AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
--------------------------

AMERICAN CARD TECHNOLOGY, INC.

(Name of Small Business Issuer as specified in its charter)

DELAWARE 7379 06-1403123
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)

AMERICAN CARD TECHNOLOGY, INC.
1355 TERRELL MILL ROAD. BUILDING 1462, SUITE 200
MARIETTA, GEORGIA 30067
(612)929-5249

(Address and Telephone Number of Principal Executive Offices and Address of
Principal Place of Business or Intended Principal Place of Business.)

RAYMOND FINDLEY, JR.
1355 TERRELL MILL ROAD. BUILDING 1462, SUITE 200
MARIETTA, GEORGIA 30067
(612)929-5249

(Name, Address and Telephone Number of Agent for Service)
--------------------------

COPIES TO:

R. JOHN BARTZ, ESQ.
Bartz & Bartz
Southdale Office Centre
6750 France Avenue South, Suite 350
Edina, MN. 55435
(612) 920-3959 (612) 920 6494 (Fax)
--------------------------

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

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

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

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

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE

Common Stock $.001 par value................ 420,000 $17.00 $7,140,000 $2,107
Total....................................... $7,140,000 $2,107

(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended, solely for purposes of computing the registration fee.
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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PROSPECTUS
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
PRELIMINARY PROSPECTUS DATED MAY 4, 1998
AMERICAN CARD TECHNOLOGY, INC.
1355 TERRELL MILL ROAD, BUILDING 1462, SUITE 200, MARIETTA, GEORGIA 30067 (612)
929-5249

420,000 SHARES (MAXIMUM OFFERING)
294,200 SHARES (MINIMUM OFFERING)
COMMON STOCK (PAR VALUE $.001)
$17.00 PER SHARE
------------------

All of the shares of Common Stock, par value $.001 (the "Common Stock"),
offered hereby are being sold by American Card Technology, Inc. ("the Company").
Prior to this Offering there has been no public market for the Common Stock. See
"Underwriting" for a discussion of factors considered in determining the initial
public offering price. This Offering is being made by the Company's Underwriter,
Rockcrest Securities L.L.C. of Dallas, Texas (the "Underwriter") on a "best
efforts" basis. There can be no assurance that the minimum number of shares will
be sold. If 294,200 shares (the minimum offering) are not sold within one
hundred eighty (180) days following commencement of the public offering, the
offering will terminate automatically and all funds paid for shares will be
returned to the purchasers without deductions and without interest. See
"Introductory Statement," "Risk Factors" and "Underwriting".

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS
WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
BEGINNING ON PAGE 9 AND "DILUTION" ON PAGE 20.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

UNDERWRITING
DISCOUNTS & PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) THE COMPANY(2)

Per Share................................................ $17.00 $1.70 $15.30
Total Minimum(294,200 shares)............................ $5,001,400 $500,140 $4,501,260
Total Maximum(3)(420,000 shares)......................... $7,140,000 $714,000 $6,426,000

(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) The Company will have prepaid costs and expenses of the Offering totaling
$400,000, which sum represents estimated legal, accounting, copying,
advertising, underwriting and other miscellaneous items.

(3) The Company has granted to the Underwriter an option, exercisable within 210
days after the effective date of this Prospectus, to purchase up to 42,000
additional shares of Common Stock solely to cover over-allotments, if any.
If the Underwriter exercises this option in full, the Price to Public will
total $7,854,000, the Underwriting Discount will total $785,400 and the
Proceeds to Company will total $7,068,600. See "Underwriting."
------------------------

The shares of Common Stock are offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter, and subject
to the right of the Underwriter to reject any order in whole or in part and to
withdraw, cancel or modify this offer without notice. It is expected that
delivery of the shares of Common Stock will be made at the offices of Rockcrest
Securities L.L.C. in Dallas, Texas on or about 1998, subject to the
minimum offering being attained ($5,001,400) or thereafter against payment
therefor in immediately available funds.
------------------------

ROCKCREST SECURITIES L.L.C.

THE DATE OF THIS PROSPECTUS IS , 1998

AVAILABLE INFORMATION

INVESTORS SHOULD CAREFULLY REVIEW THE FINANCIAL STATEMENTS WHICH ARE AN
INTEGRAL PART OF THIS PROSPECTUS.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of this Offering, the Company will become subject to such requirements
and, in accordance therewith, will file periodic reports, proxy materials and
other information with the Securities and Exchange Commission (the
"Commission"). In addition, the Company will furnish its stockholders with
annual reports containing audited financial statements certified by its
independent accountants and such interim reports containing unaudited financial
information as it may determine to be necessary or desirable. The Company will
provide without charge to each person who receives a copy of this Prospectus,
upon written or oral request, a copy of any of the information that is
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Such request should be directed to
American Card Technology, Inc., 1355 Terrell Mill Road, Building 1462, Suite
200, Marietta, Georgia 30067.

No person is authorized in connection with any offering made hereby to give
any information or to make any representation other than as 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 or by any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any security other than the shares of Common Stock offered hereby, nor does
it constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation to such person. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstance create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.

In this Prospectus, references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO
READ THIS PROSPECTUS IN ITS ENTIRETY. THE STATEMENTS CONTAINED IN THIS
PROSPECTUS WHICH ARE NOT HISTORICAL FACTS ARE FORWARD LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THOSE DESCRIBED
UNDER "RISK FACTORS." THERE CAN BE NO ASSURANCE THAT THE MINIMUM NUMBER OF
SHARES WILL BE SOLD. IF THE MINIMUM OFFERING IS NOT SOLD WITHIN ONE HUNDRED
EIGHTY (180) DAYS FOLLOWING THE COMMENCEMENT OF THIS OFFERING, THE OFFERING WILL
TERMINATE AUTOMATICALLY AND ALL FUNDS PAID FOR SHARES WILL BE RETURNED TO THE
PURCHASERS WITHOUT DEDUCTIONS AND WITHOUT INTEREST. UNLESS OTHERWISE INDICATED,
ALL INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING ALL SHARE AND PER SHARE
DATA AND INFORMATION RELATING TO THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING, ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION TO
PURCHASE 42,000 ADDITIONAL SHARES OF COMMON STOCK. SEE "UNDERWRITING."

THE COMPANY

American Card Technology, Inc. (the "Company"), a development stage company
incorporated in June 1994, was organized to design, develop and market high
security, flexible, multiple application smart card systems. A smart card is a
credit card-sized plastic card containing a microchip that provides the card
with memory storage capabilities in a secure environment and, in advanced
versions such as the Company's, enables the card to perform data processing
functions. Smart card systems are typically used by government agencies or
commercial enterprises (the "System Sponsor") to store, access and modify
participant or customer (the "User") information. The Company has received
United States Patent Number 5629508 with respect to its dual card access
technology and methods. The Company's proprietary smart card technology and
software enable System Sponsors to store data on a User's smart card, and enable
the System Sponsor, or a service provider authorized by the System Sponsor (the
"Authorized Service Provider") to access User information and read, input,
delete, modify and process such data. The Company designs its smart card systems
to perform functions for various target markets, such as employee licensing,
animal health and registration, frequent patron tracking, health care and
various government applications, and can design each system to perform various
functions in virtually any industry, depending on the System Sponsors' needs.

The dual card access technology incorporated in the Company's smart card
systems requires the simultaneous use of both a card issued to a User (a "User
Card") and a card issued to an Authorized Service Provider (an "Access Card") to
access the system. The information on the User's smart card cannot be accessed
or modified unless used in tandem with the Authorized Service Provider's card.
For example, a health maintenance organization ("HMO") could sponsor a system
whereby each User patient enrolled in the HMO would receive a smart card with
his or her medical records and insurance information stored on the card's
microprocessor chip. The HMO would issue Access Cards to its member physicians
as Authorized Service Providers and, when a patient visits any of these
HMO-affiliated physicians, the physician would be able to review and update the
patient's medical record and history. The Authorized Service Provider could be
issued separate Access Cards from the HMO allowing different functions for
different security levels. For example, the receptionist's Access Card may allow
access only to insurance information; the nurse's Access Card may allow the
nurse to view but not modify patient records; and the doctor's Access Card may
allow the doctor to access and update patient medical records. The dual card
access technology provides enhanced security for the information on the User
Card by preventing unauthorized persons from accessing or modifying such data
without the proper Access Card and allowing each Access Card to view or
manipulate only the information on the User Card which corresponds to that
Access Card's authorization level. Each System Sponsor determines how much
security it desires at each level, and the Company designs the smart card system
for that System Sponsor around those parameters. The Company believes that its
smart card systems, which offer the capability to perform multiple functions on
a single card, provide enhanced security and privacy protection not offered by
existing smart cards and

position the Company to capitalize on perceived market opportunities for
information systems incorporating smart card technology.

Smart card technology is currently in wide use in Europe, the Pacific Rim,
Latin America and the Middle East. According to the market researcher Dataquest,
the microprocessor and memory based smart card market will grow from 544 million
cards in 1995 to 3.4 billion cards by 2001. Most smart cards currently in use
are low capacity memory-only phone cards that provide only data storage, reading
and deletion capabilities. More sophisticated smart cards, including the
Company's smart cards, are microprocessor-based and therefore have the ability
not only to store, read and delete data but also to add, modify and process
data. The Company believes that most microprocessor-based smart cards currently
in use were designed to perform functions for single purpose applications only,
such as pay television access control, medical or academic recordkeeping or
insurance claim processing. The Company believes that these smart cards
generally utilize multiple, alternative technologies, such as microchips, bar
codes and magnetic stripes simultaneously, or allow access by any Authorized
Service Provider to all the information included within the card. To the best of
the Company's knowledge there are no other cards in use or under development
that meet the same dual card access and multiple application specifications as
the Company's proprietary system. However there is no guarantee that such cards
which function in a similar or superior fashion to the Company's proprietary
system are not under development at this time. See "Competition" under "Risk
Factors."

Although the use of smart cards is increasing, most cards currently used in
electronic transactions are magnetic stripe cards, such as ordinary credit
cards. Such cards contain only limited information such as account numbers and
identification information, but cannot store or update additional information
such as current account balances. The Company believes that its proprietary
smart card systems, comprised of smart cards, read/write devices, other related
hardware and system software offer certain advantages over magnetic stripe cards
and existing smart card systems, including enhanced security features and
multiple function capabilities through the use of dual card access technology
and multiple application layering.

The Company's smart cards are uniquely designed to include multiple
application layers, with each layer enabling the performance of numerous
functions when activated by the proper Access Card. The Company's smart card
systems can provide different System Sponsors or Authorized Service Providers
with access to different application layers on one User's smart card. Therefore,
an HMO could store, on the same card that contains a User's medical records,
insurance claim records for access only by the HMO's benefits administrators.
Each application layer contains its own security feature and can only be
accessed or altered by the Authorized Service Provider holding the Access Card
programmed for that layer. By providing a System Sponsor the ability to add
applications over time, as well as allowing multiple System Sponsors to utilize
different layers of the same smart card for different purposes, the Company's
smart card systems will enable the cost per smart card to be allocated among
separate System Sponsors or different departments within a single System
Sponsor. The Company believes that these features position its smart card
systems as secure, cost-effective solutions for electronic transaction and
information processing.

To date, the Company has executed two contracts with the North American
Pari-Mutuel Regulators Association ("NAPRA") to provide and maintain an
internet-based regulatory tracking system that includes a database with
licensing information, infraction records and digital photographs of the
licensees in its jurisdictions. NAPRA is an organization comprised of eighteen
pari-mutuel wagering jurisdictions located in North America, including horse and
dog racing, jai alai and card rooms. In addition to the contracts with NAPRA,
the Company has developed and installed smart card based employee identification
and licensing systems in four NAPRA jurisdictions, the Birmingham Racing
Commission and the Macon County Race Course, both in Alabama, the Oregon Racing
Commission and the Idaho Racing Commission. These smart card systems control
on-site access and maintain state licensing information. The Company recently
submitted a proposal to an additional NAPRA jurisdiction, the Florida Department
of Pari-Mutuel Wagering, pursuant to its request, to provide a similar smart
card licensing system.

The Company has completed a pilot program in New Jersey and Pennsylvania for
the issuance of "equine medical passport" smart cards for monitoring the
identity, interstate and intrastate movement and medical records of thoroughbred
horses. The Florida Department of Agriculture and Consumer Services Bureau of
Disease Control has proposed a similar pilot project anticipated to begin as
soon as possible. The Bureau of Disease Control is responsible for ensuring the
health and marketability of livestock in the state of Florida. To prevent the
spread of a deadly disease, the federal government requires any horse crossing
state lines to have a negative Coggins Report which evidences a negative test
result for Equine Infectious Anemia. A Coggins Report is valid for one year from
the issue date. Further, each state requires a valid health certificate for any
horse entering the state. The states of Florida, Georgia and Alabama have formed
an alliance whereby a special ninety (90) day pass authorized by any of the
three states can be used to cross state lines between these states. The proposed
Florida pilot program will involve a test "livestock medical passport" program
in which each of 100 animals will be implanted with an "electronic
identification transponder" used in conjunction with smart cards to verify each
animal's identity and federal and state medical certifications. This pilot
program will replace the required paper passports for horses crossing between
these states. Although completed programs in New Jersey and Pennsylvania
successfully tested the equine medical passport smart card system and similar
electronic transponder implants are in use which are not coordinated with smart
card technology, such equine medical passport pilot programs have not resulted
in any system sales to date. There can be no assurance that any of the Company's
pilot programs will result in system purchases by any potential System Sponsor.

The Company has entered into a Memorandum of Understanding with Traquer
Systems, Inc. ("Traquer") to market the Company's smart card systems to Indian
gaming and wagering facilities in North America. Traquer has significant
expertise with the rules and regulations for Indian gaming environments. In
February 1998, the Company received its first order from Traquer to provide a
smart card based employee licensing system to an Indian tribe in Arizona. The
Company expects this system to be installed by August 1998.

The Company received a request from Foundation Health, a Florida based HMO,
to structure a smart card system to assist and expedite the verification of
patient insurance coverage by hospital employees. The pilot program involves
Palmetto Hospital, one of the largest hospitals in Miami, Florida, and the
Company anticipates the initial phase will be installed by July 1998. Other
phases of this proposed project may include expanding the smart card based
verification capability to all Foundation Health member hospitals and Authorized
Service Providers in south Florida. The final phase may provide all Foundation
Health members with enhanced smart card member identification capabilities.

The Company has also been selected as a subcontractor to Paradigm 4 for the
proposed New York City Time Project. The City of New York has significant
problems tracking city employees and verifying the accuracy of actual hours
worked. This project will pilot a number of technologies, including the use of
smart cards, for time and attendance management and tracking of city employees.

The Company is negotiating an exclusive distributorship agreement with AVID
Identification Devices, Inc. ("AVID"). AVID uses PETtrac, a worldwide
computerized tracking system for companion animals. Under the terms of the
agreement, AVID will have the right to sell a unique smart card based system
developed by the Company exclusively for AVID and to be used in conjunction with
AVID's radio frequency identification devices currently being sold worldwide to
veterinarians and other customers. Owners of animals will carry with them the
Company's smart card containing animal tracking information related to the
existing PETtrac identification system as well as other AVID related
applications, including animal records. There can be no assurance that the
Company will be successful in negotiating this agreement.

through its management and employees, including a recently appointed Director of
Sales, the Company intends to establish strategic marketing alliances and
licensing or other arrangements with systems integrators, value-added resellers
and other smart card vendors and may also retain the services of sales
representatives and marketing and other consultants. The Company anticipates
that, under certain circumstances, its smart card products will be bundled with
its strategic partners' products and services to create a complete integrated
system that can be marketed to potential System Sponsors. The Company will also
seek to provide complete integrated smart card solutions, on a turnkey basis, to
System Sponsors by providing all hardware and software elements required to
implement the system.

Since inception, the Company has been engaged principally in organizational
activities, including developing a business plan, hiring personnel and
developing and enhancing its smart card technology and software, and has only
recently commenced the limited marketing of its smart card systems. The Company
has generated limited revenues and incurred significant operating losses.
Therefore, the Company has a limited operating history upon which an evaluation
of its prospects can be made. The Company's prospects must be considered in
light of the risks, uncertainties, expenses, delays and difficulties associated
with the establishment of a new business in the evolving smart card industry, as
well as those risks encountered in the shift from development to
commercialization of new products based on innovative technologies. There can be
no assurance that the Company's smart card systems will ever gain market
acceptance, or that the Company will be able to successfully implement its
marketing strategies, generate meaningful revenues or ever achieve profitable
operations.

The Company was incorporated under the laws of the State of Delaware in June
1994. Unless otherwise indicated, all references to the Company include Canadian
Smart Card Technology Inc., its majority-owned subsidiary incorporated under the
laws of Ontario, Canada (the "Subsidiary"), which was created to exploit the
Company's technology in Canada. The Company's principal executive offices are
located at 1355 Terrell Mill Road, Building 1462, Suite 200, Marietta, Georgia
30067 and its telephone number is (770) 951-2284.

RECENT FINANCING

From July 1997 through January 1998, three directors, Raymond A. Roncari,
Harold Rothstein and Lawrence O. Perl, have provided loans to the Company in the
amounts of $320,000, $460,000 and $15,000, respectively (the "Stockholder
Loans"). These loans provided the Company with working capital and covered some
costs associated with this Offering. The Stockholder Loans are expected to be
repaid upon the closing of subsequent debt financing, but in no event later than
January 1, 2001.

In February and March 1998, the Company sold investment units to investors
for an aggregate of $1,500,000 in a private placement offering (the "1998
Private Placement"). Each unit consisted of (i) an unsecured, nonnegotiable
promissory note in the principal amount of $50,000 (the "Bridge Notes"), (A)
bearing interest at the rate of ten percent (10%) per annum, payable annually in
arrears, and (B) providing for a loan fee payable upon payoff of the Bridge Note
in an amount equal to $5,000 less interest accrued under the Bridge Note during
the first year through the date of payoff; (ii) 2,500 shares of Common Stock
(the "Bridge Shares"); and (iii) 2,500 bridge warrants, each bridge warrant
representing the right to purchase one share of Common Stock at a price of
eighty percent (80%) of the per share market price of the Common Stock on the
exercise date (the "Bridge Warrants"). In addition, Messrs. Roncari and
Rothstein entered into certain loan agreements (the "Director Loan Agreements")
committing each of them to loan $450,000 (for a total of $900,000) to the
Company to be used for working capital and certain costs of this Offering (the
"Director Loans"). In consideration for this commitment, Messrs. Rothstein and
Roncari were each granted 12,500 shares of Common Stock of the Company and
warrants to purchase 12,500 shares of Common Stock at an exercise price of
eighty percent (80%) of the market price of the Common Stock on the exercise
date (the "Commitment Warrants"). The Company intends to use a portion of the
proceeds from this Offering to repay certain loans and other indebtedness. The
Bridge Notes are to be repaid from the proceeds of the minimum offering, but in
no event later than

March 3, 2001. The accrued interest due on the Bridge Notes is to be repaid in
two parts, $67,157 from the proceeds of the minimum offering and $109,589 from
the proceeds of the maximum offering, but in no event later than March 3, 2001.
The Director Loans are to be repaid upon closing of subsequent debt financing,
but in no event later than January 1, 2001. See "Use of Proceeds," "Plan of
Operation" and "Certain Transactions."

THE OFFERING

Common Stock offered by the Company
Minimum.................................... 294,200
Maximum(1)................................. 420,000

Common Stock to be outstanding after
Offering(2)
Minimum.................................... 2,819,200
Maximum(1)................................. 2,945,000

Use of Proceeds.............................. The Company intends to use the net proceeds
of this Offering for repayment of the Bridge
Notes; research and development; sales and
marketing; repayment of certain outstanding
obligations; and working capital and general
corporate purposes. See "Use of Proceeds."

Risk Factors................................. The securities offered hereby are speculative
and involve a high degree of risk and
immediate substantial dilution and should not
be purchased by investors who cannot afford
the loss of their entire investment. See
"Risk Factors" and "Dilution."

Proposed Nasdaq symbol....................... Common Stock--"ACRD."

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

(1) Assumes the Underwriter does not execute any of its available 42,000
over-allotment shares.

(2) Does not include (i) 270,000 shares of Common Stock reserved for issuance
upon exercise of options granted or available for future grant under the
Stock Option Plan, as defined herein; (ii) 30,000 shares of Common Stock
reserved for issuance upon exercise of options granted or available for
future grant under the Directors' Plan, as defined herein; (iii) 100,000
shares of Common Stock reserved for issuance upon exercise of the Shreveport
Option, as defined herein; (iv) 50,000 shares of Common Stock reserved for
issuance upon exercise of the Chapman Option, as defined herein; (v) 25,000
shares of Common Stock reserved for issuance upon exercise of the Commitment
Warrants; (vi) 75,000 shares of Common Stock reserved for issuance upon
exercise of the Bridge Warrants; (vii) 100,000 shares of Common Stock
reserved for issuance upon exercise of the Underwriter's Option, as defined
herein, to be granted at and conditioned upon the minimum offering; or
(viii) 100,000 shares of Common Stock reserved for issuance upon exercise of
the Beter Option, as defined herein, to be granted in the event of
subsequent debt financing negotiated by Lilly Beter Capital Group, Ltd.

SUMMARY FINANCIAL INFORMATION

The summary financial information set forth below is derived from and should
be read in conjunction with the financial statements of the Company, including
the notes thereto, appearing elsewhere in this Prospectus.

JUNE 21, 1994
YEAR ENDED DEC 31, THREE MOS ENDED MAR 31, (INCEPTION)
---------------------------- --------------------------- TO MAR 31,
1996 1997 1997 1998 1998
------------- ------------- ------------ ------------- -------------

STATEMENT OF OPERATIONS DATA
Revenues............................... $ 27,034 $ 76,912 $ -- $ 59,589 $ 237,007
Cost of sales.......................... 16,279 86,995 -- 74,507 246,402
Research and development expense....... 167,000 260,000 55,000 174,000 781,000
General and administrative expense..... 919,546 1,176,885 331,311 554,587 3,739,792
Write-off of license fee............... 20,000 -- -- -- 168,000
Interest and financing costs, net...... 129,126 1,065,240 100,070 283,727 1,522,325
Net loss............................... (1,224,917) (2,512,208) (486,381) (1,027,232) (6,220,512)
Net loss per share--basic and
diluted.............................. (.54) (.96) (.19) (.40)
Weighted average number of shares
outstanding.......................... 2,269,671 2,615,343 2,585,833 2,562,167

MARCH 31, 1998
-------------------------------------------
AS ADJUSTED FOR
DECEMBER 31, ----------------------------
1997 ACTUAL MINIMUM(1) MAXIMUM(2)
------------- ------------- ------------- -------------

BALANCE SHEET DATA
Working capital (deficit)............................. $ (2,881,624) $ (1,764,588) $ 1,073,047 $ 2,918,620
Total assets.......................................... 594,536 890,440 3,356,118 4,571,269
Total liabilities..................................... 4,144,316 4,867,452 3,596,128 2,965,706
Total stockholders' equity (deficit).................. (3,549,780) (3,977,012) (240,010) 1,605,563

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

(1) Gives effect to the sale of the 294,200 shares of Common Stock being offered
hereby and the anticipated application of the estimated net proceeds
therefrom, including $1,500,000 representing the repayment of the Bridge
Notes plus $67,157 representing partial payment of accrued interest,
including a non-recurring charge of $45,833, plus a non-recurring charge of
$250,000 representing the unamortized loan discount, $68,425 representing
unamortized deferred financing costs associated with the 1998 Private
Placement and $400,000 representing prepaid costs of this Offering. See "Use
of Proceeds."

(2) Gives effect to the sale of the 420,000 shares of Common Stock being offered
hereby and the anticipated application of the estimated net proceeds
therefrom, $1,500,000 representing the repayment of the Bridge Notes plus
$176,746 representing payment of accrued interest, including a non-recurring
charge of $125,000, plus a non-recurring charge of $250,000 representing the
unamortized loan discount, $68,425 representing unamortized deferred
financing costs associated with the 1998 Private Placement, $600,000
representing repayment of all outstanding bank debt and $400,000
representing prepaid costs of this Offering. See "Use of Proceeds."

RISK FACTORS

THE SECURITIES BEING OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK, INCLUDING, BUT NOT LIMITED TO, THOSE RISK FACTORS SET FORTH
BELOW, AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT IN THE
COMPANY, SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS INHERENT IN AND
AFFECTING THE BUSINESS OF THE COMPANY AND THIS OFFERING.

THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," "PLAN OF OPERATION" AND "BUSINESS" AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.

DEVELOPMENT STAGE COMPANY; LIMITED OPERATING HISTORY. The Company was
organized in June 1994 and is in the development stage. Since inception, the
Company has been engaged principally in organizational activities, including
developing a business plan, hiring personnel and developing and enhancing its
proprietary smart card technology and software, and it has only recently
commenced the limited marketing of its smart card systems. Therefore, the
Company has a limited operating history upon which an evaluation of its
prospects can be made. The Company's prospects must be considered in light of
the risks, uncertainties, expenses, delays and difficulties associated with the
establishment of a new business in the evolving smart card industry, as well as
those risks encountered in the shift from development to commercialization of
new products based on innovative technologies. See "Plan of Operation."

LIMITED REVENUES; SIGNIFICANT AND CONTINUING LOSSES; ACCUMULATED DEFICIT;
EXPLANATORY PARAGRAPH IN INDEPENDENT AUDITORS' REPORT. The Company has
generated limited revenues to date and does not expect to generate meaningful
revenues in the near future until such time, if ever, as its smart card systems
are successfully commercialized. The Company has incurred significant losses in
each operating period since its inception resulting in an accumulated deficit at
March 31, 1998 of $6,220,512 and losses are continuing through the date of this
Prospectus. Inasmuch as the Company will continue to have a high level of
operating expenses and will be required to make significant up-front
expenditures in connection with both the development of its business and the
commercialization of its smart card systems (including, without limitation,
salaries of executive, technical, marketing and other personnel), the Company
anticipates that it will continue to incur significant and increasing losses for
the foreseeable future until such time, if ever, as the Company is able to
generate sufficient revenues to finance its operations. The Company will also
incur non-recurring charges relating to the 1998 Private Placement of
approximately $364,258 upon closing of the minimum offering. The Company's
independent certified public accountants have included an explanatory paragraph
in their report stating that the Company's dependence on outside financing, lack
of existing commitments from lenders to provide necessary financing, lack of
sufficient working capital and losses since inception raise substantial doubt
about the Company's ability to continue as a going concern. There can be no
assurance that the Company's smart card systems will gain market acceptance, or
that the Company will be able to successfully implement its business strategy,
generate meaningful revenues or achieve profitable operations. See "Plan of
Operation" and Financial Statements.

UNCERTAINTY OF PROPOSED PLAN OF OPERATION. The success of the Company's
proposed plan of operation will be largely dependent upon market acceptance of
smart cards generally, as well as on the Company's ability to successfully
market its smart card systems by persuading potential System Sponsors of the
perceived benefits of its dual card access and multiple application layering
concepts (including the benefits to be derived from allocating total card
program costs among individual application layers within a card) and to develop
and commercialize further applications of its proprietary technology. In
addition, the Company's proposed plan of operation and prospects will be
dependent upon, among other things, the Company's ability to enter into
strategic marketing and licensing or other arrangements on a timely basis and on
favorable terms; establish satisfactory arrangements with sales representatives
and marketing consultants; hire and retain skilled management as well as
financial, technical, marketing and other personnel; successfully manage growth
(including monitoring operations, controlling costs and maintaining

effective quality, inventory and service controls); and obtain adequate
financing when and as needed. The Company has limited experience in developing
new products based on innovative technology and there is limited information
available concerning the performance of the Company's technologies or market
acceptance of the Company's products. There can be no assurance that the Company
will be able to successfully implement its plan or that unanticipated expenses
or problems or technical difficulties will not occur which would result in
material delays in its implementation. Moreover, there can be no assurance that
the Company will have sufficient capacity to satisfy any increased demand for
its smart card products and technologies resulting from the Company's
implementation of its plan of operation. See "Plan of Operation" and "Business."

NEW CONCEPT; UNCERTAINTY OF MARKET ACCEPTANCE. The smart card industry in
the United States is an emerging business characterized by an increasing and
substantial number of new market entrants that have introduced or are developing
an array of new products and services relating to electronic transactions and
information processing. Each of these entrants is or may be seeking to position
its products and services as the preferred method of effectuating highly
individualized, easy-to-use electronic transaction and information processing.
The success of the smart card industry depends, in large part, on the ability of
market participants to convince governmental authorities, commercial enterprises
and other potential System Sponsors to adopt a smart card system in lieu of
existing or alternative systems such as magnetic stripe card and paper-based
systems, thereby changing the way certain transaction and information processing
tasks are accomplished. In addition, due to the large capital and infrastructure
investment made by debit and credit card issuers and significantly lower costs
associated with the use of magnetic stripe cards, many potential System Sponsors
may be reluctant to convert to smart card technology in the near future.
Accordingly, there can be no assurance that there will be significant market
opportunities for smart card systems in the United States or that the acceptance
of smart card based systems in other countries will be sustained. The Company's
dual card access and multiple application layering technologies are new
concepts. As such, demand for and market acceptance of the Company's smart card
systems are subject to a high level of uncertainty. The Company has limited
marketing experience and limited financial, personnel and other resources to
undertake extensive marketing activities. Potential System Sponsors of the
Company's smart card systems, as well as the Company's potential strategic
partners, must be persuaded that the costs of adopting and implementing smart
card systems, in general, and, in particular, of adopting and implementing the
Company's smart card systems, which incorporate dual card access technology and
multiple application layering, are justified by the benefits to be derived
therefrom. Achieving market acceptance for the Company's products and services
will require significant efforts and expenditures by the Company to create
awareness, demand and interest by potential System Sponsors, strategic partners
and others regarding the perceived benefits of the Company's technologies,
including the possible allocation of costs among different System Sponsors
and/or departments of one or more System Sponsors. There can be no assurance
that the Company's smart card technology will prove to be economically viable
for a sufficient number of System Sponsors, that substantial markets will
develop, in the United States or elsewhere, for the Company's smart card systems
or that the Company will be able to meet its current marketing objectives,
succeed in positioning its cards and services as a preferred method of
delivering electronic transaction and information processing or achieve
significant market acceptance of its products. See "Business--Marketing and
Sales."

SIGNIFICANT CAPITAL REQUIREMENTS; WORKING CAPITAL DEFICIT; DEPENDENCE ON
PROCEEDS OF THIS OFFERING; POSSIBLE FUTURE FINANCING. The Company's capital
requirements have been and will continue to be significant. At March 31, 1998,
the Company had a working capital deficit of $1,764,588 due to, among other
things, costs associated with the development, commercialization and market
testing of the Company's smart card systems, including the development of the
Company's initial pilot programs. The Company has been dependent on the sales of
its securities to private investors (including the 1998 Private Placement), as
well as on capital contributions and loans from affiliates and certain financial
institutions guaranteed by certain stockholders of the Company. During the
period from inception through the date of this Prospectus, the Company has
raised capital in the estimated aggregate amount of $5,600,000

(including approximately $5,000,000 through March 31, 1998) through such means.
The Company is dependent on and intends to use the proceeds of this Offering to
continue the implementation of its proposed plan of operation. The Company
anticipates, based on assumptions relating to its operations (including
assumptions regarding the Company's ability to meet its current marketing
objectives and the timing and costs associated therewith), that the net proceeds
of this Offering, together with projected cash flow from operations, will be
sufficient to fund the Company's operations and capital requirements for at
least twelve months following the consummation of this Offering. In the event
the Company's plans change, its assumptions change or prove to be inaccurate or
if the proceeds of this Offering prove to be insufficient to fund operations
(due to unanticipated expenses, technical difficulties, problems or otherwise),
the Company would be required to seek additional financing sooner than currently
anticipated. There can be no assurance that the proceeds of the minimum offering
will be sufficient to permit the Company to successfully further develop and
commercialize the Company's smart card technology or that any assumptions
relating to the Company's operations will prove to be accurate. In addition, any
implementation of the Company's business plans subsequent to the twelve month
period following this Offering may require proceeds greater than the proceeds of
this Offering or otherwise currently available to the Company. Further, if the
minimum closing of this Offering is delayed, the Company may not have sufficient
capital to fund operations and the anticipated expenses of this Offering. There
can be no assurance that additional financing will be available to the Company
on commercially reasonable terms, or at all. Although the Company believes it
may be able to raise at least a portion of its future financing requirements for
such period among its officers, directors and/or stockholders, no officer,
director or stockholder of the Company has made any further commitment to the
Company to provide any portion of the Company's future financing requirements
and there are no assurances that any officer, director or stockholder will do
so. At some future date, the Company intends to offer up to approximately $30
million in debt financing, to be negotiated by Lilly Beter Capital Group, Ltd.
("Beter"). Upon closing of such debt financing, Beter would receive warrants for
100,000 shares of Common Stock, at an exercise price equal to eighty percent
(80%) of the per share market price of Common Stock at the time of exercise (the
"Beter Option"). There can be no assurance that such additional financing, or
any other additional financing, will be available to the Company on reasonable
terms, or at all. Further, if such additional financing is attempted, there can
be no assurance that such additional financing, or any other additional
financing, will be successful. Any inability to obtain additional financing when
needed may have a material adverse effect on the Company, including requiring
the Company to curtail its activities and possibly causing the Company to cease
its operations. To the extent that the Company finances its operations through
the issuance of additional equity securities, any such issuance may involve
substantial dilution to the Company's then-existing stockholders. Additionally,
to the extent that the Company incurs indebtedness or issues debt securities,
the Company will be subject to all of the risks associated with incurring
substantial indebtedness, including the risks that interest rates may fluctuate
and cash flow may be insufficient to pay principal and interest on any such
indebtedness. See "Use of Proceeds," "Plan of Operation" and "Certain
Transactions."

LIMITED MARKETING CAPABILITIES AND EXPERIENCE; DEPENDENCE ON THIRD-PARTY
MARKETING ARRANGEMENTS. The Company has limited marketing capabilities,
experience and resources. To date, the Company has conducted only limited
marketing activities and has relied primarily on the efforts of its executive
officers in connection with such activities. It will be the role of the
Company's management and its Director of Sales to guide the Company from the
research and development phase to a company with full marketing and sales
strategies for direct and indirect sales. Although the Company expects to
continue to market smart card systems directly through the Company's management
and employees, the Company intends to establish strategic marketing alliances
and licensing or other arrangements with systems integrators, value-added
resellers and other smart card vendors and may also retain the services of sales
representatives and marketing and other consultants. The Company's success will
depend in part on its ability to enter into agreements with such third parties,
and on the ability and efforts of such third parties to successfully market the
Company's smart card systems. Moreover, marketing arrangements with third

parties may require financial or other commitments by the Company. There can be
no assurance that the Company will be able, for financial or other reasons, to
enter into third-party marketing arrangements on commercially acceptable terms,
or at all. The failure of the Company to complete its third-party marketing
strategy or the failure of any such party to develop and sustain a market for
the Company's smart cards could have a material adverse effect on the Company.
Although the Company views third party marketing arrangements as a major factor
in the commercialization of its smart card systems, there can be no assurance
that any strategic partners, licensees or others would view an arrangement with
the Company as significant to their businesses. See "Business--Marketing and
Sales" and "Management."

COMPETITION; TECHNOLOGICAL OBSOLESCENCE. The market for the Company's smart
card systems is characterized by intense competition. The market is currently
dominated by cards utilizing magnetic stripes, and is expected to be dominated
by magnetic stripe cards for the foreseeable future due to the lower costs of
production of such cards and the substantial capital and infrastructure
investments made by debit and credit card issuers in such cards. The Company
also competes with numerous well-established companies, including Gemplus, Bull
PTS (a unit of Groupe Bull), Schlumberger Electronic Transactions (a business
segment of Schlumberger Limited), Orga Kartensysteme GMBH, Giesecke & Devrient
and Mondex International, which design, manufacture and/or market smart card
systems. Although the Company believes its proprietary dual card access and
multiple application layering technologies will allow the Company to compete on
the basis of enhanced security, flexibility, scalability, cost-effectiveness and
quality, the Company's smart card systems incorporate new concepts and may be
unsuccessful even if they are superior to those of its competitors. In addition,
certain companies may be developing technologies or products of which the
Company may be unaware which may be functionally similar or superior to those
developed by the Company. Most of the Company's competitors and potential
competitors possess substantially greater financial, marketing, personnel and
other resources than the Company and have established reputations relating to
the design, development, manufacture, marketing and service of smart card
systems. As the market for smart card systems grows, new competitors are likely
to emerge. Additional competition could adversely affect the Company's
operations. There can be no assurance that the Company will be able to compete
successfully, that competitors will not develop technologies or products that
render the Company's systems obsolete or less marketable or that the Company
will be able to successfully enhance its products or develop new products when
necessary. See "Business-- Competition."

TECHNOLOGICAL FACTORS. The Company's research and development efforts are
subject to all of the risks inherent in the development of new products and
technology (including unanticipated delays, expenses and difficulties). There
can be no assurance that the Company's products will satisfactorily perform the
functions for which they are designed, that they will meet applicable price or
performance objectives or that unanticipated technical or other problems will
not occur which would result in increased costs or material delays in the
development thereof. Furthermore, software products as complex as those
developed by the Company and incorporated into its smart card products may
contain errors or failures when installed, updated or enhanced. There can be no
assurance that, despite testing by the Company and by current and potential end
users, errors will not be found in new products after the delivery by the
Company, resulting in loss of or delay in market acceptance. See
"Business--Technology Overview" and "--Products."

The Company has entered into an agreement with SoftChip Israel Ltd. of
Jerusalem, Israel and its affiliate, SoftChip Technologies (3000) Ltd.
(collectively, "SoftChip"), to purchase the DVK-1 Chip Mask Operating System and
architecture ("DVK-1 System") for a purchase price of $100,000 and for SoftChip
to provide technical support and development to the Company for at least a
two-year period for an additional $450,000 plus royalties ranging from $.125 to
$.25 for each smart card sold by the Company that incorporates the DVK-1 System.
Upon its closing, which is scheduled to occur after the minimum closing of this
Offering, this agreement will provide the Company ownership of its own chip mask
and access to the technical resources needed to develop a completely new and
proprietary chip mask and operating system.

The chip mask provides the basic instructions to the microchip and its internal
components and facilitates the orderly utilization of all of the microchip's
components and allows the device to be utilized. The Company has also executed a
purchase order with SoftChip for technical services for a monthly fee of
$18,000, which commenced December 1, 1997. The Company is obligated to pay the
amount payable under the purchase order, the purchase price and the fees for
technical support, no later than September 15, 1998, which will reduce the
amount of working capital available to the Company. Under the agreement,
ownership of the DVK-1 System will be transferred to the Company at closing upon
payment in full of the purchase price and technical support fees. If the closing
of the minimum offering is delayed beyond September 15, 1998, the Company
believes it may be able to reach a mutual agreement with SoftChip to extend the
closing date of the agreement, but there can be no assurance that the Company
will be able to reach such agreement with SoftChip, or that the Company will
ultimately secure ownership of the DVK-1 System if the closing of the minimum
offering is delayed beyond September 15, 1998. Additionally there can be no
assurance that ownership of the DVK-1 System will result in the successful
development of new technology. See "Plan of Operation" and
"Business--Intellectual Property."

PROPRIETARY RIGHTS. The Company's success will depend in part on its
ability to enforce its patents, protect trade secrets and operate without
infringing on the proprietary rights of others. The Company has received United
States patent number 5629508 with respect to its dual card access technology and
methods. The Company contemplates filing patent applications in selected foreign
jurisdictions where such filings would, in the Company's opinion, provide it
with a competitive advantage. The patent laws of other countries may differ from
those of the United States as to the patentability of the Company's products or
technology and the degree of protection afforded by foreign patents may be
different from that in the United States. The failure by the Company to obtain
any foreign patents could have a material adverse effect on the Company's
ability to successfully commercialize its smart card systems outside the U.S.
Even though the Company has been able to obtain a U.S. patent, there can be no
assurance that this patent will afford the Company commercially significant
protection for its technology. Other companies may independently develop
equivalent or superior technologies or products and may obtain patent or similar
rights with respect to them. The Company is not aware of any infringement by its
technology on the proprietary rights of others and has not received any notice
of claimed infringement. However, the Company has not conducted any
investigation as to possible infringement and there can be no assurance that
third parties will not assert infringement claims against the Company in
connection with its products, that any such assertion of infringement will not
result in litigation, or that the Company would prevail in such litigation.
Moreover, in the event that the Company's technology or proposed products were
deemed to infringe upon the rights of others, the Company would be required to
obtain licenses to utilize such technology. There can be no assurance that the
Company would be able to obtain such licenses in a timely manner on acceptable
terms and conditions, and the failure to do so could have a material adverse
effect on the Company. If the Company were unable to obtain such licenses, it
could encounter significant delays in product market introductions while it
attempted to design around the infringed upon patents or rights, or could find
the development, manufacture or sale of products requiring such license to be
foreclosed. In addition, patent disputes occur in the smart card and computer
industries and there can be no assurance that the Company will have the
financial resources to enforce or defend a patent infringement or proprietary
rights action. The Company has received a federal trademark registration for its
SMART-ID-Registered Trademark- mark and design and has applied for a federal
trademark registration for its Cheeze! mark. SMART-ID-Registered Trademark- is a
smart card based system that provides positive identification, transaction
tracking and the ability to layer multiple applications on a single smart card.
Cheeze! is a program currently used by eighteen pari-mutuel licensing
jurisdictions to photograph licensees and transmit the photograph and license
data to a central database, which is currently housed at the Company's offices.
The Company's use of its software, name and mark may be subject to challenge by
others, which, if successful, could have a material adverse effect on the
Company.

The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation
relating to its proprietary technology. However, such

methods may not afford the Company complete protection and there can be no
assurance that others will not independently obtain access to the Company's
trade secrets and know-how or independently develop products or technologies
similar to those of the Company. Furthermore, although the Company has and
expects to have confidentiality and non-competition agreements with its
employees and appropriate suppliers and manufacturers, there can be no assurance
that such arrangements will adequately protect the Company's trade secrets. See
"Business--Intellectual Property."

LENGTHY SALES CYCLE; POSSIBLE FLUCTUATIONS IN OPERATING RESULTS. The
Company's sales cycle is expected to commence at the time a prospective System
Sponsor demonstrates an interest in purchasing a smart card system from the
Company or issues a request for a proposal or information or takes similar
action and ends upon the installation of a smart card system for the System
Sponsor. The sales cycle will vary by System Sponsor and could extend for
periods of up to twelve months or more, depending upon, among other things, the
time required by the System Sponsor to complete a pilot test of the Company's
smart card system, make a determination regarding an acquisition thereof and
negotiate payment terms with the Company. The Company's operating results could
vary from period to period as a result of this fluctuation in the length of the
Company's sales cycle and as a result of fluctuations in the purchasing patterns
of potential System Sponsors, technological factors, variations in marketing
strategies for different target markets and non-recurring smart card system
sales. See "Plan of Operation--Possible Fluctuations in Operating Results."

POSSIBLE DEPENDENCE ON GOVERNMENT CONTRACTS. As part of its strategy, the
Company intends to market its smart card systems to government agencies in the
United States and Canada. If successful, the Company will become subject to the
special risks involving government contracts, including delays in funding,
lengthy review processes for awarding contracts, non-renewal, delay, termination
at the convenience of the government, reduction or modification of contracts in
the event of changes in the government's policies or as a result of budgetary
constraints and increased or unexpected costs resulting in losses, any or all of
which could have a material adverse effect on the Company.

The Company will also be required to obtain most potential government
contracts through the competitive bidding process. There can be no assurance
that the Company will be successful in having its bids accepted or, if accepted,
that awarded contracts will generate sufficient revenues to result in profitable
operations. The competitive bidding process is typically lengthy and often
results in the expenditure of financial and other resources in connection with
bids that are not accepted. Additionally, inherent in the competitive bidding
process is the risk that actual performance costs may exceed projected costs
upon which a submitted bid or contract price is based. To the extent that actual
costs exceed projected costs, the Company could incur losses, which could
adversely affect the Company's operating margins and results of operations.
Moreover, in most instances, the Company may be required to post bid and/or
performance bonds in connection with contracts with government agencies. Any
inability by the Company to obtain bonding coverage in sufficient amounts could
have a material adverse effect on the Company. See "Business--Government
Regulation and Industry Standards."

BROAD DISCRETION IN APPLICATION OF PROCEEDS; ALLOCATION OF PROCEEDS TO PAY
CERTAIN OBLIGATIONS, INCLUDING INDEBTEDNESS TO PRINCIPAL STOCKHOLDERS; BENEFIT
TO RELATED PARTIES. Approximately $1,170,260 (26.0%) of the estimated net
proceeds of the minimum offering or $2,058,000 (32.1%) of the estimated net
proceeds of the maximum offering has been allocated to working capital and
general corporate purposes. Accordingly, the Company's management will have
broad discretion as to the application of such proceeds. In addition, the
Company intends to use approximately $1,567,000 (34.8%) of the estimated net
proceeds of the minimum offering or $2,277,000 (35.4%) of the estimated net
proceeds of the maximum offering to repay indebtedness (including all the Bridge
Notes to be repaid from the proceeds of the minimum offering and the accrued
interest due on the Bridge Notes, to be repaid in two parts, $67,157 from the
proceeds of the minimum offering and $109,589 from the proceeds of the maximum
offering; both the Notes and the interest are to be repaid no later than March
3, 2001) and satisfy pre-existing obligations and, therefore, such funds will be
unavailable to fund future growth. Included in the indebtedness to be

repaid from the proceeds of the minimum offering are the Bridge Notes payable to
Lawrence O. Perl, the Company's Chairman of the Board, Chief Executive Officer
and Chief Financial Officer, in the principal amount of $25,000, together with
accrued interest thereon, and Bridge Notes payable to Harold Rothstein and
Raymond A. Roncari, each a director of the Company, in the principal amounts of
$475,000 and $475,000, respectively. Included in the indebtedness to be repaid
from the proceeds of the maximum offering are the interest due on the Bridge
Notes payable to Messrs. Rothstein and Roncari. Included in certain outstanding
obligations to be repaid from the proceeds of the maximum offering is
approximately $42,000 payable to Lawrence Owen Associates, a corporation
wholly-owned by Mr. Perl, for use of office space and related services. In
addition, Mr. Rothstein has personally guaranteed and/or pledged personal assets
to secure the Company's indebtedness to Fleet National Bank, The Chase Manhattan
Bank and First Southern Bank, and Mr. Roncari has personally guaranteed all of
the Company's indebtedness to The First National Bank of Suffield. The Company
intends to use approximately $600,000 of the proceeds from the closing of the
maximum offering to repay this indebtedness; repayment of such indebtedness
will, in effect, release such guarantees or pledges. The Company will also use a
portion of the proceeds of the minimum and maximum offerings allocated to
working capital to pay compensation (including accrued compensation) of its
executive officers (for a total anticipated to be approximately $625,000 if the
minimum offering is reached and $1,400,000 if the maximum offering is reached,
during the twelve months following the date of this Prospectus). See "Use of
Proceeds," "Plan of Operation," "Management" and "Certain Transactions."

DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The success of the Company will
be largely dependent on the personal efforts of Lawrence O. Perl, its Chairman
of the Board, Chief Executive Officer and Chief Financial Officer, Raymond
Findley, Jr., its President and Chief Operating Officer, Robert H. Dixon, its
Vice President of Technical Operations, Robert Cartagine, its recently appointed
Director of Sales, and other key personnel. Although the Company has entered
into an employment agreement with each of the above gentlemen, the loss of
services of any of these key personnel would have a material adverse effect on
the Company's business and prospects. The Company has obtained "key man"
insurance on the lives of Messrs. Perl and Findley in the amount of $2,000,000
each. In order to successfully implement and manage its proposed expansion, the
Company will be dependent upon, among other things, its ability to attract and
retain qualified managerial, technical and marketing personnel with experience
in business activities such as those contemplated by the Company. Competition
for qualified personnel is intense and there can be no assurance that the
Company will be able to hire or retain additional personnel. Any inability to
attract and retain qualified personnel would have a material adverse effect on
the Company. See "Management."

CONTROL BY MANAGEMENT. After the closing of this Offering, the Company's
directors and executive officers (or trusts created by or for such individuals
or their families) will beneficially own, in the aggregate, no less than
approximately 78.8 percent (if the minimum offering amount represents the final
closing amount) and no more than approximately 75.4 percent (if the maximum
offering amount represents the final closing amount) of the outstanding shares
of Common Stock (assuming no exercise of any warrants or other options).
Accordingly, such persons, acting together, will be in a position to elect the
directors, adopt amendments to the Company's Certificate of Incorporation (the
"Certificate") and By-Laws (the "By-Laws"), approve mergers and other
significant corporate transactions, including a sale of substantially all of the
Company's assets, and otherwise control the Company's affairs. Purchasers of the
shares of Common Stock offered hereby will be minority stockholders, and,
although entitled to vote on matters submitted for a vote of the stockholders,
will not control the outcome of such a vote. See "Management" and "Principal
Stockholders."

POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK. The
Certificate, as amended, authorizes the Company's Board of Directors (the
"Board") to issue up to 1,000,000 shares of a class of preferred stock, par
value $.001 per share (the "Preferred Stock"). The Certificate authorizes the
Board to establish and issue, out of the authorized but unissued shares of
Preferred Stock, "blank check" preferred stock in

one or more series. One or more of such series may be issued at any time or
times upon authorization of the Board. Without further approval of the
stockholders, the Board is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions
applicable to each new series of the Preferred Stock. The issuance of new series
of Preferred Stock could, among other results, adversely affect the voting power
of the holders of Common Stock and, under certain circumstances, could make it
more difficult for a third party to gain control of the Company, prevent or
substantially delay such a change of control, discourage bids for the Common
Stock at a premium, or otherwise adversely affect the market price of the Common
Stock. Preferred Stock could, for example, be issued quickly by the Board with
terms that are expressly designed to prevent or substantially delay a change of
control of the Company that could otherwise benefit stockholders or to make
removal of management more difficult. Although the Company has no current plans
to issue any Preferred Stock, there can be no assurance that the Board will not
decide to do so in the future. See "Description of Securities."

IMMEDIATE AND SUBSTANTIAL DILUTION. Investors in this Offering will incur
immediate and substantial dilution of $17.15 per share (101%), if the minimum
offering is reached, or $16.51 per share (97%), if the maximum offering is
reached, between the adjusted net tangible book value per share after this
Offering and the initial public offering price of $17.00 per share. See
"Dilution."

ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF MARKET PRICE OF COMMON STOCK; LIMITED STATE REGISTRATION. Prior
to this Offering, there has been no public trading market for the Common Stock.
Consequently, the initial public offering price of the Common Stock has been
determined by negotiations between the Company and the Underwriter and is not
necessarily related to the Company's asset value, net worth or other criteria of
value. There can be no assurance that a regular trading market for the Common
Stock will develop after this Offering or that, if developed, it will be
sustained. The market price for the Company's securities following this Offering
may be highly volatile, as has been the case with the securities of other small
capitalization companies. The factors considered in determining the offering
price included an evaluation by management of the history of and prospects for
the industry in which the Company competes and the prospects for earnings of the
Company. Factors such as the Company's financial results, announcements of
developments related to the Company's business and the introduction of products
and product enhancements by the Company or its competitors may have a
significant impact on the market price of the Company's securities.
Additionally, in recent years, the stock market in general, and the market for
securities of small capitalization stocks in particular, have experienced wide
price fluctuations which have often been unrelated to the operating performance
of such companies. The Underwriter will register this Offering in a limited
number of states, which may limit or prohibit possible resale of the Common
Stock in certain states in which the Offering is not registered. See
"Underwriting."

NO DIVIDENDS. The Company has never paid any cash or other dividends on its
Common Stock. Payment of dividends on the Common Stock is within the discretion
of the Board of Directors of the Company and will depend upon the Company's
earnings, capital requirements and financial condition, and on any other
relevant factors. For the foreseeable future, the Board of Directors intends to
retain future earnings, if any, to finance its business operations and does not
anticipate paying any cash dividends with respect to the Common Stock. In
addition, the payment of cash dividends may be limited or prohibited by the
terms of any future loan agreements or any Preferred Stock that may be issued by
the Company. See "Dividend Policy," "Plan of Operation--Liquidity and Capital
Resources" and "Description of Securities--Preferred Stock."

LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS. The Certificate
includes provisions to eliminate, to the full extent permitted by the Delaware
General Corporation Law (the "DGCL") as in effect from time to time, the
personal liability of directors of the Company for monetary damages under
certain circumstances. The Certificate and By-Laws also include provisions to
the effect that (subject to certain exceptions) the Company shall, to the
maximum extent permitted from time to time under the law of the

State of Delaware, indemnify, and upon request shall advance expenses to, any
director or officer to the extent that such indemnification and advancement of
expenses is permitted under such law, as it may from time to time be in effect.
As a result of such provisions, stockholders may be unable to recover damages
against the directors and officers of the Company for actions taken by them that
constitute negligence, gross negligence or a violation of their fiduciary
duties. In anticipation of this Offering, the Board has authorized and directed
the Company to enter into indemnification agreements with each director of the
Company, pursuant to which the Company would, in general, (i) agree to indemnify
and hold harmless each director to the full extent permitted or authorized by
the DGCL as in effect from time to time and (ii) specify the various terms and
conditions relating to the advancement of expenses in connection with
indemnifiable claims. Each of the provisions described above may reduce the
likelihood of stockholders instituting derivative litigation against directors
and may discourage or deter stockholders from suing directors, officers,
employees and agents of the Company for (among other things) breaches of their
duty of care, even though such an action, if successful, might otherwise benefit
the Company and its stockholders. See "Management--Limitation of Liability and
Indemnification."

ADOPTION OF CERTAIN CHARTER AND BY-LAW PROVISIONS HAVING ANTI-TAKEOVER
EFFECTS. The Certificate and By-Laws contain various provisions which, under
certain circumstances, could make it more difficult for a third party to gain
control of the Company (e.g., by means of a tender offer), prevent or
substantially delay such a change of control, discourage bids for the Common
Stock at a premium, or otherwise adversely affect the market price of the Common
Stock. The Certificate provides that the Board will be classified into three
classes of directors, with each class serving a staggered three-year term. This
provision, together with the provision authorizing the Board to issue one or
more series of Preferred Stock, could make it more difficult for stockholders to
effect certain corporate actions that might facilitate a proposed acquisition of
the Company and could have the effect of delaying or preventing a change of
control of the Company. See "Description of Securities--Antitakeover
Provisions."

OUTSTANDING OPTIONS. As of the date of this Prospectus, the Company has
outstanding options to purchase 252,500 shares of Common Stock at an exercise
price of $12.00 per share. Further, the Company has granted warrants to purchase
(i) 50,000 shares of Common Stock at an exercise price equal to eighty percent
(80%) of the per share market price of Common Stock at the time of exercise to
Chapman Group, LLC (the "Chapman Option"); (ii) 25,000 shares to Messrs.
Rothstein and Roncari, in consideration for entering into their respective
Director Loan Agreements, at an exercise price equal to eighty percent (80%) of
the per share market price of Common Stock at the time of exercise, represented
by 12,500 warrants to purchase 12,500 shares of Common Stock to each of Messrs.
Rothstein and Roncari (collectively, the "Commitment Warrants"); and (iii)
75,000 shares to investors in a March 1998 private placement offering ("the 1998
Private Placement") at an exercise price equal to eighty percent (80%) of the
per share market price of Common Stock at the time of exercise (the "Bridge
Warrants"). At and conditioned upon the minimum offering, the Company will grant
warrants to purchase 100,000 shares of Common Stock to the Underwriter at an
exercise price equal to eighty percent (80%) of the per share market price of
Common Stock at the time of exercise (the "Underwriter's Option"). The Company
may, in the event of subsequent debt financing negotiated by Beter, grant to
Beter the Beter Option. Such option would be issued upon the closing of any such
debt financing. In addition, the Company plans to issue additional options to
acquire shares of Common Stock to employees and directors in the future.
Exercise of the foregoing options will have a dilutive effect on the Company's
stockholders. Furthermore, the terms upon which the Company may be able to
obtain additional equity financing may be adversely affected, since the holders
of the options, if they choose to exercise the options, can be expected to
exercise them at a time when the Company would likely be able to obtain any
needed capital on terms more favorable to the Company than those provided in the
options. See "Certain Transactions" and "Management--1996 Stock Option Plan" and
"--Nonemployee Directors' Stock Option Plan" and "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. The Company will have
between 2,819,200 shares, if the minimum is attained, and 2,945,000 shares, if
the maximum is attained, of Common Stock

outstanding, of which the shares of Common Stock offered hereby (a minimum of
294,200 shares and a maximum of 420,000 shares) will be freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). All of the remaining 2,525,000 shares of Common Stock
outstanding are "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, and in the future may only be sold
pursuant to an effective registration statement under the Securities Act, in
compliance with the exemption provisions of Rule 144 or pursuant to another
exemption under the Securities Act. The 2,525,000 restricted shares of Common
Stock will become eligible for sale under Rule 144, subject to certain volume
limitations prescribed by Rule 144 and to the contractual restrictions described
below, at various times commencing 90 days from the date of this Prospectus. The
Company has granted certain "piggyback" registration rights to the holders of
100,000 shares of Common Stock and the 100,000 shares of Common Stock underlying
the Bridge Warrants and the Commitment Warrants. No prediction can be made as to
the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices prevailing
from time to time. All of the Company's officers, directors and stockholders
have agreed not to sell or otherwise dispose of (other than in a private
transfer) any of their shares of Common Stock for a period of 12 months from the
date of this Prospectus without the prior written consent of the Underwriter
(other than in the case of the Bridge Shares, as defined herein, and Bridge
Warrant Shares, as defined herein, which cannot be transferred during such
period even with the consent of the Underwriter). However, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities. See "Certain Transactions," "Description of Securities," "Shares
Eligible for Future Sale" and "Underwriting."

POSSIBLE DELISTING OF SECURITIES FROM NASDAQ SYSTEM; DISCLOSURE RELATING TO
LOW-PRICED STOCKS. The Company has submitted an application for listing on the
Nasdaq SmallCap Market ("Nasdaq") and it is currently anticipated that the
Company's Common Stock will be quoted on Nasdaq upon the completion of this
Offering. In order to continue to be listed on Nasdaq, however, the Company must
maintain $2,000,000 in net tangible assets, $35,000,000 in market capitalization
or $500,000 net income. In addition the Company must maintain 50,000 shares of
public float (shares not held directly or indirectly by any officer or director
of the Company or by any other person who is the beneficial owner of more than
ten percent (10%) of the total shares outstanding) with a minimum market value
of $4,000,000. In addition, continued inclusion requires two market makers, a
minimum bid price of $1.00 per share and at least 300 round lot shareholders
(holders of 100 shares or more). The failure to meet these maintenance criteria
in the future may result in the delisting of the Company's securities from
Nasdaq, and trading, if any, in the Company's securities would thereafter be
conducted in the non-Nasdaq over-the-counter market. As a result of such
delisting, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's securities. In
addition, if the Common Stock were to become delisted from trading on Nasdaq and
the trading price of the Common Stock was less than $5.00 per share, trading in
the Common Stock would also be subject to the requirements of certain rules
promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Common Stock, which could
severely limit the market liquidity of the Common Stock and the ability of
purchasers in this Offering to sell the Common Stock in the secondary market.

LACK OF PUBLIC MARKET; MINIMUM/MAXIMUM. Prior to this Offering, there has
been no public market for the Company's securities. Although the Common Stock
has applied for listing on the Nasdaq SmallCap Market, there can be no assurance
that an active public market will develop or be sustained. In addition, the
SmallCap Market may be significantly less liquid than the Nasdaq National
Market. If the Company fails to maintain the standards for quotation, the
Company's securities could be removed from the market and traded in the over the
counter market. As a result, an investor would find it more difficult to dispose
of, or obtain accurate quotations as to the price of, the securities.

There can be no assurance that the minimum number of shares will be sold. If
the minimum offering is not sold within one hundred eighty (180) days following
commencement of this Offering, the Offering will terminate automatically and all
funds paid for shares will be returned to the purchasers without deductions and
without interest. Even if the minimum number of shares is sold, there can be no
assurance that the maximum number of shares will be sold. If the minimum number
of shares is sold but the maximum number of shares is not sold, the Company
would be able to continue its operations for at least twelve months but the
proceeds from this Offering would be less than anticipated and could have a
material adverse effect on the Company's future operations.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $4,501,260 if the minimum
offering is attained and $6,426,000 if the maximum offering is attained
($7,068,600 if the Underwriter's over-allotment option is exercised in full).
The expenses of this Offering will have been prepaid by the Company to the
extent of $400,000 ($350,633 was prepaid as of March 31, 1998). The Company
expects to use the net proceeds (assuming no exercise of the Underwriter's
over-allotment option) approximately as follows:

APPLICATION OF PROCEEDS

MINIMUM OFFERING MAXIMUM OFFERING
------------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ----------- ------------ -----------

Repayment of indebtedness(1)....................................... $ 1,567,000 34.8% $ 2,277,000 35.4%
Sales and marketing(2)............................................. 315,000 7.0% 315,000 4.9%
Research and development(3)........................................ 1,124,000 25.0% 1,124,000 17.5%
Repayment of certain outstanding obligations(4).................... 325,000 7.2% 652,000 10.1%
Working capital and general corporate purposes(5).................. 1,170,260 26.0% 2,058,000 32.1%
------------ ----- ------------ -----
Total.............................................................. $ 4,501,260 100.0% $ 6,426,000 100.0%
------------ ----- ------------ -----
------------ ----- ------------ -----

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

(1) The minimum offering figure represents the payment of the Bridge Notes,
together with partial payment of accrued interest in the aggregate amount of
$67,157. Included in the Bridge Notes to be repaid are $25,000, plus accrued
interest, payable to Lawrence O. Perl, the Company's Chairman of the Board,
Chief Executive Officer and Chief Financial Officer, $475,000 payable to
Harold Rothstein, a director of the Company, and $475,000 payable to Raymond
A. Roncari, a director of the Company. The maximum offering figure
represents all items paid in the minimum offering plus the payment of
accrued interest related to the Bridge Notes payable to Messrs. Rothstein
and Roncari, in the aggregate amount of $109,589, plus the repayment of bank
debt, in the aggregate amount of $600,000, which has been personally
guaranteed or secured with the private assets of Messrs. Roncari and
Rothstein. See "Plan of Operation" and "Certain Transactions."

(2) Consists of salaries of sales and marketing personnel, fees paid to
marketing consultants and anticipated costs and expenses associated with
sales presentations, preparation of marketing materials and attendance at
industry trade shows. See "Business--Marketing and Sales."

(3) Represents a $712,000 payable to SoftChip in connection with the purchase of
the DVK-1 System and portion of anticipated costs associated with further
enhancement of the Company's proprietary technology as well as development
of system applications and pilot programs for potential System Sponsors. See
"Business--Research and Development."

(4) Consists of payment of certain past due obligations of the Company to
accountants, attorneys and consultants. Of the payments to attorneys,
$150,000 of the minimum offering and an estimated $250,000 of the maximum
offering represent partial payment of fees due to Cohn & Birnbaum P.C., the
firm's general corporate counsel. In addition, the Company intends to use
$42,000 of the proceeds from the maximum offering to repay a payable due to
Lawrence Owen Associates, a Company wholly owned by Mr. Perl. See
"Management."

(5) Includes amounts for the payment of compensation (including accrued
compensation) to executive officers, which is anticipated to be
approximately $1,400,000 during the twelve months following the date of this
Prospectus, as well as relocation expenses, rent, professional fees and
other operating expenses. Such payment for compensation is to paid in two
parts, $625,000 from the proceeds of the minimum offering and $775,000 from
the proceeds of the maximum offering, including accrued compensation in the
amount of $50,000 from the proceeds of the minimum offering and $500,000
from the proceeds of the maximum offering. See "Management."

DIVIDEND POLICY

The Company has never paid any cash or other dividends on its Common Stock.
Payment of dividends on the Common Stock is within the discretion of the Board
and will depend upon the Company's earnings, capital requirements and financial
condition, and on any other relevant factors. For the foreseeable future, the
Board of Directors intends to retain future earnings, if any, to finance its
business operations and does not anticipate paying any cash dividends with
respect to the Common Stock. In addition, the payment of cash dividends may be
limited or prohibited by the terms of any future loan agreements or any
Preferred Stock that may be issued by the Company. See "Plan of
Operation--Liquidity and Capital Resources" and "Description of
Securities--Preferred Stock."

DILUTION

The net tangible book value of the Company at March 31, 1998 was a deficit
of $4,566,092 (excludes intangible assets of $68,425 in deferred financing
costs, $170,022 in software development and $350,633 in deferred registration
costs), or $(1.81) per share of Common Stock. The difference between the initial
public offering price per share of Common Stock and the adjusted net tangible
book value per share of Common Stock after this Offering constitutes the
dilution to investors in this Offering. Net tangible book value per share on any
given date is determined by dividing the net tangible book value (total tangible
assets less total liabilities) of the Company on such date by the number of
shares of Common Stock outstanding on such date.

MINIMUM OFFERING

After giving effect to the sale by the Company of the 294,200 shares offered
hereby in the minimum offering, at an assumed initial public offering price of
$17.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses, the net tangible book value, as adjusted, of
the Company at March 31, 1998 would have been a deficit of approximately
$410,032, or $(0.15) per share, representing an immediate increase in such net
tangible book value of $1.66 per share to existing stockholders and an immediate
dilution in net tangible book value of $17.15 per share to purchasers of

Common Stock in the minimum offering. The following table illustrates this per
share dilution applicable the minimum offering:

Initial public offering price....................... $ 17.00
Net tangible book value (deficit) before minimum
offering........................................ $ (1.81)
Increase attributable to new investors............ 1.66
---------
Adjusted pro-forma net tangible book value after
minimum offering.................................. (0.15)
---------
Dilution per share to new investors................. $ 17.15
---------
---------

MAXIMUM OFFERING

After giving effect to the sale by the Company of the 420,000 shares offered
hereby in the maximum offering, at an assumed initial public offering price of
$17.00 per share and after deducting the estimated underwriting discounts and
commissions and offering expenses, the net tangible book value as adjusted of
the Company at March 31, 1998 would have been approximately $1,435,541, or $0.49
per share, representing an immediate increase in such net tangible book value of
$2.30 per share to existing stockholders and an immediate dilution in net
tangible book value of $16.51 per share to purchasers of Common Stock in the
maximum offering. The following table illustrates this per share dilution
applicable the maximum offering:

Initial public offering price....................... $ 17.00

Net tangible book value (deficit) before maximum
offering........................................ $ (1.81)
Increase attributable to new investors............ 2.30
---------
Adjusted pro-forma net tangible book value after
maximum offering.................................. 0.49
---------
Dilution per share to new investors................. $ 16.51
---------
---------

The following tables set forth as of March 31, 1998 a comparison between the
existing stockholders and the new investors in this Offering with respect to the
number of shares of Common Stock acquired from the Company, the percentage
ownership of such shares, the total consideration paid, the percentage of total
consideration paid and the average price per share:

MINIMUM OFFERING

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------ ----------- -----------

Existing stockholders................ 2,525,000 89.6% $ 2,243,500 31.0% $ 0.89
New Investors........................ 294,200 10.4 5,001,400 69.0 17.00
---------- ----- ------------ -----
Total.............................. 2,819,200 100.0% $ 7,244,900 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----

MAXIMUM OFFERING

Existing stockholders................ 2,525,000 85.7% $ 2,243,500 23.9% $ 0.89
New Investors........................ 420,000 14.3 7,140,000 76.1 17.00
---------- ----- ------------ -----
Total.............................. 2,945,000 100.0% $ 9,383,500 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----

The above tables assume no exercise of the Underwriter's over-allotment
option. If the Underwriter's over-allotment option is exercised in full, the new
investors will have paid $7,854,000 for 462,000 shares of Common Stock,
representing approximately 77.8 percent of the total consideration, for 15.5
percent of the total number of shares of Common Stock outstanding. The foregoing
table also assumes no exercise of any outstanding options. See "Management--1996
Stock Option Plan," "--Nonemployee Directors' Stock Option Plan," "Certain
Transactions" and "Underwriting."

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) on an
actual basis, (ii) as adjusted to give effect to the sale of the minimum
offering of shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom, and (iii) as adjusted to give effect to the
sale of the maximum offering of shares of Common Stock offered hereby and the
application of the estimated net proceeds therefrom.

MARCH 31, 1998
-------------------------------------------
AS ADJUSTED FOR
----------------------------
ACTUAL MINIMUM(1) MAXIMUM(2)
------------- ------------- -------------

Notes Payable........................................................ $ 2,179,956 $ 2,179,956 $ 1,579,956
Bridge Note.......................................................... 1,250,000(3) -- --
Stockholders' Equity (Deficit)
Preferred Stock, $.001 par value--1,000,000 shares authorized; no
shares issued and outstanding.................................... -- -- --
Common Stock, $.001 par value--20,000,000 shares authorized;
2,525,000 shares issued and outstanding, actual; 2,819,200, as
adjusted for the minimum offering; 2,945,000, as adjusted for the
maximum offering(4).............................................. 2,525 2,819 2,945
Additional paid-in capital......................................... 2,245,975 6,346,941 8,271,555
Stock subscriptions receivable..................................... (5,000) (5,000) (5,000)
Accumulated deficit during the development stage................... (6,220,512) (6,584,770) (6,663,937)
------------- ------------- -------------
Total stockholders' equity (deficit)............................. (3,977,012) (240,010) 1,605,563
------------- ------------- -------------
Total capitalization........................................... $ (547,056) $ 1,939,946 $ 3,185,519
------------- ------------- -------------
------------- ------------- -------------

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

(3) Net of $250,000 loan discount.

(4) Does not include (i) 270,000 shares of Common Stock reserved for issuance
upon exercise of options granted or available for future grant under the
Stock Option Plan; (ii) 30,000 shares of Common Stock reserved for issuance
upon exercise of options granted or available for future grant under the
Directors' Plan; (iii) 100,000 shares of Common Stock reserved for issuance
upon exercise of the Shreveport Option; (iv) 50,000 shares of Common Stock
reserved for issuance upon exercise of the Chapman Option; (v) 25,000 shares
of Common Stock reserved for issuance upon exercise of the Commitment
Warrants; (vi) 75,000 shares of Common Stock reserved for issuance upon
exercise of the Bridge Warrants; (vii) 100,000 shares of Common Stock
reserved for issuance upon exercise of the

Underwriter's Option, which warrants will be granted at and conditioned upon
the closing of the minimum offering; or (viii) 100,000 shares of Common
Stock reserved for issuance upon exercise of the Beter Option, which
warrants may be issued in the event of subsequent debt financing negotiated
by Beter. See "Management--1996 Stock Option Plan," "--Nonemployee
Directors' Stock Option Plan," "Certain Transactions," "Description of
Securities" and "Underwriting."

SELECTED FINANCIAL DATA

The following selected financial data for the years ended December 31, 1996
and 1997 and the balance sheet data at December 31, 1997 are derived from, and
are qualified by reference to, the Company's financial statements audited by BDO
Seidman, LLP included elsewhere in this Prospectus. The statement of operations
data for the three-month periods ended March 31, 1997 and 1998 and the period
from inception to March 31, 1998 and the balance sheet data at March 31, 1998
are derived from unaudited financial statements of the Company included
elsewhere in this Prospectus, which, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's results of operations for such periods and
financial condition at such date. The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year or future periods.

The following data should be read in conjunction with the financial
statements of the Company, including the notes thereto, appearing elsewhere in
this Prospectus.

STATEMENT OF OPERATIONS DATA

INCEPTION(1)
YEAR ENDED DEC 31, THREE MOS ENDED MAR 31, TO MAR 31,
---------------------------- ---------------------------- -------------
1996 1997 1997 1998 1998
------------- ------------- ------------- ------------- -------------

Revenues.............................. $ 27,034 $ 76,912 $ -- $ 59,589 $ 237,007
Cost of sales......................... 16,279 86,995 -- 74,507 246,402
Research and development expense...... 167,000 260,000 55,000 174,000 781,000
General and administrative expense.... 919,546 1,176,885 331,311 554,587 3,739,792
Write-off of license fee.............. 20,000 -- -- -- 168,000
Interest and financing costs, net..... 129,126 1,065,240 100,070 283,727 1,522,325
Net loss(2)........................... (1,224,917) (2,512,208) (486,381) (1,027,232) (6,220,512)
Net loss per share--basic and
diluted............................. (.54) (.96) (.19) (.40)
Weighted average number of shares
outstanding......................... 2,269,671 2,615,343 2,585,833 2,562,167

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

(1) The Company's date of inception is June 21, 1994.

(2) During the periods presented through June 30, 1996, the Company elected to
be treated as an S corporation for federal income tax purposes and,
accordingly, no provision for income taxes during such periods is reflected
in the Company's financial statements. The Company terminated its status as
an S corporation effective July 1, 1996. See Notes to Financial Statements.

BALANCE SHEET DATA

DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------

Working capital deficit................................... $ (2,881,624) $ (1,764,588)
Total assets.............................................. 594,536 890,440
Total liabilities......................................... 4,144,316 4,867,452
Total stockholders' deficit............................... (3,549,780) (3,977,012)

PLAN OF OPERATION

The Company was organized in June 1994 and is in the development stage.
Since inception, the Company has been engaged principally in organizational
activities, including developing a business plan, hiring personnel and
developing and enhancing its proprietary smart card technology and software, and
has only recently commenced the limited marketing of its smart card systems.

To date, the Company has developed and installed, on a limited basis,
employee identification and licensing smart card systems for the thoroughbred
racing industry. To date, the Company has executed two contracts with the North
American Pari-Mutuel Regulators Association ("NAPRA") to provide and maintain an
internet-based regulatory tracking system that includes a database with
licensing information, infractions records and digital photographs of the
licensees in its jurisdictions. NAPRA is an organization comprised of eighteen
pari-mutuel wagering jurisdictions located in North America, including horse and
dog racing, jai alai and card rooms. In addition to the contracts with NAPRA,
the Company has developed and installed smart card based employee identification
and licensing systems in four NAPRA jurisdictions, the Birmingham Racing
Commission and the Macon County Race Course, both in Alabama, the Oregon Racing
Commission and the Idaho Racing Commission. These smart card systems control
on-site access and maintain state licensing information. The Company recently
submitted a proposal to an additional NAPRA jurisdiction, the Florida Department
of Pari-Mutuel Wagering, pursuant to its request, to provide a similar smart
card licensing system.

In addition, the Company has completed a pilot program in New Jersey and
Pennsylvania for the issuance of "equine medical passport" smart cards for
monitoring the identity, interstate and intrastate movement and medical records
of thoroughbred horses. The Florida Department of Agriculture and Consumer
Services Bureau of Disease Control has proposed a similar pilot project
anticipated to begin as soon as possible. The Bureau of Disease Control is
responsible for ensuring the health and marketability of livestock in the state
of Florida. To prevent the spread of a deadly disease, the federal government
requires any horse crossing state lines to have a negative Coggins Report which
evidences a negative test result for Equine Infectious Anemia. A Coggins Report
is valid for one year from the issue date. Further, each state requires a valid
health certificate for any horse entering the state. The states of Florida,
Georgia and Alabama have formed an alliance whereby a special ninety (90) day
pass authorized by any of the three states can be used to cross state lines
between these states. The proposed Florida pilot program will involve a test
"livestock medical passport" program in which each of 100 animals will be
implanted with an "electronic identification transponder" used in conjunction
with smart cards to verify each animal's identity and federal and state medical
certifications. This pilot program will replace the required paper passports for
horses crossing between these states. Although completed programs in New Jersey
and Pennsylvania successfully tested the equine medical passport smart card
system and similar electronic transponder implants are in use which are not
coordinated with smart card technology, such equine medical passport pilot
programs have not resulted in any system sales to date. There can be no
assurance that any of the Company's pilot programs will result in system
purchases by any potential System Sponsor.

The Company has entered into a Memorandum of Understanding with Traquer
Systems, Inc. ("Traquer") to market the Company's smart card systems to Indian
gaming and wagering facilities in North America. Traquer has significant
expertise with the rules and regulations for Indian gaming environments. In
February 1998, the Company received its first order from Traquer to provide a
smart card based employee licensing system to an Indian tribe in Arizona. This
system is expected to be installed by August 1998.

and Authorized Service Providers in south Florida. The final phase may provide
all Foundation Health members with enhanced smart card member identification
capabilities.

The Company's objective is to become a leading provider of smart card
systems to government and commercial System Sponsors requiring increasingly
complex, secure and cost-effective information processing systems. The Company
intends to market its products through strategic marketing alliances and
licensing or other arrangements with systems integrators, value added resellers
and other smart card vendors. The Company anticipates that, under certain
circumstances, its smart card products will be bundled with its strategic
partners' products and services to create a complete integrated system that can
be marketed to potential System Sponsors. The Company will also seek to provide
complete smart card solutions, on a turnkey basis, to System Sponsors by
providing all of the hardware and software elements required to implement the
system.

The Company has generated limited revenues to date and does not expect to
generate meaningful revenues in the near future until such time, if ever, as its
smart card systems are successfully commercialized. The Company has incurred
significant losses in each operating period since its inception, resulting in an
accumulated deficit at March 31, 1998 of $6,220,512, and losses are continuing
through the date of this Prospectus. Inasmuch as the Company will continue to
have a high level of operating expenses and will be required to make significant
up-front expenditures in connection with both the development of its business
and the commercialization of its smart card systems (including, without
limitation, salaries of executive, technical, marketing and other personnel),
the Company anticipates that it will continue to incur significant and
increasing losses for the foreseeable future until such time, if ever, as the
Company is able to generate sufficient revenues to finance its operations. The
Company will also incur non-recurring charges relating to the 1998 Private
Placement of approximately $364,258 upon closing of the minimum offering. The
Company's independent certified public accountants have included an explanatory
paragraph in their report stating that the Company's dependence on outside
financing, lack of existing commitments from lenders to provide necessary
financing, lack of sufficient working capital and losses since inception raise
substantial doubt about the Company's ability to continue as a going concern.

The success of the Company's proposed plan of operation will be largely
dependent upon market acceptance of smart cards generally, as well as on the
Company's ability to successfully market its smart card systems by persuading
potential System Sponsors of the perceived benefits of its dual card access and
multiple application layering concepts (including the benefits to be derived
from allocating total card program costs among individual application layers
within a card) and to develop and commercialize further applications of its
proprietary technology. In addition, the Company's proposed plan of operation
and prospects will be dependent upon, among other things, the Company's ability
to enter into strategic marketing and licensing or other arrangements on a
timely basis and on favorable terms; establish satisfactory arrangements with
sales representatives and marketing consultants; hire and retain skilled

management as well as financial, technical, marketing and other personnel;
successfully manage growth (including monitoring operations, controlling costs
and maintaining effective quality, inventory and service controls); and obtain
adequate financing when and as needed. The Company has limited experience in
developing new products based on innovative technology and there is limited
information available concerning the performance of the Company's technologies
or market acceptance of the Company's products. There can be no assurance that
the Company will be able to successfully implement its plan or that
unanticipated expenses or problems or technical difficulties will not occur
which would result in material delays in its implementation. Moreover, there can
be no assurance that the Company will have sufficient capacity to satisfy any
increased demand for its smart card products and technologies resulting from the
Company's implementation of its plan of operation.

As of the date of this Prospectus, the Company has ten full-time employees,
consisting of four executive officers and six employees engaged in engineering,
technical support, product development, marketing and sales, and administration,
including the Company's recently appointed Director of Sales. See "Management."
The Company also uses the resources of independent programmers and consultants
from time to time on an as needed basis. The Company anticipates that it will
hire additional sales and technical personnel to continue to implement the
Company's marketing and product development efforts and may engage independent
sales representatives and industry-specific marketing consultants to assist the
Company in marketing the Company's smart card systems to potential System
Sponsors.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998, the Company had cash on hand of $155,437, a working
capital deficit of $1,764,588 and a stockholders' deficit of $3,977,012. The
Company's primary capital requirements will be to fund the Company's continuing
smart card system development and enhancement efforts, its sales and marketing
activities and the Company's working capital. The Company has historically
financed its capital requirements through the issuance of equity and debt
securities, contributions to capital and bank borrowings.

Since the inception of the Company, Lawrence O. Perl, the Chairman of the
Board, Chief Executive Officer and Chief Financial Officer of the Company, (both
individually and through The 1994 Perl Trust Indenture, a trust for the benefit
of the family of Lawrence O. Perl (the "Perl Trust")), Raymond Findley, the
Chief Operating Officer of the Company, Raymond A. Roncari, a director of the
Company, and Harold Rothstein, a director of the Company, (both individually and
through The Rothstein Family Trust, a trust for the benefit of the family of
Harold Rothstein (the "Rothstein Trust")), (each of the foregoing being referred
to individually as an "Original Stockholder"), have made the loans to the
Company in amounts aggregating $30,177, $15,177, $1,008,854 and $1,300,747,
respectively (the "Stockholder Loans"). The Stockholder Loans bear interest at
ten percent (10%) per annum and are to be repaid with the proceeds of subsequent
debt financing, but in no event later than January 1, 2001. These loans were to
provide the Company working capital and cover costs associated with this
Offering. See "Use of Proceeds," "Plan of Operation" and "Certain Transactions."

In March 1995, $250,000 of the then-outstanding principal amount of the
Stockholder Loans of each of Messrs. Rothstein and Roncari was recharacterized
as paid-in capital of the Company (the "Capital Contribution"). Pursuant to an
agreement among the Original Stockholders, the Capital Contribution was
allocated equally among the Original Stockholders, in consideration for which
Mr. Findley issued to Mr. Roncari and the Perl Trust issued to the Rothstein
Trust a promissory note in the amount of $125,000 (each, a "Capital Contribution
Note"). Mr. Findley and the Perl Trust subsequently transferred 25,000 shares of
Common Stock to Mr. Roncari and the Rothstein Trust, respectively, in
satisfaction of the indebtedness represented by the Capital Contribution Notes.
Upon the consummation of a January, 1997 private placement offering (the "1997
Private Placement"), $12,675 of the Perl Trust's Stockholder Loans, $12,675 of
Mr. Findley's Stockholder Loans, $223,260 of Mr. Roncari's Stockholder Loans and
$301,390 of Mr. Rothstein's Stockholder Loans were converted into 2,535, 2,535,
44,652 and 60,278 shares of Common Stock, respectively. See "Certain
Transactions."

From March through June of 1995, Joseph D. Basch, the President, Chief
Executive Officer and sole director of the Subsidiary, loaned the Company an
aggregate of $300,000. The loans accrued interest at ten percent (10%) per annum
and were payable on demand. In July 1996, the Company and Mr. Basch entered into
an agreement pursuant to which the then-outstanding principal amount of the
loans, together with accrued interest thereon of approximately $30,000, was
converted into an aggregate of 240,000 shares of Common Stock.

In July, September and November 1996, the Company borrowed an aggregate of
$300,000 from The First National Bank of Suffield ("First Suffield"). Interest
accrues on such borrowings at the prime lending rate established by First
Suffield from time to time and is payable monthly. The aggregate outstanding
principal amount owed by the Company to First Suffield, together with accrued
interest thereon, is payable on September 1, 1998. Mr. Roncari has personally
guaranteed all of the Company's indebtedness to First Suffield. The loan
agreements prohibit the Company, except with the prior consent of First
Suffield, from paying dividends on its stock (other than dividends payable in
stock), merging or consolidating with another company or purchasing or retiring
any of its outstanding stock. The loan agreements also provide that it shall
constitute an event of default thereunder if, among other events, either the
Company or Mr. Roncari shall become insolvent or if First Suffield, in good
faith, deems that it has insufficient security with respect to the loans. This
debt is to be repaid from the proceeds of the maximum offering. See "Certain
Transactions."

From July through October 1996, the Company borrowed $150,000 from Fleet
National Bank ("Fleet"). Such amount is payable on demand. Interest accrues on
such borrowings at the prime lending rate established by Fleet from time to time
and is payable monthly. The Company's indebtedness to Fleet (the "Fleet Loan")
is personally guaranteed by Mr. Rothstein, and is secured by personal assets
pledged by Mr. Rothstein in the form of a certificate of deposit in the amount
of $150,000. This debt is to be repaid from the proceeds of the maximum
offering. See "Certain Transactions."

In October 1996, the Company borrowed $100,000 from The Chase Manhattan Bank
("Chase"). Such amount is payable on August 11, 1998. Interest accrues at the
prime lending rate established by Chase from time to time and is payable
monthly. The Company's indebtedness to Chase (the "Chase Loan") is secured by
personal assets pledged by Mr. Rothstein in the form of a certificate of deposit
in the amount of $105,000. This debt is to be repaid from the proceeds of the
maximum offering. See "Certain Transactions."

Mr. Rothstein has agreed with the Company that, in the event a demand is
made by Fleet with respect to the Fleet Loan and/or a demand is made by Chase
with respect to the Chase Loan prior to the earlier of the closing of the
maximum offering, subsequent debt financing or March 3, 2001, he shall either
(i) secure replacement financing to pay the amount so demanded or (ii)
personally satisfy the amount demanded, either through surrender of the
collateral previously pledged by him or through other means satisfactory to
Fleet and/or Chase, as the case may be. In the event Mr. Rothstein elects to
personally satisfy the demanded amount, the Company has agreed to reimburse Mr.
Rothstein for the full amount of such payment on the earlier of the closing of
the maximum offering, subsequent debt financing or March 3, 2001. See "Certain
Transactions."

In December 1996, the Company borrowed $50,000 from First Southern Bank
("FSB"). Such amount is payable on December 9, 1998 and bears interest at a rate
of 8.5% payable monthly. The Company's indebtedness to FSB is secured by
personal assets pledged by Mr. Rothstein in the form of a certificate of deposit
in the amount of $50,000. This debt is to be repaid from the proceeds of the
maximum offering. See "Certain Transactions."

In January 1997, pursuant to the 1997 Private Placement, the Company
completed the sale to 23 private investors (including certain officers and
directors of the Company) of 25 units (the "1997 Units"); each 1997 Unit
consisted of (i) an unsecured 9% non-negotiable bridge note in the principal
amount of $50,000 due on the earlier of the consummation of an initial public
offering or January 16, 1998 (the "1997

Bridge Notes"); (ii) 5,000 bridge shares (the "1997 Bridge Shares"); and (iii)
25,000 bridge warrants, each bridge warrant representing the right to purchase
one share of Common Stock at an exercise price of $4.00 per share, subject to
adjustment in certain circumstances (the "1997 Bridge Warrants"). The purchase
price per 1997 Unit was $50,000. The Company received gross proceeds of
$1,250,000 from the sale of the 1997 Private Placement. After payment of
$125,000 in placement fees to the underwriting firm (not the Underwriter in this
Offering), which acted as placement agent for the Company with respect to the
1997 Private Placement, and other offering expenses of approximately $105,000,
the Company received net proceeds of approximately $1,020,000 in connection with
the 1997 Private Placement. The net proceeds from the 1997 Private Placement
were used in connection with the Company's operations, including to fund the
Company's research and development efforts, to fund its sales and marketing
activities, to repay certain outstanding obligations, and for working capital
and general corporate purposes.

From July 1997 through January 1998, three directors, Raymond A. Roncari,
Harold Rothstein and Lawrence O. Perl, provided the Stockholder Loans to the
Company in the amounts of $320,000, $460,000 and $15,000, respectively. These
Loans provided the Company working capital and covered some costs associated
with this Offering and are to be repaid with the proceeds of subsequent debt
financing, but in no event later than January 1, 2001.

In March 1998, the Company entered into the 1998 Private Placement, through
which the Company completed the sale to fourteen private investors (including
certain officers and directors of the Company) of 30 Units, each Unit consisting
of (i) an unsecured non-negotiable promissory note in the principal amount of
$50,000 (the "Bridge Notes"), (A) bearing interest at the rate of ten percent
(10%) per annum, payable annually in arrears, and (B) providing for a loan fee
payable upon payoff of the Bridge Note in an amount equal to $5,000 less
interest accrued under the Bridge Note during the first year through the date of
payoff; (ii) 2,500 shares of Common Stock (the "Bridge Shares"); and (iii) 2,500
Bridge Warrants. The purchase price per Unit was $50,000. The Company received
gross proceeds of $1,500,000 from the sale of such Units. After payment of
approximately $10,000 in costs associated with the 1998 Private Placement, the
Company received net proceeds of approximately $1,490,000 in connection with the
1998 Private Placement. Approximately $1,345,000 of the net proceeds was used to
exercise certain options to repurchase securities sold in the 1997 Private
Placement. Some holders of the 1997 Units chose to invest in the 1998 Private
Placement and defer all interest due them from the 1997 Units. The balance of
the net proceeds are being used for working capital and general corporate
purposes, as well as to fund some expenses of this Offering. The Bridge Notes,
together with accrued interest thereon, are due on the earlier of March 3, 2001
or the closing of an IPO by the Company. The Bridge Notes are to be repaid from
the proceeds of the minimum offering. The accrued interest due on the Bridge
Notes is to be repaid in two parts, $67,157 from the proceeds of the minimum
offering and $109,589 from the proceeds of the maximum offering, but in no event
later than March 3, 2001.

In conjunction with the closing of the 1998 Private Placement, the Company
entered into Director Loan Agreements with each of Harold Rothstein and Raymond
A. Roncari pursuant to which Messrs. Rothstein and Roncari each committed to
loan $450,000 (for a total of $900,000) to the Company to be used for working
capital and certain costs of this Offering. These amounts, together with
approximately $157,000 of the proceeds of the 1998 Private Placement, were used
to fund certain costs of this Offering and provide required working capital. In
consideration for this commitment, Messrs. Rothstein and Roncari were each
granted 12,500 shares of Common Stock of the Company and 12,500 Commitment
Warrants. Pursuant to each Director Loan Agreement, the Company has the right to
draw down advances from each of Messrs. Rothstein and Roncari (each a "Director
Lender") as funds are required and the Director Lender is obligated to so
advance funds within three (3) business days of any such request. Any amounts
advanced will bear interest at a rate of ten percent (10%) per annum. All
amounts so advanced, together with accrued interest thereon will be due and
payable in full on the earlier of (i) January 1, 2001, or (ii) the closing of
subsequent debt financing.

The Company's capital requirements have been and will continue to be
significant. The Company has been dependent on the sales of its securities to
private investors, as well as on capital contributions and loans from affiliates
and certain financial institutions guaranteed by certain stockholders of the
Company. During the period from inception through the date of this Prospectus,
the Company has raised capital through such means in the estimated aggregate
amount of $5,600,000 (including approximately $5,000,000 through March 31,
1998).

The Company is dependent on and intends to use the proceeds of this Offering
to continue the implementation of its proposed plan of operation. The Company
anticipates, based on assumptions relating to its current operations (including
assumptions regarding the Company's ability to meet its current marketing
objectives and the timing and costs associated therewith), that the proceeds of
this Offering, together with projected cash flow from operations, will be
sufficient to fund the Company's operations and capital requirements for at
least twelve months following the closing of the minimum offering. In the event
that the Company's plans change, its assumptions change or prove to be
inaccurate or if the proceeds of this Offering prove to be insufficient to fund
operations (due to unanticipated expenses, technical difficulties, problems or
otherwise), the Company would be required to seek additional financing sooner
than currently anticipated. There can be no assurance that the proceeds of this
Offering will be sufficient to permit the Company to successfully further
develop and commercialize the Company's smart card technology or that any
assumptions relating to the Company's operations will prove to be accurate. In
addition, any implementation of the Company's business plans subsequent to the
twelve month period following this Offering may require proceeds greater than
the proceeds of this Offering or otherwise currently available to the Company.
There can be no assurance that additional financing will be available to the
Company on commercially reasonable terms, or at all. Further, if the closing of
this Offering is delayed, the Company may not have sufficient capital to fund
operations and the anticipated expenses of this Offering. Although the Company
believes it may be able to raise at least a portion of the Company's future
financing requirements for such period among the officers, directors and/or
stockholders of the Company, no officer, director or stockholder of the Company
has made any further commitment to the Company to provide any portion of the
Company's future financing requirements and there are no assurances that any
officer, director or stockholder will do so. Any inability to obtain additional
financing when needed may have a material adverse effect on the Company,
including requiring the Company to curtail its activities and possibly causing
the Company to cease its operations. To the extent that the Company finances its
operations through the issuance of additional equity securities, any such
issuance would result in dilution of the interests of the Company's
then-existing stockholders. At some future date, the Company intends to offer up
to approximately $30 million in debt financing, to be negotiated by Beter. Upon
closing of such debt financing, Beter would receive the Beter Option. There can
be no assurance that such additional financing, or any other additional
financing, will be available to the Company on commercially reasonable terms, or
at all. Further, if such additional financing is attempted, there can be no
assurance that such additional financing, or any other additional financing,
will be successful. To the extent that the Company incurs indebtedness or issues
debt securities, the Company will be subject to all of the risks associated with
incurring substantial indebtedness, including the risks that interest rates may
fluctuate and cash flow may be insufficient to pay principal and interest on any
such indebtedness.

POSSIBLE FLUCTUATIONS IN OPERATING RESULTS

The sales cycle for a prospective System Sponsor is expected to commence at
the time the prospective System Sponsor demonstrates an interest in purchasing a
smart card system from the Company or issues a request for a proposal or
information or takes similar action and ends upon the installation of a smart
card system for the System Sponsor. The sales cycle will vary by System Sponsor
and could extend for periods of up to twelve months or more, depending upon,
among other things, the time required by the System Sponsor to complete a pilot
test of the Company's smart card system, make a determination regarding an
acquisition thereof and negotiate payment terms with the Company. The Company's
operating results could vary from period to period as a result of this
fluctuation in the length of the Company's sales cycle and as a result of
fluctuations in the purchasing patterns of potential System Sponsors,
technological factors, variations in marketing strategies for different target
markets and non-recurring smart card system sales.

BUSINESS

GENERAL

The Company, a development stage company, was organized to design, develop
and market high security, flexible, multiple application smart card systems. A
smart card is a credit card-sized plastic card containing a microchip that
provides the card with memory storage capabilities in a secure environment and,
in advanced versions such as the Company's, enables the card to perform data
processing functions. Smart card systems are typically used by government
agencies or commercial enterprises (the "System Sponsor") to store, access and
modify participant or customer (the "User") information. The Company's
proprietary smart card technology and software enable System Sponsors to store
data on a User's smart card, and enable the System Sponsor, or a service
provider authorized by the System Sponsor (the "Authorized Service Provider"),
to access User information and read, input, delete, modify and process such
data. The Company designs its smart card systems to perform functions for
various target markets, such as employee licensing, animal health and
registration, frequent patron tracking, health care and various government
agency applications and can design each system to perform various functions in
virtually any industry, depending on the System Sponsor's needs. The Company
believes that its smart card systems, which offer the capability to perform
multiple functions on a single card, provide enhanced security and privacy
protection not offered by existing smart cards and position the Company to
capitalize on perceived market opportunities for information systems
incorporating smart card technology.

INDUSTRY BACKGROUND

Smart card technology was developed in France in the mid 1970s and is
currently in wide use in Europe, the Pacific Rim, Latin America and the Middle
East. According to the market researcher Dataquest, the microprocessor and
memory based smart card market will grow from 544 million cards in 1995 to 3.4
billion cards by 2001. Most smart cards currently in use are low capacity
memory-only phone cards which provide only data storage, reading and deletion
capabilities. More sophisticated smart cards, including the Company's smart
cards, are microprocessor-based and therefore have the ability not only to
store, read and delete data but also to add, modify and process data. However,
the Company believes that most microprocessor-based smart cards currently in use
were designed to perform functions for single purpose applications only, such as
pay television access control, medical or academic recordkeeping or insurance
claim processing. The Company believes that these smart cards also generally
utilize multiple, alternative technologies such as microchips, bar codes and
magnetic stripes simultaneously, or allow access by any Authorized Service
Provider to all the information included within the card.

Most cards currently used in electronic transactions are magnetic stripe
cards, such as ordinary credit cards. Such cards contain only limited
information such as account numbers and identification information, but cannot
store or update additional information such as current account balances. The
Company believes that the market for smart cards in North America remains
relatively unexploited due to the large capital and infrastructure investments
made by debit and credit card issuers and the significantly lower costs
associated with the use of magnetic stripe cards. However, smart cards have
recently been introduced in the United States in a number of venues. For
example, a stored value card program designed to facilitate purchases from
participating vendors was used during the 1996 Summer Olympics. In addition, the
National Football League's Jacksonville Jaguars and the National Hockey League's
St. Louis Blues have each installed smart card systems to be used for the
purchase of concession items at their respective sports games. Government
Technology Magazine stated in a February 1996 issue that U.S. welfare reform
legislation mandates that every state replace its paper food stamp system with
an Electronic Benefit Transfer (EBT) scheme by the year 2002, consistent with
the government's push towards a paperless society. Pursuant to this mandate,
many states use magnetic stripe cards for their food stamp programs, and the
States of Mississippi, Ohio and Wyoming have each proposed plans to replace food
stamps with a card-based system to improve convenience and efficiency, as well
as to decrease fraud. A joint pilot program in Manhattan's Upper West Side
between MasterCard, Chase Manhattan Bank, VISA and

Citibank brings the idea of electronic cash to New York consumers and merchants,
with almost 700 merchants participating in the program. The Company's smart
cards are based on concepts similar to these applications, but the Company's
cards can contain more information due to the Company's patented method of
multiple application layering. In addition, only the Company can utilize its
patented dual card access technology. The Company believes the enhanced security
features and multiple function capabilities of its cards take existing smart
card technology several steps further.

The Company believes that smart cards offer certain advantages over magnetic
stripe cards including the ability to store pages of information and update or
otherwise utilize data as circumstances require. In addition, while the data
contained on magnetic stripe cards is difficult to secure, smart cards can be
programmed to prevent manipulation of data stored in the card. A smart card can
also be programmed with an unalterable memory, prohibiting the writing of new
data on top of old data, and can be programmed to utilize public and private key
encryption algorithms to lower the risk of theft of sensitive data. Furthermore,
unlike magnetic stripe cards, most smart cards are extremely difficult and
expensive to alter, duplicate or reproduce. The Company believes that the
limitations of magnetic stripe cards will present significant market
opportunities in North America for smart card systems featuring enhanced
security and multiple application layering as electronic transactions, including
government benefits transfers, licensing and frequent patron tracking, become
more complex.

TECHNOLOGY OVERVIEW

The Company's proprietary smart card systems incorporate dual card access
technology and multiple application layering. The Company believes that these
components result in certain advantages over magnetic stripe cards and existing
smart card systems, including enhanced security features and multiple function
capabilities. The Company's patented dual card access technology (analogous to a
dual key system for access to a safe deposit box) requires the simultaneous use
of both a "User Card" and an "Access Card" to activate the system. User Cards
are issued by a System Sponsor (such as an HMO, welfare agency, state motor
vehicle department or retail store) to Users such as patients, benefits
recipients, drivers or customers. Access Cards are issued by the System Sponsor
to Authorized Service Providers affiliated with the particular System Sponsor
(such as HMO participating physicians, welfare administrators, police officers
and cashiers). Each User Card issued by the System Sponsor has stored within it
an individualized database containing User-specific information, which is stored
in a "common pool."

By virtue of the dual card access and multiple application layering features
of the Company's technology, a basic set of data carried on a single smart card
can be processed and configured according to the specific requirements of each
application layer of the card. As a result, a vast array of information and
electronic documents and reports can be generated for various categories of
System Sponsors and Authorized Service Providers, thereby substantially
increasing the potential number of uses for each card. For example, one User's
smart card provided by the Company could generate a medical history when
activated by an HMO's participating physician's Access Card, an insurance claim
record when activated by the HMO's benefits administrator's Access Card, a
welfare benefits record when activated by a welfare administrator's Access Card,
and a driver's license when activated by a police officer's Access Card. By
providing a System Sponsor with the ability to add applications over time and
allowing multiple System Sponsors to utilize different layers of the same smart
card, the Company's smart card systems will enable the cost per smart card to be
allocated among separate System Sponsors or different departments within a
single System Sponsor.

The Company's patented method of multiple application layering technology
allows an Access Card to retrieve from this common pool of information only the
data that the Access Card in use is programmed to access. The data stored on the
User Card is then displayed and processed in accordance with the requirements of
the application layer activated by the particular Access Card in use. This
process increases the potential number of uses of the User Card and enables a
single User Card to serve multiple System Sponsors as well as multiple
Authorized Service Providers within a single System Sponsor. The Company

believes that these features position its smart card systems as secure,
cost-effective solutions for electronic transaction and information processing.

Generally, smart cards can incorporate advanced security features, ranging
in sophistication from a password, photograph or personal identification number
system to a fingerprint, retinal scan or facial geometry recognition system,
which are not found in magnetic stripe cards. The Company believes that the
multiple application layering feature of its smart card systems provide enhanced
security and privacy protection. Each application layer is separate, with
"firewall"-type safeguards to prevent unauthorized access to data in another
application layer. Moreover, each layer can be programmed with the level of
security appropriate to the sensitivity of the data contained in such layer. In
addition, the Company's systems establish an "audit trail" which will record
specific information regarding each instance in which data is accessed,
including the time, the date and the identity of the person accessing
information.

The Company's technology also permits easy adaptation and customization,
allowing the Company to provide a smart card system tailored to the System
Sponsor's needs. The Company's technology provides system scalability by
allowing a System Sponsor, over time, to increase the number of applications
performed by its smart cards, provide additional services or add other System
Sponsors. Furthermore, the Company's technology can support a communication
system in which messages and data updates can be sent between the System Sponsor
and the Authorized Service Provider and/or User, including messages that render
a card inoperable if no longer valid.

PRODUCTS

The Company was organized to design, develop and market high security,
flexible, multiple application smart card systems, which are comprised of the
following products:

SMART CARDS. The Company currently uses commercially available microchips
with varying amounts of memory, depending upon each System Sponsor's
requirements. The Company arranges for initial entry of database information on
the User Cards and authorized access codes on the Access Cards to the System
Sponsor's specifications.

READ/WRITE DEVICES. A read/write device is hardware that provides the data
interface between a smart card and the host computer, allowing data to be
transferred between a database and a smart card. Information can be uploaded and
downloaded between the Access Card and the User Card at any read/ write device
within the system. The Company's smart card systems utilize basic, relatively
inexpensive read/ write devices because certain functions that would otherwise
be performed by the read/write devices are performed by the software within the
Company's smart cards. In addition, because the Company's smart cards conform to
applicable industry standards, the cards are compatible with various types of
read/write devices currently in use.

PRINTERS. The Company utilizes smart card printers for printing images and
other information required to be displayed on the face of the smart cards. These
printers may also include a chip encoder that can write information to the chip
at the same time as the smart card is printed. Numerous such printers are
available in the industry.

CUSTOMIZED APPLICATION SOFTWARE. Each smart card system developed by the
Company, in order to perform the various applications included in that system,
requires customized application software to be written relating to the specific
tasks to be accomplished. Typically, such customized application software
includes software that performs certain basic functions, as well as software
that performs the specific functions required by the particular system. The
Company has developed software that performs the basic functions required to be
performed by all of the Company's smart card systems. By virtue of having
developed such software, the Company is able to create the customized
applications required for a particular system more quickly than if all of the
software necessary to implement the system were required to be developed for
each particular application. The Company's proprietary software has been
developed

for use on a workstation personal computer. In addition, the Company is a member
of the Microsoft development team and participates in alpha and beta testing of
new Microsoft products. The Company's proprietary software is compatible with
Windows 3.x-TM-, Windows 95-TM-, Windows NT-TM-. and Windows 98-TM-.

The Company intends to provide each System Sponsor with a customized
configuration of its products based upon the System Sponsor's specific needs and
constraints, ranging from subsystems comprised of selected components which may
be integrated with products or systems provided by third parties, to complete
"turnkey" systems. Each System Sponsor will utilize system stations to
facilitate initial and ongoing operation of each system installed by the
Company. An issue station will issue personalized smart cards, and will be
comprised of one or more personal computers, video cameras for systems requiring
photographs on User Cards, read/write devices, card printers and system
software. An update station will implement necessary changes to the Company's
smart cards, such as updating of information or modification of an Authorized
Service Provider's ability to access particular User information, and will be
comprised of a personal computer, one or more read/write devices and system
software. One or more display stations will permit a User or Authorized Service
Provider to view information stored on a User Card, and will be comprised of a
personal computer, notebook computer and/or hand-held display device, read/write
devices and system software. One personal computer may in some cases function as
issue station, update station and display station, depending on the rights
encoded in the Access Card used. The Company anticipates that a System Sponsor
may, under certain circumstances, seek to utilize, or otherwise procure, its own
system station hardware. In such cases, the Company would expect to aid the
System Sponsor in integrating such hardware with the smart card system products
provided by the Company.

PRICING. The prices of the Company's products will depend on the System
Sponsor's specifications and requirements relating thereto (including the number
and type of application layers per card) and any applicable volume discounts.
The price of the Company's customized application software will depend upon
various factors, including the nature and complexity of the smart card products
and required system interfaces. The off-the-shelf products comprising the
balance of the components of the smart card systems offered by the Company
(including personal computers, notebook computers and hand-held display devices)
will be offered at then-prevailing market prices.

WARRANTY AND SERVICE. The Company offers a limited warranty covering both
parts and labor, pursuant to which the Company or its authorized service
representatives will make repairs and replace parts that become defective due to
normal use. The Company does not anticipate that the cost of servicing its smart
card systems will be material. Furthermore, substantially all component parts of
the Company's smart card systems will be covered by warranties from the
suppliers thereof. However, there can be no assurance that future warranty
expenses will not have an adverse effect on the Company.

TECHNICAL SUPPORT. The Company offers technical support to its System
Sponsors at no charge on a limited basis, as described in each individual System
Sponsor contract. Beyond the specified level, the Company charges an hourly rate
for additional technical support. The Company does not anticipate that the cost
of offering such technical support services will be material.

SMART CARD PRODUCT DEVELOPMENT

The Company believes there are numerous potential applications for its smart
card systems, including but not limited to the following:

EMPLOYEE LICENSING--Licensing and identifying employees in certain regulated
industries, including photo identification, time and attendance records,
specific database information required by the employer and access control to
secure areas.

ANIMAL HEALTH AND REGISTRATION--Tracking of lineage history, medical
information, identification, breed information, nutritional information,
performance data and history of interstate and intrastate movement of
thoroughbred horses and various other racing and show animals and domestic pets.

GOVERNMENT APPLICATIONS--Issuing citizen photo identification and government
licenses (such as motor vehicle, professional and weapons licenses) and
maintaining and processing government entitlement information (including
Medicare, Medicaid and welfare information).

FREQUENT PATRON PROGRAMS AND TRACKING--Awarding of points, miles or other
credits for retail purchases and tracking of customer purchases to facilitate
more focused target marketing.

GAMING--Controlling and monitoring loss limits, employee licensing and
frequent player tracking.

HEALTH CARE--Simplifying and expediting the verification of patient
insurance coverage and maintaining paperless medical records by medical service
providers.

SOFT TRADING DESK--Reconfiguring the hardware and software of a securities
trading desk through the use of information embedded in each individual trader's
smart card to accommodate each trader's individual screen and information
preferences.

The Company has installed an employee licensing system for the Birmingham
Racing Commission. The agreement provides for the Company to deliver smart cards
and hardware in connection with the licensing and monitoring of racetrack
personnel and others. Pursuant to the agreement, the Company has developed a
licensing database containing more than 30 categories of information for each
licensee, including name, address, date and place of birth, height, weight,
employer's name, fines, rulings, suspensions and revocations. To date, the
Company has provided the Birmingham Racing Commission with over 15,000 smart
cards, a smart card printer and chip encoder and two (2) read/write devices. The
term of the agreement is five years, subject to early termination upon 30 days
notice to the Company. The Company may not terminate the license before
expiration of the five-year term of the agreement. The Company has installed a
similar system at the Macon County Race Course in Alabama under a separate
contract. See "Certain Transactions."

The Company has also installed an employee licensing system at the Oregon
Racing Commission and, to date, the Company has sold approximately 9,500 smart
cards and four (4) read/write devices to the Oregon Racing Commission. The
Company also has two contracts with NAPRA for a national licensing system that
includes a database for eighteen racing jurisdictions, including information on
licensing data, infractions and digital photographs.

In March 1998, the Company installed an employee licensing system at the
Idaho Racing Commission. The system utilizes approximately 1,500 processor cards
for mobile employees who travel between racing facilities, such as jockeys,
owners and trainers, plus over 2,000 memory only cards for stationary employees,
such as food vendors and ticket takers.

From June 1 to September 1, 1995, the Company conducted a pilot program at
Atlantic City Raceway and Monmouth Park in New Jersey and Philadelphia Park in
Pennsylvania involving the issuance of equine medical passport smart cards to
track the identity, movement and medical records of thoroughbred racehorses. To
prevent the spread of a deadly disease, the federal government requires any
horse crossing state lines to have a negative Coggins Report which evidences a
negative test result for Equine Infectious Anemia. A Coggins Report is valid for
one year from the issue date. Further, each state requires a valid health
certificate for any horse entering the state. Under the New Jersey and
Pennsylvania program, data on approximately 500 thoroughbred racehorses that
would otherwise have been provided in paper documents was entered into smart
cards provided by the Company and each track gatekeeper in the program utilized
a reader terminal that interfaced with the cards to determine whether particular
horses were eligible for entry on racetrack grounds. The pilot was co-sponsored
by The Jockey Club Racing Services, Inc. During the pilot program, the Company
issued approximately 500 equine medical passport smart cards. The Company is
currently developing enhancements to the smart card system utilized in the pilot
program in order to address certain operational issues that arose during the
program. Although the completed program successfully tested the equine medical
passport smart card system, such pilot program

has not resulted in any system sales to date. There can be no assurances that
any of the Company's pilot programs will result in system purchases by any
potential System Sponsor.

The Florida Department of Agriculture and Consumer Services Bureau of
Disease Control has proposed a similar pilot project anticipated to begin as
soon as possible. The Bureau of Disease Control is responsible for ensuring the
health and marketability of livestock in the state of Florida The states of
Florida, Georgia and Alabama have formed an alliance whereby a special ninety
(90) day pass authorized by any of the three states can be used to cross state
lines between these states. The proposed Florida pilot program will involve a
test "livestock medical passport" program in which each of 100 animals will be
implanted with an "electronic identification transponder" used in conjunction
with smart cards to verify each animal's identity and federal and state medical
certifications. This pilot program will replace the required paper passports for
horses crossing between these states. Although completed programs in New Jersey
and Pennsylvania successfully tested the equine medical passport smart card
system and similar electronic transponder implants are in use which are not
coordinated with smart card technology, such equine medical passport pilot
programs have not resulted in any system sales to date.

The Company has entered into a Memorandum of Understanding with Traquer to
market the Company's smart card systems to Indian gaming and wagering facilities
in North America. Traquer has significant expertise with the rules and
regulations for Indian gaming environments. In February 1998, the Company
received its first order from Traquer to provide a smart card based employee
licensing system to an Indian tribe in Arizona. This system is expected to be
installed by August 1998.

The Company, either alone or in conjunction with strategic partners, is
currently in discussions and negotiations with certain potential System Sponsors
regarding possible future smart card projects. The Company, through the
Subsidiary, has entered into a Memorandum of Understanding with SHL Systemhouse,
an international systems integrator owned by MCI, to form a joint venture for
the purpose of attempting to secure a project to develop a smart card system for
the Province of Ontario, Canada. There can be no assurance that any such
projects will be implemented or, if implemented, generate meaningful revenues.

MARKETING AND SALES

The Company's objective is to become a leading provider of smart card
systems to government and commercial System Sponsors requiring increasingly
complex, secure and cost-effective information processing systems. Because the
Company believes there are numerous potential target markets for the Company's
smart card systems, the Company intends to market its products through multiple
channels, including through strategic marketing alliances and licensing or other
arrangements with systems integrators, value added resellers and other smart
card vendors. The Company believes that such arrangements will enable it to have
access to substantial numbers of potential smart card System Sponsors, and that
third-party partners can provide knowledge, experience and/or financial
resources appropriate to a specific market opportunity and may enhance the
Company's ability to achieve significant penetration in select markets,
especially in those involving government services. The Company anticipates that,
under certain circumstances, its smart card products will be bundled with its
strategic partners' products and services to create a complete integrated system
that can be marketed to potential System Sponsors. The Company will also seek to
provide complete smart card solutions, on a turnkey basis, to System Sponsors by
providing all of the hardware and software elements required to implement the
system.

The Company will seek to identify potential System Sponsors and strategic
partners and attempt to increase the visibility of the Company. It will be the
role of the Director of Sales, under the direction of management, to guide the
Company from the research and development phase to a company with full marketing
and sales strategies for direct and indirect sales. The Company intends to
market its smart card systems directly through its management and employees and
may also retain the services of third parties such as independent sales
representatives and marketing and other consultants. The Company utilizes
independent sales representatives in the United States and abroad, whose
relationships with the Company are generally governed by a written contract for
a specified term, subject to renewal under certain circumstances, and provides
for a limited exclusive territorial or industry representation, specified fees
or commissions and specified sales targets. The Company may, in the case of
potential System Sponsors within certain target industries, sell its systems
through marketing and other consultants with relationships in such industries.

The Company also plans to market its systems through sales brochures, direct
mailings, advertisements in trade publications and participation in industry
trade shows. The Company intends to utilize a portion of the proceeds of this
Offering to expand its marketing and sales activities.

RESEARCH AND DEVELOPMENT AND TECHNOLOGY PURCHASE

For the years ended December 31, 1996 and December 31, 1997, the Company
incurred costs relating to research and development activities in the
approximate amounts of $167,000 and $260,000, respectively. The Company intends
to utilize a portion of the proceeds of this Offering for research and
development, including $712,000 (of which $72,000 has been expensed through
March 31, 1998, $100,000 is expected to be capitalized and $540,000 is expected
to be expensed ratably over approximately a 2.5 year period) payable to SoftChip
in connection with the purchase of the DVK-1 System and the further enhancement
of the Company's proprietary technology as well as the development of system
applications and pilot programs for potential System Sponsors. The Company
further intends to pursue additional patents on various aspects of its
technology.

MANUFACTURING

The Company does not manufacture its own microprocessor chips or associated
hardware or assemble its own smart cards. Components for the Company's smart
cards, such as microprocessor chips and plastic cards as well as associated
hardware, may be purchased from a number of qualified electronic parts
manufacturers and distributors. The Company is under no obligation to purchase
any such components from any one particular manufacturer and therefore may
obtain quality components at the best possible prices the Company can find.

COMPETITION

The market for the Company's smart card systems is characterized by intense
competition. The market is currently dominated by cards utilizing magnetic
stripes, and is expected to be dominated by magnetic stripe cards for the
foreseeable future due to the lower costs of production of such cards and the
substantial capital and infrastructure investments made by debit and credit card
issuers in such cards. The Company also competes with numerous well-established
companies, including Gemplus, Bull PTS (a unit of Groupe Bull), Schlumberger
Electronic Transactions (a business segment of Schlumberger Limited), Orga
Kartensysteme GMBH, Giesecke & Devrient and Mondex International, which design,
manufacture and/or market smart card systems. Although the Company believes that
its dual card access and multiple application layering technologies will allow
the Company to compete on the basis of enhanced security, flexibility,
scalability, cost-effectiveness and quality, the Company's smart card systems
incorporate new concepts and may be unsuccessful even if they are superior to
those of its competitors. In addition, certain companies may be developing
technologies or products of which the Company is unaware which may be
functionally similar or superior to those developed by the Company. Most of the
Company's competitors and potential competitors possess substantially greater
financial, marketing, personnel and other resources than the Company and have
established reputations relating to the design, development, manufacture,
marketing and service of smart card systems. As the market for smart card
systems grows, new competitors are likely to emerge. Additional competition
could adversely affect the Company's operations. Smart card technology competes
with other electronic transaction and information processing technologies,
including magnetic stripe cards, bar code cards, laser optical cards and radio
frequency contactless cards, as well as traditional methods of transaction and
information processing, whether effected or recorded on paper or otherwise.

GOVERNMENT REGULATION AND INDUSTRY STANDARDS

In the United States, the Company is not currently subject to direct
regulation other than federal and state regulations applicable to businesses
generally. However, changes in the regulatory environment relating to the smart
card industry could have an adverse effect on the Company's business.
Legislative proposals from federal and state government bodies in the area of
privacy rights could impose additional regulations and obligations upon all
smart card providers. The Company cannot predict the likelihood that any such
legislation will pass, nor the financial impact, if any, that any such
legislation may have. Moreover, the applicability to smart card System Sponsors
and Authorized Service Providers of existing laws governing issues such as
personal privacy is uncertain.

The Company believes that its smart card systems are currently in compliance
with the quality assurance standards of ISO-7816, an international standard
promulgated by the International Organization for Standardization, a worldwide
federation of standards bodies from approximately 100 countries. The European
Community and others have adopted these standards as their preferred quality
standards. However, as technological advances occur in the smart card industry,
other emerging standards may gain widespread acceptance. While compliance with
applicable and emerging standards is the responsibility of the Company's
suppliers, any failure on the part of the Company's suppliers to comply with
such standards could materially and adversely affect the Company's sales to
various System Sponsors and prevent the Company's expansion into certain
markets.

As part of its strategy, the Company intends to market its smart card
systems to government agencies in the United States and Canada. If successful,
the Company will become subject to the special risks involving government
contracts, including delays in funding, lengthy review processes for awarding
contracts, non-renewal, delay, termination at the convenience of the government,
reduction or modification of contracts in the event of changes in the
government's policies or as a result of budgetary constraints and increased or
unexpected costs resulting in losses.

The Company will also be required to obtain most potential government
contracts through the competitive bidding process. The competitive bidding
process is typically lengthy and often results in the

expenditure of financial and other resources in connection with bids that are
not accepted. Additionally, inherent in the competitive bidding process is the
risk that actual performance costs may exceed projected costs upon which a
submitted bid or contract price is based. Moreover, in some instances, the
Company would be required to post bid and/or performance bonds in connection
with contracts with government agencies.

To the extent that the Company is able to successfully expand its operations
into foreign markets, the Company may become subject to trade restrictions
(including restrictions on the export of critical technology), export duties and
tariffs and international political and regulatory developments.

INTELLECTUAL PROPERTY

The Company's success will depend in part on its ability to enforce its
patents, protect trade secrets and operate without infringing on the proprietary
rights of others. The Company has received United States patent number 5629508
with respect to its dual card access technology and methods. In addition, the
Company has filed a continuation-in-part on its patent. If granted, this will
significantly expand the Company's intellectual property rights pertaining to
dual card-based data retrieval and access control. The Company contemplates
filing patent applications in selected foreign jurisdictions where such filings
would, in the Company's opinion, provide it with a competitive advantage. The
patent laws of other countries may differ from those of the United States as to
the patentability of the Company's products or technology and the degree of
protection afforded by foreign patents may be different from that in the United
States. The failure by the Company to obtain any foreign patents could have a
material adverse effect on the Company's ability to successfully commercialize
its smart card systems outside the U.S. Even though the Company has been able to
obtain a patent, there can be no assurance that this patent will afford the
Company commercially significant protection for its technology. Other companies
may independently develop equivalent or superior technologies or products and
may obtain patent or similar rights with respect to them. The Company is not
aware of any infringement by its technology on the proprietary rights of others
and has not received any notice of claimed infringement. However, the Company
has not conducted any investigation as to possible infringement and there can be
no assurance that third parties will not assert infringement claims against the
Company in connection with its products, that any such assertion of infringement
will not result in litigation, or that the Company would prevail in such
litigation. Moreover, in the event that the Company's technology or proposed
products were deemed to infringe upon the rights of others, the Company would be
required to obtain licenses to utilize such technology. There can be no
assurance that the Company would be able to obtain such licenses in a timely
manner on acceptable terms and conditions, or at all, and the failure to do so
could have a material adverse effect on the Company. If the Company were unable
to obtain such licenses, it could encounter significant delays in product market
introductions while it attempted to design around the infringed upon patents or
rights, or could find the development, manufacture or sale of products requiring
such license to be foreclosed. In addition, patent disputes occur in the smart
card and computer industries and there can be no assurance that the Company will
have the financial resources to enforce or defend a patent infringement or
proprietary rights action. In addition, the Company has received a federal
trademark registration for its SMART-ID-Registered Trademark- mark and design
and has applied for a federal trademark registration for its Cheeze! mark.
SMART-ID-Registered Trademark- is a smart card based system that provides
positive identification, transaction tracking and the ability to layer multiple
applications on a single smart card. Cheeze! is a program currently used by
eighteen pari-mutuel licensing jurisdictions to photograph licensees and
transmit the photograph and license data to a central database, which is
currently housed at the Company's offices. The Company's use of its software,
name and marks may be subject to challenge by others, which, if successful,
could have a material adverse effect on the Company.

provide technical support and development to the Company for at least a two-year
period for an additional $450,000 plus royalties ranging from $.125 to $.25 for
each smart card sold by the Company that incorporates the DVK-1 System. Upon its
closing, which is scheduled to occur after the minimum closing of this Offering,
this agreement will provide the Company ownership of its own chip mask and
access to the technical resources needed to develop a completely new and
proprietary chip mask and operating system. The chip mask provides the basic
instructions to the microchip and its internal components and facilitates the
orderly utilization of all of the microchip's components and allows the device
to be utilized. The Company has also executed a purchase order with SoftChip for
technical services for a monthly fee of $18,000, which commenced December 1,
1997. The Company is obligated to pay the amount payable under the purchase
order, the purchase price and the fees for technical support, no later than
September 15, 1998, which will reduce the amount of working capital available to
the Company. Under the agreement, ownership of the DVK-1 System will be
transferred to the Company at closing upon payment in full of the purchase price
and technical support fees. If the closing of the minimum offering is delayed
beyond September 15, 1998, the Company believes it may be able to reach a mutual
agreement with SoftChip to extend the closing date of the agreement, but there
can be no assurance that the Company will be able to reach such agreement with
SoftChip, or that the Company will ultimately secure ownership of the DVK-1
System if the closing of the minimum offering is delayed beyond September 15,
1998. Additionally there can be no assurance that ownership of the DVK-1 System
will result in the successful development of new technology. See "Plan of
Operation" and "Business--Intellectual Property."

The Company also relies on trade secrets and proprietary know-how and
employs various methods to protect the concepts, ideas and documentation
relating to its proprietary technology. However, such methods may not afford the
Company complete protection and there can be no assurance that others will not
independently obtain access to the Company's trade secrets and know-how or
independently develop products or technologies similar to those of the Company.
Furthermore, although the Company has and expects to have confidentiality and
non-competition agreements with its employees and appropriate suppliers and
manufacturers, there can be no assurance that such arrangements will adequately
protect the Company's trade secrets.

The Company purchases many of the hardware and non-proprietary software
components of its smart card systems through normal electronic and computer
distribution channels. Typically, such components are sold with standardized
license agreements containing non-negotiated terms, conditions and restrictions
established by the manufacturer.

EMPLOYEES

As of the date of this Prospectus, the Company had ten full-time employees,
consisting of four executive officers and six employees engaged in engineering,
technical support, product development, marketing and sales, including the
Company's recently appointed Director and Sales. See "Management." The Company
also uses the resources of independent programmers and consultants from time to
time on an as needed basis. The Company anticipates that it will hire additional
sales and technical personnel to continue to implement the Company's marketing
and product development efforts and may engage independent sales representatives
and industry-specific marketing consultants to assist the Company in marketing
the Company's smart card systems to potential System Sponsors.

FACILITIES

The Company leases, pursuant to a sublease, approximately 2,750 square feet
of office space at 1355 Terrell Mill Road, Marietta, Georgia. The sublease
commenced on January 1, 1997 and will continue through January 31, 2000.
Pursuant to the sublease, the Company is required to pay rent of approximately
$3,005 per month, increasing through the term of the sublease to approximately
$3,100 per month. The Company currently leases furniture and fixtures for such
facility at a rate of approximately $481 per month.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The current directors and executive officers of the Company are as follows:

NAME AGE POSITION
- -------------------------- ---- -----------------------------------------------------------

Lawrence O. Perl.......... 55 Chief Executive Officer, Chief Financial Officer, Chairman
of the Board & Director
Raymond Findley, Jr....... 49 President, Chief Operating Officer & Director
Robert H. Dixon........... 37 Vice President of Technical Operations
Lilly Beter............... 64 Secretary & Director
Harold Rothstein.......... 75 Director
Raymond A. Roncari........ 73 Director
Bruce R. Bonadies......... 55 Director
Gordon W. Walker.......... 56 Director

LAWRENCE O. PERL, a co-founder of the Company, has served as Chairman of the
Board, Chief Executive Officer and a director of the Company since its inception
and currently serves as the Company's Chief Financial Officer. From April 1993
to June 1994, Mr. Perl served as Chief Executive Officer and a director of
McKinnie Systems, Inc. ("McKinnie"), a privately held supplier of computerized
management information systems to the pari-mutuel industry. From September 1984
through March 1993, Mr. Perl served as a financial consultant for Roncari
Industries, Inc., a privately held producer of quarry, asphalt and concrete
products. In addition, since August 1977, Mr. Perl has served as President of
Lawrence Owen Associates, Inc., a privately held hotel and financial consulting
firm, and, since 1978, has been affiliated with other privately held entities
engaged in hotel ownership and management.

RAYMOND FINDLEY, JR., a co-founder of the Company, has been President, Chief
Operating Officer and a director of the Company since its inception. From June
1990 to May 1994, Mr. Findley served as President and Chief Executive Officer of
Phoenix DataCrypt Systems, Inc., a privately held designer and developer of
smart card-based technology and business applications. From September 1988 to
April 1990, Mr. Findley was President and Chief Executive Officer of British
Telecom CBP, Inc., a developer and marketer of financial telecommunications and
trading systems.

ROBERT H. DIXON has been Vice President of Technical Operations of the
Company since July 1994. From September 1987 to July 1994, Mr. Dixon was
employed as software manager of McKinnie and from April 1984 to August 1987 Mr.
Dixon was employed as computer programmer by Tri-State Lighting, Inc., a
privately held lighting fixture manufacturer.

HAROLD ROTHSTEIN, a co-founder of the Company, has been a director of the
Company since January 1996. In 1967, Mr. Rothstein founded Utility Development
Corporation, a Connecticut-based privately held general contracting firm which
is primarily engaged in building federally insured multi-family and low-income
housing. Mr. Rothstein has served as the Chief Executive Officer of Utility
Development Corporation since its inception.

RAYMOND A. RONCARI, a co-founder of the Company, has been a director of the
Company since January 1996. From 1979 to July 1995, Mr. Roncari served as the
President and Chief Executive Officer of Roncari Industries, Inc., thereafter
serving as President and Chief Executive Officer of Tilcon-Roncari, Inc., a
partial successor-in-interest to Roncari Industries, Inc. until January 1997, at
which time he retired. Mr. Roncari continues to serve as President and Chief
Executive Officer of Roncari Industries, Inc. Mr. Roncari has also served as
Chairman, President and Chief Executive Officer of Roncari Development Co., a
real estate development company, since 1970 and of Roncari Associates, Inc., a
cargo facilities company, since 1980. In addition, from 1965 to 1985, Mr.
Roncari served as a director and Chairman of the Executive Committee of the
Northern Connecticut National Bank--Windsor Locks.

LILLY BETER, newly appointed Secretary and member of the Board, is President
of Lilly Beter Capital Group, Ltd., with offices in Washington, D.C.,
Minneapolis, Minnesota and Century City, California. She co-founded the firm
over thirty years ago with her late husband, with whom she was also associated
in his law practice, providing government representation to clients. Ms. Beter
represents companies doing business in the Pacific Rim, South America, Europe
and the Caribbean. She is a member of the American League of Lobbyists and the
American Arbitration Association.

BRUCE R. BONADIES, a newly appointed member of the Board, retired in March
1998 from his position as Vice President, Business Development of Marriott
Health Care Services, a division of Marriott International. Mr. Bonadies has
held numerous positions with various Marriott companies since 1977, including
Senior Vice President of National Food Services and Facilities, Vice President
of Sales and Vice President of Area Sales, and Director of Sales, and is
currently president of Brandon Scott Associates, LLC, a recently formed sales
training and consulting company.

GORDON W. WALKER became a director of the Company in February 1997. Mr.
Walker serves as counsel to Miller Thomson, a Toronto, Ontario law firm. From
1978 to 1985, Mr. Walker held various government cabinet positions for the
Province of Ontario, including Minister of Correctional Services, Provincial
Secretary for Justice, Minister of Industry and Trade, and Minster of Consumer
and Commercial Relations. Between 1971 and 1985, Mr. Walker served three terms
as a member of the Ontario legislature.

Executive officers serve at the discretion of the Board. Directors of the
Company hold office until the expiration of the term for which they are elected
and until their respective successors have been elected and qualified, or until
their prior death, resignation or removal. The Board is classified into three
classes of directors, with each class serving a staggered three-year term.
Messrs. Bonadies and Findley and Ms. Beter are Class I directors, Messrs.
Roncari and Walker are Class II directors, and Messrs. Perl and Rothstein are
Class III directors. The terms of the Class I, Class II and Class III directors
will expire at the annual meetings of stockholders to be held in 2000, 1998, and
1999, respectively. The Company reimburses the directors for reasonable travel
expenses incurred in connection with their activities on behalf of the Company,
but does not pay its directors any fees for Board participation (although it may
do so in the future). Pursuant to the Nonemployee Directors' Stock Option Plan,
non-employee directors will automatically be granted each year, on the date of
the Company's annual meeting of stockholders, Non-incentive Options (as
hereinafter defined) to purchase 2,500 shares of Common Stock of the Company at
an exercise price equal to the fair market value thereof on the date of grant.
See "--Nonemployee Directors' Stock Option Plan."

COMMITTEES OF THE BOARD

AUDIT COMMITTEE. Upon the consummation of this Offering, the Company will
establish an Audit Committee of the Board (the "Audit Committee") consisting of
at least two directors who are not employees of the Company. Audit Committee
members will meet regularly with the Company's financial management and
independent auditors to review the results of their examination, the scope of
audits and their opinions on the adequacy of internal controls and quality of
financial reporting.

COMPENSATION COMMITTEE. Upon the consummation of this Offering, the Company
will establish a Compensation Committee of the Board (the "Compensation
Committee") consisting of at least two directors who are not employees of the
Company. The Committee will make recommendations to the Board of Directors
concerning the salaries of all elected officers. In addition, the Compensation
Committee will administer the Company's Stock Option Plan and determine the
amounts of, and the individuals to whom, awards shall be made thereunder. See
"1996 Stock Option Plan."

EXECUTIVE COMMITTEE. Upon the consummation of this Offering, the Company
will establish an Executive Committee of the Board (the "Executive Committee").
The Executive Committee will have all the powers of the Board (except those
specifically reserved under the DGCL to the full Board of Directors) in the
management and direction of the business of the Company.

ADVISOR TO THE BOARD

The Company has secured the services of Dr. Mary Mundinger as advisor to the
Board. Dr. Mundinger currently holds the position of Dean and Professor at the
School of Nursing, as well as an Associate Dean in the Faculty of Medicine, at
Columbia University in New York. She sits as a consultant and advisor to various
state and federal commissions including: The Federally Commissioned Committee to
advise the Department of Veteran Affairs on Innovations in Nursing, 1997; The
White House Steering Committee on Health, 1996; Co-Chair of the International
Society of Technology Assessment in Health Care, Nursing and Technology
Assessment Panel, 1993; and the Health Professions Review Group, appointed by
President Clinton to review proposals of the Health Reform Task Force, 1993. She
has authored two books on nursing and healthcare, as well as numerous articles
in various nursing journals and magazines. Dr. Mundinger is also on the Boards
of Directors of Cell Therapeutics, Inc. and United Healthcare. Her contacts and
experience are expected to be instrumental in promoting smart card technology in
the healthcare industry.

KEY EMPLOYEE INSURANCE

The Company has obtained "key man" insurance on the lives of Messrs. Perl
and Findley in the amount of two million dollars each.

OTHER KEY EMPLOYEE

ROBERT J. CARTAGINE, a 1984 graduate of New York University with a Business
Administration degree and a 1985 graduate of the New York Institute of
Technology with a Sales Management degree, brings several years of sales
experience to the Company as its newly appointed Director of Sales. He has
developed training syllabuses for the Regional Bell Operating Companies and was
employed for several years with Nynex, New York Telephone, Bell Atlantic and New
Jersey Bell as Northeast Regional Sales Director. Mr. Cartagine performed sales
services for the Company on a contract basis beginning in February 1998 and
became a regular employee in April 1998. Mr. Cartagine will enter into a
one-year employment agreement no later than the closing of the minimum offering.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the
compensation in each of the last three fiscal years paid to the person who
served as the Company's Chief Executive Officer and to the other officers of the
Company who earned $100,000 or more during such periods (collectively, the
"Named Officers").

SUMMARY COMPENSATION TABLE

NAME AND PRINCIPAL POSITION YEAR ANNUAL SALARY($) ALL OTHER COMPENSATION($)
- ------------------------------------------------------------- --------- ---------------- -----------------------------

Lawrence O. Perl, ........................................... 1997 156,000(1) --
Chief Executive Officer 1996 200,000(2)
1995 192,308

Raymond Findley, Jr., ....................................... 1997 189,955(1) --
President and Chief Operating Officer 1996 200,000(2)
1995 192,308

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

(1) Does not include $94,000 and $60,045 in accrued but unpaid salary payable to
each of Messrs. Perl and Findley, respectively.

(2) Does not include $50,000 in accrued but unpaid salary payable to each of
Messrs. Perl and Findley.

EMPLOYMENT AGREEMENTS

Each of the Company's officers, with the exception of Ms. Beter, has
executed a five-year employment agreement to be effective upon closing of the
minimum offering.

1996 STOCK OPTION PLAN

In order to attract, retain and motivate employees (including officers),
directors, consultants and other persons who perform substantial services for or
on behalf of the Company, the Company has adopted the 1996 Stock Option Plan
(the "Stock Option Plan"). Pursuant to the Stock Option Plan, stock options
covering an aggregate of 270,000 shares of the Company's Common Stock may be
granted to the foregoing persons. Under the Stock Option Plan, "incentive stock
options" ("Incentive Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), may be granted to employees
(including officers), and non-incentive stock options ("Non-incentive Options")
may be granted to any such employee and to other persons (including directors)
who perform substantial services for or on behalf of the Company. Incentive
Options and Non-incentive Options are collectively referred to herein as "1996
Options."

The Stock Option Plan is administered by the Board or, at its discretion, by
the Compensation Committee. The Board or the Compensation Committee have
complete authority to administer and interpret the Stock Option Plan, to
determine the terms upon which 1996 Options may be granted, to prescribe, amend
and rescind such interpretations and determinations and to grant 1996 Options.
The Board or the Compensation Committee has the power to terminate or amend the
Stock Option Plan from time to time in such respects as it deems advisable,
except that no termination or amendment shall materially adversely affect any
outstanding Option without the consent of the grantee, and the approval of the
Company's stockholders will be required in respect of any amendment which would
(i) change the total number of shares subject to the Stock Option Plan or (ii)
change the designation or class of employees or other persons eligible to
receive Incentive Options or Non-incentive Options.

The price at which shares covered by a 1996 Option may be purchased pursuant
thereto shall be no less than the par value of such shares and no less than the
fair market value of such shares on the date of grant (the "Fair Market Value");
provided, however, that in the case of Incentive Options, if the optionee
directly or indirectly beneficially owns more than ten percent (10%) of the
total combined voting power of all of the outstanding voting stock of the
Company (a "10% Holder"), the purchase price shall not be less than one hundred
ten percent (110%) of the Fair Market Value on the date of grant. The Fair
Market Value will generally be equal to the last sale price quoted for shares of
Common Stock on Nasdaq on the date of grant. The purchase price of shares
issuable upon exercise of an option may be paid in cash or by delivery of shares
with a value equal to the exercise price of the option. The Company may also
loan the purchase price to the optionee, or guarantee third-party loans to the
optionee, on terms and conditions acceptable to the Board or the Compensation
Committee.

In the event the aggregate fair market value of the shares of Common Stock
(determined at the time the option is granted) with respect to which Incentive
Options are exercisable for the first time by the optionee during any calendar
year (under all such option plans maintained by the Company) exceeds $100,000,
then only the first $100,000 of such shares so purchased will be treated as
Incentive Options and any excess over $100,000 so purchased shall be treated as
Non-incentive Options. This rule shall be applied by taking 1996 Options into
account in the order or sequence in which they were granted.

The number of shares covered by an option is subject to adjustment for stock
splits, mergers, consolidations, combinations of shares, reorganizations and
recapitalizations. The 1996 Options are generally non-transferable except by
will or by the laws of descent and distribution, and in the case of employees,
with certain exceptions, may be exercised only so long as the optionee continues
to be employed by the Company. If the employee dies or becomes disabled, the
right to exercise the Option, to the extent then vested, continues for specified
periods. 1996 Options may be exercised within a period not

exceeding ten years from the date of grant, except that the term of any
Incentive Options granted to a 10% Holder may not exceed five years from the
date of grant. The terms of Incentive Options are subject to additional
restrictions provided by the Stock Option Plan.

On February 2, 1998, Incentive Options to purchase an aggregate of 141,000
shares of Common Stock were granted under the Stock Option Plan, including
50,000 shares to Robert Dixon, an officer of the Company. All of such Incentive
Options, excluding an option to purchase 1,000 shares, which was canceled on
March 20, 1998, will be exercisable at a per share price equal to $12.00 and
will vest in annual installments of twenty-five percent (25%) beginning on March
15, 1998. No Non-incentive Options have been granted under the Stock Option
Plan.

NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN

In order to attract and retain the services of non-employee members of the
Board of Directors and to provide them with increased motivation and incentive
to exert their best efforts on behalf of the Company by enlarging their personal
stake in the Company, the Company has adopted the Nonemployee Directors' Stock
Option Plan (the "Directors' Plan"). Pursuant to the Directors' Plan, stock
options covering an aggregate of 30,000 shares of the Company's Common Stock may
be granted to such non-employee directors.

Pursuant to the Directors' Plan, each member of the Board of Directors of
the Company who is not an employee of the Company (or a subsidiary) (a
"Nonemployee Director") and who is elected or re-elected as a director of the
Company by the stockholders at any annual meeting of stockholders commencing
with the first annual meeting in 1999 will receive, as of the date of each such
election or re-election, options to purchase 2,500 shares of the Company's
Common Stock at the fair market value thereof on the date of grant. In addition,
each Nonemployee Director shall be granted options to purchase 2,500 shares of
Common Stock at each annual meeting of the Board during the term of such
Nonemployee Director's directorship. All options granted under the Directors'
Plan are to be Non-incentive Options.

On February 2, 1998, each Nonemployee Director was issued an option to
purchase 2,500 shares of Common Stock (aggregating 12,500 shares) at an exercise
price of $12.00 per share, pursuant to the Directors' Plan.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Section 145 of the DGCL contains provisions entitling the Company's
directors and officers to indemnification from judgments, fines, amounts paid in
settlement, and reasonable expenses (including attorney's fees) as the result of
an action or proceeding in which they may be involved by reason of having been a
director or officer of the Company. In the Certificate, the Company has included
a provision that limits, to the fullest extent now or hereafter permitted by the
DGCL, the personal liability of its directors to the Company or its stockholders
for monetary damages arising from a breach of their fiduciary duties as
directors. Under the DGCL as currently in effect, this provision limits a
director's liability except where such director (i) breaches his duty of loyalty
to the Company or its stockholders, (ii) fails to act in good faith or engages
in intentional misconduct or a knowing violation of law, (iii) authorizes
payment of an unlawful dividend or stock purchase or redemption as provided in
Section 174 of the DGCL, or (iv) obtains an improper personal benefit. This
provision does not prevent the Company or its stockholders from seeking
equitable remedies, such as injunctive relief or rescission. If equitable
remedies are found not be to available to stockholders in any particular case,
stockholders may not have any effective remedy against actions taken by
directors that constitute negligence or gross negligence.

The Certificate and By-Laws also include provisions to the effect that
(subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
such law, as it may from time to

time be in effect. At present, the DGCL provides that, in order to be entitled
to indemnification, an individual must have acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the Company's best
interests.

PRINCIPAL STOCKHOLDERS

The following table sets forth information as of the date of this Prospectus
and as adjusted to reflect the sale by the Company of a minimum of 294,200 and a
maximum of 420,000 shares of Common Stock offered hereby and the exercise of the
options, based on information obtained from the persons named below, with
respect to the beneficial ownership of shares of Common Stock by (i) each person
who is known by the Company to beneficially own more than five percent (5%) of
the outstanding shares of Common Stock, (ii) each director of the Company and
(iii) all of the Company's officers and directors as a group.

SHARES BENEFICIALLY SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED AFTER MINIMUM OWNED AFTER MAXIMUM
OFFERING(2) OFFERING OFFERING
----------------------- ----------------------- -----------------------
NUMBER OF NUMBER OF NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT SHARES PERCENT SHARES PERCENT
- ----------------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------

Lawrence O. Perl(3)............................ 481,285 19.1% 481,285 17.1% 481,285 16.3%

Raymond Findley................................ 480,035 19.0% 480,035 17.0% 480,035 16.3%

Harold Rothstein(4)............................ 626,528 24.8% 626,528 22.2% 626,528 21.3%

Raymond A. Roncari(5).......................... 610,902 24.2% 610,902 21.7% 610,902 20.7%

Lilly Beter(6)................................. 2,500 0.1% 2,500 0.1% 2,500 0.1%

Bruce Bonadies(7).............................. 3,750 0.1% 3,750 0.1% 3,750 0.1%

Gordon Walker(8)............................... 2,500 0.1% 2,500 0.1% 2,500 0.1%

Joseph Basch................................... 240,000 9.5% 240,000 8.5% 240,000 8.1%

All officers and directors as a group (eight
persons)..................................... 2,240,000 87.8% 2,240,000 78.8% 2,240,000 75.4%

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

Lawrence O. Perl, Raymond Findley, Harold Rothstein and Raymond A. Roncari
may be deemed "promoters" of the Company, as such term is defined under the
federal securities laws.

(1) The address for each such person is c/o American Card Technology, Inc., 1355
Terrell Mill Road, Building 1462, Suite 200, Marietta, Georgia 30067.

(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within 60
days from the date of this Prospectus upon the exercise of options, warrants
or convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that
are held by such person (but not those held by any other person) and which
are exercisable within 60 days of the date of this Prospectus have been
exercised. Assumes 2,525,000 shares of Common Stock outstanding prior to
this Offering, 2,819,200 shares of Common Stock outstanding immediately
after the minimum offering and 2,945,000 shares of Common Stock outstanding
immediately after the maximum offering, before any consideration is given to
outstanding options, warrants or convertible securities.

(3) Includes 480,035 shares held by the Perl Trust, a family trust for the
benefit of the family of Lawrence O. Perl, of which Mr. Perl is a
beneficiary. As of May 1, 1998, the Perl Trust entered into a voting trust
agreement pursuant to which Bruce R. Bonadies was appointed the voting
trustee with

respect to the 480,035 shares held by the Perl Trust; such appointment shall
expire April 30, 1999. Does not include 1,250 shares issuable upon exercise
of warrants received in connection with the 1998 Private Placement.

(4) Includes 587,778 shares held by the Rothstein Trust, a family trust for the
benefit of the family of Harold Rothstein, and 2,500 shares issuable upon
exercise of the option issued pursuant to the Directors' Plan. As of May 1,
1998, the Rothstein Trust entered into a voting trust agreement with Lilly
Beter pursuant to which Ms. Beter was appointed the voting trustee with
respect to the 587,778 shares held by the Rothstein Trust; such appointment
shall expire April 30, 1999. Does not include 23,750 shares issuable upon
exercise of warrants received in connection with the 1998 Private Placement
or the 12,500 shares issuable upon exercise of his Commitment Warrants.

(5) Includes 2,500 shares issuable upon exercise of the option issued pursuant
to the Directors' Plan. Does not include 23,750 shares issuable upon
exercise of warrants received in connection with the 1998 Private Placement
or 12,500 shares issuable upon exercise of his Commitment Warrants. Does not
include shares issuable upon exercise of an option to purchase 100,000
shares granted to Shreveport, pursuant to the Shreveport Option, which has
since been assigned to Mr. Roncari.

(6) Includes 2,500 shares issuable upon exercise of the option issued pursuant
to the Directors' Plan. Does not include 100,000 shares issuable to Lilly
Beter Capital Group, Ltd., a firm owned and controlled by Ms. Beter, upon
exercise of the Beter Option to be granted upon the closing of subsequent
debt financing.

(7) Includes 2,500 shares issuable upon exercise of the option issued pursuant
to the Directors' Plan. Does not include 1,250 shares issuable upon exercise
of warrants received in connection with the 1998 Private Placement.

(8) Includes 2,500 shares issuable upon exercise of the option issued pursuant
to the Directors' Plan.

CERTAIN TRANSACTIONS

Pursuant to an agreement dated as of January 1, 1993, Shreveport Acquisition
Corp. ("Shreveport"), a corporation which was founded by Lawrence O. Perl, the
Chairman of the Board, Chief Executive Officer and Chief Financial Officer of
the Company, and Raymond A. Roncari, a director of the Company, and which was
owned by Mr. Perl, Mr. Roncari and Harold Rothstein, a director of the Company,
but was dissolved on December 31, 1997, acquired all of the outstanding stock of
McKinnie, a supplier of computerized management information systems to the
pari-mutuel industry, for a purchase price of $2 million, which was paid $75,000
in cash and $1,925,000 by delivery of a one-year promissory note which was
guaranteed by Mr. Roncari. Concurrently with such acquisition, McKinnie entered
into an agreement (the "McKinnie License Agreement") with Amazing Controls!,
Inc. and Phoenix DataCrypt Systems, Inc. ("Phoenix"), a company of which Raymond
Findley, Jr., the Company's President, Chief Operating Officer and a director,
was co-founder, President and Chief Executive Officer. Pursuant to the McKinnie
License Agreement, Phoenix granted to McKinnie an exclusive license to use, in
connection with McKinnie's management information systems, the smart card
technology and computer software owned or licensed by Phoenix (including
technology then licensed by Phoenix) for use in the pari-mutuel industry and
McKinnie agreed to purchase all of its smart card requirements from Phoenix, a
distributor of Amazing Controls!, Inc.'s smart cards.

In May 1994, Mr. Findley severed his relationship with Phoenix in order to
pursue smart card-related business opportunities with Messrs. Perl, Roncari and
Rothstein. In June 1994, Messrs. Findley, Perl, Roncari and Rothstein formed the
Company to develop and market smart card technology and applications. In order
to pursue their business plan, Messrs. Perl, Roncari and Rothstein elected to
divest themselves of control of McKinnie. In July 1994, Shreveport sold a 51%
equity interest in McKinnie to The Jockey Club Racing Services, Inc. ("The
Jockey Club"). In connection therewith, The Jockey Club agreed

to cause McKinnie to transfer to the Company all of McKinnie's rights to any
smart card technology, including certain software technology and all rights
under the McKinnie License Agreement. The Jockey Club purchased the balance of
the McKinnie stock from Shreveport effective December 31, 1997.

In December 1996, the Company issued to Shreveport the Shreveport Option to
purchase 100,000 shares of Common Stock at an exercise price of $5.00 per share,
which has since been increased to $12.00 per share and assigned to Mr. Roncari.
The Shreveport Option is exercisable at any time during the five-year period
commencing the earlier of January 1, 1999 or 90 days following the closing of
the minimum offering. The Shreveport Option provides that upon exercise, in lieu
of a cash payment, the option may be exchanged for a number of shares of Common
Stock equal to (a) the total number of shares issuable upon exercise of such
option for cash, minus (b) a number of shares equal to the quotient of (i) the
aggregate exercise price of the exercised portion of the option, divided by (ii)
the then current market price of a share of Common Stock.

In connection with the formation of the Company in June 1994, each of the
Perl Trust, Mr. Roncari, the Rothstein Trust and Mr. Findley (collectively, the
"Original Stockholders") purchased 507,500 shares of Common Stock for a purchase
price of $250. In January 1995, each of the Original Stockholders sold to Robert
Dixon, the Company's Vice President of Technical Operations, 5,000 shares of
Common Stock for a purchase price of $1,250.

Since the inception of the Company, the Perl Trust and Messrs. Findley,
Roncari and Rothstein (either individually or through the Rothstein Trust) have
made the Stockholder Loans to the Company in amounts aggregating $30,177,
$15,177, $1,008,854 and $1,300,747, respectively. The Stockholder Loans bear
interest at ten percent (10%) per annum and are to be repaid from the proceeds
of subsequent debt financing, but in no event later than January 1, 2001. In
March 1995, $250,000 of the then-outstanding principal amount of the Stockholder
Loans of each of Messrs. Rothstein and Roncari was recharacterized as paid-in
capital of the Company. Pursuant to an agreement among the Original
Stockholders, the aggregate $500,000 Capital Contribution was allocated equally
among the Original Stockholders, in consideration for which Mr. Findley issued
to Mr. Roncari, and the Perl Trust issued to the Rothstein Trust, Capital
Contribution Notes, each in the amount of $125,000. Pursuant to the Debt
Conversion which occurred upon the consummation of the 1997 Private Placement in
January 1997, $12,675 of the Perl Trust's Stockholder Loans, $12,675 of Mr.
Findley's Stockholder Loans, $223,260 of Mr. Roncari's Stockholder Loans and
$301,390 of Mr. Rothstein's Stockholder Loans were converted into 2,535, 2,535,
44,652 and 60,278 shares of Common Stock, respectively. Mr. Findley and the Perl
Trust subsequently transferred 25,000 shares of Common Stock to Mr. Roncari and
the Rothstein Trust, respectively, in satisfaction of the indebtedness
represented by the Capital Contribution Notes.

Pursuant to an agreement dated as of July 1, 1994, the Company agreed to pay
Lawrence Owen Associates, a corporation wholly owned by Mr. Perl, a monthly fee
of $1,000 in consideration for the use of office space in West Hartford,
Connecticut and for accounting and other general and administrative services.
The Company extended this arrangement until December 31, 1997, after which time
the agreement expired. Upon expiration $42,000 was due to Lawrence Owen
Associates from the Company.

From March through June 1995, Joseph D. Basch, the President, Chief
Executive Officer and sole director of the Subsidiary, loaned the Company an
aggregate of $300,000. The loans accrued interest at ten percent (10%) per annum
and were payable on demand. In July 1996, the Company and Mr. Basch entered into
an agreement pursuant to which the then-outstanding principal amount of the
loans, together with accrued interest thereon of approximately $30,000, was
converted into an aggregate of 240,000 shares of Common Stock.

In January 1996, the Company sold 100,000 shares of Common Stock to Stephen
S. Weisglass at a price of $.25 per share. Mr. Weisglass became a director of
the Company in November 1996. In July 1997, Mr. Weisglass resigned from the
Board. His shares were subsequently transferred to Beter at the direction of the
Company, and then distributed as part of the 1998 Private Placement.

Mr. Rothstein has personally guaranteed all of the Company's indebtedness to
Fleet and has pledged personal assets in the form of a certificate of deposit in
the amount of $150,000 to secure such indebtedness; Mr. Roncari has personally
guaranteed all of the Company's indebtedness to First Suffield; and Mr.
Rothstein has pledged to Chase a certificate of deposit in the amount of
$105,000 to secure the Company's indebtedness to Chase. In addition, Mr.
Rothstein has agreed with the Company that, in the event a demand is made by
Fleet with respect to the Fleet Loan and/or a demand is made by Chase with
respect to the Chase Loan prior to the earlier of the closing of the maximum
offering, subsequent debt financing or March 3, 2001, he shall either (i) secure
replacement financing to pay the amount so demanded or (ii) personally satisfy
the amount demanded, either through surrender of the collateral previously
pledged by him or through other means satisfactory to Fleet and/or Chase, as the
case may be. In the event Mr. Rothstein elects to personally satisfy the
demanded amount, the Company has agreed to reimburse Mr. Rothstein for the full
amount of such payment on the earlier of the closing of the maximum offering,
subsequent debt financing or March 3, 2001. See "Plan of Operation--Liquidity
and Capital Resources."

In January 1997, pursuant to the 1997 Private Placement, the Company
completed the sale to 23 private investors (including certain officers and
directors of the Company) of 25 1997 Units. Each 1997 Unit consisted of (i) one
1997 Bridge Note; (ii) 5,000 1997 Bridge Shares; and (iii) 25,000 1997 Bridge
Warrants. The purchase price per 1997 Unit was $50,000. The Company received
gross proceeds of $1,250,000 from the sale of the 1997 Private Placement. After
payment of $125,000 in placement fees to Whale Securities, LP, the underwriting
firm ("Whale"), which acted as placement agent for the Company with respect to
the 1997 Private Placement, and other offering expenses of approximately
$105,000, the Company received net proceeds of approximately $1,020,000 in
connection with the 1997 Private Placement. The net proceeds from the 1997
Private Placement were used in connection with the Company's operations,
including to fund the Company's research and development efforts, to fund its
sales and marketing activities, to repay certain outstanding obligations, and
for working capital and general corporate purposes. It was anticipated that the
Company would shortly thereafter undertake an initial public offering
underwritten by Whale pursuant to a letter of intent between the Company and
Whale. However, Whale eventually declined to underwrite the initial public
offering, and in July of 1997, the Company commenced exploration of alternative
financing arrangements. In connection with that initiative, the Company retained
Beter as a consultant to work with the Company to obtain new financing. During
the course of the Company's discussions with Beter and a number of the
prospective underwriters, it became evident that the structure of the 1997
Private Placement was an impediment to additional financing. In order to meet
the requirements for the Company to undertake a best efforts initial public
offering to be underwritten by the Underwriter, it was necessary for the Company
to redeem the 1997 Units. The Company entered into a series of option agreements
dated November 19, 1997 to purchase the 1997 Units sold to investors for an
aggregate of $1,250,000 in the 1997 Private Placement. The 1997 Units were
redeemed with a portion of the net proceeds from the 1998 Private Placement.

In January 1997, in connection with the 1997 Private Placement, the Company
borrowed from Messrs. Perl, Rothstein and Roncari $175,000 and issued to them
1997 Bridge Notes in such aggregate principal amount, an aggregate of 17,500
1997 Bridge Shares and 87,500 1997 Bridge Warrants. Such 1997 Bridge Notes, 1997
Bridge Shares and 1997 Bridge Warrants were repurchased by the Company as part
of the 1998 Private Placement.

In July 1997, the Company entered into a letter agreement with Beter to
arrange alternative financing for the Company, including an initial public
offering of approximately $5.0 million, which was modified to a minimum/maximum
offering of $5.0 million minimum and $7.14 million maximum. Under the agreement,
the Company may offer subsequent debt financing of up to $30 million negotiated
by Beter. At the closing of such debt financing, Beter would be granted a
warrant to acquire 100,000 shares of Common Stock at an exercise price equal to
eighty percent (80%) of the fair market value of the Common Stock at the date of
exercise. Such warrant shall have a term of five years. Also pursuant to the
agreement, Beter

has the right to designate one member of the Company's Board of Directors. Ms.
Beter presently fills such position. Upon fulfillment of its obligations, Beter
shall have a right of first refusal with respect to future debt placements by
the Company in excess of $6.0 million until July 2002.

Between July 1997 and Janaury 1998, Messrs. Rothstein, Roncari, and Perl
provided a portion of the Stockholder Loans to the Company in the amounts of
$460,000, $320,000, and $15,000, respectively. These loans were to provide the
Company working capital and cover costs associated with this Offering, and are
to be repaid from the proceeds of subsequent debt financing, but in no event
later than January 1, 2001. In addition, various employees of the Company have
deferred salary totaling approximately $440,000 as of March 31, 1998. Such
employees continue to defer salaries and such deferred salary amounts are to be
paid, together with interest at ten percent (10%), in two parts, $50,000 at the
closing of the minimum offering and the remainder, estimated to be $550,000 as
of July 31, 1998, from the proceeds of the maximum offering, but in no event
later than January 1, 2001.

In March 1998, the Company entered into the 1998 Private Placement, through
which the Company completed the sale to fourteen private investors (including
certain officers and directors of the Company) of 30 Units, each Unit consisting
of (i) one Bridge Note; (ii) 2,500 Bridge Shares; and (iii) 2,500 Bridge
Warrants. The purchase price per Unit was $50,000. The Company received gross
proceeds of $1,500,000 from the sale of such Units. After payment of
approximately $10,000 in costs associated with the 1998 Private Placement, the
Company received net proceeds of approximately $1,490,000 in connection with the
1998 Private Placement. Approximately $1,345,000 of the net proceeds was used to
exercise certain options to repurchase securities sold in the 1997 Private
Placement. Some holders of the 1997 Units chose to invest in the 1998 Private
Placement and defer all interest due them from the 1997 Units; such holders
included Lawrence O. Perl, the Company's Chairman of the Board, Chief Executive
Officer and Chief Financial Officer, Raymond A. Roncari, a director of the
Company, Harold Rothstein, a director of the Company and Bruce R. Bonadies, a
director of the Company. The balance of the net proceeds are being used for
working capital and general corporate purposes, as well as to fund some expenses
of this Offering.

In conjunction with the closing of the 1998 Private Placement, the Company
issued 25,000 shares of Common Stock and the Chapman Option to Chapman Group
LLC, a company affiliated with Cohn & Birnbaum P.C., general counsel to the
Company. These shares and options were issued in partial consideration for
services rendered by Cohn & Birnbaum P.C. from the date of the Company's
inception through the closing of an IPO by the Company and in consideration for
the deferral of fees at different times during such same time period.

In conjunction with the closing of the 1998 Private Placement, the Company
entered into Director Loan Agreements with each of Harold Rothstein and Raymond
A. Roncari pursuant to which Messrs. Rothstein and Roncari each committed to
loan $450,000 (for a total of $900,000) to the Company to be used for working
capital and certain costs of the anticipated IPO. These amounts, together with
approximately $155,000 of the proceeds of the 1998 Private Placement, were used
to fund certain costs of this Offering, and provide required working capital. In
consideration for this commitment, Messrs. Rothstein and Roncari were each
granted 12,500 shares of Common Stock of the Company and 12,500 Commitment
Warrants. Pursuant to each Director Loan Agreement, the Company has the right to
draw down advances from each of Messrs. Rothstein and Roncari (each a "Director
Lender") as funds are required and the Director Lender is obligated to so
advance funds within three (3) business days of any such request. Any amounts
advanced will bear interest at a rate of ten percent (10%) per annum. All
amounts so advanced, together with accrued interest thereon, will be due and
payable in full on the earlier of (i) January 1, 2001, or (ii) the closing of
subsequent debt financing.

In May 1998, the Company entered into an Underwriting Agreement with the
Underwriter pursuant to which the Underwriter will be granted the Underwriter's
Option upon closing of the minimum offering.

As of May 1, 1998, the Perl Trust and the Rothstein Trust each entered into
a voting trust agremeent with Bruce R. Bonadies and Lilly Beter, respectively,
pursuant to which Mr. Bonadies and Ms. Beter were

appointed voting trustees with respect to the 480,035 shares held by the Perl
Trust and the 587,778 shares held by the Rothstein Trust, respectively. Pursuant
to the voting trust agreement, Mr. Bonadies and Ms. Beter are empowered to vote
these shares as voting trustees until April 30, 1999.

Although the Company believes that the foregoing transactions were on terms
no less favorable to the Company than would have been available from
unaffiliated third parties in arm's length transactions, there can be no
assurance that this is the case. All future transactions and loans between the
Company and its officers, directors and 5% stockholders will be on terms no less
favorable to the Company than could be obtained from independent third parties.
There can be no assurance, however, that future transactions or arrangements
between the Company and its affiliates will be advantageous, that conflicts of
interest will not arise with respect thereto or that if conflicts do arise, they
will be resolved in favor of the Company.

DESCRIPTION OF SECURITIES

GENERAL

Upon completion of this Offering, the authorized capital stock of the
Company will consist of (i) if the minimum offering is reached, 20,000,000
shares of Common Stock, $.001 par value per share, of which 2,819,200 shares
will be outstanding and 1,000,000 shares of Preferred Stock, $.001 par value per
share, of which no shares will be outstanding, or (ii) if the maximum offering
is reached, 20,000,000 shares of Common Stock, $.001 par value per share, of
which 2,945,000 shares will be outstanding and 1,000,000 shares of Preferred
Stock, $.001 par value per share, of which no shares will be outstanding. The
following description of the securities of the Company and certain provisions of
the Certificate and By-Laws is a summary and, while all material provisions are
included, the following description is qualified in its entirety by the
provisions of the Certificate and By-Laws as currently in effect.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Certificate does not provide
for cumulative voting for the election of directors. Holders of Common Stock
will be entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board out of funds legally available therefor, and will
be entitled to receive, pro rata, all assets of the Company available for
distribution to such holders upon liquidation. Holders of Common Stock have no
preemptive, subscription or redemption rights. The rights of the holders of the
Common Stock are subject to any rights that may be fixed for holders of
Preferred Stock, when and if any Preferred Stock is issued. All of the
outstanding shares of Common Stock are fully paid and non-assessable. Upon
issuance, all of the shares of Common Stock offered hereby will be fully paid
and nonassessable.

PREFERRED STOCK

The Company is authorized to issue 1,000,000 shares of Preferred Stock from
time to time in one or more series, which may rank senior to the Common Stock
with respect to payment of dividends and in the event of the liquidation,
dissolution or winding up of the Company. The Board has the power, without
stockholder approval, to issue shares of one or more series of Preferred Stock,
at any time, for such consideration and with such relative rights, privileges,
preferences and other terms as the Board may determine (including, but not
limited to, terms relating to dividend rates, redemption rates, liquidation
preferences and voting, sinking fund and conversion or other rights). The rights
and terms relating to any new series of Preferred Stock could adversely affect
the voting power or other rights of the holders of the Common Stock or could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company.

WARRANTS ISSUED IN 1998 PRIVATE PLACEMENT

The Bridge Warrants and Commitment Warrants issued in connection with the
1998 Private Placement (collectively, the "Warrants") will be exercisable at any
time commencing on March 3, 1999 through and including March 3, 2003 at a price
per share of eighty percent (80%) of the per share market price of the Common
Stock on the exercise date, subject to adjustment. The Warrants provide that,
upon exercise, in lieu of a cash payment, the Warrants to be exercised may be
exchanged for a number of the warrant shares underlying the warrants (the
"Warrant Shares") equal to (a) the total number of Warrant Shares issuable upon
exercise of such Warrants for cash minus (b) a number of Warrant Shares equal to
the quotient of (i) the aggregate exercise price of the exercised Warrants,
divided by (ii) the then current market price of a share of the Company's Common
Stock.

The Warrants are redeemable by the Company at any time commencing on March
3, 2000, upon notice of not less than 30 days, at a price of $.10 per Warrant,
provided that the closing bid quotation of the Common Stock on all 20 trading
days ending on the third day prior to the date on which the Company gives notice
has been at least $18.00. The Warrants will be exercisable until the close of
business on the date fixed for redemption.

REGISTRATION RIGHTS

In connection with the 1998 Private Placement, the Company has agreed to
grant certain "piggyback" registration rights in connection with the Bridge
Shares and the Bridge Warrants and the Commitment Shares and Commitment
Warrants.

The Company has also agreed to include the Bridge Shares and the shares
underlying the Bridge Warrants (the "Bridge Warrant Shares") in any registration
statement (the "Post-IPO Registration Statement") which the Company prepares and
files with the Commission on a date following the one-year anniversary of the
closing of this Offering so as to permit the public trading of the Bridge Shares
and Bridge Warrant Shares pursuant thereto, subject to customary underwriter
cutbacks. Notwithstanding the foregoing, the holders of the Bridge Shares and
the Bridge Warrant Shares must agree not to sell any of such securities at least
until the expiration of any applicable holding period established by the NASD
and/ or any of the various state securities commissions in those states where
the anticipated IPO will be effected.

The Company shall bear all fees and expenses incurred in the preparation and
filing of the Post-IPO Registration Statement.

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW

The Company is a Delaware corporation and thus subject to Section 203 of the
DGCL ("Section 203"), which is generally viewed as an anti-takeover statute. In
general, Section 203 prohibits a publicly traded Delaware corporation from
engaging in any "business combination" (as defined) with any "interested
stockholder" (as defined) for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least eighty-five percent (85%) of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (a)
by persons who are directors and also officers and (b) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) at or subsequent to such time, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of the stockholders, and not by written consent,

by the affirmative vote of at least 66% of the outstanding voting stock which is
not owned by the interested stockholder.

In general, Section 203 defines a "business combination" to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition involving the
interested stockholder of ten percent (10%) or more of the assets of the
corporation; (iii) (subject to certain exceptions) any transaction which results
in the issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder; (iv) any transaction involving the corporation
which has the effect of increasing the proportionate share of the stock of any
class or series of the corporation beneficially owned by the interested
stockholder; or (v) the receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation. In general, Section 203 defines an "interested
stockholder" as (a) any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation or (b) any entity or person
affiliated with or controlling or controlled by such entity or person.

The existence of Section 203 would be expected to have the effect of
discouraging takeover attempts involving the Company, including attempts that
might result in a premium over the market price of the Common Stock (if it is
then publicly traded).

TRANSFER AGENT AND REGISTRAR

The Company's Transfer Agent and Registrar is The Bank of New York.

REPORTS TO STOCKHOLDERS

The Company intends to file, prior to the date of this Prospectus, an
application with the Commission to register the Common Stock under the
provisions of Section 12(g) of the Exchange Act. The Company has agreed with the
Underwriter that the Company will use its best efforts to continue to maintain
such registration. Such registration will require the Company to comply with
periodic reporting, proxy solicitation and certain other requirements of the
Exchange Act.

SHARES ELIGIBLE FOR FUTURE SALE

From the proceeds of this Offering, assuming no exercise of the
Underwriter's over-allotment option, the Company will have 2,819,200 shares of
Common Stock outstanding if the minimum offering is reached and 2,945,000 shares
of Common Stock outstanding if the maximum offering is reached, of which the
minimum 294,200 and maximum 420,000 shares of Common Stock offered herein by the
Company will be freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by an affiliate of the
Company (in general, a person who has a control relationship with the Company),
which shares will be subject to the resale limitations of Rule 144 under the
Securities Act. All of the remaining 2,525,000 shares of Common Stock are deemed
to be "restricted securities," as that term is defined under Rule 144
promulgated under the Securities Act, and in the future may only be sold
pursuant to a registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144 or pursuant to another exemption under
the Securities Act. The 2,525,000 restricted shares of Common Stock will become
eligible for sale under Rule 144, subject to the volume limitations prescribed
by Rule 144 and to the contractual restrictions described below, at various
times commencing 90 days from the date of this Prospectus.

In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated), who has owned restricted
shares of Common Stock beneficially for at least one year is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of 1% of the total number of outstanding shares of the same class or, if
the shares of Common Stock are quoted on Nasdaq, the average weekly trading
volume during the four calendar weeks preceding the sale. A person who has not
been an affiliate of the Company for at least the three months immediately
preceding the sale and who has beneficially owned shares of Common Stock for at
least one year is entitled to sell such shares under Rule 144 without regard to
any of the limitations described above.

The Company shall grant the Underwriter "piggyback" registration rights with
respect to the Underwriter's Option and the shares of Common Stock and Warrants
underlying the Underwriter's Option. The Company has also granted certain
"piggyback" registration rights to the holders of 125,000 shares of Common Stock
and the 150,000 shares of Common Stock underlying the Warrants and the Chapman
Option.

Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such shares after the 90th day following the date of this Prospectus 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 public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period.

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

UNDERWRITING

In May 1998, the Company entered into an Underwriting Agreement with the
Underwriter to underwrite this Offering on a best efforts basis. The Underwriter
has agreed, subject to the terms and conditions of the Underwriting Agreement,
to use its best efforts to sell the shares as the Company's agent. The
Underwriter will offer the shares on a "best efforts" basis, and has made no
firm commitment to purchase any of the shares.

The maximum number of shares to be offered, excluding over-allotment shares,
will be 420,000 shares, which if sold at the offering price will generate
proceeds to the Company, net of sales commissions, in the approximate amount of
$6,426,000. The minimum number of shares to be sold is 294,200, which if sold at
the offering price, would generate proceeds to the Company, net of sales
commissions, in the approximate amount of $4,501,260.

All funds received by the Underwriter with respect to the first 294,200
shares will be deposited with The Bank of New York as Escrow Agent. In the event
294,200 shares are not sold within 180 days from the commencement of this
Offering the funds in escrow will be refunded to the subscribers in full without
deductions and without interest. The shares are to be sold fully paid only.
Stock certificates will be issued to purchasers only if the proceeds from the
sale of 294,200 shares are released to the Company. Until such time as the funds
have been released from escrow and the certificates delivered to the purchasers
thereof, the purchasers will be deemed subscribers only and not shareholders.

The Underwriter is to receive a cash commission of $1.70 per share sold. In
addition, the Company has deposited with the Underwriter $25,000 to fund all
anticipated expenses of this Offering. In addition,

pursuant to the Underwriting Agreement, the Underwriter will be granted, upon
closing of this Offering, the Underwriter's Option, a five year option to
purchase 100,000 shares of Common Stock of the Company at a per share price
equal to eighty percent (80%) of the market price of the Common Stock at the
time of exercise. The Company shall grant the Underwriter "piggyback"
registration rights with respect to the Underwriter's Option and the shares of
Common Stock and Warrants underlying the Underwriter's Option.

The Company has granted to the Underwriter an option to purchase up to an
additional 42,000 shares of Common Stock at the same price per share as the
Company is receiving for the shares offered hereby. The Underwriter may exercise
this option only to cover over-allotments in the sale of the shares offered
hereby. To the extent the Underwriter exercises its option, these shares will be
offered to the public at the same per share price to the public set forth on the
cover page of this Prospectus, and the total price to the public, underwriting
discounts and commissions and proceeds to the Company will be increased
accordingly.

The obligations of the Underwriter are subject to certain terms and
conditions set forth in the Underwriting Agreement, including the right of the
Underwriter to terminate the Underwriting Agreement under the conditions and
circumstances set forth therein.

The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.

Prior to the Offering made hereby, there has been no public market for the
Common Stock. Accordingly, the initial public offering price has been determined
by negotiation between the Company and the Underwriter and is not necessarily
related to the Company's asset value, net worth or other criteria of value.
There can be no assurance that a regular trading market for the Common Stock
will develop after this Offering or that, if developed, it will be sustained.
The market price for the Company's securities following this Offering may be
highly volatile, as has been the case with the securities of other small
capitalization companies. The factors considered in determining the offering
price included an evaluation by management of the history of and prospects for
the industry in which the Company competes and the prospects for earnings of the
Company. Factors such as the Company's financial results, announcements of
developments related to the Company's business and the introduction of products
and product enhancements by the Company or its competitors may have a
significant impact on the market price of the Company's securities.
Additionally, in recent years, the stock market in general, and the market for
securities of small capitalization stocks in particular, have experienced wide
price fluctuations which have often been unrelated to the operating performance
of such companies.

The Underwriter expects to register this Offering in a limited number of
states, which action may limit or prohibit possible resale of the Common Stock
in certain states in which the Offering is not registered.

Under the terms of the Underwriting Agreement, the Company may not enter
into any securities offering for a period of one year without the prior written
consent of the Underwriter. The Underwriter has granted the Company written
consent to pursue up to $30 million in any subsequent debt financing negotiated
by Beter.

The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. The Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by the Law Offices of Bartz & Bartz, Southdale Office Centre, 6750
France Avenue South, Suite 350, Edina, Minnesota 55435. The validity of the
Common Stock offered hereby will be passed upon by the Underwriter by its
internal counsel.

The Company is represented in general corporate matters by Cohn & Birnbaum
P.C., 100 Pearl Street, Hartford, Connecticut 06103-4500.

EXPERTS

The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report (which contains an explanatory
paragraph regarding uncertainties about the Company continuing as a going
concern) appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form SB-2, including
amendments thereto, under the Securities Act with respect to the securities
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules filed
therewith. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to such Registration Statement, exhibits
and schedules. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, each such statement being qualified in all respects by such reference.
The Registration Statement, and the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices of the Commission:
13th Floor, Seven World Trade Center, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained form the Public Reference Section of the
Commission, Washington, D.C. at prescribed rates. The Commission also maintains
a Web site at http://www.sec.gov that contains reports, proxy and information
statements. Such reports and other information may also be inspected at NASDAQ,
1735 K Street, N.W., Washington, D.C. 20006.

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED YEARS ENDED DECEMBER 31, 1996 AND 1997
PERIODS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED) AND
PERIOD FROM JUNE 21, 1994 (INCEPTION) TO MARCH 31, 1998 (UNAUDITED)

F-1

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

CONTENTS
-------------

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS................................................. F-3

FINANCIAL STATEMENTS:

Balance sheets................................................................................... F-4

Statements of operations......................................................................... F-5

Statements of stockholders' deficit.............................................................. F-6

Statements of cash flows......................................................................... F-7 - F-8

Summary of significant accounting policies....................................................... F-9 - F-11

Notes to financial statements.................................................................... F-12 - F-16

F-2

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors

American Card Technology, Inc.

We have audited the accompanying balance sheet of American Card Technology,
Inc. (a development stage company) as of December 31, 1997, and the related
statements of operations and cash flows for the years ended December 31, 1996
and 1997 and the statements of stockholders' deficit for each of the years
(period) from June 21, 1994 (inception) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly,
in all material respects, the financial position of American Card Technology,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the years ended December 31, 1996 and 1997 in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's dependence on outside financing, lack of
existing commitments from lenders to provide necessary financing, lack of
sufficient working capital, and losses since inception raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

BDO Seidman, LLP

New York, New York
March 10, 1998

F-3

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

DECEMBER 31, MARCH 31,
1997 1998
------------- -------------

(UNAUDITED)
ASSETS
CURRENT:
Cash.............................................................................. $ 27,203 $ 155,437
Accounts receivable............................................................... 6,730 26,603
Inventory......................................................................... 3,918 1,735
Prepaid expenses and other current assets......................................... 11,657 20,708
Deferred financing costs.......................................................... 28,228 68,425
------------- -------------
TOTAL CURRENT ASSETS............................................................ 77,736 272,908

EQUIPMENT, NET OF ACCUMULATED DEPRECIATION OF $69,692 AND $78,538................... 91,405 89,306
OTHER ASSETS:
Software development costs, net................................................... 188,913 170,022
Deferred registration and debt costs.............................................. 228,911 350,633
Other............................................................................. 7,571 7,571
------------- -------------
$ 594,536 $ 890,440
------------- -------------
------------- -------------

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT:
Accounts payable.................................................................. $ 398,397 $ 583,833
Accrued interest expense.......................................................... 310,154 293,933
Accrued salary and benefits....................................................... 369,126 503,393
Other accrued expenses............................................................ 42,620 56,337
Notes payable to banks (Note 2)................................................... 600,000 600,000
Bridge financing notes payable (Note 4(a))........................................ 1,239,063 --
------------- -------------
TOTAL CURRENT LIABILITIES....................................................... 2,959,360 2,037,496
NOTES PAYABLE TO STOCKHOLDERS (NOTE 3).............................................. 1,184,956 1,579,956

BRIDGE FINANCING NOTES PAYABLE (NOTE 4(B)).......................................... -- 1,250,000
------------- -------------
TOTAL LIABILITIES............................................................... 4,144,316 4,867,452
------------- -------------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 5 AND 7)
STOCKHOLDERS' DEFICIT (NOTE 8):
Preferred stock, $.001 par value--shares authorized 1,000,000; none issued
Common stock, $.001 par value--shares authorized 20,000,000; issued and
outstanding 2,625,000 and 2,525,000............................................. 2,625 2,525
Additional paid-in capital........................................................ 1,670,875 2,245,975
Stock subscriptions receivable.................................................... (30,000) (5,000)
Accumulated deficit during the development stage.................................. (5,193,280) (6,220,512)
------------- -------------
TOTAL STOCKHOLDERS' DEFICIT..................................................... (3,549,780) (3,977,012)
------------- -------------
$ 594,536 $ 890,440
------------- -------------
------------- -------------

See accompanying summary of significant accounting policies and notes to
financial statements.

F-4

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

PERIOD FROM
JUNE 21, 1994
YEAR ENDED THREE MONTHS ENDED (INCEPTION)
DECEMBER 31, MARCH 31, TO
---------------------------- ---------------------------- MARCH 31,
1996 1997 1997 1998 1998
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)

REVENUES.............................. $ 27,034 $ 76,912 $ -- $ 59,589 $ 237,007
COST OF SALES......................... 16,279 86,995 -- 74,507 246,402
------------- ------------- ------------- ------------- -------------
GROSS PROFIT (LOSS)................. 10,755 (10,083) -- (14,918) (9,395)
------------- ------------- ------------- ------------- -------------
EXPENSES:
General and administrative.......... 919,546 1,176,885 331,311 554,587 3,739,792
Research development................ 167,000 260,000 55,000 174,000 781,000
Write-off of license fee (Note 5)... 20,000 -- -- -- 168,000
Interest and financing costs, net
(Notes 2 and 3)................... 129,126 1,065,240 100,070 283,727 1,522,325
------------- ------------- ------------- ------------- -------------
1,235,672 2,502,125 486,381 1,012,314 6,211,117
------------- ------------- ------------- ------------- -------------
NET LOSS.............................. $ (1,224,917) $ (2,512,208) $ (486,381) $ (1,027,232) $ (6,220,512)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
BASIC LOSS PER SHARE.................. $ (.54) $ (.96) $ (.19) $ (.40)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING......................... 2,269,671 2,615,343 2,585,833 2,562,167
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

See accompanying summary of significant accounting policies and notes to
financial statements.

F-5

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' DEFICIT

PERIOD FROM JUNE 21, 1994 (INCEPTION) TO MARCH 31, 1998
----------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL STOCK DEFICIT DURING
--------------------- PAID-IN SUBSCRIPTIONS THE DEVELOPMENT
SHARES AMOUNT CAPITAL RECEIVABLE STAGE TOTAL
---------- --------- ------------- ------------ --------------- -------------

Issuance of shares to founders............... 2,030,000 $ 2,030 $ (1,030) $ (250) $ -- $ 750
Net loss..................................... -- -- -- -- (434,545) (434,545)
---------- --------- ------------- ------------ --------------- -------------
BALANCE, DECEMBER 31, 1994................... 2,030,000 2,030 (1,030) (250) (434,545) (433,795)
Capital contribution (conversion of loan).... -- -- 500,000 -- -- 500,000
Net loss..................................... -- -- -- -- (1,021,610) (1,021,610)
---------- --------- ------------- ------------ --------------- -------------
BALANCE, DECEMBER 31, 1995................... 2,030,000 2,030 498,970 (250) (1,456,155) (955,405)
Issuance of shares........................... 120,000 120 29,880 (30,000) -- --
Issuance of shares for debt.................. 240,000 240 329,760 -- -- 330,000
Net loss..................................... -- -- -- -- (1,224,917) (1,224,917)
Receipt of stock subscriptions............... -- -- -- 250 -- 250
---------- --------- ------------- ------------ --------------- -------------
BALANCE, DECEMBER 31, 1996................... 2,390,000 2,390 858,610 (30,000) (2,681,072) (1,850,072)
Shares and warrants issued in connection with
the first bridge financing (Note 4(a))..... 125,000 125 262,375 -- -- 262,500
Issuance of shares for debt.................. 110,000 110 549,890 -- -- 550,000
Net loss..................................... -- -- -- -- (2,512,208) (2,512,208)
---------- --------- ------------- ------------ --------------- -------------
BALANCE, DECEMBER 31, 1997................... 2,625,000 2,625 1,670,875 (30,000) (5,193,280) (3,549,780)
Period ended March 31, 1998 (unaudited)
Forfeiture of shares......................... (100,000) (100) (24,900) 25,000 -- --
Shares and warrants redeemed in connection
with the first bridge financing (Note
4(a))...................................... (125,000) (125) 125 -- -- --
Shares and warrants issued in connection with
second bridge financing (Note 4(b))........ 75,000 75 299,925 -- -- 300,000
Issuance of shares for services rendered..... 25,000 25 199,975 -- -- 200,000
Issuance of shares for loan commitment....... 25,000 25 99,975 -- -- 100,000
Net loss..................................... -- -- -- -- (1,027,232) (1,027,232)
---------- --------- ------------- ------------ --------------- -------------
BALANCE, MARCH 31, 1998 (UNAUDITED).......... 2,525,000 $ 2,525 $ 2,245,975 $ (5,000) $ (6,220,512) $ (3,977,012)
---------- --------- ------------- ------------ --------------- -------------
---------- --------- ------------- ------------ --------------- -------------

See accompanying summary of significant accounting policies and notes to
financial statements.

F-6

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

PERIOD FROM
THREE MONTHS ENDED JUNE 21, 1994
YEAR ENDED DECEMBER 31, MARCH 31, (INCEPTION)
------------------------ ---------------------- TO MARCH 31,
1996 1997 1997 1998 1998
----------- ----------- --------- ----------- -------------
(UNAUDITED) (UNAUDITED)

CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss......................... $(1,224,917) $(2,512,208) $(486,381) $(1,027,232) $ (6,220,512)
----------- ----------- --------- ----------- -------------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and
amortization................. 23,541 71,726 6,077 28,136 135,211
Amortization of deferred
financing costs.............. -- 220,417 95,833 23,278 243,695
Issuance of debt for services
rendered..................... -- -- -- -- 72,774
Issuance of stock for services
rendered..................... -- -- -- 200,000 200,000
Issuance of stock for loan
commitment................... -- -- -- 100,000 100,000
Deferred registration costs
written off.................. -- 352,966 -- -- 352,966
Amortization of bridge
financing discount........... -- 251,563 54,688 60,937 312,500
Changes in assets and
liabilities:
(Increase) decrease in
assets:
Accounts receivable........ -- (6,730) -- (19,873) (26,603)
Inventory.................. (1,813) (855) (12,539) 2,183 (1,735)
Prepaid expenses and other
current assets........... 5,676 (6,558) (20,236) (9,051) (20,708)
Other assets............... (6,991) 1,390 -- -- (7,571)
Increase (decrease) in
liabilities:
Accounts payable........... 320,810 942 (173,966) 185,436 583,833
Accrued expenses........... 219,391 458,850 53,505 131,763 883,663
----------- ----------- --------- ----------- -------------
TOTAL ADJUSTMENTS........ 560,614 1,343,711 3,362 702,809 2,828,025
----------- ----------- --------- ----------- -------------
NET CASH USED IN
OPERATING ACTIVITIES... (664,303) (1,168,497) (483,019) (324,423) (3,392,487)
----------- ----------- --------- ----------- -------------

See accompanying summary of significant accounting policies and notes to
financial statements.

F-7

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER THREE MONTHS ENDED PERIOD FROM
31, MARCH 31, JUNE 21, 1994
--------------------- ----------------------- (INCEPTION) TO
1996 1997 1997 1998 MARCH 31, 1998
--------- ---------- ---------- ----------- --------------
(UNAUDITED) (UNAUDITED)

CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures............. $ (23,980) $ (78,231) $ (30,048) $ (7,146) $ (167,842)
Software development costs....... (110,152) (21,936) (10,968) -- (226,696)
--------- ---------- ---------- ----------- --------------
NET CASH USED IN INVESTING
ACTIVITIES................... (134,132) (100,167) (41,016) (7,146) (394,538)
--------- ---------- ---------- ----------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock......... 250 -- -- -- 1,000
Deferred registration
costs--original................ (200,711) (152,255) (29,289) -- (352,966)
Deferred registration
costs--current................. -- (228,912) (249,720) (121,721) (350,633)
Deferred financing costs......... -- (248,644) -- (63,476) (312,120)
Borrowings on line of credit..... 600,000 -- -- -- 600,000
Proceeds from the issuance of
notes to stockholders.......... 388,931 685,000 -- 417,500 2,889,681
Payments on notes to
stockholders................... -- (10,000) -- (22,500) (32,500)
Payments on bridge financing..... -- -- -- (1,250,000) (1,250,000)
Proceeds from the issuance of
bridge financing............... -- 1,250,000 1,250,000 1,500,000 2,750,000
--------- ---------- ---------- ----------- --------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES................... 788,470 1,295,189 970,991 459,803 3,942,462
--------- ---------- ---------- ----------- --------------
NET INCREASE (DECREASE) IN CASH.... (9,965) 26,525 446,956 128,234 155,437
CASH, BEGINNING OF PERIOD.......... 10,643 678 678 27,203 --
--------- ---------- ---------- ----------- --------------
CASH, END OF PERIOD................ $ 678 $ 27,203 $ 447,634 $ 155,437 $ 155,437
--------- ---------- ---------- ----------- --------------
--------- ---------- ---------- ----------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest....................... $ 12,578 $ 53,076 $ 11,890 $ 105,570 $ 183,114
--------- ---------- ---------- ----------- --------------
--------- ---------- ---------- ----------- --------------
Income taxes................... $ -- $ -- $ -- $ -- $ --
--------- ---------- ---------- ----------- --------------
--------- ---------- ---------- ----------- --------------

SUPPLEMENTAL NONCASH INVESTING AND FINANCING INFORMATION:
Loans totaling $500,000 were converted into capital contributions in 1995.
Notes receivable for $30,000 were obtained in 1996 in connection with the issuance of common
stock.
Loans payable of $300,000 and accrued interest of $30,000 were extinguished in 1996 with the
issuance of common stock.
Loans payable of $550,000 were extinguished in 1997 with the issuance of common stock.
Notes receivable of $25,000 were cancelled in 1998 upon forfeiture of common stock.

See accompanying summary of significant accounting policies and notes to
financial statements.

F-8

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

ORGANIZATION AND BUSINESS

The financial statements include the accounts of American Card Technology,
Inc. (a development stage company) (the "Company") and its majority-owned
Canadian subsidiary, which was formed in June 1996 and whose results of
operations have been immaterial through March 31, 1998. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company, a Delaware corporation, was incorporated on June 21, 1994 to
design, develop and market high security, flexible multiple application smart
card systems.

The Company is in the development stage and its activities to date have been
limited to organizational activities including developing a business plan,
hiring personnel and developing and enhancing its proprietary smart card
technology and software, and it has only recently commenced the limited
marketing of its smart card systems. Revenues to date, which have been received
from few customers, have been immaterial.

Certain stock splits were effected in 1996 (see Note 8) and reflected
retroactively in these financial statements.

REVENUE RECOGNITION

The Company recognizes revenue upon the shipment of products or the
performance of services.

USE OF ESTIMATES

In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, accounts payable, accrued expenses, short-term
notes payable to banks and the bridge financings approximate fair value because
of the short-term nature of these items. It was not considered practical to
determine the current fair value of the notes payable to stockholders and
affiliates.

EQUIPMENT

Equipment is stated at cost, less accumulated depreciation. Depreciation is
computed over the estimated useful lives (3 to 5 years) of the assets using
declining balance methods.

INCOME TAXES

The Company was an S corporation and, accordingly, income or losses were not
subject to corporate income taxes, rather the amounts of taxable income or loss
were passed through to its stockholders.

F-9

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

INCOME TAXES (CONTINUED)
In connection with the formation of a Canadian subsidiary in June 1996, the
Company became a C corporation. No taxes resulted from this change in tax
status. Deferred tax assets and/or liabilities are recorded for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting basis of assets and liabilities. At December 31, 1997,
deferred tax assets of approximately $1,200,000 relating primarily to net
operating losses of approximately $2,741,000 (and which expire through 2012),
have been offset by a valuation reserve since the utilization of this asset
cannot be determined.

SOFTWARE DEVELOPMENT COSTS

Software development costs for products and certain product enhancements are
capitalized subsequent to the establishment of their technological feasibility
(as defined in Statement of Financial Accounting Standards ("SFAS") No. 86)
based upon the existence of working models of the products which are ready for
initial customer testing. Costs incurred prior to such technological feasibility
or subsequent to a product's general release to customers are expensed as
incurred. During 1995, the technological feasibility of the Company's basic
products was established and the Company incurred and capitalized costs totaling
$226,696 through June 30, 1997. Amortization of these costs commenced on July 1,
1997 and these costs are being amortized over 3 years. Amortization expense is
included in cost of sales and for the year ended December 31, 1997 and the three
months ended March 31, 1998 totalled $38,000 and $19,000, respectively.

DEFERRED COSTS

Costs associated with the first bridge financing described in Note 4(a) were
deferred and are being amortized, commencing in January 1997, over the life of
the debt (one year).

Costs associated with the second bridge financing described in Note 4(b)
have been deferred and are being amortized, commencing in February 1998, over
the anticipated life of the debt (six months).

Costs associated with an earlier planned initial public offering (totaling
$352,996) were written off in 1997 when the offering did not occur and are
included in interest and financing costs, net.

Costs associated with the Company's currently planned initial public
offering have been deferred and will be charged to equity upon the successful
closing of the offering or written off to expense if the offering is not
successful. Costs associated with the Company's planned debt offering have been
deferred and will be amortized over the life of the debt upon closing or
written-off to expense if the offering is not successful.

LOSS PER COMMON SHARE

Effective for the year ended December 31, 1997, the Company adopted SFAS No.
128, "Earnings Per Share" ("SFAS 128"). In accordance with SFAS 128, the Company
is required to provide basic and dilutive loss per common share information.

The basic loss per common share is computed by dividing the net loss
available to common shareholders by the weighted average number of common shares
outstanding.

F-10

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

LOSS PER COMMON SHARE (CONTINUED)
Diluted loss per common share is computed by dividing the net loss available
to common shareholders, adjusted on an as-if-converted basis, by the weighted
average number of common shares outstanding plus potential dilutive securities.

For the years ended December 31, 1996 and 1997 and the three months ended
March 31, 1997 and 1998, potential dilutive securities had an anti-dilutive
effect and, accordingly, were not included in the calculation of diluted loss
per common share. The assumed exercise of options and warrants may impact
diluted earnings per common share in future periods.

The adoption of SFAS 128 had no effect on net loss per common share for the
year ended December 31, 1996, accordingly, no restatement was necessary.

LONG-LIVED ASSETS

Long-lived assets are evaluated for impairment when events or changes in
circumstances indicate that the carrying amounts of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to their fair value. This policy is in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of",
which became effective for fiscal 1996. No write-downs have been necessary
through March 31, 1998.

UNAUDITED INTERIM FINANCIAL STATEMENTS

In the opinion of the Company's management, the balance sheet as of March
31, 1998, the statements of operations and cash flows for the three months ended
March 31, 1997 and 1998 (and the period from inception to March 31, 1998), and
the statement of stockholders' deficit for the three months ended March 31, 1998
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the information set forth therein. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results for the year ending December 31, 1998.

F-11

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of operations. Since inception, the Company has been involved
in organizational activities. The Company's ultimate ability to attain
profitable operations is dependent upon obtaining additional financing adequate
to complete its development activities, and to achieve a level of sales adequate
to support its cost structure. Through December 31, 1997, the Company has
incurred losses totaling $5,193,280 and, at December 31, 1997, has deficiencies
in working capital and equity of $2,881,624 and $3,549,780, respectively. These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

In 1996, the Company entered into a letter of intent with an underwriter for
a private placement of debt and equity securities and a subsequent initial
public offering of equity securities. In January 1997, a private placement was
consummated (see Note 4(a)) and the Company received gross proceeds of
$1,250,000. Certain debt was converted to equity upon consummation of this
private placement (see Note 8). The initial public offering did not occur as
originally planned, and all costs previously deferred in connection with that
offering were written off.

In February 1998, a second private placement was consummated (see Note 4(b))
and the Company utilized substantially all of the gross proceeds of $1,500,000
to redeem the debt incurred and accrued interest thereon from the January 1997
private placement. The Company is currently attempting to raise capital from
various sources including an anticipated initial public offering ("IPO") and a
debt offering. In 1997, the Company entered into a letter of intent with another
underwriter for an initial public offering of equity securities. However, there
can be no assurance that the Company will be successful in consummating its
plans, or that such plans, if consummated, will enable the Company to attain
profitable operations or continue as a going concern.

2. NOTES PAYABLE TO BANKS

At December 31, 1997 and March 31, 1998, the Company had lines of credit
with banks. The loans bear interest at the respective banks' prime interest
rates and are due on demand or through December 1998. Borrowings of $300,000
under the lines of credit are secured by certificates of deposit of one of the
Company's stockholders held by the banks. Another stockholder has guaranteed the
balance of the loans.

3. NOTES PAYABLE TO STOCKHOLDERS

Notes payable to stockholders totaling $1,184,956 at December 31, 1997 and
$1,579,956 at March 31, 1998, bear interest at 10% per annum and were payable on
demand. Subsequent to December 31, 1997, the terms of the notes were changed to
be due upon the earlier of January 1, 2001 or the closing of a debt offering by
the Company. Accordingly these notes have been classified as long-term debt.
These notes have been used to finance operations. Notes totaling $500,000 were
converted to equity in 1995 and notes totaling $550,000 were converted to equity
in January 1997.

F-12

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

3. NOTES PAYABLE TO STOCKHOLDERS (CONTINUED)
In February 1998, in connection with the bridge financing (see Note 4(b)),
the Company entered into Director Loan Agreements with two shareholders pursuant
to which each of the shareholders committed to loan $450,000 ($900,000 in total)
to the Company to be used for working capital and certain costs of the
anticipated IPO. In consideration for this commitment, each of the shareholders
were granted 12,500 shares of common stock of the Company and warrants to
purchase 12,500 shares of common stock at an exercise price of 80% of the market
price of the common stock on the exercise date. Pursuant to each Director Loan
Agreement, the Company shall have the right to draw down advances from each of
the shareholders as funds are required. Any amounts advanced will bear interest
at a rate of ten percent (10%) per annum and will be due and payable in full on
the earlier of (i) January 1, 2001, and (ii) the closing of a debt offering by
the Company.

Interest expense to stockholders totaled approximately $114,000, $74,000,
$27,000 and $37,000 for the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1997 and 1998, respectively.

4. BRIDGE FINANCING

(a) In January 1997, the Company received $1,020,000, net of costs of
$230,000, through a private placement of 25 units (the "1997 Units"), at a cost
of $50,000 per 1997 Unit. Each 1997 Unit consisted off: (i) an unsecured
nonnegotiable promissory note in the principal amount of $50,000, bearing
interest at the rate of 9% per annum, payable semi-annually in arrears, and
maturing on the earlier date to occur of: (a) the first anniversary of the
initial closing (the "Initial Bridge Closing") of such bridge financing; and (b)
the consummation of an IPO of the Company's securities registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended; (ii) 5,000 shares of common stock of the Company, and (iii) warrants
exercisable until the fifth anniversary of the Initial Bridge Closing to
purchase 25,000 shares of common stock (the "Bridge Warrant Shares") at an
exercise price of $4.00 per Bridge Warrant Share, subject to adjustment in
certain circumstances. A total of $262,500 of the private placement funds was
assigned to the value of the common stock and warrants, which resulted in an
effective interest rate of 30% on the notes.

In February 1998, the Company repurchased all of the 1997 Units and paid
related accrued interest with proceeds obtained from a second private placement
bridge financing (see Note 4(b)).

(b) In February 1998 the Company received $1,490,000, net of costs of
$10,000, through a private placement of 30 units (the "1998 Units"), at a cost
of $50,000 per 1998 Unit (each a "Bridge Note"). Substantially all of the
proceeds were utilized to repurchase the 1997 Units and related accrued interest
(see Note 4(a)). Each 1998 Unit consists of: (i) an unsecured nonnegotiable
promissory note in the principal amount of $50,000, bearing interest at the rate
of 10% per annum, payable annually in arrears, and providing for a loan fee
payable upon payoff of the Bridge Note in an amount equal to $5,000 less
interest accrued through the date of payoff. The Bridge Note shall mature on the
earlier date to occur of: (a) the third anniversary of the final closing (the
"Bridge Closing") of such bridge financing; and (b) the consummation of an IPO
of the Company's securities registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended; (ii) 2,500 shares
of common stock of the Company and (iii) warrants exercisable until the sixth
anniversary of the Bridge Closing to purchase 2,500

F-13

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

4. BRIDGE FINANCING (CONTINUED)
shares of common stock (the "Bridge Warrant Shares") at an exercise price of 80%
of the market price of the Company's common stock on the exercise date per
Bridge Warrant Share. A total of $300,000 of the private placement funds was
assigned to the value of the common stock and warrants.

5. LICENSE AGREEMENTS

(a) In 1995, the Company acquired a license for certain technology rights.
The total cost was $296,000; $148,000 of which was paid upon signing the
agreement and $148,000 which was payable in various amounts through December 31,
1996. Subsequent to June 30, 1996, the Company paid $20,000 under the agreement.
The recoverability of this fee was in question and, in 1996, the Company
determined that it would not utilize the technology acquired in this license and
terminated the agreement and future obligations thereunder. The licensor agreed
on December 2, 1996 to waive all future obligations, including the $128,000
remaining balance of the license fee.

In 1995, the Company wrote off the portion of the license fee paid in cash
($148,000) and recorded an asset and liability for the remaining balance due
under the agreement. In 1996, the asset was written off and the liability was
reduced by $128,000. The balance ($20,000) was expensed.

(b) In March 1998, the Company entered into an agreement with a company
located in Israel to purchase an operating system to be utilized with its smart
card systems. The operating system will cost $100,000 and provides for two years
of technical support and development costs of an additional $450,000 plus
royalties ranging from $.125 to $.25 for each smart card sold by the Company
that incorporates the operating system. In connection with the agreement, which
is contingent upon completing the transaction upon the earlier of (i) September
15, 1998 and (ii) the Company completing an anticipated IPO, the Company will
pay $18,000 per month for technical services related to the development of the
operating system. The monthly fees will be due, regardless of the completion of
an anticipated IPO, by September 1998. Through March 31, 1998, the Company has
incurred $72,000 relating to this agreement which are included in research and
development expense.

6. RELATED PARTY TRANSACTIONS

In addition to the notes payable to stockholders (see Note 3), the Company
has an agreement to pay a fee of $1,000 per month to a company owned by the
Company's chief executive officer (who is a major stockholder). The agreement
commenced July 1, 1994 and concluded December 31, 1997, and covered accounting
and various other general and administrative services performed for the Company.
At December 31, 1997 and March 31, 1998, $42,000 and $42,000, respectively, are
payable to this affiliate for these services.

7. COMMITMENTS

LEASE

The Company rents office space in Atlanta, Georgia. Commencing December
1996, the Company entered into a new lease which provides for annual rent of
approximately $36,000 through January 31, 2000.

F-14

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

7. COMMITMENTS (CONTINUED)
Rent charged to operations was approximately $17,000, $36,000, $9,000 and
$9,000 for the years ended December 31, 1996 and 1997, and the three months
ended March 31, 1997 and 1998, respectively.

EMPLOYMENT CONTRACTS

In 1998, the Company entered into employment agreements with three of its
executive officers. The agreements become effective upon the closing of the
Company's IPO and provide for aggregate salaries up to $700,000 per year for a
term of five years.

8. STOCKHOLDERS' DEFICIT

The Company's founders capitalized the Company in 1994 with $1,000. Certain
stockholders either individually or through trusts have loaned funds to the
Company since its incorporation. In 1995, loans totaling $500,000 were converted
to capital. In connection with the consummation in January 1997 of the private
placement for the financing, loans totaling $550,000 were converted to 110,000
shares of common stock ($5 per share) (see Note 3).

In January 1996, the Company sold 120,000 shares of stock for notes totaling
$30,000. The notes bear interest at 8% per annum and were payable on July 1,
1997. In 1998, 100,000 shares of stock were returned to the Company and the
related note, totaling $25,000, was forgiven.

In July 1996, the Company issued 240,000 shares of common stock to retire
the $300,000 note payable to an affiliate and related accrued interest of
$30,000 ($1.375 per share) (see Note 3).

On January 2, 1996, the Company effected a split of its common stock of
4.06-for-1. On December 11, 1996, the Company (i) increased its authorized
shares of common stock from 1,500 to 20,000,000, (ii) authorized 1,000,000
shares of preferred stock to be issued at the discretion of the Board of
Directors, (iii) changed the common stock from no par value to $.001 par value,
and (iv) effected a split of its common stock of 2,500-for-1. All share amounts
have been retroactively adjusted to reflect the stock splits.

In December 1996, the Company granted options to acquire 100,000 shares of
its common stock to an affiliate. The options have an exercise price of $5 per
share (subsequently increased to $12 per share), are immediately exercisable and
have a term of 10 years. The estimated fair value of these options at their date
of grant was immaterial.

In December 1996, the Company adopted the 1996 Stock Option Plan, pursuant
to which 270,000 shares of the Company's common stock may be granted to its
employees, directors and consultants. The option exercise price will be no less
than the fair value of the common stock at the date of grant. The options will
include vesting provisions and generally have ten year maturity periods. The
Company also adopted the 1996 Non-employee Director Stock Option Plan for its
non-employee directors pursuant to which 30,000 shares of common stock may be
granted. Through December 31, 1997, no options under either of these plans have
been granted.

In 1998, the Company issued 140,000 options under the 1996 Stock Option Plan
at an exercise price of $12.00 per share, which will vest over four years and
12,500 options under the 1996 Non-employee Director

F-15

AMERICAN CARD TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF MARCH 31, 1998 AND FOR THE PERIODS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

8. STOCKHOLDERS' DEFICIT (CONTINUED)
Stock Option Plan at an exercise price of $12.00, which vested upon issuance.
The fair value of the non-employee director options were immaterial.

In February 1998, the Company issued 25,000 shares of common stock and
warrants to purchase 50,000 shares of common stock, at an exercise price of 80%
of the market price of the common stock on the date of exercise, to an
affiliated company of the Company's general counsel in consideration for
services rendered. The Company expensed $200,000 in connection with this
transaction which has been included in general and administrative expenses.

F-16

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

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

TABLE OF CONTENTS

PAGE
----

Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 20
Dilution.................................................................. 20
Capitalization............................................................ 23
Selected Financial Data................................................... 25
Plan of Operation......................................................... 26
Business.................................................................. 32
Management................................................................ 42
Principal Stockholders.................................................... 48
Certain Transactions...................................................... 48
Description of Securities................................................. 52
Shares Eligible for Future Sale........................................... 54
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 57
Additional Information.................................................... 57
Index to Financial Statements............................................. F-2

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

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

AMERICAN CARD
TECHNOLOGY, INC.

MINIMUM OFFERING:
294,200 SHARES OF COMMON STOCK

MAXIMUM OFFERING:
420,000 SHARES OF COMMON STOCK

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

PROSPECTUS

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

, 1998

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 102(b) of the Delaware General Corporation Law ("Delaware Law")
permits a provision in the certificate of incorporation of each corporation
organized thereunder eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Certificate of Incorporation of the Registrant eliminates the personal liability
of directors to the fullest extent permitted by Delaware Law.

Section 145 of Delaware Law ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by them in
connection with any nonderivative suit or proceeding, if they acted in good
faith and in a manner they reasonably believe to be in or not opposed to the
best interest of the corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.

With respect to derivative actions, Section 145 permits a corporation to
indemnify its officers, directors, employees and agents against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense of settlement of such action or suit, provided such person meets the
standard of conduct described in the preceding paragraph, except that no
indemnification is permitted in respect of any claim where such person has been
found liable to the corporation, unless the Court of Chancery or the court in
which such action or suit was brought approves such indemnification and
determines that such person is fairly and reasonably entitled to be indemnified.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been informed 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.

The Company's Bylaws provide that the Company shall indemnify officers and
directors, and to the extent authorized by the Board of Directors, employees and
agents of the Company, to the fullest extent permitted by and in the manner
permissible under the laws of the State of Delaware. The Bylaws also permit the
Board of Directors to authorize the Company to purchase and maintain insurance
against any liability asserted against any director, officer, employee or agent
of the Company arising out of his capacity as such.

The Company has entered into and executed indemnity agreements with present
directors for indemnification to the fullest extent permitted by law.

II-1

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses in connection with the
sale of the Common Stock. All amounts are estimated. The Company has prepaid all
such fees.

SEC Filing Fee.................................................... $ 2,107
Blue Sky Expenses................................................. 21,340
Accounting Fees and Expenses...................................... 40,000
Legal Fees and Expenses........................................... 75,000
Legal Writing (outsourced)........................................ 55,000
Postage........................................................... 34,000
Printing Fees..................................................... 50,000
Escrow Agent Fees................................................. 10,000
Transfer Agent Fees............................................... 10,000
Due Diligence Fees................................................ 52,000
Miscellaneous Fees................................................ 25,553
Underwriting Fees................................................. 25,000

TOTAL............................................................. $ 400,000

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

The Registrant has issued securities without registration under the
Securities Act of 1933, as amended (the "Securities Act"), in the following
transactions:

In July 1996, loans to the registrant in the aggregate principal amount of
$300,000 (plus interest) made by the President, Chief Executive Officer and sole
director of a subsidiary of the Registrant were converted, pursuant to an
agreement between the Company and such individual, into an aggregate of 240,000
shares of Common Stock.

In December 1996, the Registrant issued to an entity owned by certain
affiliates and directors of the Registrant an option to purchase 100,000 shares
of Common Stock at an exercise price of $5.00 per share which has since been
increased to $12.00 per share and assigned to Mr. Roncari.

In connection with the Bridge Financing, in January 1997, loans in an
aggregate principal amount of $550,000 by the founders of the Registrant were
converted into an aggregate of 110,000 shares of Common Stock.

In January 1996 the Registrant sold 20,000 shares to Richard Shelton at a
price of $0.25 per share. The registrant received a note in the amount of $5,000
from Dr. Shelton.

II-2

Bridge Notes, 1997 Bridge Shares and 1997 Bridge Warrants were repurchased by
the Company as part of the 1998 Private Placement.

In March 1998, the Company entered into the 1998 Private Placement, through
which the Company completed the sale to fourteen private investors (including
certain officers and directors of the Company) of 30 Units, each Unit consisting
of (i) one Bridge Note; (ii) 2,500 Bridge Shares; and (iii) 2,500 Bridge
Warrants. The purchase price per Unit was $50,000

On March 15, 1995 Messrs. Roncari and Rothstein recharacterized $500,000 of
loans to the Registrant as paid in capital. This capital contribution was
allocated equally among the Original Stockholders in consideration for which
Messrs. Findley and Perl subsequently transferred 25,000 shares of common stock
to Mr. Roncari and the Rothstein Trust.

ITEM 27. EXHIBITS

EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------------------------

1.1 Underwriting Agreement between Registrant and Rockcrest Securities, L. L. C.

3.1 Articles of Incorporation of Registrant.

3.2 By-Laws of Registrant.

4.1 Sample Certificate for Common Stock.

5.1 Opinion of Counsel regarding Legality.

8.1 Opinion of BDO Seidman, LLP.

9.1 Voting Trust Agreement for Lawrence O. Perl.

9.2 Voting Trust Agreement for Harold Rothstein.

10.1 Employment Agreement between the Registrant and Lawrence O. Perl.

10.2 Employment Agreement between the Registrant and Raymond Findley, Jr.

10.3 Employment Agreement between the Registrant and Robert H. Dixon.

10.4 Escrow Agreement, Bank of New York.

10.7.1 Subscription Agreement for American Card Technology, Inc.

10.7.2 Stock Option Agreement (warrant), Chapman Group, LLC.

10.7.3 Stock Option Agreement (warrant), Harold Rothstein.

II-3

EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------------------------

10.7.4 Stock Option Agreement (warrant), Raymond Roncari.

10.8.1 Stock Option Agreement for non-employees and Amendment, Lilly Beter.

10.8.2 Stock Option Agreement for non-employees and Amendment, Harold Rothstein.

10.8.3 Stock Option Agreement for non-employees and Amendment, Raymond Roncari.

10.8.4 Stock Option Agreement for non-employees and Amendment, Bruce Bonadies.

10.8.5 Stock Option Agreement for non-employees and Amendment, Gordon Walker.

10.8.6 1996 Nonemployee Director's Stock Option Plan.

10.8.7 1996 Stock Option Plan for Employees.

10.8.8 Director Loan Agreement, Harold Rothstein.

10.8.9 Director Loan Agreement, Raymond Roncari

10.9.1 Agreement with Softchip Israel and Registrant.

10.9.2 Agreement with Softchip Technology (3000) Ltd. and Registrant.

10.9.3 Stock Option Agreement and Amendment, Shreveport Acquisition Corp.

10.9.4 Stock Option Agreement for employee, Robert Dixon.

10.9.5 Stock Option Agreement for employee, Michael Pate.

10.9.6 Stock Option Agreement for employee, Robert Patten.

10.9.7 Stock Option Agreement for employee, Shawn Nixon.

10.9.8 Stock Option Agreement for employee, Jeremy Zela.

23.1 Consent of Independent Accountant, BDO Seidman, LLP.

23.2 Consent of Legal Counsel, Bartz & Bartz (Opinion is filed as Exhibit 5.1).

23.3 Consent of Underwriter, Rockcrest Securities L. L. C.

27.0 Financial Data Schedule.

99.1 Dual Smart Card Access, Patent Number # TX 3-639-032 for American Card Tech., Inc.

99.2 Rothstein personal guarantee.

ITEM 28. UNDERTAKINGS

The undersigned Registrant hereby undertakes to:

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

(i) Include any prospectus required by section 10(a)(3) of the Act,

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

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

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

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

II-4

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the forgoing provisions , or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submitted to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

II-5

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Miami, Florida, on
April, 30, 1998.

AMERICAN CARD TECHNOLOGY, INC.

By: /s/ LAWRENCE O. PERL
-----------------------------------------
Lawrence O. Perl,
CHIEF EXECUTIVE OFFICER

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 was signed by the following persons in the
capacities and on the dates stated.

NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

/s/ LAWRENCE O. PERL Chief Executive Officer,
- ------------------------------ Chief Financial Officer, April 30, 1998
Lawrence O. Perl Chairman of Board

/s/ RAYMOND FINDLEY, JR.
- ------------------------------ President, Chief Operating April 30, 1998
Raymond Findley, Jr. Officer, Director

/s/ HAROLD ROTHSTEIN
- ------------------------------ Director April 30, 1998
Harold Rothstein

/s/ RAYMOND RONCARI
- ------------------------------ Director April 30, 1998
Raymond Roncari

/s/ LILLY BETER
- ------------------------------ Corporate Secretary, April 30, 1998
Lilly Beter Director

/s/ BRUCE R. BONADIES
- ------------------------------ Director April 30, 1998
Bruce R. Bonadies

/s/ GORDON W.WALKER
- ------------------------------ Director April 30, 1998
Gordon W. Walker

II-6

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------

1.1 Underwriting Agreement between Registrant and Rockcrest Securities, L. L. C.

3.1 Articles of Incorporation of Registrant.

3.2 By-Laws of Registrant.

4.1 Sample Certificate for Common Stock.

5.1 Opinion of Counsel regarding Legality.

8.1 Opinion of BDO Seidman, LLP.

9.1 Voting Trust Agreement for Lawrence O. Perl.

9.2 Voting Trust Agreement for Harold Rothstein.

10.1 Employment Agreement between the Registrant and Lawrence O. Perl.

10.2 Employment Agreement between the Registrant and Raymond Findley, Jr.

10.3 Employment Agreement between the Registrant and Robert H. Dixon.

10.4 Escrow Agreement, Bank of New York.

10.7.1 Subscription Agreement for American Card Technology, Inc.

10.7.2 Stock Option Agreement (warrant), Chapman Group, LLC.

10.7.3 Stock Option Agreement (warrant), Harold Rothstein.

10.7.4 Stock Option Agreement (warrant), Raymond Roncari.

10.8.1 Stock Option Agreement for non-employees and Amendment, Lilly Beter.

10.8.2 Stock Option Agreement for non-employees and Amendment, Harold Rothstein.

10.8.3 Stock Option Agreement for non-employees and Amendment, Raymond Roncari.

10.8.4 Stock Option Agreement for non-employees and Amendment, Bruce Bonadies.

10.8.5 Stock Option Agreement for non-employees and Amendment, Gordon Walker.

10.8.6 1996 Nonemployee Director's Stock Option Plan.

10.8.7 1996 Stock Option Plan for Employees.

10.8.8 Director Loan Agreement, Harold Rothstein.

10.8.9 Director Loan Agreement, Raymond Roncari

10.9.1 Agreement with Softchip Israel and Registrant.

10.9.2 Agreement with Softchip Technology (3000) Ltd. and Registrant.

10.9.3 Stock Option Agreement and Amendment, Shreveport Acquisition Corp.

10.9.4 Stock Option Agreement for employee, Robert Dixon.

10.9.5 Stock Option Agreement for employee, Michael Pate.

10.9.6 Stock Option Agreement for employee, Robert Patten.

10.9.7 Stock Option Agreement for employee, Shawn Nixon.

10.9.8 Stock Option Agreement for employee, Jeremy Zela.

23.1 Consent of Independent Accountant, BDO Seidman, LLP.

23.2 Consent of Legal Counsel, Bartz & Bartz (Opinion is filed as Exhibit 5.1).

23.3 Consent of Underwriter, Rockcrest Securities L. L. C.

27.0 Financial Data Schedule.

99.1 Dual Smart Card Access, Patent Number # TX 3-639-032 for American Card Technology, Inc.

99.2 Rothstein personal guarantee.