COMPUTER MARKETPLACE INC, 10KSB, 1999-01-21

COMPUTER MARKETPLACE INC
10KSB, 1999-01-21
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, 1998.

[ ] 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 jurisdictio(IRS
Employer Identification No.)
incorporation of organization)

1171 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)

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 No X

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 $7,969,959.

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
December 30, 1998, was approximately $883,697.50.

Number of shares outstanding of the Issuer's common stock, as of December 30,
1998, was 1,352,456.

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)" or the
"Company") and its state of incorporation from California to Delaware. Computer
Marketplace(R) is currently winding down its business activities. The company
was primarily in engaged in the 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 believed that
substantial measures needed to be taken to address the Company's financial
difficulties. The Board of Directors, after having considered numerous
alternatives, concluded that the Company must significantly reduce its expenses
in order to decrease the Company's net losses. Therefore, during the Company's
fiscal year ended June 30, 1997, the Company 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. Despite implementing this business reorganization
strategy, the Company failed to regain profitability during the fiscal year
ended June 30, 1998. As a result, the Company determined to reduce further its
existing computer business and to divest Medical Marketplace, Inc., the
Company's subsidiary engaged in the sale and lease of used medical equipment.
The Company's net loss for the year ended June 30, 1998 was approximately
$2,207,131 compared to a net loss of $3,347,435 during the preceding year.

On August 27, 1998, the Company, Medical Marketplace, and Medley Credit
Acceptance Corporation ("Medley") entered into a Stock Purchase Agreement,
pursuant to which Medley agreed to purchase all of the shares of Medical
Marketplace owned by Computer, which represents 83.3% of the total number of
shares outstanding. Medley agreed to pay 25,000 shares of restricted Medley
Common Stock in exchange for the 2,500,000 shares of Medical Marketplace owned
by the Company so long as Medical Marketplace had $50,000 in net assets at the
time of the closing of the transaction. The closing of the proposed transaction
was subject to the satisfaction of certain conditions including the approval of
a majority of the shares of the Company's common stock outstanding. In addition,
pending the closing, Medley agreed to assist in the day to day management of
Medical Marketplace pursuant to the terms of an Operating Agreement between
Medical Marketplace and Medley. On November 20, 1998, the Company notified
Medley that it was terminating both the Stock Purchase Agreement and Operating
Agreement effective as of November 25, 1998. The Company is continuing in its
search for a purchaser of Medical Marketplace. See "The Medical Equipment
Business - The Medley Credit Transaction".

<PAGE>

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.

The Company's executive office is located at 1171 Railroad Street, Corona,
California. It's telephone number is (909) 735-2102.

The Computer Equipment Business

Computer Marketplace(R) purchased computer equipment from a variety of
sources and suppliers and sold or rented 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 were conducted
from its principal office in Corona, California.

During the past fiscal year, the Company has significantly reduced the
size and scope of 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. As a
consequence, the Company is actively pursuing acquiring an alternative business
and/or assets which may be developed into a business.

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.

Computer Products

The Company repurchased and sold 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
constituted a significant source of revenue for the Company accounting for a
substantial percentage of the Company's revenues in fiscal years 1998 and 1997.

<PAGE>

Computer Products Sales and Marketing

The Company's sales and marketing personnel made calls to existing and
potential customers and the sales team solicited new business by personal visits
and advertising in trade magazines. In addition, the Company also marketed its
products on the Internet and on its web site. The Company also advertised in
various trade publications. The Company's customers consisted of companies of
all sizes, ranging from small companies to Fortune 500 corporations. A
substantial portion of the Company's transactions were with repeat customers,
such as computer maintenance companies, as well as computer parts suppliers.

Computer Products Distribution Operations

The Company conducts its operations from its main office located in
Corona, California. It 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 directly benefited by minimizing the costs of
freight, engineering and distribution.

Computer Equipment Warranty Policy

The Company, like other competing distributors, did not grant any
warranties on the used products it sold. However, most of the new and used
computer equipment which the Company sold 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 sold is still under
manufacturer's warranty. Before any returned merchandise was accepted by the
Company for processing under the original manufacturer's warranty, the customer
was required to call the Company and obtain a return merchandise authorization
number. This procedure allowed 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.

Computer Products Competition

The Company competed 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 equipment produced by other computer
manufacturers. In addition, the Company also competed with hundreds of
competitors in the area of providing value added services to its customers. The
Company's principal competitors included 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 were also 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 provided the Company with access to inventory listings from competing
companies, similar to the multiple-listing services to which most real estate
companies subscribe.

<PAGE>

The Medical Equipment Business

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. While the
Company believes that Medical Marketplace may become profitable in the future,
the Company does not have sufficient capital, or access to sufficient capital,
to properly fund the Medical Marketplace operations in the future. 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.

Medley Credit Transaction

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 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.

<PAGE>

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 the 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 December 30, 1998 of three (3)
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 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.

<PAGE>

Medical Equipment Competition

Medical Marketplace competes directly with the new medical equipment OEM's
such as 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
certain of its competitors can match the technical ability of the Medical
Marketplace employees in the Imaging, X-ray and Ultrasound technologies and only
certain competitors have the financial strength to inventory expensive MRI, CT
or Ultrasound equipment.

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. New Millennium was formed to accomplish two goals. First, to help
increase Medical Marketplace's overall equipment sales by providing additional
resources not previously available to it. And second, 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 Medical Marketplace'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 Medical Marketplace.

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.

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

<PAGE>

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 allowed the Company to borrow up to $2,500,000 and required
interest at a rate of 2.25% above the lender's "reference rate" (as defined).
The Credit Facility was collateralized by substantially all of the Company's
assets, except for real property. The Credit Facility was to terminate in April
1998. In April, 1998, the Company borrowed $200,000 from an individual lender.
In connection with the loan, the Company executed a 12% promissory note due
October 31, 1998 in the principal amount of $200,000 (the "Note"). In addition,
the Company pledged substantially all of its assets as collateral for its
obligations under the Note. The proceeds of the loan were used to repay in full
the Company's obligations under the Credit Facility. In October 1998, the
Company repaid the Note by transferring the Company's ownership interest in its
real property investments in Corona and Mariposa California to the lender. In
addition, to repaying all of its obligations under the Note, the Company also
received $30,000 in cash in consideration for transferring the real property to
the Lender. Shortly following the repayment of the Note, the lender sold the
former Company properties to the Kiley Children's Trust, a trust established for
the benefit of the children of L. Wayne and Nancy Kiley, the Company's Chairman
of the Board, President and Chief Executive Officer and Secretary and Director,
respectively. See "Properties".

Employees

As a result of management's focus to reduce costs and capitalize on the
efficiencies gained by administrative improvements, as of December 30, 1998, the
Company and Medical Marketplace employed six (6) full-time persons. 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. In October
1998, the Company transferred the property as consideration for cancellation of
outstanding indebtedness in the aggregate principal amount of $200,000.
See "Credit Facilities."

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, was used
as the Company's headquarters. On May 12, 1997, the Company entered into a
Standard Offer, Agreement and Escrow Instructions for Purchase of Real 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 also closed
certain satellite locations in Michigan and Mariposa, California during the year
ended June 1997.

<PAGE>

On January 21, 1994, the Company purchased a two-story, 6,300 square-foot
office building located in Mariposa, California, for $215,000. In October 1998,
the Company transferred the property as partial consideration for cancellation
of outstanding indebtedness in the aggregate principal amount of $200,000.

On December 1, 1997, the Company entered into a lease with Quality
Associates, Inc., a company owned and controlled by L. Wayne Kiley, the
Company's Chairman of the Board, Chief Executive Officer and President. The
lease is for the Company's executive offices located at 1171 Railroad Street,
Corona, CA 91720, and for warehouse space located at 340 North Grant Street,
Corona, CA, each for a three year term ending October 31, 2000. The office space
and the warehouse space require the payment of $9,000 and $4,000 in monthly
rent, respectively. Maintenance of the premises is at the Company's expense. The
Company has failed to pay rent since September 1998 and is as of December 30,
1998 in arrears in the aggregate amount of $40,500.

On March 18, 1998, the Company entered into a Sublease Agreement with Sierra
Del Oro, LLC, pursuant to which the Company sublet a portion of the Company's
executive offices on a month-to-month basis for rental payments of $600 per
month.

On March 1, 1998, the Company entered into a Sublease Agreement with Alliance
Logistics, Inc. pursuant to which the Company sublet a portion of the warehouse
space located at 340 No. Grant Street, Corona, CA for a one year term for
monthly rent payments of $2,000 per month.

Legal Proceedings

In Motorola v. Computer Marketplace, Inc., Motorola has alleged that the
Company failed to pay for certain equipment. Motorola is claiming that the
Company owes it $17,000. The Company denies the allegations and intends to
vigorously defend against Motorola's claims

Except as set forth above, the Company is not a party to any material legal
proceedings nor are any material legal proceedings threatened against the
Company.

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

None.

<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. As of that date, the Company's Common Stock, the Class A Warrants and
the Class B Warrants began trading under the symbols "MKPL" and "MKPLW" and
"MKPLZ", respectively. The Common Stock is presently quoted and traded on the
OTC Bulletin Board as a result of the Company's failure to satisfy the continued
listing requirements of The Nasdaq SmallCap Market in July, 1998. 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 and expired in June 1998. The
Company also has Class D Warrants which were registered for trading on the OTC
Bulletin Board under the symbol "MKPLH" (although through November 1998 no
trading in such securities has occurred). As of September 30, 1998, there were
approximately 26 holders of record of the Company's common stock and
approximately 1,100 beneficial owners.

In March 1997, the Company's Board of Directors approved a one-for-six
reverse stock split with respect to the outstanding shares of the Company's
common stock 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 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, 1997, through June 30, 1998, based upon
information supplied by the Nasdaq system and the OTC Bulletin Board. Prices
represent quotations between dealers without adjustments for retail markups,
markdowns or commissions, and may not represent actual transactions.

For the Period from July 1, 1997 to June 30, 1998
Quoted Bid Price

1998 1st Quarter 2nd Quarter* 3rd Quarter* 4th Quarter*
(ended 9/30/97) (ended 12/31/97) (ended 3/31/98)(ended 6/30/98)

Common Stock:
High 1.06 1.53 1.00 1.56
Low 1.00 1.00 1.00 1.50

<PAGE>

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

* The Class A and Class B Warrants were delisted from The Nasdaq SmallCap Market
on December 18, 1996.

On September 30, 1998, the closing bid price of the Common Stock as
reported on OTC Bulletin Board was $.88.

Computer Marketplace has no dividend policy, 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, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997

Total revenues for the year ended June 30, 1998 were $7,969,959 compared to
$23,770,908 for the year ended June 30, 1997. This represents a decrease of
$15,850,949 or 66% The decrease is a result of the Company's efforts to reduce
its computer brokerage business.

Revenues from product sales for the year ended June 30, 1998 totaled $5,725,882
a $16,466,949 or 74% decrease compared to $22,192,831 for the year ended June
30, 1997. Revenues from rental, service and other for the year ended June 30,
1998, were $2,244,077 a $666,000 or 42% increase compared to $1,578,077 for the
year ended June 30, 1997. The increase in rental revenue reflects increased
leasing activity by New Millennium Leasing, a subsidiary of Medical Marketplace.

Revenues from computer product sales and rentals were $3,555,832 for the year
ended June 30, 1998 and $16,959,846 for the year ended June 30, 1997. The sales
decrease results in part from price reductions in new computer hardware which
negatively impacts selling prices and sales of used computer hardware. The most
significant factor resulting in this decrease in sales is that all branch
offices of the Company were closed down during the year ending June 30, 1997.
The sales associated with these offices diminished substantially. In addition,
the sales staff at the main facility in Corona, California, was significantly
reduced as a result of the Company's desire to reduce it's expenses and reduce
its computer brokerage business.

<PAGE>

Medical product sales and rentals contributed $4,414,128 in revenues for the
year ended June 30, 1998, compared to $6,811,000 for the year ended June 30,
1997. The current periods results represents a $2,396,872 or a 35% decrease in
revenues. The decrease in medical product sales is attributed directly to
Medical Marketplace's inability to fund new purchases.

Total aggregate cost of revenues for the year ended June 30, 1998, and 1997 were
$6,883,256 or 86% of revenues and $21,077,229 or 89% of revenues, respectively.

Cost of revenues for computer products were $3,000,797 or 84% of revenues and
$15,542,705 or 92% of revenues for the year ended June 30, 1998, and 1997
respectively. The 8% decrease in cost of revenues primarily has to do with
market fluctuations and management does not view this 8% differential as a
trend.

Cost of revenues for medical products were $3,882,459 or 88% of revenues and
$5,534,524 or 81% of revenues for the year ended June 30, 1998, and 1997
respectively, a 7% increase in cost of revenues as a percentage of sales.

Total selling, general and administrative (SG & A) expenses for the year ended
June 30, 1998, and 1997 were $3,238,976 or 41% of revenues and $5,862,084 or 25%
of revenues, respectively. The aggregate decrease in SG&A expenses from the
prior period was $2,623,108.

SG&A expenses attributed to computer products were $2,074,585 or 58% of revenues
and $4,873,827 or 29% of revenues for the year ended June 30, 1998, and 1997
respectively. The increase in SG&A expenses as a percentage of revenues is due
primarily to the sales volume decrease previously mentioned. The aggregate
decrease in SG&A expenses from the prior year was $2,799,242, directly
reflecting the extent of personnel cut backs in the fiscal year.

SG&A expenses attributed to medical products were $1,269,080 or 29% of revenues
and $988,257 or 15% of revenues for the year ended June 30, 1998, and 1997
respectively. The increase in SG&A expenses as a percentage of revenues is due
primarily to the increase in personnel expense from an expanded sales force.

Total operating loss was $2,256,961 and $3,168,405 for the year ended June 30,
1998, and 1997 respectively. This $911,444 favorable change was a result of
reduced expenses and the business conditions described herein.

Operating loss for computer products was $1,519,550 and $3,456,686 for the year
ended June 30, 1998, and 1997 respectively. This $1,937,136 favorable change is
a result of reduced expenses and reflects the Company's efforts to reduce its
computer brokerage business.

Operating income (loss) for medical products and rentals was $(737,411) and
$288,281 for the year ended June 30, 1998, and 1997 respectively. The $449,130
unfavorable change reflects the expense related to the Company's expanded sales
and finance staff.

<PAGE>

Interest expense for the year ended June 30, 1998 was $132,638, compared to
$395,555 for the year ended June 30, 1997. The decrease of $262,917 or 66% is
due to the repayment of the mortgage payable associated with the sale of the
Company's headquarters facility in the year ended June 30, 1997 and to the
repayment of the Company's previous credit facility in April of 1998.

The Company's consolidated net loss was $2,207,131 or $1.63 per share for the
year ended June 30, 1998, versus $3,347,435 or $2.48 per share for the year
ended June 30, 1997. The net loss was a result of the business conditions
described herein.

During the Year ended June 30, 1998, the Company negotiated payment terms of
certain accounts payable, resulting in a gain of $98,226. There was no income
tax effect on this transaction.

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. The Company had negative working capital of ($1,387,161) at June 30, 1998.
Working capital at June 30, 1997 was $1,455,083.

During the year ended June 30, 1998, the Company used the June 30, 1997
available cash and cash equivalents of approximately $1,500,000, the
availability of borrowing under the Company's new revolving credit facility and
vendor extended credit in order to fund the operations of the Company.

New Millennium Leasing, Inc. ("NMLI"), was formed as a subsidiary of
Medical Marketplace, in early 1997. The primary focus of NMLI was to provide
leasing for a majority of the sales generated by its parent, Medical
Marketplace, Inc. ("MMP"). In so doing, NMLI hopes to add incremental revenue
and net income by discounting those leases on a non recourse basis to lenders
who buy leases in this manner.

NMLI only writes leases whose net present value exceeds the sales price of the
equipment. However, in certain circumstances, the lease also allows NMLI to
retain the residual value of the equipment. This residual value becomes an asset
on the balance sheet and is taken into income over the term of the lease.

The stated goal of NMLI is to both increase the profitability of each
transaction entered into by Medical Marketplace and through leasing, to generate
new transactions that MMP would not have previously been able to generate due to
the lack of a lease financing.

<PAGE>

During the year ended June 30, 1998, the Company significantly reduced the sized
and scope of its computer business. The Company believes that because of
significant change in the computer industry, the market is more competitive and
opportunities to engage in certain business are no longer available. The
decrease in the usage of mid-sized computer systems and the increase in
importance of personal computers has severely reduced the Company's business in
the RISC 6000 and AS400 market. Further, the emergence of major manufacturers,
(such as, IBM, and DEC) into the reselling business, has made it extremely
difficult for the Company to compete successfully. Note 14 to the Company's
Financial Statements prepared in conformity with generally accepted accounting
principles, by the Company's independent auditors, Moore, Stephens, P.C.,
expresses the auditors uncertainty as to whether the Company can continue as a
going concern. As a result, the Company is presently in the process of reducing
its computer business. As a consequence, the Company is actively pursuing
acquiring an alternative business and/or assets which may be developed into a
business.

During 1998 the Company repaid the outstanding obligations under a credit
facility, Coast Business Credit, from the proceeds of a $200,000 loan from an
individual lender. In exchange for the loan, the Company issued a 12% promissory
note in the aggregate principal amount of $200,000 due October 31, 1998. On
October 8, 1998 the Company repaid the note by delivering title to the Company's
properties located in Corona and Mariposa, California, valued at $230,000. In
addition, the Company received a cash payment of $30,000.00 from the lender.
Shortly thereafter, the lender sold the property to the Kiley Children's Trust,
a trust established for the benefit of the children of L. Wayne Kiley and Nancy
Kiley.

The Company has addressed the Year 2000 issue by converting its existing
accounting and sales software to a new software that is in compliance with the
Year 2000 requirements. The new software took effect July 1, 1998 and its cost
was fully absorbed in the year ending June 30, 1998. It is believed that no
third party relationship would cause any material impact on the Company as a
result of the Year 2000 problem.

<PAGE>

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.

PART III

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following persons are the executive officers and directors of the
Company:

Name Age Position

L. Wayne Kiley 55 President, Chief Executive Officer, Director
(Chief Accounting Officer) and President of
Medical Marketplace
Nancy Kiley 40 Secretary and Director
J. R. Achten 55 Director
Thomas E. Evans, Jr. 58 Director
Thomas Mason(1) 38 Vice President
Brian Hintergardt 40 President of Medical Marketplace

(1) Mr. Mason resigned in May 1998.

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. Mr. Kiley was also the
President of Medical Marketplace from its inception through August 1998. 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.

<PAGE>

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 was a Vice President of the Company from September 1997 through
May, 1998. Mr. Mason was a sales representative with the Company 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 from
March 1994 to August 1998 and since that time he has served as the President of
Medical Marketplace. 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, 1998, 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,
1998, 1997, and 1996:

Annual Compensation
Compensation Awards
(a) (b) (c) (d) (g)
(i)
Number
of
Name and Principal Position Year Salary Bonus Options Compensation

L. Wayne Kiley, President 1998 $269,228 $ -- ---- ----
Chief Executive Officer and 1997 $306,977 $ -- 661,667 $4,476
Director 1996 $303,814$ $ -- 195,833 $1,313

Thomas Mason 1998 $178,800 $ -- ---- $ --
Vice President 1997 $211,976 $ -- 143,000 $ --
1996 $233,916 $ -- 30,000 $ --

Brian Hintergardt 1998 $120,168 $ -- -- --
Executive Vice President 1997 $119,033 $ -- 33,333 $4,033
Medical Marketplace 1996 $ 74,054 $ -- 60,000 $ --

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

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

<PAGE>

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, 1998 and 1997, was $3,766 and
$17,359, 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. Of the options issued, there are
presently options exercisable for a total 968,500 shares of Common Stock

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. Of the options issued, there are
presently options exercisable for a total of 46,500 shares of Common Stock.

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.

<PAGE>

Employment Agreements

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 as the President and Chief Executive
Officer of the Company. Pursuant to such employment agreement, Mr. Kiley was to
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
was profitable for the preceding fiscal year. The employment agreement also
provided for the use by Mr. Kiley of a Company car, disability insurance and for
bonuses and other incentive compensation as the Board of Directors deemed
appropriate, based upon the Company's operating performance or other reasonable
criteria. In addition, Mr. Kiley had 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 commenced 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.

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's expiration
date of October 16, 1997 was extended to October 16, 1999, (ii) in exchange for
termination of the Original Option, 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. The Company has failed to
maintain the insurance policy on Mr. Kiley. In March, 1998, the Company
suspended salary payments to Mr. Kiley under his Employment Agreement because of
insufficient capital. As of December 31, 1998, the Company has recorded a total
of $201,500 in accrued and unpaid salary to Mr. Kiley.

<PAGE>

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth certain information, as of September 30,
1998, 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) 1,023,637(3) 50.3%

Nancy Kiley (2) 343,072(4) 25.4%

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

J. R. Achten 113,889(6) 8.4%

Brian Hintergardt 36,111(7) 2.9%

Thomas E. Evans, Jr. 10,556(8) .8%

Thomas Mason 143,556(9) 9.6%

Victoria Holdings, Inc.(10) 1,400,000(11) 59.5%
6700 North Andrews Avenue
Ft. Lauderdale, FL 333094

Directors and Executive 1,233,860 54.6%
Officers as a Group
(7 persons) (3)(4)(6)(7)(8)

(1) Unless otherwise indicated, the address of the beneficial owner is: c/o
Computer Marketplace(R), Inc., 1171 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, two-thirds of which vested on January 3, 1998 and (d) options
issued as of December 1996 exercisable for 661,667 shares of Common Stock at
$1.00 per share. 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, two-thirds of which vested on January 3, 1998. 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
two-thirds of which vested on January 3, 1998, 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, two-thirds of which vested on January 3, 1998
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, two-thirds of which vested on January 3,
1998, 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) Victoria Holdings, Inc. is beneficially owned by Elliot Loewenstern
and Richard Bronson

(11) Includes (i) 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, (ii) 200,000 shares of Common Stock held by Shelley
Loewenstern and Elliot Loewenstern, as tenants by the entirety, and (iii)
200,000 held by The Richard Bronson Trust. See "Certain Transactions."

<PAGE>

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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. In
December 1998, the Company notified Victoria Holdings that it was terminating
the Consulting Agreement.

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

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. (1)

4.01 Certificate for shares of Common Stock. (1)

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

10.01 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. (2)

10.02 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. (2)

10.03 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. (2)

10.04 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. (2)

10.05 Amended Employment Agreement between the Company and L. Wayne Kiley. (3)

10.06 Consulting Agreement between the Company and Victoria Holdings, Inc. (3)

<PAGE>

10.7 Option to Purchase Common Stock of the Company issued to Victoria
Holdings, Inc. (3)

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, 1995.

(3) 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

March 12, 1998 - Item 5 April 2, 1998 - Item 5 July 22, 1998 - Item 5

<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 21 day of January 1999.

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, January 21, 1999
- ---------------------------
L. Wayne Kiley Chief Executive
Officer (Chief Accounting
Officer) and Director

/s/ Nancy Kiley Secretary and Director January 21, 1999
- ---------------------------
Nancy Kiley

/s/ J.R. Achten Director January 21, 1999
J. R. Achten

/s/ Thomas E. Evans, Jr. Director January 21, 1999
- ---------------------------
Thomas E. Evans, Jr.

<PAGE>

Exhibit 21.01

Subsidiaries of Computer Marketplace, Inc.

Medical Marketplace, Inc. a Delaware corporation.

Superior Solutions, Inc., a Delaware corporation

New Millenium Leasing, Inc., a Delaware corporation and indirect subsidiary

<PAGE>

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

Pages

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

Consolidated Balance Sheet as of June 30, 1998....................F-2...F-3

Consolidated Statements of Operations for the years ended
June 30, 1998 and 1997............................................F-4...

Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1998 and 1997............................................F-5...

Consolidated Statements of Cash Flows for the years ended June 30,
1998 and 1997.....................................................F-6...F-7

Notes to Consolidated Financial Statements........................F-8...F-20

. . . . . . . . .

<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, 1998, 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, 1998. 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,
1998, and the consolidated results of their operations and their cash flows for
each of the two fiscal years in the period ended June 30, 1998, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 14 to
the financial statements, the Company has suffered recurring losses from
operations, has a significant working capital deficiency, and has encountered
difficulties in paying its creditors on a timely basis. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 14. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

MOORE STEPHENS, P. C.
Certified Public Accountants.

Cranford, New Jersey
September 18, 1998

F-1

<PAGE>

Exhibit A

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

CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998.
- ------------------------------------------------------------------------------

<TABLE>

Assets:
Current Assets:
<S> <C>
Cash and Cash Equivalents $ 36,580
Accounts Receivable [Less Allowance for Doubtful Accounts of $112,472] 421,602
Inventory [Net of Valuation Allowance of $50,000] 285,412
Property Held for Sale 381,845
Other Current Assets 22,088
-----------

Total Current Assets 1,147,527

Property and Equipment - Net 969,570
-----------

Other Assets:
Residual Value of Equipment 1,165,000
Others 122,641

Total Other Assets 1,287,641

Total Assets $ 3,404,738
===========

</TABLE>

See Notes to Consolidated Financial Statements.

F-2

<PAGE>

Exhibit A -
Sheet #2

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

CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998.
- ------------------------------------------------------------------------------

<TABLE>

Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C>
Notes Payable $ 1,437,090
Accounts Payable 610,015
Accrued Payroll and Payroll Related Liabilities 178,901
Customer Deposits 196,255
Other Current Liabilities 112,427
-----------

Total Current Liabilities 2,534,688

Long-Term Debt 532,301

Minority Interest in Net Assets of Subsidiary --
-----------

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 (274,372)

Capital in Excess of Par Value 8,785,100

Accumulated Deficit (8,173,114)

Total Stockholders' Equity 337,749

Total Liabilities and Stockholders' Equity $ 3,404,738
===========
</TABLE>

See Notes to Consolidated Financial Statements.

F-3

<PAGE>

Exhibit B

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

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

<TABLE>

Years ended
June 30,
1 9 9 8 1 9 9 7
------- -------

Revenues:
<S> <C> <C>
Product Sales $5,725,882 $22,192,831
Rental, Service and Other 2,244,077 1,578,077
---------- -----------

Total Revenues 7,969,959 23,770,908
---------- -----------

Cost and Expenses:
Cost of Revenues - Product Sales 5,394,503 19,501,048
Cost of Revenues, Rental, Service and Other 1,488,753 1,576,181
Selling, General and Administrative 3,238,976 5,862,084
Writedown of Property Held for Sale 104,688 --
---------- -----------

Total Cost and Expenses 10,226,920 26,939,313
---------- -----------

Operating Loss (2,256,961) (3,168,405)
---------- -----------

Other Income [Expense]:
Interest Expense (132,638) (395,555)
Interest Income 24,246 5,994
[Loss] Gain on Sale of Assets (81,028) 168,904
Miscellaneous Income 22,586 38,202
---------- -----------

Other [Expense] - Net (166,834) (182,455)
---------- -----------

Loss Before Income Taxes, Minority Interest in
Subsidiary and Extraordinary Item (2,423,795) (3,350,860)

Provision for Income Taxes -- --

Minority Interest in Loss of Subsidiary 118,439 3,425
---------- -----------

Loss Before Extraordinary Item (2,305,356) (3,347,435)

Extraordinary Item:
Gain from Restructuring of Debt - Net of Income
Taxes of$-0- 98,225 --
---------- -----------

Net Loss $(2,207,131) $(3,347,435)
=========== ===========

Loss Per Share:
Loss Before Extraordinary Item $ (1.70) $ (2.48)
Extraordinary Item .07 --
---------- -----------

Net Loss Per Share (1.63) (2.48)
========== ===========

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

</TABLE>

See Notes to Consolidated Financial Statements.

F-4

<PAGE>

Exhibit C

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

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

<TABLE>

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

<S> <C> <C> <C> <C> <C> <C> <C> <C>
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

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

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

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

Amortization of
Deferred
Compensation -- -- -- -- 182,904 182,904

Net Loss -- -- -- (2,207,131) -- (2,207,131)
---------- ------- ---------- ----------- --------- ----------

Balance - June 30, 1998 1,352,424 $ 135 $8,785,100 $(8,173,114) $(274,372) $ 337,749
========== ======= ========== =========== ========= ==========

</TABLE>

See Notes to Consolidated Financial Statements.

F-5

<PAGE>

Exhibit D

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

CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>

Years ended
June 30,
1 9 9 8 1 9 9 7
------- -------

Operating Activities:
<S> <C> <C>
Net Loss $(2,207,131) $(3,347,435)
Adjustments to Reconcile Net Loss to Net Cash
[Used for] Provided by Operating Activities:
Depreciation and Amortization 442,097 393,356
Provisions for Losses on Accounts Receivable 38,758 184,134
Provisions for Losses on Inventory (31,680) 245,867
Write Down of Property Held for Sale 104,689 --
Loss [Gain] on Sale of Property and Equipment 106,029 (168,904)
Minority Interest in Consolidated Subsidiary (118,439) (3,425)
Compensation Expense Due to Options Issued -- 519,000
Residual Assets (375,000) 20,000
Gain on Restructuring of Debt (98,225) --

Changes in Assets and Liabilities:
Accounts Receivable 1,244,125 1,166,376
Inventory 214,091 2,176,980
Other Current Assets 19,404 342,156
Accounts Payable (518,797) (718,878)
Accrued Payroll and Related Liabilities 23,856 (140,148)
Other Current Liabilities 49,225 (4,090)
---------- -----------

Net Cash - Operating Activities (1,106,998) 664,989
----------- -----------

Investing Activities:
Decrease in Loans/Notes Receivable - Related Parties -- 45,744
Purchases of Property and Equipment (202,700) (11,317)
Proceeds from Sale of Property and Equipment -- 2,345,926
Other (84,441) (37,700)
---------- -----------

Net Cash - Investing Activities (287,141) 2,342,653
---------- -----------

Financing Activities:
Net Decrease in Line of Credit (443,388) (1,731,453)
Principal Payments on Long-term Debt (225,889) (1,302,085)
Net Proceeds to the Company from Sale of Common
Stock of Subsidiary -- 894,181
Proceeds from Long-term Debt 599,456 19,549
Offering Costs -- 17,785
---------- -----------

Net Cash - Financing Activities (69,821) (2,102,023)
---------- -----------

[Decrease] Increase in Cash and Cash Equivalents (1,463,960) 905,619

Cash and Cash Equivalents - Beginning of Years 1,500,540 594,921
----------- -----------

Cash and Cash Equivalents - End of Years $ 36,580 $ 1,500,540
========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>

F-6

<PAGE>

Exhibit D -
Sheet #2
COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------

<TABLE>

Years ended
June 30,
1 9 9 8 1 9 9 7
------- -------

Supplemental Disclosures of Cash Flow Information:
<S> <C> <C>
Cash Paid for Interest $ 110,567 $ 367,100
Cash Paid for Income Taxes $ -- $ --

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Reclassification of Accounts Payable to Other Liabilities to Reflect
Negotiated Payment Terms $ 248,226 $ --

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 $ 24,600 $ 236,584

Increase in Debt Used to Purchase Fixed Assets $ 448,602 $ --

See Notes to Consolidated Financial Statements.

</TABLE>

F-7

<PAGE>

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 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. The Company owns approximately 83%
of the shares of common stock of its subsidiary, Medical Marketplace. Medical
Marketplace engages in worldwide distribution of used medical equipment to
health care providers.

[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 9].

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. Revenues
arising from the sales of lease receivable are recorded at the time of the sale.

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. There are no cash equivalents at June 30, 1998.

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 7 years.

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

Impairment - Certain long-term assets of the Company, including property and
equipment, are reviewed whenever events or changes in circumstances indicate
that 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.

F-8

<PAGE>

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

[2] Summary of Significant Accounting Policies [Continued]

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 potential common shares arising from the effect of dilutive stock options
and warrants using the treasury stock method. For fiscal years 1998 and 1997,
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.

Advertising Costs - Advertising costs are expensed when incurred. Advertising
costs amounted to $23,712 and $77,265 for the years ended June 30, 1998 and
1997, 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.

[3] Property and Equipment

Property and equipment consists of the following as of June 30, 1998:

Machinery and Equipment $ 271,089
Furniture and Fixtures 69,838
Automobiles and Trucks 49,781
Long-Term Rental Equipment 988,007
------------

Total 1,378,715
Less: Accumulated Depreciation 409,145

Property and Equipment - Net $ 969,570
---------------------------- ============

Depreciation expense for the years ended June 30, 1998 and 1997 was $249,719 and
$237,912, respectively.

Property Held for Sale - Property held for sale consists of a facility at 205
East 5th Street, Corona, California and one at 5081 Highway 140, Mariposa,
California. At June 30, 1998, the estimated fair value of these properties is
$381,845. In the year ended June 30,1998, the value of these assets have been
written down by $104,689 from aggregate carrying value of $486,534. Management
plans to use these assets as repayment of the $200,000 promissory note discussed
in Note 4.

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.

F-9

<PAGE>

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

[4] Long-Term Debt

As of June 30, 1998, long-term debt consisted of the following:

Note payable, due October 31, 1998, interest at 12%, payment of interest of
$2,000 per month, with principal due on October 31, 1998, collateralized by
substantially all of the Company's assets $ 200,000

Note payable, due January 15, 1999, payment of $4,167 per month 29,164

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 $151,846 due February 2, 1999, collateralized by real
estate deed of trust 151,846

Debt payable, due February 10, 1999 to purchase equipment. 350,000

Debt payable, due January 1,1999 to purchase equipment 440,000

Note payable, due September 1, 2001, interest at approximately 11.3%,
payment of principal and interest of $3,886 per month, collateralized
by specific equipment in fixed assets. 136,931

Note payable, due September 1, 2001, interest at approximately 11.3%,
payment of principal and interest of $2,591 per month, collateralized
by specific equipment in fixed assets. 91,287

Note payable, due January 1, 2002, interest at approximately 10.5%,
payment of principal and interest of $8,961 per month, collateralized
by specific equipment in fixed assets. 338,431

Note payable, due October 15, 1999, interest of 10%, payment of principal
and interest of $5,889 per month, collateralized by specific equipment
in fixed assets. 87,876

Note payable, due July 26, 1999, interest of approximately 8.90%,
payment of principal and interest of $530 per month,
collateralized by an automobile. 6,925

Total Debt 1,969,391
Less: Current Portion of Debt 1,437,090

Total Long-Term Debt $ 532,301
-------------------- ===========

The prime rate at June 30, 1998, was 8.5%

F-10

<PAGE>

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

[4] Long-Term Debt [Continued]

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

Year ending
June 30,
1999 $ 1,437,090
2000 231,669
2001 209,525
2002 91,107
Thereafter --
-----------

Total $ 1,969,391
----- ===========

On April 30, 1998, the Company executed a Promissory Note [the "Note"] payable
to an individual in exchange for $200,000. Proceeds from the Note were used to
repay the outstanding balance of the Company's existing credit facility with a
financing company. The Note requires the repayment of principal, with interest
at a rate of 12% per annum, on or before October 31, 1998 and is collateralized
by the assignment of a UCC-2 filing covering substantially all of the Company's
assets. Management plans to repay this note with the property held for sale as
discussed in Note 3 above. Prepaid interest of 2% of the original principal
balance was paid upon execution of the Note.

[5] 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.

[6] 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.

F-11

<PAGE>

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

[6] Fair Value Of Financial Instruments [Continued]

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. The fair value for this loan approximates its carrying value at June
30, 1998.

[7] 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 are based on a percentage of employee contributions, but
are at the discretion of management. Company contributions to the profit sharing
component of the plan are at the discretion of management. The charge to
operations related to the Company's contribution to the Plan for the years ended
June 30, 1998 and 1997, was $3,766 and $17,359, respectively.

[8] Income Taxes

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 $3,061,000 at June 30, 1998. 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, 1998 and 1997 was
approximately $1,112,000 and $1,015,000, respectively.

No provision for Federal income taxes has been made during the fiscal years
ended June 30, 1998 and 1997, because of the Company's net loss position.

The Company's net operating loss carryforwards of approximately $8,056,000 begin
to expire as follows:

Year ended
June 30, Amount

2008 $ 210,000
2010 922,000
2011 1,085,000
2012 3,803,000
2013 2,209,000
----------

Total $8,229,000

F-12

<PAGE>

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

[9] 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%.

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.

F-13

<PAGE>

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

[9] Stockholders' Equity [Continued]

Stock Options and Other Stock-Based Awards [Continued] - 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.

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. In September of 1997, 98,000
of these options were canceled and redistributed to other employees.

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 5].

F-14

<PAGE>

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

[9] Stockholders' Equity [Continued]

Stock Options and Other Stock-Based Awards [Continued] - The following is a
summary of transactions under the plans:
Weighted
Number of Weighted Average Average
Common Shares Exercise Price Fair Value

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

Granted 2,000,000 1.00 .12
Cancelled (391,000) 4.81 .45
----------

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

Granted 98,000 1.00 .14
Cancelled (137,917) 1.97 .15
----------

Options Outstanding at June 30, 1998 2,015,000 $ 1.02 $ .14
- ------------------------------------ ==========

Options Exercisable at June 30, 1998 1,999,500 $ 1.01 $ .14
- ------------------------------------ ==========

All options granted during the years ended June 30, 1998 and 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 5].

The following is a summary of the status of fixed options outstanding at June
30, 1998:

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

$ 1.6875 46,500 8.5 Years 1.6875 31,000 1.6875 1.6875
$ 1.0000 1,000,000 3.5 Years 1.0000 1,000,000 1.0000 1.0000
$ 1.0000 968,500 2.5 Years 1.0000 968,500 1.0000 1.0000
--------- ----------

2,015,000 1.0159 1,999,500 1.0107
========= ==========

Outstanding
Options

Weighted Average Remaining Contractual Life 3.1 Years

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. $-0- and $468,000 of compensation expense has been
recognized for the Company's stock-based compensation plans in the years ended
June 30, 1998 and 1997, 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.

F-15

<PAGE>

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

[9] Stockholders' Equity [Continued]

Stock Options and Warrants [Continued] - 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 Year Ended
June 30,
1 9 9 8 1 9 9 7
------- -------
Net [Loss]:
As Reported $(2,207,131)$ (3,347,376)
=========== ============

Pro Forma $(2,292,131)$ (3,932,492)
=========== ============

[Loss] Per Share:
As Reported $ (1.63) $ (2.48)
========== ============

Pro Forma $ (1.69) $ (2.91)
========== ============

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

June 30, 1997 5.97% 3 Years 96.50% None
June 30, 1998 5.80% 2 Years 90.74% 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.

The fair value of these non-employee 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.

[10] 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, 1998, these uninsured amounts totaled approximately
$5,100.

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. At June 30, 1998, approximately 50%
of trade receivables was with one customer. Management believes this amount to
be fully collectible.

F-16

<PAGE>

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

[11] New Authoritative Pronouncements

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.

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
material impact on the Company.

In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pension and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. The modified disclosure requirements are not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999. SFAS No. 133 is not expected to have a material
impact on the Company.

[12] 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, 1998 and 1997 is as follows:

1 9 9 8
Computer Medical
Products Products Consolidated

Operating Revenue $ 3,555,832 $ 4,414,127 $ 7,969,959
----------------- =========== =========== ===========

Operating [Loss] $(1,519,550) $ (737,411) $(2,256,961)

Interest Expense (132,638)

Other Nonoperating Revenues and [Expenses] (34,196)

Loss Before Income Taxes and Minority Interest $(2,423,795)
---------------------------------------------- ===========

Identifiable Assets at June 30, 1998 $ 662,047 $ 2,742,687 $ 3,404,734
------------------------------------ =========== =========== ===========

F-17

<PAGE>

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

[12] Industry Segments [Continued]

1 9 9 7

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
------------------------------------ =========== =========== ===========

Operating profit [loss] is total operating revenue less operating expenses, and
excludes interest expense and other nonoperating revenues and expenses.
Intersegment sales during 1998 and 1997 were immaterial to the consolidated
financial statements. Shared operating expenses allocated to the Medical
Products segment were $90,000 in 1998 and 1997. For 1998, depreciation and
amortization expense for the Computer Products and Medical Product industry
segments was $295,005 and 147,092, respectively. For 1997, depreciation and
amortization expense for Computer Products and Medical Products industry
segments was $323,999 and $13,434, respectively. Capital expenditures for the
two segments in 1998 were $17,897 and $184,803, respectively. Capital
expenditures for the two segments in 1997 were $153,000 and $-0-, 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
Product segment totaling $503,263 and $427,980 as of June 30, 1998 and 1997,
respectively.

[13] Leasing Agreements

Sales Type Leases - 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." These sales-type leases are originated by
the Company on a non-recourse basis. Revenues arising from the sales of lease
receivables were approximately $1,800,000 and $110,000 for the years ended June
30, 1998 and 1997, respectively.

Operating Leases - The Company also leases its products to customers under
operating leases. These leases are generally short-term rentals, with terms less
than one year. Equipment on operating leases was $8,405 and $-0- at June 30,
1998 and 1997, respectively. Accumulated depreciation on operating leases was
$2,802 and $-0- at June 30, 1998 and 1997, respectively.

Minimum future rentals on noncancelable operating leases are as follows:

Year ending
June 30,
1999 $ 17,895
2000 4,689
Thereafter --
-----------

Total $ 22,584
----- ===========

F-18

<PAGE>

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

[13] Leasing Agreements [Continued]

Operating Leases - Related Party - The Company leases its facilities under an
operating lease from an entity which is owned by the president of the Company.
The term of the lease is from November 1, 1998 to October 2000. The lease
contains a renewal option which is exercisable by the Company.

Minimum future annual rental payments under the non-cancelable operating lease
having remaining terms in excess of one year as of June 30, 1998 for each of the
next five years and in the aggregate are:

June 30, Amount

1999 $ 156,000
2000 156,000
2001 52,000
Thereafter --
----------

Total $ 364,000
----- ==========

Rent expense was approximately $110,000 and $65,000 for the years ended June 30,
1998 and 1997, respectively.

[14] Going Concern

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained substantial
operating losses in recent years, has a working capital deficit at June 30, 1998
of $1,387,161, and has used $1,106,998 in cash for operating activities during
the fiscal year then ended. The Company has also been experiencing difficulties
in paying its vendors on a timely basis. These factors create uncertainty as to
whether the Company can continue as a going concern. The Company is actively
pursuing acquiring an alternative business and/or assets which may be developed
into a business and other financing options.

The Company's ability to continue as a going concern is dependent on the
implementation and success of these plans. The financial statements do not
include any adjustments in the event the Company is unable to continue as a
going concern. There can be no assurance that management's plans to acquire an
alternative business and/or financing will be successful. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence.

[15] Extraordinary Item

During the year ended June 30, 1998, the Company negotiated payment terms of
certain accounts payable, resulting in a gain of $98,225. There was no income
tax effect on this transaction. The original debt was $248,226. The Company paid
$100,000 in October of 1997, and the remaining $50,000 is to be paid in twelve
monthly payments of $4,166.66 during 1998.

F-19

<PAGE>

COMPUTER MARKETPLACE(R), INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
- ------------------------------------------------------------------------------

[16] Proposed Acquisition and Sale of Subsidiary

On August 27, 1998, the Company, Medical Marketplace, and Medley Credit
Acceptance Corporation entered into a Stock Purchase Agreement, pursuant to
which Medley agreed to purchase all of the shares of Medical Marketplace owned
by Computer, which represents 83.3% of the total number of shares outstanding.
Medley has agreed to pay 25,000 shares of restricted Medley Common Stock in
exchange for the 2,500,000 shares of Medical Marketplace owned by the Company so
long as Medical has $50,000 in net assets at the time of the closing of the
transaction. The closing of the proposed is subject to the satisfaction of
certain conditions including the approval of a majority of the shares of the
Company's common stock outstanding. The Company anticipates calling a meeting of
stockholders in December 1998, to consider approving the sale of shares of
Medical Marketplace. In addition, pending the closing, Medley has agreed to
assist in the day to day management of Medical pursuant to the terms of an
Operating Agreement between the Company and Medley.

[17] Delisting of Stock

To spite ongoing efforts, the Company has failed to meet the continued listing
requirements for the NASDAQ Small Caps Market. Accordingly, the Company's
securities were delisted form the NASDAQ Small Cap Market effective as of the
close of business on July 25, 1998. As of July 29, 1998, the Company's shares of
common stock commenced trading on the OTC Bulletin Board.

. . . . . . . . . . . . . . . . .

F-20

<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 reference to such schedules.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Jun-30-1998
<CASH> 36,580
<SECURITIES> 0
<RECEIVABLES> 534,074
<ALLOWANCES> 112,472
<INVENTORY> 285,412
<CURRENT-ASSETS> 1,147,527
<PP&E> 969,570
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,404,738
<CURRENT-LIABILITIES> 2,534,688
<BONDS> 0
0
0
<COMMON> 135
<OTHER-SE> 337,614
<TOTAL-LIABILITY-AND-EQUITY> 3,404,738
<SALES> 5,725,882
<TOTAL-REVENUES> 7,969,959
<CGS> 6,883,256
<TOTAL-COSTS> 10,226,920
<OTHER-EXPENSES> 166,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,638
<INCOME-PRETAX> (2,423,795)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,305,356)
<DISCONTINUED> 0
<EXTRAORDINARY> 98,225
<CHANGES> 0
<NET-INCOME> (2,207,131)
<EPS-PRIMARY> (1.63)
<EPS-DILUTED> (1.63)

</TABLE>