10KSB/A

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB/A
                                 AMENDMENT NO.4
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
    1934

    FOR THE YEAR ENDED DECEMBER 31, 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 0-21633

                         BRISTOL RETAIL SOLUTIONS, INC.
                 (Name of Small Business Issuer in its Charter)

             DELAWARE                              58-2235556
  (State or Other Jurisdiction of       (I.R.S. Employer Identification No.)
  Incorporation or Organization)

  5000 BIRCH STREET, SUITE 205, NEWPORT BEACH, CALIFORNIA            92660
         (Address of Principal Executive Offices)                  (Zip Code)

                                 (714) 475-0800
                 (Issuer's Telephone Number Including Area Code)

       Securities registered under Section 12(b) of the Exchange Act: NONE
       Securities registered under Section 12(g) of the Exchange Act:

                               Title of each class
                               -------------------
                          COMMON STOCK, $.001 PAR VALUE
                CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS

   Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

   Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in the 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]

   State issuer's revenues for its most recent fiscal year: $21,088,487

   The aggregate market value of the registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $10,444,096 (computed using
the closing price of $3.25 per share of Common Stock on December 12, 1997 as
reported by The Nasdaq Stock Market, based on the assumption that directors and
officers and more than 5% stockholders are affiliates). The Company has no
non-voting Common Stock.

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

    There were 5,556,746 shares of the registrant's Common Stock, par value
$.001 per share, and 718,750 of the registrant's Class A Redeemable Common Stock
Purchase Warrants outstanding on February 27, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held May 15, 1998, which Proxy Statement
will be filed no later than 120 days after the close of the registrant's year
ended December 31, 1997, are incorporated by reference in Part III of this
Annual Report on Form 10-KSB.

    Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]



                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

        GENERAL

        The Company is a dealer of retail point-of-sale ("POS") systems
in the United States with operations in 17 cities in eight states. The Company
sells, installs and supports POS systems, which retail establishments use to
collect and process data at the "point-of-sale" during sales transactions with
customers. The Company has installed systems in more than 15,400 retail
locations, primarily in supermarkets, table-service and fast food restaurants,
and golf courses and resorts, which are the three markets of the retail industry
on which the Company currently focuses. The Company installs POS systems
manufactured by NCR Corporation ("NCR"), International Business Machines Corp.
("IBM"), Matsushita Electronic Corporation of America ("Panasonic"), ICL Retail
Systems ("ICL-Fujitsu"), Micro Systems, Incorporated ("Micros"), and several
other manufacturers. The Company has developed and is marketing software
specifically designed for golf course and resort applications and has license
agreements with several software companies for specific applications for its
other target markets.

        The POS computer systems installed by the Company serve a range of
valuable functions required by retailers to be competitive today. These include
speedier customer checkout service, tracking customer purchases and preferences,
monitoring inventory on a real-time basis, integrating scanning, promotional and
electronic funds transfer (EFT) systems and security monitoring. Retailers who
outgrow the limitations of electronic cash registers (ECRs) represent a major
source of new revenue for the Company. The Company also expects additional
demand for its products to come from retailers seeking to upgrade existing,
under-performing POS systems as well as from new retailers.

        The Company plans to become a national distribution organization for POS
systems through selective acquisitions of independent dealers and systems
integrators that sell, install, and support POS systems for use in retail
establishments. The Company has acquired six dealers since its establishment
in April 1996. The following table sets forth certain information with respect
to the Company's acquisitions to date.




                                                           ACQUISITIONS
            ACQUISITIONS                              DATE            BUSINESS                LOCATIONS
- -------------------------------------              -----------    ----------------    -------------------------
                                                                             
Cash Registers, Incorporated ("CRI")               June 1996      POS Dealer          Kentucky/Ohio

Automated Register Systems, Inc. ("ARS")           December 1996  POS Dealer          Washington

MicroData, Inc. ("MICRODATA")                      April 1997     POS Dealer          Illinois

Smyth Systems, Inc. ("SMYTH")                      May 1997       POS Dealer and VAR  Ohio/California/Colorado/
                                                                                      Utah

Electronic Business Machines, Inc. ("EBM")         June 1997      POS Dealer          Indiana

Pacific Cash Register and Computer, Inc. ("PCR")   August 1997    POS Dealer          California


        SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.

        INDUSTRY OVERVIEW

        The driving forces in retailing in the United States are the need to
attract and retain new customers with a variety of goods and services that meet
the ever-changing tastes of consumers, to increase the average sale per visit,
and to maximize internal productivity and efficiency in order to generate higher
operating profits. Retailers need the ability to quickly identify the buying
history and needs of the consumer. Access to such information allows retailers
to match or to adjust their current products and services to the ever-changing
demands of consumers. These trends have accelerated the requirement for
enterprise-wide access to information and have heightened the demand for
automated information systems. The Company believes this is due, in part, to the
shift in consumer preferences toward variety, value, and convenience.
Furthermore, consumers are demanding speedier checkout times, the ability to
accept credit and debit cards at the point-of-sale, and the convenience of
performing a POS transaction without human intervention.

                                       2



        Retailers have long sought new uses of technology to help them improve
efficiency. The first specialized apparatus was the cash register. Electronic
cash registers (ECR) used by many retailers are incapable of handling the
increasing need to capture and process detailed information or the demand for
faster service. For many types of retailers, automation did not make economic or
business sense until the price of computing power and the cost of implementation
declined. Computing power has become increasingly flexible and easy to use.
Today, the computer has made the modern POS system practical, providing the
means to capture and process enormous amounts of information while at the same
time performing the basic cash control duties of a cash register. The initial
investment in a POS system is offset by reduced labor and transaction costs.

        Retail automation has become an important tool for creating strategic
advantage. There is a growing trend among retailers to implement local area
networks ("LANs") and wide area networks ("WANs") in retail establishments. The
LANs serve a range of valuable functions, including speeding customer checkout
service, tracking customer purchases and preferences, monitoring inventory on a
real-time basis, integrating scanning, promotional and electronic funds transfer
systems, security monitoring, and in-store accounting. WANs integrate several
LANs into a corporate headquarters' information system to permit management to
review individual store operations by analyzing the data that a sophisticated
POS system produces.

        Based on industry surveys and its own operating experience, the Company
believes that as a consequence of competitive pressures within the retail
industry and the Year 2000 problem, demand for POS systems is strong and will be
into the next millenium. The Company believes that the majority of retailers
surveyed plan to increase capital spending and increase retail automation
expenditures as a percentage of sales. Based on industry surveys, the Company
believes that retail automation spending increased by 3% in 1996 over the
previous year and is estimated to have increased by 11% in 1997 to 0.82% of
sales among responding retailers. Based on these surveys, the Company also
believes that average retailers dedicate approximately 23% of total information
technology funds to POS systems. The Company asserts that 30% of retailers
responding were planning to buy or upgrade POS systems in 1998 due to retail
mergers, expansion plans and the Year 2000 problem.


        The Company targets supermarkets, table-service and fast food
restaurants, and golf courses and resorts. The Company believes the portion of
the annual market for POS systems addressable by the Company and other dealers
is approximately $350 million for supermarkets, $1.2 billion for table-service
and fast food restaurants, and $75 million for golf courses and resorts. In
addition, the Company believes that the total annual market for POS system
maintenance and related services is approximately 35% of systems sales.

        The Company believes that approximately 800,000 units (POS systems and
ECRs) are sold per year. In 1996, there were more than 5.0 million POS systems
and ECRs in use in the United States. The Company believes that only 70% of
respondents have an automated POS system in place. Of those with a POS system,
55% said the average age of their system was less than six years. The Company
believes the current average life of a POS system is seven years. However, the
Company anticipates that retailers with ECRs or older POS systems will replace
their units or systems more rapidly than in the past in order to take advantage
of new product features that are being introduced more frequently than in the
past.

         The channels of distribution for retail automation systems in the
United States are fragmented and overlapping. The two principal distribution
channels for POS systems and ECR products to reach the end user currently are:
(i) the "Direct" channel and (ii) the "Indirect" channel. The Direct channel
consists of manufacturers that sell directly to large, national "major retail"
chains. The Direct channel represents less than half of all units sold. The
Indirect channel consists of a variety of independent businesses, which sell to
all types of retail end-users. The two principle components of the Indirect
channel are dealers and Value Added-Resellers (VARs). Dealers in the Indirect
channel generally take title to equipment that they resell and do not, as a
rule, engage in software development. In contrast, VARs are typically
compensated with a commission from the manufacturer and need not take title to
equipment or provide hardware service. VARs sometimes also act as software
developers. All manufacturers use dealers or VARs to distribute at least a
portion of their products to the retail market, and some manufacturers use
dealers or VARs as their exclusive means of distributing their products. The
Company believes that by the Year 2000, POS dealers and VARs will sell the
majority of POS systems because major suppliers are relying increasingly on the
Indirect channel for distribution since dealers and VARs can operate at a lower
cost than the major manufacturers.

                                       3



        The typical POS or ECR dealer is privately held, concentrates on only
one or two manufacturers for its key products and sells, and services those
products on a local basis. Typical dealership functions are sales, in-house and
on-site service, and administration. Based on the Company's experience in
evaluating dealers as acquisition candidates, the Company believes that the
typical dealer derives its revenue from the sale of hardware, software, and
service. The Company believes there are more than 3,000 independent POS and ECR
dealers in the United States that sell to customers in one or several segments
of the retail industry. Because restaurants and supermarkets have been among the
first markets in the retail industry to adopt retail automation tools, the
majority of POS and ECR dealers have some sales to one or both of these markets.

        Systems integrators, who integrate different manufacturers' hardware and
software products into one system, also play a role in distributing POS systems.
Systems integrators generally market turnkey solutions directly to retailers,
primarily through their own sales force of specialists with in-depth knowledge
of their targeted markets. They seek to deliver solutions for many of the
demanding operating challenges facing retailers in today's competitive
environment. The Company believes its expanding network of POS dealers will
provide additional POS sales leads and on-site service opportunities for the
Company's systems integration applications for golf courses and resorts.

        The Company believes that there is a direct relationship between the
size of the retailer and the strategy it employs in purchasing a POS system.
Large chains tend to purchase system components directly from manufacturers and
utilize an in-house staff to perform system integration. Smaller retailers tend
to buy integrated systems from a single source. The Company expects
manufacturers to increasingly concentrate their direct sales efforts on the
largest retail chains and to rely increasingly on the Indirect channel to reach
the balance of the retail marketplace. The Company also expects a fundamental
shift in marketing strategies to develop as retail automation systems become
more complex as software, installation, maintenance support, and systems
integration as opposed to hardware become a larger share of the total cost of
purchase.

        The Company believes that consolidation among potential POS end-users
could impact the number of participants and the structure of the distribution
system for POS systems. There has been an increase in consolidation activity
among retailers in recent years, including a record-breaking 180 transactions
involving the merger or acquisition of restaurant companies in 1997, following
177 mergers in 1996. Although less intensive, similar consolidation is taking
place among supermarkets and grocery stores as evidenced by the combinations of
regional chains such as Safeway Stores/Vons Cos. and Smith's Food &
Drug/Smitty's Food Stores, among others. The Company believes that increasingly
sophisticated and geographically dispersed retailers will expect to leverage
volume purchases in order to lower operating costs, and that a national dealer
will be able offer the convenience and consistency that local vendors cannot
match.

        For the year ended December 31, 1997, approximately 58% of the Company's
total revenues were attributable to POS sales and support, approximately 4% were
attributable to systems integration sales and support and approximately 2% were
attributable to ECR sales and support. The remaining sales were attributable to
maintenance service contracts and supplies.

        COMPANY STRATEGY

        The Company has established a strategic plan to develop a national
organization for the distribution of POS systems through selective acquisitions
of independent dealers and systems integrators who sell, install, and support
POS systems at retail establishments. The Company's objective is to leverage
already established regional channels, customer relationships, and market
expertise to achieve synergistic growth of revenue and improve profit
performance. The Company currently focuses on sales to supermarkets,
table-service and fast food restaurants, and golf courses and resorts. These
groups were chosen because the Company believes they represent large vertical
business segments that offer the best opportunity for future sales growth and
improved margins.

GROWTH STRATEGIES

        PURSUING STRATEGIC ACQUISITIONS. The Company intends to capitalize upon
the significant consolidation opportunities available in the highly fragmented
POS systems dealer industry by acquiring additional dealers and improving their
performance and profitability through the implementation of the Company's
operating strategies. One of the Company's primary goals is to establish, prior
to the end of 1999, a national network of operations that will enhance its
ability to attract regional and national retailers in the three markets the
Company has targeted, to its customer base. Generally, the regional and national
retailers are either franchisee store owners or corporate-owned stores such as
Cinnabon, Certified Grocers, Fazoli's or Wendy's that have stores throughout the
United States. The Company believes that the consolidation of acquired dealers
enables it to capitalize on the experience and customer contacts of the
personnel of acquired companies, eliminate redundant costs, and achieve greater
productivity and more effective utilization of resources. The Company estimates
that there are approximately 300 POS dealers in the United States with annual
revenue in excess of $2.0 million each.

                                       4



        The Company is pursuing a dual priority acquisition focus of increasing
its substantial West Coast and Mid-West market penetration while seeking to
acquire dealerships in other strategically located geographic markets not served
by the Company. The Company intends to focus on acquisition targets that are
profitable at the anticipated time of acquisition and that the Company believes
will maintain profitability after they are integrated into the Company's
operations. The Company believes it will be regarded as an attractive acquirer
by POS systems dealers because (i) the Company's operating strategies enable the
current owners and managers of acquired dealerships to continue their
involvement in dealership operations; (ii) the ability of management and
employees of an acquired dealership to participate in the Company's growth and
expansion through potential stock ownership and career advancement
opportunities; and (iii) the ability to offer the owners of acquired dealerships
liquidity through the receipt of Common Stock or cash.

        OFFERING ADDITIONAL PRODUCT LINES AND SERVICES. When permitted by
manufacturer agreements, the Company plans to offer throughout its existing and
acquired dealerships, product lines that previously have been offered only at
certain of its locations. The Company also intends to create a uniform group of
products and support services that can be provided from each of its locations.
In addition, the Company expects to increase revenue and improve profitability
through enhanced financing packages, such as a customized lease program, and
long-term service and support agreements designed to better serve customers.

   Operating Strategies

        ACHIEVING OPERATING EFFICIENCIES AND SYNERGIES. The Company plans to
further increase the operating efficiencies of its dealerships to enhance
internal growth and profitability. The Company is centralizing certain
administrative functions at the corporate level, such as accounting, finance,
purchasing, insurance coverage, employee benefits, inventory control,
warehousing and distribution. Centralization of functions should serve to reduce
duplicative expenses and permit the dealerships to benefit from a level of scale
and expertise that would otherwise be unavailable to them individually. For
example, the Company expects to realize cost savings from reduced inventory
carrying costs through a centralized warehouse, the exchange of technical
knowledge on the equipment and software it sells and the expanded opportunity
for volume discounts on selected products and supplies, however, there can be no
assurance that this opportunity can be realized. By eliminating responsibility
for administrative functions, the dealerships can focus their full attention on
generating revenue from sales and support activities.

        UTILIZING TECHNOLOGY THROUGHOUT OPERATIONS. The Company is installing a
management information system to enhance the Company's ability to integrate
successfully and quickly the operations of acquired dealerships and future
acquisitions. In addition to handling the range of centralized functions, the
management information system also will facilitate the interchange of
information and enhance cross-selling opportunities throughout the Company,
however, there can be no assurance that this opportunity can be realized. It
also will serve as a management tool to monitor performance at the dealer and
distributor locations and quickly identify those situations requiring additional
attention.

        CREATING A BRAND IDENTITY. To generate greater recognition and
receptivity for the Company and its products to targeted retailers, the Company
plans during the second half of 1998, to convert the existing business names of
companies it has acquired to Bristol Retail Solutions and to undertake a brand
identity program supported by public relations, advertising and direct mail.

        EMPHASIZING CUSTOMER SATISFACTION AND LOYALTY. The Company seeks to
achieve a high level of customer satisfaction and to enhance long-term loyalty
of its customers by offering the systems that best serve their needs while
supporting each sale with the highest quality of service and training. The
Company maintains ongoing training programs for its service and support
personnel to enable them to assess effectively customer requirements and deliver
effective solutions to retailers.

        IMPLEMENTING BEST PRACTICES. The Company strives to implement the "best
practices" of its dealers. These practices include successful selling techniques
and incentives, programs to promote increased maintenance and support services,
and employee motivation programs.

                                       5



        PRODUCTS AND SERVICES

SYSTEMS

        A POS system is used at the "point-of-sale" in a retail establishment to
collect and process data with communications capability. A POS system leads or
prompts the retail clerk through a sales transaction with a customer and
collects detailed information, including credit information, about the
transaction or possibly, consumer preferences. Standard components of a POS
system include a display terminal to view the transaction, a keyboard for data
processing, a scanner (supermarket applications), a credit or debit card reader
and coordinating communications, and software to guide the clerk through the
entire transaction. A POS system leads or prompts the retail clerk through a
sales transaction with a customer and collects detailed information, including
credit information about the transaction. Typically, a number of sophisticated
POS "registers" are installed in a retail establishment, which allows multiple
departments or locations to enter transactions simultaneously.

SERVICES AND SUPPLIES

        The Company offers its customers a variety of value-added services, such
as consulting, integration, and support services. Consulting and integration
services include system design, performance analysis and security analysis;
migration planning, product procurement, configuration and testing; and systems
installation and implementation. Through the acquisition of Smyth Systems, Inc,
the Company believes that it will be in a position to expand on Smyth Systems,
Inc.'s current capacity to provide systems integration services for golf courses
and resorts and offer such services to a broader range of customers.

        The Company also offers its customers continued support, customer
service, and supplies from installation through the life span of the products it
sells. Support services include network management, 7 days x 24-hour "help-desk"
support and enhancement, and maintenance and repair of POS systems. The Company
currently is consolidating its support and customer service efforts in order to
enable the Company to provide a consistent national level of support to its
customers. Additionally, the Company is working with a large third-party POS
supplies vendor to establish a strong centralized telemarketing capability for
marketing supplies.

SALES, MARKETING AND DISTRIBUTION

        The Company identifies its customers in a number of ways, including
referrals from existing customers, advertising in local Yellow Pages and
industry publications, through the Company's direct sales personnel, by means of
customer upgrades and replacements, and referrals from suppliers. Once the
Company identifies a potential customer, the lead is assigned to a Company sales
person who will follow-through and attempt to complete the sale. It is the sales
person's responsibility to identify the needs of the customer and to sell to the
customer a total POS systems solution.

        The Company currently has a small telemarketing sales staff selling
supplies to a limited number of customers. The Company intends to expand this
sales approach into selling supplies company-wide as well as to generate new
sales leads for POS systems. The Company, has periodically made marketing
presentations at several trade shows for the golf and resorts market. The
Company intends to explore other avenues to sell and market its products.

CUSTOMERS

        The Company concentrates its sales efforts on three principle markets of
the retail industry, which are supermarkets, fast food and table service
restaurants, and golf courses/resorts. Typically, the Company's customers tend
to be a regional franchisee or a group of several stores with the same owner.
Generally, when the Company receives an order for POS systems, it will be for a
group of stores to be installed over a relatively short period of time. After
completion of the installation of these stores, future revenues from the
customer will be for maintenance service contracts or supplies.

        The majority of the Company's customers in the supermarket market are
regional supermarket chains and ethnic supermarkets. A typical installation
order for a supermarket would be for three to five lanes, with each lane
typically consisting of a display screen, cash drawer, scanner, printer and
electronic funds transfer terminal. Other possible devices to be installed could
include coin dispensers, hand held scanners, and pole displays. All of these
devices are connected to a LAN and are supported by POS software, which captures
the information, calculates totals, prints out the transaction receipt for the
customer, and interfaces with the retailer's financial and management
information systems.

                                       6



        The Company also sells, installs and supports POS systems for both table
service and fast food restaurants. Typical among the Company's customers are
franchisee restaurants for many major fast-food chains. The typical installation
order for these restaurants consists of the countertop POS cash registers with
drawers, kitchen printers, drive through systems, and local management servers.
In addition, the Company also installs the operating software for these POS
systems. The average installation order for table service restaurants, where
customers order their meals from a waiter or waitress as opposed to at a
counter, consists of touch screen terminals at one or two floor stations and
another one at the bar area if there is one. In addition there is normally a
printer installed in the kitchen.

        The third market targeted by the Company is golf courses and resorts. In
this market the Company installs products used to automate the retail
requirements of a golf course or resort, which include dining room activities,
checkout for golf or pro shop merchandise and other requirements such as setting
and managing a schedule for tee times.

        No customer accounted for more than 10% of the Company's total revenue
for the year ended December 31, 1997. Sales to Seed Restaurant Group, accounted
for approximately 33% of total revenue for the period from inception (April 3,
1996) to December 31, 1996.

COMPETITION

        The POS industry is highly fragmented and competitive. Competitive
factors within the industry include product offerings and prices, quality of
products, customer service levels, reputation, and geographic location of
dealers. The Company primarily competes with independent POS dealers, many of
which have greater financial resources available to them than does the Company.
In addition, some manufacturers of POS equipment and software compete in certain
product areas by distributing their products directly to the end-users that the
Company serves.

        The Company's ability to make acquisitions also will be subject to
competition. The Company believes that other independent POS dealers may seek
growth through consolidation with entities other than the Company during the
next few years. In addition, no assurance can be given that the major
manufacturers will not choose to effect or expand the distribution of their
products through their own wholesale organizations or to increase distribution
directly to many of the retail accounts of the Company in the markets served by
the Company.

SUPPLIERS

        A substantial portion of the Company's total revenue is and will be
derived from the sale of POS systems, ECRs, and related equipment, none of which
are manufactured by the Company. The Company's business is dependent upon close
relationships with manufacturers of POS equipment and the Company's ability to
purchase equipment in sufficient quantities necessary and upon competitive terms
in order to enable it to meet the needs of its end-user customers. During the
year ended December 31, 1997, the Company purchased a significant portion of the
hardware products that it resold from Panasonic, ERC, and NCR who as
manufacturers and suppliers to the Company are some of the best-qualified to
meet the needs of our customers. Sales of products purchased from Panasonic, ERC
Parts, Inc. ("ERC") and NCR accounted for approximately 32% of total revenue for
the year ended December 31, 1997, with sales of Panasonic and NCR products
accounting for 16% and 15% of the Company's total revenue in that year,
respectively. The Company has supply agreements with these and other
manufacturers and suppliers such as IBM, ICL-Fujitsu and Micros. The agreements
are non-exclusive, may have geographic limitations and may have renewable
one-year terms, depending on if the Company achieves a previously-agreed-to
procurement quota. Geographical limitations are the assignment of sales
territories that define the municipalities and states where the Company
subsidiaries can sell a manufacturer's hardware or software. The actual sales
territories for each manufacturer is subsidiary specific and some subsidiaries
may not have permission to sell hardware or software of certain manufacturers in
certain regions or territories of the country. The Company's strategy is to
develop long-term relationships with quality and brand-recognizable
manufacturers such as NCR and Panasonic with the goal of establishing a standard
product offering for our customers. There can be no assurance that the
relationships with these and other manufacturers and suppliers will continue or
that the Company's supply requirements can be met in the future. The Company's
inability to obtain equipment, software, parts or supplies on competitive terms
from its current or other major manufacturers could have a material adverse
effect on the Company's business, results of operations, financial condition,
and cash flows.

                                       7



SEASONALITY

        The Company's business can be subject to seasonal influences. The POS
dealers and systems integrators which the Company has acquired to date typically
have had lower revenue in the quarters ending March 31 and December 31 primarily
due to the lower level of new store openings or replacement of existing POS
systems by customers. The Company believes that this pattern of seasonality will
continue in the foreseeable future.

RESEARCH AND DEVELOPMENT

        As a systems integrator, the Company offers completely integrated
software and hardware systems that include financial, operational, and
information processing capabilities for its golf course and resort customers.
The core software components have previously been developed and annual research
and development expenditures are normally expended for system enhancements and
specific customer requirements. The Company spent $554,000 in research and
development for the year ended December 31, 1997. There were no research and
development costs for the period from inception (April 3, 1996) to December 31,
1996.

EMPLOYEES

        As of February 27, 1998, the Company had 226 full-time and 15 part-time
employees, of whom 143 were employed in customer services, 44 in finance and
administrative services, and 54 in sales and marketing. Of the total full-time
employees, 6 were employed at the Company's corporate office, 76 were employed
at CRI (including MicroData and EBM), 32 were employed at ARS, 88 were employed
at Smyth and 24 were employed at PCR. No employee of the Company is covered by a
collective bargaining agreement or is represented by a labor union. The Company
considers its employee relations to be good.

ITEM 2.  DESCRIPTION OF PROPERTY.

        The Company's general policy is to lease, rather than own, its business
locations. The Company leases numerous properties for administration, sales and
service, and distribution functions. The terms vary under the respective leases,
although, in general, the Company's lease agreements require it to pay its
proportionate share of taxes, common area expenses, insurance, and related costs
of such rental properties.

        The Company leases its 3,980 square foot headquarters facility in
Newport Beach, California. The Company also leases approximately 38,400 square
feet of office and warehouse facilities in Kentucky, Illinois, Indiana and Ohio
for its CRI operations (including facilities utilized by MicroData and EBM), of
which 6,900 square feet is leased from Coye D. King, a director of CRI, and
12,400 is leased from Floyd Shirrell, the former owner of EBM. The Company's ARS
operations utilize approximately 11,800 square feet of leased property, which
includes an approximately 11,158 square foot office facility in Seattle,
Washington which is leased from certain of the officers of ARS. The lease
expires in December 2003. The Company's Smyth subsidiary leases approximately
29,700 square feet of office and warehouse facilities in Canton, Ohio and
Irvine, California. The Company's PCR subsidiary in San Francisco, California
leases approximately a 7,000 square foot office and warehouse facility.

        In connection with the proposed move of CRI from its current location in
London, Kentucky, the Company has agreed to negotiate in good faith a definitive
lease agreement with Stephen King and Andrew King, Vice Presidents of CRI, as
lessors, whereby the lessors will lease to CRI up to 12,000 square feet of
office and warehouse space in a new, yet to be constructed, office complex in
London, Kentucky. Certain terms of the lease have already been agreed to, and it
is expected that when signed, the lease will be for ten years and the base
rental rate will be $6.00, $8.00 and $10.00 per square feet for years one, two
and three through ten, respectively. The Company expects that the remaining
terms of the lease will be competitive and as favorable to the Company as those
which could be obtained from unrelated third parties. Upon commencement of the
lease for the new office complex, the monthly lease for CRI's current space in
London, Kentucky will be terminated without penalty. The Company believes that
the terms of the contract are equivalent to or more favorable than those that
would be obtained under an arm's-length transaction.

        The Company believes that its leased facilities, and the anticipated
lease of the new office complex in London, Kentucky, are adequate for its
present needs and that suitable additional or replacement space will be
available on commercially reasonable terms, as required.

                                       8



ITEM 3. LEGAL PROCEEDINGS.

        The Company's subsidiaries have been from time to time a party to
various lawsuits and other matters involving ordinary and routine claims arising
in the normal course of business. In the opinion of management of the Company
and its counsel, although the outcomes of these claims and suits are not
presently determinable, in the aggregate they should not have a material adverse
affect on the Company's business, financial position or results of operations.

        In September 1993, a judgement was entered in Bell Circuit Court,
Kentucky, on behalf of James J. Kreuger, a former employee of CRI, against CRI
and Coye D. King and Barbara King, former stockholders of CRI, in the amount of
$107,726 and accrued interest. The judgement arises from an alleged partnership
formed by the Kings and Mr. Kreuger, and is currently on appeal. The former
stockholders of CRI have agreed to pay any and all amounts of the judgement in
excess of $83,000; provided, however, that the Company can only collect such
amounts from the former stockholders by offsetting amounts owed by CRI and/or
the Company to such stockholders pursuant to (i) the new lease of the new
London, Kentucky facility (discussed in "Business Item 2. Description of
Properties") and (ii) bonus arrangements described in certain employment
agreements between the Company and the Kings. At December 31, 1997, CRI had
$83,000 accrued in connection with the lawsuit. The maximum exposure for the
claim is $107,000 and management has assessed recoverability of the $24,000
excess and deemed it to be recoverable. In February 1998, CRI paid $50,213 as
settlement of the Court of Appeals affirming the award of $31,950 plus interest
of $18,263. There is still pending one remaining claim, and the Company is
vigorously defending the claim.

        On or about August 7, 1997, a class action lawsuit was filed against the
Company and certain of the Company's officers and directors. Underwriters for
the Company's initial public offering are also named as defendants. The class
action plaintiffs are Lincoln Adair, Antique Prints, Ltd., and Martha Seamons,
on behalf of themselves and all others similarly situated. The case is pending
in the United States District Court for the Southern District of New York. In
addition to seeking themselves declared proper plaintiffs and having the case
certified as a class action, the plaintiffs are seeking unspecified monetary
damages. The plaintiffs' complaint alleges claims under the federal securities
laws for alleged misrepresentations and omissions in connection with purchases
of securities. The Company disputes the allegations made in the complaint and
intends to vigorously defend itself. Because the outcome of such litigation is
not presently determinable, the effect on the Company's consolidated financial
statements is not known. Therefore, no provision for any liability has been made
in the accompanying financial statements.

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

        No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1997.

                                       9



                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

        The Company's Common Stock and Warrants have traded on the Nasdaq
SmallCap Market under the symbols "BRTL" and "BRTLW," respectively. The
following table sets forth the high and low closing sale prices for the
Company's Common Stock and Warrants for the periods indicated as reported by the
Nasdaq National Market System.

    PERIOD FROM NOVEMBER 13, 1996 TO DECEMBER 31, 1996   HIGH        LOW

    Common Stock                                         $11 - 3/4   $ 9 - 13/16
    Warrants                                               6           5

    YEAR ENDED DECEMBER 31, 1997                         HIGH        LOW

    1ST QUARTER
    Common Stock                                         $13         $11 - 5/32
    Warrants                                               7 - 3/8     5 - 1/4

    2ND QUARTER
    Common Stock                                          11 - 7/8     3 - 1/16
    Warrants                                               6 - 5/8     0 - 5/8

    3RD QUARTER
    Common Stock                                           3 - 13/16   2 - 3/4
    Warrants                                               0 - 7/8     0 - 1/4

    4TH QUARTER
    Common Stock                                           5 - 7/8     3
    Warrants                                               2           0 - 1/2

        As of April 1, 1998, the approximate number of record holders of the
Company's Common Stock and Warrants was 696 and 239, respectively. The Company
believes that a significant number of beneficial owners hold substantial shares
of Common Stock and Warrants in depository or nominee form.

        The Company has not paid dividends on its preferred stock or common
stock to date. The Company is obligated to pay, quarterly, cumulative dividends
at a rate of six percent (6%) per annum of the issue price of the Series A
Convertible Preferred Stock, payable, at the holders' option, in cash or in
common stock at the conversion price of the Series A Preferred Stock. So long as
any shares of Series A Preferred Stock remain outstanding, the Company may not,
without the vote or written consent of the holders of at least 66-2/3% of the
then outstanding shares of Series A Preferred Stock, voting together as a single
class, declare or pay any dividend with regard to any share of common stock.
(SEE ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS, ANTI-TAKEOVER EFFECT OF
CERTAIN CHARTER AND BYLAW PROVISIONS). Additionally, although the current line
of credit does not expressly prohibit the Company from paying dividends, the
line of credit does contain certain covenants which restrict the reduction or
depletion of the Company's capital. The Company anticipates that future
financing, including any lines of credit, may further restrict or prohibit the
Company's ability to pay dividends. Under the terms of the underwriting
agreement entered into by the Company in connection with its initial public
offering, the Company is restricted until November 20, 1998, from paying
dividends in excess of the amount of the Company's current or retained earnings
derived from November 20, 1996, unless the consent of the underwriters is
obtained.  The underwriting agreement has been terminated by the underwriter.

USE OF PROCEEDS

        On November 20, 1996, the Company successfully completed an initial
public offering of its common stock and warrants. The Company sold 1,437,500
shares of Common Stock and 718,750 Class A Redeemable Common Stock Purchase
Warrants. The Company raised net proceeds, after deducting underwriting
discounts and commissions and the expenses of the offering, of $7,046,000. The
Company used $850,000 of the net proceeds to repay $817,500 in subordinated
notes payable and related accrued interest on November 22, 1996; $350,000 to
repay the outstanding balance under CRI's line of credit on March 25, 1997;
$4,218,000 for the acquisitions of ARS, MicroData, Smyth, EBM and PCR, including
approximately $200,000 for acquisition-related costs; and approximately
$1,628,000 for working capital and general corporate purposes.

                                       10



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

        The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto included elsewhere in this Annual
Report on Form 10-KSB. This Annual Report on Form 10-KSB contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Additional Factors
That May Affect Future Results."

YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM INCEPTION (APRIL 3, 1996) TO
DECEMBER 31, 1996

   REVENUE

        The Company's total revenue is comprised of two components: (i) revenue
derived from the sale and installation of hardware and software (Systems
Revenue) and (ii) revenue derived from the sale of services and supplies
(Service Revenue). Total revenue for the year ended December 31, 1997, was
$21,088,000 and was comprised of revenue from the Company's wholly-owned
subsidiaries CRI and ARS for the entire year and MicroData, Smyth, EBM and PCR
from the date of their respective acquisitions (see NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS, NOTE 3. ACQUISITIONS). This represents an increase of 403%
from the Company's total revenue of $4,196,000 for the period from inception
(April 3, 1996) to December 31, 1996. Total revenue for the period from
inception (April 3, 1996) to December 31, 1996, is comprised solely of revenue
of CRI subsequent to the Company's acquisition of CRI on June 28, 1996. The
increase in revenue from the period from inception (April 3, 1996) to December
31, 1996 to the year ended December 31, 1997, is due primarily to the revenue
contributed by the additional acquired businesses.

        Total revenue for the year ended December 31, 1997 was comprised of 64%
Systems Revenue and 36% Service Revenue, as compared to a revenue composition of
74% Systems Revenue and 26% Service Revenue for the period from inception (April
3, 1996) to December 31, 1996. The mix of revenue changed from 1996 to 1997 due
to the following: (i) an increase in Service Revenue
in 1997 derived from additional maintenance contracts obtained as a result of a
high volume of systems sold by CRI during the last half of 1996 and (ii)
different revenue mixes at ARS and at the subsidiaries acquired in 1997.

        No customer accounted for more than 10% of total revenue for the year
ended December 31, 1997. Sales to Seed Restaurant Group accounted for
approximately 33% of total revenue for the period from inception (April 3, 1996)
to December 31, 1996. Sales of products from the Company's three main hardware
vendors, Panasonic, ERC, and NCR, accounted for approximately 32% of total
revenue for the year ended December 31, 1997, and approximately 51% of total
revenue for the period from inception (April 3, 1996) to December 31, 1996. The
Company has supply agreements with these manufacturers. The agreements are
non-exclusive, have geographic limitations and may have renewable one-year terms
depending upon the Company's achievement of a previously-agreed-to procurement
quota. Geographical limitations are the assignment of sales territories that
define the municipalities and states where the Company subsidiaries can sell a
manufacturer's hardware or software. The actual sales territories for each
manufacturer is subsidiary specific and some subsidiaries may not have
permission to sell hardware or software of certain manufacturers in certain
regions or territories of the country. A change in the Company's relationships
with these principal vendors could have a material adverse effect on the
Company's business, results of operations, financial condition and cash flows.

   GROSS MARGIN

        Gross margin for the year ended December 31, 1997 was 30% and was
comprised of gross margin for Systems Revenue of 34% and gross margin for
Service Revenue of 23%. Gross margin for the period from inception (April 3,
1996) to December 31, 1996, was 32% and was comprised of gross margin for
Systems Revenue of 31% and gross margin for Service Revenue of 36%. The decrease
in gross margin between these years is primarily due to lower margins realized
on Service Revenue as a direct result of a provision of $451,182 in the fourth
quarter of 1997 on slow-moving replacement parts and higher service costs at
acquired companies in 1997, offset by an improved product mix in Systems
Revenue. The provision of $451,182 is related to the acquisition of EBM on June
6, 1997, and the later consolidation of inventories into the Company's
wholly-owned subsidiary, CRI. After such consolidation and because of the lower
than planned level of sales, the Company determined that it had excess
replacement parts inventory as of December 31, 1997 and took the appropriate
writedown. Gross margin for the period from inception (April 3, 1996) to
December 31, 1996, is comprised solely of gross margin of CRI subsequent to the
acquisition of CRI on June 28, 1996.

                                       11



   SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

        Selling, general and administrative expenses for the year ended December
31, 1997, totaled $8,956,000, or 42% of net revenue, and totaled $1,452,000 for
the period from inception (April 3, 1996) to December 31, 1996, or 35% of net
revenue. The increase in selling, general and administrative expenses as a
percentage of net revenue for the year ended December 31, 1997, is primarily due
to a full year of staffing, operating and acquisition costs incurred at
corporate headquarters needed to successfully integrate acquired companies and
to support future growth.

   GOODWILL WRITE-DOWN

        The Company reviews its assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. During the fourth quarter of 1997, the Company determined that
certain amounts recorded for goodwill from prior acquisitions were impaired and
no longer recoverable. Such determination was made on an analysis of each
subsidiary's projected revenues, profits and undiscounted cash flows at the date
of acquisition compared to actual and projected revenues, profit and loss and
undiscounted cash flows as of December 31, 1997. For the purposes of this
analysis, each subsidiary was identified as a separate asset group as each
subsidiary is independent. From this analysis, an estimate was made as to the
amount of goodwill, which would be recoverable from future operations and
compared to the recorded amounts of goodwill at December 31, 1997; a
write-down was recorded for the difference.

        The total goodwill write-down recorded separately in the accompanying
statement of operations was approximately $1,871,000 which consisted of
$1,442,000 related to Smyth Systems, $419,000 related to CRI and $10,000 related
to other subsidiaries.

         The goodwill write-downs are primarily due to fourth quarter decisions
by the Company based on operating losses and lack of sales growth at both Smyth
and CRI. Prior to the time of the acquisition, Smyth Systems had begun a
marketing effort to penetrate the apparel and sporting goods markets. These
markets were expected to grow rapidly and represented the major reason that the
Company paid a purchase price in excess of book value for Smyth which was
allocated to goodwill at the acquisition date. However, by mid-fourth quarter of
1997, it was apparent that Smyth was not able to penetrate these markets due to
a lack of sales caused by an insufficient product line and that the costs to
successfully sell into these markets were not reasonable given Smyth's operating
losses. As a result, in the fourth quarter, a decision was made to discontinue
the sales, marketing and promotional activities to penetrate these markets and a
goodwill impairment charge was recorded.

         At the date of CRI's acquisition of EBM, it was anticipated that sales
from EBM would continue to expand and that EBM would move towards profitability
as it expected an increase in sales volume to the fast-food and table-service
restaurant market because of the ability to offer a certain product to a wider
geographical area. However, the product did not sell as anticipated due to
quality problems and by the fourth quarter of 1997, several key people
associated with the marketing of this product had left the Company. This
resulted in larger losses than anticipated and led to the impairment of the
goodwill.

         After such write-downs, the Company believes that the remaining
goodwill amounts recorded for each subsidiary are recoverable over the remaining
amortization period.

   RESEARCH AND DEVELOPMENT COSTS

        Research and development costs were $554,000 for the year ended December
31, 1997, and consist primarily of costs related to internally-developed,
software to run on the latest operating systems, designed for the golf course
and resort market incurred at the Company's wholly-owned subsidiary Smyth, which
was acquired on May 29, 1997. The Company's policy is to expense such costs
until technological feasibility is established. At December 31, 1997, such
technological feasibility had not been established. A previous version of the
software that ran on an older operating system is currently being licensed on a
non-exclusive basis.

   INTEREST INCOME AND INTEREST EXPENSE

        The Company earned interest income of $131,000 for the year ended
December 31, 1997, compared to $43,000 for the period from inception (April 3,
1996) to December 31, 1996. Interest income in 1997 was derived primarily from
interest earned on the investment of the Company's proceeds from its initial
public offering in November 1996. The proceeds were invested in a short-term,
interest-bearing money market fund.

        The Company recognized interest expense of $111,000 for the year ended
December 31, 1997, compared to $46,000 for the period from inception (April 3,
1996) to December 31, 1996. Interest expense in 1997 consisted primarily of
interest on outstanding balances on the Company's lines of credit. Interest
expense in 1996 consisted primarily of interest on $817,500 of subordinated
notes payable that were issued on June 30, 1996.

                                       12



   INCOME TAX PROVISION

        The Company recorded an effective income tax provision of 0% for the
year ended December 31, 1997, and for the period from inception (April 3, 1996)
to December 31, 1996. Income tax expense in 1997 consisted solely of state taxes
as the Company had a taxable loss for federal income tax purposes.

LIQUIDITY AND CAPITAL RESOURCES FOR THE COMPANY

        The Company had cash and cash equivalents of $716,000 and working
capital of $264,000 at December 31, 1997, compared to cash and cash equivalents
of $5,476,000 and working capital of $6,164,000 at December 31, 1996. In the
year ended December 31, 1997, the Company used $1,942,000 of cash in operations;
used $208,000 for the purchase of property and equipment and used $3,008,000 for
the acquisitions of MicroData, Smyth, EBM and PCR; and generated $1,247,000 from
financing activities, which consists of the net impact of borrowings and
repayments under the Company's various debt agreements and the purchase of
treasury stock. In addition, the Company used $1,100,000 during the year ended
December 31, 1997, for an acquisition which was later rescinded, where $250,000
was refunded to the Company in cash. The remaining funds are recorded as
$600,000 in receivables and $250,000 in other assets at December 31, 1997, and
will be returned to the Company as provided in the Rescission Agreement (see
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, NOTE 3, ACQUISITIONS). During the
period from inception (April 3, 1996) to December 31, 1996, the Company used
$44,000 of cash in operations; used $86,000 for the purchase of property and
equipment and used $2,035,000 for the acquisitions of CRI and ARS; and generated
$7,640,000 from investing activities, primarily due to proceeds received from
the Company's initial public offering.

         The provision of $451,000 for slow moving replacement parts was mainly
due to the acquisition of EBM and subsequent incorporation of operations into
the Company's wholly-owned subsidiary, CRI. After such consolidation and because
of the lower than planned level of sales, the company determined that it had
excess replacement parts inventory as of December 31, 1997 and took the
appropriate write-down.

         On December 17, 1997, the Company obtained a new line of credit which
provides for aggregate borrowings up to $5,000,000 computed based on eligible
accounts receivable and inventories; bears interest at the bank's prime rate
plus 1.75%; matures on December 31, 2000; and is collateralized by the Company's
accounts receivable and inventories. Pursuant to the terms of the line of
credit, the Company is subject to covenants which, among other things, impose
certain financial reporting obligations on the Company and prohibit the Company
from engaging in certain transactions prior to obtaining the written consent of
the lender. Some of the significant transactions include: (i) acquire or sell
any assets over $50,000 excluding purchases of dealers; (ii) sell or transfer
any collateral except for finished inventory in the ordinary course of business;
(iii) sell inventory on a sale-or-return, guaranteed sale, consignment or other
contingent basis; (iv) incur any debts, outside the ordinary course of business,
which would have a material adverse effect; (v) guarantee or otherwise become
liable with respect to obligations of another party or entity; (vi) pay or
declare any cash dividends; or (vii) make any change in the Company's capital
structure that would have a material adverse effect. The Company repaid all
amounts outstanding under its previous CRI, ARS and Smyth credit lines using
proceeds from the new line of credit. The Company had outstanding borrowings of
$2,031,000 bearing interest at 10.25% at December 31, 1997.

        On November 20, 1996, the Company successfully completed an initial
public offering of its common stock and warrants. The Company sold 1,437,500
shares of Common Stock and 718,750 Class A Redeemable Common Stock Purchase
Warrants. The Company raised net proceeds, after deducting underwriting
discounts and commissions and the expenses of the offering, of $7,046,000. The
Company used $850,000 of the net proceeds to repay $817,500 in subordinated
notes payable and related accrued interest on November 22, 1996; $350,000 to
repay the outstanding balance under CRI's line of credit on March 25, 1997;
$4,218,000 for the acquisitions of ARS, MicroData, Smyth, EBM and PCR, including
approximately $200,000 for acquisition-related costs; and approximately
$1,628,000 for working capital and general corporate purposes.

        The Company is currently engaged in discussions with several other
retail automation solution businesses regarding possible acquisitions, some of
which could be material. However, the Company currently has not entered into any
definitive agreements with respect to any acquisitions that are, individually or
in the aggregate, material to the Company.

        The Company's exposure to litigation claims is discussed in Commitments
and Contingencies, Note 8 to the consolidated financial statements. On or about
August 7, 1997, a class action complaint was filed against the Company and
certain of the Company's officers and directors. Underwriters for the Company's
initial public offering are also named as defendants. The class action
plaintiffs are Lincoln Adair, Antique Prints, Ltd., and Martha Seamons, on
behalf of themselves and all others similarly situated. The case is pending in
the United States District Court for the Southern District of New York. In
addition to seeking themselves declared proper plaintiffs and having the case
certified as a class action, plaintiffs seek unspecified monetary damages. The
plaintiffs complaint alleges claims under the federal securities laws for
alleged misrepresentations and omissions in connection with purchases of
securities. The Company disputes the allegations made in the complaint and is
vigorously defending itself. Because the outcome of such litigation is not
presently determinable, the effect on the Company's consolidated financial
statements is not known. Therefore, no provision for any liability has been made
in the accompanying financial statements.

                                       13



        On March 18, 1998, the Company entered into a definitive agreement for a
private placement of shares of Series A Preferred Stock. The investment
commitment is up to $2,000,000 and will be issued in three installments. The
first installment of $1,000,000 funded on March 18, 1998. The second and third
installments of $500,000 each will subsequently close in thirty and sixty days,
respectively, assuming that the various conditions set forth in the purchase
agreement are met. The Series A Preferred Stock is convertible by the holders
into common stock of the Company at any time into a number of shares of common
stock determined by dividing the issue price by the conversion price, which is
defined to be 78% of the lowest five-day average closing bid price for the

25-day period prior to the date of the conversion notice. At no time shall the
conversion price be higher than 110% of the five-day average bid price prior to
the date such shares were purchased. The dividends on the Series A Preferred
Stock is payable quarterly in stock or in cash. The purchaser of the Series A
Preferred Stock received warrants to purchase 125,000 shares for the first
$1,000,000 installment. The agreement has a provision that prohibits the
purchaser from owning more than 20% of the Company's common stock. In addition,
if one of the two remaining installments might cause the purchaser to own more
than 20% of the Company's outstanding common stock, then the installment will
not fund.

        The Company has employment agreements with certain executive officers
and employees, the terms of which expire at various times through 2004 and
provide for minimum salary levels. In addition, certain officers of the acquired
companies receive a portion of the acquired company's pre-tax profits greater
than the amount defined in the officer's employment agreement. At December 31,
1997, no provision for bonus payments were made for these certain employment
agreements due to the fact that the Companies incurred pre-tax losses. The
aggregate commitment for future salaries and the guaranteed bonus amounts was
$7,106,878 at December 31, 1997 excluding bonuses contingent on achieving
certain pre-tax profits. The Company believes payment of these contingent
bonuses will not have a material adverse effect on results of operations,
financial condition or cash flows. In addition, the Company has entered into an
employment contract with an employee, expiring in 2008, that provides for a
minimum salary and certain guaranteed bonus amounts that are payable even in the
event of termination for cause or upon death. The aggregate commitment for
future salaries and guaranteed bonus amounts under this contract at December 31,
1997 was $443,275. The employee is not an executive officer of the Company.

        The Company has an independent contractor agreement with a former owner
of a subsidiary, expiring in 2003. The commitment for future payments under this
contract at December 31, 1997 was $650,000.

        The Company anticipates that its current cash on hand, cash flow from
operations and additional financing available under its credit facility will be
sufficient to meet the Company's liquidity requirements for its operations
through the end of 1998. However, the Company intends to identify, evaluate and
acquire additional retail automation solution businesses during 1998. These
acquisitions are expected to be funded through a combination of cash and common
stock and may necessitate additional costs and expenditures to expand
operational and financial systems and corporate management and administration.
The Company will require additional financing in order to continue this
acquisition program. The Company currently intends to obtain financing through
future issuances of debt or equity securities during 1998. However, there can be
no assurance that the Company will be able to successfully obtain financing or
that such financing will be available on terms the Company deems acceptable. The
Company's long-term success is dependent upon its ability to obtain necessary
financing, the successful execution of management's strategic plan and the
achievement of sustained profitable operations.

                                       14



SEASONALITY, QUARTERLY INFORMATION AND INFLATION

        The Company's business is subject to seasonal influences. The POS
dealers and system integrators which the Company has acquired to date have
typically had lower net revenues in the quarters ending March 31 and December 31
primarily due to the lower level of new store openings by customers caused by
inclement weather, budgetary concerns and/or holidays. The Company believes that
this pattern of seasonality will continue in the foreseeable future.

        Quarterly results in the future may be materially affected by the timing
and magnitude of acquisitions and costs related to such acquisitions, the timing
and extent of staffing additions at corporate headquarters necessary to
integrate acquired companies and support future growth and general economic
conditions. Therefore, results for any quarter are not necessarily indicative of
the results that the Company may achieve for any subsequent quarter or for a
full year.

        The effect of inflation on the Company's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on the Company's future
operating results.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

        This Annual Report on Form 10-KSB/A contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are based
on current expectations and involve a number of risks and uncertainties. In
addition, the Company may from time to time make oral forward-looking
statements. Factors that may materially affect revenues, expenses and operating
results include, without limitation, the success of the Company's operating
subsidiaries; the impact of the Company's acquisition strategy and the Company's
ability to successfully integrate and manage the acquired subsidiaries; the
ability of the Company to obtain future financing on acceptable terms; and
subsequent changes in business strategy or plan.

        The forward-looking statements included herein are based on current
assumptions that the Company will continue to sell and install products on a
timely basis; that the Company will continue to sell maintenance contracts to
service its installed base; that the Company will successfully implement its
acquisition strategy; that competitive conditions within the Company's market
will not change materially or adversely; that demand for the Company's products
and services will remain strong; that the Company will retain existing key
management personnel; that inventory risks due to shifts in market demand will
be minimized; that the Company's forecasts will accurately anticipate market
demand; that the Company will be able to obtain future financing on acceptable
terms when needed; that the Company will be able to maintain key vendor
relationships; and that there will be no material adverse change in the
Company's operations or business. Assumptions relating to the foregoing involve
judgments that are difficult to predict accurately and are subject to many
factors that can materially affect the Company's business, financial condition,
results of operations and cash flows. Budgeting and other management decisions
are subjective in many respects and are, thus, susceptible to interpretations
and periodic revisions based on actual experience and business developments, the
impact of which may cause the Company to alter its acquisition strategy,
marketing, capital expenditure, or other budgets, which may in turn affect the
Company's business, results of operations, financial condition and cash flows.
In light of the factors that can materially affect the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.

        Because of these and other factors affecting the Company's operating
results, past financial performance should not be considered an indicator of
future performance, and investors should not use historical trends to anticipate
results or trends in future periods. In addition to the factors discussed above
in this section, as well as those discussed under the heading "Seasonality,
Quarterly Information and Inflation," the following factors also may materially
affect the Company's business, results of operations, financial condition and
cash flows and therefore should be considered.

                                       15



        LIMITED OPERATING HISTORY. The Company was founded in April 1996 and,
prior to the acquisition of CRI in June 1996, the Company had no operations upon
which an evaluation of the Company and its prospects could be based. There can
be no assurance that the Company will be able to implement successfully its
strategic plan, to generate sufficient revenue to meet its expenses or to
achieve or sustain profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

        RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company's
strategy is to increase its revenue and the markets it serves through the
acquisition of additional POS dealers and value added resellers serving retail
end users. From its inception through March 31, 1998, the Company has completed
six acquisitions. There can be no assurance that the Company will be able to
identify, acquire or profitably manage additional companies or successfully
integrate the operations of additional companies into those of the Company
without encountering substantial costs, delays or other problems. In addition,
there can be no assurance that companies acquired in the future will achieve
sales and profitability that justify the Company's investment in them or that
acquired companies will not have unknown liabilities that could materially
adversely affect the Company's results of operations or financial condition. The
Company may compete for acquisition and expansion opportunities with companies
that have greater resources than the Company. There can be no assurance that
suitable acquisition candidates will continue to be available, that financing
for acquisitions will be obtainable on terms acceptable to the Company, that
acquisitions can be consummated or that acquired businesses can be integrated
successfully and profitably into the Company's operations. Further, the
Company's results of operations in quarters immediately following a material
acquisition may be materially adversely effected while the Company integrates
the acquired business into its existing operations. The Company may acquire
certain businesses that have either been unprofitable or that have had
inconsistent profitability prior to their acquisition. An inability of the
Company to improve the profitability of these acquired businesses could have a
material adverse effect on the Company. Finally, the Company's acquisition
strategy places significant demands on the Company's resources and there can be
no assurance that the Company's management and operational systems and structure
can be expanded to effectively support the Company's continued acquisition
strategy. If the Company is unable to implement successfully its acquisition
strategy, this inability may have a material adverse effect on the Company's
business, results of operations, financial condition and cash flows.

         In connection with six of its acquisitions, the Company entered into
employment agreements with certain individuals. Under the terms of such
agreements, if certain performance standards of the acquired companies are met,
the Company is obligated to pay a bonus to these individuals. The performance
standards are based upon among other things, the acquired companies' pre-tax
profits. As of this date, none of the acquired companies have met the
performance standards, and accordingly, the Company has not made any bonus
payments under any of such employment agreements.

         The employment agreements also allow the Company to take certain
remedial action in the event the acquired companies do not meet their respective
performance standards. With respect to five of the acquisitions, the Company has
taken remedial action against certain employees who did not meet (or whose
company did not meet) the performance standards set out in their respective
employment agreements. Such remedial action includes the georgraphic transfer of
one employee, the placement of other employees on probation, and the restructing
of two of the acquisitions.

        NEED FOR ADDITIONAL FINANCING TO IMPLEMENT ACQUISITION STRATEGY. The
Company currently intends to effect future acquisitions with cash generated from
operations and future issuances of debt or equity securities. There can be no
assurance that the Company will be able to obtain financing if and when it is
needed on terms the Company deems acceptable. The inability of the Company to
obtain financing would have a material adverse effect on the Company's ability
to implement its acquisition strategy, and as a result, could require the
Company to diminish or suspend its acquisition strategy.

        CONSIDERATION FOR ACQUIRED COMPANIES EXCEEDS ASSET VALUE. Valuations of
the companies acquired by the Company have not been undertaken based on
independent appraisals, but have been determined through arm's-length
negotiations between the Company and representatives of such companies. The
consideration for each such company has been based primarily on the judgment of
management as to the value of such company as a going concern and not on the
book value of the acquired assets. Valuations of these companies determined
solely by appraisals of the acquired assets may have been less than the
consideration paid for the companies. No assurance can be given that the future
performance of such companies will be commensurate with the consideration paid.
Specifically, during the fourth quarter fo 1997, the Company recorded a goodwill
write-down for approximately $1,871,000. See "Goodwill Write-down in Management
Discussion and Analysis of Financial Condition and Results of Opertations." No
assurance can be given that the facts and circumstances surrounding the
write-down will not occur in the future. Moreover, the Company has incurred and
expects to incur significant amortization charges resulting from consideration
paid in excess of the book value of the assets of the companies acquired and
companies which may be acquired in the future.

                                       16


        SUBSTANTIAL COMPETITION. The POS industry is highly fragmented and
competitive. Competitive factors within the industry include product prices,
quality of products, service levels, and reputation and geographical location of
dealers. The Company primarily competes with independent POS dealers and some of
these dealers may have greater financial resources available to them than does
the Company. In addition, there are original equipment manufacturers of POS
equipment that compete in certain product areas. The Company's ability to make
acquisitions will also be subject to competition. The Company believes that,
during the next few years, POS dealers may seek growth through consolidation
with entities other than the Company. In addition, no assurance can be given
that the major manufacturers will not choose to effect or expand the
distribution of their products through their own wholesale organizations or
effect distribution directly to many of the retail accounts of the Company in
the markets served by the Company. Any of these developments could have a
material adverse effect on the Company's business, results of operations,
financial condition and cash flows.

        SUBSTANTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS. The Company may
experience substantial fluctuations in its annual and quarterly operating
results in future periods. The Company's operating results are affected by a
number of factors, many of which are beyond the Company's control. A substantial
portion of the Company's backlog is typically scheduled for delivery within 90
days. Delivery dates for products sold by the Company are subject to change due
to customers changing the required installation date of an automation retail
solution system. The changing of such delivery dates is beyond the Company's
control. Quarterly sales and operating results therefore depend in large part on
customer-driven delivery dates, which are subject to change. In addition, a
significant portion of the Company's operating expenses are relatively fixed in
nature and planned expenditures are based in part on anticipated orders. Any
inability to adjust spending quickly enough to compensate for any revenue
shortfall may magnify the adverse impact of such revenue shortfall on the
Company's results of operations.

        DEPENDENCE ON MANUFACTURERS. A substantial portion of the Company's
total revenue is and will be derived from the sale of POS systems, ECRs and
related equipment, none of which are manufactured by the Company. The Company's
business is dependent upon close relationships with manufacturers of POS
equipment and the Company's ability to purchase equipment in the quantities
necessary and upon competitive terms so that it will be able to meet the needs
of its end user customers. For the year ended December 31, 1997, the Company
purchased its hardware principally from three main vendors, Panasonic, ERC, a
distributor of Panasonic products, and NCR. Sales of Panasonic, ERC and NCR
products accounted for approximately 32% of net revenue for the year ended
December 31, 1997. There can be no assurance that the relationships with these
manufacturers will continue or that the Company's supply requirements can be met
in the future. The Company's inability to obtain equipment, parts or supplies on
competitive terms from its major manufacturers could have a material adverse
effect on the Company's business, results of operations, financial condition and
cash flows.

        FIXED FEE CONTRACTS. Many of the Company's service contracts are fixed
fee contracts pursuant to which the customer pays a specified fee for the
Company's performance of all necessary maintenance and remedial services during
the contract's term. Under these agreements, the Company is responsible for all
costs incurred in maintaining and repairing the equipment, including the cost of
replacement parts, regardless of actual costs incurred. Accordingly, the Company
can incur losses from fixed fee contracts if the actual cost of maintaining or
repairing the equipment exceeds the costs estimated by the Company.

        POTENTIAL INABILITY TO MARKET NEWLY DEVELOPED PRODUCTS. The technology
of POS systems, ECRs, VARs and related equipment is changing rapidly. There can
be no assurance that the Company's existing manufacturers will be able to supply
competitive new products or achieve technological advances necessary to remain
competitive in the industry. Further, there can be no assurance that the Company
will be able to obtain the necessary authorizations from manufacturers to market
any newly developed equipment. The Company's Smyth subsidiary operates in the
VAR solutions segment, wherein it develops customized turnkey retail automation
solutions, consisting of both hardware and software. There can be no assurance
that Smyth will be able to develop commercially viable and technologically
competitive VAR solutions at competitive prices.

                                       17


        RELIANCE ON KEY PERSONNEL. Implementation of the Company's acquisition
strategy is largely dependent on the efforts of a few senior officers. In
particular, the Company's operations are dependent to a great degree on the
continued efforts of Chief Executive Officer Richard H. Walker. Furthermore, the
Company will in most probability continue to be dependent on the senior
management of companies that are acquired. Competition for highly qualified
personnel is intense, and the loss of any executive officer or other key
employee, or the failure to attract and retain other skilled employees, could
have a material adverse effect upon the Company's business, results of
operations or financial condition. The Company is a party to employment
agreements with Mr. Walker, as well as with Executive Vice President Paul
Spindler. The agreements with Messrs. Walker and Spindler terminate in the years
2004 and 2001, respectively, unless terminated earlier pursuant to the
agreements, and each contains confidentiality provisions and covenants not to
compete. State laws, however, may limit the enforceability of the
confidentiality and/or non-competition provisions therein. The Company is
currently the beneficiary of a key man life insurance policy in the amount of
$1,000,000 on the life of Mr. Walker for a term of three years. There can be no
assurance that the Company will maintain the policy in effect or that the
coverage will be sufficient to compensate the Company for the loss of the
services of Mr. Walker.

        ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS. Certain
provisions of the Company's Certificate of Incorporation and Bylaws may have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
These provisions make it more difficult for stockholders to take certain
corporate actions and could have the effect of delaying or preventing a change
in control of the Company. For example, the Company has not elected to be
excluded from the provisions of Section 203 of the Delaware General Corporation
Law, which impose certain limitations on business combinations with interested
stockholders upon acquiring 15% or more of the common stock. This statute may
have the effect of inhibiting a non-negotiated merger or other business
combination involving the Company, even if such event would be beneficial to the
then-existing stockholders. In addition, the Company's Certificate of
Incorporation authorizes the issuance of up to 4,000,000 shares of preferred
stock with such rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors may, without
stockholder approval, issue preferred stock with dividends, liquidation,
conversion, and voting or other rights, which could adversely affect the voting
power or other rights of the holders of the Company's common stock. The issuance
of preferred stock could have the effect of entrenching the Company's Board of
Directors and making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company.

        As of March 31, 1998, the Company had issued 10,000 shares of Series A
Convertible Preferred Stock, at an issue price of $100 per share. Each share of
Series A Preferred Stock is convertible at the option of the holder thereof at
any time into a number of shares of common stock determined by dividing the
issue price by the conversion price, which is defined to be 78% of the lowest
non-consecutive five-day average closing bid price for the common stock for the
25-day period prior to conversion. Each holder of shares of the Series A
Preferred Stock is entitled to the number of votes equal to the number of shares
of common stock into which it could be converted. The Company cannot, without
the vote or written consent of at least 66-2/3% of the then outstanding shares
of Series A Preferred Stock, (i) redeem, purchase or otherwise acquire for value
any share of the Series A Preferred Stock; (ii) redeem, purchase or otherwise
acquire any of the Company's common stock; (iii) authorize or issue any other
equity security senior to or on parity with the Series A Preferred Stock as to
voting rights, dividend rights, conversion rights, redemption rights or
liquidation preferences; (iv) declare or pay any dividend or make any
distribution with regard to any share of common stock; (v) sell, convey, lease
or otherwise dispose of all or substantially all of its property or business;
liquidate, dissolve or wind up the Company's business; or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary);
(vi) effect any transaction or series of transactions in which more than 50% of
the voting power of the Company is disposed of, unless the Company's
stockholders of record as constituted immediately prior to such transaction
will, immediately thereafter, hold at least a majority of the voting power of
the surviving or acquiring entity; (vii) permit any subsidiary to issue or sell
any of its capital stock (except to the Company); (viii) increase or decrease
(other than by redemption or conversion) the total number of authorized shares
of Series A Preferred Stock; or (ix) alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock so as to adversely affect
the shares.

        VOLATILITY OF STOCK PRICE. The stock market from time to time
experiences significant price and volume fluctuations that are unrelated to the
operating performance of the particular companies. These broad market
fluctuations may materially adversely affect the market price of the Company's
common stock. In addition, the market price of the Company's common stock has
been and may continue to be highly volatile. Factors such as possible
fluctuations in the Company's business, results of operations or financial
condition, failure of the Company to meet expectations of security analysts and
investors, announcements of new acquisitions, the timing and size of
acquisitions, the loss of suppliers or customers, the announcement of new or
terminated supply agreements by the Company or its competitors, changes in
regulations governing the Company's operations or its suppliers, the loss of the
services of a member of senior management, litigation and changes in general
market conditions all could have a material adverse affect on the market price
of the Company's common stock.

        MAINTENANCE CRITERIA FOR NASDAQ; RISKS OF LOW-PRICED SECURITIES. The
Company's common stock is presently traded on the Nasdaq SmallCap Market. To
maintain inclusion on the Nasdaq SmallCap Market, the Company's common stock
must continue to be registered under Section 12(g) of the Exchange Act, and the
Company must continue to have at least $2,000,000 in net tangible assets or
$500,000 in income in two of the last three years, a public float of at least
500,000 shares, $1,000,000 in market value of public float, a minimum bid price
of $1.00 per share, at least two market makers and at least 300 stockholders.
While the Company currently meets the maintenance standards, there is no
assurance that the Company will be able to maintain the standards for Nasdaq
SmallCap Market inclusion with respect to its securities. At December 31, 1997,
the Company had $2,032,000 in net tangible assets. If the Company fails to
maintain Nasdaq SmallCap Market listing, the market value of the Company's
common stock likely would decline and stockholders would find it more difficult
to dispose of or to obtain accurate quotations as to the market value of the
common stock.

        INDEMNIFICATION AND LIMITATION OF LIABILITY. The Company's Certificate
of Incorporation (the "Certificate') and Bylaws include provisions that
eliminate the directors' personal liability for monetary damages to the fullest
extent possible under Delaware Law or other applicable law (the "Director
Liability Provision"). The Director Liability Provision eliminates the liability
of directors to the Company and its stockholders for monetary damages arising
out of any violation by a director of his fiduciary duty of due care. Under
Delaware Law, however, the Director Liability Provision does not eliminate the
personal liability of a director for (i) breach of the director's duty of
loyalty, (ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law, (iii) payment of dividends or
repurchases or redemptions of stock other than from lawfully available funds, or
(iv) any transaction from which the director derived an improper benefit. The
Director Liability Provision also does not affect a director's liability under
the federal securities laws or the recovery of damages by third parties.

        ABSENCE OF DIVIDENDS. The Company has not paid dividends on its
preferred stock or common stock to date. The Company is obligated to pay
quarterly, cumulative dividends at a rate of six percent (6%) per annum of the
issue price of the Series A Convertible Preferred Stock, payable, at the

                                       18



holders' option, in cash or in common stock at the conversion price of the
Series A Preferred Stock. So long as any of shares Series A Preferred Stock
remain outstanding, the Company may not, without the vote or written consent of
the holders of at least 66-2/3% of the then outstanding shares of Series A
Preferred Stock, voting together as a single class, declare or pay any dividend
with regard to any share of common stock. (See ADDITIONAL FACTORS THAT MAY
AFFECT FUTURE RESULTS, ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW
PROVISIONS). Additionally, although the current line of credit does not
expressly prohibit the Company from paying stock dividends, the line of credit
does contain certain covenants which restrict the reduction or depletion of the
Company's capital. The Company anticipates that future financing, including any
lines of credit, may further restrict or prohibit the Company's ability to pay
dividends. Under the terms of the underwriting agreement entered into by the
Company in connection with its initial public offering, the Company is
restricted until November 20, 1998, from paying dividends in excess of the
amount of the Company's current or retained earnings derived from November 20,
1996, unless the consent of the underwriters is obtained. The underwriting
agreement has been terminated by the underwriter.

        YEAR 2000 COMPLIANCE. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements. The Company's Smyth
subsidiary is currently upgrading its software for golf course applications to a
version that runs on the latest operating systems. The Company currently
estimates it will expend approximately $150,000 to $200,000 in 1998 to make such
software, Year 2000 compliant. Although the Company believes that such software
will be Year 2000 compliant, there can be no assurances that compliance will be
achieved. In the event such compliance is not achieved, it may have a material
adverse effect on the Company's business, financial condition, results of
operations and cash flows. In addition, the Company believes that the purchasing
patterns of customers and potential customers may be affected by Year 2000
issues as companies expend significant resources to correct their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase software products such as those offered by
the Company. The Company is making inquiries of its vendors of POS systems and
cash registers regarding whether the systems upon which they rely are Year 2000
compliant and whether they anticipate any impairment of their ability to deliver
product and services as a result of Year 2000 issues. If the Company determines
a particular vendor will be impacted by this problem, the Company may attempt to
identify additional or replacement vendors, which could delay accessibility of
the products and/or services provided by such vendors. Such a delay or failure
to identify an additional or replacement vendor could have a material adverse
effect on the Company's business, financial condition, results of operations and
cash flows.

        RESTRICTIONS ON COMPANY'S ABILITY TO ENTER INTO CERTAIN TRANSACTIONS. On
December 17, 1997, the Company obtained a new line of credit. Pursuant to the
terms of the line of credit, the Company is prohibited from engaging in certain
transactions without first obtaining the written consent of the lender. Such
transactions include, but are not limited to, (i) the sale or acquisition of
assets with a value exceeding $50,000; (ii) the sale of transfer of any
collateral under the line of credit, except for the sale of items in the
Company's finished inventory in the ordinary course of business; (iii) the sale
of inventory on a sale-or-return, guaranteed sale, consignment or other
contingent basis; and (iv) any other transaction outside the ordinary course of
business. No assurance can be given that these restrictions will not impact the
Company's ability to conduct business in the future, even though the line of
credit does not prohibit or restrict the Company from acquiring other companies
(including acquisitions for amounts greater than $50,000) pursuant to its
acquisition strategy.

ITEM 7.  FINANCIAL STATEMENTS.

        The financial statements required to be filed hereunder are included
under Item 13(a)(1) of this report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

        On September 30, 1997, the Board of Directors of the Company approved
the dismissal of its former principal accountants, Ernst & Young LLP, and
appointed the accounting firm of Deloitte & Touche LLP as its new independent
auditors.

        During the period from inception (April 3, 1996) to December 31, 1996,
and each subsequent interim period preceding September 30, 1997, there were no
disagreements with Ernst & Young LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Ernst & Young LLP, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report.

        The Ernst & Young LLP report on the financial statements of the Company
for the period from inception (April 3, 1996) to December 31, 1996, contained no
adverse opinion or disclaimer of opinion, nor was either qualified or modified
as to uncertainty, audit scope, or accounting principles.

                                       19



                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT.

        The information set forth in the 1998 Proxy Statement under the captions
"Election of Directors" and "Other Executive Officers" respectively, is
incorporated herein by reference.

ITEM 10.  EXECUTIVE COMPENSATION.

        To the extent required, the information in the 1998 Proxy Statement
under the captions "Compensation of Directors" and "Executive Compensation" and
"Employment Contracts and Termination of Employment, and Change-in-Control
Arrangements" is incorporated herein by reference. Herewith, "Employment
Contracts and Termination of Employment, Change-in-Control Arrangements" has
been amended to reflect additional disclosure and is incorporated with the
amended 10 KSB/A.

   EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, CHANGE-IN-CONTROL
   ARRANGEMENTS

        The Company has entered into employment agreements with its Chief
Executive Officer, Richard H. Walker, and its Executive Vice President, Paul
Spindler. Mr. Walker's employment agreement provides for a salary of $225,000
per year. Mr. Spindler's employment agreement provides for a salary of $150,000
per year. Both employment agreements are subject to upward adjustments during
the terms of the agreements. On April 3, 1997, the salaries of Mr. Walker and
Mr. Spindler increased to $247,500 and $165,000 per year, respectively. Mr.
Walker and Mr. Spindler, according to their contract, are entitled to an annual,
salary increase of not less than ten percent every April 3rd with the Board of
Directors' approval. As of this amended filing, no such increase had been
approved. Mr. Spindler's employment agreement terminates on December 31, 2001.
On February 28, 1998, the Company's Board of Directors approved a resolution to
extend the term of Mr. Walker's employment agreement for an additional three
year period until December 31, 2004, unless terminated earlier in accordance
with the agreement. Each employment agreement contains confidentiality
provisions and covenants not to compete. In addition, each employment agreement
has clauses providing for payment of the amount of unpaid salary that would have
been due through the expiration of the term of the agreement in the event that
the agreement is terminated due to death or disability. In the event of
termination of either agreement for reasons other than death and disability,
salary shall be paid through the date of termination.  The other reasons include
voluntary resignation or termination for cause.  There is no severance or
change-in-control provisions in the agreements.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The information set forth in the 1998 Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        The information set forth in the 1998 Proxy Statement under the caption
"Certain Relationships and Related Transactions" is incorporated herein by
reference.

                                       20



ITEM 13.  EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.

(a) Financial Statements

        The financial statements listed on the index to financial statements on
   page 25 are filed as part of this Form 10-KSB/A.

(b) Exhibits

        Exhibits marked with an asterisk (*) are filed herewith. The remainder
   of the exhibits have heretofore been filed with the Commission and are
   incorporated herein by reference. Each management contract or compensation
   plan or arrangement filed as an exhibit hereto is identified by a (+).

            EXHIBIT
            NUMBER                        DESCRIPTION
            -------                       -----------

              2.1           Agreement and Plan of Merger by and among the
                            Company, Bristol Merger Corporation, Automated
                            Register Systems, Inc. and the Shareholders thereof
                            (Incorporated by reference to Exhibit 2.1 of the
                            Company's Form 8-K dated December 31, 1996, filed on
                            January 15, 1997, File No. 000-21633).

              2.2           Agreement and Plan of Reorganization by and among
                            the Company, Smyth Systems Inc., the Managing
                            Stockholders of Smyth Systems, Inc. and Smyth Merger
                            Corp. (Incorporated by reference to Exhibit 10.29 of
                            the Company's Form 8-K dated May 29, 1997 filed on
                            June 12, 1997, File No. 0-21633).

              2.3           Second Amendment to Agreement and Plan of
                            Reorganization by and among the Company, Smyth
                            Systems Inc., the Managing Stockholders of Smyth
                            Systems, Inc. and Smyth Merger Corp. (Incorporated
                            by reference to Exhibit 10.30 of the Company's Form
                            8-K dated May 29,1997, filed on June 12, 1997, No.
                            0-21633).

              2.4           Agreement and Plan of Merger, as amended, by and
                            among the Company, Cash Register, Inc., Floyd
                            Shirrell and Electronic Business Machines, Inc.
                            (Incorporated by reference to Exhibit 10.35 of the
                            Company's Form 8-K dated June 6, 1997, filed on June
                            20, 1997, File No. 0-21633).

              2.5           Agreement and Plan of Merger by and among Bristol
                            Retail Solutions, Inc., Pacific Merger Corp.,
                            Pacific Cash Register and Company, Inc., Robert
                            Freaney and Abbass Barzgar dated June 27, 1997,
                            (Incorporated by reference to Exhibit 10.41 of the
                            Company's Form 10-Q dated June 30, 1997, filed on
                            August 13, 1997, File No. 0-21633).

              2.6           Closing Agreement by and among the Company, Pacific
                            Merger Corp., Pacific Cash Register and Company,
                            Inc., Robert Freaney and Abbass Barzgar dated August
                            4, 1997, (Incorporated by reference to Exhibit 10.43
                            of the Company's Form 10-Q dated June 30, 1997,
                            filed on August 13, 1997, File No. 0-21633).

              2.7           Rescission Agreement by and among the Company,
                            International Systems & Electronics Corporation and
                            Pedro Penton dated July 23, 1997, (Incorporated by
                            reference to Exhibit 10.42 of the Company's Form
                            10-Q dated June 30, 1997, filed on August 13, 1997,
                            File No. 0-21633).

              3.1           Certificate of Incorporation, as amended, of the
                            Company (Incorporated by reference to Exhibit 3.1 of
                            Amendment No. 1 to the Company's Registration
                            Statement on Form SB-2, File No. 333-5570-LA).

              3.2           Bylaws of the Company (Incorporated by reference to
                            Exhibit 3.2 of Amendment No. 1 to the Company's
                            Registration Statement on Form SB-2, File No.
                            333-5570-LA).

                                       21



            EXHIBIT
            NUMBER                        DESCRIPTION
            -------                       -----------

              4.1           Form of Common Stock Certificate (Incorporated by
                            reference to Exhibit 4.1 of Amendment No. 1 to the
                            Company's Registration Statement on Form SB-2, File
                            No. 333-5570-LA).

              4.2           Form of Class A Redeemable Common Stock Purchase
                            Warrants (Incorporated by reference to Exhibit 4.3
                            of Amendment No. 1 to the Company's Registration
                            Statement on Form SB-2, File No. 333-5570-LA).

              4.3           Form of Registration Rights Agreement by and among
                            the Company and Investors listed on Schedule 1
                            thereto (Incorporated by reference to Exhibit 4.4 of
                            the Company's Registration Statement on Form SB-2,
                            File No. 333-5570-LA).

              4.4           Form of Underwriter's Warrant Agreement for Shares
                            entered into between the Company and First Cambridge
                            Securities Corporation (Incorporated by reference to
                            Exhibit 4.5 of Amendment No. 1 of the Company's
                            Registration Statement on Form SB-2, File No.
                            333-5570-LA).

              4.5           Form of Underwriter's Warrant Agreement for Warrants
                            entered into between the Company and First Cambridge
                            Securities Corporation (Incorporated by reference to
                            Exhibit 4.6 of Amendment No. 1 of the Company's
                            Registration Statement on Form SB-2, File No.
                            333-5570-LA).

              4.6           Form of Warrant Agreement entered into between the
                            Company and American Stock Transfer and Trust
                            Company (Incorporated by reference to Exhibit 4.7 of
                            Amendment No. 1 to the Company's Registration
                            Statement on Form SB-2, File No. 333-5570-LA).

              10.1          Form of the 1996 Equity Participation Plan of the
                            Company, dated July 31, 1996, (Incorporated by
                            reference to Exhibit 10.1 of the Company's
                            Registration Statement on Form SB-2, File No.
                            333-5570-LA).

              10.2          Amendment to the 1996 Equity Participation Plan of
                            the Company (Incorporated by reference to Exhibit A
                            of the Company's Definitive Proxy Statement filed on
                            April 14,1997, File No. 0-21633).

              10.3          1997 Employee Stock Purchase Plan of the Company
                            (Incorporated by reference to Exhibit B of the
                            Company's Definitive Proxy Statement filed on April
                            14, 1997, File No. 0-21633).

              10.4+         Employment Agreement between the Company and Richard
                            H. Walker dated April 3, 1996, (Incorporated by
                            reference to Exhibit 10.5 of the Company's
                            Registration Statement on Form SB-2, File No.
                            333-5570-LA).

              10.5+         Employment Agreement between the Company and Paul
                            Spindler dated April 3, 1996, (Incorporated by
                            reference to Exhibit 10.6 of the Company's
                            Registration Statement on Form SB-2, File No.
                            333-5570-LA).

              10.6+         Employment Agreement between the Company and Maurice
                            R. Johnson dated June 28, 1996, (Incorporated by
                            reference to Exhibit 10.7 of the Company's
                            Registration Statement on Form SB-2, File No.
                            333-5570-LA).

              10.7+         Employment Agreement between Michael Pollastro and
                            Automated Register Systems, Inc., dated January 1,
                            1997, (Incorporated by reference to Exhibit 10.27 of
                            the Company's 8-K/A dated December 31, 1996, filed
                            on March 14, 1997, File No. 0-21633).

                                       22



            EXHIBIT
            NUMBER                        DESCRIPTION
            -------                       -----------

              10.8+         Employment Agreement between Gary Pollastro and
                            Automated Register Systems, Inc., dated January 1,
                            1997, (Incorporated by reference to Exhibit 10.28 of
                            the Company's 8-K/A dated December 31, 1996, filed
                            on March 14, 1997, File No. 0-21633).

              10.9+         Employment Agreement between John Pollastro and
                            Automated Register Systems, Inc., dated January 1,
                            1997, (Incorporated by reference to Exhibit 10.29 of
                            the Company's Form 8-K/A dated December 31, 1996,
                            filed on March 14, 1997, File No. 0-21633).

              10.10+        Employment Agreement by and between Robert T. Smyth
                            and Smyth Systems, Inc., and first Amendment to
                            Employment Agreement dated June 1, 1997,
                            (Incorporated by reference to Exhibit 10.31 of the
                            Company's Form 8-K dated May 29, 1997, filed on June
                            12,1997, File No. 0-21633).

              10.11+        Employment Agreement by and between Larry D. Smyth
                            and Smyth Systems, Inc., and first Amendment to
                            Employment Agreement dated June 1, 1997,
                            (Incorporated by reference to Exhibit 10.32 of the
                            Company's Form 8-K dated May 29, 1997, filed on June
                            12,1997, File No. 0-21633).

              10.12+        Employment Agreement by and between William A. Smyth
                            and Smyth Systems, Inc., and first Amendment to
                            Employment Agreement dated June 1, 1997,
                            (Incorporated by reference to Exhibit 10.33 of the
                            Company's Form 8-K dated May 29, 1997, filed on June
                            12,1997, File No. 0-21633).

              10.13+        Independent Contractor Agreement by and between the
                            Company, Cash Registers, Inc. and Floyd Shirrell,
                            (Incorporated by reference to Exhibit 10.36 of the
                            Company's 8-K dated June 6, 1997, filed on June 20,
                            1997, File No. 0-21633).

              10.14         Lease Agreement between Paul Thompson, Cash
                            Registers, Incorporated, and Coye D. King dated
                            October 30, 1987, (Incorporated by reference to
                            Exhibit 10.10 of the Company's Registration
                            Statement on Form SB-2, File No. 333-5570-LA).

              10.15         Stock Purchase Agreement by and among the Company,
                            Cash Registers, Inc., and Maurice R. Johnson, Andrew
                            D. King and C. Stephen King, dated as of June 26,
                            1996, (Incorporated by reference to Exhibit 10.14 of
                            the Company's Registration Statement on Form SB-2,
                            File No. 333-5570-LA).

              10.16         Building Lease dated May 29, 1990, by and between
                            Automated Register Systems, Inc., Michael J.
                            Pollastro, Gary T. Pollastro, and John and Carmen
                            Pollastro, as amended by First Amendment to Building
                            Lease dated January 1, 1997, by and between
                            Automated Retail Systems, Inc., Michael Pollastro,
                            Gary T. Pollastro, and John and Carmen Pollastro,
                            (Incorporated by reference to Exhibit 10.25 of the
                            Company's Form 8-K dated December 31, 1996, filed on
                            January 15, 1997, File No. 000-21633).

              10.17         Loan and Security Agreement by and between the
                            Company, Cash Registers, Inc., Smyth Systems, Inc.,
                            Automated Retail Systems, Inc., and Coast Business
                            Credit dated December 11, 1997. (Incorporated by
                            reference to Exhibit 10.17 of the Company's Form
                            10-KSB dated December 31, 1997, filed on April 15,
                            1998, File No. 000-21633).

              10.18         First Amendment to the Loan and Security Agreement
                            by and between the Company, Cash Registers, Inc.,
                            Smyth Systems, Inc., Automated Retail Systems, Inc.,
                            and Coast Business Credit dated January 6, 1998.
                            (Incorporated by reference to Exhibit 10.18 of the
                            Company's Form 10-KSB dated December 31, 1997, filed
                            on April 15, 1998, File No. 000-21633).

              10.19         Second Amendment to the Loan and Security Agreement
                            by and between the Company, Cash Registers, Inc.,
                            Smyth Systems, Inc., Automated Retail Systems, Inc.,
                            and Coast Business Credit dated February 2, 1998.
                            (Incorporated by reference to Exhibit 10.19 of the
                            Company's Form 10-KSB dated December 31, 1997, filed
                            on April 15, 1998, File No. 000-21633).

                                       23



            EXHIBIT
            NUMBER                        DESCRIPTION
            -------                       -----------

              11*           Statement of Computation of Per Share Earnings.

              21*           List of Subsidiaries of the Company.

              23.1*         Consent of Ernst & Young LLP.

              23.2*         Consent of Deloitte & Touche LLP.

              23.3*         Consent of Deloitte & Touch LLP.

              27*           Financial Data Schedule.

(c) Reports on Form 8-K

    During the last quarter of the year covered by this report, the Company
    filed the following Current Reports on Form 8-K:

    i. On October 6, 1997, the Company filed a report on Form 8-K reporting,
    under Item 4 thereof, that it had changed its principal accountants from
    Ernst & Young LLP to Deloitte & Touche LLP. The change was effective
    September 30, 1997.

                                       24



                                   SIGNATURES

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

                                     Bristol Retail Solutions, Inc. (Registrant)

                                     By /S/ Richard H. Walker
                                        --------------------------------------
                                            Richard H. Walker
                                            President, Chief Executive
                                            Officer and Director

                                     Date: August 13, 1998

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



                 SIGNATURE                                   TITLE                      DATE
                 ---------                                   -----                      ----

                                                                               
/S/ Richard H. Walker                       Chief Executive Officer, President and   August 13, 1998
- ------------------------------------------  Director
Richard H. Walker                           (Principal Executive Officer)

/S/ Paul Spindler                           Executive Vice President, Chairman of    August 13, 1998
- ------------------------------------------  the Board and Director
Paul Spindler

/S/ Michael S. Shimada                      Chief Financial Officer                  August 13, 1998
- ------------------------------------------  (Principal Accounting and Financial
Michael S. Shimada                          Officer)

/S/ Lawrence Cohen                          Director                                 August 13, 1998
- ------------------------------------------
Lawrence Cohen

/S/ Dr. Jack Borsting                       Director                                 August 13, 1998
- ------------------------------------------
Dr. Jack Borsting

/S/ Peter Stranger                          Director                                 August 13, 1998
- ------------------------------------------
Peter Stranger



                                       25



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                         BRISTOL RETAIL SOLUTIONS, INC.

                                                                            PAGE
                                                                            ----
Report of Independent Auditors - Ernst & Young LLP..........................  27

Independent Auditors' Report - Deloitte & Touche LLP........................  28

Consolidated Balance Sheets
    as of December 31, 1997 and December 31, 1996...........................  29

Consolidated Statements of Operations
    for the year ended December 31, 1997 and for
    the period from inception (April 3, 1996) to December 31, 1996..........  30

Consolidated Statements of Stockholders' Equity
    for the year ended December 31, 1997
    and for the period from inception (April 3, 1996) to December 31, 1996 .  31

Consolidated Statements of Cash Flows
    for the year ended December 31, 1997 and
    for the period from inception (April 3, 1996) to December 31, 1996......  32

Notes to Consolidated Financial Statements..................................  34

                                       26



                         REPORT OF INDEPENDENT AUDITORS

Board of Directors
Bristol Retail Solutions, Inc.

We have audited the accompanying consolidated balance sheet of Bristol Retail
Solutions, Inc. (the Company) as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from inception (April 3, 1996) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bristol Retail
Solutions, Inc. at December 31, 1996 and the consolidated results of its
operations and its cash flows for the period from inception (April 3, 1996) to
December 31, 1996 in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Orange County, California
March 27, 1997

                                       27



                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of
Bristol Retail Solutions, Inc.

We have audited the accompanying consolidated balance sheet of Bristol Retail
Solutions, Inc. and subsidiaries (the Company) as of December 31, 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Bristol Retail Solutions, Inc. and
subsidiaries at December 31, 1997 and the results of their operations and cash
flows for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.

DELOITTE & TOUCHE LLP

Costa Mesa, California
March 27, 1998

                                       28




                         BRISTOL RETAIL SOLUTIONS, INC.

                           CONSOLIDATED BALANCE SHEETS


                                                                                  DECEMBER 31,  DECEMBER 31,
                                                                                      1997          1996
                                                                                  ------------  ------------

                                     ASSETS
                                                                                          
Current assets:
    Cash and cash equivalents                                                     $   715,929   $ 5,475,674
    Accounts receivable, net of allowance for doubtful accounts of $382,990
       and $39,090 at December 31, 1997 and 1996                                    3,202,787     1,296,956
    Inventories                                                                     3,314,029     2,169,531
    Prepaid expenses and other current assets                                         422,860        88,628
    Current portion of note receivable                                                144,380            --
    Amounts due from related parties                                                       --        67,028
                                                                                  ------------  ------------
    Total current assets                                                            7,799,985     9,097,817

Property and equipment, net                                                           759,725       250,826
Intangible assets, net of accumulated amortization of $265,801
      and $18,589 at December 31, 1997 and 1996                                     4,160,964     1,693,400
Note receivable - noncurrent portion                                                  293,839            --
Other assets                                                                          797,117       127,656
                                                                                  ------------  ------------
    Total assets                                                                  $13,811,630   $11,169,699
                                                                                  ============  ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Short-term borrowings                                                         $ 2,060,141   $   438,441
    Accounts payable                                                                1,893,589       964,625
    Accounts payable to related party                                                 133,701            --
    Accrued salaries, wages and related benefits                                      775,628       210,567
    Accrued expenses                                                                  540,703       230,889
    Deferred revenue                                                                1,596,296       427,059
    Customer advances                                                                 399,758       425,717
    Income taxes payable                                                               63,229       179,000
    Note payable to related party                                                          --        40,000
    Current portion of long-term debt                                                  54,110            --
    Current portion of capital lease obligations                                       19,264        17,029
                                                                                  ------------  ------------
    Total current liabilities                                                       7,536,419     2,933,327

Capital lease obligation - noncurrent portion                                          14,827        36,879

Other long-term liabilities                                                            66,998        24,500

Commitments and contingencies (note 8)

Stockholders' equity:
    Preferred stock, $.001 par value:
       4,000,000 shares authorized and no shares issued or outstanding                     --            --
    Common stock, $.001 par value:
       20,000,000  shares  authorized;  5,548,510 and 5,543,510 shares issued and
       outstanding at December 31, 1997; 4,745,654 shares issued and outstanding at     5,548         4,746
       December 31, 1996
    Additional paid-in-capital                                                     11,287,695     8,276,872
    Accumulated deficit                                                            (5,075,232)     (106,625)
                                                                                  ------------  ------------
                                                                                    6,218,011     8,174,993
Less 5,000 shares of treasury stock, at cost                                          (24,625)           --
                                                                                  ------------  ------------
    Total stockholders' equity                                                      6,193,386     8,174,993
                                                                                  ------------  ------------
    Total liabilities and stockholders' equity                                    $13,811,630   $11,169,699
                                                                                  ============  ============



See accompanying notes to consolidated financial statements.

                                       29





                         BRISTOL RETAIL SOLUTIONS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                                         Inception
                                                                    Year Ended       (April 3, 1996) to
                                                                 December 31, 1997   December 31, 1996
                                                                ------------------   ------------------

                                                                                   
Revenue:
      System sales and installation                                 $  13,501,805        $   3,120,350
      Service and supplies sales                                        7,586,682            1,075,880
                                                                    --------------       --------------
Net revenue                                                            21,088,487            4,196,230
Cost of revenue:
      Cost of system sales and installation                             8,862,489            2,161,340
      Cost of service and supplies sales                                5,830,955              684,655
                                                                    --------------       --------------
Total cost of revenue                                                  14,693,444            2,845,995
                                                                    --------------       --------------
Gross margin                                                            6,395,043            1,350,235

Operating expenses:
           Selling, general and administrative expenses                 8,955,793            1,452,215
           Goodwill writedown                                           1,871,471                   --
           Research and development costs                                 554,076                   --
                                                                    --------------       --------------
Total operating expenses                                               11,381,340            1,452,215
                                                                    --------------       --------------
Operating loss                                                         (4,986,297)            (101,980)

Other (income) expense                                                    (20,190)               2,845
                                                                    --------------       --------------
Loss before income taxes                                               (4,966,107)            (104,825)
Provision for income tax                                                    2,500                1,800
                                                                    --------------       --------------
Net loss                                                            $  (4,968,607)       $    (106,625)
                                                                    ==============       ==============
Basic and diluted net loss per share                                $       (0.96)       $       (0.03)
                                                                    ==============       ==============
Basic and diluted weighted average common shares outstanding            5,198,156            3,319,738
                                                                    ==============       ==============


See accompanying notes to consolidated financial statements.

                                       30




                                                                           BRISTOL RETAIL SOLUTIONS, INC.

                                                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                            COMMON STOCK          ADDITIONAL    ACCUMULATED      TREASURY STOCK
                                         SHARES      AMOUNTS   PAID-IN-CAPITAL    DEFICIT      SHARES      AMOUNTS      TOTAL
                                       ----------  ----------  ---------------  -----------  ----------  ----------  ------------
                                                                                                
Balance at April 3, 1996                      --   $      --   $           --  $        --          --   $      --   $        --
Issuance of shares to founders         2,648,745       2,649           17,351           --          --          --        20,000
Issuance of shares in
   private placement, net of
   issuance costs of $35,252             577,417         577          509,171           --          --          --       509,748
Issuance of shares to directors           23,838          24           22,476           --          --          --        22,500
Issuance of shares in
   initial public offering,
   net of issuance costs of
   $1,660,026                          1,437,500       1,438        6,963,536           --          --          --     6,964,974
Issuance of warrants in initial
   public offering, net of
   issuance costs of $8,984                   --          --           80,859           --          --          --        80,859
Issuance of warrants to underwriter           --          --              188           --          --          --           188
Issuance of shares in connection
   with acquisition of ARS                58,154          58          683,291           --          --          --       683,349
Net loss                                      --          --               --     (106,625)         --          --      (106,625)
                                       ----------  ----------  ---------------  -----------  ----------  ----------  ------------
Balance at December 31, 1996           4,745,654       4,746        8,276,872     (106,625)         --          --     8,174,993
Compensation expense                          --          --            8,021           --          --          --         8,021
Issuance of shares in connection
   with acquisitions                     802,856         802        3,002,802           --          --          --     3,003,604
Purchase of treasury shares                   --          --               --           --      (5,000)    (24,625)      (24,625)
Net loss                                      --          --               --   (4,968,607)         --          --    (4,968,607)
                                       ----------  ----------  ---------------  -----------  ----------  ----------  ------------
Balance at December 31, 1997           5,548,510   $   5,548   $   11,287,695  $(5,075,232)     (5,000)  $ (24,625)  $ 6,193,386
                                       ==========  ==========  ===============  ===========  ==========  ==========  ============


See accompanying notes to consolidated financial statements.

                                       31




                         BRISTOL RETAIL SOLUTIONS, INC.


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                                     INCEPTION
                                                                                   YEAR ENDED     (APRIL 3, 1996)
                                                                                  DECEMBER 31,    TO DECEMBER 31,
                                                                                     1997              1996
                                                                                --------------    --------------
                                                                                            
Cash flows from operating activities
   Net loss                                                                     $  (4,968,607)    $    (106,625)
Adjustments to reconcile net loss to net cash and cash equivalents
         used in operating activities:
          Depreciation                                                                207,613            29,552
          Amortization                                                                415,854            18,589
          Provision for doubtful accounts                                             231,984            13,000
          Provision for excess and obsolete inventories                               494,863            30,000
          Stock compensation expense                                                    8,021                --
          Goodwill write-down                                                       1,871,471                --
          Changes in operating assets and liabilities, net of effect of
acquisitions:
                Accounts receivable                                                  (289,471)         (111,184)
                Inventories                                                          (240,234)         (413,664)
                Prepaid expenses and other assets                                    (123,099)          (17,641)
                Accounts payable                                                       (9,956)          124,760
                Other accrued expenses                                                313,284           139,337
                Deferred revenue                                                      152,196            37,240
                Customer advances                                                     (38,659)          188,597
                Other long-term liabilities                                            32,969            24,500
                                                                                --------------    --------------

Net cash used in operating activities                                              (1,941,771)          (43,539)

Cash flows from investing activities
         Cash paid for acquisitions, net of cash acquired                          (3,007,701)       (2,035,463)
         Cash paid for rescinded acquisition                                      ( 1,100,000)               --
         Cash received from rescinded acquisition                                     250,000                --
         Purchases of property and equipment                                         (207,606)          (85,646)
                                                                                --------------    --------------

Net cash used in investing activities                                              (4,065,307)       (2,121,109)

Cash flows from financing activities
         Repayment of capital lease obligations                                       (27,817)           (7,540)
         Repayment of note payable to related party                                   (47,922)               --
         Net borrowings on line of credit                                           1,371,700            49,593
         Repayment of long-term debt                                                  (24,003)               --
         Issuance of subordinated notes payable                                            --           817,500
         Repayment of subordinated notes payable                                           --          (817,500)
         Issuance (repurchase) of common stock, net of offering costs                 (24,625)        7,517,222
         Issuance of warrants, net of offering costs                                       --            81,047
                                                                                --------------    --------------

Net cash provided by financing activities                                           1,247,333         7,640,322
                                                                                --------------    --------------

Net increase (decrease) in cash and cash equivalents                               (4,759,745)        5,475,674
Cash and cash equivalents at beginning of period                                    5,475,674                --
                                                                                --------------    --------------
Cash and cash equivalents at end of period                                      $     715,929     $   5,475,674
                                                                                ==============    ==============

Supplemental disclosures of cash flow information:
Cash paid for interest                                                          $     111,082     $      46,125
                                                                                ==============    ==============
Cash paid for income taxes, net                                                 $      40,410     $       4,000
                                                                                ==============    ==============

Supplemental disclosure of noncash transactions
Capital lease obligations                                                       $          --     $      54,884
                                                                                ==============    ==============
Inventory received in payment of rescinded acquisition receivable               $      68,509     $          --
                                                                                ==============    ==============


See accompanying notes to consolidated financial statements.

                                       32



                         BRISTOL RETAIL SOLUTIONS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information (continued):

The Company issued common stock and cash in connection with certain business
combinations completed during the year ended December 31, 1997 and the period
from inception (April 3, 1996) to December 31, 1996. The fair values of the
assets acquired and the liabilities assumed at the dates of the respective
acquisitions are presented as follows:




                                                                                   Inception
                                                          Year Ended          (April 3, 1996) to
                                                       December 31, 1997       December 31, 1996
                                                       ------------------     ------------------

                                                                        
         Current assets, net of cash acquired          $       3,534,044      $       3,133,560
         Property and equipment                                  895,255                139,848
         Long-term assets                                        270,032                116,750
         Intangible assets                                     4,581,016              1,712,379
         Current liabilities                                  (2,888,479)            (2,376,771)
         Long-term debt, net of current portion                 (380,563)                (6,954)
                                                       ==================     ==================
            Net assets acquired                        $       6,011,305      $       2,718,812
                                                       ==================     ==================

The acquisitions were funded as follows:
         Cash                                          $       3,007,701      $       2,035,463
         Common stock                                          3,003,604                683,349
                                                       ==================     ==================
                                                       $       6,011,305      $       2,718,812
                                                       ==================     ==================


Effective June 1, 1997, the Company transferred certain land, buildings and
building improvements acquired as part of the EBM acquisition, with a fair value
of $381,000, and certain loans aggregating $381,000, assumed as part of the EBM
acquisition, to the former owner of EBM.

See accompanying notes to consolidated financial statements.

                                       33



                         BRISTOL RETAIL SOLUTIONS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

        Bristol Retail Solutions, Inc. (the Company, formerly Bristol Technology
Systems, Inc.) was incorporated on April 3, 1996 in the State of Delaware for
the purpose of acquiring and operating a national network of full-service retail
automation solution providers. As of December 31, 1997, the Company has acquired
six subsidiaries. The Company earns revenue from the sale and installation of
point-of-sale (POS) systems and turnkey retail automation (VAR) systems, the
sale of supplies and from service fees charged to customers under service
agreements. Sales and service operations are located in various states
throughout the western and midwestern United States.

BASIS OF PRESENTATION

        The accompanying consolidated December 31, 1997 financial statements
include the accounts of Bristol Retail Solutions, Inc. (the Company) and its
wholly-owned subsidiaries: Cash Registers, Inc. (CRI), which includes
(MicroData, Inc. (MicroData) and Electronic Business Machines, Inc. (EBM);
Automated Register Systems, Inc. (ARS); Smyth Systems, Inc. (Smyth); and Pacific
Cash Register and Computer, Inc., (PCR) (collectively, Acquisitions) from the
date of acquisition. The accompanying consolidated December 31, 1996 financial
statements include the accounts of the Company and its wholly-owned subsidiaries
CRI and ARS from the date of acquisition. All intercompany transactions have
been eliminated in consolidation.

        The Company's acquisitions were accounted for in the Company's
consolidated financial statements as purchases in accordance with Accounting
Principles Board Opinion (APB) No. 16. The purchase prices were allocated to the
underlying assets and liabilities based upon their respective fair values. The
allocation of the purchase price included the assignment of approximately
$6,298,000 to excess of cost over net assets acquired. The results of the
Acquisitions are included in the Company's consolidated financial statements
subsequent to the respective dates of acquisition. Accordingly, the financial
statements for the period subsequent to the Acquisitions are not comparable to
the financial statements for the periods prior to the Acquisitions (SEE NOTE 3,
ACQUISITIONS).

        Subsequent to the filing of the Company's Form 10-KSB for the year ended
December 31, 1997, in conjunction with a Securities and Exchange Commission's
review of the Company's registration statement on Form S-3 filed on April 17,
1998, the SEC recommended certain footnote and business disclosures be amended.
The Company has complied with the request and has submitted Form 10-KSB/A,
Amendment No. 2, to reflect the amended disclosures. Such amendments were not
significant and did not change the Company's results of operations.

CASH EQUIVALENTS

        Cash equivalents represent highly liquid investments with original
maturities of three months or less.

CUSTOMER ADVANCES

        Customer advances represent deposits made in advance of equipment
installation and are applied against invoices when revenue is recorded.

INVENTORIES

        Inventories are stated at the lower of cost or market using the specific
identification method for inventories with identifying serial numbers and the
average cost method for all other inventories.

PROPERTY AND EQUIPMENT

        Property and equipment is stated at cost. Depreciation is computed
principally by accelerated methods for income tax and financial reporting
purposes over the estimated useful lives of the assets which range from three to
ten years. Leasehold improvements are amortized over the shorter of their useful
life or the remaining term of the lease using the straight-line basis.

                                       34



INTANGIBLE ASSETS

        Intangible assets consist primarily of goodwill which represents the
excess of cost over the fair value of net assets acquired and is amortized on a
straight-line basis over estimated useful lives of 15 and 20 years.

        In accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, long-lived assets and certain identifiable intangibles
held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company considers historical performance and future
estimated results in its evaluation of potential impairment and then compares
the carrying amount of the asset to the estimated expected future cash flows.
The Company measures the amount of the impairment by comparing the carrying
amount of the asset to its fair value. During the fourth quarter of 1997, the
Company recorded a $1,871,000 write-down of goodwill (SEE NOTE 2, GOODWILL
WRITE-DOWN).

PREPAID LICENSE FEES

        The Company has prepaid amounts to a related party for certain software
license agreements. These amounts will be amortized as the licenses are sold.
The Company had prepaid license fees of $102,750 as of December 31, 1997 and
1996 which are included in other assets.

REVENUE RECOGNITION

        The Company recognizes revenue for systems revenue upon shipment and
completed installation at which time there are no other significant vendor
obligations. Hardware sales are recognized as revenue upon shipment as there are
no other significant vendor obligations. Training and other services are
recognized as revenue when the items are delivered. Revenue from maintenance
contracts is recognized ratably over the term of the agreement.

SOFTWARE DEVELOPMENT COSTS

        As a systems integrator, the Company provides its customers with turnkey
software solutions including proprietary software products exclusively for
application to retail operations. Purchased software, which generally has
alternative future uses, is included in other assets and amortized, using the
straight-line method, over the estimated economic life of the software of three
to five years. Unamortized purchased software costs at December 31, 1997 and
related amortization expense for the year then ended were not material. The
costs of internal development of proprietary software are expensed as research
and development costs until technological feasibility is established, pursuant
to generally accepted accounting principles. At December 31, 1997, the Company
had capitalized $243,000 of internal software development costs which are
included in other assets. Commencing upon initial product release, these costs
will be amortized using the straight-line method over the estimated useful life.
No software development costs were amortized during the year ended December 31,
1997.

INCOME TAXES

        The Company uses the liability method of accounting for income taxes as
set forth in SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability
method, deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using the enacted
tax rates in effect in the years in which the differences are expected to
reverse. Deferred tax assets are recognized and measured based on the likelihood
of realization of the related tax benefit in the future. A valuation allowance
related to a deferred tax asset is recorded when it is more likely than not that
some portion or all of the deferred tax asset will not be realized.

FAIR VALUE OF FINANCIAL INSTRUMENTS

        The fair value of the Company's cash, accounts receivable and accounts
payable approximated their carrying amounts due to the relatively short maturity
of these items. The fair value of debt approximated its carrying amount at the
balance sheet date based on rates currently available to the Company for debt
with similar terms and remaining maturities.

                                       35



USE OF ESTIMATES

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

CREDIT RISK

        The Company sells its products on credit terms, performs ongoing credit
evaluations of its customers and generally does not require collateral.

STOCK-BASED COMPENSATION

        The Company has elected to follow APB No. 25, Accounting for Stock
Issued to Employees, and related Interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair value accounting
provided for under SFAS No. 123, Accounting for Stock-Based Compensation,
requires use of option valuation models that were not developed for use in
valuing employee stock options. No compensation expense is recognized under APB
No. 25, because the exercise price of the Company's employee stock options
equals or exceeds the market price of the underlying stock on the date of grant.

        To calculate the pro forma information required by SFAS No. 123, the
Company uses the Black-Scholes option-pricing model. The Black-Scholes model was
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's employee stock options
have characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.

BASIC AND FULLY DILUTED PER SHARE INFORMATION

        In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings per Share, which is effective for financial statements
for interim and annual periods ending after December 15, 1997. SFAS No. 128
redefines earnings per share under generally accepted accounting principles.
SFAS No. 128 requires the Company to report Basic EPS, as defined therein, which
excludes all common share equivalents from the earnings per share computation,
and Diluted EPS, as defined therein, which is calculated similar to the
Company's primary earnings per share computation. All historical earnings per
share information has been restated as required by SFAS No. 128.

        Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the periods presented. Diluted net
income (loss) per share is computed using the weighted average number of common
and common equivalent shares outstanding during the periods presented assuming
the exercise of the Company's stock options and warrants. Common equivalent
shares have not been included where inclusion would be antidilutive.

        Basic and diluted loss per share is based on the weighted average number
of common shares outstanding. Common stock equivalents, which consist of stock
options to purchase 1,405,000 shares of common stock at prices ranging from
$2.875 to $3.163 per share and warrants to purchase 906,250 shares of common
stock at prices ranging from $6.00 to $8.70 per share, were not included in the
computation of Diluted EPS because such inclusion would have been antidilutive
for the year ended December 31, 1997. For the period from inception (April 3,
1996) to December 31, 1996, common stock equivalents, which consist of stock
options to purchase 418,166 shares of common stock at prices ranging from $6.00
to $6.50 per share and warrants to purchase 906,250 shares of common stock at
prices ranging from $6.00 to $8.70 per share, were not included in the
computation of Diluted EPS because such inclusion would have been antidilutive.

RECENTLY ISSUED ACCOUNTING STANDARDS

        In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for the reporting of comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. Examples of items to be included in comprehensive income that are
excluded from net income include foreign currency translation adjustments and
unrealized gain/loss on available-for-sale securities. The disclosures
prescribed by SFAS No. 130 are effective for interim periods and years beginning
after December 15, 1997.

        In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. This statement establishes standards
for the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosure about
products and services, geographic areas and major customers. The Company has not
yet determined what its reporting segments are. The disclosures prescribed by
SFAS No. 131 are effective for interim periods and years beginning after
December 15, 1997.

                                       36



        The American Institute of Certified Public Accountants (AICPA) recently
adopted Statement of Position 97-2, Software Revenue Recognition ("SOP 97-2")
that supersedes SOP 91-1 and becomes effective for years beginning after
December 15, 1997. The Company does not believe that this pronouncement will
have an adverse material effect on its financial condition, results of
operations or cash flows.

2. GOODWILL WRITEDOWN

        The Company reviews its assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. During the fourth quarter of 1997, the Company determined that
certain amounts recorded for goodwill from prior acquisitions were impaired and
no longer recoverable. Such determination was made on an analysis of each
subsidiary's projected revenues, profits and undiscounted cash flows at the date
of acquisition compared to actual and projected revenues, profit and loss and
undiscounted cash flows as of December 31, 1997. For the purposes of this
analysis, each subsidiary was identified as a separate asset group as each
subsidiary is independent. From this analysis, an estimate was made as to the
amount of goodwill, which would be recoverable from future operations and
compared to the recorded amounts of goodwill at December 31, 1997; and a
write-down was recorded for the difference.

        The total goodwill write-down recorded separately in the accompanying
statement of operations was approximately $1,871,000 which consisted of
$1,442,000 related to Smyth Systems, $419,000 related to CRI and $10,000 related
to other subsidiaries.

         The goodwill write-downs are primarily due to fourth quarter decisions
by the Company based on operating losses and lack of sales growth at both Smyth
and CRI. Prior to the time of the acquisition, Smyth Systems had begun a
marketing effort to penetrate the apparel and sporting goods markets. These
markets were expected to grow rapidly and represented the major reason that the
Company paid a purchase price in excess of book value for Smyth which was
allocated to goodwill at the acquisition date. However, by mid-fourth quarter of
1997, it was apparent that Smyth was not able to penetrate these markets due to
a lack of sales caused by an insufficient product line and that the costs to
successfully sell into these markets were not reasonable given Smyth's operating
losses. As a result, in the fourth quarter, a decision was made to discontinue
the sales, marketing and promotional activities to penetrate these markets and a
goodwill impairment charge was recorded.

        At the date of CRI's acquisition of EBM, it was anticipated that sales
from EBM would continue to expand and that EBM would move towards profitability
as it expected an increase in sales volume to the fast-food and table-service
restaurant market because of the ability to offer a certain product to a wider
geographical area. However, the product did not sell as anticipated due to
quality problems and by the fourth quarter of 1997, several key people
associated with the marketing of this product had left the Company. This
resulted in larger losses than anticipated and led to the impairment of the
goodwill.

        After such write-downs, the Company believes that the remaining goodwill
amounts recorded for each subsidiary are recoverable over the remaining
amortization period.

3. ACQUISITIONS

        During 1997 and 1996, the Company acquired the entities described below,
which were accounted for by the purchase method of accounting:

        On June 28, 1996, the Company acquired all of the outstanding common
stock of CRI, a POS systems dealer in Kentucky and southern Ohio, for cash
consideration of $955,000, including acquisition costs of $72,000. The excess of
purchase price over the fair values of the net assets acquired was $557,000 and
has been recorded as goodwill, which is being amortized on a straight-line basis
over 15 years.

        On December 31, 1996, the Company, through its wholly-owned subsidiary,
Bristol Merger Corporation, acquired all of the outstanding common stock of ARS,
a POS systems dealer in Washington, for consideration of $1,103,000 in cash,
including $78,000 of acquisition costs, and 58,154 shares of non-registered,
restricted common stock of the Company valued at approximately $683,000 at the
acquisition date. The excess of purchase price over the fair values of the net
assets acquired was $1,155,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 15 years.

        On April 1, 1997, the Company, through its wholly-owned subsidiary CRI,
acquired all of the outstanding common stock of MicroData, a POS dealer with
operations in Illinois and Kentucky, for consideration of $98,000 in cash,
including $19,000 of acquisition costs, and 11,415 shares of non-registered,
restricted common stock of the Company, valued at approximately $136,000 at the
acquisition date. The excess of purchase price over the fair values of the net
assets acquired was $155,000 and has been recorded as goodwill, which is being
amortized on a straight-line basis over 20 years.

        On May 29, 1997, the Company acquired Smyth for consideration of
$2,369,000 in cash, including $20,000 of acquisition costs, and 569,408 shares
of non-registered, restricted common stock of the Company, valued at
approximately $2,064,000 at the acquisition date. Smyth operates through two
divisions which provide VAR systems to customers throughout the United States
and POS systems to customers in Southern California and Ohio. The excess of
purchase price over the fair values of the net assets acquired was $3,328,000
and has been recorded as goodwill, which is being amortized on a straight-line
basis over 20 years.

                                       37



        On June 6, 1997, the Company, through its wholly-owned subsidiary CRI,
acquired EBM, a POS dealer with operations in Indiana and Kentucky, for
consideration of $483,000 in cash, including $62,000 of acquisition costs, and
147,033 shares of non-registered, restricted common stock of the Company, valued
at approximately $579,000 at the acquisition date. The excess of purchase price
over the fair values of the net assets acquired was $838,000 and has been
recorded as goodwill, which is being amortized on a straight-line basis over 20
years.

        On August 5, 1997, the Company acquired all of the outstanding common
stock of PCR, a POS dealer with operations in Northern California, for
consideration of $165,000 in cash, including $13,000 of acquisition costs, and
75,000 shares of non-registered, restricted common stock of the Company, valued
at approximately $225,000 at the acquisition date. The excess of purchase price
over the fair values of the net assets acquired was $260,000 and has been
recorded as goodwill, which is being amortized on a straight-line basis over 20
years.

        The purchase prices have been allocated to the assets acquired and the
liabilities assumed based upon the fair values at the dates of acquisition (SEE

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION).

        The following presents the unaudited pro forma consolidated results of
operations of the Company for the year ended December 31, 1997 and for the
period from inception (April 3, 1996) to December 31, 1996 as if the CRI, ARS,
Smyth and EBM acquisitions had been consummated on April 3, 1996, and includes
certain pro forma adjustments resulting from the acquisitions. Pro forma
adjustments for the year ended December 31, 1997, consist solely of adjustments
to reflect an increase in goodwill amortization expense related to the Smyth and
EBM acquisitions. Pro forma adjustments for the period from inception (April 3,
1996) to December 31, 1996 consist of the following: (i) adjustment to reflect
an increase in goodwill amortization expense related to the CRI, ARS, Smyth and
EBM acquisitions; (ii) adjustment to reflect an increase in rent expense at ARS,
as ARS's office facility lease was renegotiated and the monthly rental rate
increased as part of the Company's acquisition of ARS; (iii) adjustment to
reflect an increase in interest expense as if the Company's $817,500
subordinated notes payable had been issued on April 3, 1996 (the notes were
issued June 1996 and retired in November 1996 using IPO proceeds); and (iv)
adjustment to calculate the impact on income taxes of the pro forma
adjustments.

                                                                 FROM INCEPTION
                                                   YEAR            (APRIL 3,
                                                  ENDED             1996) TO
                                                DECEMBER 31,      DECEMBER 31,
                                              1997 PRO FORMA     1996 PRO FORMA
                                                AS ADJUSTED        AS ADJUSTED
                                              --------------     --------------
         Net revenue                          $  26,882,849      $  10,085,836
         Net income (loss)                       (5,153,593)            23,900
         Basic and diluted net income
           (loss) per share                           (0.94)              0.01
         Shares used in computing basic and
           diluted net income (loss) per share    5,491,352          3,541,166

        Options to purchase 418,166 shares of common stock at $6.00 per share
were outstanding during the second half of 1996, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of common shares.

        The unaudited pro forma consolidated results of operations are presented
for comparative purposes only and do not necessarily reflect the results that
would have occurred had the acquisitions occurred on April 3, 1996 or the
results which may occur in the future.

        On May 9, 1997, pursuant to a merger agreement dated April 30, 1997, the
Company acquired all of the outstanding common stock of International Systems &
Electronics Corporation (ISE), a POS dealer with operations in Florida, for
consideration of $1,192,000 in cash, including $92,000 of acquisition costs, and
130,434 shares of non-registered, restricted common stock of the Company, valued
at approximately $750,000. On July 23, 1997, the Company entered into a
Rescission Agreement whereby the merger agreement and all of the transactions
contemplated thereunder were rescinded in their entirety effective as of April
30, 1997. In accordance with the Rescission Agreement, (i) all of the 130,434
shares of common stock have been returned to the Company and canceled; (ii) the
shareholder of ISE has refunded to the Company $250,000 in cash; (iii) the
shareholder of ISE has delivered to the Company a promissory note in the amount
of $350,000 bearing interest at 8.5% to be paid in thirty equal monthly
installments commencing in January 1998; (iv) the shareholder of ISE will from
time to time make monthly transfers of finished goods inventory to the Company,
with an aggregate market value of up to $250,000; and (v) a consulting agreement
has been executed by the shareholder of ISE to provide consulting services to
the Company through December 31, 2001 for a fee of $250,000, which fee has been
prepaid by the Company. In the accompanying balance sheet, the $350,000
promissory note is included in notes receivable; the $250,000 inventory

                                       38



receivable is included in other current assets, net of inventory received as of
December 31, 1997 of $68,509; and the $250,000 consulting agreement is included
in other assets, net of accumulated amortization at December 31, 1997 of
$36,000.No revenues or expenses of ISE have been included in the accompanying
statement of operations and all costs incurred related to the acquisition and
the subsequent rescission have been expensed by the Company. The shares of
common stock issued for the acquisition of ISE have been returned and cancelled
are not included in the weighted average common shares outstanding used to
compute the Company's basic and diluted net loss per share.

4. CONCENTRATIONS OF CREDIT RISK

        The Company sells its products primarily to quick-service restaurants,
grocery stores and other retailers. Credit is extended based on an evaluation of
the customer's financial condition and collateral is generally not required.
Credit losses have historically been minimal and such losses have been within
management's expectations.

        For the year ended December 31, 1997, there was no customer that
accounted for more than 10% of sales. For the period from inception (April 3,
1996) to December 31, 1996, 33% of revenues were attributable to one major
quick-service food franchisor and its franchisees. The Company purchases its
hardware primarily from three main vendors. Sales of products from these vendors
accounted for 32% and 51% of net revenue for the year ended December 31, 1997
and for the period from inception (April 3, 1996) to December 31, 1996,
respectively.

5. INVENTORIES

        Inventories consist primarily of POS terminals, peripherals, paper and
other supplies for resale to customers, as well as items to support maintenance
contracts. Inventories held by revenue type were as follows:

                                             DECEMBER 31,       DECEMBER 31,
                                                 1997               1996
                                            --------------     -------------
         Systems and installation
           inventories                      $   2,417,472      $  1,469,404
         Services and supplies inventories        896,557           700,127
                                            --------------     -------------
                                            $   3,314,029      $  2,169,531
                                            ==============     =============

        Included in services and supplies inventories at December 31, 1997 and
December 31, 1996 is approximately $431,479 and $365,255, respectively, of used
or refurbished parts and components which the Company has on hand to fulfill
maintenance contract requirements. Due to the nature of the systems installed
and the longevity of the systems in general, service may be provided for several
years after sale, causing much of the refurbished inventories on hand to be
composed of older items. During the fourth quarter of 1997, the Company recorded
a provision for excess and obsolete inventories of $451,182.

6. PROPERTY AND EQUIPMENT

        Property and equipment consist of the following:

                                           DECEMBER 31,      DECEMBER 31,
                                               1997              1996
                                          --------------    -------------
         Furniture and equipment          $     673,251     $    154,053
         Automobiles                            215,688           35,754
         Leasehold improvements                 107,685           90,571
                                          --------------    -------------
                                                996,624          280,378
         Less accumulated depreciation         (236,899)         (29,552)
                                          --------------    -------------
         Property and equipment, net      $     759,725     $    250,826
                                          ==============    =============

                                       39



7. SHORT-TERM BORROWINGS

        On December 17, 1997, the Company entered into a new line of credit that
provides for aggregate borrowings up to $5,000,000 computed based on eligible
accounts receivable and inventories; bears interest at the bank's prime rate
plus 1.75%, (10.25% at December 31, 1997); matures on December 31, 2000; and is
collateralized by the Company's accounts receivable and inventory. Pursuant to
the terms of the line of credit, the Company is subject to covenants which,
among other things, impose certain financial reporting obligations on the
Company and prohibit the Company from engaging in certain transactions prior to
obtaining the written consent of the lender. Some of the significant
transactions include: (i) acquire or sell any assets over $50,000 excluding
purchases of dealers; (ii) sell or transfer any collateral except for finished
inventory in the ordinary course of business; (iii) sell inventory on a
sale-or-return, guaranteed sale, consignment or other contingent basis; (iv)
incur any debts, outside the ordinary course of business, which would have a
material adverse effect; (v) guarantee or otherwise become liable with respect
to obligations of another party or entity; (vi) pay or declare any cash
dividends; or (vii) make any change in the Company's capital structure that
would have a material adverse effect. The Company repaid all amounts outstanding
under its previous CRI, ARS and Smyth credit lines using proceeds from the new
line of credit. The Company had outstanding borrowings of $2,031,000 bearing
interest at 10.25% at December 31, 1997.

        At December 31, 1997, the Company was in compliance with the covenants
on the line of credit.

8. COMMITMENTS AND CONTINGENCIES

        The Company leases certain facilities, equipment and vehicles under
noncancelable capital leases and operating lease arrangements expiring in
various years through 2003. Certain of the operating leases may be renewed for
periods ranging from one to three years.

Future annual minimum lease payments for noncancelable capital and operating
leases at December 31, 1997 were:

                                                CAPITAL       OPERATING
                                                 LEASES         LEASES
                                              ------------   ------------
         1998                                 $    25,043    $   790,519
         1999                                      16,057        643,003
         2000                                          --        334,612
         2001                                          --        243,762
         2002                                          --        226,498
         Thereafter                                    --        180,760
                                              ------------   ------------
         Total minimum lease payments              41,100    $ 2,419,154
         Amounts representing interest             (7,009)   ============
                                              ------------
         Present value of minimum lease
           payments                                34,091
         Current portion                          (19,264)
                                              ------------
         Long-term capital lease              $    14,827
                                              ============
         obligations

        Rent expense for the year ended December 31, 1997 was $581,438, of which
$48,000 was paid to a director of CRI and $173,760 was paid to a officer of ARS.
Rent expense for the period from inception (April 3, 1996) to December 31, 1996
was $123,441, of which $15,000 was paid to a director of CRI.

        The net book value of assets under capital lease at December 31, 1997
was $28,967.

                                       40


        In connection with its proposed move from its current location in
London, Kentucky, CRI has agreed to negotiate in good faith a definitive lease
regarding up to 12,000 square feet of office and warehouse space to be
constructed by two officers and former owners of CRI. Certain terms of the lease
have already been agreed to, and it is expected that when signed, the lease will
be for 10 years and the rate will be $6.00, $8.00, and $10.00 dollars per square
foot for years one, two, and three through ten, respectively. The Company has
agreed to guarantee these lease payments. The Company expects that the remaining
terms of the lease will be competitive and as favorable to the Company as those
which could be obtained from unrelated third parties. Upon commencement of the
lease of the new office complex, the monthly lease for CRI's current space in
London, Kentucky, will be terminated without penalty. The Company believes that
the terms of the contract are equivalent to or more favorable than those that
would be obtained under an arm's-length transaction.

        In connection with the merger of ARS into the Company on December 31,
1996, an amended lease agreement was executed with the former owners of ARS,
certain of whom are now officers of ARS, for the office facility which ARS
currently occupies. The amended lease is at a monthly rate of $15,063 and
expires in December 2003. The mortgage on this building is guaranteed by ARS.
The mortgage balance outstanding at December 31, 1997 was $331,000.

EMPLOYMENT AGREEMENTS

        The Company has employment agreements with certain executive officers
and employees, the terms of which expire at various times through 2004 and
provide for minimum salary levels. In addition, certain officers of the acquired
companies receive a portion of the acquired company's pre-tax profits greater
than the amount defined in the officer's employment agreement. At December 31,
1997, no provision for bonus payments were made for these certain employment
agreements due to the fact that the companies incurred pre-tax losses. The
aggregate commitment for future salaries and the guaranteed bonus amounts was
$7,106,878 at December 31, 1997 excluding bonuses contingent on achieving
certain per-tax profits. The Company believes payment of these contingent
bonuses will not have a material adverse effect on results of operations,
financial condition or cash flows. In addition, the Company has entered into an
employment contract with an employee, expiring in 2008, that provides for a
minimum salary and certain guaranteed bonus amounts that are payable even in the
event of termination for cause or upon death. The aggregate commitment for
future salaries and guaranteed bonus amounts under this contract at December 31,
1997 was $443,275.

        The Company has a independent contractor agreement, with a former owner
of a subsidiary, expiring in 2003. The commitment for future payments under this
contract at December 31, 1997 was $650,000.

LITIGATION

        The Company's subsidiaries have been, from time to time, parties to
various lawsuits and other matters involving ordinary and routine claims arising
in the normal course of business. In the opinion of management of the Company
and its counsel, although the outcomes of these claims and suits are not
presently determinable, in the aggregate, they should not have a material
adverse affect on the Company's business, financial position or results of
operations or cash flows.

        At December 31, 1996, the Company had $83,000 accrued in connection with
a lawsuit wherein CRI is being sued by a former employee. In accordance with the
purchase agreement between the Company and the former owners of CRI, the
Company's liability is limited to $83,000 in connection with this suit. Any
amounts in excess of $83,000 are recoverable from amounts due to the former
owners under certain lease and employment agreements. The maximum exposure for
the claim is $107,000 and management has assessed the recoverability of the
$24,000 excess and deemed it to be recoverable. In February 1998, CRI paid
$50,213 as settlement of the Court of Appeals affirming the award of $31,950
plus interest of $18,263. There is still pending one remaining claim, and the
Company is vigorously fighting the claim.

        On or about August 7, 1997, a class action complaint was filed against
the Company and certain of the Company's officers and directors. Underwriters
for the Company's initial public offering are also named as defendants. The
class action plaintiffs are Lincoln Adair, Antique Prints, Ltd., and Martha
Seamons, on behalf of themselves and all others similarly situated. The case is
pending in the United States District Court for the Southern District of New
York. In addition to seeking themselves declared proper plaintiffs and having
the case certified as a class action, plaintiffs seek unspecified monetary
damages. The plaintiffs' complaint alleges claims under the federal securities
laws for alleged misrepresentations and omissions in connection with purchases
of securities. The Company disputes the allegations made in the complaint and
intends to vigorously defend itself. Because the outcome of such litigation is
not presently determinable, the effect on the Company's consolidated financial
statements is not known.

                                       41


9. STOCKHOLDERS' EQUITY

WARRANTS

        At December 31, 1997, the Company had outstanding 718,750 Class A
Redeemable Common Stock Purchase Warrants (Warrants) that entitle each holder to
purchase one share of common stock for $6.00 during a five-year period
commencing December 12, 1997. The exercise price and the number of shares
issuable upon exercise of the Warrants are subject to adjustment in certain
circumstances. Commencing February 12, 1998, the Warrants are redeemable by the
Company at $.01 per Warrant upon thirty-days' prior written notice, provided the
closing bid price of the common stock shall have been at least $10.00 per share
for the twenty consecutive trading days ending on the third day prior to the
date of the notice of redemption.

        At December 31, 1997, the Company had outstanding 125,000 Underwriters'
Stock Warrants which entitle the holders thereof to purchase up to 125,000
shares of common stock at $8.70 per share. In addition, the Company had 62,500
Underwriters' Warrants entitling the holders to purchase up to 62,500 Warrants
at $.125 per Warrant. The Warrants underlying the Underwriters' Warrants entitle
the holders to purchase up to 62,500 shares of common stock at $8.70 per share.
Both the Underwriters' Stock Warrants and the Underwriters' Warrants are
exercisable during a four-year period commencing November 12, 1996. The
Underwriters' Stock Warrants and Underwriters' Warrants contain antidilution
provisions providing for adjustment upon the occurrence of certain events.

        Holders of the Company's warrants do not possess any rights as
stockholders of the Company until they exercise their warrants and, accordingly,
holders of the Company's warrants are not entitled to vote in matters submitted
to the shareholders and are not entitled to receive dividends.

RESTRICTIONS ON PAYMENT OF DIVIDENDS

        The Company has not paid dividends on its preferred stock or common
stock to date. The Company is obligated to pay, quarterly, cumulative dividends
at a rate of six percent (6%) per annum of the issue price of the Series A
Convertible Preferred Stock, payable, at the holders' option, in cash or in
common stock at the conversion price of the Series A Preferred Stock. So long as
any shares of Series A Convertible Preferred Stock remain outstanding, the
Company may not, without the vote or written consent of the holders of at least
66-2/3% of the then outstanding shares of Series A Convertible Preferred Stock,
voting together as a single class, declare or pay any dividend with regard to
any share of common stock. Additionally, although the current line of credit
does not expressly prohibit the Company from paying dividends, the line of
credit does contain certain covenants which restrict the reduction or depletion
of the Company's capital. The Company anticipates that future financing,
including any lines of credit, may further restrict or prohibit the Company's
ability to pay dividends. Under the terms of the underwriting agreement entered
into by the Company in connection with its initial public offering, the Company
is restricted until November 20, 1998, from paying dividends in excess of the
amount of the Company's current or retained earnings derived from November 20,
1996, unless the consent of the underwriters is obtained. The underwriting
agreement has been terminated by the underwriter.

STOCK SPLIT

        On September 11, 1996, the Board of Directors authorized a 1-for-1.9
reverse split of its common stock, which was effected on October 16, 1996. The
accompanying consolidated financial statements have been retroactively restated
to reflect such stock split.

EMPLOYEE STOCK PURCHASE PLAN

        The 1997 Employee Stock Purchase Plan of Bristol Retail Solutions, Inc.
(the 1997 Employees Plan) was adopted by the Board of Directors and approved by
the Company's stockholders at the Annual Meeting of Stockholders held on May 20,
1997. The 1997 Employees Plan allows eligible employees of the Company to
subscribe for, and purchase shares of, the Company's common stock directly from
the Company at a discount from the market price, in installments through
authorized payroll deductions. A total of 200,000 shares of common stock are
authorized to be issued.

                                       42


        Common stock is purchased on each semi-annual purchase date at a
purchase price equal to eighty-five (85%) percent of the lower of (i) the fair
market value per share of common stock on the entry date into that offering
period or (ii) the fair market value per share on that semi-annual purchase
date. The maximum number of shares of common stock purchasable per participant
on any semi-annual purchase date shall not exceed 1,000 shares. Purchase rights
are not granted under the 1997 Employees Plan to any eligible employee if such
individual would, immediately after grant, own or hold outstanding options or
other rights to purchase stock possessing five percent or more of the total
combined voting power of all classes of stock of the Company or any of its
corporate affiliates.

        As of December 31, 1997, no shares have been issued under the 1997
Employees Plan.

EQUITY PARTICIPATION PLAN

        The 1996 Equity Participation Plan of Bristol Retail Solutions, Inc.
(the Stock Option Plan) was adopted by the Board of Directors and approved by
the written consent of the majority of the stockholders on July 31, 1996. The
Stock Option Plan provides for the grant of stock options, restricted stock,
performance awards, dividend equivalents, deferred stock, stock payments and
stock appreciation rights to employees, consultants and affiliates. Options
granted under the Stock Option Plan may be incentive stock options (ISOs) or
nonstatutory stock options (NSOs). ISOs may be granted only to employees and the
exercise price per share may not be less than 100% of the fair market value of a
share of common stock on the grant date and the term of the options may not be
more than ten years from the date of grant (110% of the fair market value and
five years from the date of grant if the employee owns more than 10% of the
total combined voting power of all classes of stock of the Company). All other
stock awards may be granted to employees, consultants, or affiliates. The
exercise price of NSOs shall be determined by a committee appointed by the Board
of Directors to administer the Stock Option Plan (the Committee) but shall not
be less than the par value of a share of common stock on the grant date. The
term of the NSOs shall be determined by the Committee.

        On April 3, 1997, the Board of Directors amended the Stock Option Plan
to increase the number of shares authorized to 2,450,000 from 450,000 shares of
common stock. The increase was approved by the stockholders on May 20, 1997. At
December 31, 1997, options to purchase 1,405,000 shares of common stock were
outstanding at exercise prices ranging from $2.875 to $3.163 per share. All
options vest at a rate of 25% per year commencing on the first anniversary of
the grant date. No other stock-based awards have been offered under the Stock
Option Plan.

        Of the options granted, 50,000 were granted to nonemployees and were
accounted for at their fair value in accordance with SFAS No. 123. The remaining
options were issued to employees and were accounted for in accordance with APB
No. 25 (Note 1). SFAS No. 123 requires the calculation of pro forma information
regarding net loss and net loss per share as if SFAS No. 123 had been adopted
for options issued to employees.

        In calculating the pro forma information, the fair value was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions for the year ended December 31, 1997 and
for the period from inception (April 3, 1996) to December 31, 1996: risk-free
interest rates of 5.8% and 6.6%, respectively; dividend yield of 0%; volatility
factors of the expected market price of the Company's common stock of 80% and
40%, respectively; and a weighted-average expected life of the options of five
years.

                                       43


        For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the year ended December 31, 1997 and for the period
from inception (April 3, 1996) to December 31, 1996 follows:



                                                                         FROM INCEPTION
                                                      YEAR ENDED       (APRIL 3, 1996) TO
                                                  DECEMBER 31, 1997    DECEMBER 31, 1996
                                                  ------------------   ------------------

                                                                 
         Pro forma net loss                       $      (5,395,970)   $        (197,257)
         Pro forma basic and diluted net loss
           per share                              $           (1.04)   $           (0.06)


        Option activity under the Stock Option Plan is as follows:



                                                                        WEIGHTED-AVERAGE
                                                        OPTIONS          EXERCISE PRICE
                                                  ------------------   ------------------
                                                                    
         Outstanding - Inception (April 3, 1996)  $              --       $           --
         Granted                                            418,166                 3.00
                                                  -----------------

         Outstanding - December 31, 1996                    418,166                 3.00
         Granted                                          1,092,500                 3.01
         Forfeited                                         (105,666)               (2.89)
                                                  ------------------

         Outstanding - December 31, 1997                  1,405,000       $         3.02
                                                  ==================

         Exercisable at end of period                        99,375       $         3.01

         Weighted-average fair value of           $            2.11
          options granted during the year



        The weighted-average remaining term of options outstanding as of
December 31, 1997 is 7.6 years.

        On September 11, 1997, all outstanding stock options held by employees,
officers, Board members and non-employees were repriced at $2.875, the closing
market price on that date. The number of shares and vesting schedule of the new
option grants is the same as that of the old options replaced. The Company
initiated this repricing arrangement in order to retain and motivate key
employees. A total of 1,092,500 options with exercise prices ranging from $3.63
to $11.16 were repriced. The Company calculated the incremental impact of the
option repricing on pro forma net income in accordance with the provisions of
SFAS 123. The Company's calculation resulted in an incremental pro forma expense
of $30,462 for 1997, which the Company believes is not material to the pro forma
disclosures. The repricing had no impact on historical employee compensation
expense, which the Company records under the provisions of APB No. 25, as the
exercise price of the repriced options equals the stock value at the repricing
date. The Company also calculated the impact of the repricing on non-employee
options accounted for under SFAS 123 and determined the impact to be immaterial.

SHARES RESERVED FOR FUTURE ISSUANCE

        At December 31, 1997, 2,151,250 shares of common stock were reserved for
future issuance in connection with outstanding warrants and the Company's
incentive stock option and employee stock purchase plans.

                                       44



10.     INCOME TAXES

        Significant components of the provision for income taxes are as follows:

                                                               FROM INCEPTION
                                                               (APRIL 3, 1996)
                                                 YEAR ENDED          TO
                                                DECEMBER 31,     DECEMBER 31,
                                                   1997             1996
                                              ---------------  --------------
         Current:
             Federal                          $           --   $          --
             State                                     2,500           1,800
                                              ---------------  --------------
         Total current                                 2,500           1,800

         Deferred:
             Federal                              (1,118,651)       (150,771)
             State                                  (242,154)        (44,159)
             Change in valuation allowance         1,360,805         194,930
                                              ---------------  --------------
         Total deferred                                   --              --
                                              ---------------  --------------
         Provision for income taxes           $        2,500   $       1,800
                                              ===============  ==============

        Deferred income taxes reflect the net tax effect of temporary
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes.

        Significant components of the Company's deferred tax assets and
liabilities are as follows:

                                             DECEMBER 31,      DECEMBER 31,
                                                 1997              1996
                                            ------------       ------------
           Deferred tax assets:
         Net operating loss                 $   744,699        $     5,326
         Inventories                            309,180             22,000
         Allowance for doubtful accounts        164,686             15,636
         Deferred revenue                       103,839             97,000
         Accrued compensation                   114,941             22,663
         Other reserves and allowances          134,983             39,749
                                            ------------       ------------
           Total deferred tax assets          1,572,328            202,374

           Deferred tax liabilities:
         Tax over book depreciation             (16,593)            (7,444)
                                            ------------       ------------

           Net deferred tax assets            1,555,735            194,930

           Valuation allowance on net
             deferred tax assets             (1,555,735)          (194,930)
                                            ------------       ------------
           Net deferred taxes               $        --        $        --
                                            ============       ============

        The Company has recorded a valuation allowance against deferred tax
assets as deemed necessary to reduce deferred tax assets to amounts that are
more likely than not to be realized. A portion of the valuation allowance
relates to acquired temporary differences that, when realized, will be recorded
as an adjustment to goodwill.

        At December 31, 1997, the Company has federal net operating loss
carryforwards of $1,741,000 that begin to expire in the year 2011. Pursuant to
Section 382 of the Internal Revenue Code, use of the Company's net operating
loss and credit carryforwards for federal and state income tax purposes may be
limited if the Company experiences a cumulative change in ownership of greater
than 50% in a moving three-year period. Ownership changes could impact the
Company's ability to utilize net operating losses and credit carryforwards
remaining at the ownership change date. The limitation will be determined by the
fair market value of common stock outstanding prior to the ownership change,
multiplied by the applicable federal rate. The reconciliation of income tax
computed at the U.S. federal statutory tax rates to income tax provision is:

                                       45





                                                                       FROM INCEPTION
                                          YEAR ENDED                 (APRIL 3, 1996) TO
                                       DECEMBER 31, 1997              DECEMBER 31, 1996
                                       ------------------            ------------------
                                      AMOUNT          PERCENT        AMOUNT       PERCENT
                                    ----------      ----------     ----------    ----------

                                                                         
Tax at U.S. statutory rates         $(1,738,137)        (35.0)     $ (35,641)        (34.0)
State income taxes, net of
    federal tax benefit                (258,238)         (5.2)         1,800           1.7
Nondeductible goodwill                  741,541          14.9          6,320           6.0
Change in valuation
    allowance                         1,360,805          27.4         28,078          26.8
Other                                  (103,471)         (2.1)         1,243           1.2
                                    ------------    ----------     ----------    ----------
                                    $     2,500           0.0      $   1,800           1.7
                                    ============    ==========     ==========    ==========


11. EMPLOYEE BENEFIT PLAN

        The Company's wholly-owned subsidiaries CRI, ARS and Smyth each sponsors
a Section 401(k) employees savings plan, covering substantially all full-time
employees who have worked for more than one year. Discretionary contributions
were $46,461 for the year ended December 31, 1997. CRI made discretionary
contributions of $14,761 for the period from inception (April 3, 1996) to
December 31, 1996.

12. RELATED PARTY TRANSACTIONS

        The Company had various transactions with related parties which were
made in the normal course of business. A summary of these transactions is as
follows:

                                                                  PERIOD FROM
                                                      YEAR         INCEPTION
                                                      ENDED     (APRIL 3, 1996)
                                                   DECEMBER 31, To DECEMBER 31,
                                                      1997           1996
                                                --------------- ---------------
Cash register purchases from R.S.M.G., which
  has an officer of Smyth as an officer and
  member of its Board of Directors              $     421,746   $           --
Note paid to RBC, Inc., a company owned by the
  president of CRI                                     40,000               --

Rent paid to a director of CRI                         48,000           15,000
Rent paid to Pollastro Properties, Inc., owned
  by the former owners of ARS certain of whom
  are now officers of ARS                             173,760               --
Auto leases paid to ARS Leasing Co, owned by an
  officer of ARS                                       18,628               --
Payment from president of ARS                         (47,767)              --
Insurance premiums paid for insurance coverage
    purchased through a broker who is a family
    member of a director and officer of the            73,845          121,634
    Company

        Facility lease transactions with related parties are further discussed
in Note 8, Commitments and Contingencies.

        Amounts payable to (due from) related parties were as follows:

                                                    DECEMBER 31,    DECEMBER 31,
                                                         1997           1996
                                                    ------------    ------------

Insurance premiums for insurance coverage
    purchased through a broker who is a family
    member of a director and officer of the
    Company                                         $   112,088     $        --
R.S.M.G.,  which has an officer of Smyth as an
    officer and a member of its Board of Directors       21,613              --
RBC, Inc., a company owned by the president
  of CRI                                                     --          40,000
Pollastro Properties, Inc., owned by the former
   owners of ARS, certain of whom are now
   officers of ARS                                           --          (7,000)
President of ARS                                             --         (60,028)

                                       46



13. SUBSEQUENT EVENTS

        On March 18, 1998, the Company entered into a definitive agreement for a
private placement of shares of Series A Convertible Preferred Stock ("the
Preferred Stock"). The investment commitment is up to $2,000,000 and will be
issued in three installments. The first installment of $1,000,000 funded on
March 18, 1998. The Preferred Stock agreement also contains certain registration
rights. The second and third installments of $500,000 each will close within
thirty and sixty days, respectively, after the effective date of the Company's
registration statement on Form S-3 to be filed with the Securities and Exchange
Commission, assuming that the various conditions set forth in the purchase
agreement are met. The Preferred Stock is convertible by the holders into common
stock of the Company at any time into a number of shares of common stock
determined by dividing the issue price by the conversion price, which is defined
to be 78% of the lowest five-day average closing bid price for the 25-day period
prior to the date of the conversion notice. At no time shall the conversion
price be higher than 110% of the five-day average bid price prior to the date
such shares were purchased. The dividends on the Preferred Stock are payable
quarterly in stock or in cash. The purchaser of the Preferred Stock received
warrants to purchase 125,000 shares for the first $1,000,000 installment. The
amounts that may be purchased under the second and third installments are
limited by a provision in the Preferred Stock agreements that prohibits the
purchaser from owning more than 20% of the Company's common stock on an as
converted basis.

        The Preferred Stock issuance will result in an increase in net loss
available for common stockholders for amounts relating to accretion of the
recorded value of the Preferred Stock to its liquidation value of $242,000, the
value of the preferential conversion feature of the Preferred Stock recorded as
imputed dividends of $228,000 and cumulative preferred dividends of $2,000. If
this transaction had occurred before the end of the period, the effect of the
Preferred Stock by application of the if-converted method on the Company's
weighted-average common shares outstanding for the year ended December 31, 1997
would have been antidilutive.

                                       47

EX-11

                                                                      EXHIBIT 11

                         BRISTOL RETAIL SOLUTIONS, INC.

                    COMPUTATION OF EARNINGS (LOSS) PER SHARE


                                                                                       INCEPTION
                                                                YEAR ENDED        (APRIL 3, 1996) TO
                                                               DECEMBER 31,          DECEMBER 31,
                                                                   1997                  1996
                                                             ---------------       ---------------
                                                                             

     BASIC LOSS PER SHARE

          Net loss                                           $   (4,968,607)       $     (106,625)
                                                             ===============       ===============

          Weighted average number of common shares
            outstanding during the period
                                                                  5,198,156             3,319,738
                                                             ===============       ===============

          Basic loss per share                               $         (.96)       $         (.03)
                                                             ===============       ===============

     DILUTED LOSS PER SHARE

          Net loss                                           $   (4,968,607)       $     (106,625)
                                                             ===============       ===============

          Weighted average number of common shares
            outstanding during the period                         5,198,156             3,319,738
                                                             ===============       ===============

          Effect of stock options and warrants
            treated as common stock equivalents
            under the treasury stock method                              --                    --
                                                             ---------------       ---------------

               Total shares                                       5,198,156             3,319,738
                                                             ===============       ===============

          Diluted loss per share                             $         (.96)       $         (.03)
                                                             ===============       ===============

EX-21

                                   EXHIBIT 21

                              LIST OF SUBSIDIARIES

                     NAME                                STATE OF INCORPORATION
            ----------------------                       ----------------------
         Cash Registers, Incorporated                            Kentucky
         Automated Retail Systems, Inc.                          Washington
         Smyth Systems, Inc.                                     Delaware
         Pacific Merger Corp.                                    Delaware

EX-23.1

                                                                    Exhibit 23.1

                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Registration Statement Nos.
333-5570-LA, 333-43899 and 333-50385 on Form S-3, Form S-8 and Form S-3,
respectively, of our report dated March 27, 1997, with respect to the
consolidated financial statements of Bristol Retail Solutions, Inc. as of
December 31, 1996, and for the period from inception (April 3, 1996) to December
31, 1996 included in its Annual Report (Form 10-KSB/A) for the year ended
December 31, 1997 as amended on April 16, 1998, June 10, 1998, August 5,
1998 and on August 13, 1998.

/s/ Ernst & Young LLP
- ----------------------------------------------
Orange County, California
August 13, 1998

EX-23.2

                                                                    Exhibit 23.2
                          INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
333-5570-LA and No. 333-43899 on Form S-3 and Form S-8, respectively, and in
Amendment No. 3 to Registration Statement No. 333-50385 on Form S-3 of our
report dated March 27, 1998 appearing in the Annual Report on Form 10-KSB/A of
Bristol Retail Solutions, Inc. for the year ended December 31, 1997.

/s/ Deloitte & Touche LLP
- ----------------------------------------------
Costa Mesa, California
August 13, 1998

EX-23.3

                                                                    Exhibit 23.3
                          INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in the Annual Report of Bristol
Retail Solutions, Inc. on Form 10-KSB/A for the year ended December 31, 1997 of
our report dated June 5, 1997 (relating to the financial statements of Smyth
Systems, Inc.), appearing in the current report on Form 8-K/A of Bristol Retail 
Solutions, Inc. filed on July 29, 1997.

/s/ Deloitte & Touche LLP
- ----------------------------------------------
Akron, Ohio
August 13, 1998

EX-27

 


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