<PAGE>


                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, DC  20549
                                     FORM 10-KSB
    
(X)  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT FOR
     THE FISCAL YEAR ENDED JUNE 30, 1997

( )  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO __________

                         Commission File Number:   33-18600-D

                                   QCS CORPORATION
                                   ---------------
          (Exact name of small business issuer as specified in its charter)
                                           
DELAWARE                             98-0132465
--------                             ----------
(State or other jurisdiction        (IRS Employer 
of incorporation or organization)   Identification Number)

                650 CASTRO STREET, SUITE 210, MOUNTAIN VIEW, CA  94041
--------------------------------------------------------------------------------
                      (Address of Principal Executive Offices) 
                                           
                                    (650) 966-1214
--------------------------------------------------------------------------------
                             (Issuer's Telephone Number)
                                           
Securities registered pursuant to
     Section 12(b) of the Act:    NONE
                                  ----

Securities registered pursuant to
     Section 12 (g) of the Act:   COMMON SHARES, PAR VALUE $.001 PER SHARE
                                  ----------------------------------------
                                             (Title of Class)

Indicate by check mark whether the 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 the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days  X   YES     NO
                                  ---      ---

Indicate by check mark if disclosure of delinquent filers pursuant to  Item 
405 of Regulation S-B is not contained herein, and will not be contained, to 
the best of Registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-KSB or any 
amendment to this Form 10-KSB ( X )

The aggregate market value of the common stock held by non-affiliates of the 
Issuer as of October 10, 1997 was $6,916,572.  The number of shares of Common 
Stock, par value $.001 per share, outstanding as of October 10, 1997 was 
17,136,531.

Documents incorporated by reference:  NONE.
                                      ----

Transitional Small Business Disclosure Format: YES    NO  X  .
                                                  ---    ---

<PAGE>

                                  TABLE OF CONTENTS
                                                                            PAGE
                                                                            ----

Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3
    Item 1.   Business . . . . . . . . . . . . . . . . . . . . . . . . . .    3
    Item 2.   Properties . . . . . . . . . . . . . . . . . . . . . . . . .   13
    Item 3.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .   13
    Item 4.   Submission of Matters to a Vote of Security Holders. . . . .   14
    
Part II  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   14
    Item 5.   Market For Common Equity and Related Stockholders Matters. .   14
    Item 6.   Management's Discussion and Analysis of Financial Condition 
              and Result of Operations . . . . . . . . . . . . . . . . . .   15
    Item 7.   Financial Statements . . . . . . . . . . . . . . . . . . . .   17
    Item 8.   Changes In And Disagreements With Accountants
              On Accounting And Financial Disclosure . . . . . . . . . . .   17
    
Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   17
    Item 9.   Directors, Executive Officers, Promoters and Control Persons; 
              Compliance with Section 16(a) of the Exchange Act of the 
              Registrant . . . . . . . . . . . . . . . . . . . . . . . . .   17
    Item 10.  Executive Compensation . . . . . . . . . . . . . . . . . . .   18
    Item 11.  Security Ownership of Certain Beneficial Owners
              and Management . . . . . . . . . . . . . . . . . . . . . . .   19
    Item 12.  Certain Relationships and Related Transactions . . . . . . .   21
    
Part IV  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   22
    Item 13.  Exhibits, Financial Statement Schedules and Reports on 
              Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . .   22


                                       2
<PAGE>

                                        PART I
                                           
ITEM 1. BUSINESS

QCS Corporation (the "Company") is an electronic commerce service provider 
serving the worldwide retail industry. The Company provides its users with 
computer software and network access to enable retailers suppliers to conduct 
negotiations and to electronically facilitate purchase and sale of 
merchandise on a global basis.  Using Lotus Notes/ Domino and industry 
standard networking protocols to transmit data over leased "backbone" trunk 
lines and the Internet, the Company maintains a secure yet open electronic 
network that helps retailers conduct on-line communication and transactions 
with their vendors and suppliers (the "QCS Network").  This communication and 
trading process is usually referred to in the retail industry as "sourcing."  
High volumes of product and transaction data need to be exchanged between the 
retailers and their suppliers in order for buy-sell transactions to be 
initiated, negotiated and closed.  This critical sourcing process typically 
requires a substantial amount of time and attention from both the retail 
merchandise buyer and the salesperson of a manufacturer or a distributor.  
The QCS Network and the Company's related software products and services are 
designed to help make this sourcing function substantially more effective and 
efficient, to facilitate the workflow management of retail industry buyers 
and sellers, and ultimately to set the standard of sourcing for selected 
retail industry product categories.

QCS was incorporated in 1994 as a Delaware corporation.  QCS owns all of the 
outstanding shares of its operating subsidiaries, QCS Development Company 
S.A. and QCS Global Retail Information Network Asia Pacific Ltd.  The Company 
maintains offices in Mountain View, California, Hong Kong and Nice, France.  
In October, 1994 the Company merged with QCS Corporation, a publicly-held 
Colorado corporation formerly known as Parkway Capital Corporation 
("QCS-Colo") whose shares had traded on the Over-The-Counter Bulletin Board 
(the "OTC Bulletin Board") under the symbol PRKW, following which QCS was the 
surviving corporation.  After the merger, shares of QCS began trading on the 
OTC Bulletin Board under the symbol, QCSC.

The Company's principal offices are located at 650 Castro Street, Suite 210, 
Mountain View, CA 94041 and its telephone number is (650) 966-1214.

For a detailed discussion of risk factors relating to the Company, see "Risk 
Factors" at the end of this Item 1. Stockholders and prospective investors in 
the Company should carefully consider these risk factors.

OVERVIEW OF QCS GLOBAL SOURCING SYSTEM

The QCS Network uses industry standard software and worldwide 
telecommunication protocols.  Currently the private backbone trunk line 
telecommunications services are provided by IBM Global Network ("IGN"). 
Access to the QCS Network is provided for a usage volume related fee. Through 
the QCS Network, retailers, manufacturers and distributors can exchange their 
sourcing information electronically in a secure and confidential environment. 
 The QCS Network is designed to provide accuracy, speed, format 
standardization, product comparability and on-screen product images that can 
be manipulated with relative ease by the end-user.  Access to the QCS Network 
is available to QCS' retail industry clients 24 hours per day in over 180 
countries and territories throughout the world.
                                           
   The QCS Network and the Company's software products and services are 
designed to address a sourcing and workflow management need in the broad, 
worldwide consumer retail industry.  When utilized to its full capability and 
employed on a wide-scale basis, the QCS Network is capable of reducing a 
client's cost of sourcing communication but, more importantly, it can 
substantially shorten the sourcing process and more effectively manage the 
quality performance of vendors. Consequently, the QCS Network enables 
merchandising, manufacturing and shipping decisions to be made by all parties 
closer to the selling season, thus helping to provide better informed and 
timely critical business decisions.  The objective is to enable the clients 
who source product to obtain lower cost, increased sales volume, faster 
inventory turnover, fewer involuntary price discounts and improved margins 
and profitability. 

                                       3
<PAGE>

OVERVIEW OF THE MARKET BEING ADDRESSED BY THE COMPANY

As the worldwide retailing industry grapples with competitive pressures and 
shifts in consumer demand, traditional sourcing methods are coming under 
heightened scrutiny, especially in light of proven emerging technologies 
which can now offer dramatic improvements in efficiency, costs and business 
process management. Most purchasing automation efforts address the Post-Order 
end of the Merchandise Flow. The Pre-Order and Order processes - the crucial 
"upstream" lengths of the spectrum, may soon be automated. 

All retailers experience the need for more efficient and effective buying 
systems, but the major global and national retailers feel the need most 
strongly and are actively exploring purchasing automation solutions. 

THE MARKET NEED IN FOCUS

   - The Retail Supply-Chain needs: efficient electronic flow of goods/services,
     enabling Just-In-Time receiving, lower overall costs, fewer data errors, 
     closer relationships between retailers and suppliers for better service and
     planning.
    
   - Major Retailers need: buying efficiency and integration, supplier 
     partnering, lower costs, fewer data errors, and mapped input into existing 
     systems
    
   - Qualified Suppliers need: customer partnering/closer relationship via 
     system tie-in to retailers, sales and bidding efficiency, Internet 
     presence, qualified presence in a network system with visibility and 
     mapped output to an array of customers and prospects

GLOBAL RETAIL MARKET 

The retail industry is characterized by intense competition, consolidation 
and tightening profit margins.  Consumers are ever more discerning and 
consequently demand that retailers offer more value in return for their 
purchasing dollar. Pressure on retailers affects all players in the sourcing 
environment. 

To attract and keep consumers, retailers must offer more desirable products 
and prices, while optimizing factors such as product variety, inventory 
carrying costs, retail prices and costs of goods. Successful buyers must now 
sort, view, decipher and effectively act upon immense volumes of product and 
purchasing data. The average large department store carries more than one 
million SKUs (stock keeping units) at any one time, each unique in terms of 
product style, size, color, features, packaging, and so forth.  Retailers 
need to source these SKUs from hundreds, or in some cases thousands, of 
vendors worldwide.

Sourcing-related communications between retailers and their vendors is a 
continuing dialogue about products, pricing, delivery, special promotions, 
packaging and a host of other issues. To date, these communications have 
largely been carried out through paper-flow, phone calls, faxes, courier 
services, or through travel and personal visits.  It is time-consuming, 
challenging and expensive to maintain retail supply communications in this 
manner. Moreover, to compare different merchandise buying programs on a 
consistent and meaningful basis requires a major undertaking for which buyers 
often lack adequate resources. 

Current sourcing methods often result in less than optimal merchandise 
buying, characterized by frequent misalignment between what the consumers 
want and what is actually on the store shelf, not to mention lost sales, 
costly retail price discounts, or even unsold merchandise returned to the 
supplier.

BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE IN RETAIL

The expanding number and variety of products sold by each retailer along with 
pricing pressure and geographic diversity, drives the globalization of 
retailer-supplier partnerships. Growing volume and complexity in merchandise 
sourcing relationships requires an information systems solution. Long 
considered an art, merchandise buying must now be approached as a science, 
with the help of technology. 

                                       4
<PAGE>

To better manage their relationships and merchandise flow, retailers and 
suppliers alike are turning to information technology, and specifically to 
electronic commerce solutions. QCS believes that the electronic commerce 
market is at the start of a long-term expansion driven by adoption of the 
Internet as a marketing venue and data highway. Electronic commerce in the 
retail sphere represents a significant opportunity for systems application 
and service providers who understand the unique requirements of the retail 
industry and can provide the reliability and security necessary to consummate 
and manage sourcing transactions.

The retail industry and its major participants have been early adopters of 
electronic commerce technologies, initially in the form of Electronic Data 
Interchange (EDI) managed over private Value-Added Networks (VAN). EDI 
addresses the post-ordering flow of basic transactional data. In addition to 
addressing a limited range of the merchandise flow, EDI systems can be 
expensive to develop and are based on closed and proprietary system 
technologies. The range of workflow capability is limited and costs tend to 
exclude smaller participants, such as suppliers, from enthusiastic 
involvement.

In order to successfully face these challenges, retailers and suppliers are 
increasingly turning to information technology, and specifically electronic 
commerce applications, as a means of managing their retailer-supplier 
relationships.  The Company believes that this trend towards electronic 
commerce solutions represents an opportunity for application and service 
providers who understand the unique requirements of the retail industry and 
can provide the necessary reliability and security to consummate and manage 
sourcing transactions.

OVERVIEW OF QCS SERVICES

The QCS Network is designed to address the retail industry's sourcing 
communication and workflow management needs, for both the retailers and their 
vendors.  Based on an industry standard groupware software development 
platform, Lotus Notes/ Domino, and industry standard networking and 
electronic mail systems, the QCS Network and QCS's software products and 
services link retailers and their trading partners through electronic mail, 
data and full page image exchange.  This is done through the interactive 
exchange of product description documents with text and color images, and 
administrative documents and forms customized to each retailer's unique 
requirements.  QCS's software products and services include (1) application 
software for a one time licensing fee, and (2) unlimited network access for a 
fixed monthly fee or, for most retailers and certain high volume vendors, 
network access for which the Company charges volume-based recurring usage 
fees. Hardware requirements are simple -- the single user service requires an 
industry standard desktop PC with a high quality color display, a color 
scanner, and/ or a digital camera.  The multi-user service requires an image 
acquisition PC, a QCS server, and multiple local area network ("LAN") 
workstations.  Through the Lotus Notes/ Domino replication feature, the QCS 
Network constantly updates and synchronizes all its data residing both in 
centrally located system servers and multiple distributed local desktop 
stations at client sites.  Lotus/ Domino server connected users access the 
QCS Network via QCS' Web site (qcsnet.com) on the Internet.

Once on the QCS Network, the retail buyer can select and retrieve the 
up-to-date information from a worldwide pool of vendors regarding their 
product offerings. Similarly, a manufacturer or vendor can access the buyers 
at the large department store retailers, mass merchandisers and specialty 
chain stores. Product information is input by the vendor following a series 
of computer prompts, both textual and in color image.  When retrieved by 
retail buyers, the data from all different vendors will appear on the 
retailer's desk top screen in the retailer's own pre-specified and familiar 
format, thus making it meaningful and relatively easy to compare products 
across multiple suppliers for the same merchandise program offering, and at 
the same time allowing easy interface to the retailer's in-house information 
systems.  Communication between each pair of trading partners on the QCS 
Network is totally private and on a "store-and-forward basis" or "on-line". 
The product color images can be edited easily to customize it to the 
retailer's own private label or for other design, packaging and marketing 
purposes.  Flexibility has been built into the QCS Network, allowing users to 
establish exclusive links with a particular trading partner, to conduct 
exclusive communications between groups of users, or to use the QCS Network 
exclusively for internal purposes to connect a client's worldwide business 
locations.  Access to the QCS Network is executed automatically in the 
background through a local telephone number dial-up. When traveling on the 
road, QCS Network users have access to "Traveling Mailboxes" via local phone 
dial-up numbers in most major cities in the world or via local Internet 
Service Providers ("ISP's").

                                       5
<PAGE>

PRODUCT DEVELOPMENT AND/OR ACQUISITIONS

The Company's research and development efforts are exclusively driven by 
market needs and directed towards technologies that enable and facilitate the 
mapping and translation of information between trading parties in retailing. 

QCS uses a product strategy that combines internal development, alliances, 
and licensing of applications from third parties. New product development and 
enhancements of existing products are typically performed within QCS. 
Responsibilities include design, development, documentation and quality 
assurance.  Contractors are involved in non-critical projects.

QCS follows an open-environment strategy and supports, to the extent 
possible, standard operating systems, LAN environments, communication 
protocols and industry-specific message formats. There will continue to be 
rapid changes in technology standards, and QCS intends to incorporate new 
technologies and methods into its product and service offerings in order to 
continue to provide leadership products. 

International networking uses a combination of private (IBM Global Network 
-IGN) and public networks (Internet). QCS maintains its hub servers both 
under a facility management agreement with IBM, and internally in a 
self-hosted fashion in its own facilities. 

Security concerns play a major role in technological choices. Lotus 
Notes-TM-and Domino-TM- technology guarantee user authentication and 
controlled access to the Company's servers. Critical documents exchanged 
between QCS Network users are encrypted using Lotus Notes-TM- secure protocol 
over the private network and standard SSL (Secure Socket Layer) protocol over 
the Internet. Both provide the highest level of security permitted by U.S. 
export laws. 

CURRENT OFFERING

The QCS product line currently allows a supplier a variety of functions 
revolving around its product catalog. Various functions allow a supplier to 
maintain its product catalog, send portions of it to global listings, and to 
send confidential detailed offers from its catalog to buyers on the QCS 
Network in a point-to-point mode. 

Documents sent by suppliers are processed by an intermediary QCS server, 
incorporating various filtering and mapping functions, before being delivered 
in the buyer organization in its own tailor-made format. This 
centrally-managed form-based messaging system guarantees flexibility by 
shielding the seller from buyer specificity and ensuring the interoperability 
with a large number of messaging standards. Additional modules geared towards 
communication of documents with forwarders and inspection companies enable 
the buyer to follow-up the merchandise flow up to the delivery. In order to 
smoothly integrate in a variety of site configurations, QCS offers its 
customers various connectivity options to the QCS Network.

Launched in December 1996, QCS v2.4 is deployed at the customer site over 
Lotus Notes-TM-, in either single station or LAN configuration. It is 
typically chosen by large organizations and is available for suppliers, 
retailers, forwarders and inspection companies. Hardware platforms running 
Windows 3.1, Windows 95 or Windows NT on the client and Windows NT, OS/2 or 
Netware on the server are supported. Access to the QCS hub server is achieved 
through local X.28 dial-up calls to IGN X.25 private network.

The Supplier Sales Station v3.0 was introduced in May 1997. QCS v3.0 is a 
web-based product that capitalizes on the low-cost and interactivity offered 
by the Internet. It is available to any supplier with a standard Internet 
connection and a web browser. Access to the QCS hub server is achieved 
through local ISP calls using TCP/IP protocol over the Internet.

QCS-enablement of independent software vendors or proprietary solutions is 
done through the support of standard EDI messages. This service is currently 
available to forwarders but will be further generalized to other types of 
messages.

                                       6
<PAGE>

The back-end architecture of the QCS Network is built over Lotus Notes-TM- 
and Domino technology, which allows shared database replication, user 
authentication and controlled access, messaging and workflow management, and 
offers support of industry standards such as HTTP, SSL or SMTP.

The QCS Solution addresses the workflow management of merchandise sourcing 
for major retailers worldwide, with special emphasis on the "upstream" 
processes of Pre-Ordering and Ordering. In alliance with IBM, the QCS Network 
provides this well-defined market with a private, secure and web-enabled 
network integrating retailers with their qualified vendors worldwide.

Through the QCS Network, retailers, manufacturers and distributors can 
exchange their sourcing information electronically in a secure and 
confidential environment.  The QCS Network is designed to provide accuracy, 
speed, format standardization, comparability and on-screen product images 
that can be manipulated with relative ease by the end-user.  Access to the 
QCS Network is available to its retail industry clients 24 hours per day in 
over 180 countries and territories throughout the world.

QCS operates an "Electronic Merchandise Flow" service using Lotus Domino 
technology as the common presentation manager between its own collaboration 
applications and existing in-house solutions of all members of the retail 
trading community. 

The QCS Network blends an industry standard groupware development platform, 
Lotus Notes-TM- with the web enablement tool Domino, together with industry 
standard networking and electronic mail systems. Retailers and their trading 
partners are linked through electronic mail, data and full page image 
exchange. The system offers the interactive exchange of product description 
documents with text and color images, and administrative documents and forms 
customized to each retailer's unique requirements. 

The recent Internet-enablement of the QCS product line effectively joins 
together the private and public networking application worlds, making their 
differences transparent to the end-user.  Supplier and retailer alike can 
access the system from either software platform, and carry out their trading 
dialogue with all supplier-originated communications automatically "mapped" 
to the retailer's in-house systems.  

By making many of its current network functions available through the 
Internet via a standard Web browser (Netscape, MS Internet Explorer), QCS 
removes much of the necessity for suppliers to maintain sophisticated local 
hardware and software on site. QCS believes that suppliers will more readily 
accept and use QCS via the Internet, thereby increasing adoption of the 
technology.  

SOLUTIONS FOR RETAILERS

QCS' retailer solution includes collaboration server software, an Electronic 
Commerce implementation plan with the Retailer's MIS department, and a 
detailed implementation project with the Retailer's Merchandising department. 

The Collaboration Server is based on the Lotus Domino technology and consists 
of a retail sourcing-specific electronic commerce server. The server can be 
either housed by the Retailer or by QCS in Facilities Management. The QCS 
Collaboration Server can be completely "firewalled" from the Retailer's 
existing in-house systems. Data from the Collaboration server is transmitted 
and interfaced ("mapped") through the firewall to match the Retailer's 
in-house standards for Electronic Mail and Graphical User Interface, as well 
as Management Systems handling data such as Purchase Orders, Point-of-Sale, 
Quality Control and Shipping information.  

Once on the QCS Network, the retail buyer can select and retrieve up-to-date 
information from a worldwide pool of vendors and request information 
concerning their product offerings. All data from all vendors appears on the 
retailer's screen "mapped" automatically by QCS into the retailer's 
pre-specified and familiar format. This makes it simple to compare products 
across multiple suppliers for the same merchandise program.  Supplier input 
flows seamlessly through QCS into the retailer's existing systems.

                                       7
<PAGE>

Global retailers can now review, select, negotiate and purchase consumer 
goods over an image-based network using IBM's Global Network. Information is 
exchanged in a confidential secure environment. The overall objective is to 
enable the retailer client to obtain lower cost, increased sales volume, 
faster inventory turnover, fewer involuntary price discounts, fewer inventory 
buying errors, and improved margins and profitability. Enhanced merchandising 
productivity yields substantial savings, directly impacting the client's 
bottom line and bolstering price competitiveness.  

When utilized to its full capability on a wide-scale basis, the QCS Network 
can substantially shorten the sourcing process and more effectively manage 
the vendor performance quality.  It enables merchandising, manufacturing and 
shipping decisions to be made by all parties closer to the selling season, 
thus helping to provide better informed and timely critical business 
decisions.  

SOLUTIONS FOR SUPPLIERS

To take advantage of the advent of the Internet, the Company has introduced a 
new web-enabled product.  The Supplier Sales Station offers vendors a 
cost-effective way to get in front of all QCS private network retailer 
members. A server facility located in Mountain View, California links the Web 
with the QCS private network.  The home page (http://www.qcsnet.com) tells 
the viewer about the QCS services and benefits and allows him to register 
online and to become a member at a basic service level. This provides the 
supplier with free email directly between himself and individual buyers.  
Many suppliers will get onto the Internet using a free 30-day trial of IBM 
Internet Connection Services offered via direct mail. 

The new member enjoys a limited version of the full spectrum of QCS Network 
services. The vendor will be able to submit information about himself and his 
product offerings to the catalog viewed by all QCS members. The data is input 
by the vendor himself on the QCS Internet home page. The QCS server then 
"maps" it into the QCS standard format and posts it on the QCS private 
network catalog. Supplier input is thus in one standard format that is 
"mapped" by the QCS system to each retailer's internal specifications.

The QCS product line currently allows suppliers a variety of functions 
revolving around his product catalog.  Various functions allow him to update 
his catalog, send portions of his product catalog to global listings, and to 
send confidential customized and detailed offers from his catalog to buyers 
on the QCS Network in a point-to-point mode.  This base functionality shall 
remain in all future product offerings, however the underlying technology 
will be enhanced to incorporate the most current market standards.

Supplier equipment requirements depend on whether they are a large-usage 
vendor tied into the QCS private network and interacting extensively with 
retailers, or a new supplier subscribing to free e-mail services through the 
Web and considering additional options. The large user requires an industry 
standard desktop PC with a high quality color display, a color scanner and/or 
a digital camera, a QCS server and a local area network ("LAN") workstation.  
The entry-level service requires only a PC running Windows and an Internet 
connection with web browser. 

SALES AND MARKETING

MARKETING ALLIANCE WITH IBM 

In December 1996, QCS and IBM formally announced a broad alliance to enable 
international electronic trading between retailers and their suppliers on 
IBM's Global Network. IBM and QCS cooperatively market the QCS service. IBM 
provides a global infrastructure that includes help desk support and a 
worldwide sales and marketing force, some of which is expressly dedicated to 
QCS. QCS operates its service on the IBM Global Network Interconnect Service 
for Lotus Notes-TM-.

In addition to providing customer care centers and a worldwide sales force to 
recruit suppliers, IBM also has responsibility for supplying, installing and 
packaging the QCS Supplier Installation Kit and to provide telephone support 
for Lotus Notes-TM- and the related QCS Software to suppliers. QCS pays IBM 
for access to the IBM Global Network and makes revenue based payments for 
IBM's sales and marketing services.

                                       8
<PAGE>

IBM Electronic Commerce, Global Trade Services, the IBM entity which 
sponsored the strategic alliance, was formed within the Internet Division in 
1996 with the mission to develop business with companies engaged in 
International Trade. Global Trade Services' objective is to leverage IBM's 
worldwide sales and services capabilities, current and emerging technologies 
and global network in cooperative business relationships that will capitalize 
on the opportunities existing in the electronic commerce marketplace. Global 
Trade Services introduced QCS to IBM's Distribution Industries Solutions 
Unit.  Their operational presence in the field and commitment to the QCS 
vision brings market acceptance, local infrastructure to leverage, and deep 
knowledge of retailers and emerging supply-chain solutions. 

COMPETITION

BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE

The general market sector for what QCS does can be broadly defined as firms 
offering business to business electronic commerce applications, such as 
General Electric Information Services (GEIS), Sterling Commerce, Harbinger 
and IBM Corporation. They are large companies serving diverse markets, and 
are not focused on the upstream part of the retail merchandise flow, 
especially the Pre-Order area. QRS Inc. is an established firm that serves 
the retail industry, the same vertical market as the Company, but it does not 
focus on the Pre-Order area of the upstream flow, and offers EDI products 
entirely. 

Of the many electronic commerce providers, large and small, some offer a 
proprietary network product and others apply an Internet based solution.  The 
trend is clearly moving toward Internet functionality, as big e-commerce 
providers create products in this domain or at least web-enable existing and 
largely EDI-based offerings to serve more areas of the Merchandise Flow chain.

UPSTREAM VERSUS DOWNSTREAM RETAIL SOLUTIONS

Within the upstream area, QCS addresses the Pre-Order and Order sourcing flow 
needs of major retailers, with connectivity to applications, workflow 
functions and service providers. QCS serves this well-defined market with a 
private, secure and web-enabled network integrating the retailer with his 
qualified vendors and service providers worldwide. It offers retailers and 
suppliers a comprehensive, independent, industry standard solution supporting 
upstream processes. Other upstream electronic commerce providers serving the 
retail industry focus on rapid replenishment systems (just-in-time inventory 
management). Downstream electronic commerce firms provide point of sales, 
data warehousing and micro-marketing (analysis of consumer purchasing 
behavior). Downstream systems do not overlap with the QCS Network in any 
material fashion. 

EXTRANETS VERSUS IN-HOUSE DEVELOPMENT

In-house systems development, a traditional internal competitor to new 
technology applications, is not a strong competitor today because of the 
direction in which Internet based technology is evolving. In 1996, intranets 
were embraced by corporate users of information services and made substantial 
inroads in strategic vision documents and procurement practices of many IT 
departments within major companies. 

The new Extranet, or extended Internet, is a private business network of 
several cooperating organizations located outside the corporate firewall and 
utilizing existing Internet interactive infrastructure such as standard 
servers, email clients and Web browsers. This makes it far more economical 
than the creation and maintenance of a proprietary network. It enables 
trading partners, suppliers and customers with common interests to form a 
tight business relationship and a strong communication bond. It is the first 
non-proprietary technical tool that can support rapid evolution of electronic 
commerce. QCS Network is an extranet system for which development experience 
and costs have already been borne.

                                       9
<PAGE>

EMPLOYEES

The Company currently has 19 full time employees, of which 5 are in sales and 
marketing, 4 in engineering and development, 5 in network management and 
field operations, and 5 in management and administrative support functions.  
These employees are located in the United States, Hong Kong and France. None 
of the employees are represented by a labor union, and the Company considers 
its employee relations to be satisfactory.

                                     RISK FACTORS
                                           
In this section, the Company summarizes certain risks that should be 
considered by stockholders and prospective investors in the Company.  These 
risks are discussed in greater detail below, and are discussed in context in 
other sections of this Report.  This Report contains forward looking 
statements regarding, among other matters, the Company's future strategy and 
prospects for growth.  The forward looking statements are made pursuant to 
the safe harbor provisions of the Private Securities Litigation Reform Act of 
1995.  Forward looking statements address matters which are subject to a 
number of risks and uncertainties.  The Company's actual results may differ 
materially from the results discussed in the forward-looking statements.  The 
factors that might cause this difference include, but are not limited to, 
those discussed in the Risk factors set forth below.

HISTORY OF LOSSES AND ACCUMULATED DEFICIT; LIMITED OPERATING HISTORY: From 
inception in 1993 through June 30, 1997, the Company has generated an 
accumulated deficit of $10,160,862.  Since inception, the Company has 
incurred substantial costs to develop and enhance its technology, to create, 
introduce and enhance its product offerings, to establish marketing and 
distribution relationships, to recruit and train a sales and marketing group 
and to build an administrative organization.  The Company's prospects must be 
considered in light of the risks, expenses and difficulties frequently 
encountered by companies in their early stage of development, particularly 
companies in new, unproved and rapidly evolving markets.  To address these 
risks, the Company must, among other things, continue to upgrade its 
technology, commercialize products incorporating such technology, continue to 
attract, retain and motivate qualified persons and respond to competitive 
developments.  There can be no assurance that the Company will be successful 
in addressing such risks. The limited operating history of the Company makes 
the prediction of future results of operations difficult or impossible, and, 
therefore, there can be no assurance that the Company will sustain growth or 
achieve profitability. Furthermore, the Company has a limited operating 
history focused primarily on integration activities with major retailers. 
Although the purpose of this integration work has been to establish a strong 
launch platform to connect large numbers of consumer goods vendors, there can 
be no certainty that retailers will indeed be successful in enforcing QCS as 
a retail industry trading standard in the near future, if ever.  Further time 
may be required to introduce the new QCS work processes into the vendor 
organizations. This delay would result in continued losses.

ANTICIPATED FLUCTUATIONS IN OPERATING RESULTS:  It is anticipated that, as 
the Company matures, the Company's sales and operating results may fluctuate 
from quarter to quarter and from year to year due to a combination of 
factors, many of which are outside the control of the Company, including, 
among others, (i) the size and timing of significant orders and their 
fulfillment, (ii) the demand for the Company's products and services, (iii) 
the number, timing and significance of product enhancements and new product 
introductions by the Company and its competitors, (iv) changes in pricing 
policies by the Company or its competitors, (v) changes in the level of 
operating expenses, (vi) personnel changes, (vii) product defects and other 
product or service quality problems, (viii) the results of international 
expansion and currency fluctuations, (ix) seasonal trends and (x) general 
domestic and international legal, economic and political conditions. Any 
unfavorable changes in these or other factors could have a material adverse 
effect on the Company's business, financial condition and results of 
operation.

DEPENDENCE ON IBM

The Company has a strong and growing revenue sharing alliance with IBM for 
marketing, major account sales and customer support, together with Network 
service carriage through the IBM Global Network (IGN).  IBM has substantial 
discretion and control over such marketing and support including financial 
resources devoted to marketing and the compensation of its sales and support 
personnel.  Therefore, IBM's decisions and performance 

                                       10
<PAGE>

with respect to these matters have a material impact on the Company's ability 
to market its products and services. IBM is under no contractual obligation 
to continue to market the Company's products and services.  A decision by IBM 
to cease or reduce substantially its marketing efforts would have an 
immediate and material adverse effect on the Company's financial condition 
and results of operations.  There can be no assurance that, in such an event, 
the Company would succeed in alternative sales methods.

DEPENDENCE ON KEY RETAILERS:  A key element of the Company's marketing 
strategy is the Retail Partner Program whereby the Company works with 
selected large retailers to encourage their key vendors to connect with the 
QCS Network.  These key "hub" retailers therefore play a vital role in the 
Company's rate of market penetration and, after the retailers and their 
vendors begin to use the QCS Network, will continue to drive the usage for 
trading and communication which will have a direct impact on the Company's 
recurring revenue. Although these retailers have been successful in the past 
in enforcing standards with their vendors ( e.g. EDI, bar codes), there is no 
guarantee that these key retailers will succeed in connecting key suppliers.

CONTINUING NEED FOR PRODUCT ENHANCEMENTS:  The Company's current product line 
will continue to need enhancements and upgrading, driven by client needs as 
well as rapid technological advances.  Although the Company is 
technologically independent in that it is in a position to pick and choose 
from the best and most reliable technology that is available in the 
marketplace, the risk will continue to exist that the Company's clients will 
always demand the best functionality at the lowest cost and the Company will 
always have to be current with the latest of technologies and applications. 

LENGTHY SALES AND IMPLEMENTATION CYCLE:  The adoption of the Company's 
products and services is often an enterprise-wide decision by prospective 
customers and can be expected to require the Company to engage in a lengthy 
sales cycle to provide a significant level of education to prospective 
customers regarding the use and benefits of the Company's products.  In 
addition, the implementation of the Company's products involves a significant 
commitment of resources by customers over an extended period of time.  As a 
result, the Company's sales and customer implementation cycles are subject to 
significant delays over which the Company has little or no control. Such 
delays due to lengthy sales cycles or delays in customer deployment could 
have a material adverse effect on the Company's business, financial 
condition, and operating results and can be expected to cause the Company's 
operating results to vary significantly from quarter to quarter.

POSSIBLE COMPETITIVE ENTRIES:  Although, to the best of the Company's 
knowledge, it is alone in providing the electronic cataloging and networking 
services to facilitate the global retailing industry's "sourcing" function, 
competitive entry is and will continue to be a major potential threat.  
Competitive entrants may be encouraged by the Company's success as well as by 
its setbacks.  There are electronic document interchange or EDI providers 
serving the retail industry already, some of which have greater financial, 
human and technological resources than the Company.  It is possible that they 
may choose to present products or services to the marketplace in the same 
areas that the Company is engaged.  In addition, the Internet has experienced 
explosive growth and attracted many companies engaged in software development 
to enable electronic transactions on the Internet.  Significant technological 
advances with regards to Internet commerce may invite direct competition in 
the Company's current marketplace. Such competitive entries may materially 
impair the Company's ability to penetrate the market and to achieve its 
financial goals.

LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY AND KNOW-HOW: The Company 
creates client-driven applications using technologies available to all in the 
marketplace.  However, some key software elements within the applications are 
custom designed and developed by the Company.  Although the Company is 
positioned as an amalgamation of software application, global networking and 
technology, there can be no assurance that some of the Company's customers 
will not invite other service or application providers to imitate or improve 
upon the Company's products and services. 

ABSENCE OF PUBLIC MARKET LIQUIDITY AND POSSIBLE VOLATILITY OF STOCK PRICE:  The
public float of  the Company's common stock is small in comparison to total
shares outstanding on a fully diluted basis.  This situation creates a very thin
public market for the trading of the Company's shares.  Trading volume on any
single day rarely exceeds a few thousand shares, with some days of no trading at
all.  Limited trading volume entails a high degree of volatility in the stock
price.  In the 52 week period from July 1, 1996 to June 30, 1997, the 

                                       11
<PAGE>

bids for the shares of the Company's stock on the OTC Bulletin Board ranged 
from $.625 to $5.00.  Until additional shares of Common Stock of the Company 
become freely tradable, this situation of limited liquidity and volatile 
stock price will most likely persist.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS:  Future sales of shares 
by existing shareholders could also adversely affect the prevailing market 
price for the Company's common stock. The vast majority of Common Stock 
outstanding are "restricted securities," as that term is defined in Rule 144 
promulgated under the Securities Act, and in the future may be sold only 
pursuant to an effective registration statement under the Securities Act, in 
compliance with the exemption provisions of Rule 144 or pursuant to another 
exemption under the Securities Act.   The Company is obligated to provide 
certain registration rights to the holders of an aggregate of 5,749,468 
shares of Common Stock (assuming conversion of all issued and outstanding 
shares of Series A Convertible Preferred Stock).  No prediction can be made 
as to the effect, if any, that sales of such securities or the availability 
of such securities for sale will have on the market prices prevailing from 
time to time.  However, even the possibility that a substantial number of the 
Company's securities may be sold in the public market may adversely affect 
prevailing market prices for the Common Stock and could impair the Company's 
ability to raise capital through the sale of its equity securities. 

PRIVACY AND SECURITY CONCERNS OF ON-LINE COMMERCE:  A significant barrier to 
online commerce and communication is the secure exchange of confidential 
information over public and private networks.  The Company relies on the 
encryption and authentication technology of its backbone providers and 
otherwise incorporated in its application software to provide the security 
and authentication necessary to effect the secure exchange of confidential 
information.  There can be no assurance that advances in computer 
capabilities, new discoveries in the field of cryptography or other events or 
developments will not result in a compromise or breach of the systems used by 
the Company to protect customer transaction data.  If any such compromise of 
the Company's security were to occur, it could have a material adverse effect 
on the Company's business, financial condition, and operating results.

DEPENDENCE ON KEY PERSONNEL AND HIRING OF ADDITIONAL PERSONNEL: The Company's 
success depends to a significant degree upon the continued contributions of 
key management, engineering, sales and marketing, and finance personnel, 
certain of whom would be difficult to replace. In particular, the Company 
believes that its future success is highly dependent on the continued efforts 
of the Company's principal shareholders, Marcel van Heesewijk and Mattheus 
Wegbrans. The Company is the beneficiary of a  key man life insurance policy 
for Marcel van Heesewijk for the amount of $1,000,000.  The Company does not 
intend to maintain key man life insurance covering additional key personnel.  
The Company believes its future success will also depend in large part upon 
its ability to attract and retain highly skilled management, engineering, 
sales and marketing, and finance personnel.  Competition for such personnel 
is intense and there can be no assurance that the Company will be successful 
in attracting and retaining such personnel. The loss of the services of any 
of the key personnel, the inability to attract or retain qualified personnel 
in the future or delays in hiring required personnel could have a material 
adverse effect on the Company's business, operating results or financial 
condition.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING:  The Company 
requires substantial working capital to fund its business.  The Company's 
future capital requirements will depend on many factors, including the rate 
of revenue growth, the timing and extent of spending to support product 
development efforts and expansion of sales and marketing, the timing of 
introductions of new products and enhancements to existing products, and 
market acceptance of the Company's products.  The Company expects that it may 
need to raise additional equity or debt financing in the future.  There can 
be no assurance that additional equity or debt financing, if required, will 
be available on acceptable terms or at all. The sale of additional equity or 
other securities will result in further dilution of the Company's 
stockholders.

RISK OF CAPACITY CONSTRAINTS AND SYSTEMS FAILURES AND RELATED LIABILITY:  A 
key element of the Company's strategy is to generate a high volume of 
customer use of the QCS Network.  Accordingly, the reliability of the QCS 
Network is critical to the Company's reputation and its ability to attract 
new customers and to achieve market acceptance its products and services.  
The Company believes its products and services are capable of sustaining 
higher volumes of customer usage and plans to continue to enhance the current 

                                       12
<PAGE>

capacities.  However, an increase in the volume of traffic conducted through 
the QCS Network could strain the capacity of the software or hardware 
deployed by the Company, which could lead to system failures.  In addition, 
as the number of customers using the QCS Network increases, there can be no 
assurance that the infrastructure of the QCS Network will be able to scale 
accordingly.  The Company is dependent upon the telecommunications backbone 
provided by IGN for access to and usage of the QCS Network.  Any disruption 
in the service provided by IGN or any failure of IGN to handle the 
anticipated higher volumes of traffic could have a material adverse effect on 
the Company's business, results of operations and financial condition.

ITEM 2.  PROPERTIES

The Company maintains offices in the U.S., Hong Kong and France.  In Mountain 
View, California, the Company leases approximately 2,148 square feet of 
space. The Mountain View lease expires in September 2000.  The Company's Hong 
Kong operation is housed in a leased floor approximately 2,755 square feet.  
The Hong Kong lease expires in April 1998 at which time the Company has an 
option to renew with rent adjustments for an additional two years.  
Similarly, the Company's Nice, France office is housed in a leased space of 
approximately 2,000 square feet, which lease expires in December 1999 and may 
be renewed for an additional three years.  At present, the Company does not 
foresee any need beyond these leased spaces in the near future.

ITEM 3.   LEGAL PROCEEDINGS

No legal proceedings were commenced by or against the Company during the 
fiscal year ended June 30, 1997.  

The Company is subject to a number of claims arising out of the conduct of 
business.  The Company believes that the results of the claims will not have 
a materially adverse effect on the Company's financial condition.

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

No matters were submitted to a vote of security holders during the fourth 
quarter of fiscal 1997.


                                       13
<PAGE>

                                       PART II
                                           
ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

The following table indicates the high and low bid prices for shares of the 
Company's Common Stock as quoted under the symbol, QCSC, on the OTC Bulletin 
Board for each quarter within the fiscal years ended June 30, 1997 and 1996, 
respectively. The prices shown are representative inter-dealer prices, do not 
include retail markups, markdowns, or commissions and may not necessarily 
reflect actual transactions.

                                           BID PRICES ($)
                                        -------------------
                                        HIGH            LOW
                                        ----            ---
1997
----
First Quarter ended 9/30/96             5.00           2.50
Second Quarter ended 12/31/96           4.50           3.00
Third Quarter ended 3/31/97             4.125          1.50
Fourth Quarter ended 6/30/97            1.375          0.625

1996
----
First Quarter ended 9/30/95            1.375           0.75
Second Quarter ended 12/31/95          1.125           0.625
Third Quarter ended 3/31/96            3.75            0.9375
Fourth Quarter ended 6/30/96           3.375           2.25
                                            
As of June 30, 1997, there were approximately 188 shareholders of record and 
208 beneficial shareholders of the Company's Common Stock and 11 holders of 
the Company's Series A Convertible Preferred Stock for which no market is 
maintained. The Company has never paid dividends on its common stock and does 
not anticipate paying dividends on its common stock for the foreseeable 
future. Quarterly dividends of $0.012875 per share began accruing on the 
Company's Series A Convertible Preferred Stock beginning on November 22, 1994 
and began compounding annually as of January 1, 1996.  The dividends become 
payable, subject to legality, upon the liquidation of the Company or six 
months after the date of conversion of any shares of Series A Convertible 
Preferred Stock into common stock of the Company.  Such dividends shall be 
paid in cash.

RECENT SALES OF UNREGISTERED SECURITIES
In July 1996 the Company issued 344,000 shares of Common Stock at $3.00 per 
share in a private placement to accredited investors (as such term is defined 
in Regulation D promulgated under the Securities Act of 1933, as amended).  
The net proceeds of this sale totaled approximately $1,032,000.  This private 
placement commenced in June 1996 and in the fiscal year ended June 30, 1996 
the Company issued a total of 1,036,531 shares of Common Stock at $3.00 per 
shares of which the net proceeds totaled approximately $2,842,000.

                                       14
<PAGE>


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULT OF OPERATIONS.

The following discussion of the financial condition and results of operations 
of the Company should be read in conjunction with the Financial Statements 
and Notes thereto included elsewhere in this Report.  This section may 
contain forward looking statements regarding, among other matters, the 
Company's future strategy and prospects for growth.  The forward looking 
statements are made pursuant to the safe harbor provisions of the Private 
Securities Litigation Reform Act of 1995.  Forward looking statements address 
matters, which are subject to a number of risks and uncertainties.  The 
Company's actual results may differ materially from the results discussed in 
the forward-looking statements.  The factors that might cause this difference 
include, but are not limited to, those discussed throughout this report..

OVERVIEW

QCS Corporation (the "Company") is an electronic commerce service provider 
serving the worldwide retail industry. The Company provides its users with 
computer software and Network access to enable retailers and suppliers to 
conduct negotiations, purchase and sale of merchandise on a global basis.  
Using Lotus Notes/ DominoTM and industry standard networking protocols and 
transmitting data over leased "backbone" trunk lines and the Internet, the 
Company maintains a secure yet open electronic network which helps retailers 
conduct on-line communication and transactions with their vendors and 
suppliers (the "QCS Network").  This communication and trading process is 
usually referred to in the retail industry as "sourcing."  High volumes of 
products and transaction data need to be exchanged between the retailers and 
their suppliers in order for buy-sell transactions to be initiated, 
negotiated and closed.  This critical sourcing process typically requires a 
substantial amount of time and attention from both the retail merchandise 
buyer and the salesperson of a manufacturer or a distributor.  The QCS 
Network and the Company's related software products and services are designed 
to help make this sourcing function substantially more effective and 
efficient and to facilitate the workflow management of retail industry buyers 
and sellers.

The Company's revenues are derived from QCS's software products and services 
which include application software for a one time licensing fee and network 
access for which the Company charges a fixed monthly fee and/or volume-based 
recurring usage fees.

From inception in 1993 through June 30, 1997, the Company has generated an 
accumulated deficit of $10,160,862.  Since inception, the Company has 
incurred substantial costs to develop and enhance its technology, to create, 
introduce and enhance its product offerings, to establish marketing and 
distribution relationships, to recruit and train a sales and marketing group 
and to build an administrative organization.  The Company's prospects must be 
considered in light of the risks, expenses and difficulties frequently 
encountered by companies in their early stage of development, particularly 
companies in new, unproven and rapidly evolving markets.. The limited 
operating history of the Company makes the prediction of future results of 
operations difficult or impossible, and, therefore, there can be no assurance 
that the Company will sustain growth or achieve profitability.  The Company 
has only recently started to witness sustained and significant usage volume 
between and among trading partners on the QCS Network.  Additional staff and 
technical support personnel may need to be added in a rapid growth scenario.  
If these resources are provided through a strategic partnership, synergistic 
coordination and cooperation is needed among the Company's sales and 
engineering teams and their counterparts at the strategic partner.  
Difficulties and ineffectiveness in managing continued growth in liaison with 
a new strategic partnership could have a material adverse effect on the 
Company's business and results of operations. If the Company creates its own 
infrastructure, substantial additional funding would be needed.  There is no 
assurance that the needed funds could be raised or that the global staffing 
could be successfully implemented.  The Company's success depends to a 
significant degree upon the continued contributions of key management, 
engineering, sales and marketing, and finance personnel, certain of whom 
would be difficult to replace. The loss of the services of any of the key 
personnel, the inability to attract or retain qualified personnel in the 
future or delays in hiring required personnel could have a material adverse 
effect on the Company's business, operating results or financial condition.

                                       15
<PAGE>

RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED JUNE 30, 1997 AND 1996

REVENUES

Revenues were $1,274,611 in fiscal 1997 versus $1,031,858 in fiscal 1996, 
which represents a 24% increase. The increase in revenues was due primarily 
to adding retailers and suppliers to the QCS Network in the first quarter of 
FY 97 with the resultant installation charges and monthly access and volume 
usage fees. These revenues were generated by private Network connections 
using the full QCS Notes Client/ Server based applications.  In fiscal 1997 
access and volume usage fees represented 76% of total revenue and 
installations fees represented 22% of total revenue.

Starting in the second quarter of fiscal 1997, the Company experienced a 
decline in the number of new connections to the Private Network as a result 
of price pressure from Internet based solutions. The Company started its 
development and porting activities in the third quarter of fiscal 1997 in 
order to introduce its Internet based solution.  As a result the Company was 
able to launch its first Internet based application, the WEB-Supplier Sales 
Station, in May of 1997. The Company has however not yet been able to show 
significant revenues from these new Internet enabled products and services in 
fiscal 1997. There can be no assurance that these products will produce 
significant revenue growth in the short-term future of the Company.

GROSS PROFIT

Gross profit represents revenues less cost of  sales. Cost of sales consists 
mainly of the following: (1) labor costs of installing software and providing 
training at the customers site; this includes QCS employee costs and 
subcontracted costs; (2) the costs of the network backbone and hub providers; 
(3) 3rd party software costs; and (4) engineering costs for specific revenue 
generating consulting or product enhancement efforts. The cost of sales 
increased from $554,034 in fiscal 1996 to $837,131 in fiscal 1997, or 51%, 
mainly due to the cost of migrating the QCS Network to IBM's Global Network 
(IGN) Backbone Services during the third quarter. The transition to IGN as 
the new backbone service provider is part of the overall QCS - IBM 
partnership agreement. For security reasons the Company also chose to 
continue to use its previous backbone provider SITA during the transition 
period which resulted in the temporary increase of cost of sales in the third 
and fourth quarters of fiscal 1997. As a result the Company experienced a 
decline in gross profit from $477,824 in fiscal 1996 to $437,480 in fiscal 
1997 or 8%. 

OPERATING EXPENSES

Selling, general and administrative expenses of $2,912,498 in fiscal 1997 
experienced a decrease of 4% from fiscal 1996. Starting from the third 
quarter of fiscal 1997, it has been the Company's policy to shift the 
technical operation expenses from world wide field support to centralized 
development efforts as a result of the transition from Notes Client/ Server 
based applications on the Private Network to Domino Web enabled based 
applications on the Internet. The new technology environment requires much 
less technical field support which enabled the Company to decrease the 
related costs. Research and development expenses increased 11% from $190,207 
representing 18% of fiscal 1996 revenues, to $364,539 representing 29% of 
fiscal 1997 revenues.  These R&D expenditures increased in order to develop 
new products and services, and to port existing applications to a new web 
enabled server engine.  To maintain competitiveness in the very fast-moving 
software industry, additional engineering expenses also were spent on the 
analysis and design of future products. The Company continued to invest 
strongly in 1997 in several key areas to get into position to create, 
accommodate, and sustain potential, substantial growth in the coming 
quarters. The retail industry is truly global in nature. To properly address 
the appropriate worldwide markets, sales and marketing staff and management 
were maintained in 1997 at all three major sales locations; Hong Kong, France 
and the U.S. with an enhanced focus on a limited number of Retail Hub 
accounts. 

LIQUIDITY AND CAPITAL RESOURCES 

At June 30, 1997 cash and cash equivalents were $1,274,157, representing a 
decrease of $1,332,961 from the $2,607,118 at June 30, 1996. This decrease in 
working capital resulted from $2,524,761 cash used in operating activities, 
offset by $1,031,919 in additional funds received from the July equity 
investment and proceeds from 

                                       16
<PAGE>

exercise in stock options. In fiscal 1996 the Company used $1,884,262 in 
operating activities.  The Company's business plan for fiscal 1998 calls for 
continued increases in spending for product development, selling expenses and 
key management additions.  The Company does not currently have a bank credit 
line, but does intend to apply for one in 1998. The Company is seeking to 
raise $5,000,000 through a private placement of common stock at $1.50 per 
share.  The Company believes this new equity investment combined with the 
cash currently on hand and at least some growth in revenue will be sufficient 
to fund operations for the next year.  There can be no assurance that this 
attempt will be successful.  However, if the Company were to continue to 
sustain significant losses, beyond the current business plan, the Company may 
be required to attempt to raise further debt or equity funds.  If these fund 
raising efforts were not successful, the Company might have to reduce 
operating spending resulting in possible additional negative impacts on the 
achievement of the Company's objectives. 

ITEM 7.  FINANCIAL STATEMENTS 

Financial statements and supplementary data are set forth on pages F-1 
through F-20. 

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; 
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE REGISTRANT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of 
September 29, 1997 are as follows:

       NAME            AGE                 POSITION WITH COMPANY
       ----            ---                 ---------------------

Marcel van Heesewijk    37   President, Chief Executive Officer, Acting Chief
                             Financial and Accounting Officer, Chairman of the 
                             Board of Directors
         
Mattheus Wegbrans       47   Executive Vice President of Field Operations and 
                             Sales, Director
         
Johan Vunderink         49   Director


MARCEL VAN HEESEWIJK, Chairman of the Board, and has served intermittently 
since January 1993 as President, Chief Executive Officer and Acting Chief 
Financial and Accounting Officer.  From January 1990 to June 1992 Mr. van 
Heesewijk was the General Manager of European operations for Pande Inc., a 
software engineering services firm.  In addition, Mr. Van Heesewijk has held 
management positions with Siemens AG in both Germany and Portugal.  Mr. van 
Heesewijk holds a bachelor's degree in Economics from the University of 
Groningen in the Netherlands and a degree of the EAP, European School of 
Management Studies in Paris, Oxford and Berlin. 

                                       17
<PAGE>

MATTHEUS WEGBRANS, is a Director and Executive Vice President of Field 
Operations and Sales.  He had previously served as Vice President of Sales 
and Marketing of the Company in 1993.  His prior experience includes Vice 
President at Digital Equipment Corporation from December 1994 to August 1996 
where he was responsible for the overall management of its computer systems 
business in Europe, the Middle East and Africa.  Prior to joining QCS in 
1993, Mr. Wegbrans was a Director of Software Publishing Corporation from 
June 1992 to June 1993 and a founder and President of NeXT Computer Europe 
from July 1990 to May 1992.

JOHAN VUNDERINK, has been a director of the Company since July 1997. From 
1977 to 1996 Mr. Vunderink held various executive and board positions with 
BSO in the Netherlands and from 1989 to 1992 was President and CEO of Origin 
Technology. Origin subsequently was merged into BSO and Mr. Vunderink became 
Executive Vice President of Marketing and Sales.  Origin is a global systems 
integrator with offices in 31 countries, employing 13,500 people, and a 1996 
revenue of $1.35 billion.  Mr. Vunderink is also acting as interim President 
and CEO of Matrix, a sales force automation provider, and a subsidiary of 
Baan Investment BV. Additionally, Mr. Vunderink holds board member positions 
for ITPS/Hyperion, a services company to Airline Reservation System, Health 
Care Systems Benelux BV, a chipcard company and ALLSHARE BV, a development 
company for banking and human resource software.

There are no family relationships among the officers or directors of the 
Company.  The executive officers are elected by and serve at the discretion 
of the Company's Board of Directors.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's 
executive officers, directors and persons who beneficially own more than 10% 
of the Company's Common Stock to file initial reports of ownership and 
reports of changes in ownership with the Securities Exchange Commission 
(SEC).  Such persons are required by SEC regulations to furnish the Company 
with copies of all Section 16(a) forms filed by such persons.

Based solely on the Company's review of such forms furnished to the Company 
and written representations from certain reporting persons, the Company 
believes that all filing requirements applicable to the Company's executive 
officers, directors and more than 10% stockholders were satisfied.

ITEM 10.  EXECUTIVE COMPENSATION

SUMMARY OF COMPENSATION

The following table sets forth all remuneration paid by the Company and its 
subsidiaries to executive officers during the three fiscal years ended June 
30, 1997:

<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE
                                                                              
                                                                                  LONG-TERM COMPENSATION
                                                                                --------------------------
                                                                                AWARDS             PAYOUTS
                                          ANNUAL COMPENSATION                 -------------------  -------
                                   -------------------------------------      RESTRICTED
NAME AND PRINCIPAL                                          OTHER ANNUAL        STOCK    OPTIONS/   LTIP     ALL OTHER
POSITION DURING 1997               YEAR        SALARY       COMPENSATION        AWARDS     SARS    PAYOUTS  COMPENSATION
--------------------               ----        ------       ------------        ------     ----    -------  ------------
<S>                              <C>         <C>           <C>                 <C>      <C>       <C>      <C>
Marcel van Heesewijk**             1997       $101,000       $53,000*             --        --        --        --
President, CEO, Acting             1996       $102,996       $44,307*             --        --        --        --
CFO and Chairman of                1995        $90,625       $12,983*             --        --        --        --
the Board of Directors

Mattheus Wegbrans***               1997       $132,000     $  12,000*             --        --        --        --
Vice President                     1996             --             --             --        --        --        --
And Director                       1995        $22,857        $7,886*             --        --        --        --

</TABLE>
                                       18
<PAGE>

<TABLE>
<CAPTION>

<S>                              <C>         <C>           <C>                 <C>      <C>       <C>      <C>
Todd Myhre****                     1997        $59,496       $11,494*             --        --        --        --
President, CEO
And  Director

</TABLE>

* Represents car and housing allowances paid to Mr. van Heesewijk and Mr. 
Wegbrans, car allowance and consulting services for Mr. Myhre.

** Mr. van Heesewijk assumed the position of Executive Vice President of 
Business Strategies and Alliances in October 1996.  In February 1997 he 
resumed the positions of President and CEO. 

*** Mr. Wegbrans rejoined the Company in August 1996 and did not receive any 
compensation during fiscal 1996.

**** On October 21, 1996, Todd Myhre became the Company's President and Chief 
Executive Officer.  Mr. Myhre resigned this position on February 26, 1997, 
after which he served as a consultant to the Company.

STOCK OPTION GRANTS, EXERCISES AND HOLDINGS

On October 21, 1996, the Company appointed Todd Myhre as its President and 
Chief Executive Officer and elected him to serve as a member of the Board of 
Directors.  Under the terms of his employment agreement, he was granted 
options to purchase 2,858,493 shares of common stock at $2.27 per share.  
Options to purchase 1,372,077 shares immediately vested with the remaining 
options to purchase 1,486,416 shares vesting in equal blocks of 495,472 on 
April 11, 1997, October 11, 1997 and April 11, 1998.    On February 25, 1997 
all of the aforementioned options were rescinded by mutual agreement.  On 
February 26, 1997, he resigned his position with the Company and the Board of 
Directors. Pursuant to the terms of a consulting agreement between the 
Company and Mr. Myhre, he was granted new options to purchase 1,372,077 
shares at $2.27 per share.  These options were fully vested effective April 
11, 1997 and may be exercised on or before April 11, 1999.

COMPENSATION OF DIRECTORS

Directors do not receive any cash remuneration for their services as such, 
although they are reimbursed in accordance with the Company's policy for 
their expenses in connection with attending meetings of the Board. Directors 
serving on committees of the Board receive no special compensation for such  
activities.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial 
ownership of the Company's Common Stock as of  October 10, 1997 assuming the 
conversion into Common Stock of 4,368,937 shares of the Company's Series A 
Convertible Preferred Stock by (i) each person who is known to the Company to 
own beneficially more than 5% of the outstanding Common Stock of the Company, 
(ii) each of the Company's executive officers and directors named in the 
Summary Compensation Table, and (iv) all current directors and executive 
officers as a group:


                                       19
<PAGE>

 NAME AND ADDRESS OF BENEFICIAL OWNER OR          NUMBER OF SHARES      PERCENT
GROUP AND NATURE OF BENEFICIAL OWNERSHIP (1)     BENEFICIALLY OWNED     OF CLASS
--------------------------------------------------------------------------------

Marcel van Heesewijk                                 4,892,963           22.20%
650 Castro Street
Mountain View, CA  94041

Mattheus Wegbrans                                    2,183,100            9.91%
Chemin de la Cairee - Villa Ariari
Les Hauts de Saint-Paul
06140 St Paul de Vence
France

Todd S. Myhre (2)                                    1,372,077            5.86%
650 Castro Street
Mountain View, CA  94041

Carlyle-QCS Partners, LP (3)                         3,058,253           13.88%
1001 Pennsylvania Avenue, NW
Washington, D.C. 20004

French American Banking Corporation                  2,114,100            9.59%
World Financial Center, Tower A
200 Liberty Street
New York, NY 10281

STF Management Limited  (4)                          1,747,574            7.93%
as General Partner of Sharp Technology 
Fund I & II, LP
1 Cornwall Street, 4th Floor 
Birmingham, UK

Lagunitas Partners, L.P./Proactive Partners (5)      1,686,732            7.65%
C/O Gruber & McBaine Cap. Mgt.
50 Osgood Place, Penthouse
San Francisco, CA  94133


All Directors and Officers as a group (2 persons)    7,076,063           32.11%


(1)  The persons named in the table above have sole voting and investment 
power with respect to all shares of Common Stock shown as beneficially owned 
by them, subject to community property laws where applicable.  The table is 
based on information supplied by the directors, officers and principal 
shareholders.

(2)  Assumes exercise of options to purchase 1,372,077 shares of Common Stock 
that are exercisable within 60 days.
 
(3)  Includes warrants to purchase 145,631 shares of Common Stock which are 
exercisable within 60 days of September 30, 1996 and assumes conversion of 
1,456,311 shares of Series A Convertible Preferred Stock held by Carlyle-QCS 
Partners, LP into 1,456,311 shares of Common Stock.

                                       20
<PAGE>

(4)  Assumes conversion of 873,787 shares of Series A Convertible Preferred 
Stock held by STF Management Limited into 873,787 shares of Common Stock.

(5)  Assumes conversion of 776,700 shares of Series A Convertible Preferred 
Stock held by Lagunitas Partners, L.P./Proactive Partners into 776,700 shares 
of Common Stock.

Percentage ownership is based on (i) 17,136,531 shares of Common Stock of the 
Company outstanding as of October 10, 1997, (ii)  4,368,937 shares of Series 
A Convertible Preferred Stock outstanding as of October 10, 1997, the terms 
of which shares are substantially equivalent to shares of Common Stock and 
may be converted into shares of Common Stock at any time at the option of the 
holder, (iii) 534,152 currently exercisable outstanding warrants to purchase 
shares of Common Stock at a purchase price of $.01 per share.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the two years prior to the date of this Report, there were no 
transactions or proposed transactions, to which the Company was or is to be a 
party, in which any of the Company's directors, executive officers or 
principal shareholders identified above under "Item 11 - Security Ownership 
of Certain Beneficial Owners and Management" or any member of the immediate 
family of any such person had or is to have a direct or indirect material 
interest.

                                       21
<PAGE>

                                       PART IV
                                           
ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>

                                                                                                                     PAGE
                                                                                                                     ----
<S>                                                                                                                <C>
(a)  The following documents are filed as a part of this form:            
      1. Financial Statements:      
         Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-1
         Consolidated Balance Sheets - As of June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . .  F-2
         Consolidated Statements of Operations - For the years ended June 30, 1997 and 1996. . . . . . . . . . . . .  F-3
         Consolidated Statements of  Stockholders' Equity - For the years ended June 30, 1997 and 1996 . . . . . . .  F-4
         Consolidated Statements of Cash Flows - For the years ended June 30, 1997 and 1996. . . . . . . . . . . . .  F-5
         Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-6
              
      2. Financial Statement Schedules - For years ended June 30, 1997 and 1996:      
         Schedule II - Valuation and other Qualification Accounts. . . . . . . . . . . . . . . . . . . . . . . . . .  F-17
              
         All other schedules are omitted because they are not applicable or the required information is 
         shown in the consolidated financial statements or notes thereto.    
              
      3. Exhibits:        
         3.1 Amended Certificate of Incorporation is incorporated by reference to Exhibit 28(ii) 
             to Form 8K filed November 22, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   *
                   
         3.2 By-laws are incorporated by reference to Exhibit 28(viii) to Form 8K filed November 22, 1994. . . . . .   *
                   
         4   Instruments defining rights of holders of the Company's Series A Convertible Preferred Stock are 
             incorporated by reference to Exhibits (i), (ii), (iii) & (iv) to Form 8K filed November 22, 1994. . . .   *
                   
         11  Statement re:  Computation of earnings (loss) per share . . . . . . . . . . . . . . . . . . . . .  See page F-3 of 
                                                                                                                the Financial 
                                                                                                                Statements filed 
                                                                                                                under Item 7 
                                                                                                                hereof
                   
         21.1 Subsidiaries of the Registrant. . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . .  F-18
                   
         23.1 Report of Independent Accountants on Financial Statement Schedule . . . . . . . . .  . . . . . . . . .  F-19
                   
         27   Financial Data Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  F-20
                   
              *  Previously filed 
                   
</TABLE>

(b) Reports on Form 8-K 

The Company reported new product developments using the Internet's World Wide 
Web in a letter to the shareholders and filed on Form 8-K with the Securities 
Exchange Commission on April 3, 1997.

                                       22

<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES AND 
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT 
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

Date:  October 14, 1997
                                   QCS CORPORATION
                                   (Registrant)


                                   By:   /s/ Marcel van Heesewijk
                                      ------------------------------------------

                                      Marcel van Heesewijk, President,
                                      Chief Executive Officer, Acting Principal
                                      Accounting and Financial Officer
                                      and Chairman of the Board of Directors


PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS 
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE 
REGISTRANT AND IN THE CAPACITIES AS INDICATED ON OCTOBER 14, 1997.

SIGNATURE                         TITLE
---------                         -----



 /s/ MATTHEUS WEGBANS
---------------------
    Mattheus Wegbrans             Executive Vice President of Field Operations
                                  & Sales, Director       
                   



 /s/ JOHAN VUNDERINK     
---------------------
    Johan Vunderink               Director


                                       23
<PAGE>


                          REPORT OF INDEPENDENT ACCOUNTANTS
                                           



To the Board of Directors and Stockholders of
   QCS Corporation:

We have audited the accompanying consolidated balance sheets of QCS 
Corporation and subsidiaries ("the Company") as of June 30, 1997 and 1996, 
and the related consolidated statements of operations, cash flows and 
stockholders' equity for the years ended June 30, 1997 and 1996. These 
consolidated financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these 
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the consolidated financial 
statements are free of material misstatement.  An audit includes examining, 
on a test basis, evidence supporting the amounts and disclosures in the 
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 consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of the Company as of June 30, 1997 and 1996, and the consolidated results of 
its operations and its cash flows for the years then ended in conformity with 
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Company 
will continue as a going concern.  As discussed in Note 2 to the financial 
statements, the Company has suffered recurring losses from operations that 
raises substantial doubt about its ability to continue as a going concern. 
Management's plans in regards to these matters are also described in Note 2. 
The financial statements do not include any adjustments that might result 
from the outcome of this uncertainty. 


San Jose, California                              COOPERS & LYBRAND L.L.P.
September 22, 1997

                                       F-1
<PAGE>

                                   QCS CORPORATION
                            CONSOLIDATED BALANCE SHEETS

                                                   JUNE 30,         JUNE 30,
                                                     1997             1996
                ASSETS                         --------------   ---------------
Current assets:
    Cash and cash equivalents                  $  1,274,157     $  2,607,118 
    Accounts receivable (net of allowance 
    for doubtful accounts of
    $55,036 in 1997 and $119,960 in 1996)           152,789          238,202 
    Other current assets                             14,896           23,462 
                                               ------------     ------------
      Total current assets                        1,441,842        2,868,782 

Fixed assets, net of accumulated
depreciation and amortization                       242,243          229,296 
Security deposits                                    32,059           37,802 
                                               ------------     ------------
      Total assets                             $  1,716,144     $  3,135,880 
                                               ------------     ------------
                                               ------------     ------------

              LIABILITIES 
Current liabilities:
    Accounts payable                             $  240,007       $  562,705 
    Accrued liabilities                             520,305          393,989 
    Capital lease obligations, short-term portion     9,097            2,628 
    Preference dividend payable                     605,462          362,344 
                                               ------------     ------------
      Total current liabilities                   1,374,871        1,321,666 

Capital lease obligations, long-term portion         14,892            3,806 
                                               ------------     ------------
      Total liabilities                           1,389,763        1,325,472 
                                               ------------     ------------

Commitments  (Note 8)

              STOCKHOLDERS' EQUITY
    Series A convertible preferred stock,             4,369            4,369 
    par value $.001 per share:
    Authorized: 5,000,000 shares; Issued and
     outstanding 4,368,937 shares in 
    1997 and 1996 (aggregate liquidation
    preference: $4,500,005)                           

    Common stock, par value $.001 per share:         17,137           16,693 
     Authorized: 40,000,000 shares; Issued and
    outstanding 17,136,531 in 1997 and
    16,692,531 in 1996                               

    Additional paid in capital                   10,653,231        9,688,531
    Deferred stock compensation                    (107,250)        (301,638)
    Subscriptions receivable from stockholders     (200,100)        (462,584)
    Accumulated deficit                         (10,160,862)      (7,139,967)
    Cumulative foreign currency translation
    adjustment                                      119,856            5,004 
                                               ------------     ------------
      Total stockholders' equity                    326,381        1,810,408 
                                               ------------     ------------
        Total liabilities and stockholders' 
          equity                               $  1,716,144     $  3,135,880 
                                               ------------     ------------
                                               ------------     ------------


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

                                       F-2
<PAGE>

                                 QCS CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       YEAR ENDED JUNE 30,
                                               ---------------------------------
                                                     1997              1996
                                               --------------   ----------------
Revenue                                        $  1,274,611     $  1,031,858 
Cost of sales                                       837,131          554,034 
                                               ------------     ------------
Gross profit                                        437,480          477,824 

Operating expenses:
Selling, general and administrative               2,912,498        3,035,947 
Research and development                            364,539          190,207 
                                               ------------     ------------
Total operating expenses                          3,277,037        3,226,154
Operating loss                                   (2,839,557)      (2,748,330)

Other expense, net                                  (36,458)         (11,184)
Interest income                                      98,238           47,850 
                                               ------------     ------------
Net loss                                         (2,777,777)      (2,711,664)

Preferred dividend payable not included in 
  net loss                                         (243,118)        (362,344)
                                               ------------     ------------

Net loss attributed to common stockholders     $ (3,020,895)    $ (3,074,008)
                                               ------------     ------------
                                               ------------     ------------

Net loss per share                             $      (0.18)    $      (0.20)
                                               ------------     ------------
                                               ------------     ------------
Weighted average number of shares 
   used in per share calculation                 17,074,660       15,658,840
                                               ------------     ------------
                                               ------------     ------------


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

                                       F-3
<PAGE>
              
               CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED JUNE 30, 1997 AND 1996

              
<TABLE>
<CAPTION>
                                                                                                                           
                                                                                                                           
                                                COMMON STOCK              PREFERRED STOCK       ADDITIONAL     DEFERRED    
                                            --------------------        -------------------      PAID-IN      STOCK OPTION 
                                            SHARES       AMOUNTS        SHARES      AMOUNTS      CAPITAL      COMPENSATION 
                                            ------       -------        ------      -------      -------      ------------ 
<S>                                      <C>          <C>            <C>         <C>         <C>             <C>           
BALANCE AT JUNE 30, 1995                  15,536,000   $  15,536      4,368,937    $  4,369   $  6,145,468                 
Issuance of common stock in connection                                                                                     
of private placement                       1,036,531       1,037                                 3,041,795                 
                                                                                                                           
Exercise of stock options                    120,000         120                                                           
Deferred stock option compensation                                                                 301,638      (301,638)  
Compensation related to stock options                                                              199,630                 
Preference dividend payable                                                                                                
Translation adjustment                                                                                                     
Net loss for the year                                                                                                      
                                          ----------   ---------      ---------    --------   ------------    ----------   
BALANCE AT JUNE 30, 1996                  16,692,531      16,693      4,368,937       4,369      9,688,531      (301,638)  
                                                                                                                           
Issuance of common stock in connection                                                                                     
 of private placement                        344,000         344                                 1,031,475                 
Common stock subscriptions received                                                                                        
Write-off of common stock warrants                                                                 (66,775)                
Exercise of stock options                    100,000         100                                                           
Compensation related to stock options                                                                            194,388   
Preference dividend payable                                                                                                
Translation adjustment                                                                                                     
Net loss for the year                                                                                                      
                                          ----------   ---------      ---------    --------   ------------    ----------   
BALANCE AT JUNE 30, 1997                  17,136,531   $  17,137      4,368,937    $  4,369   $ 10,653,231    $ (107,250)  
                                          ----------   ---------      ---------    --------   ------------    ----------   
                                          ----------   ---------      ---------    --------   ------------    ----------   

</TABLE>


<TABLE>
<CAPTION>
                                                                          CUMULATIVE
                                              COMMON                       FOREIGN           TOTAL
                                               STOCK                       CURRENCY          STOCK-   
                                           SUBSCRIPTIONS  ACCUMULATED     TRANSLATION       HOLDERS'  
                                             RECEIVABLE     DEFICIT       ADJUSTMENTS        EQUITY   
                                             ----------     -------       -----------        ------   
<S>                                       <C>           <C>             <C>             <C>           
BALANCE AT JUNE 30, 1995                                  $(4,065,959)    $   (26,149)   $  2,073,265 
Issuance of common stock in connection                                                                
of private placement                          (462,584)                                     2,580,248 
                                                                                                      
Exercise of stock options                                                                         120 
Deferred stock option compensation                                                                  0 
Compensation related to stock options                                                         199,630 
Preference dividend payable                                  (362,344)                       (362,344)
Translation adjustment                                                         31,153          31,153 
Net loss for the year                                      (2,711,664)                     (2,711,664)
                                            ----------   ------------     -----------    ------------ 
BALANCE AT JUNE 30, 1996                      (462,584)    (7,139,967)          5,004       1,810,408 
                                                                                                      
Issuance of common stock in connection                                                                
 of private placement                                                                       1,031,819 
Common stock subscriptions received            262,484                                        262,484 
Write-off of common stock warrants                                                            (66,775)
Exercise of stock options                                                                         100 
Compensation related to stock options                                                         194,388 
Preference dividend payable                                  (243,118)                       (243,118)
Translation adjustment                                                        114,852         114,852 
Net loss for the year                                      (2,777,777)                     (2,777,777)
                                            ----------   ------------     -----------    ------------ 
BALANCE AT JUNE 30, 1997                    $ (200,100)  $(10,160,862)    $   119,856    $    326,381 
                                            ----------   ------------     -----------    ------------ 
                                            ----------   ------------     -----------    ------------ 

</TABLE>


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

                                       F-4
<PAGE>

                                 QCS CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        YEAR ENDED JUNE 30,
                                                 -------------------------------
                                                       1997           1996
                                                 --------------- ---------------
Cash flows from operating activities:
    Net loss                                     $  (2,777,777)  $ (2,711,664)
Adjustments to reconcile net loss to net cash 
used in operating activities:
    Depreciation and amortization expense               79,914        21,789 
    Unrealized exchange loss                           128,992
    Write-off of fixed assets                           13,158 
    Compensation related to stock options              194,388       199,630 
    Changes in operating assets and liabilities:
      Accounts receivable                               18,638        (4,078)
      Other current assets and security deposits        14,309       175,331 
      Accounts payable                                (322,698)      241,251 
      Accrued and other liabilities                    126,315       193,479 
                                                 -------------   -----------
        Net cash used in operating activities       (2,524,761)   (1,884,262)

Cash flows from investing activities:
      Purchases of fixed assets                       (100,433)     (101,713)
                                                 -------------   -----------
        Net cash used in investing activities         (100,433)     (101,713)

Cash flows from financing activities:
      Proceeds from issuance of common stock         1,031,919     3,042,952 
      Common stock subscriptions received              262,484      (462,584)
      Repayment of stockholder advances                             (116,261)
      Repayments on capital leases                      (4,038)            - 
                                                 -------------   -----------
        Net cash provided by financing activities    1,290,365     2,464,107 

Effect of exchange rate changes on cash                  1,868        31,153 
                                                 -------------   -----------
        Net increase (decrease) in cash and cash
            equivalents                             (1,332,961)      509,285 

Cash and cash equivalents, beginning of the 
  period                                             2,607,118     2,097,833 
                                                 -------------   -----------

Cash and cash equivalents, end of the period     $   1,274,157   $ 2,607,118
                                                 -------------   -----------
                                                 -------------   -----------

Supplemental disclosure of cash flow information:
    Cash paid during the period for interest     $       2,331   $    10,444 
    Cash paid during the period for taxes                  800             - 
    Capital lease additions                             21,593         8,227 
    Write-off of subscription receivable                66,775             - 

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

                                       F-5
<PAGE>

                                  QCS CORPORATION
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.  NATURE OF BUSINESS:

QCS was incorporated in 1994 as a Delaware corporation.  QCS owns all of the 
outstanding shares of its operating subsidiaries, QCS Development Company 
S.A. and QCS Global Retail Information Network Asia Pacific Ltd. The Company 
maintains offices in Mountain View, California, Hong Kong and Nice, France. 
In October 1994 the Company merged with QCS Corporation, a publicly held 
Colorado corporation formerly known as Parkway Capital Corporation, following 
which QCS was the surviving corporation.

QCS is an electronic commerce service provider serving the worldwide retail 
industry.  The Company provides its users with computer software and related 
hardware to enable retailers and suppliers to conduct the purchase and sale 
of merchandise on a global basis.  Using Lotus NotesTM and industry standard 
networking protocols and transmitting data over leased "backbone" trunk 
lines, the Company maintains a secure yet open electronic network which helps 
retailers conduct on-line communication and transactions with their vendors 
and suppliers (the "QCS Network").

The Company's revenues are derived from QCS's software products and services 
which include application software for a one time licensing fee and network 
access for which the Company charges a fixed monthly fee and/or volume-based 
recurring usage fees.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION:

The financial statements have been prepared assuming that the Company will 
continue as a going concern.  The Company has incurred losses from operations 
since its inception.  This factor raises substantial doubt about the 
Company's ability to continue as a going concern.  The Company is currently 
finalizing a Private Placement offering in which it intends to raise 
approximately $5,000,000 through the sale of common stock.  The Company has 
no assurance that this private placement offering will be successful.  The 
Company believes this new equity investment combined with the cash currently 
on hand and at least some growth in revenue will be sufficient to fund 
operations for the next year. These financial statements have been prepared 
assuming that the Company will continue as a going concern and do not include 
any adjustments that might result from the outcome of this uncertainty. 

The consolidated financial statements include the accounts of QCS Corporation 
and its wholly owned subsidiaries.  All intercompany balances and 
transactions have been eliminated.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:

The preparation of financial statements in conformity with generally accepted 
accounting principles requires management to makes extensive use of estimates 
and assumptions that affect the reported amounts of assets and liabilities, 
the disclosure of contingent assets and liabilities at the date of the 
financial statements, and the reported amounts of revenues and expenses 
during the reporting period.  Actual results could differ from those 
estimates.

CASH AND CASH EQUIVALENTS:

                                       F-6
<PAGE>

Cash and cash equivalents consist of highly liquid instruments with an 
original or remaining maturity of 90 days or less as of the date of purchase.

EQUIPMENT, LEASEHOLD IMPROVEMENTS, AND COMPUTER SOFTWARE:

Equipment, leasehold improvements, and computer software are stated at cost. 
Depreciation is computed using the straight-line method over the estimated 
useful lives of the assets, ranging from one to five years, or over the term 
of the lease, if shorter.

The cost of property retired or otherwise disposed of and the related 
accumulated depreciation and amortization are removed from the accounts, and 
the resulting gains or losses are included in the results of operations.

RESEARCH AND DEVELOPMENT:

All research and development expenditures are expensed as incurred, including 
costs relating to patents or rights which may result from such expenditures. 
Software development costs have been accounted for in accordance with 
Statement of Financial Accounting Standards No. 86 "Accounting for the Costs 
of Computer Software to be Sold, Leased or Otherwise Marketed."  Under the 
standard, capitalization of software development costs begins upon the 
establishment of technological feasibility, subject to net realizable value 
considerations.  The Company begins capitalization upon completion of a 
working model.  To date, cost that could have been capitalized have been 
insignificant and therefore, the Company has charged all such costs to 
research and development expenses.  Future capitalized costs, if any, will be 
amortized on the straight-line basis over the estimated life of the products 
or the ratio of current revenue to the total of current and anticipated 
future revenue, whichever expense is greater.

REVENUE RECOGNITION:

Revenues from network installations are recognized at the time the 
installation is complete and accepted by the customer and all other 
significant obligations are fulfilled.  Revenues from network usage and 
monthly service charges are recognized at the end of each month.  Revenues 
from sales of consulting and other services are recognized at the time the 
service is performed and accepted by the customer.

EMPLOYEE STOCK PLANS:

In October 1995, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for 
Stock-Based Compensation", which is effective for the Company's financial 
statements for fiscal year 1997.  SFAS 123 allows companies to either account 
for stock-based compensation under the new provisions of SFAS 123 or under 
the provisions of Accounting Principles Board Opinion No. 25 (APB 25), 
"Accounting for Stock Issued to Employees", but requires pro forma disclosure 
in the footnotes to the financial statements as if the measurement provisions 
of SFAS 123 had been adopted.  The Company has elected to continue to account 
for its stock based compensation in accordance with the provisions of APB 25 
and present pro forma disclosures required by SFAS 123  (see Note 5).

INCOME TAXES:

The Company accounts for income taxes in accordance with Statement of 
Financial Accounting Standards No. 109 "Accounting for Income Taxes", which 
requires recognition of deferred tax liabilities and assets for the expected 
future tax consequences of events that have been recognized in the financial 
statements or tax returns.  Under this method, deferred tax liabilities and 
assets are determined based on the difference between the financial statement 
and tax bases of assets and liabilities using enacted tax rates in effect for 
the year in which the differences are expected to affect taxable income.  
Valuation allowances are established when 

                                       F-7

<PAGE>

necessary to reduce deferred tax assets to the amounts expected to be 
realized.  Income tax expense is the tax payable for the period and the 
change during the period in deferred tax assets and liabilities. 
FAIR VALUE OF FINANCIAL INSTRUMENTS:

Carrying amounts of certain of the Company's financial instruments including 
cash and cash equivalents, accounts receivable, accounts payable, accrued 
expenses and other liabilities approximate fair value due to their short 
maturities.  Based upon borrowing rates currently available to the Company 
for loans with similar terms, the carrying value of capital lease obligations 
approximate fair value.

CONCENTRATION OF CREDIT RISK:

The Company performs ongoing credit evaluations within the context of the 
industry in which it operates, does not require collateral, and maintains 
reserves for potential credit losses on customer accounts when deemed 
necessary. There was one customer representing 17% of accounts receivable in 
fiscal 1997 and no customers over 10% of accounts receivable in fiscal 1996.

The Company places its cash with two financial institutions.

NET LOSS PER SHARE:

Net loss per share is computed using the weighted average number of common 
shares outstanding during each period.  Common equivalent shares, consisting 
of stock options and convertible preferred stock are excluded from the 
computation because they would have an anti-dilutive effect.  The 1997 and 
1996 net loss per share reflects preferred dividends of $243,118 and 
$362,344, which have increased the respective years' net loss used in the 
calculation.

FOREIGN CURRENCY TRANSLATION:

Assets and liabilities of the foreign subsidiaries were translated into U.S. 
dollars at year-end exchange rates.  Revenue and expenses have been 
translated at average exchange rates during the year. Local currencies are 
considered to be the functional currencies for the Company's foreign 
subsidiaries. Accordingly, currency translation adjustments are accumulated 
as a separate component of stockholders' equity.  Foreign currency 
transaction gains and losses are included in other income (expense) in the 
determination of net loss.

RECENT PRONOUNCEMENTS:

In February 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share", 
which specifies the computation, presentation and disclosure requirement for 
earnings per share.  SFAS 128 will become effective for the Company's first 
quarter of 1998. The impact of adopting SFAS 128 on the Company's financial 
statements is unlikely to be significant.

In June 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 130 (SFAS 130)  "Reporting Comprehensive 
Income."   SFAS 130 establishes standards for reporting and display of 
financial statements.  The impact of adopting SFAS 130, which is effective in 
fiscal 1999 has not been determined.

In June 1997, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 131 (SFAS 131)  "Disclosures about 
Segments of an Enterprise and Related Information."  SFAS 131 requires 
publicly held companies to report financial and other information about key 
revenue-producing segments of the entity for which such information is 
available and is utilized by the chief operation decision maker.  Specific 
information to be reported for individual segments includes profit or loss, 
certain revenue and expense items and total assets. A reconciliation of 
segment information to amounts reported in the financial statements would be 
provided. SFAS 131 is effective in fiscal 1999 and the impact has not been 
determined.

                                       F-8
<PAGE>

3.  PROPERTY AND EQUIPMENT:

                                                           JUNE 30,
                                                 ----------------------------
                                                      1997          1996 
                                                 ------------- --------------
Furniture and equipment                          $  271,000    $  212,353 
Computer software                                    65,766        56,386 
Leasehold improvements                               13,855        14,264 
                                                 ----------    ----------
                                                    350,621       283,003 
Less accumulated depreciation and amortization     (108,378)      (53,707)
                                                 ----------    ----------
                                                 $  242,243    $  229,296
                                                 ----------    ----------
                                                 ----------    ----------

Depreciation expense for fiscal 1997 and 1996 was $79,914 and $21,789, 
respectively.

Assets under acquired capital leases arrangements included in property and 
equipment above are as follows:

                                                            JUNE 30,
                                                  ---------------------------
                                                       1997          1996 
                                                  ------------   ------------
Furniture and equipment                           $  29,820      $  8,227 
Less accumulated amortization                        (5,912)       (1,371)
                                                  ---------      --------
                                                  $  23,908      $  6,856 
                                                  ---------      --------
                                                  ---------      --------

4.  STOCKHOLDERS' EQUITY:

PRIVATE PLACEMENT:

In  June 1996,  the Company issued a total of 1,036,531 shares of common 
stock at $3.00 per share through a private placement.  The net proceeds 
(after underwriters' commissions and fees and other costs associated with the 
offering) totaled approximately $2,842,000.  An additional 344,000 shares 
were issued at $3.00 in July 1996 through this private placement, the 
proceeds of which totaled approximately $1,032,000.

PREFERRED STOCK:

The Company issued 4,368,937 shares of Series A convertible preferred stock, 
"Series A preferred stock" on November 11, 1994 for a consideration of 
$4,580,812. The holders of Series A preferred stock are entitled to receive, 
out of funds legally available therefore, dividends at 5% per annum on the 
original issue price of $1.03 per share.  Such dividends are cumulative from 
November 22, 1994 and began compounding annually on January 1, 1996.  
Dividends accrue whether or not earned or declared. Such dividends shall be 
payable upon the first to occur of the liquidation of the Company or, with 
respect to any shares of Series A preferred stock that are converted into 
common stock, such dividends shall be payable six months following such 
conversion.  At June 30, 1997 dividends payable in arrears amounted to 
$605,462.

Upon any liquidation, dissolution, or winding up of the company, whether 
voluntary or involuntary, the holders of Series A preferred stock shall be 
paid $1.03 per share plus an amount equal to dividends accrued but unpaid 
thereon, before any payment shall be made to holders of any other class or 
series of stock.  If upon liquidation, dissolution or winding up the Company, 
the assets to be distributed to the holders of the Series A preferred stock 
shall be insufficient to permit payment to such stockholders of full 
preferential amounts aforesaid, then the assets of the Company shall be 
distributed to such holders of the Series A preferred stock pro rata, so that 
each holder receives that portion of assets available for distribution as the 
liquidation 

                                       F-9
<PAGE>

preference payment amounts of the shares of Series A preferred stock held by 
such holders bear to the aggregate liquidation preference payment amounts for 
all shares of Series A preferred stock then outstanding. 

Each holder of Series A preferred stock has the right to convert the Series A 
preferred stock at any time into common shares of the Company.  Unless 
earlier converted, the Series A preferred stock will automatically convert 
into common stock upon the earlier of (i) the effective date of a 
registration pertaining to, and subject to the consummation of an 
underwritten public offering of the Company's common stock at a price of at 
least $5.00 per share and, (ii) the first business day following the 
occurrence of the last of the three following events (a) the completion of a 
36 month period commencing on the closing date, (b) the completion of six 
consecutive quarters of sustained profitability of the Company and; (c) the 
completion of a 30 consecutive  day period during which the low bid for the 
Company's common stock shall have been in excess of $5.00. 

WARRANTS:

At June 30, 1997, there were warrants outstanding to purchase an aggregate of 
635,471 shares of common stock.  This includes warrants to purchase 511,894 
shares of common stock at $0.01 per share, which are exercisable at any time 
until November 1997 or the automatic conversion of preferred stock to common 
stock, whichever is earlier.  Additional warrants for 123,577 shares of 
common stock have been issued during fiscal 1997 at prices ranging from 
$0.8125 to $1.00 per share.  The 123,577 warrants are exercisable at any time 
and expire at various dates prior to June 1998.

5.  STOCK OPTION PLANS:

In April 1997 the Board of Directors adopted the 1997 Stock Option Plan for 
employees, directors and others.  Under this Plan, the Board of Directors has 
authorized 3,000,000 shares of common stock for eligible employees and 
consultants.  Options may be granted at an exercise price of not less than 
85% of the estimated fair value of the common stock, at the date of grant, as 
determined by the Board of Directors.  Options are exercisable at such times 
and under such conditions as determined by the Board of Directors.  Options 
granted under the Plan generally become exercisable over a four-year period 
and generally expire ten years from the date of grant.  Unvested options are 
canceled 90 days after termination of employment and become available under 
the Plan.  

Prior to fiscal 1997, upon approval of the Board of Directors, the Company 
was issuing stock options under individual stock option agreements. 1,450,000 
shares were authorized for grant under these agreements.  These options 
generally, become exercisable over a three year period and expire ten years 
from the date of grant.  Unvested options are canceled upon termination of 
employment and become available under the Plan.  

Activity under the 1997 Plan and under individual agreements are as follows:

<TABLE>
<CAPTION>

                                                            OPTIONS OUTSTANDING 
                                            --------------------------------------------------
                                SHARES                          PRICE          AGGREGATE
                              AVAILABLE         SHARES        PER SHARE     EXERCISE PRICE
                              ---------         ------        ---------     --------------
<S>                       <C>              <C>           <C>              <C>
    Shares authorized         1,450,000 
    Options granted          (1,450,000)     1,450,000      $0.001-$1.00    $  1,075,120 
    Options exercised                         (120,000)        $0.001               (120)
    Options canceled            520,000       (520,000)         $1.00           (520,000)
                             ----------      ---------      ------------    ------------
 Balance at June 30, 1996       520,000        810,000       $0.15-$1.00         555,000 
    Shares authorized         3,000,000
    Options granted          (2,068,077)     2,068,077      $0.001-$3.13       4,103,965 
    Options exercised                         (100,000)        $0.001               (100)
    Options canceled            130,000       (130,000)         $1.00           (130,000)
                             ----------      ---------      ------------    ------------
 Balance at June 30, 1997     1,581,923      2,648,077       $0.15-$3.13    $  4,528,865 
                             ----------      ---------      ------------    ------------
                             ----------      ---------      ------------    ------------
</TABLE>

                                       F-10
<PAGE>

The following table summarizes information with respect to stock options 
outstanding at June 30, 1997:

<TABLE>
<CAPTION>

 
                            OPTIONS OUTSTANDING                OPTIONS EXERCISABLE
                ----------------------------------------  ------------------------------
                                  WEIGHTED 
                                  AVERAGE     WEIGHTED                      WEIGHTED 
   RANGE OF         NUMBER       REMAINING    AVERAGE       NUMBER          AVERAGE
   EXERCISE     OUTSTANDING AT  CONTRACTUAL   EXERCISE        AT            EXERCISE 
    PRICE        JUNE 30,1997   LIFE (YEARS)   PRICE     JUNE 30, 1997       PRICE 
    -----        ------------   ------------   -----     -------------       -----
<S>            <C>            <C>            <C>        <C>
   $0.15           300,000         6.51        $0.15                -          -
$0.50 - $1.00      737,000         7.50        $0.90          479,666        $0.90
$1.88 - $2.27    1,382,077         1.84        $2.27        1,372,077        $2.27
$3.00 - $3.13      229,000         9.48        $3.01                -          -
               -------------     --------    ---------   ---------------   ---------
                 2,648,077         4.60        $1.65        1,851,743        $1.91
               -------------     --------    ---------   ---------------   ---------
               -------------     --------    ---------   ---------------   ---------

</TABLE>

At June 30, 1996, options to purchase 133,000 shares of common stock were 
exercisable.
 
On October 21, 1996, the company appointed a new President and Chief 
Executive Officer who was also elected to serve as a member of the Board of 
Directors. Under the terms of his employment agreement, he was granted 
options to purchase 2,858,493 shares of common stock at $2.27 per share.  
Options to purchase 1,372,077 shares immediately vested with the remaining 
options to purchase 1,486,416 shares vesting in equal blocks of 495,472 on 
April 11, 1997, October 11, 1997 and April 11, 1998.    On February 25, 1997 
all of the aforementioned options were rescinded by mutual agreement.  On 
February 26, 1997, he resigned his position with the Company and the Board of 
Directors.  Following his resignation, pursuant to the terms of a consulting 
agreement entered into with the Company, he was granted new options to 
purchase 1,372,077 shares at $2.27 per share.  These options were fully 
vested effective April 11, 1997 and will be exercisable for 24 months from 
that date.

For certain options granted, the Company recognized $194,388 in 1997 and 
$199,630 in 1996 as compensation for the excess of the fair value of the 
stock at the date of grant of the common stock issuable upon exercise of such 
options over the aggregate exercise price of such options.  The compensation 
expense is charged to operations as the options vest.

The Company has adopted the disclosure only provisions of Statement of 
Financial Accounting Standards 123 (SFAS 123), "Accounting for Stock Based 
Compensation". Had compensation cost for the 1997 Plan been determined based 
on the fair market value at the grant date for the options granted in fiscal 
1997 and 1996 consistent with the provisions of SFAS 123, the Company's net 
loss for fiscal 1997 and 1996 would have been increased to the pro forma 
amounts indicated below: 

                                                     1997           1996
                                                     ----           ----

Net loss - as reported                         $  2,777,777   $  2,711,664
                                               ------------   ------------
                                               ------------   ------------

Net loss - pro forma                           $  2,822,427   $  2,723,294
                                               ------------   ------------
                                               ------------   ------------

Loss per share - as reported                   $      (0.18)  $      (0.20)
                                               ------------   ------------
                                               ------------   ------------

Loss per share - pro forma                     $      (0.18)  $      (0.20)
                                               ------------   ------------
                                               ------------   ------------

                                       F-11
<PAGE>

The above pro forma disclosures are not necessarily representative of the 
effects on reported net income or loss for future years. 

The aggregate fair value and weighted average fair value of each option 
granted in fiscal years 1997 and 1996 were $225,000 and $58,000, and $0.58 
and $0.27, respectively.  The fair value of each option grant for the 1997 
Plan is estimated on the date of grant using the Black-Scholes option-pricing 
model with the following weighted average assumptions:

              Risk-free interest rate    6.25%
              Expected life              5 years
              Expected volatility        10%
              Expected dividend yield    0.0%
 

6.  INCOME TAXES:

The tax provision for the years ended June 30, 1997 and 1996 is as follows:

                                                     1997           1996
                                                     ----           ----
        Current                                       -              -
        Deferred                                $  (913,884)   $  (877,319)
        Less:  valuation allowance                  913,884        877,319
                                                -----------    -----------
        Total provision                               -              -
                                                -----------    -----------
                                                -----------    -----------

The Company has paid no income tax to date other than the $800 California 
minimum franchise tax.  Deferred tax assets arise from both carried forward 
losses and differences between the expenses for tax purposes and that for 
financial accounting purposes.  The components of deferred tax assets as of 
June 30, 1997 and 1996 consist of the following:

                                                      1997          1996
                                                      ----          ----

Miscellaneous accruals                           $  131,254    $    -
Provision for doubtful accounts receivable            4,000        38,436  
Set up costs and research and development
     expenditures                                    52,881        41,904 
Compensation related to stock options 
     granted                                        147,606        69,871 
Net operating loss carryforwards                  2,541,491     1,813,637 
                                                 ----------    ----------
Total deferred tax asset                          2,877,232     1,963,848 

Valuation allowance                              (2,877,232)   (1,963,848)
                                                 ----------    ----------
     Net deferred tax asset                           -            -
                                                 ----------    ----------
                                                 ----------    ----------

A valuation allowance is provided due to the uncertainty surrounding the 
realization of the deferred tax assets in view of the Company's not having 
achieved profitable operations.

                                       F-12
<PAGE>

Net operating losses of the French subsidiary are available for offset 
against future taxable income in the French operating subsidiary and will 
expire five years after the year-end in which they arose, as follows:

                                                    FUTURE
                                                     TAX
                                                  BENEFITS ON
    YEAR IN WHICH             FRENCH TAX           OPERATING         YEAR OF
     LOSS AROSE                 LOSSES              LOSSES          EXPIRATION
     ----------                 ------              ------          ----------
       1993                  $  537,047        $    155,131           1998
       1994                     510,078             188,869           2000(1)
       1995                   1,657,995             570,276           2000
       1996                     902,276             331,135           2001
       1997                     197,165              70,979           2002
                                               ------------
                                               $  1,316,390(2) 
                                               ------------
                                               ------------

Net operating losses of the Hong Kong subsidiary are available for offset
against future taxable income in the Hong Kong operating subsidiary and will
expire fifteen years after the year-end in which they arose, as follows:

                                                    FUTURE
                                                     TAX
                                                  BENEFITS ON
    YEAR IN WHICH             HONG KONG            OPERATING         YEAR OF
     LOSS AROSE               TAX LOSSES            LOSSES          EXPIRATION
     ----------               ----------            ------          ----------
       1996                  $  414,485          $   68,390           2011
       1997                     554,154              94,206           2012
                                                 ----------
                                                 $  162,596(2) 
                                                 ----------
                                                 ----------

(1) The French subsidiary did not have a fiscal year-end in 1994 and for tax 
purposes these losses relate to the 18-month period ended June 30, 1995.

(2) The deferred tax asset is before the application of the valuation 
allowance.

                                       F-13
<PAGE>

Net operating losses of the U.S. subsidiary are available for offset against 
future taxable income in the U.S. operating subsidiary and will expire 
fifteen years after the year-end in which they arose, as follows:

                                                    FUTURE
                                                     TAX
                                                  BENEFITS ON
    YEAR IN WHICH              U.S. TAX            OPERATING         YEAR OF
     LOSS AROSE                 LOSSES              LOSSES          EXPIRATION
     ----------                 ------              ------          ----------

       1987                  $      201        $         70           2002
       1988                      35,896              12,564           2003
       1989                      61,333              21,467           2004
       1990                      60,480              21,168           2005
       1993                      53,731              18,806           2008
       1994                     141,598              49,559           2009
       1995                      77,446              27,106           2010
       1996                     997,417             349,096           2011
       1997                   1,520,725             517,045           2012
                                               ------------
                                               $  1,016,881(2) 
                                               ------------
                                               ------------

(2) The deferred tax asset is before the application of the valuation 
allowance.

Due to changes in the Company's ownership during fiscal 1996 and prior years, 
the amount of loss and credit carryforwards available to offset future U.S. 
federal taxable income or tax may be subject to annual limitations by IRS 
Code Section 382. The amount of such limitation, if any, has not been 
determined.

The difference between the statutory U.S. federal income tax rate (35%) on 
income (loss) before income taxes and the company's effective tax rate is 
summarized as follows:

                                       1997       %          1996         %
                                       ----       -          ----         -
Net loss                         $(2,777,777)           $(2,711,664)

Federal tax at statutory rate       (972,222)    35.0%     (949,082)    35.0%

Foreign taxes - rate differential     58,838     (2.1%)      71,770     (2.6%)
Increase in valuation
   allowance                         913,384    (32.9%)     877,312     (32.4%)
                                  -----------  --------- ------------  ---------
Total provision                         -          -           -           -
                                  -----------  --------- ------------  ---------
                                  -----------  --------- ------------  ---------
7. ACCRUED LIABILITIES:

Accrued liabilities at June 30, 1997 and 1996 consisted of the following:

                                                      1997         1996
                                                      ----         ----

Payroll and related taxes                        $  145,199    $  155,372 
Accrued legal and audit expenses                     86,177       196,841 
Other accrued liabilities                           288,929        41,776 
                                                 ----------    ----------
                                                 $  520,305    $  393,989 
                                                 ----------    ----------
                                                 ----------    ----------

                                       F-14
<PAGE>

8. LEASE COMMITMENTS:

CAPITAL LEASE OBLIGATIONS:

The Company leases certain office equipment under lease arrangements expiring 
from October 1998 to March 2000 with interest rates from 7% to 17%.  Under 
these leasing arrangements, the Company pays all costs related to the 
equipment.

Future minimum lease payments under these capital leases is as follows:

Fiscal year ending June 30,
   1998                                          $  12,250 
   1999                                             10,250 
   2000                                              6,938 
                                                 ---------
Total minimum lease payments                        29,438 
Less amounts representing interest                  (5,449)
                                                 ---------
Present value of net minimum lease payments         23,989 
Less current obligation                             (9,097)
                                                 ---------
Long-term obligation under capital lease         $  14,892 
                                                 ---------
                                                 ---------

OPERATING LEASE OBLIGATIONS:

The Company leases its offices, housing for certain employees, and certain 
motor vehicles under operating lease agreements expiring in future years.  
These agreements require the Company to pay taxes, insurance, and maintenance 
expenses.  Rental expense was approximately $257,000 and $264,000 in fiscal 
1997 and 1996, respectively.

The annual minimum rental commitments under all non-cancelable operating 
lease arrangements are as follows:

Fiscal year ending June 30,
    1998                                        $  178,000
    1999                                            93,000
    2000                                            73,000
    2001                                            18,000
                                                 ---------
                                                 $ 362,000
                                                 ---------
                                                 ---------

                                       F-15

<PAGE>

9.   BUSINESS SEGMENT, FOREIGN SALES AND OPERATIONS AND MAJOR CUSTOMERS:

The Company operates in a single industry segment and sells its products and 
services primarily to the retail industry.  The Company markets its products 
and services in the U.S. and foreign countries (mainly Europe and Asia) 
through its sales organizations and distributors.

The geographical distribution of the revenues, operating loss and total 
identifiable assets is as follows:

                                                            REVENUES
                                                 -----------------------------
                                                      1997           1996
                                                 -------------  --------------
    North and South America                      $  137,236     $    434,116
    Europe                                          517,324          186,769
    Asia                                            620,051          410,973
                                               ------------     ------------
                                               $  1,274,611     $  1,031,858
                                               ------------     ------------
                                               ------------     ------------

                                                        OPERATING LOSS
                                                 -----------------------------
                                                      1997           1996
                                                 -------------  --------------

    North and South America                    $  2,119,350     $  1,240,996
    Europe                                          112,629        1,025,213 
    Asia                                            607,578          482,121 
                                               ------------     ------------
                                               $  2,839,557     $  2,748,330 
                                               ------------     ------------
                                               ------------     ------------


                                                   TOTAL IDENTIFIABLE ASSETS
                                                 -----------------------------
                                                      1997           1996
                                                 -------------  --------------
    North and South America                      $  137,654     $     77,272 
    Europe                                          114,545          189,861 
    Asia                                            189,788          261,629 
                                               ------------     ------------
                                                 $  441,987     $    528,762 
                                               ------------     ------------
                                               ------------     ------------

There was one customer representing 21% of revenues in fiscal 1997 and no 
customers over 10% of revenues in fiscal 1996.

10.  CONTINGENCIES

The Company is subject to a number of claims arising out of the conduct of 
business.  The Company believes that the results of the claims will not have 
a materially adverse effect on the Company's financial condition.

                                       F-16
<PAGE>


                             FINANCIAL STATEMENT SCHEDULE
                       REQUIRED RULE BY 5-04 OF REGULATION S-X
                                           
                                           
                                   QCS CORPORATION
                                     SCHEDULE II
                         VALUATION AND QUALIFICATION ACCOUNTS
                                           

<TABLE>
<CAPTION>


                                                       ADDITIONS
                                               --------------------------
                               BALANCE AT      CHARGED TO       CHARGED                    BALANCE AT 
                               BEGINNING       COSTS AND        TO OTHER                     END OF
      DESCRIPTION              OF PERIOD       EXPENSES         ACCOUNTS   DEDUCTIONS        PERIOD
      -----------              ---------       --------         --------   ----------        ------
<S>                           <C>           <C>               <C>         <C>               <C>
YEAR ENDED JUNE 30, 1997

Provision for doubtful
accounts receivable          $  119,960      $  13,159              -     $  (78,083)   $    55,036 

Deferred tax valuation
allowance                     1,894,818           -              913,384        -         2,808,202


YEAR ENDED JUNE 30, 1996

Provision for doubtful
accounts receivable              56,655        153,922              -        (90,617)       119,960

Deferred tax valuation
allowance                  $  1,017,499           -           $  877,319        -       $ 1,894,818 


</TABLE>
                                       F-17