. Quiet Enjoyment..........................................................21

18. Compliance with Laws and with Rules and Regulations......................21
    (a)      Laws............................................................22
    (b)      Rules and Regulations...........................................22
    (c)      Landlord represents and warrants................................22

19. Fire and Casualty........................................................22

20. Eminent Domain...........................................................24



                                  ii
<PAGE>   4


21. Default..................................................................24

22. Waiver of Default or Remedy..............................................26

23. Landlord's Lien..........................................................27

24. Force Majeure............................................................27

25. Subordination of Lease...................................................27

26. Notices and Consents.....................................................28

27. Security Deposit.........................................................28

28. Miscellaneous Taxes......................................................29

29. Brokerage Commission.....................................................29

30. Hazardous Devices and Contaminants.......................................29
    (a)      Prohibition.....................................................29
    (b)      Indemnification by Tenant.......................................30
    (c)      Definitions.....................................................30
    (d)      Indemnification by Landlord.....................................30
    (e)      Landlord's Obligations..........................................31

31. Signs....................................................................31

32. Locks....................................................................31

33. Employment...............................................................32

34. Plumbing.................................................................32

35. Certain Rights Reserved to Landlord......................................32

36. Miscellaneous............................................................32

37. Relationship of Parties..................................................33

38. Gender and Number........................................................33

39. Topic Headings...........................................................33

40. Counterparts.............................................................33



                                 iii
<PAGE>   5


41. Entire Agreement.........................................................33

42. Recording................................................................33

43. Governing Law; Invalidity of any Provisions..............................34

44. Exhibits; Riders.........................................................34

45. ADA Compliance...........................................................34

46. Landlord Consents & Approvals............................................34

47. Attorneys' Fees & Costs..................................................34

48. Rules and Regulations....................................................34



                                       iv
<PAGE>   6


Exhibit A         Floor Plan
Exhibit B         Legal Description
Exhibit C         Commencement Date Agreement
Exhibit D         Tenant Improvements
Exhibit E         Tenant Estoppel Certificate
Exhibit F         Rules and Regulations
Exhibit G         Cleaning Specifications
Exhibit H         Landlord's Renovation Plans
Exhibit I         Site Plan (with Designated Parking)
Exhibit J         Memorandum of Lease
Rider No. 1       Renewal Option
Rider No. 2       Right to Negotiate
Rider No. 3       Radon Disclosure
Rider No. 4       Requirements for Construction
Rider No. 5       Subletting
Rider No. 6       Changes and Alterations



                                       v
<PAGE>   7


                                LEASE AGREEMENT

         THIS LEASE AGREEMENT ("Lease"), dated July 1, 1994, is between Arbors
Associates, Ltd., a Florida limited partnership ("Landlord" or "Lessor"), and
Smith Gardner and Associates, Inc., a Florida Corp. ("Tenant" or "Lessee).

         1. PREMISES. In consideration of the rents, terms, provisions and
covenants of this Lease, Landlord hereby leases unto Tenant and Tenant hereby
rents and accepts from Landlord those certain premises containing approximately
46,125 rentable square feet, located on the lst Floor (the "Premises"). The
Premises are outlined on the floor plan attached hereto as Exhibit A and
incorporated herein by reference. The Premises are contained in that certain
budding located at 1615 S. Congress Ave., Delray Beach, Florida 33445 (the
"Building"), which Building contains approximately 100,000 rentable square feet
of space. The land on which the Building is situated, together with all
improvements located thereon (collectively, the "Property"), is more
particularly described on Exhibit B, attached hereto and incorporated herein by
reference.

         2. TERM.

                  (a) Subject to and upon the terms and conditions set forth
         below, the initial term of this Lease shall be for a period of
         approximately seven (7) Lease Years (as hereinafter defined),
         commencing on the Commencement Date (as hereinafter defined) and
         ending December 31, 2001.

                  (b) For purposes of this Lease, the following terms shall
         have the following meanings:

                           (i) "Commencement Date" shall mean the later of
                  10/1/94 or issuance of a permanent Certificate of Occupancy
                  by the City of Delray Beach and tenant's opening for
                  business, but no later than 1/1/95. Promptly upon
                  determination of the Commencement Date, Landlord and Tenant
                  shall execute a memorandum, setting forth the Commencement
                  Date and the expiration date of this Lease, in form and
                  substance substantially similar to that attached hereto as
                  Exhibit C and incorporated by reference, provided however
                  that if Landlord shall be delayed in substantially completing
                  the Premises as a result of the occurrence of any of the
                  following (a "DELAY")):

                           1. Tenant's failure to furnish information or to
                           respond to any request by Landlord for any approval
                           or information within two (2) business days of such
                           request; or

                           2. Tenant's insistence on materials, finishes, or
                           installations that have long lead times after having
                           first been informed by Landlord that such materials,
                           finishes, or installations will cause a Delay; or



                                       1
<PAGE>   8


                           3. Changes in any plans and specifications initiated
                           by Tenant and which changes can be specifically
                           identified as the actual cause for the Delay; or

                           4. The performance or nonperformance by a person or
                           entity employed by Tenant in the completion of any
                           work (all such work and such persons or entities
                           being subject to the prior approval of Landlord); or

                           5. Any request in writing by Tenant that Landlord
                           delay the completion of any the work; or

                           6. Any material breach or default by Tenant in the
                           performance of Tenant's obligations under this
                           Lease; or

                           then for the purpose of determining the Commencement
                           Date, the date of substantial completion shall be
                           deemed to be the day that the Premises would have
                           been substantially completed absent any such
                           Delay(s).

                           2. (b) (i) [continued] Tenant may occupy the
                           premises prior to the commencement date at no cost
                           to tenant, provided that the p[remises are
                           substantially completed. Tenant shall observe and
                           perform all of its obligations under this Lease
                           (except its obligations to conduct business and to
                           pay rent) from the date Tenant takes possession of
                           the Premises until the Commencement Date in the same
                           manner as though the lease Term began when the
                           Premises were so delivered to Tenant. Under no
                           circumstances, however, may Tenant enter into
                           possession of the Premises prior to the substantial
                           completion of the premises without the express
                           written consent of Landlord and subject to any
                           reasonable terms of such consent.

                           (ii) "Lease Year" shall mean full calendar year,
                  beginning with calendar year 1995.

                           (iii) "Term" shall mean the initial term of this
                  Lease and any renewals or extensions thereof.

         3. RENTAL.

                  (a) BASE RENTAL. Tenant shall pay to Landlord, as base rental
         (the "Base Rental") during the Term of this Lease, the amounts set
         forth on pages 2 and 3 hereof, payable monthly,

<TABLE>
<CAPTION>
            PERIOD                  PSF           MONTHLY              ANNUAL
            ------                  ---           -------              ------
<C>                              <C>            <C>                <C>         
1995 - Year 1                    $  6.90        $ 17,250.00       $  207,000.00
1996 - Year 2                    $  7.23                          $  275,191.86
         Month (13 - 18)                        $ 18,075.00
         Month (19 - 24)                        $ 27,790.31
</TABLE>



                                       2
<PAGE>   9


<TABLE>
<CAPTION>
            PERIOD                  PSF           MONTHLY              ANNUAL
            ------                  ---           -------              ------
<C>                              <C>            <C>                <C>         
1997 - Year 3                    $  7.57        $ 29,097.19       $  349,166.25
1998 - Year 4                    $  7.93        $ 30,480.94       $  365,771.25
1999 - Year 5                    $  8.31        $ 31,941.56       $  383,298.75
2000 - Year 6                    $  8.70        $ 33,440.63       $  410,287.50
2001 - Year 7                    $  9.11        $ 35,016.56       $  420,198.75
                                                                  -------------
                                                                  $2,401,914.36
</TABLE>

         Tenant shall pay a rental cost (base rent and operating expenses)
         based on 30,000 rsf for a period of eighteen (18) months from the date
         rent commences.

plus all applicable Sales and Use taxes thereon. Each such monthly installments
shall be due and payable in advance, on or before the first day of each and
every month during the Term, without notice, demand or set-off, except as
otherwise provided herein, provided, however, that the first month's rent shall
be due and payable January 1, 1995.

Base Rental for a partial month shall be due and payable on a pro rata daily
basis on the first day that said rent accrues in said month.

                  (b) ADDITIONAL RENTAL. Tenant Shall pay to Landlord as
         Additional Rental (hereinafter defined), Tenant's Proportionate Share
         (as hereinafter defined), of the Operating Expenses as set forth
         below. As used in this Lease, "Proportionate Share" shall mean a
         percentage factor determined by dividing the rentable square footage
         contained in the Premises by 100% of the rentable square footage
         contained in the Building. Tenant's Proportionate Share shall be 30%
         for months 1 - 18, 46.13% for balance of Term.

                           (i) OPERATING EXPENSES. "Operating Expenses" shall
                  include those expenses paid by or on behalf of Landlord in
                  respect to the direct management, operation, service and
                  maintenance of the Property, including the Premises, in
                  accordance with generally accepted principles of office
                  building management as applied to the operation and
                  maintenance of office buildings similar to the type and
                  nature of the Property and in the general market area as the
                  Property. Operating Expenses shall include, but not be
                  limited to, (A) Real Estate Taxes (as hereinafter defined);
                  (B) premium costs for liability, boiler, extended coverage,
                  casualty and other insurance covering the Property to be
                  maintained by Landlord and required by the terms of this
                  Lease; (C) electricity, gas, water and other utility charges
                  for the Property, (D) HVAC, cleaning, trash removal, elevator
                  repair and maintenance, security, parking and irrigation
                  repairs and maintenance; (E) reasonable wages, salaries and
                  fees of operating, auditing, accounting, maintenance and
                  management personnel in connection with the Property; (F) all
                  payroll charges for such personnel, such as unemployment and
                  social security taxes, workers' compensation, health,
                  accident and group insurance, and other so-called fringe
                  benefits; (G) reasonable rental charges for office space
                  chargeable to the operation and management of the Property;
                  (H) license permits and inspection fees; (I) supplies and
                  materials used in the operation and management of the
                  Property; (J) furnishings and equipment not



                                       3
<PAGE>   10


                  treated by Landlord as capital expenditures of the Property;
                  (K) depreciation on the cost of any labor saving devices that
                  may, from time to time, be placed in operation as a part of
                  Landlord's maintenance program; (L) personal property taxes
                  on property used in the operation, maintenance, service and
                  management of the Property; (M) the cost, as reasonably
                  amortized by Landlord, with interest at the rate of ten
                  percent (10%) per annum on the unamortized amount, of any
                  capital improvement made after completion of initial
                  construction of the Building which reduces Operating
                  Expenses, but in an amount not to exceed such reduction for
                  the relevant year, (N) reasonable and customary management
                  fees relating to Property (O) the cost of any installation or
                  improvement required by reason of any law, ordinance or
                  regulation, which requirement did not exist on the date of
                  the Lease and is generally applicable to similar office
                  buildings; and (P) all other expenses necessary for the
                  operation and management of the Property. Notwithstanding
                  anything in the Lease to the contrary, the following items
                  shall not be included for purposes of calculating Operating
                  Expenses:

                  (a) Cost of decorating, redecorating, or special cleaning or
                  other services not provided on a regular basis to tenants in
                  the building.

                  (b) Wages, salaries, fees, and fringe benefits paid to
                  administrative or executive personnel or officers, directors
                  or partners of Landlord, unless employed at competitive rates
                  as independent contractors for the building.

                  (c) Any charge for depreciation of the building or equipment
                  and any interest or other financing charge.

                  (d) Any charge for Landlord's income taxes, excess profit
                  taxes, franchise taxes, or similar taxes on Landlord's
                  business.

                  (e) All costs relating to activities for the solicitation and
                  execution of leases of space in the building.

                  (f) All costs for which Tenant or any other tenant in the
                  building is being directly charged, other than pursuant to
                  3.(b)(i) hereof.

                  (g) The cost of any electric service furnished to the
                  Premises or any other rentable area of the building for
                  purposes other than the operation of building equipment and
                  machinery and the lighting of public toilets, stairways,
                  shaftways, and building machinery or fan rooms.

                  (h) the cost of correcting defects in the construction of the
                  building or in the building equipment.

                  (i) The cost of any repair made by Landlord because of the
                  total or partial destruction of the building or the
                  condemnation of all or a portion of the building.



                                       4
<PAGE>   11


                  (j) Any increase in insurance premium to the extent that such
                  increase is caused or attributable to the use of the building
                  by Landlord.

                  (k) The cost of any items for which Landlord is reimbursed by
                  insurance or otherwise compensated by parties other than
                  Tenant.

                  (l) The cost of any additions or capital improvements to the
                  building subsequent to the date of original construction.

                  (m) The cost of any repairs, alterations, additions, changes,
                  replacements, and other items which under generally accepted
                  accounting principles are properly classified as capital
                  expenditures to the extent they upgrade or improve the
                  building as opposed to replace existing items which have worn
                  out.

                  (n) Any operating expense representing an amount paid to a
                  related corporation, entity, or person, which is in excess of
                  the amount which would be paid in the absence of such
                  relationship.

                  (o) the cost of tools and equipment used in the construction,
                  operation, repair or maintenance of the building.

                  (p) The cost of any work or service performed for or
                  furnished to Tenant.

                  (q) The cost of alterations of space in the building leased
                  to other tenants.

                  (r) The cost of overtime or other expense to Landlord in
                  curing its defaults or performing work expressly provided in
                  this Lease to be borne at Landlord's expense.

                  (s) The cost of any work associated with the building
                  renovation and/or Building Certificate of Occupancy from the
                  City of Delray Beach granted on June 17, 1994.

                           (ii) REAL ESTATE TAXES. "Real Estate Taxes" shall
                  include all taxes, including state equalization factor, if
                  any, and assessments, special or otherwise, exclusive of
                  penalties or discounts levied upon or with respect to the
                  Property, including the Premises, imposed by any federal,
                  state or local governmental agency, and including any use,
                  occupancy, excise, sales or other like taxes (other than
                  general income taxes on rent or other income from the
                  Building computed in the case of a graduated tax, as if
                  Landlord's rent and other income from the Building was
                  Landlord's sole taxable income). Landlord shall use its best
                  efforts to pay Palm Beach County Real Estate Taxes in order
                  to obtain the maximum discount (currently available if paid
                  in November of each year). Notwithstanding anything in the
                  Lease to the contrary, the following items shall not be
                  included for purposes of calculating Real Estate Taxes:

                           (a)      Inheritance taxes.



                                       5
<PAGE>   12


                           (b)      Gift taxes.
                           (c)      Transfer taxes.
                           (d)      Franchise taxes.
                           (e)      Excise taxes.
                           (f)      Net income taxes.
                           (g)      Profit taxes.
                           (h)      Capital levies
                           (i)      Late payment charges and penalties
                           (j)      Special assessments levied against other
                                    than real estate. Assessments payable
                                    hereunder may be payable by Tenant in
                                    installments if the Landlord permitted it
                                    to do so.

                  Real Estate Taxes also shall include the expense of
contesting the amount or validity of any such taxes, charges or assessments,
such expense to be applicable to the period of the item contested. Real Estate
Taxes shall not, however, include income, franchise, capital stock, estate or
inheritance taxes unless Landlord reasonably determines that such taxes are in
lieu of real estate taxes, assessments, rental, occupancy and other like excise
taxes. For purposes of this Lease, Real Estate Taxes for any calendar year
shall be those taxes the last timely payment date for which occurs within such
calendar year. In case of special taxes or assessments payable in installments,
only the amount of the installment(s) the last timely payment date for which
occurs on or after the first day and on or before the last day of such year
shall be included in Real Estate Taxes for that year.

         Landlord shall retain the sole right to participate in any proceedings
to establish or contest the amount of Real Estate Taxes. If a complaint against
valuation, protest of tax rates or other action increases or decreases the Real
Estate Taxes for any calendar year, resulting in an increase or decrease in
rent hereunder, the Real Estate Taxes for the affected calendar year shall be
recalculated accordingly and the resulting increased rent plus the expenses
incurred in connection with such contest, or decreased rent, less the expenses
incurred in connection with such contest, shall be paid simultaneously with or
applied as a credit against, as the case may be, the rent next becoming due.

                  (c) PAYMENT OF PROPORTIONATE SHARE. To provide for current
         payments of Operating Expenses, Tenant shall pay Tenant's
         Proportionate Share of the Operating Expenses, as estimated by
         Landlord from time to time, in twelve (12) monthly installments,
         commencing on the first day of the month following the month in which
         Landlord notifies Tenant of the amount of its estimated Proportionate
         Share. Landlord and Tenant intend to estimate the amount of Operating
         Expenses for each year and then to reconcile such estimated expenses
         in the following year based on actual Operating Expenses for such year
         paid by Landlord. If Tenant's Proportionate Share of the actual
         Operating Expenses shall be greater than or less than the aggregate of
         all installments so paid on account to Landlord for such twelve (12)
         month period, then within thirty (30) days of Tenant's receipt of
         Landlord's statement of reconciled Operating Expenses, Tenant shall
         pay to Landlord the amount of such underpayment, or Landlord shall
         credit Tenant for the amount of such overpayment against the next
         maturing installment(s) of rent, as the case may be. The obligation of
         Tenant with respect to the payment of Tenant's Proportionate Share of
         the Operating Expenses shall survive the termination of this Lease.
         Any payment, refund, or credit made pursuant to this



                                       6
<PAGE>   13


         subparagraph 3(c) shall be made without prejudice to any right of
         Tenant to dispute the statement as hereinafter provided, or of
         Landlord to correct any item(s) as billed pursuant to the provisions
         hereof. Landlord's failure to give such statement shall not constitute
         a waiver by Landlord of its right to recover rent that is due and
         payable pursuant to this subparagraph 3(c). Landlord and Tenant agree
         that estimated Operating Expenses shall be $6.56 per rentable square
         foot for the calendar year 1995. Landlord hereby agrees that Tenant
         shall not be required to pay more than $6.75 per rentable square foot
         for 1995 Operating Expenses. Tenant's payment of "Controllable
         Operating Expenses" (which, for purposes of this Lease, shall be
         defined as Operating Expenses other than real estate taxes, insurance
         and utilities) shall not increase by more than five percent (5%) per
         annum, on a cumulative basis, based upon 1995 actual Operating
         Expenses, as described above.

                  (d) DISPUTE OF OPERATING EXPENSES. If Tenant questions in
         writing any such notice of reconciled Operating Expenses (or revised
         notice thereof), and if the question is not amicably settled between
         Landlord and Tenant within thirty (30) days after said notice of
         reconciled Operating Expenses (or revised adjusted) has been given,
         Landlord shall, during the sixty (60) days next following the
         expiration of such thirty (30) day period, employ an independent
         certified public accountant reasonably agreed to by Tenant to audit
         Operating Expenses. The determination of such accountant shall be
         final, conclusive and binding upon Landlord and Tenant. Tenant
         understands that the actual itemization of, and the amount of
         individual items constituting, Operating Expenses is confidential; and
         while Landlord shall keep and make available to such accountant all
         records in reasonable detail, and shall permit such accountant to
         examine and audit such of Landlord's records as may reasonably be
         required to verify such reconciled Operating Expenses, at reasonable
         times during business hours, Landlord shall not be required to (and
         the accountant shall not be permitted to) disclose to any person, firm
         or corporation, including to Tenant, any such details (it being the
         intent of the parties that such accountant shall merely certify to
         Landlord and to Tenant the correct amount of adjusted additional
         Operating Expenses for the calendar year, provided however, if Tenant
         and/or agent(s) agree, in writing, to keep such information
         confidential, then Landlord shall provide them with such information
         for purposes of verifying the accountant's audit. Any change in the
         reconciled Operating Expenses required by such accountant's
         determination shall be made within thirty (30) days after such
         determination has been rendered. The expenses involved in such
         determination shall be borne by Tenant and deemed to be Additional
         Rental under this Lease, unless the results of such audit determine
         that the difference between the Operating Expenses as determined by
         the audit and the Operating Expenses as determined by Landlord is
         greater than five percent (5%) of the Operating Expenses as determined
         by Landlord, in which case such expenses shall be borne by Landlord.
         If Tenant does not, in writing, question the reconciled Operating
         Expenses within thirty (30) days after such notice has been given,
         Tenant shall be deemed to have approved and accepted such reconciled
         Operating Expenses.

                  (e) ADJUSTMENTS TO OPERATING EXPENSES. If a clerical error
         occurs or Landlord or Landlord's accountants discover new facts, which
         error or discovery causes Operating Expenses for any period to
         increase or decrease, upon notice by Landlord to Tenant of the
         adjusted additional Operating Expenses for such calendar year, the
         adjusted additional



                                       7
<PAGE>   14


         Operating Expenses shall apply and any deficiency or overpayment of
         Tenant's Proportionate Share of the Operating Expense Pass-through
         Amount, as the case may be, shall be paid by Tenant or taken as a
         credit by Tenant according to the provisions set forth above. This
         provision shall not survive the termination of the Lease.

                  (f) OTHER CHARGES. All costs, expenses and other sums that
         Tenant assumes or agrees to pay to Landlord pursuant to this Lease
         ("Other Charges") shall be deemed rental and, in the event of
         nonpayment thereof, within ten (10) days after due. Landlord shall
         have all the rights and remedies herein provided for in case of
         nonpayment of Base Rental. If a monthly installment of rent is not
         received on or before the tenth (10th) day of the month in which it is
         due, other remedies for nonpayment of rent notwithstanding, Tenant
         shall pay to Landlord, a late charge of five percent (5%) of such
         installment as rent for the purpose of defraying Landlord's
         administrative expenses incident to the handling of such overdue
         payment, and such past due rent shall bear interest at the greater of
         (i) due date (after the expiration of any applicable grace period); or
         (ii) a rate of interest equal to the prime rate as announced from time
         to time by Bank One, Columbus, N.A., plus three percent (3%) per annum
         (the "Default Rate"), for each day from the first day of the month
         through the date such monthly installment of rent is received by
         Landlord. For purposes of this Lease, "rent" shall mean Base Rental,
         Additional Rental, and Other Charges.

                  (g) PLACE OF PAYMENT. Tenant shall pay all rent and other
         charges due under this Lease without demand, deduction or set off
         except as otherwise provided herein to Landlord at Arbors Associates,
         Ltd., c/o Crocker & Co., 433 Plaza Real, Suite 335, Boca Raton,
         Florida 33432 or at such other place as Landlord any designate from
         time to time hereafter by written notice to Tenant.

                  (h) FREE RENT; ADDITIONAL FREE RENT. [new] Notwithstanding
         anything in this Lease to the contrary, if and so long as Tenant is
         not in default under this Lease, beyond any applicable grace period,
         Tenant shall receive free gross rent (i.e., Base Rent, Additional Rent
         and Other Charges) from the Commencement Date until December 31, 1994.

                  In addition to the free rent described above, Tenant shall
         receive one (1) day additional free gross rent for each day that
         Landlord does not complete its work for the Premises and obtain a
         Certificate of Occupancy, after October 1, 1994. Parties acknowledge
         that tenant approved a permit set of drawings on May 31, 1994 and
         delivered to Landlord on the same day.

                  The rent abatement set forth in the preceding paragraph shall
         not apply with respect to any period of delay in completion of the
         Premises resulting from a Delay. Landlord shall give Tenant notice in
         writing of the occurrence of any Delay.

         4. CONSTRUCTION.

                  (a) IMPROVEMENTS TO BE CONSTRUCTED. Landlord, at its own cost
         and expense, shall perform the work and make the installations in the
         Premises that are designated as



                                       8
<PAGE>   15


         Landlord's Work in Exhibit D, attached hereto and incorporated herein
         by reference. Landlord shall renovate the Building in a quality equal
         to or greater than the renovation reflected at 1690 South Congress
         Avenue, Delray Beach, Florida 33444. The renovation shall be
         completed, except for minor punch list items, on or before the
         Commencement Date. Such renovation work shall include, without
         limitation, renovations to the parking lot (including without
         limitation, installation of additional parking lot lighting), the
         building facade, landscaping, lobby, common hallways, bathrooms,
         building systems (fire and safety), and HVAC, as more particularly set
         forth in EXHIBIT "H" hereto. If such Landlord renovation work is not
         completed on or before the Commencement Date, then Tenant may, at its
         option, occupy or decline to occupy the Premises until such Landlord
         renovation work is completed, and in all events, rent for the Premises
         shall not be due or payable until Landlord's renovation work is
         completed.

                  (b) WORK PRIOR TO COMMENCEMENT DATE. All work, including
         Tenant's Work, in the Premises shall be substantially completed prior
         to the Commencement Date and the Premises shall be in good and
         tenantable condition in all respects for occupancy by Tenant for its
         purposes and uses so long as Tenant shall have approved the plans and
         specifications for construction and remodeling of the Premises on or
         before June 1, 1994. Tenant may make changes in said plans and
         specifications on or before June 1, 1994. Any extension of time and
         modifications to plans and specifications shall be in writing, dated
         and signed by both parties. Landlord and Tenant and their contractors,
         subcontractors, etc. shall reasonably cooperate with each other and
         their contractors, subcontractors, etc., to coordinate and facilitate
         Landlord's and Tenant's work in the Premises.

                  (c) AVAILABILITY OF PREMISES PRIOR TO COMMENCEMENT DATE. If
         Landlord, at Tenant's request, makes the Premises available to Tenant
         before the Commencement Date to decorate, furnish and equip the
         Premises, Tenant shall not interfere with the completion of Landlord's
         Work. Tenant's use of the Premises for such work shall not create a
         landlord-tenant relationship between the parties, or constitute
         occupancy of the Premises within the meaning of the next sentence, but
         the provisions of Paragraphs 12 and 13 of this Lease shall apply.

                  (d) SUBSTANTIAL COMPLETION. As used herein, the work in the
         Premises shall be "substantially completed" when the work has been
         completed in accordance with the plans and specifications; subject to
         the completion of punch list items and a permanent certificate of
         occupancy has been issued.

                  (e) CONDITION OF PREMISES. Except for Punch List items and as
         otherwise agreed to in writing, Tenant's taking possession of the
         Premises shall be conclusive evidence against Tenant that the Premises
         were in good order and satisfactory condition when Tenant took
         possession. Landlord has made no representation respecting the
         condition of the Premises, the Building or the Property, except as is
         expressly set forth in Exhibit D and Section 4(a) hereof. At the
         termination of this Lease, by lapse of time or otherwise, Tenant shall
         remove all Tenant's property, including but not limited to, trade
         fixtures, from the Premises, and shall return the Premises broom-clean
         and in as good a condition as when Tenant took



                                       9
<PAGE>   16


         possession or as same may thereafter have been put by Landlord, except
         for ordinary wear, loss by fire or other casualty, and repairs that
         Landlord is required to make under this Lease. If Tenant fails to
         remove any or all of its property upon termination of this Lease, such
         property shall be deemed to be abandoned and shall become the property
         of Landlord.

                  (f) OVERLOAD. To coordinate orderly move-ins and move-outs,
         no single piece of furniture, freight or equipment of any kind
         exceeding three hundred (300) pounds shall be brought into the
         Building without prior notice to Landlord and Landlord shall designate
         a reasonable time and manner of moving of the same. Landlord shall
         have the right to prescribe the weight, size and position of all safes
         and other heavy equipment brought into the Building and also the times
         and manner of moving the same in and out of the Building. Safes or
         other heavy objects shall, if considered necessary by Landlord, stand
         on supports of such thickness as is necessary to properly distribute
         the weight. Landlord will not be responsible for loss of or damage to
         any such safe or property from any cause, and all damage done to the
         Building by moving or maintaining any such safe or other property
         shall be repaired at Tenant's expense.

         5. USE OF THE PREMISES.

                  (a) USE. Tenant shall use the Premises for the conduct of
         general office (including without limitation, sale of computer
         services, training, software and hardware, and all activities and
         services related thereto including without limitation storage of
         hardware for sale) and for no other purpose whatsoever. Tenant shall
         not, without the prior written consent of Landlord, exhibit, sell or
         offer for sale on the Premises or in the Building any article or
         thing, except those articles and things essentially connected with
         Tenant's stated use of the Premises.

                  (b) ADVERTISEMENT. Tenant shall not advertise the business,
         profession or activities of Tenant conducted in the Building in any
         manner which violates the letter or spirit of any code of ethics
         adopted by any recognized association or organization pertaining to
         such business of Tenant, and shall never use any picture or likeness
         of the Building in any circulars, notices, advertisements or
         correspondence without Landlord's prior written consent which shall
         not be unreasonably withheld.

                  (c) SOLICITATION. Tenant shall not disturb, solicit, or
         canvass any occupant of the Building and shall cooperate with Landlord
         to prevent same.

                  (d) CARE. Tenant shall use and occupy the Premises so that no
         other occupant of any adjoining premises will be unreasonably
         disturbed and shall create no nuisance in, upon or about the Premises.
         Subject to the provisions of Paragraph 8(b), Tenant shall take good
         care of the Premises, the fixtures and appurtenances thereto, and all
         alterations, additions and improvements thereto. Tenant will not make
         or permit to be made any use of the Premises or any part thereof, and
         will not bring into or keep anything in the Premises or any part
         thereof, that (i) violates any of the covenants, agreements, terms,
         provisions and conditions of this Lease; (ii) is forbidden by public
         law, ordinance or regulation of any governmental



                                       10
<PAGE>   17


         or public authority (including zoning ordinances); (iii) is dangerous
         to life, limb or property; (iv) increases the risk to Landlord or any
         other tenant or invalidate or increase the premium cost of any policy
         of insurance carried on the Building or covering its operation; or (v)
         in the sole judgment of Landlord, in any way impairs or tends to
         impair the character, reputation or appearance of the Property as a
         first-class office building, or impairs or interferes with any of the
         services performed by Landlord for the Property.

                  (e) NOISE; ODORS. Tenant shall not use, keep or permit to be
         used or kept any foul or noxious gas or substance in the Premises;
         permit or suffer the Premises to be occupied or used in a manner
         offensive or objectionable to Landlord or other occupants of the
         Building by reason of noise, odors and/or vibrations; interfere in any
         way with other tenants or those having business therein; or bring in
         or keep any animals or birds in the Premises. Tenant shall not use the
         Premises for housing accommodations or lodging or sleeping purposes,
         or do any cooking (except microwave, coffee maker and toaster ovens)
         therein, or use any illumination other than electric light.

         6. ALTERATIONS.

                  (a) PROHIBITION. Tenant shall not make any alterations,
         additions or improvements (other than initial alternations, additions
         and improvements made prior to occupancy) (collectively, the
         "Alterations") in or to the Premises, or in or to the Building without
         the express prior written consent of Landlord; provided, however, that
         Tenant may make alterations in accordance with the provisions of Rider
         No. 6. Before commencing any work in connection with the Alterations,
         Tenant shall furnish to Landlord for its approval the following: (i)
         permit quality plans and specifications therefor, (ii) names and
         addresses of each of the contractors and subcontractors. (iii) copies
         of all contracts, subcontracts and necessary permits, (iv) such
         documentation as is necessary to comply fully with the mechanics' lien
         law of the state in which the Premises is located, and (v)
         certificates of insurance, in form and amount reasonably satisfactory
         to Landlord, from all contractors and subcontractors who will perform
         labor or furnish materials, insuring Landlord against any and all
         liability for personal injury, including workers' compensation claims
         and for property damage that may arise out of or be in any manner
         connected with the Alterations.

                  (b) INDEMNIFICATION. In addition to the indemnity set forth
         in Paragraph 12 of this Lease, Tenant hereby specifically agrees to
         indemnify and hold harmless Landlord from and against any and all
         liabilities, costs and expenses of every kind and description,
         including attorneys' fees, that may arise out of or in any manner be
         connected with any Alterations made by Tenant. Tenant shall pay the
         cost of all such Alterations and all costs associated with decorating
         the Premises that may be occasioned thereby. Upon completion of any
         such Alterations, Tenant shall furnish Landlord with (i) such
         documentation as is necessary to comply fully with mechanics' lien law
         of the state in which Premises are located; (ii) a true and correct
         copy of the certificate of occupancy, if one is issued; and (iii) a
         certificate of Tenant's architect or engineer if applicable stating
         that such Alterations were made in accordance with the plans and
         specifications. Notice is hereby given that Landlord shall not be
         liable for any labor or materials furnished or to be furnished to
         Tenant upon credit, and



                                       11
<PAGE>   18


         that no mechanic's or other lien for such labor or material shall
         attach to or affect the reversion or other estate or interest of
         Landlord in and to the Premises.

                  (c) COMPLIANCE AND SUPERVISION OF ALTERATIONS. All
         Alterations made by Tenant hereunder shall be installed in a good and
         workmanlike manner, using only materials of the same or higher quality
         as those installed in the Building. All Alterations shall comply with
         all requirements of Landlord's insurance carriers and with all laws,
         rules, ordinances and regulations of any lawful authority. Tenant
         shall permit Landlord to supervise construction operations in
         connection with any such Alterations, if Landlord requests the right
         to do so (but Landlord shall have no obligation to make such requests,
         or having done so, to supervise construction). Landlord's supervision
         of construction shall be done solely for the benefit of Landlord and
         shall not alter Tenant's liability and responsibility under this
         Paragraph 6.

                  (d) LANDLORD'S PROPERTY. All Alterations, whether temporary
         or permanent, including hardware, non-trade fixtures and wall and
         floor coverings, whether placed in or upon the Premises by Landlord or
         Tenant shall become Landlord's property and shall remain with the
         Premises at the termination of this Lease, whether by lapse of time or
         otherwise, without compensation, allowance or credit to Tenant;
         provided, however, that notwithstanding the foregoing, Landlord may
         request that any or all of said Alterations in or upon the Premises
         made by Tenant "except initial tenant improvements made by landlord or
         Tenant, pursuant to this lease" be removed by Tenant at the
         termination of this Lease provided that Landlord notifies Tenant of
         removal prior to installation of such alterations by Tenant. If
         Landlord requests such removal or if Tenant removes its trade
         fixtures, Tenant shall remove the same prior to the end of the Term
         and shall repair all damage to the Premises, the Building or the
         Property caused by such removal. Tenant shall not, however, be
         required to remove pipes and wires concealed in floors, walls or
         ceilings, provided that Tenant properly cuts and caps the same, and
         seals them off in a safe, lawful and workmanlike manner, in accordance
         with Landlord's reasonable requirements and all applicable building
         codes. If Tenant does not remove any Alterations when requested by
         Landlord to do so, Landlord may remove the same and repair all damage
         caused thereby, and Tenant shall pay to Landlord the cost of such
         removal and repair immediately upon demand therefor by Landlord, plus
         ten percent (10%) of the cost of such removal to reimburse Landlord
         for its administrative expense. Tenant's obligation to observe or
         perform this covenant shall survive the expiration or termination of
         this Lease.

                  (e) WIRING. Tenant will direct electricians as to where and
         how telephone and computer wires are to be introduced. No boring or
         cutting for wires will be allowed without Tenant's and Landlord's
         consent which shall not be unreasonably withheld. The location of
         telephones, call boxes and other office equipment affixed to the
         Premises shall be subject to Tenant's and Landlord's approval, which
         shall not be unreasonably withheld.

         7. MECHANICS' LIENS.

                  (a) If, because of any act or omission of Tenant, any
         mechanic's lien or other lien, charge or order for the payment of
         money shall be filed against any portion of the Premises,



                                       12
<PAGE>   19


         Tenant, at its own cost and expense, shall cause the same to be
         discharged of record or bonded against within ten (10) days of the
         filing thereof unless Tenant shall contest the validity of such lien
         by appropriate legal proceedings diligently conducted in good faith
         and without expense to Landlord; and Tenant shall indemnify and save
         harmless Landlord against and from all costs, liabilities, suits,
         penalties, claims and demands, including attorneys' fees, on account
         thereof.

                  (b) If Tenant shall fail to call such liens to be discharged
         of record or bonded against within the aforesaid ten (10) day period
         or shall fail to satisfy such liens within ten (10) days after any
         judgment in favor of such lien-holders from which no further appeal
         might be taken, then Landlord shall have the right to cause the same
         to be discharged. All amounts paid by Landlord to cause such liens to
         be discharged, plus interest on such amounts at the Default Rate shall
         constitute Other Charges payable by Tenant to Landlord.

                  (c) The interest of Landlord in the Premises shall not be
         subject in any way to any liens, including construction liens, for
         improvements to or other work performed with respect to the Premises
         by or on behalf of Tenant. Tenant shall have no power or authority to
         create any lien or permit any lien to attach to the present estate,
         reversion, or other estate of Landlord in the Premises or in the
         Property and all mechanics, materialmen, contractors, artisans, and
         other parties contracting with Tenant or its representative or privies
         with respect to the Premises or any part of the Premises are hereby
         charged with notice that they must look to the Tenant to secure
         payment of any bill for work done or material furnished or for any
         other purpose during the term of this Lease. The foregoing provisions
         are made with express reference to Section 713.10, Florida Statutes
         (1993). Tenant shall notify every contractor making improvements to
         the Premises that the interest of the Landlord in the Premises shall
         not be subject to liens for improvements to or other work performed
         with respect to the Premises by or on behalf of Tenant.

         8. MAINTENANCE AND REPAIR.

                  (a) TENANT'S MAINTENANCE. Except as set forth in 8(b) below,
         Tenant, at its sole cost and expense, shall maintain and repair during
         the Term of this Lease the Premises and every part thereof and any and
         all appurtenances thereto, including but not limited to, the doors and
         interior walls of the Premises; special light fixtures; kitchen
         fixtures, auxiliary heating, ventilation, or air-conditioning
         equipment; private bathroom fixtures and any other type of special
         equipment, together with related plumbing or electrical services; and
         rugs, carpeting, wall coverings, and drapes within the Premises,
         whether installed by Tenant or by Landlord on behalf of Tenant, and
         whether or not such items will become Landlord's property upon
         expiration or termination of this Lease. Notwithstanding the
         provisions hereof, in the event that repairs required to be made by
         Tenant become immediately necessary to avoid possible injury or damage
         to persons or property, Landlord may, but shall not be obligated to,
         make repairs to such items at Tenant's expense, which shall constitute
         Other Charges payable by Tenant to Landlord. Within Thirty (30) days
         after Landlord renders a bill for the cost of said repairs, Tenant
         shall reimburse Landlord.



                                       13
<PAGE>   20


                  (b) LANDLORD'S MAINTENANCE. Subject to Paragraph 8(a) above,
         Landlord shall keep, repair and maintain the Building (including the
         roof and structural members, the Common Areas including without
         limitation, the parking lot and lobby (as hereinafter defined),
         mechanical and electrical equipment, the exterior and architectural
         finish, and all items except those excepted elsewhere in this Lease)
         of which the Premises are a part, and the lawn, shrubs and other
         landscaping on the Property, all in good and tenantable condition
         during the Term of this Lease including without limitation, cleaning
         as set forth in Exhibit "G" hereto. Landlord shall, in addition,
         supply reasonable snow removal for the walkways and parking areas of
         the Property during Normal Business Hours (as hereinafter defined).
         Tenant shall notify Landlord immediately when any repair to be made by
         Landlord is necessary. If any portion of the Building or the Premises
         is damaged through the fault or negligence of Tenant, its agents,
         employees, invitees or customers, then Tenant shall promptly and
         properly repair the same at no cost to Landlord; provided, however,
         that Landlord may, at its option, make such repairs (after reasonable
         notice to Tenant, but only if Tenant fails to make such repairs) and
         Tenant shall, on demand, pay the cost thereof, together with interest
         at the Default Rate to Landlord as Other Charges. Tenant shall
         immediately give Landlord written notice of any defect or need for
         repairs, after which notice Landlord shall have reasonable opportunity
         to repair same or cure such defect. For the purposes of making any
         repairs or performing any maintenance, Landlord may block, close or
         change any entrances, doors, corridors, elevators, or other facilities
         in the Building or in the Premises, and may close, block or change
         sidewalks, driveways or parking areas of the Property as long as
         Tenant continues to have reasonable access to the Property and the
         Premises. Landlord shall not be liable to Tenant, except as expressly
         provided in this Lease, for any damage or inconvenience and Tenant
         shall not be entitled to any abatement of rent by reason of any
         repairs, alterations or additions made by Landlord under this Lease.
         Landlord shall be responsible for repairs and maintenance of all
         electrical, plumbing, HVAC and mechanical systems of the Building. All
         repairs and maintenance by Landlord shall comply with applicable
         governmental and quasi-governmental requirements, including without
         limitation, building codes. Tenant shall receive a credit against rent
         on account of the following: any expenditures by Tenant on account of
         any latent defects for a period of one (1) year after the Commencement
         Date and/or violations with respect to governmental and
         quasi-governmental requirements, including without limitation,
         building codes, existing in the Premises on the date that landlord
         delivers the premises to Tenant on account of correcting any
         deficiencies in Landlord's work after reasonable notice to Landlord
         only if Landlord fails to make such repairs; and any and all
         expenditures by Tenant on account of providing repair, maintenance
         and/or service obligations of landlord in the event that Landlord
         fails to fulfill or has not diligently pursued such obligations within
         ten (10) days of Tenant's notice to Landlord regarding same.

                  (c) INSPECTION. Tenant shall permit Landlord, its agents,
         employees and contractors, at any time in the event of an emergency,
         and otherwise at reasonable times and upon reasonable notice to Tenant
         to take any and all measures, including inspections, repairs
         alterations, additions and improvements to the Premises or to the
         Building, as may be necessary to safeguard, protect or preserve the
         Premises or the Building; to operate the Building; to comply on behalf
         of Tenant with all laws, orders and requirements of



                                       14
<PAGE>   21


         governmental or other authority (if Tenant fails to do so); to examine
         the Premises to verify Tenant's compliance with all of the terms,
         covenants, obligations and conditions of this Lease; or to exercise
         any rights with respect to the Premises that Landlord may exercise in
         the event of default by Tenant.

         9. COMMON AREAS.

                  (a) GRANT. During the Term of this Lease, Landlord grants to
         Tenant, its employees, customers and invitees, a nonexclusive license
         to use, in common with all others to whom Landlord has granted or may
         hereafter grant a license to use, the common areas of the Property,
         including but not limited to, the sidewalks, lobbies, halls, passages,
         exits, entrances, elevators, stairways, restrooms, parking areas
         (except as provided for in subparagraph (b) below), driveways and
         landscaped areas (collectively, the "Common Areas") subject to
         reasonable rules and regulations respecting the Common Areas as
         Landlord may from time to time promulgate. The Common Areas shall not
         be obstructed by Tenant or used for any purpose other than for ingress
         to and egress from the Premises. The Common Areas are not for the use
         of the general public and Landlord shall in all cases retain the right
         to control and prevent access thereto by all persons whose presence,
         in the judgment of Landlord, shall be prejudicial to the safety,
         character, reputation and interests of the reasonable Building and its
         tenants, provided that nothing herein contained shall be construed to
         prevent such access to persons with whom Tenant normally deals in the
         ordinary course of Tenant's business unless such persons are engaged
         in illegal activities. Neither Tenant nor its employees, customers or
         invitees shall go upon the roof, mechanical areas or mechanical floors
         of the Building.

                  (b) PARKING. All parking required by law will be provided by
         Landlord. Parking will be provided in the surface parking area of the
         Property. Landlord shall have the right to designate surface parking
         areas for the use of the Building, and Tenant and its employees shall
         not park in parking areas not so designated, specifically including
         entrances. Upon written notice from Landlord, Tenant shall furnish to
         Landlord, within ten (10) days after receipt of such notice, the state
         automobile license numbers assigned to the automobiles of Tenant and
         its employees. Landlord shall not be liable for any vehicle of Tenant
         or its employees that the Landlord shall have towed from the Premises
         when illegally parked except if due to an intentional or negligent act
         or omission of Landlord, its employees or agent. Landlord shall have
         no liability to Tenant for any damages or claims arising from the use
         of the parking area or roadways by Tenant, other tenants, or their
         customers, invitees or employees.

                  (c) RIGHT TO CHANGE COMMON AREAS. Landlord may do and perform
         such acts in and to the Common Areas as, Landlord, in its good
         business judgment, shall determine to be advisable. Landlord hereby
         reserves the right to make alterations, additions, deletions or
         changes to the Common Areas, including, but not limited to, changes in
         it size and configuration provided that no such alteration, addition
         or change reduces the square footage of the 1st floor lobby, and
         provided that it does not reduce the 1st floor lobby corridor without
         Tenant's prior written consent which shall not be unreasonably
         withheld.



                                       15
<PAGE>   22


         10. BUILDING SERVICES.

                  (a) ELECTRIC. Landlord shall provide electric power to the
         Premises. Electric power furnished by Landlord is intended to be that
         consumed in normal office use during Normal Business Hours for
         lighting, heating, ventilating, air conditioning and operating all
         office equipment. Landlord reserves the right, if Tenant's consumption
         of electricity exceeds that required for normal office use during
         Normal Business Hours, to include a charge for such electricity as
         rent. Such charge shall be based upon the average cost per unit of
         electricity for the Building applied to the excess use as determined
         by an independent engineer selected by Landlord, or at Landlord's
         option, to be determined by a submeter to be furnished and installed
         at Tenant's expense. If Tenant refuses to pay upon demand of Landlord
         such excess charge, such refusal shall constitute a breach of the
         obligation to pay rent under this Lease and shall entitle Landlord to
         the rights granted in this Lease for such breach. Tenant shall use
         strict care and caution to ensure that all electricity is carefully
         shut off to prevent waste or damage. Notwithstanding the foregoing,
         Landlord has reviewed and is familiar with Tenant's initial use of the
         Premises, including without limitation, Tenant's electrical need as
         shown on the approved permit set of construction drawings. Landlord
         represents that the capacity of the existing feeders to the Building
         and the wiring servicing the Premises are sufficient for Tenant's
         purposes. Landlord has specifically reviewed with tenant the initial
         nature and type of all equipment to be used in the Premises as show on
         plan, including without limitation, computers, telephone systems and
         related equipment Tenant intends to use, and Landlord approves of
         same.

                  (b) WATER. Landlord shall provide water for drinking,
         lavatory, kitchen and toilet purposes from the regular Building supply
         (at the prevailing temperature) through fixtures installed by Landlord
         (or by Tenant with Landlord's prior written consent); provided that
         Tenant shall reimburse Landlord, at rates fixed by Landlord, for water
         used by Tenant for supplementary air-conditioning or refrigeration
         installed by or for Tenant and for any other water used by Tenant
         (except for public drinking water and public lavatory use).

                  (c) AIR-CONDITIONING AND HEAT. Landlord shall provide air
         conditioning and heat to the Premises for comfortable occupancy (A/C
         to provide cooling and keep the temperature of the Premises at
         70-76(degree)F. Landlord agrees to maintain adequate temperature in
         the building equivalent to Class A South Florida Office Buildings)
         during Normal Business Hours, subject at all times, however, to
         restrictions placed upon Landlord by and duly constituted governmental
         agency and/or by any utility supplier. Tenant shall reasonably
         cooperate with Landlord to assure the effective operation of the
         Building's air-conditioning and heating systems, and if windows are
         operable, to keep them closed when the air-conditioning or heating
         system is in use. Tenant shall not use any apparatus or device in,
         upon or about the Premises that in any way may increase the amount of
         such services usually furnished or supplied to tenants in the
         Building, and Tenant shall not connect any apparatus or device with
         the conduits or pipes, or other means by which such services are
         supplied for the purpose of using additional, or unusual amounts of
         such services, without the prior written consent of Landlord. If
         Tenant uses such services under this provision to excess,



                                       16
<PAGE>   23


         Landlord reserves the right to charge Tenant for such services, as
         rent. If Tenant refuses to make payment upon demand of Landlord, such
         excess charge shall constitute a breach of the obligation to pay rent
         under this Lease and shall entitle Landlord to the rights granted in
         this Lease for such breach. HVAC shall be supplied to the Premises
         from 8:00 a.m. to 6:00 p.m. Monday through Friday, and 8:00 a.m. to
         12:00 Noon on Saturday. In the event Tenant requires HVAC at other
         times, it shall be provided by Landlord at a cost of $5.00 per hour
         for the Term of the Lease. After hours HVAC may be ordered by Tenant
         as follows: A telephone controlled tenant code will be provided that
         allows the tenant to access the energy management system.

                  Landlord shall, at its cost and expense, replace the cooling
tower and re-condition all air handlers serving the Premises.

                  (d) JANITOR SERVICE. Landlord shall provide janitor service
         in and about the Premises and the Building at the end of each Monday,
         Tuesday, Wednesday and Thursday, and at Landlord's option, at the end
         of either Sunday or Friday, except for Holidays (as hereinafter
         defined). Tenant shall not provide any janitor service without
         Landlord's prior written consent. If Landlord consents to janitor
         service provided by Tenant, the same shall be subject to Landlord's
         rules and regulations and to Landlord's supervision, but at Tenant's
         sole cost and expense (without reduction in Base Rent or Additional
         Rental). The Building shall provide carpet cleaning in the Common
         Areas and window cleaning at such times as Landlord, in its sole
         opinion, considers that such cleaning is necessary. Each Tenant shall
         cooperate with any janitor service in keeping the Premises neat and
         clean. Landlord shall be in no way responsible to Tenant, its agents,
         employees or invitees, for any loss of property from the Premises or
         for any damage to property thereon, from any cause. Landlord shall
         require the janitor service to obtain insurance and bonds for its
         employees, covering theft or damage to the property of Tenant and its
         employees and invitees.

                  (e) ELEVATOR SERVICE. If the Building contains elevators,
         Landlord shall provide passenger elevator during Normal Business
         Hours.

                  (f) INTERRUPTION OF SERVICES. Tenant hereby acknowledges that
         any one or more of the utilities or building services specified in
         this Paragraph 10 may be interrupted or dismissed temporarily by
         Landlord or other person until certain repairs, alterations or other
         improvements to the Premises or other parts of the Property can be
         made or by any event or cause which is beyond Landlord's reasonable
         control including, without limitation, any ration or curtailment of
         utility services; that Landlord does not represent, warrant or
         guarantee to Tenant the continuous availability of such utilities or
         building services and that any such interruption shall not be deemed
         or construed to be an interference with Tenant's right of possession,
         occupancy and use of the Premises, shall not render Landlord liable to
         Tenant for damages or entitle Tenant to any reduction of Base Rental,
         and shall not relieve Tenant from its obligation to pay Base Rental
         and to perform its other obligations under this Lease. Landlord
         represents and warrants that the Building currently has, and Landlord
         shall continue to maintain throughout the term of this Lease, a
         generator to run the emergency systems in the Building in the event of
         a power failure. Notwithstanding anything to the



                                       17
<PAGE>   24


         contrary contained herein, if as a result of any curtailment,
         interruption or discontinuance of essential services such as water,
         electric or air conditioning, to be provided by Landlord, and which
         are not as a result of the partial or total destruction of the
         Premises or other force majeure, and to the extent the Premises or any
         portion thereof, become unfit for the purposes for which they are
         being used immediately prior to the occurrence of such curtailment,
         interruption or discontinuance for more than five (5) business days,
         the rent payable under this Lease shall abate during and for the
         period after such five (5) day period that the Premises or any portion
         thereof are unfit for Tenant's purposes. Further, if Landlord, to the
         extent that such matters are within its control, does not restore such
         services within twenty (20) days after Tenant has delivered written
         notice thereof, or if Landlord fails to provide tenant with temporary
         alternate space within thirty (30) days after Tenant has delivered
         written notice of such failure of services to Landlord, and such
         failure of services has rendered the Premises untenantable for
         Tenant's occupancy, then, in either of such events, Tenant shall have
         the right to terminate this Lease in its entirety and this Lease shall
         terminate as of the date of such election by Tenant as if such date
         were the date provided herein for expiration of the Term hereof, or
         Tenant, at its option, may cure the curtailment, interruption or
         discontinuance upon five (5) days' written notice to Landlord, and
         Landlord shall promptly reimburse Tenant for the cost of effectuating
         such a cure. If Landlord fails to reimburse Tenant, Tenant may offset
         such costs against rent due, or Tenant may exercise any of Tenant's
         other available legal or equitable remedies.

                  (g) ENERGY CURTAILMENT. Landlord and Tenant specifically
         acknowledge that energy shortages in the region in which the Property
         is located may from time to time necessitate reduced or curtailed
         energy consumption on the Property. Tenant shall comply with all such
         rules and regulations as may be promulgated from time to time by any
         governmental authority with respect to energy consumption, and during
         such period of time as such governmental authority may so require.
         Tenant shall reduce or curtail operations in the Premises as shall be
         directed by Landlord or such governmental authority. Compliance with
         such rules and regulations and/or such reduction or curtailment of
         operation shall not constitute a breach of Landlord's covenant of
         quiet enjoyment or otherwise invalidate or affect this Lease, and
         Tenant shall not be entitled to any diminution or abatement in Base
         Rental during the periods of reduction or curtailment of operations,
         except as otherwise provided herein.

                  (h) NORMAL BUSINESS HOURS. For purposes of this Lease,
         "Normal Business Hours" shall mean 8:00 am. to 6:00 p.m., Monday
         through Friday, and 8:00 a.m. to 12:00 p.m. on Saturday and not
         including Sundays and Holidays.

                  (i) HOLIDAYS. For purposes of this Lease, Holidays shall mean
         New Year's Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving
         and Christmas.

                  (j) LIFE SUPPORT. All common areas of the building shall have
         a complete heat-activated sprinkler system, smoke detectors, speaker
         and strobes, fire alarm pull stations, and remote monitoring provided
         by Landlord at Landlord's sole cost and expense.



                                       18
<PAGE>   25


         11. ESTOPPEL CERTIFICATES. Within ten (10) days after written request
by Landlord, Tenant shall execute, acknowledge and deliver to Landlord or to
Landlord's mortgagee, prospective mortgagee, land lessor or prospective
purchaser of the Property or any part thereof, an estoppel certificate, in form
and substance substantially similar to that attached as Exhibit E and
incorporated herein by reference. Tenant shall make such modifications to such
estoppel certificate as may be necessary to make such certificate true and
accurate, it being intended that any such statement delivered pursuant to this
Paragraph 11 may be relied upon by any such mortgagee, prospective mortgagee,
prospective purchaser, or land lessor of the Property. If Tenant fails to
provide such estoppel certificate within ten (10) days after Landlord's
request, Tenant shall be deemed to have approved the contents of any such
certificate submitted to Tenant by Landlord and Landlord is hereby authorized
to so certify.

         12. INDEMNIFICATION; WAIVER OF CLAIMS.

                  (a) Landlord and Tenant shall each indemnify, defend, and
         save harmless the other party and such other party's employees,
         agents, and contractors (the "Indemnified Parties") from and against
         any and all loss, damage, claim, demand, liability, or expense
         (including reasonable attorneys' fees) resulting from claims by third
         parties and based on any acts or omissions of the indemnitor, its
         employees, agents, and contractors in connection with the Building.
         The indemnitor shall have the right to assume the defense of any claim
         covered by this indemnity on behalf of both itself and the Indemnified
         Parties, provided that the lawyers selected by the Indemnitor to
         handle such defense are reasonably satisfactory to the Indemnified
         Parties and such representation does not result in a conflict of
         interest for such lawyers. The Indemnified Parties may not settle any
         claim covered by this Indemnity section without the consent of the
         indemnitor. The provisions of this Indemnity section shall survive the
         expiration or sooner termination of this Lease.

                  (b) Except as set forth above, or unless caused by an
         intentional or negligent act or omission by Landlord, its agents,
         servants, employees, officers, directors or partners, Landlord shall
         not be liable for, and Tenant hereby waives all claim against
         Landlord, (i) for any and all damage or loss to fixtures, equipment or
         other property of Tenant and its servants, agents. employees,
         contractors, suppliers, invitees, patrons and guests, in, upon or
         about the Premises of the Property, or (ii) for injury or death to any
         person, occurring in, upon or about the Premises or the Property,
         resulting from any cause whatever including, but not limited to,
         water, snow, frost, ice, explosion, falling plaster, fire or gas,
         smoke or other fumes, nor by reason of the leaking, breaking, backing
         up or other malfunction of any lines, wires, pipes, tanks, boilers,
         lifts or any other appurtenances, regardless by whom installed or
         maintained (Tenant hereby expressly assuming all responsibility for
         the safety and security of the person and property of Tenant, its
         servants, agents, employees, contractors, suppliers, invitees, patrons
         and guests, while in the Premises). The occurrence of any event
         described in this Paragraph 12 shall not constitute a breach of
         Landlord's covenant of quiet enjoyment set forth in Paragraph 17.

         13. INSURANCE.



                                       19
<PAGE>   26


                  (a) TENANT'S INSURANCE. Tenant, at its sole cost and expense,
         shall carry during the entire term of this Lease. the following types
         of insurance:

                           (i) Commercial general liability insurance against,
                  injuries to persons occurring in, upon or about the Premises,
                  with minimum coverage of Two Million Dollars ($2,000,000.00)
                  per occurrence and Two Million Dollars ($2,000,000.00)
                  aggregate coverage per one (1) accident or disaster, and Two
                  Hundred Fifty Thousand Dollars ($250,000.00) for property
                  damage.

                           (ii) Fire, extended coverage, vandalism and
                  malicious mischief, and sprinkler damage and all-risk
                  insurance coverage on all personal property, trade fixtures,
                  floor coverings, wall coverings, furnishings, furniture, and
                  contents for their full insurable value on a replacement cost
                  basis;

                           (iii) Business income and extra expense insurance,
                  against loss or damage resulting from the same risks as are
                  covered by the insurance described in subparagraph 13(a)(ii)
                  on an actual low sustained basis, but in all events in an
                  amount sufficient to prevent tenant from being a co-insurer
                  of any loss covered under the applicable policy or policies.

                           (iv) Workers' Compensation or similar insurance, if
                  and to the extent required by law and in form and amounts
                  required by law.

                  (b) LANDLORD AS ADDITIONAL INSURED. All such insurance
         required to be maintained by Tenant shall name Landlord as an
         additional insured and shall be written with a company or companies
         reasonably satisfactory to Landlord, having a policyholder rating of
         at least "A" and be assigned a financial size category of at least
         "Class XIV" as rated in the most recent edition of "Best's Key Rating
         Guide" for insurance companies, and authorized to engage in the
         business of insurance in the state in which the Premises are located.
         Tenant shall deliver to Landlord copies of such policies and customary
         insurance certificates evidencing such paid-up insurance. Such
         insurance shall further provide that the same may not be canceled,
         terminated or modified unless the insurer gives Landlord at least
         thirty (30) days prior written notice thereof.

                  (c) LANDLORD'S INSURANCE. Landlord shall maintain in force,
         at all times during the Term of this Lease, a policy or policies of
         "All Risk" insurance on the Building (and Premises) for the full
         replacement value thereof. Landlord shall also maintain further
         covenants and agrees to maintain public liability insurance in the
         form commonly known as "Commercial General Liability" insurance in the
         amount of at least Two Million Dollars ($2,000,000.00) per occurrence,
         combined single limit, which limit may be accomplished by use of an
         umbrella policy. This policy shall be written on an occurrence basis.
         Landlord agrees to provide Tenant with a certificate of insurance
         indicating said insurance has been obtained at any time and from time
         to time following written request thereafter from Tenant.



                                       20
<PAGE>   27


                  (d) INCREASE IN PREMIUMS. If insurance premiums payable by
         Landlord or any other tenant are increased as a result of any breach
         of Tenant's obligations under this Lease or as a result of Tenant's
         use and occupancy of the Premises, Tenant shall pay to Landlord an
         amount equal to any increase in such insurance premiums.

         14. WAIVER OF SUBROGATION. Except as set forth below, each party shall
look solely to its own insurance in the case of any damage to its property.
Accordingly, Landlord and Tenant each hereby expressly, knowingly, and
voluntarily waives and releases any claims which it may have against the other
or the other's employees, agents, or contractors for damage to its properties
and loss of business (specifically including loss of rent by Landlord and
business interruption by Tenant) as a result of the acts or omissions of the
other party or the other party's employees, agents, or contractors
(specifically including the negligence of either party or the other party's
employees, agents, or contractors and the intentional misconduct of the
employees, agents, or contractors of either party). This waiver shall not apply
to claims for damages of less than $5,000.00. Landlord and Tenant shall each,
on or before the earlier of the Commencement Date or the date on which Tenant
first enters the Premises for any purpose, at its sole cost and expense, obtain
and keep in full force and effect at all times thereafter a waiver of
subrogation from its insurer with respect to the property, rent loss, and
business interruption insurance maintained by it with respect to the Property
and the property located in the Property. This subsection shall not apply to
claims for personal injury or wrongful death.

         15. HOLDING OVER. If Tenant retains possession of the Premises or any
part thereof after the termination of this Lease, Tenant shall, from that day
forward, be a tenant from month to month and Tenant shall pay Landlord rent at
1 1/2 times the monthly rate in effect immediately prior to the termination of
this Lease for the time the Tenant remains in possession. No acceptance of rent
by, or other act or statement whatsoever on the part of Landlord or its agent
or employee, in the absence of a writing signed by Landlord, shall be construed
as an extension of or as a consent for further occupancy. Tenant shall
indemnify Landlord for all damages, consequential as well as direct, sustained
by reason of Tenant's retention of possession. The provisions of this Paragraph
15 do not exclude pursuit of Landlord's right of re-entry or any other right
hereunder.

         16. ASSIGNMENT AND SUBLEASE. (SEE RIDER NO. 5)

         17. QUIET ENJOYMENT. If Tenant shall pay the rents and other sums due
to be paid by Tenant hereunder as and when the same become due and payable, and
if Tenant shall keep, observe and perform all of the other terms, covenants and
agreements of this Lease on Tenant's part to be kept, observed and performed.
Tenant shall, at all times during the Term herein granted, peacefully and
quietly have and enjoy possession of the Premises without any encumbrance or
hindrance by, from or through Landlord, except for regulations imposed by any
governmental or quasi-governmental agency on the occupancy of Tenant or the
conduct of Tenant's business operations.

         18. COMPLIANCE WITH LAWS AND WITH RULES AND REGULATIONS.



                                       21
<PAGE>   28


                  (a) LAWS. Tenant, at its sole cost and expense, shall procure
         any permits and licenses required for the transaction of Tenant's
         business in the Premises. Tenant, at its sole cost and expense, shall
         promptly observe and comply with all present and future laws,
         ordinances, requirements, orders, directives, rules and regulations of
         all state, federal, municipal and other agencies or bodies having
         jurisdiction relating to the use, condition and occupancy of the
         Premises, the Building and the Property at any time in force,
         applicable to the Premises or to Tenant's use thereof, except that
         Tenant shall not be under any obligation to comply with any law,
         ordinance, rule or regulation requiring my structural alteration of
         the Premises, unless such alteration is required because of a
         condition that has been created by, or at the instance of, Tenant, or
         is required by reason of a breach of any of Tenant's covenants and
         agreements under this Lease. Landlord shall not be required to repair
         any injury or damage by fire or other cause or to make any repairs or
         replacements of any panels, decoration, office fixtures, railing,
         ceiling, floor covering, partitions, or any other property installed
         in the Premises by Tenant.

                  (b) RULES AND REGULATIONS. Tenant shall comply with all rules
         and regulations for the Building, which current rules and regulations
         are attached hereto as Exhibit F and with such reasonable
         modifications thereof and additions thereto as Landlord may make
         hereafter, from time to time. Notwithstanding anything contained in
         this Lease, Landlord shall not be responsible nor liable to Tenant,
         its agents, representatives, employees, invitees or licensees, for the
         nonobservance by any other tenant of any rules and regulations.

                  (c) Landlord represents and warrants to Tenant as follows:
         (i) Landlord owns good and marketable fee simple title to the
         Property, (ii) there are no pending or, to the knowledge of Landlord,
         threatened actions or legal proceedings affecting the Property or
         Landlord's interest therein, (iii) the Lease and consummation of the
         actions contemplated hereby shall be valid and binding upon Landlord
         and do not constitute a default (or any event which with notice and/or
         the passage of time would constitute a default) under any agreement to
         which Landlord is a party or by which it is bound, (iv) with respect
         to the Property, Landlord has not received notice nor has Landlord any
         knowledge of any violation of any law, regulation, ordinance, order or
         other requirements of any governmental authority having jurisdiction
         over or affecting any part of the Property, except for notice to
         replace the fuel pipe between the generator and diesel fuel tank which
         shall be repaired by 10/1/94, (v) Landlord is not obligated on any
         agreement to lease, or otherwise grant rights of possession or
         occupancy of, any portion of the Premises; (vi) Landlord and its
         General Partners are duly organized and existing Florida
         partnership/corporation in good standing, and all requisite
         partnership/corporation action has been taken by Landlord to authorize
         the execution and delivery of this Lease and the performance of
         Landlord's obligation hereunder. Notwithstanding the contrary,
         Landlord shall be personally liable to Tenant for any loss or damage
         (including without limitation, attorney's fees) which incurs by reason
         or any inaccuracy of any of the foregoing representations.

         19. FIRE AND CASUALTY.



                                       22
<PAGE>   29


                  (a) If the Premises or the Building or any substantial part
         of either is damaged or destroyed by fire or other casualty, cause or
         condition whatsoever, and such damage or destruction cannot be
         repaired within nine (9) months, Landlord or Tenant may terminate this
         Lease, by written notice to the other given within thirty (30) days
         after such damage. If the Premises are damaged or destroyed or access
         thereto or use thereof is affected by the damage, then termination
         shall be effective as of the date of such damage; otherwise said
         termination shall be effective thirty (30) days after such notice.

                  (b) If the Common Areas in the Building are damaged or
         destroyed by fire or other casualty, cause or condition whatsoever, to
         such an extent as to substantially interfere with Tenant's use of the
         Premises or if the Premises or a substantial part thereof are made
         untenantable, and such damage or destruction cannot be repaired within
         one hundred twenty (120) days, then Tenant may terminate this Lease by
         giving written notice to Landlord within thirty (30) days after such
         damage, said termination to be effective as of the date of such
         damage.

                  (c) If this Lease is not terminated pursuant to SUBSECTION A
         OR B, Landlord shall commence and proceed with reasonable diligence to
         restore the Building and/or the Premises and/or other common areas
         (provided that Landlord shall not be required to restore any unleased
         premises in the Building) to substantially the same condition they
         were in immediately prior to the happening of the casualty. If such
         restoration is not substantially completed within nine (9) months
         after such fire or other casualty, then Tenant shall have the right to
         terminate this Lease by giving not less than thirty (30) days' prior
         written notice of its intention to so terminate to Landlord, which
         notice must be sent within thirty (30) days after the expiration of
         said nine (9) month period, and this Lease shall terminate as of the
         date specified in such notice with the same effect as if such date
         were the scheduled expiration date of this Lease. Notwithstanding the
         foregoing, if Tenant sends such a notice of termination and Landlord,
         prior to the date of termination specified in such notice,
         substantially completes such restoration, then Tenant's notice shall
         be without force or effect and this Lease shall continue in full force
         and effect. When repairs to the Premises have been completed by
         Landlord, Tenant shall complete the restoration or replacement of the
         Premises and all of Tenant's property necessary to permit Tenant's
         reoccupancy of the Premises, and Tenant shall present Landlord with
         evidence satisfactory to Landlord of Tenant's ability to pay such cost
         (which may include insurance proceeds paid or to be paid to Tenant)
         prior to Landlord's commencement of repair and restoration of any
         portion of the Premises.

                  (d) Notwithstanding SUBSECTIONS A AND B AND C, (i) Landlord
         shall have no duty to restore, rebuild, or replace Tenant's
         alterations, personal property, and trade fixtures; and (ii)
         Landlord's and Tenant's obligations to repair, rebuild, or restore the
         Building or the Premises or other common areas shall exist only to the
         extent that insurance proceeds are actually received by Landlord and
         Tenant in connection with the casualty which gave rise to Landlord's
         and Tenant's obligations to repair. rebuild, or restore.



                                       23
<PAGE>   30


                  (e) Base Rental shall abate in proportion to the portion of
         the Premises not useable by Tenant as a result of any casualty, as of
         the date on which the Premises becomes unusable. Landlord shall
         retain, at Landlord's sole cost and expense, a licensed Florida
         contractor (reasonably accepted to Tenant) who shall undertake an
         inspection of the Premises and advise Landlord and Tenant in writing
         within sixty (60) days of the subject casualty as to what percentage
         of the Premises is not useable by Tenant as a result of damage caused
         by such casualty. The opinion of such contractor shall be binding on
         all parties. Landlord shall not be liable to Tenant for any delay in
         restoring the Premises or any inconvenience or annoyance to Tenant or
         injury to Tenant's business resulting in any way from such casualty or
         the repair thereof, Tenant's sole remedy being such right to an
         abatement of Base Rental.

                  (f) Landlord and Tenant hereby waive the provisions of any
         law in effect during the Lease Term relating to the effect upon leases
         of partial or total destruction of leased property, it being the
         intention of the parties that their respective rights in the event of
         any damage to or destruction of the Premises shall be those
         specifically set forth in this section.

         20. EMINENT DOMAIN.

                  (a) If all the Premises or a substantial (50% or more) part
         thereof shall be taken for any public or quasi-public use under any
         statute or by rights of eminent domain or by private purchase in lieu
         thereof, this Lease shall terminate as of the date of vesting of
         title. Landlord shall be entitled to receive the entire award paid for
         such taking or condemnation, Tenant hereby assigning to Landlord all
         Tenant's rights, title and interest therein, if any. Nothing contained
         herein shall be deemed to give Landlord any interest in or to require
         Tenant to assign to Landlord any award made to Tenant for the taking
         of personal property or fixtures belonging to Tenant, for the
         interruption of or damage to Tenant's business or for Tenant's moving
         expenses but only if such award shall be in addition to the award for
         the Property and the Building (or portion thereof) containing the
         Premises.

                  (b) If fifty percent (50%) or more of the Building other than
         the Premises or 20% or more of the parking area shall be condemned,
         taken or purchased in lieu thereof, then Landlord or Tenant may
         terminate this Lease by notifying the other of such termination within
         sixty (60) days after the date of vesting of title. This Lease shall
         expire on the date specified in such notice of termination, which date
         shall be not less than sixty (60) days after the giving of such
         notice.

                  (c) Any such taking, condemnation or temporary requisition
         which does not result in a termination of this Lease, as hereinbefore
         provided in this Paragraph 20, shall not be cause for any reduction or
         diminution of the rental payment hereunder.

         21. DEFAULT.

                  (a) If (i) Tenant fails to pay any rent, or any other sums
         required to be paid hereunder by Tenant within seven (7) days after
         written notice (the written notice given pursuant to this paragraph
         may be combined with the statutory 3 day notice so that only one



                                       24
<PAGE>   31


         notice is given by Landlord which notice will provide Tenant with a
         period of seven (7) days in which to cure the default and will be
         deemed to satisfy the requirements of Section 83.20, Florida Statutes)
         or (ii) Tenant defaults in the performance or observance of any other
         agreement or condition on its part to be performed or observed, and
         Tenant shall fail to cure said default within thirty (30) days after
         receipt of written notice thereof by Landlord (but if such
         non-monetary default cannot be reasonably cured within 30 days, Tenant
         shall have such additional time as may be reasonably necessary,
         provided Tenant diligently pursues said cure); then in any such event
         and at any time thereafter, Landlord may, without further notice to
         Tenant, and in addition to and not in lieu of any other rights or
         remedies available to Landlord at law or in equity, exercise any one
         or more of the following rights:

                           (x) Landlord may (A) terminate this Lease and the
         tenancy created hereby by giving notice of such election to Tenant,
         and (B) reenter the Premises, to the extent allowed by law, remove
         Tenant and all other persons and property from the premises and store
         such property in a public warehouse or elsewhere at the sole cost and
         expense of and for the account of Tenant without Landlord being deemed
         guilty of trespass or becoming liable for any loss or damage
         occasioned thereby.

                           (y) Landlord may reenter and take possession of the
         Premises to the extent allowed by law without terminating this Lease
         and without relieving Tenant of its obligations under this Lease, and
         divide or subdivide the Premises in any manner Landlord may desire and
         lease or let the premises or portions thereof, alone or together with
         other premises, for such term or terms (which may be greater or less
         than the balance of the remaining portion of the Term of this Lease)
         and on such terms and conditions (which may include concessions or
         free rent and alterations of the Premises) as Landlord, in its
         discretion, may determine.

                  (b) If this Lease is terminated by Landlord pursuant to this
         Paragraph 21, Tenant nevertheless shall remain liable for any Base
         Rental, Additional Rental, Other Charges required to be paid hereunder
         and damages that may be due or sustained prior to such termination,
         and for all reasonable costs, fees and expenses incurred by Landlord
         in pursuit of its remedies hereunder, including attorneys', brokers'
         and other professional fees (all such rents, damages, costs, fees and
         expenses being referred to herein collectively as "Termination
         Damages") plus additional damages (the "Liquidated Damages") which are
         hereby stipulated to be equal to the present value discounted at the
         current 5-year treasury bill rate of Base Rental, Additional Rental
         and Other Charges required to be paid hereunder that, but for
         termination of this Lease, would have become due during the remainder
         of the Term, less the fair market rental rate for the remainder of the
         Term of this Lease discounted at the current five (5) year treasury
         bill rate. Termination Damages and Liquidated Damages shall be due and
         payable immediately upon demand by Landlord following any termination
         of this Lease pursuant to this Paragraph 21.

                  (c) Landlord shall not, in any event, be required to pay
         Tenant any surplus of any sums received by Landlord on a reletting of
         the Premises in excess of the rent provided in this Lease. Any entry
         or re-entry by Landlord, whether had or taken under summary
         proceedings or otherwise, shall not absolve or discharge Tenant from
         liability under this



                                       25
<PAGE>   32


         Lease. "Re-enter" and "re-entry" as used in this Lease are not
         restricted to their technical legal meaning. No such re-entry or
         taking possession of the Premises by Landlord shall be construed as an
         election on Landlord's part to terminate this Lease unless a written
         notice of such intention is given to Tenant. Notwithstanding any such
         re-letting without termination, Landlord may at all times thereafter
         elect to terminate this Lease for such previous default, unless cured
         by Tenant.

                  (d) Upon the termination of this Lease or of Tenant's right
         to possession of the Premises by lapse of time or earlier termination
         as herein provided, Tenant shall remove its property from the
         Premises. Any such property of Tenant not removed from the Premises by
         Tenant within thirty (30) days after the end of the term or of
         Tenant's right to possession of the Premises, however terminated,
         whichever occurs earlier, shall be conclusively deemed to have been
         forever abandoned by Tenant and either may be retained by Landlord as
         its property or may be disposed of in such manner as Landlord may see
         fit.

                  (e) If Tenant at any time fails to make any payment or
         perform any other act on its part to be made or performed under this
         Lease after the expiration of any applicable grace period, Landlord
         may, but shall not be obligated to, and after reasonable notice or
         demand and without waiving or releasing Tenant from any obligation
         under this Lease, make such payment or perform such other act to the
         extent Landlord may deem desirable, and in connection therewith to pay
         expenses and employ counsel. Tenant shall pay upon demand all of
         Landlord's reasonable costs, charges and expenses, including the
         reasonable fees of counsel, agents and other retained by Landlord,
         incurred in enforcing Tenant's obligations hereunder or incurred by
         Landlord in any litigation, negotiations or transactions in which
         Tenant causes Landlord, without Landlord's fault, to become involved
         or concerned, which amount shall be deemed to be rent due and payable
         by Tenant, upon demand by Landlord, and Landlord shall have the same
         rights and remedies for the nonpayment thereof, as in the case of
         default in the payment of rent.

                  (f) All rights and remedies of Landlord herein enumerated
         shall be cumulative, and none shall exclude any other right or remedy
         allowed by law. In addition to the other remedies in this Lease
         provided, Landlord shall be entitled to the restraint by injunction of
         the violation or attempted violation of any of the covenants,
         agreements or conditions of this Lease.

Notwithstanding anything in this Section 21 to the contrary, Landlord shall
make good faith reasonable efforts to mitigate its damages in the event of a
default by Tenant.

         22. WAIVER OF DEFAULT OR REMEDY. No waiver of any covenant or
condition or of the breach of any covenant or condition of this Lease shall be
taken to constitute a waiver of any subsequent breach of such covenant or
condition nor to justify or authorize the nonobservance on any other occasion
of the same or of any other covenant or condition hereof, nor shall the
acceptance of rent by Landlord at any time when Tenant is in default under any
covenant or condition hereof be construed as a waiver of such default or of
Landlord's right to terminate this Lease on account of such default, nor shall
any waiver of indulgence granted by Landlord to Tenant be taken as an



                                       26
<PAGE>   33


estoppel against Landlord, it being expressly understood that if at any time
Tenant shall be in default in any of its covenants or conditions hereunder an
acceptance by Landlord of rental during the continuance of such default or the
failure on the part of Landlord promptly to avail itself of such rights or
remedies as Landlord may have, shall not be construed as a waiver of such
default, but Landlord may at any time thereafter, if such default continues,
terminate this Lease or assert any other rights or remedies available to it on
account of such default in the manner hereinbefore provided.

         23. LANDLORD'S LIEN. Landlord shall have all rights granted under
Florida Statute Section 83.08.

         24. FORCE MAJEURE. If Landlord or Tenant shall be delayed, hindered in
or prevented from the performance of any act required hereunder (other than the
payment of rent and other charges payable by Tenant) by reason of strikes,
lockouts, labor troubles, inability to procure materials, failure of power,
riots, insurrection, the act, failure to act or default of the other party, war
or any other reason beyond the reasonable control of the party who is seeking
additional time for the performance of such act, then performance of such act
shall be excused for the period of the delay and the period for the performance
of any such act shall be extended for a reasonable period, in no event to
exceed a period equivalent to the period of such delay. No such interruption of
any service to be provided by Landlord shall ever be deemed to be an eviction,
actual or constructive, or disturbance of Tenant's use and possession of the
Premises, the Building or the Property.

         25. SUBORDINATION OF LEASE.

                  (a) Upon request and provided Landlord has complied with and
         continues to comply with, Section 26(c) hereof, Tenant shall execute
         an instrument subordinating this Lease to any and all mortgages, deeds
         of trust or land leases now existing upon or that may be hereafter
         placed upon the Premises and the Property and to all advances made or
         to be made thereon and all renewals, modifications, consolidations,
         replacements or extensions thereof and the lien of any such mortgages,
         deeds of trust or land leases shall be superior to all rights hereby
         or hereunder vested in Tenant, to the full extent of all sums secured
         thereby. Tenant shall, on request of Landlord or the holder of any
         such mortgages, deed(s) of trust and land leases, execute and deliver
         to Landlord within ten (10) days any instrument that Landlord or such
         holder may reasonably request.

                  (b) If the interest of Landlord under this Lease shall be
         transferred by reason of foreclosure, deed in lieu of foreclosure, or
         other proceedings for enforcement of any first mortgage or deed of
         trust on the Premises, Tenant shall be bound to the transferee (the
         "Purchaser") under the terms, covenants and conditions of this Lease
         for the balance of the Term remaining, and any extensions or renewals,
         with the same force and effect as if the Purchaser were the Landlord
         under this Lease, and at the option of Purchaser, Tenant shall attorn
         to the Purchaser (including the mortgagee under any such mortgage, if
         it be the Purchaser), as its landlord, the attornment to be effective
         and self-operative without the execution of any further instruments
         upon the Purchaser succeeding to the interest of Landlord under this
         Lease. The respective rights and obligations of Tenant and the
         Purchaser



                                       27
<PAGE>   34


         upon the attornment, to the extent of the then remaining balance of
         the Term of this Lease, and any extensions and renewals, shall be and
         are the same as those set forth in this Lease.

                  (c) NON-DISTURBANCE. Upon written request by Tenant, Landlord
         shall obtain a non-disturbance, subordination, and attornment
         agreement from any future Holder of an Encumbrance on such Holder's
         then current standard form of agreement. Upon request of Landlord,
         Tenant will execute the Holder's form of non-disturbance,
         subordination, and attornment agreement and return the same to
         Landlord for execution by the holder. Tenant's obligation to
         subordinate its interest under this Lease is conditioned upon Tenant's
         receipt of a Non-Disturbance Agreement from such Holder as provided in
         this paragraph.

         26. NOTICES AND CONSENTS. All notices, demands, requests, consents and
approvals that may or are required to be given by either party to the other
shall be in writing and shall be deemed given when sent by United States
certified or registered mail, postage prepaid, or by overnight courier (a) if
for Tenant, addressed to Tenant at the Building, or at such other place as
Tenant may from time to time designate by notice to Landlord, or (b) if for
Landlord, addressed to Thomas J. Crocker, Crocker & Company, 433 Plaza Real,
Suite 335, Boca Raton, Florida 33432, or at such other place as Landlord may
from time to time designate by notice to Tenant. All consents and approvals
provided for herein must be in writing to be valid. Notice shall be deemed to
have been given if addressed and mailed as above provided on the date two (2)
business days after deposit in the United States mail or one (1) business day
after deposit with an overnight courier.

         27. SECURITY DEPOSIT.

                  (a) Tenant has deposited with Landlord the sum of Fifty
         Thousand Dollars ($50,000.00) upon signing this Lease and will deposit
         another Fifty Thousand Dollars ($50,000.00) on or before the
         Commencement Date as security for the full and faithful performance of
         every provision of this Lease to be performed by Tenant. If Tenant
         defaults with respect to any provision of this Lease, including, but
         not limited to, the provisions relating to the payment of rent,
         Landlord may use, apply or retain all or any part of this security
         deposit for the payment of any rent or any other sum in default or for
         the payment of any other amount that Landlord may spend or become
         obligated to spend by reason of Tenant's default, or to compensate
         Landlord for any other loss, cost or damage that Landlord may suffer
         by reason of Tenant's default and for which Landlord is entitled to
         reimbursement under this Lease. If any portion of said deposit is so
         used or applied, Tenant shall, within five (5) days after written
         demand therefor, deposit cash with Landlord in an amount sufficient to
         restore the security deposit to its original amount and Tenant's
         failure to do so shall be a default under this Lease. Landlord shall
         not, unless otherwise required by law, be required to keep this
         security deposit separate from Landlord's general funds. If Tenant
         shall fully and faithfully perform every provision of this Lease to be
         performed by it, the security deposit or any balance thereof shall be
         returned to Tenant (or, at Landlord's option, to the last transferee
         of Tenant's interest hereunder) at the expiration of the Lease Term
         and upon Tenant's vacation of the Premises. In the event of bankruptcy
         or other debtor-creditor proceedings against Tenant, such security
         deposit shall be deemed to be applied first to the payment of rent and
         other charges due Landlord for all periods prior to filing of such



                                       28
<PAGE>   35


         proceedings. At the end of the first Lease Year, and provided that
         Tenant is not then in default hereunder, the amount of security
         deposit held by Landlord shall be reduced to $50,000.00. Any excess
         over the foregoing amount shall be returned to Tenant on or before
         January 20, 1996.

                  (b) Landlord shall deliver the security deposit to the
         purchaser of Landlord's interest in the Premises in the event that
         such interest be sold and thereupon Landlord shall be discharged from
         any further liability with respect to such deposit, and this provision
         shall also apply to any subsequent transferees of Landlord.

         28. MISCELLANEOUS TAXES. Tenant shall pay, prior to delinquency, all
taxes assessed against or levied upon its occupancy of the Premises, or upon
the fixtures, furnishings, equipment and all other personal property of Tenant
located in the Premises, if nonpayment thereof shall give rise to a lien on the
Premises, and when possible Tenant shall cause said fixtures, furnishings,
equipment and other personal property to be assessed and billed separately from
the property of Landlord. In the event any or all of Tenant's fixtures,
furnishings, equipment and other personal property, or upon Tenant's occupancy
of the Premises, shall be assessed and taxed with the property of Landlord,
Tenant shall pay to Landlord its share of such taxes within ten (10) days after
delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's fixtures, furnishings, equipment or
personal property.

         29. BROKERAGE COMMISSION. Except for any broker, agent or other person
named below, Landlord and Tenant represent and warrant each to the other that
each has dealt with no broker, agent or other person in connection with this
transaction and that no broker, agent or other person brought about this
transaction. Landlord hereby agrees to pay to Crocker Realty Management
Service, Inc. ("Agent") a leasing commission as set forth in that certain
Property Management Agreement between Landlord and Agent, from which Agent
shall pay, according to a Brokerage Agreement mutually agreeable to both
Landlord and Broker, a leasing commission to Cushman & Wakefield of Florida,
Inc. ("Co-op Broker") Landlord and Tenant agree to indemnify and hold each
other harmless from and against any claims by any other broker, agent or other
person (including, without limitation, Co-op Broker) claiming a commission or
other form of compensation by virtue of having dealt with the indemnifying
party with regard to this leasing transaction. The provisions of this Paragraph
31 shall survive the termination of this Lease.

         30. HAZARDOUS DEVICES AND CONTAMINANTS.

                  (a) PROHIBITION. Except with the prior written consent of
         Landlord and except as otherwise set forth in this lease, Tenant shall
         not install or operate any steam or internal combustion engine,
         boiler, machinery, refrigerating (except for refrigerator for food and
         beverage) or heating device or air-conditioning apparatus in or about
         the Premises, or carry on any mechanical business therein. Except for
         Contaminants (as hereinafter defined) used in the ordinary course of
         business and in compliance with Requirements of Law (as hereinafter
         defined), Tenant and its agents, employees, contractors and invitees
         shall not use, store, release, generate or depose of or permit to be
         used, stored, released, generated or disposed of any Contaminants on
         or in the Premises.



                                       29
<PAGE>   36


                  (b) INDEMNIFICATION BY TENANT. Tenant shall indemnify and
         hold harmless Landlord, its agents, servants, employees, officers and
         directors forever from and against any and all liability, claims,
         demands and causes of action, including, but not limited to, any and
         all liability, claims, demands and causes of action by any
         governmental authority, property owner or any other third person and
         any and all expenses, including attorneys' fees (including, but not
         limited to, attorneys' fees to enforce Tenant's obligation of
         indemnification under this Paragraph 32(b)), relating to any
         environmental liability resulting from (i) any Release by Tenant (as
         hereinafter defined) of any Contaminant at the Premises or emanating
         from the Premises to adjacent properties or the surrounding
         environment during the Term of this Lease; (ii) during the Term of
         this Lease, any generation, transport, storage, disposal, treatment or
         other handling of any Contaminant at the Premises, including, but not
         limited to, any and all off-site transport, storage, disposal,
         treatment or other handling of any Contaminant generated, produced,
         used and/or originating in whole or in part from the Premises; and
         (iii) any activities at the Premises during the Term of this Lease
         that in any way might be alleged to fail to comply with any
         Requirements of Law.

                  (c) DEFINITIONS.

                           (i) "Contaminant" shall mean any substance or waste
                  containing hazardous substances, pollutants, and contaminants
                  as those terms are defined in the Federal Comprehensive
                  Environmental Response Compensation and Liability Act, 42
                  U.S.C. Section 9601 et seq. and any substance similarly
                  defined or identified in any other federal, provincial or
                  state laws, rules or regulations governing the manufacture,
                  import, use, handling, storage, processing, release or
                  disposal of substances or wastes deemed hazardous, toxic,
                  dangerous or injurious to public health or to the
                  environment. This definition includes friable asbestos and
                  petroleum or petroleum-based products.

                           (ii) "Requirements of Law" shall mean any federal,
                  state or local law, rule, regulation, permit, agreement,
                  order or other binding determination of any governmental
                  authority relating to the environment, health or safety.

                           (iii) "Release" shall have the same meaning as in
                  the Federal Comprehensive Environmental Response Compensation
                  and Liability Act, 42 U.S.C. Section 9601, et seq.

                  (d) INDEMNIFICATION BY LANDLORD. Notwithstanding anything to
         the contrary in the Lease, Landlord shall be solely responsible for,
         and Tenant shall have no liability with respect to, any Hazardous
         Material (hereinafter defined) presently existing on, under or within
         the Premises, the Building or the land on which such improvements are
         located. As used herein, "Hazardous Material" means any hazardous,
         toxic or radioactive substance, material, matter or waste which is or
         becomes regulated by any federal, state or local law, ordinance,
         order, rule, regulation. code or any other governmental restriction or
         requirement. Landlord hereby indemnifies and holds Tenant free and
         harmless of, from and against, any



                                       30
<PAGE>   37


         and all claims, demands, actions and causes of action by any party
         whatsoever (whether or not meritorious), and all costs and expenses
         (including without limitation, reasonable attorneys' and paralegal
         fees, whether suit is instituted or not, and at all trial and
         appellate levels), and all losses, damages and liabilities that are
         incurred or suffered by Tenant arising from, or in any way connected
         with, existing Hazardous Material on the Property.

                  (e) LANDLORD'S OBLIGATIONS. On or before the Commencement
         Date, Landlord shall have the Premises tested for mold spore, and if
         found, Landlord shall immediately remedy such situation, at its sole
         cost and expense. Landlord represents and warrants to Tenant that
         there is no asbestos in the Building or the Premises, but if asbestos
         is discovered, Landlord shall immediately cause such asbestos to be
         removed, at its sole cost and expense, and in such case, Landlord
         shall use its best efforts to have such removal done with minimum
         interference with Tenant's occupancy of the premises.

                  Notwithstanding anything contained in Paragraphs 32(d) or
32(c), Landlord shall not be required to expend any amounts in excess of
$750,000. Should Landlord fail to discharge its obligations pursuant to
Paragraphs 32(d) and (e) within a reasonable period of time, Tenant shall have
the right to terminate this Lease by giving not less than ninety (90) days'
prior written notice of its intention so to terminate to Landlord, and this
Lease shall terminate as of the date specified in such notice with the same
effect as if such date were the scheduled expiration date of this Lease.
Notwithstanding the foregoing, if Tenant sends such a notice of cancellation
and Landlord, prior to the date of termination specified in such notice,
substantially completes such remediation or begins such remediation and
prosecutes it to completion in good faith and with reasonable diligence, then
Tenant's notice shall be without force or effect and this Lease shall continue
in full force and effect. The foregoing provisions shall also apply to the
Landlord's obligations with respect to Radon Gas as set forth in Rider No. 3
and the Landlord's obligations as to ADA compliance pursuant to Paragraph 48.

         31. SIGNS. Tenant shall not display, inscribe, print, paint, maintain
or affix on any place in or about the Building any sign, notice, legend,
direction, figure or advertisement, except on the doors of the Premises, and
then only such name(s) and matter, and in such color, size, place and
materials, as shall first have been approved by Landlord in writing. Landlord
reserves the right to install and maintain a sign or signs on the exterior or
interior of the Building. If Tenant desires, Landlord shall list Tenant an the
Building directory board at Tenant's cost. Notwithstanding the foregoing,
Tenant, at its cost and expense, shall have the right to place its corporate
identification (i.e., name and/or logo) on the Building, and shall have the
non-exclusive right to place its corporate identification on a shared monument
sign. With respect to a monument sign, Tenant's name shall be the top name on
such sign, and no other tenant name on the sign shall have letters that are
larger than Tenant's letters. Tenant shall also have the right to have interior
directional and identifying signage. All signage shall comply with applicable
governmental codes and regulations, and will be subject to Landlord's
reasonable approval.

         32. LOCKS. No additional locks or similar devices shall be attached to
any door or window without Landlord's prior written consent. Except for those
keys provided by Landlord, no keys for any door shall be made. If more than two
keys for one lock are desired, Landlord will



                                       31
<PAGE>   38


provide the same upon payment by Tenant. All keys must be returned to Landlord
at the expiration or Termination of this Lease. Tenant shall see that the doors
and windows, if operable, of the Premises are closed and securely locked before
leaving the Building. Landlord shall install a "key card" access system for
access to the Building after Normal Business Hours, and Tenant shall receive
from Landlord as many "key cards" as it reasonably requests and Tenant shall
pay for such cards at Landlord's cost. If any of the key cards issued to Tenant
are lost, Landlord may charge Tenant at Landlord cost. Tenant shall have the
right to install additional locks or similar devices on any door or window,
provided that Landlord is provided keys, access codes, etc., to such locks or
similar devices. Tenant shall see that the doors and windows, if operable, of
the Premises, are closed and securely locked before leaving the Building.

         33. EMPLOYMENT. Tenant shall not contract for any work or service that
might involve the employment of labor incompatible with the Building employees
or employees of contractors doing work or performing services by or on behalf
of Landlord.

         34. PLUMBING. Tenant must observe strict care and caution that all
water faucets and water apparatus are shut off before Tenant or its employees
leave the Building to prevent waste or damage. Plumbing fixtures and appliances
shall be used only for purposes for which constructed, and no sweepings,
rubbish, rags or other unsuitable material shall be thrown or placed therein.
Damage resulting to any such fixtures or appliances from misuse by Tenant shall
be paid by Tenant and Landlord shall not in any case be responsible therefor.

         35. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the
following rights:

                  (a) To name the Building and to change the name of the
         Building;

                  (b) On reasonable prior notice to Tenant and at reasonable
         times, to exhibit the Premises to prospective tenants during the last
         twelve (12) months of the Term, and to exhibit the Premises to any
         prospective purchaser, mortgagee, or assignee of any mortgage on the
         Property and to others having a legitimate interest at any time during
         the Term; and

                  (c) To install vending machines of all kinds in the Property,
         but not the Premises, and to provide mobile vending service therefor,
         and to receive all of the revenue derived therefrom.

         36. MISCELLANEOUS.

                  (a) No receipt of money by Landlord from Tenant after the
         termination of this Lease or after the service of any notice or after
         the commencement of any suit, or after final judgment for possession
         of the Premises shall reinstate, continue or extend the Term of this
         Lease or affect any such notice, demand or suit or imply consent for
         any action for which Landlord's consent is required.

                  (b) The term "Landlord" as used in this Lease, so far as
         covenants or agreements on the part of Landlord are concerned, shall
         be limited to mean and include only the owner



                                       32
<PAGE>   39


         (or ground lessor, as the ca may be) for the time being of the
         Premises. If the Premises or the underlying lease, if any, be sold or
         transferred, the seller thereof shall be automatically and entirely
         released of all covenants and obligations under this Lease from and
         after the date of conveyance or transfer, provided the purchaser on
         such sale has assumed and agreed to carry out all covenants and
         obligations contained in this Lease to be performed on the part of
         Landlord hereunder, in writing and a copy of such assumption shall be
         delivered to Tenant upon Tenant's request; it being hereby agreed that
         the covenants and obligations, contained in this Lease to be performed
         on the part of Landlord shall be binding on Landlord, its successors
         and assigns, only during their respective successive period of
         ownership.

                  (c) It is understood that Landlord may occupy portions of the
         Building in the conduct of Landlord's business. In such event, all
         references herein to other tenants of the Building shall be deemed to
         include Landlord as occupant.

                  (d) This Lease shall be binding upon and shall inure to the
         benefit of the parties hereto and their respective successors and
         assigns, provided that this provision shall in no manner enlarge
         Tenant's rights of assignment, which right of assignment has been
         restricted under the foregoing provisions of this Lease.

         37. RELATIONSHIP OF PARTIES. Any intention to create a joint venture,
partnership or principal and agent relationship between the parties hereto is
hereby expressly disclaimed. This Lease shall create the relationship of
landlord and tenant between Landlord and Tenant.

         38. GENDER AND NUMBER. Whenever words are used herein in any gender,
they shall be construed as though they were used in the gender appropriate to
the context and the circumstances, and whenever words are used herein in the
singular or plural form, they shall be construed as though they were used in
the form appropriate to the context and the circumstances.

         39. TOPIC HEADINGS. Headings and captious in this Lease are inserted
for convenience and reference only and in no way define, limit or describe the
scope or intent of this Lease nor constitute any part of this Lease and are not
to be considered in the construction of this Lease.

         40. COUNTERPARTS. Several copies of this Lease may be executed by all
of the parties. All executed copies constitute one and the same Lease, binding
upon all parties.

         41. ENTIRE AGREEMENT. This Lease contains the entire understanding
between the parties and supersedes any prior understanding or agreements
between them respecting the subject matter. No representations, arrangement, or
understandings except those fully expressed herein, are or shall be binding
upon the parties. No changes, alterations, modifications, additions or
qualifications to the terms of this Lease shall be made or be binding unless in
writing and signed by each of the parties.

         42. RECORDING. The parties agree that this Lease shall not be
recorded, but the Memorandum of Lease attached as Exhibit J hereto shall be
executed and may be recorded by either party in lieu of recordation of this
Lease.



                                       33
<PAGE>   40


         43. GOVERNING LAW; INVALIDITY OF ANY PROVISIONS. This Lease shall be
subject to and governed by the laws of the state in which the Premises are
located and venue for any action hereunder shall be Palm Beach County, Florida.
If any term or provision of this Lease or the application thereof to any person
or circumstance shall to any extent be invalid or unenforceable, the other
terms of this Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby, and each term and provision of this Lease shall
be valid and be enforced to the fullest extent permitted by law.

         44. EXHIBITS; RIDERS. All Exhibits and Riders attached hereto are
hereby made a part of, and incorporated into, this Lease.

         45. ADA COMPLIANCE. Landlord represents and warrants that the Building
fully complies with the provisions and requirements of the Americans With
Disabilities Act of 1990, 42 U.S.C. Section 12101 et seq. ("ADA"), and that any
improvements, repairs, replacements, or other changes to the Property in the
future done by or at the request of Landlord shall also comply with the ADA.
Landlord hereby indemnifies and holds Tenant free and harmless of, from and
against, any and all claims, demands, actions and causes of action by any party
whatsoever (whether or not meritorious), and all costs and expenses (including
without limitation, reasonable attorneys' and paralegal fees, whether suit is
instituted or not, and at all trial and appellate levels), and all losses,
damages and liabilities that are incurred or suffered by Tenant arising from,
or in any way connected with, failure of Landlord to comply with the ADA as
aforesaid. Tenant represents and warrants that the Premises shall fully comply
with the provisions and requirements of the ADA and that any improvements,
repairs, replacements, or other changes to the Premises in the future done by
or at the request of Tenant shall also comply with the ADA. Tenant hereby
indemnifies and holds Landlord free and harmless of, from and against, any and
all claims, demands, actions, and causes of action by any party whatsoever
(whether or not meritorious), and all costs and expenses (including without
limitation, reasonable attorney's and paralegal fees, whether suit is
instituted or not, and at all trial and appellate levels), and all losses,
damages, and liabilities that are incurred or suffered by Landlord arising
from, or in any way connected with, failure of Tenant to comply with the ADA as
aforesaid.

         46. LANDLORD CONSENTS & APPROVALS. Landlord shall not unreasonably
withhold or delay the granting of consents and approvals under this Lease, and
shall respond to Tenant's request for consent or approval within twenty (20)
days (unless a specific provision of this Lease requires a quicker response),
and the failure of Landlord to timely respond shall be deemed the giving of the
requested consent or approval by Landlord.

         47. ATTORNEYS' FEES & COSTS. In the event that either Landlord or
Tenant institutes litigation to enforce its rights under this Lease, the
non-prevailing party shall reimburse the prevailing party for all costs and
reasonable attorneys' and paralegal fees incurred by the prevailing party
through trial, appellate, bankruptcy and post-judgment proceedings.

         48. RULES AND REGULATIONS. Notwithstanding anything to the contrary in
this Lease, none of Landlord's rules and regulations shall be effective against
Tenant if, to any extent, they are in



                                       34
<PAGE>   41


conflict with this Lease. Further, notwithstanding anything to the contrary in
this Lease, Landlord shall take reasonable efforts to enforce the rules and
regulations against all occupants of the building in a non-discriminatory
manner.



                                       35
<PAGE>   42


         IN WITNESS WHEREOF, the parties have executed this Lease as of the day
and year first above written.

Witness:                    LANDLORD:

                            ARBORS ASSOCIATES, LTD., a Florida limited
                            partnership

                            By: BFC/ARBORS ASSOCIATES, LTD., a
                                Florida limited partnership, as General Partner
                                of ARBORS ASSOCIATES, LTD.

                                By: BFC/ARBORS ASSOCIATES, INC., a
                                    Florida corporation, as General Partner of
                                    BFC/ARBORS ASSOCIATES, LTD.
- -----------------------

- -----------------------         By: /s/
                                    -------------------------------------------
                                    Drew P. Cunningham
                                    Vice President

Witness:                    TENANT:

                            SMITH-GARDNER & ASSOCIATES, INC.

                            By: /s/                                 , President
- -----------------------         ------------------------------------

                            By:
- -----------------------         -----------------------------------------------

                                   [NOTARIES]



                                       36

<PAGE>   1
 
   
                                                                    EXHIBIT 11.1
    
 
                        SMITH-GARDNER & ASSOCIATES, INC.
 
   
                             PER SHARE COMPUTATIONS
    
 
   
 FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1997 AND THE
    
   
                      NINE MONTHS ENDED SEPTEMBER 30, 1998
    
 
   
<TABLE>
<CAPTION>
                                                                 1995         1996          1997          1998
                                                              ----------   -----------   -----------   ----------
<S>                                                           <C>          <C>           <C>           <C>
BASIC NET INCOME (LOSS):
  Weighted average common shares outstanding, exclusive of
    nominal issuances prior to the IPO......................   5,263,100     5,263,100     5,263,100    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 at end of
    year....................................................   5,263,100     5,263,100     5,263,100    5,263,100
                                                              ==========   ===========   ===========   ==========
  Net income (loss).........................................  $1,662,072   $(2,450,272)  $(3,367,909)  $2,401,817
                                                              ==========   ===========   ===========   ==========
  Basic net income (loss) per share.........................  $     0.32   $     (0.47)  $     (0.64)  $     0.46
                                                              ==========   ===========   ===========   ==========
DILUTED NET INCOME (LOSS):
  Weighted average common shares outstanding exclusive of
    nominal issuances, prior to the IPO.....................   5,263,100     5,263,100     5,263,100    5,263,100
  Nominal common shares and equivalents issued prior to the
    IPO assumed to be outstanding for the entire period.....          --            --            --           --
  Common stock equivalents..................................          --            --            --    2,818,308
                                                              ----------   -----------   -----------   ----------
  Weighted average common shares outstanding at end of
    year....................................................   5,263,100     5,263,100     5,263,100    8,081,408
                                                              ==========   ===========   ===========   ==========
  Net income (loss).........................................  $1,662,072   $(2,450,272)  $(3,367,909)  $2,401,817
  Plus: interest expense....................................          --            --            --    1,350,000
  Less: preferred stock dividends...........................          --            --            --     (539,656)
                                                              ----------   -----------   -----------   ----------
                                                              $1,662,072   $(2,450,272)  $(3,367,909)  $3,212,161
                                                              ----------   -----------   -----------   ----------
Diluted net income (loss) per share.........................        0.32         (0.47)        (0.64)        0.40
                                                              ==========   ===========   ===========   ==========
PRO FORMA BASIC NET (LOSS) INCOME:
  Weighted average common shares outstanding, exclusive of
    nominal issuance prior to the IPO.......................                               7,518,714    7,518,714
  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.............................................                               7,518,714    7,518,714
                                                                                         ===========   ==========
  Pro forma basic net (loss) income.........................                              (2,419,482)   1,348,631
  Plus: interest expense....................................                               2,179,697    1,350,000
  Less: preferred stock dividends...........................                                (719,541)    (539,656)
                                                                                         -----------   ----------
                                                                                            (959,326)   2,158,975
                                                                                         ===========   ==========
  Pro forma basic net (loss) income per share...............                                   (0.13)        0.29
                                                                                         ===========   ==========
PRO FORMA DILUTED NET (LOSS) INCOME:
  Weighted average common shares outstanding, exclusive of
    nominal issuances prior to the IPO......................                               7,518,714    7,518,714
  Nominal common shares and equivalents issued prior to the
    IPO assumed to be outstanding for the entire period.....                                      --           --
  Common stock equivalents..................................                                      --      562,694
                                                                                         -----------   ----------
                                                                                           7,518,714    8,081,408
                                                                                         ===========   ==========
  Pro forma diluted net (loss) income.......................                             $(2,419,482)  $1,348,631
    Plus: interest expense..................................                               2,179,697    1,350,000
    Less: preferred stock dividends.........................                                (719,541)    (539,656)
                                                                                         -----------   ----------
                                                                                         $  (959,326)  $2,158,975
                                                                                         ===========   ==========
  Pro forma diluted net (loss) income per share.............                             $     (0.13)  $     0.27
                                                                                         ===========   ==========
</TABLE>
    

<PAGE>   1




                                                                    Exhibit 21.1




                          SUBSIDIARIES OF THE COMPANY:
                          ----------------------------

                          Smith-Gardner & Associates, Ltd. (United Kingdom)
                          Smith-Gardner & Associates Pty Limited (Australia)
     


<PAGE>   1
 
                                                                    EXHIBIT 23.1
 
                        CONSENT OF INDEPENDENT AUDITORS
 
The Stockholders
Smith-Gardner & Associates, Inc.:
 
     We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and "Experts"
in the prospectus.
 
   
/s/ KPMG LLP
Fort Lauderdale, Florida
January 11, 1999
    

<TABLE> <S> <C>

<ARTICLE> 5
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   YEAR                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1997             SEP-30-1998
<PERIOD-START>                             JAN-01-1997             JAN-01-1998
<PERIOD-END>                               DEC-31-1997             SEP-30-1998
<CASH>                                         168,590               3,566,943
<SECURITIES>                                         0                       0
<RECEIVABLES>                                2,314,452               5,907,093
<ALLOWANCES>                                   469,227                 515,080
<INVENTORY>                                    219,963                 700,981
<CURRENT-ASSETS>                             2,369,160               9,824,395
<PP&E>                                       1,308,096               1,830,084
<DEPRECIATION>                                 622,777                 860,269
<TOTAL-ASSETS>                               3,135,055              11,245,011
<CURRENT-LIABILITIES>                        2,352,718               6,762,447
<BONDS>                                              0                       0
                                0                       0
                                          0                       0
<COMMON>                                        52,631                  52,631
<OTHER-SE>                                           0                       0
<TOTAL-LIABILITY-AND-EQUITY>                 3,135,055              11,245,011
<SALES>                                     18,652,210              24,748,682
<TOTAL-REVENUES>                            18,652,210              24,748,682
<CGS>                                       11,889,278              13,127,955
<TOTAL-COSTS>                               11,889,278              13,127,955
<OTHER-EXPENSES>                             8,060,211               7,936,777
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                           1,500,000               1,350,000
<INCOME-PRETAX>                             (3,367,909)              2,401,817
<INCOME-TAX>                                         0                       0
<INCOME-CONTINUING>                         (3,367,909)              2,401,817
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                (3,367,909)              2,401,817
<EPS-PRIMARY>                                    (0.64)                   0.46
<EPS-DILUTED>                                    (0.64)                   0.40
        

</TABLE>


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