SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                               COCONUT CODE, INC.
                           1430 SOUTH FEDERAL HIGHWAY
                         DEERFIELD BEACH, FLORIDA 33441
                                 (954) 481-9331


FOR FISCAL YEAR ENDED: DECEMBER 31, 1996
COMMISSION FILE NUMBER: 33-64164-A
STATE OF INCORPORATION: FLORIDA
IRS EMPLOYER I.D.: 59-2556411

SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:

                                            NAME OF EXCHANGE ON
  TITLE OF EACH CLASS:                      WHICH REGISTERED:
         NONE                                NOT APPLICABLE

SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:

                                            NAME OF EXCHANGE ON
  TITLE OF EACH CLASS:                      WHICH REGISTERED:
    COMMON STOCK, PAR VALUE
    $.01 PER SHARE                                NONE

INDICATE BY CHECK MARK WHETHER  REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO
BE FILED BY SECTION 13 OR 15 (D) OF THE  SECURITIES  EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS),  AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS. YES(X) NO( )

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:  YES ( )   NO (X)

CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT  FILERS IN RESPONSE TO ITEM 405 OF
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 PARTS II OR III OF THIS FORM
10-KSB OR ANY AMENDMENT TO THIS FORM 10-KSB. (X)

ISSUER'S REVENUES FOR THE MOST RECENT FISCAL YEAR:  $2,244,015

AGGREGATE  MARKET VALUE OF THE VOTING STOCK HELD BY  NON-AFFILIATES  COMPUTED BY
REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED
PRICES  OF SUCH  STOCK,  AS OF  DECEMBER  31,  1996:  NO MARKET  EXISTS  FOR THE
COMPANY'S COMMON STOCK.

NUMBER OF SHARES  OUTSTANDING OF REGISTRANT'S  COMMON STOCK AS OF MARCH 31, 1997
3,532,325.


<PAGE>


                             Introductory Statement


     The Private  Securities  Litigation Reform Act provides a "safe harbor" for
forward-looking statements.  Certain statements included in this Form 10-KSB are
forward-looking,  such as statements on the anticipated  growth in revenues from
the sale of the Company's  products,  the  expectation  that such revenue growth
will result in profitability  and that cash flows will be sufficient to fund the
Company's  operations.   Such  forward-looking  statements,  are  based  on  the
Company's  current  expectations  and are  subject  to a  number  of  risks  and
uncertainties  that could  cause  actual  results to differ  significantly  from
results  expressed or implied in any  forward-looking  statements made by, or on
behalf  of,  the  Company.  The  Company  assumes  no  obligation  to update any
forward-looking  statements  contained  herein  or that may be made from time to
time by, or on behalf of, the Company.


Part I.

Item 1. Description of Business

Business Development

     Coconut Code, Inc. (the "Company" or "Registrant")  was organized under the
laws of the State of Florida on April 30, 1984 to address the growing demand for
quality based  business  software,  specifically  for the  restaurant  industry.
Today, the Company continues to design, develop, market and support software for
the  restaurant  industry  and,  also,  for the  hospitality  industry and small
businesses in general.  The Company's products have been installed in over 2,000
facilities in the United States, Canada and other international countries.

Business of Issuer

     The Registrant currently markets over fifteen products,  each of which is a
derivative  of the  Company's  two core  products:  the Food Service  Management
System(TM) (FSMS(R)) and TimeWare(R) System.

     The FSMS(R) is a restaurant  and  hospitality  industry  specific  software
application which is designed to (1) assist the user in increasing profitability
by reducing overhead costs, (2) simplify day-to-day accounting  activities,  (3)
improve  control over inventory  and, (4) provide timely  reporting of financial
information to management.  In addition,  the software  includes  features which
allow it to  interface  with cash  registers  and other  point-of-sale  hardware
thereby  eliminating  the need to  manually  input  daily  sales  data and other
related information into the accounting records. The Company offers the software
in configurations to satisfy the needs of all users, from single unit operations
to multi-unit  operations which require the reporting of consolidated  financial
information.


<PAGE>


Part I. (cont'd.)

Item 1. Description of Business (cont'd.)

Business of Issuer (cont'd.)

     TimeWare(R),  the  Company's  other core  product,  is an advanced time and
attendance software  application  designed to fully automate and improve control
over the entire payroll  process.  The software is run on a data collection unit
purchased  from a major  electronics  manufacturer  and serves as the time clock
into which  employees  enter  information on time-in,  breaks and time-out.  The
system is  designed  to provide  accurate  collection  and timely  reporting  of
employee time and attendance information and can also be used as a communication
tool between  employees and management with respect to scheduling  employee time
and other matters.

     The Company also derives revenue from support of its products,  principally
FSMS(R) and TimeWare(R), through on-site consultation at the customer's facility
and through a telephone access program.

     The Company  markets its products  through its own,  small sales group,  as
well as dealers and  independent  sales agents.  The majority of sales to single
unit  operations  are  handled  by  dealers  and sales  agents,  while  sales to
multi-unit,  regional and national chains are handled by the Company's own sales
group.

     The  Company  markets  its  products  in the  highly  competitive  software
industry  which  is   characterized   by  rapid   technological   advances  and,
consequently, product obsolescence. The Company's ability to compete effectively
in the  marketplace is highly  dependent upon such factors as product  features,
user   friendliness,   technical  support  and  service,   product   development
capabilities and the marketing and distribution infrastructure.

     On May 1, 1996, the Company began releasing to select  customers the latest
version of its FSMS(R) accounting  software.  This new software was specifically
designed to run on  Microsoft's  Windows 95 operating  system,  N.T. and Windows
3.11 and  includes  many  features  and  enhancements  not  available in earlier
versions  of  FSMS(R).  The  Company  continues  to  improve  and refine the new
software and now  believes  that the  finished  product  will be  available  for
shipment to all customers by the latter part of the third quarter of 1997.

     In 1995, the Company  embarked on a program to address  certain issues that
concern large national and regional  restaurant chains such as labor scheduling,
forecasting   cooked  food   requirements,   and  the  reporting  of  meaningful
information to management  covering  individual store level  operations  through
total  company  performance.   Using  the  Company's  leading  edge  programming
technology known as SDE(TM) (System Development Environment),  prototype systems
were  designed  for  presentation  to  national  and  regional  chains  allowing
prospective customers to choose from a wide array of software applications or,


<PAGE>


Part I. (cont'd.)

Item 1. Description of Business (cont'd.)

Business of Issuer (cont'd.)

alternatively, working with the Company's research and development staff, design
their own exact fit applications.  For 1996, custom software development revenue
approximated $1,067,000, up from $103,000 in 1995. In February 1997, the Company
entered into a $1,908,000  contract with one of its major development  customers
for the installation and support of custom software at approximately  700 of the
customer's fast food units. For 1997, the Company believes that custom software
sales could approximate $3,000,000.

     The  Company  believes  that its core  products,  FSMS(R)  and  TimeWare(R)
together with custom  software  development,  give it a significant  competitive
advantage  because of  software  features  not offered by  competitors,  Company
support of these  products  and,  most  importantly,  the fact that the  Company
writes and controls its own code for both FSMS(R) and TimeWare(R).

     For the years ended December 31, 1996 and 1995, the Company's  expenditures
for research and development  approximated $767,000 and $477,000,  respectively.
The  Company  believes  that its  future  success is highly  dependent  upon its
ability to enhance its current  product base in order to maintain  technological
competitiveness and satisfy the needs of current and prospective  customers,  as
well as develop new  products  which have a synergy with  existing  products and
demonstrate market potential.

     For 1996,  the Company had one customer  which  accounted  for 28% of total
revenue. In 1995, no one customer represented more than 10% of revenue.

     As of March 31, 1997,  the  Registrant  had 43 employees,  all of whom were
full-time.

Item 2. Description of Property

     The Company's executive and principal administrative, sales, marketing, and
research  and  development  functions  are  housed  in  leased  office  space in
Deerfield Beach, Florida. The office comprises  approximately 8,000 square feet,
occupied under a lease which expires on January 31, 1998.  The Company's  former
Chicago  sales  office  lease which  expired on January 31, 1996 was not renewed
because most work is being performed at customers' facilities.

     During 1996, the Company's  employee based grew over 30%, from 31 employees
at the end of 1995 to 41 employees  at the end of 1996.  Because of this growth,
the Company is rapidly outgrowing its present office facility.  Accordingly, the
Company is working with the building's  landlord to locate a larger  facility in
the general vicinity of the present office building.


<PAGE>


Part I. (cont'd.)

Item 3. Legal Proceedings

     The Company is not a party to any legal  proceedings,  the outcome of which
would have a material adverse impact on the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

     No matters were  submitted to a vote of the Company's  stockholders  during
the fourth quarter of 1996.

Part II.

Item 5. Market for Common Equity and Related Stockholder Matters

     There is no public market for the Company's common equity securities.

     The approximate  number of holders of record of the Company's  common stock
as of March 31, 1997 was 233.

     The Company has never paid a cash dividend on its common stock and does not
now or in the near future anticipate paying a cash dividend.


Item 6. Management's  Discussion and Analysis of Financial Condition and Plan of
        Operations

     Results of Operations

     Net sales for the year ended December 31, 1996 were $2,244,015 representing
an increase of 12.9% when  compared to the prior year sales of  $1,986,992.  The
increase in net sales of $257,023 was attributable to a surge in sales of custom
software,  up approximately  $1,000,000 over 1995, offset, in part, by a drop in
sales of DOS-based  TimeWare and FSMS(R)  products  because  customers  deferred
ordering the DOS-based  products in anticipation of the release of the Company's
new  Windows(R)  based  software.  As of December  31,  1996,  the Company had a
backlog of orders approximating $450,000.

     Effective  January 1, 1995,  the Company began  recognizing  revenue on its
phone support and hardware maintenance  contracts over the life of the contract,
which is generally  twelve  months.  This change was made because of the growing
significance of these contracts to the overall business of the Company. Prior to
this change, there was not a significant difference between the Company's former
cash basis method of  recognizing  revenue on these  contracts and the Company's
current method.

     In 1996, operating costs and expenses increased $258,100 to $2,947,486. The
principal   reasons  for  this  increase  were  the  addition  of  research  and
development staff, higher general and administrative  expenses attributable,  in
part,  to benefits  and bad debt  expense,  offset  partly by lower  selling and
marketing  expenses due to less sales  subject to  commission  and lower cost of
sales because of the drop in


<PAGE>


 Part II. (cont'd.)

Item 6. Management's  Discussion and Analysis of Financial Condition and Plan of
        Operations (cont'd.)

     Results of Operations (cont'd.)

sales of the Company's DOS-based TimeWare product in 1996.

Despite the increases in net sales in 1996 and 1995,  net losses of $697,353 and
$668,222,  respectively,  were incurred in each year and have contributed to the
accumulated deficit of $3,010,042 at December 31, 1996. The Company expects that
the net losses experienced will turnaround with further increases in net sales.

     Liquidity and Capital Resources

     At December 31, 1996, the Company had a working capital deficit of $443,873
compared to working  capital of $208,208 at December 31, 1995.  During 1996, net
cash used in operations of the Company was $230,631,  with investing  activities
using  net  cash  of  $52,942,  principally  for  the  acquisition  of  computer
equipment.  Offsetting net cash used in operations and investing  activities was
net cash provided from financing activities, primarily $130,400 in proceeds from
notes payable, less $20,824 in loan payments and, loans from certain officers of
the Company in the amount of $35,100.

     The Company has a $300,000 line of credit with a bank.  Advances  under the
line bear  interest  at the prime rate plus one  percent  and are secured by the
Company's  accounts  receivable and the personal  guarantees of three  principal
stockholders.  During 1996,  $103,000 in advances  were taken under the line and
remain outstanding at December 31, 1996. No advances were taken during 1995. The
line of credit expires on May 1, 1997.

     In  September  1993,  the  Company  commenced  a stock  offering  for up to
1,000,000  common shares of the Company at a price of $5.10 per share.  Proceeds
raised in the offering, which expired in May 1994, approximated $1,352,000,  net
of offering costs.

     In January 1995, the Company obtained a $100,000 term loan with a bank. The
loan agreement  requires  interest only payments,  at the bank's prime rate plus
one percent, until the principal amount outstanding is converted to a three year
term loan. At December 31, 1995, $72,600 was outstanding under this facility. In
February 1996, the Company borrowed the remaining $27,400.  All borrowings under
this facility were used  primarily to finance the purchase of computer  hardware
for use by the  Company's  research and  development  staff in the design of the
Company's new Windows(R)  based  software.  In March 1996, the $100,000  balance
outstanding  was  converted  to a three year term loan  bearing  interest at the
prime rate plus one percent and requiring 36 equal monthly payments of principal
and interest through March 1999.


<PAGE>


Part II. (cont'd.)

Item 6. Management's  Discussion and Analysis of Financial Condition and Plan of
        Operations (cont'd.)

     Liquidity and Capital Resources (cont'd.)

     Other than the stock offering,  line of credit and term loan facility,  the
Company's  primary  source  of funds  has been  from  the sale of  products  and
services.  The  Company's  negative  cash  flow and  continued  net  losses  are
primarily  attributable to an insufficent level of revenue to cover research and
development and other operating expenses.

     During 1996 and 1995, the Company's  significant capital  expenditures were
for upgrading the Company's  computers and research and  development  associated
with new products and platforms.

     The Company  believes that cash flow generated from continuing sales of its
DOS-based products,  the release of its new Windows(R) based accounting software
and  cash  flow  from  fixed-price  contracts  for  the  custom  development  of
accounting  related  software  for  national  and  regional  restaurant  chains,
together  with  the  $300,000  line of  credit  will be  sufficient  to fund the
Company's  operations  through the end of the year and will allow the Company to
continue expanding marketing and product distribution.

     In February 1997, The Financial  Accounting Standards Board issued SFAS No.
128,  "Earnings  Per Share" which  requires  adoption  for periods  ending after
December 15, 1997. SFAS No. 128 simplifies the accounting for earnings per share
by  requiring  the  presentation  of basic  earnings  per share  including  only
outstanding  common stock and diluted  earnigs per share including the effect of
dilutive common stock equivalents.  The Company's basic and diluted earnings per
share are the same, as the Company's common stock  equivalents are antidilutive.
In addition,  The Company's basic and diluted earnings per share are the same as
that  computed  under APB No. 15,  "Earnings  Per Share",  as  presented  in the
accompanying statements of operations.  SFAS No. 128 must be adopted for periods
ending after December 15, 1997 and be  retroactively  reflected in the financial
statements.

     Other Factors That May Affect Future Operating Results

     The market for the Company's products is generally characterized by rapidly
changing  technology  and  frequent  new  product  introductions  that  can make
existing products obsolete or unsalable.  The success of the Company will depend
to a large degree upon its ability to develop and  introduce in timely  fashion,
enhancements  to its  existing  products  and new  products  that meet  customer
requirements and changing  industry  standards.  The inability of the Company to
introduce in a timely manner new products and respond to changes in the industry
could have a  material  adverse  impact on the  Company's  business,  results of
operations and financial condition.


<PAGE>


Part II. (cont'd.)

Item 6. Management's  Discussion and Analysis of Financial Condition and Plan of
        Operations (cont'd.)

     Other Factors That May Affect Future Operating Results

     The  development  of new,  technologically  advanced  products is a complex
process  requiring  accurate  prediction of technological  and market trends. In
addition, the introduction and marketing of new or enhanced products require the
Company to manage the transition from current  products in order to minimize any
disruption in customer orders and related sales.  There can be no assurance that
the Company will successfully develop and market in a timely manner new products
and  enhancements,  that its new products will satisfy the changing needs of the
marketplace,  or that it will  successfully  manage the transition from existing
products.  In addition,  the Company has on occasion  experienced  delays in the
introduction of new products and product enhancements. Furthermore, there can be
no  assurance  that the  Company  will be able to  introduce  new  products  and
enhancements  in a timely  manner.  Beacause of the  complexity of the Company's
products,  undetected errors may be present when the product is first introduced
or new versions are released.  There can be no assurance that, despite extensive
testing by the  Company,  errors will not be found in new  peoducts  until after
official  release of the  product to the  marketplace.  The  occurrence  of such
errors could result in the loss or delay in market  acceptance  of the Company's
products, damage to the Company's reputation, diversion of management resources,
any of which could have a material adverse effect on the Company.

     In addition,  the Company's growth has placed,  and will continue to place,
strains on its  management,  operations and systems.  To effectively  manage its
growth,  the Company  must  continuously  evaluate  the adequacy of its existing
systems and procedures, including its financial and internal control systems and
management  structure.  There can be no assurance that the Company's  management
will adequately  anticipate all of the changing  demands that growth will impart
on  the  Company.  Any  failure  by  the  Company's  management  to  effectively
anticipate  and implement the changes  required to sustain the Company's  growth
would have a material adverse effect on the Company.

Item 7. Financial Statements

     See Item 13 for a list of the Company's financial  statements filed as part
of this report.

Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

     None


<PAGE>


Part III.

Item 9. Directors, Executive Officers, Promoters and Control Persons

     The directors,  executive officers and significant employees of the Company
are as follows:


    Name                          Age                           Position
    ----                          ---                           --------

John E. Abdo                       53               Chairman of the Board

Mark E. Wotell                     50               President and Director

Matthew J. Wotell                  45               Executive Vice President of
                                                       Sales and Director

Christopher L. Wotell              44               Vice President of Marketing
                                                       and Director

Eugene J. Wotell                   41               Vice President Support
                                                       Services and Director

Clement E. Wotell                  76               Vice President of Production
                                                       and Director Emeritus

Frank J. Abdo                      48               Director

J. Kenneth Gulden                  56               Director

James W. Rascoe                    35               Vice President of Research
                                                       and Development

Daniel W. Reese                    49               Vice President and Chief
                                                       Financial Officer


     Business Experience of Directors, Executive Officers and
     Significant Employees

     John E. Abdo has served as Chairman of the Board of the Company since 1991.
Since 1974,  Mr. Abdo has been Chairman of the Board and President of Wellington
Construction & Realty, Inc., a real estate development company  headquartered in
South Florida,  which has built several thousand  residential  dwelling units as
well as many  commercial and industrial  properties  since 1971. In 1984, he was
elected  to the Board of  Directors  of  BankAtlantic,  a Federal  Savings  Bank
("BankAtlantic") and currently serves as Vice Chairman of the Board and Chairman
of its  Executive  Committee.  Since  1985,  Mr.  Abdo has held the  position of
Chairman of the Board and President of BankAtlantic Development  Corporation,  a
wholly-owned subsidiary of BankAtlantic.


<PAGE>


Part III. (cont'd.)

Item 9. Directors, Executive Officers, Promoters and Control Persons (cont'd.)

     Business Experience of Directors, Executive Officers and
     Significant Employees (cont'd.)

In 1987, Mr. Abdo became a member of the Board of Directors and Vice Chairman of
BFC Financial Corporation,  the controlling owner of BankAtlantic Bancorp., Inc.
In 1994,  Mr. Abdo was elected to the Board of Directors  and named  Chairman of
BFC Financial Corporation, the controlling owner of BankAtlantic Bancorp., Inc.,
and was elected to the Board of Directors  and named Vice  Chairman and Chairman
of the Executive Committee of BankAtlantic Bancorp, Inc., the holding company of
BankAtlantic. Since 1990, Mr. Abdo has also been a Director of Benihana National
Corporation, the International Japanese Steakhouse.

     Mark E. Wotell was a co-founder  of the Company and has served in a variety
of positions since its inception.  Since 1988, he has served as President of the
Company and as a Director.  Mr. Wotell received a Bachelor of  Aeronautical  and
Astronautical  Engineering  degree  from Ohio State  University  in 1970 and did
extensive  post  graduate  work in the field of  aerodynamics.  He is the son of
Clement E. Wotell and brother of Matthew J.  Wotell,  Christopher  L. Wotell and
Eugene J. Wotell.

     Matthew  J.  Wotell was a  co-founder  of the  Company  and has served in a
variety of positions  with the Company since its inception in 1984.  Since 1988,
he has served as Vice President of Sales (effective September 1, 1994, Executive
Vice  President of Sales) and as a Director.  He is the son of Clement E. Wotell
and brother of Mark E. Wotell, Christopher L. Wotell and Eugene J. Wotell.

     Christopher  L. Wotell was a co-founder  of the Company and has served in a
variety of positions  since its formation in 1984.  Since 1988, he has served as
Vice  President  of  Marketing  and as a  Director.  He is the son of Clement E.
Wotell and brother of Mark E. Wotell, Matthew J. Wotell and Eugene J. Wotell.

     Eugene J.  Wotell  was a  co-founder  of the  Company  and has  served in a
variety of positions  since its  inception  in 1984.  Since 1988 to December 31,
1994, he served as Vice President of Research and Development. Effective January
1, 1995,  he became  Vice  President  of Support  Services  responsible  for all
product  support.  He is the son of  Clement E.  Wotell  and  brother of Mark E.
Wotell, Christopher L. Wotell and Matthew J. Wotell.


<PAGE>


Part III. (cont'd.)

Item 9. Directors, Executive Officers, Promoters and Control Persons (cont'd.)

     Business Experience of Directors, Executive Officers and
     Significant Employees (cont'd.)

     Clement  E.  Wotell was a  co-founder  of the  Company  and has served in a
variety of positions  since its inception in 1984.  Since 1988, he has served as
Vice President of Production  for the Company and as a Director.  Effective July
1,  1993,  he  resigned  as a  Director  of the  Company  and was  designated  a
non-voting Director Emeritus. He is the father of Mark E. Wotell, Christopher L.
Wotell, Matthew J. Wotell and Eugene J. Wotell.

     Frank J. Abdo has served on the Board of  Directors  for the Company  since
1991. Mr. Abdo is the Executive  Vice  President for  Wellington  Construction &
Realty, Inc., a real estate development company  headquartered in South Florida,
which has built and developed  several  thousand  residential  dwelling units as
well as many commercial and industrial  properties since 1971. In 1987, Mr. Abdo
was elected to the Board of Directors of BankAtlantic Development Corporation, a
wholly-owned subsidiary of BankAtlantic. He is the brother of John E. Abdo.

     J. Kenneth Gulden has served on the Board of Directors of the Company since
1991.  Mr.  Gulden  is the  Chairman  of the  Board  and  President  of the Cove
Restaurant  and  Marina,  Inc.  in  Deerfield  Beach,  Florida and has held such
position  since 1976. He was an active member of the Florida Bar until 1989 when
he chose an inactive status.

     James W. Rascoe  served as Director of  Research  and  Development  for the
Company from May 1993 to December 1994.  Effective January 1, 1995, he was named
Vice President of Research and  Development.  Prior to joining the Company,  Mr.
Rascoe spent four years as Vice  President with Fortis  Development  Corporation
and approximately two years as President of Innovative Research and Development,
both of which were involved in the research and development of computer software
applications. Mr. Rascoe is married to the daughter of Clement E. Wotell.

     Daniel W. Reese has served as Vice  President and Chief  Financial  Officer
since July 1994. Prior to joining the Company,  Mr. Reese spent approximately 13
years with RJR  Nabisco,  Inc.  where he held a variety of  positions,  the most
recent of which was Vice President of Finance for the Del Monte Foods  Division.
Before  joining RJR  Nabisco,  Mr.  Reese  worked  approximately  nine years for
Coopers & Lybrand, Certified Public Accountants.


<PAGE>


Part III. (cont'd.)

Item 10. Executive Compensation

The  following  table  sets  forth the cash  compensation  paid with  respect to
services  rendered in all capacities to the Company during the fiscal year ended
December 31, 1996 to the five most highly compensated  executive officers of the
Company whose cash compensation  (including  bonuses and deferred  compensation)
exceeded $60,000 and for all executive officers as a group:


Name of Individual or            Capacities in            Cash
   Number in Group               Which Served         Compensation (1)
   ---------------               ------------         ----------------
Mark E. Wotell (2)                President              $ 76,096
Christopher L. Wotell (2)         Vice President           75,672
Matthew J. Wotell (2)             Vice President           72,925
Eugene J. Wotell (2)              Vice President           72,925
James W. Rascoe (2)               Vice President           72,925

All executive officers
  as a group (7 persons)                                 $480,533
                                                         --------

(1)  The table includes all compensation  earned by the named individuals and is
     gross of any loans made to the Company in 1996 by the listed officers.  The
     Company does not provide its executive officers with any personal benefits.

(2)  The Registrant has entered into employment contracts with each of the above
     named  executive  officers.   See  "Management  -  Employment  and  Related
     Agreements".

     Management - Employment and Related Agreements

     Each of the executive  officers listed in the cash  compensation  table are
parties to employment and non-compete  agreements which expire on July 31, 1998.
The  agreements  provide for annual  salaries of  $129,441  for Mark E.  Wotell,
$108,805 for Christopher L. Wotell, $105,068 for Matthew J. Wotell, $105,068 for
Eugene J.  Wotell and for James W. Rascoe a minimum of $70,000  which  increases
over the term of the agreement to $100,000.  For 1996 and 1995,  each  executive
officer,  except  James W.  Rascoe,  elected  to  accept a  lesser  salary  than
specified in their  respective  agreement and also waived their right to be paid
the difference in the future. Additionally, Mr. Rascoe's agreement provides that
he will receive 25,000 shares of the Company's common stock for every $1,000,000
in sales by the Company of products Mr. Rascoe plans,  designs and develops,  as
defined in the agreement,  up to a maximum of 150,000 shares.  Through  December
31, 1996,  the Company had charged  compensation  expense and  credited  accrued
expenses for $60,000  representing  the fair market value,  as determined by the
Board of Directors,  of 150,000 shares of the Company's common stock on December
31, 1996. Such determination was required as the Company's


<PAGE>


Part III. (cont'd.)

Item 10. Executive Compensation (cont'd.)

     Management - Employment and Related Agreements (cont'd.)

shares  are not,  and have not been in the  recent  past,  actively  traded.  On
January 1, 1997, Mr. Rascoe was issued  150,000  shares of the Company's  common
stock under the terms of the agreement.  Each of the  agreements  also include a
provision  that  the  executive   officer  will  not  engage  in  activities  in
competition with the Company, as defined in the agreements,  so long as they are
employees of the Company and for a period of three years  thereafter.  The Board
of  Directors,  in their sole  discretion,  has the authority to increase at any
time the annual salary of any executive officer.

     John E. Abdo,  Chairman of the Board,  is also a party to an agreement with
the Company which expires on July 31, 1998.  The agreement  provides for minimum
annual  compensation  of $100,000 for services  rendered by him on behalf of the
Company.  Mr.  Abdo's  annual  compensation  may be increased at any time by the
Board of Directors of the Company in its sole discretion.  The agreement further
provides that Mr. Abdo may not engage in certain  activities in competition with
the  Company,  as defined in the  agreement,  so long as he is  employed  by the
Company and for a period of three years thereafter.  For 1996 and 1995, Mr. Abdo
elected to receive no compensation under his agreement and also waived his right
to receive the difference in the future.

     Shareholders' Agreement

     Mark E. Wotell, Christopher L. Wotell, Matthew J. Wotell, Eugene J. Wotell,
Clement E. Wotell, John E. Abdo and Frank J. Abdo are parties to a Shareholders'
Agreement  which  provides  that each party will take such actions and will vote
their  shares so as to cause the Board of Directors of the Company to consist of
ten members,  four of whom shall be  identified  by the above named Wotells (the
"Wotells"),  four of whom shall be  identified by John E. Abdo and Frank J. Abdo
and two of whom shall be  mutually  agreed  upon by the Wotells and John E. Abdo
and Frank J. Abdo.  The terms of the agreement  provide that the agreement  will
terminate upon the earlier of the closing of a public offering,  as defined,  or
an agreement to terminate the  Shareholders'  Agreement by the holders of 80% of
the shares of common stock held by the parties to the agreement.

Item 11. Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth, as of March 31, 1997, the ownership of the
Company's  common stock by (a) each person who is known by the Company to own of
record  or  beneficially  own  more  than  five  percent  (5%) of the  Company's
outstanding  common  stock,  (b) each of the Company's  directors,  officers and
significant employees and (c) all directors,  officers and significant employees
as a group.


<PAGE>


Part III. (cont'd.)

Item  11.  Security  Ownership  of  Certain  Beneficial  Owners  and  Management
           (cont'd.)


                                          Number of Shares        Percent
                                         Beneficially Owned      of Class
                                         ------------------      --------
John E. Abdo
 1350 N.E. 56th Street
 Ft. Lauderdale, FL 33334                    1,012,000             28.6%

Mark E. Wotell (1)                             313,245              8.9

Christopher L. Wotell (1)                      313,245              8.9

Matthew J. Wotell (1)                          313,245              8.9

Eugene J. Wotell (1)                           313,245              8.9

Clement E. Wotell (1)                          313,245              8.9

J. Kenneth Gulden
 641 S.W. 16th Street
 Boca Raton, FL 33486                          202,000              5.7

Frank J. Abdo
 1350 N.E. 56th Street
 Ft. Lauderdale, FL 33334                      101,000              2.9

James W. Rascoe (1)                            151,000              4.3

Daniel W. Reese (1)                              4,000               .001

All Directors, Officers and
 Significant Employees as
 a Group                                     3,036,225             86.0

(1)  Unless otherwise indicated, the address of each person is c/o Coconut Code,
     Inc., 1430 South Federal Highway, Deerfield Beach, Florida 33441.

Item 12. Certain Relationships and Related Transactions

     John E. Abdo,  Chairman of the Board,  and Frank J. Abdo, a Director of the
Company own a controlling interest in Time Information Systems Inc. ("TIS"). TIS
was  licensed by the Company to market and support the  Company's  products.  In
January 1992,  the  principals  of TIS decided to  discontinue  its  activities.
Subsequently,  the Company  purchased  the inventory and equipment of TIS at its
fair  market  value  (approximately  $30,000)  and  agreed  to pay  TIS,  or its
assignees, a 10% commission based


<PAGE>


Part III. (cont'd.)

Item 12. Certain Relationships and Related Transactions (cont'd.)

on sales (net of costs) resulting from customer  introductions made by TIS up to
a maximum of $50,000. For 1996 and 1995, no commissions were earned or paid. For
1995, the Company was charged $18,000 for rent pertaining to a portion of office
space occupied off-site of Company facilities by the Company's Chairman. No rent
charges were made in 1996. In 1996, the 1995 rent charge was forgiven.

     In July 1990,  the Company  agreed to pay James W. Rascoe  $100,000 for the
development of the software program which runs the Company's TimeWare(R) system.
Amounts  earned  are  payable  monthly  on the basis of 10% of the net  proceeds
received by the Company from  TimeWare(R)  sales. In 1996, the remaining  $7,823
due under this agreement was paid. In addition,  the agreement provides that Mr.
Rascoe  will  receive  25,000  shares of the  Company's  common  stock for every
$1,000,000  in sales by the Company of products he plans,  designs and develops,
as defined in the agreement,  up to amaximum of 150,000 shares. Through December
31, 1996, the Company charged compensation expense and credited accrued expenses
for $60,000,  representing  the fair market value, as determined by the Board of
Directors, of 150,000 shares of the Company's common stock on December 31, 1996.
Such  determination  by the Board was required as the Company's  shares are not,
and have not been in the recent past,  actively traded.  On January 1, 1997, the
Company  issued Mr. Rascoe  150,000  shares of the Company's  common stock.  Mr.
Rascoe is married to the daughter of Clement E.  Wotell.  Mr.  Rascoe  became an
employee of the  Company on May 10,  1993 and is  currently  Vice  President  of
Research and Development.

     The Company  entered into an agreement with Benihana  National  Corporation
and  Benihana  of Tokyo  pursuant  to which the  Company  agreed to develop  and
install  customized  versions  of the  Company's  FSMS(R)  in  several  Benihana
restaurants.  The  development  and  installations  were completed in June 1992.
Pursuant to the agreement, the Company received $120,000 in the form of cash and
notes. At December 31, 1996, no amounts were  outstanding  under this agreement.
John E.  Abdo,  the  Company's  Chairman  of the Board,  is also a  director  of
Benihana National Corporation.

     The Company believes that all of the  transactions  between the Company and
its  officers,  directors  and  affiliates  of the Company were on terms no less
favorable than could have been obtained on an  arms-length  basis from unrelated
third parties.


<PAGE>


Part III. (cont'd.)

Item 13. Exhibits, Lists and Reports on Form 8-K

The following documents are filed as part of this Form 10-KSB:

     1.   Financial Statements

          Consolidated Balance Sheets as of December 31, 1996 and 1995

          Consolidated Statements of Operations for the years ended December 31,
          1996 and 1995

          Consolidated Statements of Changes in Stockholders' (Deficit) Equity
          for the years ended December 31, 1996 and 1995

          Consolidated Statements of Cash Flows for the years ended December 31,
          1996 and 1995

          Notes to Consolidated Financial Statements


Item 13. Exhibits, Lists and Reports on Form 8-K

     2.   Exhibits

     Exhibits marked with an asterisk are filed  herewith.  The remainder of the
exhibits have heretofore been filed with the Commission and are  incorporated by
reference.


     Exhibit No.    Description
     -----------    -----------

     3.1            Articles of Incorporation of the Registrant

     3.2            Bylaws of the Registrant

     3.3            Copy of Shareholders' Agreement

     3.5            Form of Warrant Certificate

     6.1            Form of Employment Agreement between the Registrant and John
                    E. Abdo

     6.2            Form of Employment Agreement between the Registrant and Mark
                    E. Wotell

     6.3            Form of  Employment  Agreement  between the  Registrant  and
                    Christopher L. Wotell

     6.4            Form of  Employment  Agreement  between the  Registrant  and
                    Eugene J. Wotell

     6.5            Form of  Employment  Agreement  between the  Registrant  and
                    Matthew J. Wotell


<PAGE>


Part III. (cont'd.)

Item 13. Exhibits, Lists and Reports on Form 8-K (cont'd.)

     2.   Exhibits

     6.6            Form of  Employment  Agreement  between the  Registrant  and
                    Clement E. Wotell

     6.7            Form of  Employment  Agreement  between the  Registrant  and
                    James W. Rascoe


<PAGE>


Signatures


Pursuant to the requirements of Section 13 or 15 (d) of the Securities  Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, there unto duly authorized.


Coconut Code, Inc. (Registrant)


By: /s/ Daniel W. Reese
    ------------------------------
    Daniel W. Reese, Vice President
     and Chief Financial Officer
     June 9, 1997


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities indicated as of May 30, 1997.


John E. Abdo                                      /s/ John E. Abdo
 Chairman of the Board and Director               ----------------------------

Mark E. Wotell                                    /s/ Mark E. Wotell
 President and Director                           ----------------------------

Christopher L. Wotell                             /s/ Christopher L. Wotell
 Vice President of Marketing,                     ----------------------------
 Secretary and Director       

Matthew J. Wotell                                 /s/ Matthew J. Wotell
 Executive Vice President of Sales                ----------------------------
 and Director

Eugene J. Wotell                                  /s/ Eugene J. Wotell
 Vice President of Support Services               ----------------------------
 and Director

Clement E. Wotell                                 /s/ Clement E. Wotell
 Vice President of Production                     ----------------------------
 and Director Emeritus

Frank J. Abdo                                     /s/ Frank J. Abdo
 Director                                         ----------------------------

J. Kenneth Gulden                                 /s/ J. Kenneth Gulden
 Director                                         ----------------------------


<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY


                        CONSOLIDATED FINANCIAL STATEMENTS


                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


        TOGETHER WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Management of
    Coconut Code, Inc.:

We have audited the  accompanying  consolidated  balance sheets of Coconut Code,
Inc. (a Florida  corporation)  and  subsidiary as of December 31, 1996 and 1995,
and the related consolidated statements of operations,  changes in stockholders'
(deficit)  equity  and cash  flows for the years  then  ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Coconut  Code,  Inc.  and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and their  cash  flows for the years then  ended in  conformity  with  generally
accepted accounting principles.



/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP


Fort Lauderdale, Florida,
    April 11, 1997.


<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                     ASSETS
                                                                                      1996         1995
                                                                                   ----------   ----------
<S>                                                                                <C>          <C>       
CURRENT ASSETS:
 Cash and cash equivalents                                                         $   95,883   $  242,603
 Accounts receivable (net of allowance for doubtful accounts of $153,074
    in 1996 and $92,377 in 1995)                                                      274,912      317,714
 Inventories                                                                           27,274       31,352
 Current portion of finance  receivables (net of unearned lease income of $4,797
    in 1996 and $11,646 in 1995 and allowance for doubtful
    accounts of $5,010 in 1996 and $15,851 in 1995)                                    22,208       50,518
 Notes receivable (net of allowance for doubtful accounts of $70,000
    in 1996 and $49,000 in 1995)                                                       22,470       72,179
 Prepaid expenses                                                                      20,644       57,331
                                                                                   ----------   ----------
        Total current assets                                                          463,391      771,697
                                                                                   ----------   ----------
 PROPERTY AND EQUIPMENT, net                                                          261,801      250,154

OTHER ASSETS:
 Long-term  portion of finance  receivables  (net of  unearned  lease  income of
    $16,876 in 1996 and $18,105 in 1995 and allowance for doubtful
    accounts of $74,990 in 1996 and $36,654 in 1995)                                   29,108       52,975
 Other assets                                                                          15,093        2,293
                                                                                   ----------   ----------

                                                                                   $  769,393   $1,077,119
                                                                                   ==========   ==========

                 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

CURRENT LIABILITIES:
 Accounts payable                                                                  $  235,917   $  157,831
 Accrued expenses                                                                     234,537      171,379
 Customer deposits                                                                     87,392        8,636
 Due to related party                                                                    --          7,823
 Deferred revenue                                                                     133,194      100,420
 Loans from officers                                                                   79,900       44,800
 Current portion of note payable                                                       33,324         --
 Line of credit                                                                       103,000       72,600
                                                                                   ----------   ----------

        Total current liabilities                                                     907,264      563,489
                                                                                   ----------   ----------

LONG-TERM PORTION OF NOTE PAYABLE                                                      45,852         --

COMMITMENTS (Note 8 and 12)

STOCKHOLDERS' (DEFICIT) EQUITY:
 Common stock ($.01 par, 10,000,000 shares authorized, 3,382,325
    issued and outstanding)                                                            33,823       33,823
 Additional paid-in capital                                                         2,792,496    2,792,496
 Accumulated deficit                                                               (3,010,042)  (2,312,689)
                                                                                   ----------   ----------

                                                                                     (183,723)     513,630
                                                                                   ----------   ----------

                                                                                   $  769,393   $1,077,119
                                                                                   ==========   ==========
</TABLE>


           The accompanying notes to consolidated financial statements
                  are an integral part of these balance sheets.

<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


                                                       1996            1995
                                                    -----------     -----------
NET SALES                                           $ 2,244,015     $ 1,986,992
                                                    -----------     -----------
OPERATING COSTS AND EXPENSES:

     Cost of sales                                      347,842         415,716
     Selling and marketing                              707,296         847,719
     General and administrative                       1,055,298         893,196
     Research and development                           767,046         477,332
     Depreciation and amortization                       70,004          55,423
                                                    -----------     -----------
                                                      2,947,486       2,689,386
                                                    -----------     -----------
LOSS FROM OPERATIONS                                   (703,471)       (702,394)
                                                    -----------     -----------
OTHER INCOME (EXPENSE):
     Interest income                                        619          14,866
     Interest expense                                   (20,464)        (10,150)
     Other                                               25,963          29,456
                                                    -----------     -----------
                                                          6,118          34,172
                                                    -----------     -----------
NET LOSS                                            $  (697,353)    $  (668,222)
                                                    ===========     ===========
NET LOSS PER COMMON SHARE                           $     (0.21)    $     (0.20)
                                                    ===========     ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING            3,382,325       3,381,420
                                                    ===========     ===========


           The accompanying notes to consolidated financial statements
                  are an integral part of these balance sheets.


<PAGE>

                        COCONUT CODE, INC. AND SUBSIDIARY
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995


<TABLE>
<CAPTION>
                                                        Common Stock                Additional                            Total  
                                               -----------------------------         Paid-in         Accumulated      Stockholders'
                                                  Shares            Amount           Capital           Deficit      (Deficit) Equity
                                                  ------            ------           -------           -------      ----------------
<S>               <C> <C>                        <C>             <C>               <C>               <C>                <C>        
BALANCE, December 31, 1994                       3,378,325       $    33,783       $ 2,772,136       ($1,644,467)       $ 1,161,452
    Net loss                                          --                --                --            (668,222)          (668,222)
    Sale of common stock                             4,000                40            20,360              --               20,400
                                               -----------       -----------       -----------       -----------        -----------
BALANCE, December 31, 1995                       3,382,325            33,823         2,792,496        (2,312,689)           513,630
    Net loss                                          --                --                --            (697,353)          (697,353)
                                               -----------       -----------       -----------       -----------        -----------
BALANCE, December 31, 1996                       3,382,325       $    33,823       $ 2,792,496       ($3,010,042)       ($  183,723)
                                               ===========       ===========       ===========       ===========        ===========
</TABLE>


           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.


<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                               1996         1995
                                                            ---------    ---------
<S>                                                         <C>          <C>       
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                  $(697,353)   $(668,222)

    Adjustments to reconcile net loss to net cash used in
     operating activities:
        Depreciation and amortization                          70,004       55,423
        Provision for doubtful accounts                       256,203      120,767
    Changes in operating assets and liabilities:
        Accounts receivable                                  (164,906)    (104,316)
        Inventories                                             4,078       15,787
        Finance receivables, net                               24,682       45,239
        Prepaid expenses                                       36,687       40,745
        Other assets                                          (12,800)      16,642
        Accounts payable and customer deposits                156,842       23,954
        Accrued expenses and deferred revenue                  95,932      138,763
                                                            ---------    ---------
          Total adjustments                                   466,722      353,004
                                                            ---------    ---------
          Net cash used in operating activities              (230,631)    (315,218)
                                                            ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment                     (81,651)     (94,396)
      Decrease in notes receivable                             28,709       53,770
                                                            ---------    ---------
          Net cash used in investing activities               (52,942)     (40,626)
                                                            ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Increase (decrease) in due to related party              (7,823)     (12,500)
      Increase in loans from officers                          35,100       44,800
      Borrowings under line of credit                         103,000         --
      Proceeds from notes payable                              27,400       72,600
      Payments on note payable                                (20,824)        --
      Proceeds from issuance of common stock                     --         20,400
                                                            ---------    ---------
          Net cash provided by financing activities           136,853      125,300
                                                            ---------    ---------
          Net decrease in cash and cash equivalents          (146,720)    (230,544)

CASH AND CASH EQUIVALENTS, beginning of year                  242,603      473,147
                                                            ---------    ---------
CASH AND CASH EQUIVALENTS, end of year                      $  95,883    $ 242,603
                                                            =========    =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid during the year for interest                  $  20,464    $   9,549
                                                            =========    =========
</TABLE>


           The accompanying notes to consolidated financial statements
                    are an integral part of these statements.


<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


(1) ORGANIZATION:

Coconut Code, Inc. (the "Company") was organized as a Florida corporation on
April 30, 1984. The Company's principal business is to develop, market and
support accounting and management software primarily for the restaurant and
hospitality industries.

The Company markets its products in the highly competitive software industry
which is characterized by rapid technological changes and, consequently, product
obsolescence which could have an adverse effect on the Company's financial
condition and results of operations. The Company believes that its core products
give it a competitive advantage because of product features not offered by
competitors and, most importantly, that the Company owns and controls its own
code for these products.

At December 31, 1996, the Company had a stockholders' deficit of $183,723 a
working capital deficit of $443,873 and has experienced recurring losses since
inception. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company believes that cash flows generated
primarily from custom software development and the availability under the line
of credit through May 1, 1997 will be sufficient to fund the Company's
operations.


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Principles of Consolidation-

The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Software Leasing Company, ("SLC") whose
sole business is to lease software to customers of the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.

     Use of Estimates in the Preparation of Financial Statements-

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 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.

     Fair Value of Financial Instruments-

Statement of Financial Accounting Standards ("SFAS") No. 107 "Disclosures About
Fair Value of Financial Instruments" requires disclosure of the fair value of
certain financial


<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.):

     Fair Value of Financial Instruments- (cont'd.)

instruments. Accounts receivable, finance receivables, notes receivable,
accounts payable, accrued expenses, loans from officers, notes payable and line
of credit are reflected in the financial statements at cost which approximates
fair value.

     Cash and Cash Equivalents-

The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Included in cash and cash
equivalents in the accompanying balance sheets is interest bearing cash
approximating $7,700 and $116,000 at December 31, 1996 and 1995, respectively.

     Inventories-

Inventories primarily consist of computer hardware, a component of the Company's
time and attendance system, and are stated at the lower of cost (first-in,
first-out) or market.

     Finance Receivables-

All of SLC's leases qualify as direct finance sales-type leases under SFAS No.
13, "Accounting for Leases". The Company records the future minimum lease
payments net of the unearned lease income. The unearned lease income is
amortized into other income to reflect a constant periodic rate of return on the
net investment over the term of the leases, which range from 2 to 5 years. The
interest rates on these leases range from approximately 8% to 16%.

     Property and Equipment-

Property and  equipment  are stated at cost,  net of  accumulated  depreciation.
Depreciation  is charged to operations  over the  estimated  useful lives of the
related assets and is computed using the straight-line method.

The estimated useful lives of property and equipment are as follows:

                                                       Years
                                                       -----
          Computer equipment                              5
          Office equipment                              5-7
          Leasehold improvements                          5


                                       -2-

<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.):

     Software Development Costs-

In accordance with SFAS No. 86, "Accounting for the Cost of Capitalized Software
to be Sold, Leased or Otherwise Marketed," the Company examines its software
development costs after technological feasibility has been established to
determine the amount of capitalization that is required. Included in "Other
Assets" in the accompanying balance sheets are capitalized costs of $12,800 and
-0- at December 31, 1996 and 1995, respectively. Capitalized costs are amortized
over the period of benefit, generally three years. No amortization has been
recorded in fiscal 1996 or 1995 as capitalized costs relate to products for
which no revenue has been recognized.

In 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121
establishes accounting standards for the impairment of long-lived assets and
certain identifiable intangibles to be disposed of. Adoption of SFAS No. 121 did
not have a material effect on the Company's financial condition or results of
operations.

     Income Taxes-

Deferred tax assets and liabilities reflect the future tax consequences of the
differences between the financial reporting and tax bases of assets and
liabilities using tax rates in effect for the year in which differences are
expected to reverse. Future tax benefits, such as net operating loss
carryforwards, are recognized to the extent that realization of such benefits is
more likely than not.

In 1996 and 1995, the Company generated loss carryforwards for both book and tax
purposes. At December 31, 1996, the available tax loss carryforward is
approximately $2,317,000 which expires as follows:

                      Year                      Amount
                      ----                      ------
                      2008                     $273,894
                      2009                     $677,568
                      2010                     $668,222
                      2011                     $697,353


                                       -3-

<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.):

     Income Taxes- (cont'd.)

Because realization of the net operating loss carryforward is not more likely
than not, a valuation allowance in the same amount has been established and,
accordingly, no deferred tax asset is reflected in the accompanying consolidated
balance sheets.

     Net Loss Per Share-

Net loss per share is equal to net loss divided by the weighted average number
of shares of common stock outstanding. Common stock equivalents, which consist
of warrants and stock options issued to employees and directors, are not
included in the determination of net loss per share in 1996 and 1995 since they
would be antidilutive.

In February 1997, The Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" which requires adoption for periods ending after December
15, 1997. SFAS No. 128 simplifies the accounting for earnings per share by
requiring the presentation of basic earnings per share including only
outstanding common stock and diluted earnings per share including the effect of
dilutive common stock equivalents. The Company's basic and diluted earnings per
share are the same since the Company's common stock equivalents are
antidilutive. In addition, the Company's basic and diluted earnings per share
are the same as that computed under APB No. 15, "Earnings Per Share", as
presented in the accompanying statements of operations. SFAS No. 128 must be
adopted for periods ending after December 15, 1997 and be retroactively
reflected in the financial statements.

     Revenue Recognition-

In accordance with the provisions of Statement of Position 91-1, "Software
Revenue Recognition," revenue from software and hardware sales is recognized
when the product is installed by Company authorized personnel at the customer's
facility. Revenue on fixed fee software development contracts is recognized
using the percentage-of-completion method.

The Company enters into maintenance agreements which provide for post-sale
customer support. Revenue related to post-sale support activities is amortized
over the terms of the related support contract, generally 12 months.

     Research and Development Costs-

Research and development costs are expensed as incurred until the product
reaches

                                       -4-

<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.):

     Research and Development Costs- (cont'd.)

technological feasibility. These costs primarily consist of wages paid to
employees for the development of the Company's software.

(3) FINANCE RECEIVABLES:

Future minimum rentals on finance receivables consist of the following at
December 31, 1996:

                                 1997               $  32,015
                                 1998                  22,128
                                 1999                  38,157
                                 2000                  60,689
                                                    ---------
                                                      152,989
               Less: Unearned lease income            (21,673)
                                                    ---------
               Leases receivable                      131,316
               Less:  Allowance for doubtful
                        accounts                      (80,000)
                                                    ---------
               Leases receivable, net               $  51,316
                                                    ---------


(4) NOTES RECEIVABLE:

The Company has notes receivable from certain customers and related parties as
discussed in Note 8. The notes bear interest ranging from 8% to 10% and require
payments through 1997 in the aggregate principal amount of $92,470.


(5) PREPAID EXPENSES:

Prepaid expenses consist of the following at December 31, 1996 and 1995:
     
                                                   1996           1995
                                                   ----           ----
     Prepaid rent                                 $  --         $15,718
     Brochures, videos and information booklets     4,226         4,078
     Prepaid sales agent commissions                8,990        13,038
     Other prepaid expenses                         7,428        24,497
                                                  -------       -------
                                                  $20,644       $57,331
                                                  -------       -------


                                       -5-

<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995



(6) PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 1996 and 1995:

                                               1996              1995
                                               ----              ----
       Computer equipment                   $ 395,093         $ 317,555
       Office equipment                       105,284           101,171
       Leasehold improvements                  20,051            20,051
                                            ---------         ---------
                                              520,428           438,777
       
       Less: Accumulated depreciation        (258,627)         (188,623)
                                            ---------         ---------
                                            $ 261,801         $ 250,154
                                            ---------         ---------


(7) ACCRUED EXPENSES:

Accrued expenses consist of the following at December 31, 1996 and 1995:

                                              1996              1995
                                              ----              ----
       Wages                                $ 66,819          $ 54,942
       State, local and payroll taxes         98,617            94,310
       Commissions                            60,000             6,526
       Other accrued expenses                  9,101            15,601
                                            --------          --------
                                            $234,537          $171,379
                                            --------          --------


(8) RELATED PARTY TRANSACTIONS:


In July 1990, the Company agreed to pay a relative of certain stockholders and
officers of the Company $100,000 for the development of the Company's
TimeWare(R) software program. The agreement provides for payments to be made
amounting to ten percent of the net proceeds received by the Company from the
sale of each TimeWare(R) package in any given month. At December 31, 1996 and
1995, the remaining balance outstanding was $ -0- and $7,823, respectively.

Included in notes receivable in the accompanying balance sheets are two notes
from employees. These notes, in the amounts of $4,207 and $2,850 at December 31,
1996, bear interest at 8% with repayment being made through payroll and
commission deductions.

                                       -6-

<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


(8) RELATED PARTY TRANSACTIONS (cont'd.):

The Company's Chairman of the Board together with another director of the
Company own a controlling interest in Time Information Systems, Inc. ("TIS"),
which was licensed by the Company to market and support the Company's products.
In 1992, TIS discontinued its activities and, subsequently, the Company
purchased TIS's inventory and equipment at fair market value (approximately
$30,000) and agreed to pay TIS a 10% commission on sales (net of cost) resulting
from customer introductions made by TIS up to a maximum of $50,000. No amounts
were paid by the Company in 1996 or 1995 under this agreement.

Under an agreement entered into with Benihana National Corporation and Benihana
of Tokyo, the Company, in June 1992, developed and installed several customized
versions of the Company's back office accounting software in Benihana
restaurants. Pursuant to the agreement, the Company received $120,000 in the
form of cash and notes. At December 31, 1996 and 1995, $ -0- and $24,340,
respectively was outstanding on the notes. The Company's Chairman of the Board
is also a director of Benihana National Corporation.

During 1995, the Company was charged $18,000 for rent pertaining to a portion of
office space occupied off-site of Company facilities by the Company's Chairman.
In 1996, the 1995 rent charges were forgiven.

During 1996 and 1995, certain officers of the Company loaned $35,100 and
$44,800, respectively, to the Company for working capital requirements. These
loans bear interest at 12% for both 1996 and 1995. It is the Company's intent to
repay the majority of these loans by the end of 1997.

(9) BORROWINGS:

The Company has a $300,000 line of credit with a bank. The line of credit
expires on May 1, 1997. Advances under the line bear interest at the prime rate
(8.25% at December 31, 1996) plus one percent and are secured by the Company's
accounts receivable and the personal guarantees of three of the Company's
principal stockholders. In 1996, $103,000 in advances were drawn under this line
and remain outstanding at December 31, 1996.

On January 30, 1995, the Company obtained a $100,000 term loan with a bank. The
loan arrangement requires interest only payments, at the prime rate plus one
percent, until the principal amount outstanding is converted to a three year
term loan. At December 31, 1995, $72,600 was outstanding under this facility. In
February 1996, the

                                       -7-

<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


(9) BORROWINGS (cont'd.):

Company borrowed the remaining $27,400. All borrowings under this facility were
used primarily to finance the purchase of computer hardware for use by the
Company's research and development staff in the design of its new Windows(R)
based software. In February 1996, the $100,000 balance outstanding under this
facility was converted to a three year term loan bearing interest at the prime
rate plus one percent and requiring 36 equal monthly payments comprised of
principal and interest through March 1999. As of December 31, 1996, $79,176 of
principal was outstanding on the term loan. The term loan matures as follows:
$33,324 in 1997, $33,324 in 1998 and $12,528 in 1999.


(10) STOCKHOLDERS' (DEFICIT) EQUITY:

In September 1993, the Company commenced an SB-1 public offering for the sale of
up to 10,000 units at $510 per unit. Each unit consisted of 100 shares of $.01
par value common stock with restricted transferability and twenty-five
redeemable warrants to purchase twenty-five shares of common stock. Each warrant
entitles the holder to purchase, during the three year period commencing on the
distribution date of the units, as defined in the Prospectus, one share of
common stock at a per share price of $6.50. If the Company completes another
public offering, as defined in the Prospectus, the Company may redeem the
warrants at $.01 per warrant at any time prior to September 1997 upon 30 days
notice to holders. Holders of the warrants may exercise any time prior to
September 1997.

In 1995, the Company sold 4,000 shares of common stock to private investors
resulting in proceeds to the Company of $20,400.


(11) STOCK OPTIONS:

The Company adopted the proforma disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," in 1996. However, the Company did not
have to disclose the pro-forma effect of 1995 stock option grants since they
were cancelled in 1996. The Company has elected to continue using Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in
accounting for employee stock options. Each stock option has an exercise price
equal to the market price on the date of grant and, accordingly, no compensation
expense has been recorded for any stock option grant.

In October 1994, the stockholders of the Company approved the 1994 Stock Option
Plan (the "Plan") under which an aggregate of 330,000 common shares are
available for

                                       -8-

<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


(11) STOCK OPTIONS (cont'd.):

issuance. Under the Plan, incentive stock options and nonqualified stock options
may be granted to purchase common shares at exercise prices not less than fair
market value at the date of grant. Incentive stock options are available for
grant only to employees of the Company, while nonqualified options may be
granted to both employees and certain nonemployees of the Company. The terms of
each option agreement are determined by the Board of Directors.

Stock option activity is as follows:

                                            Number        Weighted Average
                                          of Shares        Exercise Price
                                          ---------        --------------
             Balance, December 31, 1994    152,200         $   5.10
               Granted during 1995         165,250             7.75
               Cancelled during 1995        (5,700)            5.33
                                           -------      
             Balance, December 31, 1995    311,750             6.50
               Granted during 1996           -0-                -0-
               Cancelled during 1996      (213,000)            6.43
                                           -------      
             Balance, December 31, 1996     98,750             6.43
                                           -------      
                                                       

No options were exercisable as of December 31, 1996 and 1995.


(12) COMMITMENTS:

The Company leases its Florida office space pursuant to an operating lease which
requires fixed monthly rental payments. Rent expense for 1996 and 1995 was
$123,339 and $78,816, respectively.

At December 31, 1996, the future minimum rental payments under operating leases
was as follows:

                      Year                      Amount
                      ----                      ------
                      1997                     $106,356
                      1998                        8,563

The members of the Wotell family and the Company's Vice President of Research
and Development, a relative of the Wotell family, are parties to employment and
non-compete agreements with the Company. The agreements provide for minimum
annual salaries of $129,441 for Mark E. Wotell, $108,805 for Christopher L.
Wotell, $105,068 for Matthew J.

                                       -9-

<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


(12) COMMITMENTS (cont'd.):

Wotell, $105,068 for Eugene J. Wotell, $82,267 for Clement E. Wotell and a
minimum annual salary of $70,000 increasing to $100,000 by July 31, 1998 for the
Vice President of Research and Development. Additionally, the Vice President of
Research and Development's agreement provides that he will receive 25,000 shares
of the Company's common stock for every $1,000,000 in sales by the Company of
products he plans, designs and develops, as defined in the agreement, up to a
maximum of 150,000 shares. Through December 31, 1996, the Company charged
compensation expense and credited accrued expenses for $60,000, representing the
fair market value, as determined by the Board of Directors, of 150,000 shares of
the Company's common stock on December 31, 1996. Such determination by the Board
was required as the Company's shares are not, and have not been in the recent
past, actively traded. On January 1, 1997, the Company issued the Vice President
of Research and Development 150,000 shares of the Company's common stock.

The annual compensation of each of the parties to the employment and non-compete
agreements may be increased at any time by the Board of Directors at its sole
discretion. In 1996 and 1995, each of the parties to the employment and
non-compete agreements elected to accept annual compensation less than the
amount specified in their respective agreement and also waived their right to
receive the difference in the future. The agreements further provide that each
party to the agreement may not compete with the Company as long as such party is
employed by the Company and for a period of three years thereafter.


(13) MAJOR CUSTOMER:

During 1996, one customer accounted for more than 10% of the Company's total net
sales. Sales to this customer represented approximately 28% of net sales for
1996 and as of December 31, 1996, approximately 8% of gross accounts receivable.
For 1995, no customer accounted for more than 10% of net sales.


                                      -10-