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. AND SUBSIDIARY
                           1430 SOUTH FEDERAL HIGHWAY
                         DEERFIELD BEACH, FLORIDA 33441
                                 (954) 481-9331


FOR FISCAL YEAR ENDED:  DECEMBER 31, 1997
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:  $4,122,473

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,  1997:  NO MARKET  EXISTS  FOR THE
COMPANY'S COMMON STOCK.


NUMBER OF SHARES  OUTSTANDING OF  REGISTRANT'S  COMMON STOCK AS OF MARCH 2, 1998
3,604,509.




<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.

     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



                                       2
<PAGE>


Part I. (cont'd.)

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

Business of Issuer (cont'd.)

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.  The majority of sales to single unit operations are handled by
dealers, 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 in the first quarter of 1998.

     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,
alternatively, working with the Company's research and development staff, design
their own exact fit applications.  For 1997, custom software development revenue
approximated  $3,000,000  up from  $1,067,000  in 1996.  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.

     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).



                                       3
<PAGE>


Part I. (cont'd.)

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

Business of Issuer (cont'd.)

     For the years ended December 31, 1997 and 1996, the Company's  expenditures
for research and development  approximated $959,000 and $767,000,  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 1997 and  1996,  the  Company  had one  customer  which  accounted  for
approximately 65% and 28% of total revenue, respectively.

     As of March 2, 1998,  the  Registrant  had 44  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 August 31, 1999.  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.


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 1997.

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 2, 1998 was 260.

     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.



                                       4
<PAGE>


Part II. (cont'd.)

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

     Results of Operations

     Net sales for the year ended December 31, 1997 were $4,122,000 representing
an  increase  of  84%,  or  $1,878,000,  over  1996  sales  of  $2,244,000.  The
significant  growth in net sales was  attributable  to the  increase in sales of
custom  software  which  were up  approximately  $2,000,000  over  1996.  Partly
offsetting  the increase in sales of custom  software was a drop in sales of the
Company's  DOS-based  TimeWare and FSMS(R)  products  which was primarily due to
customers  deferring  ordering these products in  anticipation of the release of
the  Company's  new  Windows(R)  based  software.  As of December 31, 1997,  the
Company had a backlog of orders approximating $267,000.

     For 1997,  operating  costs and expenses rose $452,000 to  $3,399,000.  The
principal  reasons  for this  increase  were  higher  cost of  sales  due to the
increase in sales,  the  addition of research and  development  staff to work on
custom  softwar for  national  and  regional  customers  and higher  general and
administrative  expenses  lting from growth of the  Company.  This  increase was
partially  offset by lower selling and  marketing  expenses  because  travel and
related costs were  reimbursed by most customers in 1997,  whereas in 1996 these
costs were  absorbed  by the  Company.  Because of the  increase in net sales in
1997,  the Company  recorded a net profit of $724,000  compared to a net loss of
$697,000 in 1996.  While the Company  anticipates  that the  profitable  results
reported  for 1997 will  continue,  its ability to sustain and improve upon such
operating  results is directly  dependent  upon (1) its ability to ensure market
acceptance  of its  products;  (2)  meeting  customer  requirements  in a timely
manner; and (3) developing enhancements to existing products and introducing new
products which are in the forefront of changing industry standards.


     Liquidity and Capital Resources

     At December 31, 1997, the Company had working capital of $178,000  compared
to a working capital deficit of $444,000 at December 31, 1996.  During 1997, net
cash  provided  by  operations  was  $529,000,   while   investing   activities,
principally the  acquisition of computer  hardware,  utilized  $171,000 of cash.
Financing  activities,  more  fully  described  below,  used  $223,000  in  cash
primarily for loan repayments, net of new borrowings.

     At December 31, 1996, the Company had $103,000  outstanding  under its line
of credit with a bank.  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 principal stockholders.
No advances  were taken under the line in 1997.  On April 29, 1997,  the Company
repaid the $103,000 which was  outstanding on December 31, 1996. On May 1, 1997,
the credit line expired and was not renewed by the Company.

     The  Company's  three year term loan bears  interest at the prime rate plus
one percent (8.5% at December 31, 1997) and requires 36 equal  monthly  payments
of principal  and interest  through  April 1999.  At December 31, 1997 and 1996,
$46,539 and $79,176, respectively, was outstanding under this facility. The loan
matures as follows: $33,324 in 1998 and $13,215 in 1999.



                                       5
<PAGE>


Part II. (cont'd.)

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

     Liquidity and Capital Resources (cont'd.)

     During 1997,  the Company  entered  into three  capital  lease  obligations
aggregating  $104,034  for the  purchase  of computer  equipment  for use by the
Company.  Two of the leases  are for a term of 48 months,  while the term of the
third  lease is for 36 months.  Each lease  requires  an equal  monthly  payment
comprised  of  principal  and  interest.  At  December  31,  1997,  $87,377  was
outstanding under these leases.  The leases mature as follows:  $24,286 in 1998;
$26,061 in 1999; $29,857 in 2000; and, $7,173 in 2001.

     In March 1997, the Company entered into three loans in the aggregate amount
of  $44,124  for the  purchase  of three  automobiles  for use by the  Company's
product  support staff in servicing the Company's  major national  account.  The
loans have an interest  rate of  approximately  9.0% and require  equal  monthly
payments comprised of principal and interest.  At December 31, 1997, $34,135 was
outstanding  under these  loans.  The loans  mature as follows:  $9,270 in 1998;
$10,098 in 1999; $11,148 in 2000; and, $3,619 in 2001.

     Other than the line of credit and other  borrowings  described  above,  the
Company's  primary  source  of funds in 1996 and 1997 has been  from the sale of
products and services.

     During 1997 and 1996, the Company's  significant capital  expenditures were
for  upgrading  the Company's  personal  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, 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.

     Recently Issued Accounting Pronouncements

     The Company has adopted Statement of Financial  Accounting Standards (SFAS)
No. 128,  "Earnings  Per Share".  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.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information.

     SFAS No. 130  establishes  standards for the  reporting  and  disclosure of
comprehensive  income and its components  which will be presented in association
with a company's financial  statements.  Comprehensive  income is defined as the
change  in  a  business   enterprise's  equity  during  a  period  arising  from
transactions,  events or circumstances  relating to non-owner  sources,  such as
foreign currency translation



                                       6
<PAGE>


Part II. (cont'd.)

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

     Liquidity and Capital Resources (cont'd.)

     Recently Issued Accounting Pronouncements (cont'd.)

adjustments  and unrealized  gains or losses on  available-for-sale  securities.
Comprehensive income includes all changes in equity during a period except those
changes  resulting from investments by or distributions to owners.  SFAS No. 130
is effective as of March 31, 1998.

     SFAS No. 131 establishes standards for the way that public companies report
selected  information  about operating  segments in annual and interim financial
reports to shareholders.  It also establishes  standards for related disclosures
about an enterprise's business segments,  products,  services,  geographic areas
and major  customers.  SFAS No. 131, which  supercedes  SFAS No. 14,  "Financial
Reporting for Segments of a Business Enterprise,  but retains the requirement to
report information about major customers and requires a public company to report
financial and descriptive  information about its reportable  operating segments.
Generally, financial information is required to be reported on the basis that it
is used  internally  for  evaluating  segment  performance  and  deciding how to
allocate  resources to segments.  SFAS No. 131  requires  that a public  company
report a measure of segment profit or loss, certain specific revenue and expense
items and segment assets. SFAS No. 131 is effective as of December 31, 1998.

     In October  1997,  the  Accounting  Standards  Executive  Committee  of the
American  Institute of Certified Public  Accountants  issued SOP 97-2,  Software
Revenue  Recognition.  SOP 97-2 supercedes SOP 91-1. Sop 97-2 requires companies
to defer revenue and profit  recognition if four required criteria of a sale are
not met. In addition,  SOP 97-2 requires that revenue  recognized  from software
arrangements is to be allocated to each element of the arrangement  based on the
relative fair values of the elements, such as software products,  upgrades, post
product purchase customer support, installation or training.


     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.

     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



                                       7
<PAGE>


Part II. (cont'd.)

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

     Liquidity and Capital Resources (cont'd.)

     Other Factors That May Affect Future Operating Results (cont'd.)

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.  Because 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  products  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.

     Year 2000 Compliance

     The  Company  does not  believe  that it has  material  exposure to its own
information  systems year 2000  compliance.  purchased  the  Company's DOS based
products which will enable such products to comply with year 2000  requirements.
The Company's  Windows based products  already  contain  features to comply with
year 2000  requirements.  The Company  does not believe  that it will  encounter
significant  difficulties  with respect to year 2000 compliance  issues that its
major vendors may experience  because the products that the Company obtains from
its major vendors are generally not year 2000 date  sensitive.  The Company does
not expect that its  vendors'  year 2000  difficulties,  to the extent that they
exist, will have a significant effect on the Company.



                                       8
<PAGE>


Item II. (cont'd.)

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


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                54            Chairman of the Board

Mark E. Wotell              51            President and Director

Matthew J. Wotell           46            Executive Vice President of
                                            Sales and Director

Christopher L. Wotell       45            Vice President of Marketing
                                            and Director

Eugene J. Wotell            42            Vice President Support
                                            Services and Director

Clement E. Wotell           77            Vice President of Production
                                            and Director Emeritus

Frank J. Abdo               49            Director

J. Kenneth Gulden           57            Director

James W. Rascoe             36            Vice President of Research
                                            and Development

Daniel W. Reese             50            Vice President and Chief
                                            Financial Officer




                                       9
<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

     John E. Abdo has served as Chairman of the Board of the Company since 1991.
Mr. Abdo is also President and Chief  Executive  Officer of The Abdo  Companies,
Inc.,  formerly known as 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,  Mr. Abdo was elected to the Board of Directors
of BankAtlantic, a Federal Savings Bank ("BankAtlantic") and currently serves as
Vice  Chairman of the Board.  In 1987,  Mr. Abdo became a member of the Board of
Directors  and Vice  Chairman  of BFC  Financial  Corporation,  the  controlling
shareholder of BankAtlantic Bancorp.,  Inc. In 1994, Mr. Abdo was elected to the
Board  of  Directors  and  named  Vice   Chairman  of  the  newly   incorporated
BankAtlantic Bancorp.,  Inc., the holding company for BankAtlantic.  Since 1990,
Mr.  Abdo has  also  been a  Director  of  Benihana  National  Corporation,  the
International Japanese Steakhouse. He is the brother of Frank J. Abdo.

     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.

     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.



                                       10
<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.)

     Frank J. Abdo has served on the Board of  Directors  for the Company  since
1991.  Mr. Abdo is the Executive  Vice  President of The Abdo  Companies,  Inc.,
formerly  known  as  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.



                                       11
<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, 1997 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                   $79,385
Christopher L. Wotell (2)             Vice President               79,970
Matthew J. Wotell (2)                 Vice President               79,580
Eugene J. Wotell (2)                  Vice President               79,970
James W. Rascoe (2)                   Vice President               84,970
                                                                 --------
All executive officers
  as a group (7 persons)                                         $526,645
                                                                 ========


     (1)  The table includes all compensation  earned by the named  individuals,
          except  James  W.  Rascoe,   who  also  earned   $60,000  in  non-cash
          compensation  in connection  with his receipt of 150,000 shares of the
          Company's common stock under the terms of his employment contract. 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 1997 and 1996,  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 shares are not, and
have not been in the recent  past,  actively  traded.  On  January 1, 1997,  Mr.
Rascoe was issued 150,000 shares



                                       12
<PAGE>


Part III. (cont'd.)

Item 10. Executive Compensation (cont'd.)

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

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 1997 and 1996, 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.



                                       13
<PAGE>


Part III. (cont'd.)

Item 11. Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth,  as of March 2, 1998, 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.


                                           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



                                       14
<PAGE>


Part III. (cont'd.)

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

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 on sales (net of costs)  resulting from customer  introductions
made by TIS up to a maximum of $50,000.  For 1997 and 1996, no commissions  were
earned or paid.

     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 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 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.

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, 1997 and 1996

    Consolidated Statements of Operations for the years ended December 31, 1997
         and 1996

    Consolidated Statements of Changes in Stockholders' (Deficit) Equity for the
         years ended December 31, 1997 and 1996

    Consolidated Statements of Cash Flows for the years ended December 31, 1997
         and 1996

    Notes to Consolidated Financial Statements



                                       15
<PAGE>


Part III. (cont'd.)

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

 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

    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



                                       16
<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
     March 31, 1998


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 March 31, 1998.


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




                                       17
<PAGE>




                        COCONUT CODE, INC. AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                             TOGETHER WITH REPORT OF

                    INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS














<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To Coconut Code, Inc.:

We have audited the  accompanying  consolidated  balance sheets of Coconut Code,
Inc. (a Florida  corporation)  and  subsidiary as of December 31, 1997 and 1996,
and the related  consolidated  statements of  operations,  stockholders'  equity
(deficit) 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, 1997 and 1996 and the results of their  operations
and their  cash  flows for the years then  ended in  conformity  with  generally
accepted accounting principles.



ARTHUR ANDERSEN LLP

Miami, Florida,
  March 24, 1998.



                                      F-1
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>

                                     ASSETS

                                                                                                         1997               1996
                                                                                                     -----------        -----------
<S>                                                                                                  <C>                <C>
CURRENT ASSETS:
 Cash and cash equivalents                                                                           $   230,944        $    95,883
 Accounts receivable (net of allowance for doubtful accounts of $139,306
    in 1997 and $153,074 in 1996)                                                                        489,338            274,912
 Inventories                                                                                              31,808             27,274
 Current portion of finance  receivables (net of unearned lease income of $3,848
    in 1997 and $4,797 in 1996 and allowance for doubtful
    accounts of $17,500 in 1997 and $5,010 in 1996)                                                        8,517             22,208
 Notes receivable (net of allowance for doubtful accounts of $85,000
    in 1997 and $70,000 in 1996)                                                                           7,470             22,470
 Prepaid expenses                                                                                          7,392             20,644
                                                                                                     -----------        -----------
        Total current assets                                                                             775,469            463,391

PROPERTY AND EQUIPMENT, net                                                                              472,781            261,801

OTHER ASSETS:
 Long-term  portion of finance  receivables  (net of  unearned  lease  income of
    $15,726 in 1997 and $16,876 in 1996 and allowance for doubtful
    accounts of $88,150 in 1997 and $74,990 in 1996)                                                       2,451             29,108
 Other assets                                                                                             62,663             15,093
                                                                                                     -----------        -----------
                                                                                                     $ 1,313,364        $   769,393
                                                                                                     ===========        ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
 Accounts payable                                                                                    $   152,184        $   235,917
 Accrued expenses                                                                                        205,601            234,537
 Customer deposits                                                                                        21,775             87,392
 Deferred maintenance revenue                                                                            132,397            133,194
 Loans from officers                                                                                      19,055             79,900
 Current portion of notes payable                                                                         42,594             33,324
 Current portion of leases payable                                                                        24,286               --
 Line of credit                                                                                             --              103,000
                                                                                                     -----------        -----------
        Total current liabilities                                                                        597,892            907,264
                                                                                                     -----------        -----------
LONG-TERM PORTION OF NOTES AND LEASES PAYABLE                                                            101,171             45,852
                                                                                                     -----------        -----------

COMMITMENTS (Note 11)

STOCKHOLDERS' EQUITY (DEFICIT):
 Common stock ($.01 par, authorized 10,000,000 shares; issued and
    outstanding 3,621,009 in 1997 and 3,382,325 in 1996)                                                  36,210             33,823
 Additional paid-in capital                                                                            2,864,623          2,792,496
 Accumulated deficit                                                                                  (2,286,532)        (3,010,042)
                                                                                                     -----------        -----------
                                                                                                         614,301           (183,723)
                                                                                                     -----------        -----------
                                                                                                     $ 1,313,364        $   769,393
                                                                                                     ===========        ===========
</TABLE>


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



                                      F-2
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                                                 1997                       1996
                                                                                             -----------                -----------
<S>                                                                                          <C>                        <C>
NET SALES                                                                                    $ 4,122,473                $ 2,244,015
                                                                                             -----------                -----------

OPERATING COSTS AND EXPENSES:
     Cost of sales                                                                               546,416                    347,842
     Selling and marketing                                                                       600,913                    707,296
     General and administrative                                                                1,184,235                  1,055,298
     Research and development                                                                    959,452                    767,046
     Depreciation and amortization                                                               108,471                     70,004
                                                                                             -----------                -----------
                                                                                               3,399,487                  2,947,486
                                                                                             -----------                -----------

INCOME (LOSS) FROM OPERATIONS                                                                    722,986                   (703,471)
                                                                                             -----------                -----------

OTHER INCOME (EXPENSE):
     Interest income                                                                              10,521                        619
     Interest expense                                                                            (24,067)                   (20,464)
     Other                                                                                        14,070                     25,963
                                                                                             -----------                -----------
                                                                                                     524                      6,118
                                                                                             -----------                -----------
NET INCOME (LOSS)                                                                            $   723,510                $  (697,353)
                                                                                             ===========                ===========
NET INCOME (LOSS) PER COMMON SHARE:

Basic and diluted                                                                            $      0.20                $     (0.21)
                                                                                             ===========                ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

Basic and diluted                                                                              3,590,993                  3,382,325
                                                                                             ===========                ===========
</TABLE>




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



                                      F-3
<PAGE>


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

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                 Common Stock          Additional                        Total
                                                            -------------------------    Paid-in       Accumulated    Stockholders'
                                                               Shares        Amount      Capital         Deficit    Equity (Deficit)
                                                            -----------   -----------   -----------    -----------    -----------
<S>                                                           <C>         <C>           <C>            <C>            <C>
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)

    Share award to Vice President of Development                150,000         1,500        58,500           --           60,000

     Incentive stock grant awards                                88,659           887        87,772           --           88,659

     Deferred compensation on incentive stock grant awards         --            --         (74,307)          --          (74,307)

     Exercise of redeemable stock purchase warrant                   25          --             162           --              162

     Net income                                                    --            --            --          723,510        723,510
                                                            -----------   -----------   -----------    -----------    -----------
BALANCE, December 31, 1997                                    3,621,009   $    36,210   $ 2,864,623    ($2,286,532)   $   614,301
                                                            ===========   ===========   ===========    ===========    ===========
</TABLE>



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



                                      F-4
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                                                           1997              1996
                                                                                                        ---------         ---------
<S>                                                                                                     <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income (loss)                                                                                     $ 723,510         $(697,353)

    Adjustments to reconcile net income (loss) to net cash provided by (used in)
      operating activities:
        Depreciation and amortization                                                                     108,471            70,004
        Provision for doubtful accounts                                                                   233,642           256,203
        Compensation expense for stock issuances                                                           14,352              --
    Changes in operating assets and liabilities:
        Accounts receivable                                                                              (407,419)         (164,906)
        Inventories                                                                                        (4,534)            4,078
        Finance receivables, net                                                                           14,698            24,682
        Prepaid expenses                                                                                   13,252            36,687
        Other assets                                                                                      (47,570)          (12,800)
        Accounts payable and customer deposits                                                           (149,350)          156,842
        Accrued expenses and deferred revenue                                                              30,267            95,932

                                                                                                        ---------         ---------
          Total adjustments                                                                              (194,191)          466,722
                                                                                                        ---------         ---------
          Net cash provided by (used in) operating activities                                             529,319          (230,631)
                                                                                                        ---------         ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment                                                                (171,292)          (81,651)
      Decrease in notes receivable                                                                           --              28,709
                                                                                                        ---------         ---------
          Net cash used in investing activities                                                          (171,292)          (52,942)
                                                                                                        ---------         ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Decrease in due to related party                                                                       --              (7,823)
      (Repayment of) proceeds from loans from officers                                                    (60,845)           35,100
      (Repayment of) borrowings under line of credit                                                     (103,000)          103,000
      Proceeds from notes and leases payable                                                                 --              27,400
      Payments on notes and leases payable                                                                (59,283)          (20,824)
      Proceeds from issuance of common stock                                                                  162              --
                                                                                                        ---------         ---------
          Net cash (used in) provided by financing activities                                            (222,966)          136,853
                                                                                                        ---------         ---------

          Net increase (decrease) in cash and cash equivalents                                            135,061          (146,720)

CASH AND CASH EQUIVALENTS, beginning of year                                                               95,883           242,603
                                                                                                        ---------         ---------
CASH AND CASH EQUIVALENTS, end of year                                                                  $ 230,944         $  95,883
                                                                                                        =========         =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid during the year for interest                                                              $  24,067         $  20,464
                                                                                                        =========         =========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

     Capital  lease  obligations  incurred  during the twelve month period ended
     December  31, 1997  amounted  to  $104,035.  Notes  payable for fixed asset
     purchases during the period amounted to $44,124.
</TABLE>



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



                                      F-5
<PAGE>


                        COCONUT CODE, INC. AND SUBSISIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


(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.


(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 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 "Disclosure
About Fair Value of Financial  Instruments requires disclosure of the fair value
of certain financial



                                      F-6
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


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

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

instruments.   Accounts  receivable,   finance  receivables,  notes  receivable,
accounts  payable,  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  consolidated balance sheets is interest bearing
cash  approximating   $118,000  and  $7,700  at  December  31,  1997  and  1996,
respectively.

     Inventories-

Inventories consist of computer equipment, 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.



                                      F-7
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


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

     Property and Equipment (cont'd.)-

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

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


     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 $62,575 and
$12,800 at  December  31,  1997 and 1996,  respectively.  Capitalized  costs are
amortized over the period of benefit, generally three years. No amortization has
been recorded in fiscal 1997 or 1996 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 carry
forwards,  are  recognized to the extent that  realization  of such benefits are
more likely than not.



                                      F-8
<PAGE>


                               COCONUT CODE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


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

     Income Taxes (cont'd.):

At December  31,  1996,  the Company had  available  tax loss carry  forwards of
approximately  $2,317,000  expiring  during the years 2008 through 2011. For the
year ended December 31, 1997, the Company  generated a pretax profit of $723,510
and utilized approximately $723,000 of available tax loss carryforward to offset
income taxes otherwise payable.  At December 31, 1997, the Company had available
tax loss carry forwards which expire as follows:

              Year                                Amount
              ----                                ------
              2009                               $227,952
              2010                                668,222
              2011                                697,353

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 Income (Loss) Per Share:

In February 1997, the Financial  Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" which  simplifies  the accounting for earnings per share by
requiring  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 net income (loss) per share are the same since
the Company's stock options and warrants are anti-dilutive.

     Revenue Recognition-

In  accordance  with the  provisions  of Statement of Position  97-2,  "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.



                                      F-9
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


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

     Revenue Recognition (cont'd.)-

The Company  enters into  maintenance  agreements  which  provide for  post-sale
product  support.   Revenue  related  to  post-sale  maintenance  agreements  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 technological  feasibility.  These costs primarily consist of wages paid
to employees for the development of the Company's products.

     New Accounting Pronouncements-

In  1997,  the  Financial  Accounting  Standards  Board  issued  SFAS  No.  130,
"Reporting  Comprehensive  Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". These statements, which are effective
for fiscal years beginning after December 15, 1997, modify or expand disclosures
and will  have no  impact  on the  Company's  consolidated  financial  position,
results of operations or cash flows.


(3) FINANCE RECEIVABLES:

Future  minimum  rentals on finance  receivables  consist  of the  following  at
December 31, 1997:

                                          1998              $  29,865
                                          1999                 38,157
                                          2000                 68,170
                                                            ---------
                                                              136,192
                           Less: Unearned lease income        (19,574)
                                                            ---------
                           Finance receivables                116,618
                           Less: Allowance for doubtful
                                      accounts               (105,650)
                                                            ---------
                           Finance receivables, net         $  10,968
                                                            =========



                                      F-10
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


(4) NOTES RECEIVABLE:

The Company has notes  receivable from certain  customers and related parties as
discussed in Note 7. The notes bear interest  ranging from 8% to 10% and require
principal  payments in the amount of $92,470.  At December 31, 1997, the Company
has provided an allowance for doubtful  accounts against notes receivable in the
amount of $85,000.


(5) PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31, 1997 and 1996:

                                                           1997           1996
                                                           ----           ----
      Computer equipment                                $611,353       $395,093
      Office equipment                                   155,446        105,284
      Automobiles                                         44,124           --
      Leasehold improvements                              28,956         20,051
                                                        --------       --------
                                                         839,879        520,428

      Less: Accumulated depreciation                    (367,098)      (258,627)
                                                        --------       --------
                                                        $472,781       $261,801
                                                        ========       ========


(6) ACCRUED EXPENSES:

Accrued expenses consist of the following at December 31, 1997 and 1996:

                                                           1997           1996
                                                           ----           ----
      Wages                                             $ 82,799       $ 66,819
      State, local and payroll taxes                     113,701         98,617
      Commission                                            --           60,000
      Other accrued expenses                               9,101          9,101
                                                        --------       --------
                                                        $205,601       $234,537
                                                        ========       ========



                                      F-11
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


(7) RELATED PARTY TRANSACTIONS:

During  1996 and 1995,  certain  officers  of the  Company  loaned  $35,100  and
$44,800,  respectively, to the Company for working capital requirements.  During
1997,  $60,845  of  principal  was  repaid  on these  loans  leaving  a  balance
outstanding at December 31, 1997 of $19,055.


(8) BORROWINGS:

At December 31, 1996,  the Company had $103,000  outstanding  under its $300,000
line of credit with a bank.  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 the Company's three
principal stockholders. On April 29, 1997, the Company repaid the $103,000 which
was outstanding at December 31, 1996. On May 1, 1997, the line of credit expired
and was not renewed by the Company.

The  Company's  three year term loan bears  interest  at the prime rate plus one
percent  (8.5% at December  31,  1997) and  requires 36 equal  monthly  payments
comprised of principal and interest through April 1999. At December 31, 1997 and
1996,  $46,539 and $79,176,  respectively,  was outstanding under this facility.
The loan matures as follows: $33,324 in 1998 and $13,215 in 1999.

During  1997,  the  Company   entered  into  three  capital  lease   obligations
aggregating  $104,034  for the  purchase  of computer  equipment  for use by the
Company.  Two of the leases  are for a term of 48 months,  while the term of the
third lease is 36 months. Each lease requires an equal monthly payment comprised
of principal and interest.  At December 31, 1997,  $87,377 was outstanding under
these leases.  The leases mature as follows:  $24,286 in 1998;  $26,061 in 1999;
$29,857 in 2000; and $7,173 in 2001.

In March 1997, the Company  entered into three loans in the aggregate  amount of
$44,124 for the purchase of three  automobiles for use by the Company's  product
support staff in servicing the Company's major national account.  The loans have
an



                                      F-12
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


(8) BORROWINGS (cont'd.):

interest rate of approximately  9.0% and require a monthly payment  comprised of
principal and interest. At December 31, 1997, $34,135 was outstanding under this
loan. The loan matures as follows:  $9,270 in 1998;  $10,098 in 1999; $11,148 in
2000; and $3,619 in 2001.


(9) STOCKHOLDERS' EQUITY (DEFICIT):

In September 1993, the Company commenced an SB-1 public offering for the sale of
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  1998 upon 30 days
notice to  holders.  Holders  of the  warrants  may  exercise  any time prior to
September 1998.

On January 1, 1997,  the  Company  issued its Vice  President  of  Research  and
Development  150,000 shares of the Company's common stock under the terms of his
employment  agreement  described in Note 11.  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 common stock as of 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.



                                      F-13
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


(10) STOCK OPTIONS AND INCENTIVE STOCK GRANTS:

During  1996,  the Company was required to adopt SFAS No. 123,  "Accounting  for
Stock-  Based  Compensation"  (SFAS No.  123).  SFAS No. 123 allows a company to
measure  compensation  expense in  connection  with stock option plans and other
stock based  arrangements using a fair value based method, or to continue to use
an  intrinsic   value  based  method  which  generally  does  not  result  in  a
compensation  cost.  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 fair  market  price on the  date of  grant  and,  accordingly,  no
compensation  expense has been recorded for any stock option grant. Had the fair
value based method been adopted  consistent with the provisions of SFAS No. 123,
the  Company's  1997 and 1996 net income  (loss) and net income (loss) per share
would have been the same as currently reported.

Under the Company's  1994 Stock Option Plan (the "Plan") an aggregate of 300,000
common  shares are  available  for  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         Option Price    Weighted- Average
                               of Shares       Low    High      Exercise Price
                               ---------       ---    ----      --------------
Balance, December 31, 1995      311,750        5.10   7.75          $6.50
  Granted during 1996               -0-                               -0-
  Canceled during 1996         (213,000)       5.10   7.75           6.43
                                -------
Balance, December 31, 1996       98,750        5.10   7.75           6.43
  Granted during 1997            90,008         --    7.75           7.75
  Canceled during 1997           (3,000)        --    7.75           7.75
                                -------
Balance, December 31, 1997      185,758        5.10   7.75           7.18
                                -------



                                      F-14
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


(10) STOCK OPTIONS AND INCENTIVE STOCK GRANTS (cont'd.):

The following table summarizes  information  about stock options at December 31,
1997:


Range of Exercise                   Weighted-Average          Weighted-Average
     Prices          Shares    Remaining Contractual Life      Exercise Price
     -------         ------    --------------------------     ----------------
     $5.10           45,250            8  years                     $5.10
      7.75           53,500            9  years                      7.75
      7.75           87,008            9.5 years                     7.75
 --------------     -------            ---------                     -----
 $5.10 to $7.75     185,758            8.8 years                    $7.18
 --------------     -------            ---------                     -----


No options were exercisable at December 31, 1997 or 1996.

On April 30, 1997 and September 1, 1997,  the Company  granted  86,159 and 2,500
incentive stock grants,  valued by the Company's Board of Directors at $1.00 per
share, to certain key employees of the Company. The grants become 100% vested at
the conclusion of the four year period immediately  following the date of grant.
Employees  do not vest any  portion of the grants  prior to the end of this four
year  period,  and  nonvested  grants  revert to the Company  should an employee
terminate  employment.  The  estimated  fair  value of the grants  amounting  to
$88,659 has been  recorded as an  issuance  of common  stock with an  offsetting
deferred  compensation equity account. Such deferred compensation is included in
additional paid-in capital in the accompanying  consolidated  balance sheets and
is being  amortized to operating  costs and expenses over the vesting  period of
the grants.


(11) COMMITMENTS:

The Company leases its Florida office space pursuant to an operating lease which
requires  fixed  monthly  rental  payments.  Rent  expense for 1997 and 1996 was
$116,476 and $123,339, respectively.



                                      F-15
<PAGE>


                        COCONUT CODE, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996

(11) COMMITMENTS (cont'd.):

At December 31, 1997, the future minimum rental payments under operating  leases
was as follows:

                Year                      Amount
                ----                      ------
                1998                     $115,400
                1999                       54,500

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. 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.  As
described in Note 9, on January 1, 1997,  150,000 shares of the Company's common
stock were issued to the Vice  President of Research and  Development  under the
terms of the employment agreement.

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  1997  and  1996,  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.

(12) MAJOR CUSTOMER:

During 1997 and 1996, one customer  accounted for more than 10% of the Company's
net sales. Sales to this customer in 1997 and 1996 represented approximately 65%
and 28%, respectively.  As of December 31, 1997 and 1996 this customer accounted
for approximately 63% and 8% of gross accounts receivable.



                                      F-16