COMPUTER MARKETPLACE INC, 10KSB, 1997-10-14

COMPUTER MARKETPLACE INC
10KSB, 1997-10-14
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

REPORT ON FORM 10-KSB

[X] Annual Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the fiscal year ended June 30, 1997.

[ ] Transition Report pursuant Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the transition period from ________ to ________.

Commission File No. 0-14731

COMPUTER MARKETPLACE(R), INC.
(Exact name of registrant as specified in its charter)

Delaware 33-0558415
(State of or other jurisdi (IRS Employer incorporation of
organization) Identification No.)

1490 Railroad Street
Corona, California 91720
(Address of Principal (Zip Code)
Executive Offices)

Registrant's telephone number, including area code: (909) 735-2102

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.0001 Per Share
(Title of Class)

Class A Redeemable Common Stock Purchase Warrants
(Title of Class)

Class B Redeemable Common Stock Purchase Warrants
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year were $23,770,908.

The aggregate market value of the voting stock held by non-affiliates of
the Registrant, computed by reference to the closing price of such stock as of
September 23, 1997, was approximately $1,009,908.

Number of shares outstanding of the Issuer's common stock, as of September
23, 1997, was 1,352,424.

DOCUMENTS INCORPORATED BY REFERENCE: None.

<PAGE>

PART I

Item 1. DESCRIPTION OF BUSINESS

General

Computer Marketplace, Inc., a California corporation, was incorporated on
July 19, 1983, as Quality Associates, Inc. and changed its name to Computer
Marketplace, Inc. in June 1987. In March 1993, Computer Marketplace changed its
name to Computer Marketplace(R), Inc. ("Computer Marketplace(R)") and its state
of incorporation from California to Delaware. Computer Marketplace(R) is
currently engaged in the national wholesale distribution of new and used
computer equipment to dealers, computer maintenance companies, leasing
companies, equipment brokers, and end-users.
In light of the fact that the Company has been unable to operate
profitably since the fiscal year ended June 1994, the Company believes that
substantial measures need to be taken to address the Company's financial
difficulties. The Board of Directors, after having considered numerous
alternatives, has concluded that the Company must significantly reduce its
expenses in order to reduce the Company's net losses. Therefore, the Company has
embarked upon a cost cutting plan by reducing its workforce, closing
unprofitable locations and discontinuing under performing product lines.
Specifically, the Company (i) closed all of its branch offices and (ii) reduced
the number of employees from a high of ninety six (96) in September 1995 to
twenty four (24) full-time and five (5) part-time as of September 30, 1997. In
the event that the Company determines that these measures are insufficient to
achieve profitability, the Company may reduce further its existing business or
pursue divesting the Company's computer business and/or acquiring an alternative
business. As of the date of this Annual Report, the Company has not entered into
a definitive agreement with any third party with respect to such a transaction.

In March of 1994, Computer Marketplace(R) formed Medical Marketplace, Inc.
("Medical Marketplace") as a wholly owned subsidiary to engage in worldwide
distribution of used medical equipment to health care providers. Since its
inception, the business of Medical Marketplace has expanded considerably. The
Company intends to focus on expanding the business of Medical Marketplace in the
future. Currently, the Company owns approximately 83% of the shares of Common
Stock of Medical Marketplace outstanding.

In January 1994, Computer Marketplace(R) formed a wholly owned subsidiary,
Superior Solutions, Inc. ("SSI"), to purchase certain assets and assume certain
obligations of Synergy Solutions, Inc. and International Associated Marketing
Corporation, both located in Livonia, Michigan. These companies were engaged
principally in the development, installation and maintenance of local and wide
area networks, were Novell Platinum Authorized Resellers, and were also selling
computer hardware. On July 1, 1996, the employees of SSI began operating as a
sales and networking branch of Computer Marketplace(R) and in June 1997 the
Company discontinued the operations of SSI because the business failed to become
profitable.

<PAGE>

In June 1993, the Company consummated its initial public offering of
690,000 units, each unit consisting of one (1) share of Common Stock, one (1)
Class A Warrant and one (1) Class B Warrant (the "IPO Units"). See "Description
of Securities." The Company received net proceeds of approximately $6,594,179
from its initial public offering.

In December 1996, the Company entered into a three year consulting
agreement with Victoria Holdings, Inc. ("Victoria Holdings"), an affiliate of
Biltmore Securities, Inc. ("Biltmore"). Pursuant to the consulting agreement,
Victoria Holdings agreed to assist the Company in identifying new business
partners suitable for the Company and in structuring, negotiating and financing
such transactions. Pursuant to the terms of the consulting agreement, the
Company issued to Victoria Holdings options (the "Victoria Holdings Options") to
purchase 1,000,000 shares of Common Stock at an exercise price of $1.00 per
share. In addition, the Company agreed to issue 1,000,000 shares of Common Stock
to Victoria Holdings (the "Victoria Fee Shares") upon consummation by the
Company of (i) an acquisition of a company (or companies) introduced to the
Company by Victoria Holdings with net assets of at least $2,500,000 or (ii) a
divestiture of the Company's assets, or a sale of a controlling interest in the
Company's capital stock, to a purchaser introduced to the Company by Victoria
Holdings resulting in net proceeds to the Company in excess of $2,000,000.

On December 31, 1996, the Company concluded a private placement of 500,000
Units (the "December 1996 Private Placement") which were placed by Biltmore on a
firm commitment basis. Each Unit was offered at a price of $2.00 per Unit and
consisted o
one (1) share of Common Stock of Medical Marketplace, Inc., and
eighteen (18) of the Company's Class D Redeemable Common Stock Purchase Warrants
(the "Class D Warrants"). An aggregate of six (6) Class D Warrants are
exercisable for one (1) share of the Company's Common Stock during a one (1)
year period commencing March 31, 1997 at an exercise price of $2.50 per share..

On January 21, 1997, the Staff of Nasdaq advised the Company that the
Company failed to satisfy certain continued listing requirements with respect to
its shares of Common Stock. The Company was provided 90 days to comply with such
requirements in order to continue the listing of its Common Stock on The Nasdaq
SmallCap Market. Failure to comply would have resulted in delisting the
Company's shares of Common Stock. On March 21, 1997, the Company was informed by
Nasdaq that the Company complied with the continued listing requirements.

In March 1997, the Company's Board of Directors approved a 1-for-6 reverse
stock split (the "Reverse Stock Split") with respect to each outstanding share
of the Company's Common Stock, such approval to be contingent upon the approval
of a majority of the Company's stockholders. The Company conducted its annual
meeting of stockholders on April 4, 1997 (the "Annual Meeting") where, among
other things, the Company's stockholders voted to approve the Reverse Stock
Split. As of April 21, 1997, the Company effected the Reverse Stock Split. All
per share information included in this Annual Report gives effect to the Reserve
Stock Split.

The Company's executive office is located at 1490 Railroad Street, Corona,
California. It's telephone number is (909) 735-2102.

<PAGE>

The Computer Equipment Business

Computer Marketplace(R) purchases computer equipment from a variety of
sources and suppliers and sells or rents the equipment nationwide and in Europe
to companies ranging in size from small companies to Fortune 500 corporations.
Computer Marketplace's operations and primary selling efforts are conducted from
its principal office in Corona, California. Computer Marketplace(R), which
maintains a service and inventory storage center at its Corona headquarters,
also has arrangements to inventory its equipment on a temporary basis at
independent service centers across the country.

During the past fiscal year, the Company has significantly diminished its
computer business. The Company believes that because of significant changes in
the computer industry, the market is more competitive and opportunities to
engage in certain business are no longer available. The increase in the
importance and dominance of personal computers (with relatively low sales
prices) and the reduced usage of mid-sized computer systems has severely reduced
the Company's business in the RISC 6000 and AS400 mid-range systems. Further,
the Company has seen major OEM manufacturers (such as, IBM, and Digital
Equipment Corporation) enter into the reselling business. It is extremely
difficult for the Company to compete successfully against these competitors
which possess considerably greater resources than the Company.

The Computer Industry

The computer industry has been characterized by rapid and continuous
technological advances permitting cost reductions, increases in computer
processing capacity and broadened user applications. Users frequently upgrade or
replace their equipment in order to take advantage of technological advances or
to increase data processing capacity. As a result, the equipment which is
replaced by different or newer models becomes available to the secondary market,
total sales revenue for the secondary computer market, both leasing and
"buy-sells" combined, exceeds $25 billion annually. The Company is a member in
good standing of the Computer Dealers and Lessor's Association ("CDLA"), a trade
association headquartered in Washington, DC, as well as the Association of
Service and Computer Dealers International ("ASCDI").

Computer Products

The Company buys and resells computers, features, parts, peripherals,
which include hard disk drives, memory, plug-in boards, modems, monitors and
printers, and other related computer equipment. Sales of computer equipment
constitutes a significant source of revenue for the Company, accounting for
virtually all revenues in fiscal years 1997 and 1996. The Company is constantly
adjusting its inventory to respond to shifts in product development, new
technology, and shifting consumer demands.

<PAGE>

Computer Products Sales and Marketing

The Company's sales and marketing personnel make calls to existing and
potential customers and the sales team solicits new business by personal visits
and advertising in trade magazines. In addition, the Company also markets its
products on the Internet. The Company currently advertises in various trade
publications. The Company's customers consist of companies of all sizes, ranging
from small companies to Fortune 500 corporations. A substantial portion of the
Company's transactions are with repeat customers, such as computer maintenance
companies, as well as computer parts suppliers.

Computer Products Distribution Operations

The Company conducts its primary operations from its main office located
in Corona, California. It has also developed relationships with stocking
distributors and numerous independent refurbishing and warehouse facilities
throughout the United States to handle distribution, engineering and
warehousing. By using stocking distributors, the Company has directly benefited
by minimizing the costs of freight, engineering and distribution.

Computer Equipment Warranty Policy

The Company, like other competing distributors, does not grant any
warranties on the used products it sells. However, most of the new and used
computer equipment which the Company sells is covered under either the
manufacturer's warranty or the manufacturer's maintenance programs. Some of the
new and used computer equipment which the Company sells is still under
manufacturer's warranty. Before any returned merchandise is accepted by the
Company for processing under the original manufacturer's warranty, the customer
must call the Company and obtain a return merchandise authorization number. This
procedure allows the Company to verify the availability of manufacturer's
warranties on a case-by-case basis.

Computer Products Suppliers

The Company has established distributor arrangements with a number of
manufacturers of computer equipment which provide generally that the Company may
sell certain products within a designated territory and with a targeted amount
of value-added service. In addition, the Company has an established network of
dealers and retail customers that provide products. The Company is not dependent
upon any supplier or dealer an although the Company currently purchases a
significant amount of products from certain suppliers, management believes the
Company would be able to obtain similar products and pricing from other
suppliers.

Computer Products Competition

The Company competes directly with hundreds of other companies which buy,
sell or lease new and used IBM, SUN, Hewlett Packard, Digital Equipment and
Motorola equipment as well as

<PAGE>

equipment produced by other computer manufacturers. In addition, the Company
also competes with hundreds of competitors in the area of providing value added
services to its customers. Certain of the Company's competitors have
substantially greater financial resources and larger staffs than the Company.
The Company's principal competitors include IBM, Comdisco, Inc., Sun Data, Inc.
and El Camino Resources, Inc. The Company does not believe that a significant
amount of used equipment is sold independently by owner-users of the equipment.
While the aforementioned companies are listed as competitors, they also are
customers of the Company. The majority of the competing companies subscribe to
either of two national databases: "CDLANET" and/or "ATC Network" nationally.
These databases provide the Company with access to inventory listings from
competing companies, similar to the multiple-listing services to which most real
estate companies subscribe.

The Company's continued ability to compete effectively may be affected by
the policies of the large equipment manufacturers. The Company attempts to
provide customers with an unmatched selection of products, a high level of
customer service, the knowledge and competence of its employees, and competitive
pricing.

The Medical Equipment Business

Medical Marketplace buys and resells a wide variety of medical equipment
including Magnetic Resonance Imaging ("MRI"), Computed Tomography Scanners
("CT") and Ultrasound equipment. In addition, Medical Marketplace provides
customers with consulting services related to equipment acquisition, equipment
layout and facility design. Medical Marketplace also has a small rental program
which provides new equipment and contract service with mobile MRI and CT
equipment. Medical Marketplace conducts its primary distribution operations from
its main office in Corona, California, which is shared with the Company. It also
has sales representatives in Northern California, Kansas, Washington,
Massachusetts and North Carolina.

Used Medical Equipment Industry

The used medical equipment industry is relatively young as compared to the
more established computer industry. Sales of used medical equipment have been
slowed due to a lack of acceptance of used equipment by health care providers
stemming in part from the uncertainty of the equipment's operating condition and
more generous cost reimbursement formulas given to providers by governmental
agencies and insurance companies. Medical Marketplace believes that recent
growth in the domestic market stems from the uncertainty caused by various
proposals on the domestic health care reform program, and as a result, health
care providers are attempting to minimize their capital expenditures by
purchasing lower-cost used equipment. In addition, foreign-based health care
providers are undergoing significant expansion and have found used equipment a
cost-effective alternative to new equipment.

Medical Marketplace believes that there are no dominant providers of used
equipment in the industry. In addition, Medical Marketplace believes that many
of the equipment suppliers operate on

<PAGE>

a cash basis and only a few companies can deal in larger transaction sizes of
greater than $100,000. The association which provides a forum for used equipment
is relatively new, unlike the association established for the computer business.

Medical Equipment Rental Program

Medical Marketplace has a small rental program which provides new
equipment providers and contract service providers with mobile MRI and CT
equipment. This service allows these customers to meet their short-term
equipment needs. Rentals are for approximately one month, however, weekly
rentals can also occur.

Medical Equipment Warranty Policy

Medical Marketplace, like other competing resellers, does not grant any
warranties on the used products it sells. However, most of the used medical
equipment which Medical Marketplace sells is covered under either the
manufacturer's warranty or the manufacturer's or third party maintenance
programs.

Medical Equipment Suppliers

Medical Marketplace has established relationships with a small but growing
number of equipment brokers and leasing companies across the United States. In
addition, Medical Marketplace by expanding its sales force is able to procure
equipment directly from the end-user. Generally, Medical Marketplace physically
inspects all major equipment before committing to purchase the item.

Medical Equipment Distribution Operations

Medical Marketplace conducts its primary distribution operations from its
main office in Corona, California. This facility is shared with the Company's
computer business. Physically large pieces of medical equipment such as MRI's
and CT's are often transported by Medical Marketplace from their last installed
location directly to our customer's site. This allows Medical Marketplace to
minimize storage and transportation costs in the transaction.

Medical Equipment Sales and Marketing

Medical Marketplace had a total sales force at September 30, 1997 of eleven
(11) people. In addition, Medical Marketplace attends various industry trade
shows and advertises on the Internet and in selected national and international
trade publications. Medical Marketplace has prospected for sales to foreign
countries and anticipates doing additional business abroad.

Medical Marketplace intends to increase the number of domestically based
outside sales representatives. This expansion will enable Medical Marketplace to
call on a far greater number of end-users which will increase the number of
opportunities to provide equipment and to purchase

<PAGE>

equipment at the most favorable prices. Medical Marketplace has generally
focused on larger transaction sizes (i.e. greater than $50,000). Due to the
complex technical nature of the equipment, the potential need for the customer
to prepare the equipment site, including obtaining government permits and the
significant sale prices involved in a transaction, a transaction can take up to
a year to complete, although most transactions are completed in four months or
less. Consequently, Medical Marketplace's revenue and operating results can vary
materially from month to month.

Medical Equipment Competition

Medical Marketplace competes directly with the new medical equipment OEM's
like GE Medical Systems, Picker, Toshiba, Philip's and Siemens. Many of these
new equipment OEM's have used equipment divisions. In addition, Medical
Marketplace competes with a growing number of equipment brokers and leasing
companies such as Comdisco, Finova, Access Medical and Remed Par. Certain of
Medical Marketplace's competitors have substantially greater financial resources
and larger staffs than Medical Marketplace. Medical Marketplace believes that
only the largest of our competitors can match the technical ability of our
employees in the Imaging, X-ray and Ultrasound technologies and only our largest
competitors have the financial strength to inventory expensive MRI, CT or
Ultrasound equipment. Consequently, Medical Marketplace feels that it can
effectively compete against the large OEM's in used equipment transactions and
will have competitive advantages over specialized equipment brokers on end-user
transactions.

Medical Equipment Leasing Business

In January, 1997, Medical Marketplace incorporated New Millenium Leasing,
Inc. ("New Millennium") as a wholly owned subsidiary. New Millennium was formed
as a captive leasing company to finance the sales generated by Medical
Marketplace's sales force. Properly implemented, New Millennium will accomplish
two goals. First, to help increase overall equipment sales by providing
additional resources not previously available to it, and secondly, it will add
significant additional revenue and income by capturing most or all of the
financing profits previously earned by the leasing companies and banks that the
Company's customers were utilizing. Since the leases may be sold and/or
discounted on a non recourse basis, these additional revenues may be earned with
little or no financial risk to the Company.

Government Regulation

Neither the Company nor Medical Marketplace has been materially affected by
government regulations applicable to either its computer products or its medical
equipment business, respectively.

Patents, Trademarks, Licenses and Franchises

The Company has been granted by the United States Patent and Trademark Office
(i) a trademark for the AcceleRAIDer(R), on October 6, 1992, (ii) a servicemark
for Computer Marketplace(R), on November 3, 1992, and (iii) a servicemark for
Medical Marketplace, Inc. on August 20, 1996.

<PAGE>

The Company does not own any other patents, trademarks, licenses, or
franchises which would be considered significant to the Company's business.

Credit Facilities

In September 1995, the Company entered into a revolving credit facility
agreement ("Credit Facility") with a financing company. This Credit Facility
replaced the then outstanding $2,000,000 revolving credit line with a bank. The
Credit Facility allows the Company to borrow up to $2,500,000 and bears interest
at a rate of 2.25% above the lender's "reference rate" (as defined). The
borrowing capacity under the Credit Facility is dependent upon "eligible" (as
defined) accounts receivable and inventory, and fluctuates daily. The Credit
Facility is collateralized by substantially all of the Company's assets, except
for real property. The Credit Facility was to expire in September 1997. The
Company and the Lender have extended the Credit Facility until December 31,
1997.

Employees

As a result of management's focus to reduce costs and capitalize on the
efficiencies gained by administrative improvements, as of September 30, 1997,
the Company and Medical Marketplace employed twenty-four (24) full-time persons
and five (5) part-time persons, including fifteen (15) persons in sales,
marketing and related activities, three (3) persons in technical operations and
maintenance, and six (6) persons in general administration and finance. The
Company has experienced no work stoppages and considers its employee relations
to be satisfactory. The Company's employees are not represented by a labor
union.

Properties

On April 23, 1987, L. Wayne Kiley and Nancy Kiley, the Company's President
and Secretary, respectively, purchased a fifty percent (50%) undivided interest
in the land and 5,000 square-foot building at 205 East Fifth Street, Corona,
California, which had, until February 1994, served as the Company's
headquarters, and subsequently was used as an interim sales office and temporary
headquarters for Medical Marketplace until October, 1995. On June 30, 1987, the
Kiley's deeded their fifty percent (50%) interest in the land and building to
the Company in exchange for 952,623 shares of common stock of the Company. The
other fifty percent (50%) interest in the land and building was owned by Jack
Mooney, an unrelated third party, who, in June, 1997, sold such interest to the
Company in exchange for the cancellation of certain indebtedness. Currently, the
Company is attempting to sell this property.

On October 27, 1993, the Company purchased, at a trustee sale, a 68,457
square-foot building in Corona, California, for approximately $1,757,000. The
building, which currently has over 12,000 square feet of office space, is used
as the Company's headquarters. Due to favorable local real estate market
conditions, in August 1996, the Company listed this facility for sale. On May
12, 1997, the Company entered into a Standard Offer, Agreement and Escrow
Instructions for Purchase of Real

<PAGE>

Estate whereby the Company agreed to sell its headquarters facility in Corona,
California for the purchase price of two million five hundred thousand dollars
($2,500,000). This transaction closed in June 1997. The Company has also
recently closed certain satellite locations in Michigan and Mariposa,
California.

On January 21, 1994, the Company purchased a two-story, 6,300 square-foot
office building located in Mariposa, California, for $215,000. The Company
intends to sell this facility in the near future. The Company has renovated this
facility and has leased fifty percent of the unused space.

Management believes that the above properties are adequately covered by
insurance.

Legal Proceedings

The Company commenced an unfair trade name infringement action entitled
Computer Marketplace(R), Inc. v. RK Productions/Case No. 260667 in Riverside
County, California Superior Court on January 20, 1995. The defendant failed
to respond to the Company's complaint, and is therefore, in default.
Subsequently, the defendant (under the name National Productions, Inc.) filed
a Federal lawsuit in the Central District of California entitled National
Productions, Inc. v. Computer Marketplace(R), Inc./Case No. 95-3225 on May 19,
1995. Computer Marketplace(R) has counterclaimed in the Federal action
which supersedes the earlier state court action. In July 1997,
the Company settled all claims in this matter.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On April 4, 1997, the Company held its Annual Meeting of Stockholders where
the stockholders of the Company elected the Board of Directors as follows:

Nominee Votes For Votes Against
- ------- --------- -------------
L. Wayne Kiley 1,139,946 70,633
Nancy Kiley 1,139,946 70,633
J.R. Achten 1,139,946 70,633
Rick Garian* 1,139,946 70,633
Thomas E. Evans, Jr. 1,139,946 70,633

The stockholders also (i) ratified the appointment of Moore Stephens, P.C., as
the Company's independent certified public accountants (1,150,112 votes in
favor, 52,667 votes against, and 7,783 votes abstaining) and (ii) approved a
1-for-6 reverse stock split of the outstanding Common Stock of the Company
(1,119,308 votes in favor, 88,383 votes against and 2,888 votes abstaining).

* Mr. Garian resigned from the Board of Directors in September 1997.

<PAGE>

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Company's securities commenced trading on The Nasdaq SmallCap Market
system upon the effectiveness of the Company's Initial Public Offering on June
22, 1993. The Initial Public Offering consisted of 2,070,000 Units, each Unit
consisting of one (1) share of Common Stock, one (1) Class A Redeemable Common
Stock Purchase Warrant and one (1) Class B Redeemable Common Stock Purchase
Warrant (without giving effect to the stock split or the Reverse Stock Split
mentioned above). Effective June 22, 1993, the Common Stock, the Class A
Warrants and the Class B Warrants comprising the Units were separated and began
trading under the symbols "MKPL" and "MKPLW" and "MKPLZ", respectively. The
Units began trading under the symbol "MKPLU". The Common Stock is quoted and
traded on The Nasdaq SmallCap Market system. On the close of business on May 10,
1994, at the request of the Company, the Units were delisted. The Class A
Warrants and Class B Warrants were delisted from The Nasdaq SmallCap Market as
of the close of business on December 18, 1996. As of September 30, 1997, there
were approximately 54 holders of record of the Company's common stock and
approximately 900 beneficial owners.

In March 1994, the Company's Board of Directors approved a two-for-one
stock split (the "Stock Split") with respect to each outstanding share of the
Company's Common Stock, such approval to be contingent upon the approval of a
majority of the stockholders of an increase of the Company's Common Stock from
15,000,000 shares to 50,000,000 shares. In March 1994, stockholders representing
a majority of the shares outstanding approved by written consent in lieu of a
special meeting of stockholders an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of common stock. In May
1994, the Company distributed to its stockholders an Information Statement
summarizing these transactions. On June 6, 1994, each holder of an outstanding
share of the Company's common stock received an additional share of Common Stock
as a result of the Stock Split. In March 1997, the Company's Board of Directors
approved the Reverse Stock Split which was subsequently approved by the
Company's stockholders on April 4, 1997 and became effective on April 17, 1997.
All price per share references contained herein reflect the consummation of the
Stock Split, but not the consummation of the Reverse Stock Split, except as
otherwise noted.

The following table indicates the high and low bid prices for the
Company's Common Stock, the Class A Warrants and the Class B Warrants for each
of the quarters in the period from July 1, 1995, through June 30, 1997, based
upon information supplied by the Nasdaq system. Prices represent quotations
between dealers without adjustments for retail markups, markdowns or
commissions, and may not represent actual transactions.

<PAGE>

<TABLE>

For the Period from July 1, 1995 to March 31, 1997
Quoted Bid Price
<S> <C> <C> <C> <C>

1997 1st Quarter 2nd Quarter 3rd Quarter* 4th Quarter*+
- ----
(ended 9/30/96) (ended 12/31/96) (ended 6/30/97)

Common Stock:
High 5/8 5-1/2 3/16 1-1/4
Low 11/32 1/8 1/8 1
Class A Warrants
High 1/8 1/16
Low 1/16 1/32
Class B Warrants
High 3/32 1/32
Low 1/32 1/32

</TABLE>
<TABLE>

1996 1st Quarter 2nd 3rd Quarter* 4th Quarter*+
- ----
(ended 9/30/95) (ended 12/31/95) (ended 6/30/96)
<S> <C> <C> <C> <C>

Common Stock:
High 11/16 1/2 15/32 5/8
Low 1/4 9/32 1/4 1/4
Class A Warrants
High 5/32 1/8 1/8 5/32
Low 1/32 1/32 1/16 1/32
Class B Warrants
High 1/16 3/32 1/16 3/32
Low 1/16 1/16 1/16 1/32

</TABLE>

* The Class A and Class B Warrants were delisted from The Nasdaq SmallCap Market
on December 18, 1996. + Gives effect to the sellers Stock Split effected as of
April 17, 1997.

On September 30, 1997, the closing bid price of the Common Stock as
reported on The Nasdaq SmallCap Market was $1.00 (which gives effect to the
Reverse Stock Split). As of September 30, 1997 there were approximately 900
beneficial owners and 54 holders of record of the Company's Common Stock.

The Company's Common Stock is traded on The Nasdaq SmallCap Market
("Nasdaq"). Under the rules recently adopted by Nasdaq in order to qualify for
continued quotation of securities on The Nasdaq SmallCap Market, the Company,
among other things, must have (i) either $2,000,000 in net tangible assets, or
$35,000,000 in market capitalization, or $500,000 of net income (in latest
fiscal year or 2 of the last 3 fiscal years), (ii) a public float of 500,000
shares, (iii) a market value of public float of $4 million, and (iv) a minimum
bid price of $1.00 per share.

<PAGE>

Computer Marketplace has no dividend policy, is restricted by its
revolving credit agreement to pay cash dividends, and does not intend to pay any
dividends in the foreseeable future.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Year Ended June 30, 1997 compared to Year Ended June 30, 1996

Results of Operations

Total revenues for the year ended June 30, 1997 were $23,770,908 compared to
$30,000,952 for the year ended June 30, 1996. This represents a decrease of
$6,230,044 or 21%.

Revenues from product sales for the year ended June 30, 1997 totaled
$22,192,831, a $6,177,603 or 22% decrease compared to $28,370,434 for the year
ended June 30, 1996. Revenues from rental, service and other for the year ended
June 30, 1997, were $1,578,077, a $52,441 or 3% decrease compared to $1,630,518
for the year ended June 30, 1996. While the Company believes that the rapid
technological advances in computer products enhance its market resulting in many
companies purchasing used equipment at significant discounts from new equipment
companies to handle most of their computing needs, as most applications do not
require the latest technology available, the sales decrease is reflective of a
general industry sales decrease which results in part from price reductions in
new computer hardware which negatively impacts selling prices and sales of used
computer hardware. The Company anticipates the lower computer products sales
trend to continue into the next fiscal year.

Computer product segment revenues were $16,959,846 for the year ended June 30,
1997 compared to $27,120,944 for the year ended June 30, 1996. This represents a
decrease of $10,161,098, or 37%.

All branch offices of the Company were closed down during the year ended June
30, 1997, and the sales associated with these offices diminished. In addition,
several salesmen at the main facility in Corona, California were let go.

Medical Marketplace, Inc. contributed approximately $6,811,000 in revenues for
the year ended June 30, 1997, an increase of $3,931,000 or 136% compared to
approximately $2,880,000 for the year ended June 30, 1996. Continuing
investments made by Medical Marketplace, Inc. in experienced sales
representatives and technical staff, as well as a growing recognition within the
industry as an established reseller of previously owned and upgraded magnetic
resonance imaging, computed tomography scanner and ultrasound equipment have
positively impacted the sales of this subsidiary. Continued revenue growth and
sustained profitability for this subsidiary are expected into the next fiscal
year.

<PAGE>

Previously owned medical equipment is just beginning to gain acceptance in the
health care community as a cost effective alternative to new equipment. The
Company believes that its field representative program, financial strength and
support structure will provide Medical Marketplace, Inc. a distinct advantage
over many of the subsidiary's competitors.

Aggregate cost of revenues for the years ended June 30, 1997 and 1996 were
$21,077,229 or 89% of revenues and $25,386,732 or 85% of revenues, respectively.
The higher cost of revenues percentage in the current year is reflective of the
reduced operating leverage resulting from lower product sales and the company's
focus on liquidating older inventory which has a lower profit margin. Cost of
revenue percentages are expected to remain relatively stable during the next
fiscal year with small decreases anticipated. Factors which will favorably
reduce the cost of revenues percentage include; a company focus toward higher
margin transactions through a focus on our end user customer base, a change in
computer sales representative compensation plans which includes a substantially
higher base salary and less of a commission component than prior periods and the
positive effect that higher margin medical equipment sales has on the
consolidated percentage.

Cost of revenues for the computer product segment were $15,542,705 or 92% of
revenues and $23,020,942 or 85% of revenues for the years ended June 30, 1997
and 1996, respectively. The higher cost of revenues percentage in the current
year is reflective of the reduced operating leverage resulting from lower
computer product sales and the Company's focus on liquidating older inventory
which has a lower profit margin.

Cost of revenues from Medical Marketplace, Inc. were $5,534,524 or 81% of
revenues and $2,365,790 or 82% for the years ended June 30, 1997 and 1996,
respectively.

Selling, general and administrative ["SG&A"] expenses for the years ended June
30, 1997 and 1996 were $5,862,084 or 25% of revenues and $5,601,670 or 19% of
revenues, respectively. This represents an increase of $260,414 or 5%. The
increase in SG&A expenses was negatively impacted by the increase in Medical
Marketplace Inc. personnel expense, the change in computer sales representative
compensation plans mentioned above, write-offs of certain assets relating to the
closing of the Livonia, Michigan branch office, increased reserves against
accounts receivable and inventory as well as charges relating to the December
1996 Private Placement. These increases were partially offset by personnel
cutbacks in the computer products segment during the current year.

SG&A expenses attributed to the computer product segment were $4,873,827 or 29%
of revenues and $5,129,034 or 19% for the years ended June 30, 1997 and 1996.
The increase in SG&A expenses as a percentage of revenues is due primarily to
the sales volume decrease previously mentioned, write-offs of certain assets
relating to the closing of the Livonia, Michigan branch office, increased
reserves against accounts receivable and inventory as well as charges relating
to the December 1996 Private Placement.

<PAGE>

SG&A expenses attributed to Medical Marketplace, Inc. were $988,257 or 15% of
revenues and $472,485 or 16% of revenues for the years ended June 30, 1997 and
1996, respectively. The absolute dollar increase is due to increased sales for
the current year.

Operating loss was $3,168,405 and $987,450 for the years ended June 30, 1997 and
1996, respectively. This $2,180,955 or 221% unfavorable change was a result of
the business conditions described herein.

Operating loss for the computer product segment was $3,456,686 and $1,029,182
for the years ended June 30, 1997 and 1996, respectively.

Operating income for medical products was $288,281 and $41,732 for the years
ended June 30, 1997 and 1996, respectively.

Interest expense for the year ended June 30, 1997, was $395,555 compared to
$371,728 for the year ended June 30, 1996. Decreases in interest expense are
expected due to the success of selling the Company's headquarters facility in
the year ended June 30, 1997.

The Company's net loss was $3,347,435 or $2.48 per share for the year ended June
30, 1997, versus $1,331,431 or $0.98 per share for the year ended June 30, 1996.
The net loss was a result of the business conditions described herein.

Variability of Periodic Results and Seasonality

Results from any one period cannot be used to predict the results for other
fiscal periods. Revenues fluctuate from period to period; however, management
does not see any seasonality or predictability to these fluctuations.

Liquidity and Capital Resources

The Company has historically financed its growth and cash needs primarily
through borrowings and cash generated from operations. The funds received
through the initial public offering in June 1993, in the amount of approximately
$6.6 million, enabled the Company to eliminate most of its long-term debt at
that time. Working capital at June 30, 1997 and 1996, was $1,455,083 and
$2,724,984, respectively.

During the year ended June 30, 1997, the Company used the June 30, 1996
available cash and cash equivalents of approximately $595,000, the sale of the
existing corporate office building and property, the availability of borrowing
under the Company's revolving Credit Facility, vendor extended credit and
approximately $2,511,000 and $1,287,165 reductions in the Company's inventory an
accounts receivable levels in order to fund the operations of the Company.

<PAGE>

Management has emphasized an inventory reduction program encompassing both
stored inventory, as well as inventory on short-term rental contracts. In
addition, a program has been established to reduce outstanding accounts
receivable. Management believes these disciplined strategic reductions will
enhance the Company's operating effectiveness, provide additional liquidity, and
reduce the exposure to negative accounts receivable and inventory valuation
adjustments caused by changing market conditions. Certain temporary increases in
inventory amounts may occur due to selected purchases made by the Company which
are intended to be sold quickly. Additional inventory and accounts receivable
increases are expected relating to Medical Marketplace, Inc.'s growth.

In addition, management intends to investigate alternative financing options
which could be utilized for our foreign customers in order to enhance the
opportunities for the Company's medical equipment subsidiary's growth. The
Company has delayed implementation of these financing options as medical
equipment subsidiary has been focused on domestic sales. In addition, the
Company has listed for sale two properties; one property located in Corona,
California and the other in Mariposa, California. Management intends to use the
additional funding and proceeds from the building sale in order to pay down
related long-term debt and borrowings on the revolving credit facility in
addition to significantly growing the business of our medical equipment
subsidiary.

Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See financial statements following Item 13 of this Annual Report on Form
10-KSB.

Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

<PAGE>

PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The following persons are the current executive officers and directors:

Name Age Position

L. Wayne Kiley 54 President, Chief Executive Officer, Director
(Chief Accounting Officer) and President of
Medical Marketplace

Nancy Kiley 39 Secretary and Director

J. R. Achten 54 Director

Thomas E. Evans, Jr. 57 Director

Thomas Mason 37 Vice President

Brian Hintergardt 39 Executive Vice President of Medical
Marketplace

All Directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board.

Outside Directors shall receive $10,000 per year as compensation for their
services. Directors who are also officers of the Company do not receive any
compensation for serving on the Board of Directors. All Directors are reimbursed
by the Company for any expenses incurred in attending Directors' meetings.

Background of Executive Officers and Directors

L. Wayne Kiley has been the President and Chief Executive Officer of the Company
since March 2, 1984, and a director since June 19, 1983. From 1978 to 1983, he
was a self-employed independent real estate developer in Tucson, Arizona. From
1970 to 1978, he was the owner of the Business Exchange in Santa Ana,
California. He graduated in 1969 from Michigan State University with a Bachelor
of Arts degree in Political Science.

Rick C. Garian served as Chief Operating Officer of the Company from January
1997, and as a Director from April 1997, until September 1997. Prior to becoming
Chief Operating Officer, Mr.

<PAGE>

Garian served as an executive consultant to the Company, as part of his own
management consulting practice, which was established in 1991. He graduated from
Michigan State University with a Business Administration degree.

Carmella Hume served as Controller of the Company from January 1997 until August
1997 and previously served as a Senior Accountant from July 1995 to January
1997. From 1993 to 1995, Ms. Hume served as a Controller of Triple M. Apparel, a
clothing manufacturer, and from 1991 to 1993 she was the Controller of LeaJoy
Corporation, an artificial plant manufacturer. Ms. Hume received her Bachelor of
Science Degree in Business Administration from Chapman University.

Nancy Kiley has served as Secretary and director of the Company since March 2,
1984, and is the wife of L. Wayne Kiley, the Company's President and Chief
Executive Officer.

J. R. Achten has been a director of the Company since May 1993.
Mr. Achten has been President and Chief Executive Officer of Millennium
Enterprises, Inc., located in Laguna Niguel, California, since 1987.
Millennium Enterprises, Inc. is in the business of real estate sales and
development, as well as computer sales. Mr. Achten attended Long Beach
State College and graduated with a Bachelor of Arts degree in Economics.

Thomas E. Evans, Jr. has been a director since February 1994. Mr. Evans,
since July 1995, has been the President, Orange County Division, of Fidelity
National Title Insurance Company. Since 1993, he served as Vice President,
and prior to that, held various senior management positions with that same
company since 1980. Mr. Evans is a member of the American Land Title
Association and is President of California Land Title Association.
Mr. Evans served from 1984 to 1992 as a director of Fidelity National
Financial, Inc., which is listed on the New York Stock Exchange.

Thomas Mason has been a Vice President of the Company since September 1997.
Mr. Mason was a sales representative since October 1992.
From 1979 to October 1992, Mr. Mason was a sales representative with
Argonaut Computer.

Brian Hintergardt has been Executive Vice President of Medical Marketplace
since March 1994. From 1987 until 1993, Mr. Hintergardt was the Chief
Executive Officer, Administrator and Engineer of Coalinga Regional Medical
Center. Mr. Hintergardt has an engineering degree from California
State Polytechnical University.

There are no family relationships among any of such persons, except that L.
Wayne Kiley, the Company's President and Chief Executive Officer, is married to
Nancy Kiley, the Company's Secretary.

All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board.

<PAGE>

Compliance with Section 16(a) of The Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission ("SEC") initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than ten percent (10%)
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.

To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company during the year ended June 30, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent (10%) beneficial owners were satisfied.

Item 10. EXECUTIVE COMPENSATION

The following table shows all the cash compensation paid by the Company to the
Chief Executive Officer and two of the Company's officers who received in excess
of $100,000 in annual salary and bonus during the fiscal years ended June 30,
1997, 1996, and 1995:

<TABLE>

Annual Compensation
Compensation Awards
(a) (b) (c) (d) (g) (i)
<S> <C> <C> <C> <C> <C>
Number of All Other
Name and Principal Positon Year Salary Bonus Options Compensation

L. Wayne Kiley, President 1997 $ 306,977 $ -- 661,667 $ 6,851
Chief Executive Officer and 1996 $ 303,814 $ -- 195,833 $ 1,313
Director 1995 $ 302,500 $ -- 166,667 $ 3,702

Thomas Mason 1997 $211,976 $ -- 143,000 $ 2,375
Vice President 1996 $233,916 $ -- 30,000 $ --
1995 $214,427 $ -- --- $ --

Brian Hintergardt 1997 $119,033 $ -- 33,333 $ 4,523
Executive Vice President 1996 $74,054 $ -- 60,000 $ --
Medical Marketplace(3) 1995 $57,250 $ -- --- $ --

</TABLE>

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

The Company adopted a profit sharing plan in January 1991. The plan
provided for voluntary employee contributions and discretionary contributions by
the Company. The plan was intended to qualify as a defined contribution plan
under the Internal Revenue Code of 1986. The amounts earned

<PAGE>

under the plan by the named individuals in the Executive Compensation table are
reflected under the column headed "All Other Compensation".

In January 1995, the Company adopted a new combined 401(k) and profit
sharing plan (the "Plan") which replaced the prior plans. The new Plan covers
substantially all of the Company's eligible employees. The new Plan is available
to all employees with more than one (1) year of service or, to employees
employed by the Company on February 1, 1995. Company contributions to the profit
sharing component of the Plan will be at the discretion of management. Company
contributions to the 401(K) component of the Plan will be based on a percentage
of employee contributions as determined by management. The charge to operations
related to the Plan for the years ended June 30, 1997 and 1996, was $17,359 and
$18,421, respectively.

In February 1995, the stockholders approved the Company's 1994 Stock
Plan which allows for the issuance of stock options, restricted stock, deferred
stock, bonus shares performance awards, dividend equivalent rights, limited
stock appreciation rights and other stock-based awards, or any combination
thereof. The maximum number of shares of Common Stock with respect to which
awards may be granted is initially 166,667 shares.

In May 1994, the Board of Directors of the Company approved the issuance
of up to 300,000 options to certain employees and consultants of the Company
(the "Options"). The Options vested immediately upon the grant thereof and are
exercisable at $14.40 per share (or 80% of the fair market value on the date of
grant) at any time prior to May 10, 1997. The Company granted 133,333 of the
available Options during fiscal year 1994. The remaining 166,667 Options were
granted in July 1994 to L. Wayne Kiley, the President and Chief Executive
Officer of the Company. In June 1996, the Board of Directors of the Company
approved the issuance of new non-qualified stock options to those employees and
consultants who currently held the Options. These replacement options required
the cancellation of the prior options, vested immediately and were exercisable
at $6.00 per share at any time prior to June 11, 2000. A total of 280,500
options were issued at $6.00 per share. In December 1996, the Company's
Compensation Committee approved the issuance to certain employees, officers and
directors options to purchase an aggregate of 1,000,000 shares of Common Stock
(the "December Options"). In exchange for the issuance of these options, certain
option holders surrendered for cancellation an aggregate of 242,500 options
issued in June 1996 for 722,500 of the December Options. These options vest
immediately and are exercisable over a four (4) year period at $1.00 per share.

On January 3, 1996, the Company's Board of Directors approved the issuance
of 158,083 non-qualified stock options to substantially all employees of the
Company, its subsidiaries, and the non-employee directors, to purchase shares of
the Company's common stock at an exercise price equal to 100% of the market
value of the Company's common stock on the date of grant. The stock options
require future employment or services to the Company and vest one third each on
January 3, 1997, January 3, 1998, and January 3, 1999, respectively. The stock
options must be exercised by January 3, 2006. On January 3, 1996, 157,083 stock
options were granted at an exercise price of $1.6875 per share of which 64,917
are currently outstanding.

<PAGE>

On June 11, 1996, the Company's Board of Directors approved the issuance
of 10,833 non-qualified stock options to seven employees of the Company. These
stock options require future employment with the Company and vest one third each
on June 11, 1997, June 11, 1998 and June 11, 1999, respectfully. The stock
options must be exercised by June 11, 2006. On June 11, 1996, 10,833 stock
options were granted at an exercise price of $3.375 per share.

As of December 1996, the Company's subsidiary, Medical Marketplace, Inc.,
issued to certain employees of, and a consultant to, Medical Marketplace options
to purchase an aggregate of 1,000,000 shares of Medical Marketplace common stock
at an exercise price of $.80 per share. Such options vest over a two (2) year
period commencing in December 1997; provided however, that in the event of an
initial public offering of Medical Marketplace such options vest immediately.

As of December 1996, the Company issued to certain employees,
officers and directors options to purchase an aggregate of 1,000,000 shares of
the Company's Common Stock during a four (4) year period commencing on January
1, 1997 at an exercise price of $1.00 per share (the "Management Options"). In
exchange for the issuance of certain of the Management Options, certain option
holders surrendered for cancellation an aggregate of 240,833 options previously
issued in June 1996 for 722,500 of the Management Options.

The following table contains information concerning the grant of stock
options to named executive officers of the Company during the fiscal year ended
June 30, 1997:

% of Total
Number of Options
Options Granted in Exercise Expiration
Name Granted Fiscal YearPrice ($/sh) Date

L. Wayne Kiley
President 661,667 66% $1.00 1/01/01
Chief Executive Officer and Director

Thomas Mason 143,000 14.3% $1.00 1/01/01
Vice President

Brian Hintergardt 33,333 3.3% $1.00 1/01/01
Executive President--
Medical Marketplace

<PAGE>

<TABLE>

The following table contains information concerning the aggregated option
exercises during the last fiscal year and option positions at June 30, 1997, by
executive officers of the Company:

Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
(a) (b) (c) (d) (e)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options Options at
Number of at FY-End, FY-End,
Shares Acquired Dollar Value Exercisable/ Exercisable
Name on Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>

L. Wayne Kiley - - 671,291/ $6,930/
19,454 $14,007

Thomas Mason - - 143,556/ $400/
1,111 $800

Brian Hintergardt - - 36,111/ $2,000/
$3,999 5,555
Employment Agreements
</TABLE>

On October 16, 1992, the Company entered into an employment agreement for
a five (5) year term (the "Employment Term") including an additional one (1)
year renewal term with L. Wayne Kiley, President and Chief Executive Officer of
the Company. Pursuant to such employment agreement, Mr. Kiley will receive an
annual salary of $275,000 per annum with an annual ten percent (10%) increase,
effective on the agreement anniversary date, so long as the Company is
profitable for the preceding fiscal year. The employment agreement also provides
for the use by Mr. Kiley of a Company car, disability insurance and for bonuses
and other incentive compensation as the Board of Directors deems appropriate,
based upon the Company's operating performance or other reasonable criteria. In
addition, Mr. Kiley will have the option (the "Original Option") to purchase up
to eighteen percent (18%) of the Company's common stock, so long as the Company
achieves certain earnings before the payment of interest and taxes ("EBIT"),
such targets to commence with EBIT of $1,250,000 during any of the Company's
fiscal years occurring during the Employment Term. The purchase price for the
shares of common stock purchased pursuant to the Original Option was equal to
$1.60 per share, which was eighty percent (80%) of the per share price offered
to the public in connection with the Company's initial public offering.

<PAGE>

right to purchase a number of shares of Common Stock for a period of four (4)
years, at a price equal to seventy five percent (75%) of the closing bid price
of the Company's shares of Common Stock on the date of grant equal to 2.5%, 3%
and 3.5% of the shares outstanding, should the Company report annual earnings
before the payment of interest and taxes of $625,000, $875,000 and $1,000,000,
respectively, (iii) Mr. Kiley will be paid a cash bonus equal to 5% of any
profit realized by the Company from the sale of assets outside the ordinary
course of business, and (iv) an insurance policy covering the life of Mr. Kiley
whereby Mr. Kiley's estate will be paid $2,000,000 in exchange for the
redemption of the shares of the Company's capital stock beneficially owned by
Mr. Kiley. The Agreement contains other customary terms and conditions including
termination for cause, non-competition on confidentiality provisions.

Nancy Kiley entered into a five (5) year employment agreement with the
Company as Secretary, effective October 1992. This agreement provides for a base
salary of $18,000 for fiscal year 1992 with increases of $2,000 per year
thereafter. The employment agreement also provided annual cost of living
increases, the use of a Company car, bonuses and other incentive compensation as
the Board of Directors deemed appropriate, based upon the Company's operating
performance or other reasonable criteria. As of March 1, 1997, the Company
suspended, indefinitely, Ms. Kiley's employment agreement.

<PAGE>

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth certain information, as of September 30,
1997, with respect to the beneficial ownership of the outstanding Common Stock
by (i) any holder of more than five percent (5%) of the outstanding shares of
the Company's Common Stock; (ii) each of the Company's named executive officers
and directors; and (iii) the directors and named executive officers of the
Company as a group:

Approximate
Name and Address Amount and Nature of Percent
of Beneficial Owner (1) Beneficial Ownership of Class
- ----------------------- -------------------- -----------------

L. Wayne Kiley (2) 1,013,905 (3) 49.6%

Nancy Kiley (2) 342,794 (4) 25.3%

Kiley Children's Trust (5) 83,333 6.2%

J. R. Achten 113,611 (6) 8.3%

Thomas E. Evans, Jr. 10,278 (8) .8%

Thomas Mason 143,556(9) 9.6%

Brian Hintergardt 36,111(10) 2.9%

Victoria Holdings, Inc. 1,000,000(11) 42.5%
c/o Biltmore Securities, Inc.
6700 North Andrews Avenue
Ft. Lauderdale, FL 333094

Directors and Executive 1,224,683 54.6%
Officers as a Group
(7 persons) (3)(4)(6)(7)(8)(9)(10)

(1) Unless otherwise indicated, the address of the beneficial owner is:
c/o Computer Marketplace(R), Inc., 1490 Railroad Street, Corona, California,
91720.

(2) L. Wayne Kiley and Nancy Kiley are the joint owners of 249,183 shares of
the common stock. The children of L. Wayne Kiley and Nancy Kiley are the
beneficiaries of the Kiley Children's Trust, which trust holds 83,333
shares of common stock. In addition L. Wayne Kiley and Nancy Kiley formed
and are directors of a charitable organization called Operation Frontline
which holds 10,000 shares of common stock. The Kiley's disclaim beneficial
ownership with respect to the shares of common stock held by the Kiley
Children's Trust and Operation Frontline.

<PAGE>

(3) Includes (a) 83,333 shares of Common Stock held by the Kiley Children's
Trust, (b) 10,000 shares of Common Stock held by Operation Frontline, (c)
options issued in January 1996 exercisable for 29,166 shares of Common
Stock at $1.6875 per share, one-third of which vested on January 3, 1997
and (d) options issued as of December 1996 exercisable for 661,667 shares
of Common Stock at $1.00 per share. See "Executive Compensation." Mr.
Kiley disclaims the beneficial ownership of the Company's securities held
individually by his wife, Nancy Kiley.

(4) Includes (a) 83,333 shares of Common Stock held by the Kiley Children's
Trust, (b) 10,000 shares of Common Stock held by Operation Frontline, and
(c) options issued in January 1996 exercisable for 833 shares of Common
Stock at $1.6875 per share, one-third of which vested on January 3, 1997.
Ms. Kiley disclaims the beneficial ownership of the Company's securities
held individually by her husband, L. Wayne Kiley.

(5) The Kiley Children's Trust was formed by L. Wayne Kiley and Nancy Kiley
for the benefit of their children.

(6) Includes (a) 83,333 shares of common stock held by the Kiley Children's
Trust of which Mr. Achten is the sole trustee, (b) 10,000 shares of common
stock held by Operation Frontline of which Mr. Achten is a director, (c)
options issued in January 1996 exercisable for 833 shares of Common Stock
at $1.6875 one-third of which vested on January 3, 1997, and (d) options
issued as of December 1996 exercisable for 20,000 shares of Common Stock
at $1.00 per share. Mr. Achten disclaims beneficial ownership with respect
to the shares of common stock held by the Kiley Children's Trust and
Operation Frontline.

(7) Includes (a) options issued in January 1996 exercisable for 8,333 shares
of Common Stock at $1.6875 per share, one-third of which vested on January
3, 1997 and (b) options issued as of December 1996 exercisable for 30,000
shares of Common Stock at $1.00 per share.

(8) Includes (a) options issued in January 1996 exercisable for 833 shares of
Common Stock at $1.6875 per share, one-third of which vested on January 3,
1997, and (b) options issued as of December 1996 exercisable for 10,000
shares of Common Stock at $1.00 per share.

(9) Includes (a) options issued in January 1996 exercisable for 1,667 shares
of Common Stock at $1.6875 per share and (b) options
issued in December 1996 exercisable for 143,000 shares at $1.00 per share.

(10) Includes (a) options issued in January 1996 exercisable for 8,333 shares
of Common Stock at $1.6875 per share and (b) options
issued in December 1996 exercisable for 33,333 shares at $1.00 per share.

(11) Includes options issued as of December 1996 exercisable for 1,000,000
shares of Common Stock at $1.00 per share pursuant
to a Consulting Agreement with the Company. See "Certain Transactions."

<PAGE>

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company leased office space for its branch office at Traverse City,
Michigan, from the Company's President. The rent for this approximately 2,700
square foot location was $2,700 per month. The three-year lease, which contained
an option for the Company or the landlord to cancel with six (6) months notice
after each full year was to expire on July 31, 1998. The Company closed this
office and on April 21, 1997 and provided Mr. Kiley, the landlord, with six (6)
months prior written notice of its intent to cancel the lease upon the
expiration of the six month notice period.

In January 1996, the Board of Directors of the Company approved the
issuance of up to 158,083 options to certain employees and consultants of the
Company (the "Options"). The Options vest over a three (3) year period of time
and are exercisable at $1.6875 per share (the fair market value on the date of
grant) at any time prior to January 3, 2006.

As of October 1996, the Company amended its employment agreement with L.
Wayne Kiley, the Company's Chairman of the Board, President and Chief Executive
Officer. Pursuant to such amendment, (i) the employment agreement's expiration
date of October 16, 1997 was extended to October 16, 1999, (ii) Mr. Kiley was
granted the right to purchase a number of shares of Common Stock for a period of
four (4) years, at a price equal to seventy five percent (75%) of the closing
bid price of the Company's shares of Common Stock on the date of grant equal to
2.5%, 3% and 3.5% of the shares outstanding, should the Company report annual
earnings before the payment of interest and taxes of $625,000, $875,000 and
$1,000,000, respectively, (iii) Mr. Kiley will be paid a cash bonus equal to 5%
of any profit realized by the Company from the sale of assets outside the
ordinary course of business, and (iv) an insurance policy covering the life of
Mr. Kiley whereby Mr. Kiley's estate will be paid $2,000,000 in exchange for the
redemption of the shares of the Company's capital stock beneficially owned by
Mr. Kiley. The Agreement contains other customary terms and conditions including
termination for cause, non-competition on confidentiality provisions.

<PAGE>

of a controlling interest in the Company's capital stock, to a purchaser
introduced to the Company by Victoria Holdings resulting in net proceeds to the
Company in excess of $2,000,000.

As of December 1996, the Company issued to certain employees, directors
and consultants of the Company (the "Management Optionholders") options (the
"Management Options") to purchase an aggregate of 1,000,000 shares of the
Company's Common Stock during a four (4) year period commencing on January 1,
1997 at an exercise price of $1.00 per share. In exchange for the issuance of
certain of the Management Options, certain option holders surrendered for
cancellation an aggregate of 240,832 options previously issued in June 1996 for
722,500 of the Management Options.

On December 31, 1996 the Company concluded a private placement of 500,000
Units (the "December 1996 Private Placement") which were placed by Biltmore, on
a firm commitment basis. Each Unit was offered at a price of $2.00 per Unit, and
consisted of one (1) share of Common Stock of Medical Marketplace, Inc., and
eighteen (18) Class D Redeemable Common Stock Purchase Warrants (the "Class D
Warrants"). Each six (6) Class D Warrants are exercisable for one (1) share of
the Company's Common Stock commencing March 31, 1997 at an exercise price of
$2.50 per share for a one (1) year period.

The Company, its officers, directors and employees and holders of 5% or
more of the outstanding shares of Common Stock have agreed not to sell, pledge,
transfer or hypothecate any shares of capital stock of the Company or any
securities convertible into, or exercisable or exchangeable for, shares of
capital stock of the Company for a period eighteen (18) months from December 31,
1996 without Biltmore's prior consent.

With respect to each of the foregoing transactions, the Company believes
that the terms of such transactions were as fair to the Company as could be
obtained from an unrelated third party. Future transactions with affiliates will
be on terms no less favorable than could be obtained from unaffiliated parties
and will be approved by a majority of the independent and/or disinterested
members of the board of directors.

<PAGE>

PART IV

Item 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) (1) Financial Statements

The financial statements listed in the accompanying index to financial
statements are filed as part of this annual report.

(a) (2) Financial Statement Schedules

All schedules are omitted because they are not applicable or the
information required is included in the consolidated financial statements and
notes thereto.

(a) (3) Exhibits

The following is a list of exhibits filed as part of this Annual Report. Where
so indicated by footnote, the exhibits have either been previously filed, and
are hereby incorporated by reference:

Exhibit
Number

1.01 Form of Underwriting Agreement. (1)

1.02 Form of Selected Dealers Agreement. (1)

3.01 Certificate of Incorporation of the Company. (1)

3.02 By-Laws of the Company. (1)

3.03 Certificate of Amendment of Certificate of Incorporation. (3)

4.01 Certificate for shares of Common Stock. (1)

4.02 Specimen Certificate for Class A Warrants. (1)

4.03 Specimen Certificate for Class B Warrants. (1)

4.04 Intentionally left blank.

4.05 Form of Warrant Agreement. (1)

4.06 Form of Underwriter's Unit Purchase Option. (1)

5.01 Opinion of Brandeis, Bernstein & Wasserman, as counsel to the
Company. (1)

10.01 Promissory Note dated December 28, 1993, between Computer Marketplace,
Inc. and Yosemite Bank. (3)

10.02 Business Loan Agreement dated December 28, 1993, between Computer
Marketplace, Inc. and Yosemite Bank. (3)

10.03 Deed of Trust dated December 28, 1993, among Computer Marketplace,
Inc., Yosemite Bank
and Fidelity National Title. (3)

<PAGE>

10.04 Loan and Security Agreement dated September 14, 1995, by Computer
Marketplace, Inc., Superior Solutions, Inc. and Medical Marketplace,
Inc., in favor of CoastFed Business Credit
Corporation. (5)

10.05 Accounts Collateral Security Agreement dated September 14, 1995,
by Computer Marketplace, Inc., Superior Solutions, Inc. and Medical
Marketplace, Inc., in favor of CoastFed Business
Credit Corporation. (5)

10.06 Inventory Collateral Security Agreement dated September 14,1995, by
Computer Marketplace, Inc., Superior Solutions, Inc. and
Medical Marketplace, Inc., in favor of CoastFed Business
Credit Corporation. (5)

10.07 Joint and Several Borrower Rider dated September 14, 1995, by
Computer Marketplace, Inc., Superior Solutions, Inc. and Medical
Marketplace, Inc., in favor of CoastFed Business Credit
Corporation. (5)

10.08 Amended Employment Agreement between the Company and L.Wayne Kiley. (6)

10.09 Consulting Agreement between the Company and Victoria Holdings, Inc. (6)

10.10 Option to Purchase Common Stock of the Company issued to
Victoria Holdings, Inc. (6)

10.11 Form of Option Agreement. (6)

10.12 Standard Offer, Agreement and Escrow Instructions for Purchase of Real
Estate regarding the sale of Computer Marketplace's headquarters
facility located in Corona, California. (6)

21.01 Subsidiaries of the Registrant

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

(1) Previously filed with the Securities and Exchange Commission as Exhibits to
the Registrant's Registration. Statement of Form SB-2, File No. 33-60346LA,
dated June 22, 1993, and incorporated herein by reference.

(2) Incorporated herein by reference to the Form 10-KSB of the Registrant for
the year ended June 30, 1993.

(3) Incorporated herein by reference to the Form 10-KSB of the Registrant for
the year ended June 30, 1994.

(4) Incorporated herein by reference to the Form 10-QSB of the Registrant for
the quarterly period ended December 31, 1994.

(5) Incorporated herein by reference to the Form 10-KSB of the Registrant for
the year ended June 30, 1995.

(6) Incorporated herein by reference to the Registration Statement on Form SB-2
of the Registrant dated June 11, 1997.

(b) Reports on Form 8-K

None.

<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------

Pages

Report of Independent Auditors....................................... F-1

Consolidated Balance Sheet as of June 30, 1997....................... F-2

Consolidated Statements of Operations for the years ended June 30, 1997 F-3 1996

Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1997 and 1996............................................... F-4

Consolidated Statements of Cash Flows for the years ended June 30,
1997 F-5 - F-6

Notes to Consolidated Financial Statements......................... F-7 - F-18

. . . . . . . . .

<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Computer Marketplace(R), Inc.

We have audited the accompanying consolidated balance sheet of Computer
Marketplace(R), Inc., and its subsidiaries, as of June 30, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two fiscal years in the period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Computer Marketplace(R), Inc. and its subsidiaries as of June 30,
1997, and the consolidated results of their operations and their cash flows for
each of the two fiscal years in the period ended June 30, 1997, in conformity
with generally accepted accounting principles.

MOORE STEPHENS, P. C.
Certified Public Accountants.

Cranford, New Jersey
August 14, 1997

F-1

<PAGE>

<TABLE>

COMPUTER MARKETPLACE(R), INC., AND SUBSIDIARIES
- ------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997.
- ------------------------------------------------------------------------------

<S> <C>

Assets:
Current Assets:
Cash and Cash Equivalents $ 1,500,540
Accounts Receivable [Less Allowance for Doubtful Accounts of $171,810] 1,695,233
Inventory [Net of Valuation Allowance of $132,803] 492,423
Other Current Assets 52,592

Total Current Assets 3,740,788

Property Held for Sale - Net 486,534

Property and Equipment - Net 649,550

Other Assets 47,540

Total Assets $ 4,924,412
===========

Liabilities and Stockholders' Equity:
Current Liabilities:
Notes Payable $ 443,388
Accounts Payable 1,377,038
Accrued Payroll and Payroll Related Liabilities 155,045
Current Portion of Long-term Debt 48,929
Other Current Liabilities 261,305
-----------

Total Current Liabilities 2,285,705

Long-Term Debt 158,293

Minority Interest in Net Assets of Subsidiary 118,438
-----------

Commitments and Contingencies --

Stockholders' Equity:
Preferred Stock - $.0001 Par Value, 1,000,000 Shares
Authorized, No Shares Issued and Outstanding --

Common Stock - $.0001 Par Value, 50,000,000 Shares
Authorized, 1,352,424 Shares Issued and Outstanding 135

Deferred Compensation (457,276)

Capital in Excess of Par Value 8,785,100

Accumulated Deficit (5,965,983)

Total Stockholders' Equity 2,361,976

Total Liabilities and Stockholders' Equity $ 4,924,412
===========

See Notes to Consolidated Financial Statements.

</TABLE>

F-2

<PAGE>

<TABLE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------

Years ended
June 30,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Revenues:
Product Sales, Rental, Service and Other $23,770,908 $30,000,952
----------- -----------

Cost and Expenses:
Cost of Revenues - Product Sales, Rental, Service and
Other 21,077,229 25,386,732
Selling, General and Administrative 5,862,084 5,601,670

Total Cost and Expenses 26,939,313 30,988,402
---------- -----------

Operating Loss (3,168,405) (987,450)
---------- -----------

Other Income [Expense]:
Interest Expense (395,555) (371,728)
Interest Income 5,994 3,840
Gain on Sale of Assets 168,904 --
Miscellaneous Income 38,202 23,907
---------- -----------

Total Other [Expense] (182,455) (343,981)
---------- -----------

Loss Before Income Taxes and Minority Interest
in Income of Subsidiary (3,350,860) (1,331,431)

Provision for Income Taxes -- --

Minority Interest in Income of Subsidiary 3,425 --
---------- -----------

Net Loss $(3,347,435) $(1,331,431)
=========== ===========

Net Loss Per Share $ (2.48) $ (.98)
========== ===========

Weighted Average Common Shares Outstanding 1,352,424 1,352,424
========== ===========

See Notes to Consolidated Financial Statements.

F-3
</TABLE>

<PAGE>

<TABLE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------

Capital in Total
Common Stock Excess of Accumulated Deferred Stockholders'
Shares Amount Par Value Deficit Compensation Equity
<S> <C> <C> <C> <C> <C> <C>

Balance - June 30, 1995 1,352,424 $ 135 $6,907,269 $(1,287,117 $ -- $5,620,287

Net Loss -- -- -- (1,331,431) -- 1,331,431
------- ------- --------- ---------- -------- ----------

Balance - June 30, 1996 1,352,424 135 6,907,269 (2,618,548) -- 4,288,856

Net Loss -- -- -- (3,347,435) -- (3,347,435)

Issuance of Warrants
[Private Placement
Offering of Subsidiary -- -- 274,031 -- -- 274,031

Issuance of Options [To
Non-employees] -- -- 599,728 -- (548,728) 51,000

Amortization of
Deferred Compensation -- -- -- -- 91,452 91,452

Issuance of Options
[To Employees] -- -- 468,000 -- -- 468,000

Sale of Subsidiary Stock -- -- 553,857 -- -- 553,857

Additional Offering
Costs in Connection
With Private Placement
Offering -- -- (17,785) -- -- (17,785)
------- ------- --------- --------- -------- ----------

Balance - June 30, 1997 1,352,424 $ 135 $8,785,100 $(5,965,983 $(457,276) $2,361,976
========== ====== ========== ============ ======== ==========

See Notes to Consolidated Financial Statements.

F-4
</TABLE>

<PAGE>

<TABLE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------

Years ended
June 30,
1 9 9 7 1 9 9 6
------- -------

Operating Activities:
Net Loss $(3,347,435) $(1,331,431)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation and Amortization 393,356 302,062
Provisions for Losses on Accounts Receivable 184,134 151,367
Provisions for Losses on Inventory 245,867 221,216
Other Valuation Provisions -- (5,004)
Gain on Sale of Property and Equipment (168,904) --
Write-off of Goodwill -- 174,218
Minority Interest in Consolidated Subsidiary (3,425) --
Compensation Expense Due to Options Issued 519,000 --
Other 20,000 (1,492)

Changes in Assets and Liabilities:
Accounts Receivable 1,166,376 173,517
Inventory 2,176,980 (69,775)
Other Current Assets 342,156 (86,656)
Accounts Payable (718,878) 5,261
Accrued Payroll and Related Liabilities (140,148) (171,063)
Other Current Liabilities (4,090) 28,977
---------- -----------

Net Cash - Operating Activities 664,989 (608,803)
---------- -----------

Investing Activities:
Decrease in Loans/Notes Receivable - Related Parties 45,744 14,485
Purchases of Property and Equipment (11,317) (370,631)
Proceeds from Sale of Property and Equipment 2,345,926 10,775
Other (37,700) (41,317)
---------- -----------

Net Cash - Investing Activities 2,342,653 (386,688)
---------- -----------

Financing Activities:
Net Decrease in Notes Payable (1,731,453) 874,841
Principal Payments on Long-term Debt (1,302,085) (53,349)
Net Proceeds to the Company from Sale of Common
Stock of Subsidiary 894,181 --
Proceeds from Long-term Debt 19,549 21,255
Offering Costs 17,785 --
---------- -----------

Net Cash - Financing Activities (2,102,023) 842,747
---------- -----------

Increase [Decrease] in Cash and Cash Equivalents 905,619 (152,744)

Cash and Cash Equivalents - Beginning of Years 594,921 747,665
---------- -----------

Cash and Cash Equivalents - End of Years $1,500,540 $ 594,921
========== ===========

See Notes to Consolidated Financial Statements.

F-5

<PAGE>

</TABLE>

<TABLE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------

Years ended
June 30,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>

Supplemental Disclosures of Cash Flow Information:
Cash Paid for Interest $ 367,100 $ 354,553
Cash Paid for Income Taxes $ -- $ 4,776

Supplemental Disclosure of Non-Cash Investing and
Financing Activities: Reclassification of Accounts
Payable to Other Liabilities to Reflect
Negotiated Payment Terms $ -- $ 274,235

Note Receivable and Related Debt Exchanged For Increased
Ownership in Building - Net $ 150,000 $ --

Effect of Recording Minority Interest on Paid in Capital $ 121,863 $ --

Transfer of Inventory Items to/from Rental Equipment $ 236,584 $ --

See Notes to Consolidated Financial Statements.

F-6

<PAGE>

</TABLE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------- -----------------------------------------------------------------------

[1] Organization and Business

Computer Marketplace, a California corporation, was incorporated on July 19,
1983, as Quality Associates, Inc. and changed its name to Computer Marketplace
in June 1987. In March 1993, Computer Marketplace changed its name to Computer
Marketplace(R), Inc. ["Computer Marketplace"] and its state of incorporation
from California to Delaware. Computer Marketplace and its subsidiaries is
currently engaged in the national wholesale distribution of new and used
computer equipment to dealers, computer maintenance companies, leasing
companies, equipment brokers, and end-users. Computer Marketplace purchases
computer equipment from a variety of sources and suppliers and sells or rents
the equipment nationwide and in Europe to companies ranging in size from small
companies to Fortune 500 corporations. The computer industry is highly
competitive and may be affected by rapid changes in technology and customer
spending habits.

[2] Summary of Significant Accounting Policies

Sale of Stock by a Subsidiary - Changes in the Company's proportionate share of
subsidiary equity are accounted for as equity transactions [See Note 10].

Basis of Consolidation - The accompanying consolidated financial statements
include the accounts of Computer Marketplace and various subsidiaries in which
Computer Marketplace holds a majority ownership interest. All material
intercompany balances and transactions have been eliminated.

Revenue Recognition - The Company records product sales revenue when goods have
been shipped and rental revenue ratably over the term of the rental.

Cash and Cash Equivalents - The Company considers all highly liquid instruments
with a maturity of three [3] months or less when purchased to be cash
equivalents.

Inventory - Inventory, which consists primarily of previously owned finished
goods, is stated at the lower of cost or net realizable value. Cost is generally
determined by specific identification.

Property and Equipment and Depreciation - Property and equipment are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which range from 3 to 30 years.

Property Held for Sale - Property held for sale is stated at carrying value,
which is the lower of carrying value or fair value less cost to sell.

F-7

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- ------------------------------------------------------------------------------

[2] Summary of Significant Accounting Policies [Continued]

Impairment - Certain long-term assets of the Company, including property and
equipment, and customer lists, are reviewed at least annually to determine
whether their carrying value has become impaired, pursuant to guidance
established in the Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." Management considers these assets to be impaired if the
carrying value exceeds the discounted future projected cash flows from related
operations. If impairment is deemed to exist, these assets will be written down
to the lower of projected discounted cash flows from related operations or
management's estimate of fair value. Management also re-evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of the useful lives of these assets. In June 1996, the Company
charged operations $174,218 related to the write-off of goodwill. As of June 30,
1997, management expects the remaining assets which at June 30, 1997 consists of
customer lists amounting to $9,340, to be fully recoverable.

Net Loss Per Share of Common Stock - Net loss per share of common stock is
computed on the basis of the weighted average share of common stock outstanding
plus equivalent shares arising from the effect of dilutive stock options and
warrants using the treasury stock method. For fiscal years 1997 and 1996, the
per share results were computed without consideration for contingently issuable
shares underlying stock options and warrants as the effect on the per share
results would be anti-dilutive.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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
reporting period.
Actual results could differ from those estimates.

Reclassification - Certain reclassifications have been made to prior year
consolidated financial statements to conform to classifications used in the
current year.

Advertising Costs - Advertising costs are expensed when incurred. Advertising
costs amounted to $77,265 and $146,355 for the years ended June 30, 1997 and
1996, respectively.

Stock Options Issued to Employees - The Company adopted SFAS No. 123 on July 1,
1996 for financial note disclosure purposes and will continue to apply the
intrinsic value method of Accounting Principles Board ["APB"] Opinion No. 25 for
financial reporting purposes.

Amortization - Intangibles at June 30, 1997 consists of customer lists, which
amounts to $9,340, and is included in "other assets" on the consolidated balance
sheet. It is being amortized using the straight-line method over 5 years.
Amortization expense for the year ended June 30, 1997 and 1996 was $63,992 and
$26,098, respectively. This expense includes amortization of deferred financing
fees associated with a related mortgage payable at June 30, 1996, which were
fully amortized at June 30, 1997.

F-8

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- ------------------------------------------------------------------------------

[3] Property and Equipment

Property and equipment consists of the following as of June 30, 1997:

Machinery and Equipment $ 674,028
Furniture and Fixtures 135,578
Automobiles and Trucks 103,051
Long-Term Rental Equipment 330,000
------------

Total 1,242,657
Less: Accumulated Depreciation (593,107)

Property and Equipment - Net $ 649,550
---------------------------- ============

Depreciation expense for the years ended June 30, 1997 and 1996 was $237,912 and
$275,964, respectively.

Property Held for Sale - Property held for sale consists of two facilities:

205 East 5th Street, Corona, California $ 226,109
5081 Highway 140, Mariposa, California 260,425

Total Property Held for Sale $ 486,534
---------------------------- ============

Management expects to dispose of these assets within one year from June 30,
1997.

In June 1997, the Company sold its main facility for net proceeds of
approximately $2,300,000, which resulted in a gain of approximately $260,000.
The Company used approximately $1,250,000 of the proceeds to pay off the related
mortgage payable.

[4] Notes Payable

In September 1995, the Company entered into a new revolving credit facility
agreement ["Credit Facility"] with a financing company. This Credit Facility
replaced the then outstanding $2,000,000 revolving credit line with a bank. The
Credit Facility allows the Company to borrow up to $2,500,000 and bears interest
at rate of 2.25% above "prime rate" [as defined]. The borrowing capacity under
the Credit Facility is dependent upon "eligible" [as defined] accounts
receivable and inventory, and fluctuates daily. At June 30, 1997, borrowings
under the Credit Facility and additional amounts available for borrowing under
the Credit Facility were $443,388 and $94,074, respectively. The Credit Facility
is collateralized by substantially all of the Company's assets, except for real
property. The Credit Facility, as amended, expires in December 31, 1997. At June
30, 1997, the interest rate was 10.75%.

F-9

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- ------------------------------------------------------------------------------

[5] Long-Term Debt

As of June 30, 1997, long-term debt consisted of the following:

Note payable to a bank, due February 2, 1999, interest at 9.25%,
payment of principal and interest of $1,391 per month, balloon
payment of $151,421 due February 2, 1999, collateralized by real
estate deed of trust. $ 154,370

Note payable to a bank due January 1, 1998, interest at a variable rate, balloon
payment of $34,395 due January 1, 1998, collateralized by a real estate deed
of trust. The interest rate at June 30, 1997 is 10.5%. 39,098

Other 13,754

Total 207,222
Less: Current Portion of Long-Term Debt (48,929)
-----------

Total Long-Term Debt $ 158,293
-------------------- ===========

The prime rate at June 30, 1997, was 8.5%

Maturities of principal due in the following years are set forth below:

Year ending
June 30,
1998 $ 48,929
1999 157,871
2000 422
Thereafter --
-----------

Total $ 207,222
----- ===========

[6] Employment Contracts

The Company has employment contracts with most of its sales representatives for
terms ranging from one [1] to three [3] years. Commissions are paid monthly
based on a Company formula. As part of the contracts, the sales representatives
agree to a restrictive covenant not-to-compete upon termination.

In October 1996, the Company amended its employment agreement with L. Wayne
Kiley, the Company's Chairman of the Board, President and Chief Executive
Officer. Pursuant to such amendment, (i) the employment agreement expiration
date of October 16, 1997 was extended to October 16, 1999, (ii) Mr. Kiley was
granted the right to purchase a number of shares of Common Stock for a period of
four (4) years, at a price equal to seventy five percent [75%] the closing bid
price of the Company's shares of Common Stock on the date of grant equal to
2.5%, 3% and 3.5% of the shares of common stock outstanding, should the Company
report annual earnings before the payment of interest and taxes of $625,000,
$875,000 and $1,000,000, respectively, (iii) Mr. Kiley will be paid a cash bonus
equal to 5% of any profit realized by the Company from the sale assets outside
the ordinary course of business and (iv) an insurance policy covering the life
of Mr. Kiley whereby Mr. Kiley's estate will be paid $2,000,000 in exchange for
the redemption of the shares of the Company's capital stock beneficially owned
by Mr. Kiley. The employment agreement contains other customary terms and
conditions including termination for cause, non-competition and confidentiality
provisions. Mr. Kiley will receive an annual salary of $302,500; to be increased
6% annually.

F-10

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- ------------------------------------------------------------------------------

[7] Fair Value Of Financial Instruments

Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.

For certain financial instruments, including cash and cash equivalents, trade
receivables, trade payables, and short-term debt, it was estimated that the
carrying amount approximated fair value for the majority of these items because
of their short maturities. Management estimates that the carrying value of its
other long-term debt approximates its fair value because the applicable interest
rates approximates the current market rates. The fair value of one loan in the
Company's long-term debt is estimated by discounting expected cash flows at the
rates currently offered to the Company for debt of the same remaining
maturities.

June 30, 1997
Carrying Fair
Amount Value

Total Long-Term Debt $158,293 $155,391

[8] Profit Sharing Plan and 401[k] Plan

In January 1995, the Company adopted a new combined 401[k] and profit sharing
plan [the "Plan"] which replaced the prior plans. The new Plan will cover
substantially all of the Company's eligible employees. The new Plan is available
to all employees with more than one [1] year of service or, to employees
employed by the Company on February 1, 1995. Company contributions to the 401[k]
component of the Plan is based on a percentage of employee contributions, but is
at the discretion of management. The charge to operations related to the
Company's contribution to the Plan for the years ended June 30, 1997 and 1996,
was $17,359 and $18,421, respectively.

[9] Income Taxes

Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and tax
purposes. Temporary differences are caused primarily by depreciation, inventory
valuation allowances and accounts receivable allowance for doubtful accounts.

Generally accepted accounting principles require the establishment of a deferred
tax asset for all deductible temporary differences and operating loss
carryforwards. The deferred tax asset attributable to operating loss
carryforwards amounted to approximately $2,015,000 at June 30, 1997. Because the
Company does not as yet have a history of continuing profitability, any deferred
tax asset established for the operating loss carryforward would correspondingly
require a valuation of allowance of the same amount. Accordingly, no deferred
tax asset is reflected in these consolidated financial statements. The change in
the valuation allowance during the fiscal year ended June 30, 1997 was
approximately $1,015,000.

F-11

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- ------------------------------------------------------------------------------

[9] Income Taxes [Continued]

No provision for Federal income taxes has been made during the fiscal years
ended June 30, 1997 and 1996, because of the Company's net loss position.

The Company's net operating loss carryforwards of approximately $5,305,000 begin
to expire as follows:

Year ended
June 30, Amount

2008 $ 210,000
2010 922,000
2011 1,085,000
2012 3,088,000
----------

Total $5,305,000

[10] Stockholders' Equity

Initial Public Offering - On June 22, 1993, the Company completed the initial
public offering of 690,000 units [including the 90,000 underwriters
over-allotment units] at $2.00 per unit resulting in net proceeds to the Company
of $6,594,179. Each unit consists of one [1] share of common stock and one [1]
Class A Redeemable Common Stock Purchase Warrant and one [1] Class B Redeemable
Common Stock Purchase Warrant. Each six [6] Class A and B Redeemable Common
Stock Purchase Warrant entitles the holder to purchase two [2] shares of common
stock for $28.50 and $33.00, respectively, commencing one [1] year from the
effective date of the offering. In connection with the offering, the Company
sold to the Underwriter, for nominal consideration, warrants to purchase an
aggregate of 360,000 units ["Underwriters Unit Purchase Options"]. The
Underwriters Unit Purchase Option is exercisable for a four [4] year period
commencing two [2] years after the effective date of the offering at an exercise
price of $3.30 per Unit.

Stock Split - In April 1997, the Company effected a one-for-six reverse stock
split of the outstanding shares of common stock of the Company by changing the
8,114,542 then outstanding shares of common stock, par value $.0001 per share,
into 1,352,424 shares of common stock of the Company, par value $.0001 per
share. All share data has been adjusted and retroactively restated to reflect
this change.

Stock Transactions of Subsidiary - On December 31, 1996 the Company concluded a
private placement of 500,000 Units [the "Private Placement"]. Each Unit was
offered at a price of $2.00 per Unit, and consisted of one [1] share of Common
Stock of Medical Marketplace, Inc., a subsidiary of the Company, and eighteen
[18] of the Company's Class D Redeemable Common Stock Purchase Warrants [the
"Class D Warrants"]. Six [6] Class D Warrants are currently exercisable for one
[1] share of the Company's Common Stock commencing March 31, 1997 at an exercise
price of $2.50 per share for a one [1] year period. Net proceeds from the
Private Placement were $894,181, of which Computer Marketplace recognized an
increase in paid-in-capital of $553,857 on a consolidated basis. The subsidiary
also issued warrants which are exercisable for the parent's common stock, valued
at $274,031. Additional costs relating to the private placement were $17,785,
reducing paid-in-capital. This issuance reduced Computer Marketplace's ownership
of Medical Marketplace from 100% to 83%.

F-12

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
- ------------------------------------------------------------------------------

[10] Stockholders' Equity [Continued]

Stock Options and Other Stock-Based Awards - In May 1994, the Board of Directors
of the Company approved the issuance of up to 300,000 options to certain
employees and consultants of the Company [the "Options"]. The Options vest
immediately upon the grant thereof and are exercisable at $14.40 per share [or
80% of the fair market value on the date of grant] at any time prior to May 10,
1997. The Company granted 166,667 options in July 1994 to the President of the
Company. In June 1996 the Board of Directors of the Company approved the
issuance of new non-qualified stock options to those employees and consultants
who currently held any of the options exercisable at $14.40 per share. These
replacement options required the cancellation of the prior options and are
immediately vested and are exercisable at $6.00 per share at any time prior to
June 11, 2000. A total of 280,500 options were issued at $6.00 per share.

In February 1995, the stockholders approved the Company's 1994 Stock Plan which
allows for the issuance of stock options, restricted stock, deferred stock,
bonus shares performance awards, dividend equivalent rights, limited stock
appreciation rights and other stock-based awards, or any combination thereof.
The maximum number of shares of Common Stock with respect to which awards may be
granted is initially 166,667 shares. No awards or shares have been granted under
the 1994 stock plan.

On January 3, 1996, the Company's Board of Directors approved the issuance of
158,083 non-qualified stock options to substantially all employees of the
Company, its subsidiaries, and the non-employee directors, to purchase shares of
the Company's common stock at an exercise price equal to 100% of the market
value of the Company's common stock on the date of grant. The stock options
require future employment or services to the Company and vest one third each on
January 3, 1997, January 3, 1998, and January 3, 1999, respectively. The stock
options must be exercised by January 3, 2006. On January 3, 1996, 157,083 stock
options were granted at an exercise price of $1.6875 per share.

On June 11, 1996, the Company's Board of Directors approved the issuance of
10,833 non-qualified stock options to seven employees of the Company. These
stock options require future employment to the Company and vest one third each
on June 11, 1997, June 11, 1998 and June 11, 1999, respectfully. The stock
options must be exercised by June 11, 2006. On June 11, 1996, 10,833 stock
options were granted at an exercise price of $3.375 per share.

In December 1996 the Company entered into a three [3] year consulting agreement
with Victoria Holdings, Inc. an affiliate of Biltmore Securities, Inc.
["Victoria Holdings" and "Biltmore", respectively]. Pursuant to the consulting
agreement, Victoria Holdings agreed to act as a consultant to the Company in
connection with, among other things, corporate finance and evaluations of
possible business partners and will seek to find business partners suitable for
the Company. In addition, Victoria Holdings has agreed to assist the Company in
the structuring, negotiating and financing of such transactions. In accordance
with the terms of the consulting agreement, the Company issued options to
Victoria Holdings [the "Victoria Holdings Options"] exercisable to purchase
1,000,000 shares of Common Stock at an exercise price of $1.00 per share. The
options are exercisable for a 5 year period commencing December 31, 1996. In the
event the Company consummates (i) an acquisition of a company [or companies]
introduced to the Company by Victoria Holdings with net assets of at least
$2,500,000 or (ii) a divestiture of the Company's assets, or the sale of a
controlling interest in the Company's capital stock, to a purchaser introduced
to the Company by Victoria Holdings resulting in net proceeds to the Company in
excess of $2,000,000, Victoria Holdings shall receive 1,000,000 shares of Common
Stock simultaneously with the closing of such transactions.

F-13

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
- ------------------------------------------------------------------------------

[10] Stockholders' Equity [Continued]

Stock Options and Other Stock-Based Awards [Continued] - In December 1996, the
Company issued to certain employees, officers and directors options to purchase
an aggregate of 1,000,000 shares of the Company's Common Stock during a four [4]
year period commencing on January 1, 1997 at an exercise price of $1.00 per
share [the "Management Options"]. In exchange for the issuance of certain of the
Management Options, certain option holders surrendered for cancellation an
aggregate of 242,250 options previously issued in June 1996 for 722,500 of the
Management Options.

Performance stock rights are granted at greater than 5% of the market price and
are normally exercisable over four years from the date of grant [See Note 6].

The following is a summary of transactions under the plans:
Weighted
Number of Weighted Average Average
Common SharesExercise Price Fair Value

Options Outstanding at June 30, 1995 295,833 $ 14.40 $ 3.70

Granted 448,417 4.43 .42
Cancelled (298,333) 14.30
----------

Options Outstanding at June 30, 1996 445,917 $ 4.44 $ .42

Granted 2,000,000 1.00 .12
Cancelled (391,000) 4.81
----------

Options Outstanding at June 30, 1997 2,054,917 $ 1.02 $ .14
- ------------------------------------ ==========

Options Exercisable at June 30, 1997 2,011,639 $ 1.01 $ .14
- ------------------------------------ ==========

All options granted during the year ended June 30, 1996 had an exercise price
equal to the market price on the grant dates. All options granted during the
year ended June 30, 1997 had an exercise price less than the market price on the
grant dates.

For the performance-based rights, the number of shares is based on a percentage
of shares outstanding on the grant date, and the exercise price is 75% of market
value at performance achievement [See Note 6].

The following is a summary of the status of fixed options outstanding at June
30, 1997:

Outstanding Options Exercisable Options
Remaining
Exercise Contractual Exercise
Price Number Life Number Price

$ 1.6875 64,917 9.5 Years 21,639 1.6875
1.0000 1,000,000 4.5 Years 1,000,000 1.0000
1.0000 990,000 3.5 Years 990,000 1.0000
--------- ----------

2,054,917 2,011,639
========= ==========

Outstanding
Options

Weighted Average Remaining Contractual Life 4.2 Years

F-14

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
- ------------------------------------------------------------------------------

[10] Stockholders' Equity [Continued]

Stock Options and Warrants - The Company applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations, for stock options issued to employees in accounting for its
stock option plans. $468,000 and $-0- of compensation expense has been
recognized for the Company's stock-based compensation plans in the years ended
June 30, 1997 and 1996, respectively. The exercise price for all stock options
issued to employees was $.1670, and the market price of the Company's stock at
the grant date was $.25.

Had compensation cost been determined on the basis of fair value pursuant to
SFAS No. 123, for the employee options, net income and earnings per share would
have been as follows:

For the Years Ended
June 30,
1 9 9 7 1 9 9 6
------- -------

Net [Loss] Income:
As Reported $(3,347,376)$ (1,331,431)
=========== ============

Pro Forma $(3,932,492)$ (2,386,034)
=========== ============

[Loss] Earnings Per Share:
As Reported $ (2.48)$ (.98)
=========== ============

Pro Forma $ (2.91)$ (1.76)
=========== ============

The fair value used in the pro forma data was estimated by using an option
pricing model which took into account as of the grant date, the exercise price
and the expected life of the option, the current price of the underlying stock
and its expected volatility, expected dividends on the stock and the risk-free
interest rate for the expected term of the option, The following is the average
of the data used for the following items.

Risk-Free Expected Expected Expected
Interest Rate Life Volatility Dividends

5.97% 3 Years 96.50% None

During the year ended June 30, 1997, the Company issued a total of 1,360,000
stock options to consultants, each at an exercise price of $.167, which was less
than the market prices of $.1875 and $.25. The total cost of issuing the options
to consultants is approximately $600,000. Of this amount, $549,000 is for
consulting services and is being charged to paid-in capital. This entire amount
is being amortized over the term of the consulting agreement, which is three [3]
years. The remaining amount of $51,000 was charged directly to compensation
expense as the options vest immediately. The total charge to operations for the
year ended June 30, 1997 is $142,452.

F-15

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
- ------------------------------------------------------------------------------

[10] Stockholders' Equity [Continued]

Stock Options and Warrants [Continued] - The fair value of the options issued
was estimated by using an option pricing model which took into account as of the
grant date, the exercise price and the expected life of the option, the current
price of the underlying stock and its expected volatility, expected dividends on
the stock and the risk-free interest rate for the expected term of the option.
The following is the average of the data used for the following items:

Risk-Free
Interest Rate Expected Life Expected Volatility Expected Dividends

5.51% 1 Year 116.5% None

[11] Concentrations of Credit Risk

The Company currently maintains cash accounts with financial institutions which
exceed the maximum amounts insured by the Federal Depository Insurance
Corporation. At June 30, 1997, these uninsured amounts totaled approximately
$1,287,000.

Generally, the Company does not require collateral or other security to support
financial instruments, however the Company routinely assesses the financial
strength of its customers and, as a consequence, believes that its trade
receivable credit risk exposure is limited.

[12] New Authoritative Pronouncements

The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 128, Earnings Per Share ["EPS"], and SFAS No.
129, "Disclosure of Information about Capital Structure" in February 1997. SFAS
No. 128 simplifies the earnings per share ["EPS"] calculations required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for that period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15, SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods, earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented; however, the Company has not sufficiently analyzed SFAS No. 128 to
determine what effect SFAS No. 128 will have on its historically reported EPS
amounts.

SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS No. 130
is not expected to have a material impact on the Company.

F-16

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
- ------------------------------------------------------------------------------

[12] New Authoritative Pronouncements [Continued]

The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for periods beginning after
December 15, 1997, and comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements
in the initial year of its application. SFAS No. 131 is not expected to have
a materialimpact on the Company.

[13] Industry Segments

The Company classifies its product lines into two segments: Computer Products
and Medical Products. Information about those segments for the year ended June
30, 1997 and 1996 is as follows:

1 9 9 7
Computer Medical
Products Products Consolidated

Operating Revenue $ 16,959,846 $6,811,062 $23,770,908
- ----------------- ============ ========== ===========

Operating Profit [Loss] $ (3,456,686) $ 288,281 $(3,168,405)

Interest Expense (395,555)

Other Nonoperating Revenues and Expenses 213,100

Loss Before Income Taxes and Minority Interest $(3,350,860)
---------------------------------------------- ===========

Identifiable Assets at June 30, 1997 $ 3,250,440 $1,673,972 $4,924,412
- ------------------------------------ ============ ========== ==========

1 9 9 6
Computer Medical
Products Products Consolidated

Operating Revenue $ 27,120,944 $2,880,008 $30,000,952
- ----------------- ============ ========== ===========

Operating Profit [Loss] $ (1,029,182) $ 41,732 $ (987,450)
============ ==========

Interest Expense (371,728)

Other Nonoperating Revenues and Expenses 27,747

Loss Before Income Taxes $(1,331,431)

Identifiable Assets at June 30, 1996 $ 9,513,177 $1,196,782 $10,709,959
- ------------------------------------ ============ ========== ===========

F-17

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
- ------------------------------------------------------------------------------

[13] Industry Segments [Continued]

Operating profit [loss] is total operating revenue less operating expenses, and
excludes interest expense and other nonoperating revenues and expenses.
Intersegment sales during 1997 and 1996 were immaterial to the consolidated
financial statements. Shared operating expenses allocated to the Medical
Products segment were $90,000 in 1997 and $60,000 in 1996. For 1997,
depreciation and amortization expense for the Computer Products and Medical
Products industry segments was $323,999 and $13,434, respectively. For 1996,
deprecation and amortization expense for the Computer Products and Medical
Products industry segments was $264,197 and $11,767, respectively. Capital
expenditures for the two segments in 1997 were $153,000 and $-0-,respectively.
Capital expenditures for the two segments in 1996 were $224,475 and $146,156,
respectively.

Identifiable assets are those used by each segment of the Company's operations
and do not include advances from the Computer Products segment to the Medical
Products segment totaling $427,980 and $1,219,628 as of June 30, 1997 and 1996,
respectively.

[14] Fourth Quarter Adjustments

There were certain adjustments recorded in the fourth quarter of fiscal 1996,
and the aggregate effect of such adjustments was material to the results of that
quarter. In June 1996, the Company charged operations $174,218 related to the
write-off of goodwill.

[15] Equipment Leasing and Third Party Transactions

The Company's subsidiary sold certain sales-type lease receivables which
qualified as sales under Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." Revenues arising from these transactions were approximately
$110,000 for the year ended June 30, 1997.

. . . . . . . . . .

F-18

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this 14th day of October, 1996.

COMPUTER MARKETPLACE, INC.

By: /s/ L. Wayne Kiley
L. Wayne Kiley
President, Chief Executive Officer,
(Chief Accounting Officer) and Director

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.

Signature Title Date

/s/ L. Wayne Kiley President, October 14, 1997
- ---------------------------
L. Wayne Kiley Chief Executive
Officer (Chief Accounting
Officer) and Director

/s/ Nancy Kiley Secretary and Director October 14, 1997
- ---------------------------
Nancy Kiley

/s/ J.R. Achten Director October 14, 1997
J. R. Achten

/s/ Thomas E. Evans, Jr. Director October 14, 1997
- ---------------------------
Thomas E. Evans, Jr.

<PAGE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations
and is qualified in its entirety by refernece to such fuinancial statements.

</LEGEND>

<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Jun-30-1997
<CASH> 1,500,540
<SECURITIES> 0
<RECEIVABLES> 1,867,043
<ALLOWANCES> 171,810
<INVENTORY> 492,423
<CURRENT-ASSETS> 3,740,788
<PP&E> 649,550
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,924,412
<CURRENT-LIABILITIES> 2,285,705
<BONDS> 0
0
0
<COMMON> 135
<OTHER-SE> 2,361,841
<TOTAL-LIABILITY-AND-EQUITY> 4,924,412
<SALES> 23,770,908
<TOTAL-REVENUES> 23,770,908
<CGS> 21,077,229
<TOTAL-COSTS> 26,939,313
<OTHER-EXPENSES> (213,100)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 395,555
<INCOME-PRETAX> (3,350,860)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,347,435)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,347,435)
<EPS-PRIMARY> (2.48)
<EPS-DILUTED> (2.48)

</TABLE>