UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-K/A
                                 AMENDMENT NO. 1


(Mark One)
[X]   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934

                    For the fiscal year ended March 31, 2000
                                       OR

[ ]   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

       For the transition period from ______________ to _________________

                         Commission file number 0-15205
                                                -------

                                  ELCOTEL, INC.
             (Exact name of registrant as specified in its charter)

                  Delaware                                   59-2518405
      (State or other jurisdiction of                     (I.R.S. Employer
       incorporation or organization)                  Identification Number)

         6428 Parkland Drive
          Sarasota, Florida                                    34243
(Address of  principal executive offices)                    (Zip Code)

                                 (941) 758-0389
                         (Registrant's telephone number,
                              including area code)

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

                                      None

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

                     Common Stock, Par Value, $.01 Per Share
                                (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.      Yes X     No __

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

The aggregate market value of the voting Common Stock held by  non-affiliates of
the  Registrant  at June 9, 2000,  computed by reference to the closing price of
the  Registrant's  Common  Stock on such date as quoted by the  National  Market
System of NASDAQ, was approximately $25,014,899.  Shares of Common Stock held by
each officer,  director and holder of 5% or more of the outstanding Common Stock
have been  excluded in that such  persons may be deemed to be  affiliates.  This
determination of affiliate status is not necessarily a conclusive  determination
for other purposes.

At June 17, 2000, there were 13,742,391 shares of the Registrant's  Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


                                       1
<PAGE>



                  AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K
                    FOR THE FISCAL YEAR ENDED MARCH 31, 2000

         The undersigned  registrant  hereby amends Part II Item 8. Consolidated
Financial  Statements  and  Supplementary  Data and  Part IV Item 14.  Exhibits,
Financial  Statement  Schedules  and Reports on Form 8-K of its Annual Report on
Form 10-K for the  fiscal  year  ended  March 31,  2000 for the sole  purpose of
filing a revised Independent Auditors' Report.


                                       2
<PAGE>

Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                         Page

Independent Auditors' Report                                              4

Consolidated Balance Sheets at March 31, 2000 and 1999                    5


Consolidated Statements of Operations and Other
  Comprehensive Income (Loss) for the years ended

  March 31, 2000, 1999 and 1998                                           6


Consolidated Statements of Cash Flows for the years ended
  March 31, 2000, 1999 and 1998                                           7


Consolidated Statements of Changes in Stockholders' Equity

  for the years ended March 31, 2000, 1999 and 1998                       8


Notes to Consolidated Financial Statements                                9


Financial Statement Schedules:

            All financial statement schedules are omitted because they
            are not  required or are not  applicable,  or the required
            information  is  shown  in  the   consolidated   financial
            statements or notes thereto

                                   ----------


                                       3
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
  Elcotel, Inc.:

We have audited the accompanying  consolidated  balance sheets of Elcotel,  Inc.
and subsidiaries  (the "Company") as of March 31, 2000 and 1999, and the related
consolidated  statements of operations  and other  comprehensive  income (loss),
stockholders'  equity,  and cash flows for each of the three years in the period
ended March 31, 2000. These financial  statements are the  responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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


In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of the Company as of March 31, 2000
and 1999,  and the results of its  operations and its cash flows for each of the
three years in the period  ended March 31, 2000 in  conformity  with  accounting
principles generally accepted in the United States of America.


The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 7 to the
consolidated financial statements, at March 31, 2000, the Company was in default
of certain  financial  covenants  contained in the Loan and Security  Agreements
(the  "Loan  Agreements")  between  the  Company  and its  bank.  The  Company's
difficulties in meeting the covenants of its Loan Agreements and its losses from
operations  raise  substantial  doubt  about its  ability to continue as a going
concern. Management's plans in regard to these matters are described in Note 16.
The consolidated  financial statements do not include any adjustments that might
result from the outcome of this uncertainty.


DELOITTE & TOUCHE LLP


Certified Public Accountants

Tampa, Florida
June 20, 2000


                                       4
<PAGE>

                         ELCOTEL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                 (Dollars in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                              March 31,             March 31,
                                                                                2000                  1999
                                                                              ---------            ----------
<S>                                                                           <C>                  <C>
ASSETS
Current assets:
     Cash                                                                     $  1,153             $     16
     Accounts and notes receivable, less allowances for credit
        losses of $1,593 and $1,970, respectively                                8,073               12,209
     Inventories                                                                 8,768               13,978
     Refundable income taxes                                                        82                1,997
     Deferred tax asset - current portion                                           --                2,215
     Prepaid expenses and other current assets                                     997                  912
                                                                              --------             --------
        Total current assets                                                    19,073               31,327

Property, plant and equipment, net                                               5,867                5,064
Notes receivable, less allowances for credit losses
     of $272 and $312, respectively                                                395                  898
Identified intangible assets, net of accumulated amortization
     of $2,665 and $1,541, respectively                                          6,610                7,734
Capitalized software, net of accumulated amortization of $505
     and $240, respectively                                                      4,786                1,573
Goodwill, net of accumulated amortization of $1,567
     and $878, respectively                                                     22,403               23,218
Deferred tax asset                                                                  --                  948
Other assets                                                                       575                  533
                                                                              --------             --------
                                                                              $ 59,709             $ 71,295
                                                                              ========             ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Bank overdraft                                                           $     --             $  1,428
     Accounts payable                                                            4,868                4,186
     Accrued expenses and other current liabilities                              3,123                4,197
     Notes, debt and capital lease obligations payable - current                11,611                  823
                                                                              --------             --------
        Total current liablilities                                              19,602               10,634
Notes, debt and capital lease obligations payable - noncurrent                     208               10,355
                                                                              --------             --------
     Total liabilities                                                          19,810               20,989
                                                                              --------             --------
Commitments and contingencies
Stockholders' equity:
     Common stock, $0.01 par value,
        40,000,000 and 30,000,000 shares authorized,
        13,794,391 and 13,551,693 shares issued, respectively                      138                  136
     Additional paid-in capital                                                 47,423               46,667
     Retained earnings (deficit)                                                (7,508)               3,680
     Holding gain on marketable securities                                          23                   --
     Less - cost of 52,000 shares of common stock in treasury                     (177)                (177)
                                                                              --------             --------
        Total stockholders' equity                                              39,899               50,306
                                                                              --------             --------
                                                                              $ 59,709             $ 71,295
                                                                              ========             ========
</TABLE>

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


                                        5
<PAGE>

                         ELCOTEL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      AND OTHER COMPREHENSVE INCOME (LOSS)
                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                         Year Ended March 31,
                                                          --------------------------------------------------
                                                             2000                 1999                 1998
                                                          --------             --------             --------
<S>                                                       <C>                  <C>                  <C>
Revenues and net sales:
  Product sales                                           $ 33,834             $ 54,748             $ 43,426
  Services                                                  13,461               10,515                2,824
                                                          --------             --------             --------
                                                            47,295               65,263               46,250
                                                          --------             --------             --------
Cost of revenues and sales:
  Cost of products sold                                     24,930               34,755               26,624
  Cost of services                                          10,250                8,880                2,021
                                                          --------             --------             --------
                                                            35,180               43,635               28,645
                                                          --------             --------             --------
Gross profit                                                12,115               21,628               17,605
                                                          --------             --------             --------
Other costs and expenses:
  Selling, general and administrative                        9,984               10,560                9,930
  Engineering, research and development                      6,479                6,121                4,514
  Amortization                                               2,263                2,084                  654
  Other charges                                                733                1,772                   --
  Interest expense (income)                                    558                  517                 (103)
                                                          --------             --------             --------
                                                            20,017               21,054               14,995
                                                          --------             --------             --------
(Loss) income before income tax expense                     (7,902)                 574                2,610
Income tax expense                                          (3,286)                (213)                (853)
                                                          --------             --------             --------
Net (loss) income                                          (11,188)                 361                1,757

Other comprehensive income, net of tax:

Holding gain on marketable securities                           23                   --                   --
                                                          --------             --------             --------
Comprehensive (loss) income                               $(11,165)            $    361             $  1,757
                                                          ========             ========             ========
(Loss) earnings per common and common
  equivalent share:
  Basic                                                   $  (0.83)            $   0.03             $   0.18
                                                          ========             ========             ========
  Diluted                                                 $  (0.83)            $   0.03             $   0.18
                                                          ========             ========             ========
Weighted average number of common
  and common equivalent shares outstanding:
  Basic                                                     13,532               13,456                9,641
                                                          ========             ========             ========
  Diluted                                                   13,532               13,777                9,842
                                                          ========             ========             ========
</TABLE>

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

                                        6
<PAGE>

                         ELCOTEL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                     Year Ended March 31,
                                                                         --------------------------------------------
                                                                           2000              1999              1998
                                                                         --------          --------          --------
<S>                                                                      <C>               <C>               <C>
Cash flows from operating activities
  Net (loss) income                                                      $(11,188)         $    361          $  1,757
  Adjustments to reconcile net (loss) income to net cash
    provided by (used in) operating activities:
      Depreciation and amortization                                         3,558             3,247             1,299
      Provisions for obsolescence and warranty expense                      1,454               825               253
      Provision for credit losses                                             545               117             1,352
      Loss on impairment of assets                                            148                --                --
      Loss on disposal of equipment                                             4                12                 2
      Deferred tax expense                                                  3,247               563               270
      Stock option compensation (credits) expense                             (19)              112                --
      Changes in operating assets and liabilities
        (net of acquisition of Technology Service Group, Inc.
        and certain assets from Lucent Technologies Inc.):
         Accounts and notes receivable                                      3,807            (1,471)           (2,695)
         Inventories                                                        3,809            (5,296)            3,112
         Refundable income taxes                                            1,915            (1,188)             (110)
         Prepaid expenses and other current assets                            239               112              (555)
         Other assets                                                        (227)             (113)             (199)
         Accounts payable                                                     682               976            (1,695)
         Accrued liabilities and other current liabilities                   (964)             (943)              (90)
                                                                         --------          --------          --------
  Net cash flow provided by (used in) operating activities                  7,010            (2,686)            2,701
                                                                         --------          --------          --------
Cash flows from inveating activities
  Net cash used for acquisition of Technology
    Service Group, Inc                                                         --                --              (447)
  Acquisition of certain assets of Lucent Technologies Inc.                    --                --            (5,957)
  Capital expenditures                                                     (1,831)           (1,468)             (960)
  Capitalized software                                                     (3,618)             (680)             (129)
  Proceeds from disposal of equipment                                          --                 8                --
                                                                         --------          --------          --------
  Net cash flow used in investing activities                               (5,449)           (2,140)           (7,493)
                                                                         --------          --------          --------
Cash flows from financing activities
  Proceeds from exercise of common stock options                              642               285               295
  Net proceeds (payments) under revolving credit lines                      1,191            (2,460)            3,675
  (Decrease) increase in bank overdraft                                    (1,428)            1,428                --
  Proceeds from notes payable                                                  --             4,000             8,770
  Principal payments on notes payable                                        (829)              (66)           (7,302)
                                                                         --------          --------          --------
  Net cash flow (used in) provided by financing activities                   (424)            3,187             5,438
                                                                         --------          --------          --------
  Net increase (decrease) in cash                                           1,137            (1,639)              646
  Cash at beginning of year                                                    16             1,655             1,009
                                                                         --------          --------          --------
  Cash at end of year                                                    $  1,153          $     16          $  1,655
                                                                         ========          ========          ========
</TABLE>

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


                                        7
<PAGE>

                         ELCOTEL, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                    YEARS ENDED MARCH 31, 2000, 1999 AND 1998
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                     Common Stock                                Accumulated
                                                  ------------------    Additional    Retained      Other
                                                  Shares                  Paid-in     Earnings   Comprehensive  Treasury
                                                  Issued     Amount       Capital     (Deficit)     Income        Stock      Total
                                                  ------    --------    ----------     -------   -------------  ---------  --------
<S>                                                <C>      <C>         <C>          <C>          <C>           <C>        <C>
Balance, March 31, 1997                            8,234    $     82    $ 11,160     $  1,562     $   --        $ (177)    $ 12,627
Exercise of stock options                            158           2         293           --         --            --          295
Tax benefit from exercise of
     stock options                                    --          --          62           --         --            --           62
Acquisition of Technology Service
     Group, Inc.                                   5,025          50      35,208           --         --            --       35,258
Registration expenses of
     acquisition of Technology
     Service Group, Inc.                              --          --        (339)          --         --            --         (339)
Net income                                            --          --          --        1,757         --            --        1,757
                                                  ------    --------    --------     --------     ------        ------     --------
Balance, March 31, 1998                           13,417         134      46,384        3,319         --          (177)      49,660
Exercise of stock options                            135           2         283         --           --            --          285
Net income                                            --          --          --          361         --            --          361
                                                  ------    --------    --------     --------     ------        ------     --------
Balance, March 31, 1999                           13,552         136      46,667        3,680         --          (177)      50,306
Exercise of stock options                            242           2         658           --         --            --          660
Tax benefit from exercise of
     stock options                                    --          --          98           --         --            --           98
Holding gain on marketable
     securities, net of tax                           --          --          --           --         23            --           23
Net loss                                              --          --          --      (11,188)        --            --      (11,188)
                                                  ------    --------    --------     --------     ------        ------     --------
Balance, March 31, 2000                           13,794    $    138    $ 47,423     $ (7,508)    $   23        $ (177)    $ 39,899
                                                  ======    ========    ========     ========     ======        ======     ========
</TABLE>

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


                                        8
<PAGE>

                         ELCOTEL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    YEARS ENDED MARCH 31, 2000, 1999 AND 1998
                  (Dollars in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

      Elcotel,  Inc. and its wholly owned  subsidiaries (the "Company")  design,
develop,  manufacture  and  market a  comprehensive  line of  integrated  public
communications  products and  services.  The  Company's  product  line  includes
microprocessor-based  payphone  terminals  known in the  industry  as "smart" or
"intelligent" payphones,  software systems to manage and control networks of the
Company's smart payphone  terminals,  electromechanical  payphone terminals also
known  in  the  industry  as  "dumb"  payphones,   replacement   components  and
assemblies,  and an offering of industry services including repair,  upgrade and
refurbishment of equipment,  operator services,  customer training and technical
support.  In  addition,  the  Company has  developed  non-PC  Internet  terminal
appliances for use in a public communications environment, which will enable the
on-the-go user to gain access to Internet-based  content and information through
the  Company's  client-server  network  supported  by its back  office  software
system.  The Company's a non-PC  Internet  terminal  appliances were designed to
provide  the  features  of  traditional  smart  payphone  terminals,  to provide
connectivity  to  Internet-based  content,  to  support  e-mail  and  e-commerce
services,  and to generate revenues from display advertising,  sponsored content
and other  services in addition to traditional  revenues from public  payphones.
The Company's  service bureau network was designed to manage and deliver display
advertising  content,  Internet-based  content and specialized and  personalized
services to its non-PC  Internet  terminal  appliances.  The Company's  Internet
appliance  business is  presently in the  development  stage and to date has not
generated any significant revenues.

Going Concern

      The accompanying financial statements have been prepared assuming that the
Company will continue as a going  concern.  As discussed in Note 7, at March 31,
2000, the Company was in default of certain financial covenants contained in the
loan agreements between the Company and its bank. The Company's  difficulties in
meeting the  covenants  of its loan  agreements  and its losses from  operations
raise  substantial  doubt  about its  ability to  continue  as a going  concern.
Management's  plans in regard to these  matters  are  described  in Note 16. The
accompanying  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

Principles of Consolidation

      The accompanying consolidated financial statements include the accounts of
Elcotel,  Inc. and its wholly  owned  subsidiaries.  All  material  intercompany
accounts and transactions have been eliminated in consolidation.

Revenue Recognition

      Sales of products  and related  costs are recorded  upon  shipment or when
customers  accept  title to such goods.  The Company  recognizes  revenues  from
software   licenses  upon  delivery  of  the  software.   Revenue  from  repair,
refurbishment and upgrade of customer-owned equipment is recorded upon shipment.
Revenues from other services are recognized as the services are rendered.


                                        9
<PAGE>

Inventories

      Inventories are stated at the lower of cost or market.  Cost is determined
based on the  first-in,  first-out  ("FIFO")  method  or  standard  cost,  which
approximates cost on a FIFO basis.

      Reserves to provide for losses due to obsolescence  and excess  quantities
are established in the period in which such losses become probable.

Marketable Securities

      All marketable securities,  classified as other current assets, are deemed
by  management  to be available for sale and are reported at fair value with net
unrealized gains or losses reported within stockholders' equity.  Realized gains
and losses are recorded based on the specific  identification method. There were
no realized  gains or losses for the years ended March 31, 2000,  1999 and 1998.
The carrying amount of the Company's marketable securities, consisting of equity
securities, approximated $326 and $1 at March 31, 2000 and 1999, respectively.

Property, Plant and Equipment

      Property,  plant and  equipment  are  recorded  at cost  less  accumulated
depreciation.  Depreciation is computed by the  straight-line  method based upon
the  estimated  useful lives of the related  assets,  generally  three years for
computers,  five years for  equipment,  furniture  and fixtures and  thirty-five
years for buildings.

      Additions,  improvements and expenditures  that  significantly  extend the
useful  life  of  an  asset  are  capitalized.   Expenditures  for  repairs  and
maintenance  are charged to operations  as incurred.  When assets are retired or
disposed of, the cost and accumulated  depreciation thereon are removed from the
accounts, and any gains or losses are included in income.

Engineering, Research and Development Costs


      Costs and expenses  incurred for the purpose of product  research,  design
and development are charged to operations as incurred. Engineering, research and
development  costs consist primarily of costs associated with development of new
products  and  manufacturing   processes.   The  Company  capitalizes   software
development  costs once  technological  feasibility has been achieved.  Once the
product is released,  the capitalized costs are amortized to operations based on
the  straight-line  method over the estimated useful life of the product,  which
ranges  from  five to ten  years.  Capitalized  software  development  costs are
reported  at  the  lower  of  cost,  net  of  accumulated  amortization,  or net
realizable  value.  Software  development  costs  incurred  prior  to  achieving
technological  feasibility  are charged to research and  development  expense as
incurred.  Software  development costs capitalized  during the years ended March
31, 2000, 1999 and 1998 approximated $3,618, $639 and $100, respectively.


Amortization of Goodwill and Identified Intangible Assets

      The  excess  of the  purchase  price  over the fair  value of  assets  and
liabilities  of  acquired  businesses  is being  amortized  to  operations  on a
straight-line basis over a period of 35 years.  Identified intangible assets are
being  amortized  over the following  estimated  useful  lives:  trade names and
workforce - 35 years;  customer  contracts - 3.45 years;  license agreements - 5
years;  patented  technology  - 4 years;  non-compete  agreement - 2 years;  and
customer relationships - 15 years.


                                       10
<PAGE>

Income Taxes

      The Company uses the liability  method in  accounting  for income taxes in
accordance  with  Statement of  Financial  Accounting  Standards  No. 109 ("SFAS
109"),  Accounting for Income Taxes.  Income tax benefit (expense) is based upon
income  (loss)  recognized  for  financial  statement  purposes and includes the
effects of temporary  differences between such income (loss) and that recognized
for tax purposes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting  purposes  and the  amounts  used for  income  tax  purposes,  and are
measured  using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.  The deferred tax asset is reduced
by a valuation  allowance when, on the basis of available  evidence,  it is more
likely  than not that all or a portion  of the  deferred  tax asset  will not be
realized.

Earnings (Loss) Per Common Share

      Earnings  (loss) per common share is computed in accordance with Statement
of Financial  Accounting  Standards  No. 128 ("SFAS  128"),  Earnings Per Share,
which requires  disclosure of basic earnings per share and diluted  earnings per
share.  Basic  earnings  per share are  computed by  dividing  net income by the
weighted average number of shares of common stock  outstanding  during the year.
Diluted  earnings  per share are computed by dividing net income by the weighted
average  number of shares of common stock  outstanding  and  dilutive  potential
common shares outstanding during the year. The weighted average number of shares
outstanding during the years ended March 31, 2000, 1999 and 1998 for purposes of
computing  basic earnings per share were  13,531,587,  13,456,255 and 9,640,530,
respectively.  During the year ended March 31,  2000,  potential  common  shares
outstanding  were not dilutive.  During the years ended March 31, 1999 and 1998,
dilutive stock options had the effect of increasing the weighted  average number
of shares  outstanding  used in the computation of diluted earnings per share by
321,144 shares and 201,585 shares, respectively.

Fair Value of Financial Instruments

      The carrying  amount of cash,  accounts  receivable  and accounts  payable
approximates  fair value due to the short maturity of the instruments.  The fair
value of notes  receivable  is  estimated by  discounting  the future cash flows
using current  interest rates offered for similar  transactions and approximates
carrying  value.  The fair value of the Company's debt  obligations is estimated
based on the interest  rates  currently  available to the Company for bank loans
with similar terms and average maturities and approximates carrying value.

Credit Policy and Concentration of Credit Risks

      Credit is granted under various terms to customers  that the Company deems
creditworthy.  In addition,  the Company provides limited secured note financing
with terms generally not exceeding two years and interest charged at competitive
rates. Trade accounts and notes receivable are the primary financial instruments
that subject the Company to significant  concentrations of credit risk. In order
to minimize this risk, the Company  performs  ongoing credit  evaluations of its
customers.  With respect to notes  receivable,  the Company  generally  requires
collateral consisting primarily of the payphone terminals and related equipment.
Allowances  for credit  losses on accounts and notes  receivable  are  estimated
based  upon  expected   collectibility.   Allowances  for  impairment  of  notes
receivable are measured based upon the fair value of collateral or the Company's
estimate of the present value of future  expected cash flows in accordance  with
Statement of Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by
Creditors for Impairment of a Loan."


                                       11
<PAGE>

Warranty Reserves

      The Company  accrues and recognizes  warranty  expense based on historical
experience and statistical  analysis.  The Company provides  warranties  ranging
from one to three years and passes on  warranties  on products  manufactured  by
others.

Stock Based Compensation Plans

      The Company  recognizes  compensation  expense with respect to stock-based
compensation plans based on the difference, if any, between the per-share market
value of the stock and the  option  exercise  price on the  measurement  date in
accordance  with  Accounting  Principles  Board  Opinion No. 25 ("APB  25").  In
addition, in accordance with Statement of Financial Accounting Standards No. 123
("SFAS 123"),  "Accounting for Stock-Based  Compensation," the Company discloses
the pro forma  effects on net income  (loss) per share  assuming the adoption of
the fair value based method of accounting for compensation cost related to stock
options and other forms of stock-based compensation set forth in SFAS 123.

Impairment of Long-Lived Assets

      The Company  evaluates the carrying value of property plant and equipment,
goodwill and other intangible  assets when indicators of impairment are present,
and  recognizes  impairment  losses if the carrying  value of the assets is less
than  expected  future  undiscounted  cash flows of the  underlying  business in
accordance  with  Statement of  Financial  Accounting  Standards  No. 121 ("SFAS
121"),  "Accounting  for the Impairment of Long-Lived  Assets and for Long-Lived
Assets to be Disposed Of."  Impairment  losses are measured by the amount of the
asset  carrying  values in excess of fair  market  value.  During the year ended
March 31, 2000, the Company  recorded  impairment  losses of $148 related to the
closure of one of its manufacturing facilities and the abandonment of a software
development  project.  No impairment losses were recorded during the years ended
March 31, 1999 and 1998.

Comprehensive Income

      The Company  adopted the  provisions of Statement of Financial  Accounting
Standards No. 130 ("SFAS 130"),  "Reporting  Comprehensive  Income,"  during the
year ended March 31, 1999.  SFAS 130  establishes  standards  for  reporting and
display  of   comprehensive   income  and  its  components  in  a  full  set  of
general-purpose  financial  statements,  and  requires  that all items  that are
required  to  be  recognized  under   accounting   standards  as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same  prominence  as  other  financial  statements.  In  addition,  SFAS 130
requires  enterprises to classify items of other  comprehensive  income by their
nature  and  display  the  accumulated  balance  of other  comprehensive  income
separately from retained  earnings and additional  paid-in capital in the equity
section of a statement  of financial  position.  During the year ended March 31,
2000,  the  Company  had one  item of other  comprehensive  income  relating  to
marketable equity  securities.  The Company had no items of other  comprehensive
income during the years ended March 31, 1999 and 1998.

Disclosure about Segments of an Enterprise and Related Information

      During the year ended March 31,  1999,  the Company  adopted  Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related  Information."  SFAS 131 establishes  standards for
the way that public  business  enterprises  report  information  about operating
segments in annual and interim financial statements. See Note 12.


                                       12
<PAGE>

Derivative Financial Instruments and Hedging Activities

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"),  "Accounting for Derivative
Instruments and Hedging Activities," which establishes  standards for accounting
of derivative  instruments including certain derivative  instruments embedded in
other  contracts,  and  hedging  activities.  SFAS 133 is  effective  for fiscal
quarters of all fiscal years  beginning  after June 15, 2000.  SFAS 133 requires
entities to  recognize  derivative  instruments  as assets and  liabilities  and
measure them at fair value,  and to match the timing of gain or loss recognition
on hedging  instruments with the recognition of changes in the fair value of the
hedged  asset or  liability  that are  attributable  to the  hedged  risk or the
earnings  effect  of the  hedged  forecasted  transaction.  Management  does not
believe  that the  adoption  of SFAS 133 will have a  significant  impact on the
Company's consolidated financial statements.

Computer Software Developed or Obtained for Internal Use

      During the year ended March 31, 2000,  the Company  adopted the provisions
of  Statement  of Position  98-1,  "Accounting  for Costs of  Computer  Software
Developed  or Obtained for  Internal  Use" ("SOP  98-1")  issued by the American
Institute of Certified Public  Accountants (the "AICPA") in March 1998. SOP 98-1
provides guidance on accounting for the costs of computer software  developed or
obtained for internal use and new cost recognition principles and identifies the
characteristics of internal use software. SOP 98-1 is effective for fiscal years
beginning  after  December  15,  1998.  The  adoption of SOP 98-1 did not have a
material impact on the Company's  results of operations,  financial  position or
cash flows.

Use of Estimates

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

Reclassification of Prior Years

      The Company's consolidated financial statements at March 31, 1999 and 1998
and  for  the  years  then  ended  have  been  reclassified  to  conform  to the
presentation at and for the year ended March 31, 2000.

NOTE 2 - ACQUISITIONS

      The  Company's  acquisitions  have been  accounted  for under the purchase
method. Accordingly,  the purchase prices have been allocated to assets acquired
and  liabilities  assumed based on fair value at the dates of  acquisition.  The
results of  acquired  businesses  and assets are  included  in the  consolidated
financial statements of the Company from the dates of acquisition.

      On December  18,  1997,  the Company  acquired,  via a merger,  Technology
Service Group,  Inc.  ("TSG"),  and issued  4,944,292  shares of common stock in
exchange for the  outstanding  common stock of TSG based on an exchange ratio of
1.05 shares of the Company's common stock for each share of common stock of TSG,
and TSG became a wholly  owned  subsidiary  of the  Company.  In  addition,  the
Company  issued 80,769 shares of common stock in payment of certain  acquisition
expenses. Further,


                                       13
<PAGE>

holders of options and rights to purchase shares of common stock of TSG pursuant
to option and stock purchase plans received options and rights to purchase, at a
proportionately  reduced per share exercise  price, a number of shares of common
stock of the Company equal to 1.05 times the number of shares of common stock of
TSG they were entitled to purchase  immediately prior to the merger.  Similarly,
holders of warrants to purchase shares of common stock of TSG received  warrants
to purchase, at a proportionately  reduced per share exercise price, a number of
shares of common  stock of the Company  equal to 1.05 times the number of shares
of common stock of TSG they were entitled to purchase  immediately  prior to the
merger.

      A summary of the purchase price is set forth below.

    Issuance of 4,944,292 shares of common stock
             stock at a market price of $6.50 per share           $ 32,138
    Fair value of outstanding common stock
        warrants, options and purchase rights                        2,595
    Costs and expenses of the merger                                   872
                                                                  --------
    Total purchase price                                          $ 35,605
                                                                  ========

      The Company  registered the shares of common stock issued  pursuant to the
Merger and incurred  registration  expenses of $339. These expenses were charged
to paid-in capital during the year ended March 31, 1998.

      A  summary  of the book  value of the  assets  and  liabilities  of TSG at
December  18, 1997 as compared to their  estimated  fair values  recorded at the
acquisition date is set forth below.

<TABLE>
<CAPTION>
                                                                                Estimated
                                                                   Book           Fair
                                                                  Value           Value
                                                                 -------        ---------
<S>                                                              <C>            <C>
      Cash and temporary investments                             $   239        $    239
      Accounts receivable                                          3,703           3,703
      Inventories                                                 11,103           6,490
      Refundable income taxes                                        604             604
      Deferred tax asset, current                                    748           3,719
      Prepaid expenses and other current assets                       12              12
      Property, plant and equipment                                  662             782
      Capitalized software                                           875             846
      Identified intangible assets                                   147           6,684
      Other assets                                                    29              29
      Accounts payable                                            (3,634)         (3,634)
      Accrued expenses                                            (1,519)         (2,719)
      Borrowings under lines of credit                            (3,970)         (3,970)
      Deferred tax liability, non-current                             (4)         (1,276)
                                                                 -------        --------
      Net assets acquired                                        $ 8,995          11,509
                                                                 =======
      Excess of purchase price over net assets acquired                           24,096
                                                                                --------
      Total                                                                     $ 35,605
                                                                                ========
</TABLE>

      The fair value of identified  intangible assets includes TSG's trade names
of $2,869,  assembled  workforce of $1,372,  patented  technology  of $419,  and
customer contracts of $2,024 (see Note 6). The


                                       14
<PAGE>

fair value of  inventories  was reduced by $4,810 to reflect the  estimated  net
realizable value of inventories related to products discontinued by the Company.
The fair value of accrued liabilities  includes estimated  liabilities of $1,200
pursuant to a plan to exit certain  activities of TSG and terminate and relocate
employees of TSG (see Note 8). During the year ended March 31, 2000, the Company
reduced the  estimated  liabilities  related to the exit plan and credited  $126
against  the  excess  of  the  purchase  price  over  the  net  assets  acquired
("goodwill").

      On September 30, 1997, the Company acquired from Lucent  Technologies Inc.
("Lucent")  inventories,  machinery,  and  equipment  and  tooling,  as  well as
licenses of certain patent and other  intellectual  property rights,  related to
the payphone manufacturing and component parts business conducted by Lucent. The
purchase price, including acquisition expenses of $367, was $5,957.

      A  summary  of the  allocation  of the  purchase  price to the net  assets
acquired  from Lucent based on the  Company's  estimates of their fair values is
set forth below.

      Inventories                                  $ 2,991
      Equipment and tooling                            500
      Intangible assets                              2,591
      Accrued warranty expense                        (125)
                                                   -------
      Total purchase price                         $ 5,957
                                                   =======

      Identified  intangible assets are comprised of license agreements of $938,
a non-compete  agreement of $77 and customer  relationships  of $1,576 (see Note
6).

      Assuming the acquisitions had occurred on April 1, 1997, the Company's pro
forma results of operations for the year ended March 31, 1998 would have been as
follows:

                                                     1998
                                                   --------

Net sales                                          $ 66,554
                                                   ========
Net income                                         $     14
                                                   ========
Basic earnings per share                           $     --
                                                   ========
Diluted earnings per share                         $     --
                                                   ========

      The pro forma  results of  operations  for the fiscal year ended March 31,
1998  include the  operating  results of TSG from April 1, 1997 to December  18,
1997 and pro forma  adjustments  consisting  of an increase in  amortization  of
goodwill and other intangible assets of $932 due to the increase in the carrying
value of intangible assets and amortization over their estimated useful lives, a
decrease in  depreciation  of $228 due to an increase in the  carrying  value of
property and equipment and depreciation over different estimated useful lives, a
decrease  in deferred  tax  expense of $104  resulting  from the  allocation  to
deferred tax assets and liabilities and a decrease in income tax expense of $179
to  reflect  the pro forma  effect  on income  tax  expense  resulting  from the
acquisition.  The pro forma  adjustments  related to the acquisition of Lucent's
assets  for the  fiscal  year  ended  March 31,  1998  include  an  increase  in
amortization  of intangible  assets of $130, an increase in depreciation of $50,
an increase in interest  expense of $245 and a decrease in income tax expense of
$149.


                                       15
<PAGE>

NOTE 3 - ACCOUNTS AND NOTES RECEIVABLE

      Current  accounts and notes  receivable at March 31, 2000 and 1999 include
notes  receivable  due  within one year of $487 and $803,  respectively,  net of
credit and  impairment  allowances  of $1,080 and  $1,242,  respectively.  Notes
receivable  consist of trade notes  receivable  from  customers  with  remaining
maturities  of two  years  or  less,  and are  generally  collateralized  by the
payphone equipment sold and giving rise to the asset. The notes bear interest at
rates ranging from 12% to 16%.  Interest  income on impaired notes is recognized
as the interest is collected.  The Company  recognizes  interest income on notes
with no related credit loss allowance as earned.

      Changes in allowances  for credit losses on accounts and notes  receivable
for the years ended March 31, 2000, 1999 and 1998 are summarized as follows:

                                                   2000        1999      1998
                                                 -------     -------   -------

      Balance, beginning of year                 $ 2,282     $ 2,410   $ 1,301
      Provision for credit losses                    545         117     1,352
      Write-offs, net of recoveries                 (962)       (245)     (243)
                                                 -------     -------   -------
      Balance, end of year                         1,865       2,282     2,410
      Long-term allowances                          (272)       (312)     (487)
                                                 -------     -------   -------
      Current allowances                         $ 1,593     $ 1,970   $ 1,923
                                                 =======     =======   =======

NOTE 4 - INVENTORIES

      Inventories at March 31, 2000 and 1999 consisted of the following:

                                                     2000              1999
                                                   --------          --------

      Finished products                            $  1,679          $  1,875
      Work-in-process                                 1,068               924
      Purchased components                            7,835            11,630
                                                   --------          --------
                                                     10,582            14,429
      Reserve for obsolescence                       (1,814)             (451)
                                                   --------          --------
                                                   $  8,768          $ 13,978
                                                   ========          ========

      Substantially all inventories are pledged to secure bank indebtedness (See
Note 7).

      Changes in reserves  for  potential  losses due to  obsolescence  and slow
moving  inventories  for the  years  ended  March  31,  2000,  1999 and 1998 are
summarized as follows:

                                           2000           1999          1998
                                          -------       -------       -------

      Balance, beginning of year          $   451       $   100       $   100
      Provision for losses                  1,401           406            13
      Write-offs                              (38)          (55)          (13)
                                          -------       -------       -------
      Balance, end of year                $ 1,814       $   451       $   100
                                          =======       =======       =======


                                       16
<PAGE>

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

      Property,  plant and  equipment at March 31, 2000 and 1999 is comprised of
the following:

                                                          2000           1999
                                                        --------       --------

Land                                                    $    372       $    372
Buildings                                                  3,067          2,842
Engineering and manufacturing equipment                    5,671          4,291
Furniture, fixtures and office equipment                   2,250          1,841
                                                        --------       --------
                                                          11,360          9,346
Less accumulated depreciation                             (5,493)        (4,282)
                                                        --------       --------
                                                        $  5,867       $  5,064
                                                        ========       ========

      Depreciation  expense for the years ended March 31, 2000,  1999,  and 1998
was $1,295, $1,163, and $645,  respectively.  Substantially all property,  plant
and equipment are pledged to secure bank indebtedness (see Note 7).

      Assets  under  capital  leases  are   capitalized   using  interest  rates
appropriate  at the  date of  purchase  or at the  inception  of the  lease,  as
applicable.   The  cost  and   accumulated   depreciation   of  engineering  and
manufacturing  equipment under capital leases included in property and equipment
was $279 and $28 at March 31, 2000. No assets under capital  leases were held at
March 31, 1999.

NOTE 6 - IDENTIFIED INTANGIBLE ASSETS

      Identified intangible assets recorded in connection with acquisitions, net
of  accumulated  amortization,  at March  31,  2000 and  1999  consisted  of the
following:

                                                              2000         1999
                                                             ------       ------

     Trade names, net of accumulated
         amortization of $187 and $105                       $2,682       $2,764
     Customer contracts, net of accumulated
         amortization of $1,341 and $754                        683        1,270
     Workforce, net of accumulated
         amortization of $90 and $50                          1,282        1,322
     License agreements, net of accumulated
         amortization of $469 and $281                          469          657
     Patented technology, net of accumulated
          amortization of $239 and $135                         180          284
     Non-compete agreement, net of accumulated
          amortization of $77 and $58                            --           19
     Customer relationships, net of accumulated
          amortization of $262 and $158                       1,314        1,418
                                                             ------       ------
                                                             $6,610       $7,734
                                                             ======       ======


                                       17
<PAGE>

NOTE 7 - NOTES, DEBT AND CAPITAL LEASE OBLIGATIONS PAYABLE

      Notes,  debt and capital lease  obligations  payable at March 31, 2000 and
1999 are summarized as follows:

                                                             2000        1999
                                                           --------    --------

Secured Promissory Notes Payable to Bank:
   Revolving credit lines due July 31, 2000                $  6,376    $  5,185
   11.5% installment note, payable in four equal
      monthly installments of $80 including interest,
      with remaining principal balance of $3,215
      due on July 31, 2000                                    3,322       4,000
   11.5% mortgage note, payable in four equal
      monthly installments of $19 including interest,
      with remaining principal balance of $1,755
      due on July 31, 2000                                    1,762       1,833
Capital lease obligations                                       263        --
Unsecured promissory note, payable in thirty
   equal monthly installments of $6 including interest           96         160
                                                           --------    --------
                                                             11,819      11,178
 Amount payable within one year                             (11,611)       (823)
                                                           --------    --------
 Amount payable after one year                             $    208    $ 10,355
                                                           ========    ========

      As of March 31,  2000,  the  Company  was in default of certain  financial
covenants  contained in the Loan and Security Agreements (the "Loan Agreements")
between the Company and its bank. On April 12, 2000, the Company  entered into a
Forbearance and Modification  Agreement (the  "Forbearance  Agreement") with its
bank  that  modified  the terms of the Loan  Agreements.  Under the terms of the
Forbearance Agreement,  the maturity date of all indebtedness  outstanding under
the Loan  Agreements,  including  indebtedness  outstanding  under the revolving
credit lines, the installment note and the mortgage note was accelerated to July
31, 2000. In addition,  the annual  interest rates of the  installment  note and
mortgage  note were  increased to 11.5% from 7.55% and 8.5%,  respectively,  the
annual interest rate under the revolving credit lines was increased from one and
one-half  percentage  point over the bank's floating 30 day Libor rate (7.63% at
March 31,  2000) to two and  one-half  percentage  points above the bank's prime
interest  rate (11.5% at April 12,  2000),  and the  availability  of additional
funds under a $2,000 export  revolving credit line (none of which is outstanding
at March 31, 2000) and a $1,500  equipment  revolving credit line ($281 of which
was  outstanding at March 31, 2000) was  cancelled.  The  Forbearance  Agreement
permits an  overadvance  of  indebtedness  outstanding  under a $10,000  working
capital  revolving  credit line  ($6,095 of which was  outstanding  at March 31,
2000) and a $4,000  installment  note ($3,322 of which was  outstanding at March
31,  2000) of $2,800  through June 30, 2000 and $1,500  thereafter  based on the
value of collateral  consisting of eligible accounts receivable and inventories.
Indebtedness   outstanding  under  the  Loan  Agreements  is  collateralized  by
substantially  all of the assets of the Company.  As a result of the default and
modification of the Loan Agreements, the Company has classified outstanding bank
debt in the  aggregate  amount  of  $11,460  at  March  31,  2000  as a  current
liability.

      On March 29, 1999, the Company and its bank entered into an amendment (the
"Amendment")  that modified the terms of the Loan  Agreements.  Pursuant to that
Amendment,  the Company's working capital revolving credit line was reduced from
$15,000 to $10,000 and the Company  borrowed  $4,000  pursuant to an installment
note and  established  a $1,500  revolving  credit  line to finance  its capital


                                       18
<PAGE>

expenditures   and  a  $2,000  revolving  credit  line  to  finance  its  export
activities.  The proceeds  from the term note were used to reduce the  Company's
outstanding indebtedness under the $15,000 revolving credit line.

      The Loan  Agreements,  as modified by the Forbearance  Agreement,  contain
covenants  that  prohibit  or  restrict  the  Company  from  engaging in certain
transactions   without   the   consent  of  the  bank,   including   mergers  or
consolidations and disposition of assets, among others.  Additionally,  the Loan
Agreements,  as modified by the  Forbearance  Agreement,  require the Company to
maintain a working  capital ratio of 1 to 1 and a ratio of total  liabilities to
net worth of 1.5 to 1.  Noncompliance with any of these conditions and covenants
or the  occurrence  of an  event of  default,  if not  waived  or  cured,  could
accelerate  the  maturity  of  the  indebtedness   outstanding  under  the  Loan
Agreements.

      Scheduled  maturities of notes, debt and capital lease obligations payable
for the next five years are as follows:

             Fiscal 2001                             $11,611
             Fiscal 2002                                 127
             Fiscal 2003                                  81
                                                     -------
                                                     $11,819
                                                     =======

      The Company leases certain equipment under capital lease obligations.  The
present  value of future  minimum  lease  payments for the assets under  capital
leases at March 31, 2000 is as follows:

             Fiscal 2001                                    $ 111
             Fiscal 2002                                      109
             Fiscal 2003                                       85
                                                            -----
             Total minimum capital lease obligation           305
             Less portion representing interest               (42)
                                                            -----
             Present value of minimum lease payments        $ 263
                                                            =====

NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued  expenses and other  current  liabilities  as of March 31, 2000 and 1999
consist of the following:

                                                                2000       1999
                                                               ------     ------

          Payroll and payroll taxes                            $1,237     $1,218
          Warranty expense                                        561      1,101
          Relocation, severance and reorganization charges        440        615
          Professional fees                                        48        248
          Royalities and technology transfer fees                 249        284
          Customer advances                                       329        457
          Other                                                   259        274
                                                               ------     ------
                                                               $3,123     $4,197
                                                               ======     ======

      In  November  1999,  the  Company   announced  a  restructuring   plan  to
consolidate  manufacturing   operations,   resize  its  core  payphone  business
operations,  reorient its  distribution  strategy and begin to build  operations
required to introduce its new public access Internet appliance products and back
office


                                       19
<PAGE>

management  systems to the marketplace.  In connection with this  restructuring,
the  Company  recognized  other  charges of $733 during the year ended March 31,
2000. These other charges consisted of estimated employee  termination  benefits
under  severance and benefit  arrangements  of $608 and future lease payments of
$125  related to the  closure  of leased  facilities.  The other  charges do not
include  the  recognition  of  impairment  losses  of  $148  related  to  closed
facilities and the Company's decision to abandon a software  development project
related to certain discontinued activities. Impairment losses of $140 and $8 are
classified  as  engineering,  research  and  development  expenses  and selling,
general and administrative expenses,  respectively,  during the year ended March
31, 2000.

      Under the November 1999 restructuring plan, the Company will terminate the
employment  of 56  employees  by December  31,  2000,  including 28 employees in
connection with the consolidation of manufacturing operations and the closure of
its manufacturing  facility in Sarasota,  Florida and 28 corporate  employees in
all major  functions.  As of March 31,  2000,  the  Company had  terminated  the
employment of 54 employees under the plan. During the year ended March 31, 2000,
the  Company  charged  $320  of  severance  and  benefit  payments  against  the
restructuring liability, which is included in accrued relocation,  severance and
reorganization liabilities.

      Under the restructuring  plan, the Company closed a leased office facility
in  Alpharetta,  Georgia  and leased a larger  facility to  accommodate  service
operations related to its new public access Internet appliance products and back
office management  systems.  The  restructuring  charges related to future lease
payments  include a  termination  settlement  of $27  under a lease  termination
agreement  with  respect to the  closed  office  facility  and  remaining  lease
payments of $98 under the lease agreement related to the Company's manufacturing
facility.  During the year ended March 31, 2000,  payments of $47 related to the
lease  termination  agreement and the closed  facility were charged  against the
restructuring liability.

      During the year ended March 31, 1999,  the Company  reorganized  its sales
and marketing  organization.  The Company accrued and recognized  reorganization
charges of $490,  which  included the  estimated  costs of severance  and salary
continuation   arrangements  and  related  employee  benefits  with  respect  to
terminated  employees.  During  the years  ended  March 31,  2000 and 1999,  the
Company  charged $373 and $117 of  severance  and benefit  payments  against the
restructuring liability accrued in connection with the reorganization.

      The restructuring and  reorganization  charges of $733 and $490 during the
years ended March 31, 2000 and 1999, respectively, are included in other charges
(credits) in the  accompanying  consolidated  statements of operations and other
comprehensive income (loss).

      In connection with the  acquisition of TSG, the Company assumed  estimated
liabilities of $1,200  pursuant to a plan to exit certain  activities of TSG and
terminate  and  relocate  employees  of  TSG.  These  liabilities  included  the
estimated costs of severance and salary  continuation  arrangements  and related
employee  benefits of $730 and the  estimated  costs to relocate  employees  and
property of TSG of $470.  The plan  provided for the closure of TSG's  corporate
facility and the  integration of TSG's general,  administrative  and engineering
activities  into those of the Company,  and  identified  the employees that were
expected to be relocated or  terminated as a result of the  acquisition.  During
the years ended March 31, 2000, 1999 and 1998, the Company  charged  payments of
$42, $806 and $152,  respectively,  against the liabilities  accrued pursuant to
the plan.  During the year ended March 31, 2000, the Company charged $126 of the
liabilities  accrued  pursuant to plan against  goodwill  recorded in connection
with the acquisition,  such amount  representing a change in estimate related to
remaining liabilities to be paid.


                                       20
<PAGE>

      Changes in accrued  relocation,  severance and reorganization  charges for
the years ended March 31, 2000, and 1999 are summarized as follows:

                                                    2000       1999       1998
                                                  -------    -------    -------

   Balance, beginning of year                     $   615    $ 1,048    $    --
   Acquired obligations                                --         --      1,200
   Restructuring and reorganization charges           733        490         --
   Payments                                          (782)      (923)      (152)
   Adjustment to goodwill                            (126)      --           --
                                                  -------    -------    -------
   Balance, end of year                           $   440    $   615    $ 1,048
                                                  =======    =======    =======

      Changes in accrued  warranty  expense for the years ended March 31,  2000,
1999 and 1998 are summarized as follows:

                                              2000          1999          1998
                                            -------       -------       -------

   Balance, beginning of year               $ 1,101       $ 1,170       $   295
   Acquired obligations                          --            --         1,075
   Expense provision                             53           419           240
   Charges incurred                            (593)         (488)         (440)
                                            -------       -------       -------
   Balance, end of year                     $   561       $ 1,101       $ 1,170
                                            =======       =======       =======


                                       21
<PAGE>

NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION

      A summary of the  Company's  supplemental  cash flow  information  for the
years ended March 31, 2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                            2000        1999     1998
                                                          -------    -------   -------
<S>                                                       <C>        <C>       <C>
 Cash paid (received) during the year for
      Interest                                            $   950    $   861   $   427
      Income taxes                                         (1,876)       845       694

Non-cash investing and financing activities
     Receipt of marketable securities to satisfy
       accounts receivable resulting in an increase
       in other current assets and a reduction in
       accounts receivable                                    287         --        --
     Equipment acquired under capital lease
       obligations                                            279         --        --
     Tax benefit from exercise of options resulting in
       an increase in stockholders' equity and
       an increase in non-current deferred tax assets
       in 2000 and a decrease in income taxes payable
       in 1998                                                 98         --        62
     Issuance of common stock to acquire
       Technology Service Group, Inc. (see Note 2)             --         --    35,258
     Write-off of acquired accrued restructuring
       liabilities resulting in a decrease in accrued
       expenses and goodwill                                  126         --        --
     Compensation related to exercised stock options
       resulting in an increase in stockholders' equity
       and a decrease in accrued expenses                      18         --        --
     Other assets acquired by issuance
       of note payable                                         --        160        --
</TABLE>

NOTE 10 - STOCKHOLDERS' EQUITY

Common Stock

      On November 2, 1999, the stockholders of the Company approved an amendment
to the Company's  Certificate of  Incorporation to increase the number of shares
of common stock, $.01 par value,  authorized for issuance to 40,000,000  shares,
from 30,000,000 shares.  Holders of voting common stock are entitled to one vote
per share on all matters to be voted on by the  stockholders.  No dividends have
been declared or paid on the Company's common stock during the years ended March
31, 2000, 1999 and 1998.

Common Stock Warrants

      At the acquisition  date of TSG, TSG had issued and outstanding  1,150,000
redeemable  warrants to purchase  575,000  shares of common stock at an exercise
price of $11.00 per share (the  "Redeemable  Warrants") and warrants to purchase
100,000  shares of common  stock at an  exercise  price of $10.80 per


                                       22
<PAGE>

share (the  "Underwriter  Warrants").  In connection with the  acquisition,  the
Redeemable  Warrants  were  converted  into  warrants of the Company to purchase
603,750 shares of common stock at a per share exercise price of $10.48,  and the
Underwriter  Warrants  were  converted  into warrants of the Company to purchase
105,000 shares of common stock at a per share exercise price of $10.29 (see Note
2). On May 9, 1999, the Redeemable Warrants, none of which had been exercised or
redeemed,  expired  pursuant to their  terms.  The  Underwriter  Warrants may be
exercised at any time until May 9, 2001, the expiration  date of the Underwriter
Warrants.  The Underwriter Warrants contain  anti-dilution a provision providing
for  adjustments  of the number of warrants  and  exercise  price under  certain
circumstances.  The  Underwriter  Warrants grant to the holders  thereof certain
rights of registration of the securities issuable upon their exercise.

Stock Option Plans

      On October 15, 1999,  the Board of  Directors  of the Company  adopted the
1999 Stock  Option  Plan (the "1999  Plan").  The  Compensation  Committee  (the
"Committee")  appointed by the Board of Directors of the Company administers the
1999  Plan,  and  pursuant  to  the  1999  Plan  have  the  authority  to  grant
non-qualified  stock  options  to  senior  executive  officers  of the  Company.
Non-qualified  stock options to purchase up to an aggregate of 539,988 shares of
common  stock may be  granted  under the 1999  Plan at  option  exercise  prices
determined  by the  Committee.  The Committee has the authority to interpret the
provisions of the 1999 Plan,  to determine  the terms and  provisions of options
granted  under the 1999 Plan and to  determine  the number of shares  subject to
options granted and the vesting periods  thereof.  The Committee's  authority to
grant options under the 1999 Plan expires on October 15, 2004.  Options  granted
under the 1999 Plan  expire  five years from the date of grant  unless  they are
terminated  prior  thereto  upon the  termination  of  employment  of a grantee.
Unvested  options  granted  under  the 1999  Plan  expire  immediately  upon the
termination  of a grantee's  employment  by the grantee for any reason or by the
Company for cause. Upon the termination of a grantee's employment by the Company
without  cause,  options that would have vested  during the twelve  months after
such  termination  of employment or during the remaining  term of any employment
agreement  between the grantee and the Company,  whichever is less,  immediately
vest  and are  thereafter  exercisable  until  their  expiration  date,  and any
remaining  unvested options expire as of the termination  date.  Pursuant to the
terms of an employment agreement between the Company and its President and Chief
Executive  Officer dated October 15, 1999, the Company granted options under the
1999  Plan to  purchase  539,988  shares  of the  Company's  common  stock at an
exercise  price of $1.67 per share.  Such  options  vest and become  exercisable
ratably  at the end of each  month  over the term of the  employment  agreement,
which  expires on October 11, 2002.  As of March 31,  2000,  options to purchase
90,000 shares of common stock are exercisable.

      On July 2, 1991, the Company adopted the 1991 Stock Option Plan (the "1991
Plan").  The 1991 Plan  provides  the Board of Directors of the Company with the
authority  to  grant  to  employees,  officers  and  directors  of  the  Company
non-qualified  stock options and incentive  stock options  within the meaning of
Section 422A of the Internal Revenue Code. On November 2, 1999, the stockholders
approved an amendment to the 1991 Plan that  increased  the number shares of the
Company's  common  stock that may be issued  under the 1991 Plan from  2,100,000
shares to 2,600,000  shares.  The Board's  authority to grant  options under the
1991 Plan expires on July 2, 2001.  The Board has the authority to determine the
number of shares subject to options  granted and such other terms and conditions
under which  options  may be  exercised.  The  per-share  option  price of stock
options  granted  under the 1991 Plan shall not be less than the  greater of the
per-share  fair market  value of the  Company's  common  stock as of the date of
grant or $.75, or 110% of the  per-share  market value with respect to incentive
stock  options  granted to  employees  owning 10% or more of the total  combined
voting power of all classes of the Company's  stock.  Options  granted under the
1991 Plan expire five years from the date of grant or 30 days after  termination
of  employment,  except for  termination  of  employment  for certain  specified
reasons or unless the Board of Directors extends such 30-day period.


                                       23
<PAGE>

      As of March 31, 2000,  options to purchase  541,534 shares of common stock
were  available  for grant under the 1991 Plan.  The weighted  average  exercise
price of options  outstanding  under the 1991 Plan at March 31,  2000,  1999 and
1998 was $4.77, $5.09 and $4.72, respectively. At March 31, 2000, 1999 and 1998,
options   outstanding  under  the  1991  Plan  had  weighted  average  remaining
contractual lives of 3.7 years, 3.0 years and 3.2 years, respectively.

      The  following  table  summarizes  information,  including  the status and
changes in stock options outstanding,  with respect to the 1991 Plan for each of
the years in the three-year period ended March 31, 2000:

                                              Number of         Option Price
                                               Shares          Range Per Share
                                             ------------      ---------------

Outstanding at March 31, 1997                     391,448       $1.31 - $7.50
     Granted                                      285,400       $5.56 - $6.00
     Exercised                                    (69,385)      $1.31 - $6.19
     Cancelled                                    (62,188)      $3.50 - $7.50
                                             ------------
Outstanding at March 31, 1998                     545,275       $1.81 - $7.38
     Granted                                      561,000       $4.56 - $5.88
     Exercised                                    (22,600)      $1.81 - $3.50
     Cancelled                                    (57,675)      $3.50 - $6.94
                                             ------------
Outstanding at March 31, 1999                   1,026,000       $3.50 - $7.38
     Granted                                      806,250       $1.88 - $6.19
     Exercised                                   (140,250)      $4.56 - $6.19
     Cancelled                                   (535,825)      $1.88 - $7.38
                                             ------------
Outstanding at March 31, 2000                   1,156,175       $1.88 - $6.81
                                             ============

Options exercisable at March 31, 2000             258,899       $4.56 - $6.81
                                             ============
Options exercisable at March 31, 1999             291,255       $3.50 - $7.38
                                             ============
Options exercisable at March 31, 1998             137,800       $1.81 - $6.19
                                             ============

      On July 2, 1991, the Company  adopted a Directors'  Stock Option Plan (the
"Directors  Plan").  The Directors Plan provides for the grant of  non-qualified
stock options to directors who are not employees of the Company.  On November 2,
1999,  the  stockholders  of the Company  approved an amendment to the Directors
Plan that increased the number shares of the Company's  common stock that may be
issued  under the  Director  Plan from  225,000  shares to 300,000  shares.  The
Board's  authority to grant options under the Directors  Plan expires on July 2,
2001.   Pursuant  to  the  Directors  Plan,  each  new   non-employee   director
automatically receives a non-qualified option to purchase 4,000 shares of common
stock upon appointment or election to the Board. Thereafter, on March 31 of each
year,  each  non-employee  director  receives a  non-qualified  stock  option to
purchase  1,000 shares of common stock for each  committee of the Board on which
such  non-employee  director is then serving and for each committee of the Board
on which such  non-employee  director is then serving as chairman.  Non-employee
directors  are also  eligible  for  discretionary  grants of  options  under the
Directors  Plan. The per-share  option price of stock options  granted under the
Directors  Plan shall not be less than the greater of the per-share  fair market
value of the  Company's  common stock as of the date of grant or $2.00.  Options
granted under the Directors Plan become  exercisable on the first anniversary of
the date of grant.  Options  granted under the Directors  Plan expire five years
from the date of grant or 30 days after the date a


                                       24
<PAGE>

director  ceases  to  serve as a  director  (one  year in the  event of death or
disability),  except that such 30-day  period does not apply if director  status
ceased  within one year  after a change in control of the  Company or unless the
Board of Directors extends such 30 day period.

      As of March 31, 2000,  options to purchase  124,000 shares of common stock
were available for grant under the Directors Plan. The weighted average exercise
price of options  outstanding  under the Directors Plan at March 31, 2000,  1999
and 1998 was $4.71, $4.75 and $4.78,  respectively.  At March 31, 2000, 1999 and
1998,  options  outstanding  under  the  Directors  Plan  had  weighted  average
remaining contractual lives of 3.3 years, 3.9 years and 2.3 years, respectively.

      The  following  table  summarizes  information,  including  the status and
changes in stock options  outstanding,  with respect to the  Directors  Plan for
each of the years in the three-year period ended March 31, 2000:

                                              Number of         Option Price
                                               Shares          Range Per Share
                                             ------------      ---------------

Outstanding at March 31, 1997                     100,000       $2.00 - $6.31
     Granted                                       28,000       $5.56 - $5.88
     Exercised                                    (31,000)      $2.00 - $3.94
     Cancelled                                     (4,000)          $5.88
                                             ------------
Outstanding at March 31, 1998                      93,000       $3.81 - $6.31
     Granted                                       51,000       $3.59 - $4.56
     Exercised                                    (22,000)      $3.81 - $5.25
     Cancelled                                    (28,000)      $3.81 - $6.31
                                             ------------
Outstanding at March 31, 1999                      94,000       $3.59 - $6.31
     Granted                                       12,000           $3.16
     Exercised                                     (2,000)          $3.94
     Cancelled                                    (13,000)      $3.59 - $3.94
                                             ------------
Outstanding at March 31, 2000                      91,000       $3.16 - $6.31
                                             ============

Options exercisable at March 31, 2000              79,000       $3.59 - $6.31
                                             ============
Options exercisable at March 31, 1999              43,000       $3.94 - $6.31
                                             ============
Options exercisable at March 31, 1998              69,000       $3.81 - $6.31
                                             ============

      In connection  with the  acquisition  of TSG,  options to purchase  41,000
shares of common stock outstanding under TSG's 1995 Non-Employee  Director Stock
Plan (the "1995 Directors  Plan") were converted into options to purchase 43,050
shares of common  stock of the  Company.  No  additional  options may be granted
under the 1995 Directors Plan subsequent to the acquisition. Such options became
exercisable  in full as a result of the  acquisition  of TSG and expire one year
after the date a director ceases to serve as a director of TSG or ten years from
the date of grant,  whichever is earlier. At March 31, 1998, options to purchase
43,050 shares of common stock were  outstanding at exercise  prices ranging from
$4.76 to $10.30 per share, and all such options were  exercisable.  The weighted
average exercise price of options  outstanding  under the 1995 Directors Plan at
March 31, 1998 was $7.83, and the remaining weighted average contractual life of
such  options was .7 years.  During the year ended March 31,  1999,  all options
outstanding under the 1995 Directors Plan expired unexercised.


                                       25
<PAGE>

      In  addition,  in  connection  with the  acquisition  of TSG,  options  to
purchase  531,125  shares of common stock  outstanding  under TSG's 1994 Omnibus
Stock Plan (the "Omnibus Plan") were converted into options to purchase  557,682
shares of common  stock of the  Company.  No  additional  options may be granted
under  the  Omnibus  Plan  subsequent  to  the  acquisition.   The  options  are
exercisable  in four equal annual  installments  beginning on the date of grant,
and expire ten years from the date of grant. The weighted average exercise price
of options  outstanding  under the Omnibus Plan at March 31, 2000, 1999 and 1998
was $4.23,  $3.10 and $3.09,  respectively.  At March 31,  2000,  1999 and 1998,
options  outstanding  under the  Omnibus  Plan had  weighted  average  remaining
contractual lives of 4.4 years, 5.2 years and 6.5 years, respectively.

      The  following  table  summarizes  information,  including  the status and
changes in stock options outstanding,  with respect to the Omnibus Plan for each
of the years in the three-year period ended March 31, 2000:

                                                Number of         Option Price
                                                 Shares             Per Share
                                             --------------       ------------

Options assumed and converted                        557,682      $.95 - $10.26
     Exercised                                      (68,479)      $.95 - $4.76
     Cancelled                                      (40,297)      $.95 - $10.26
                                             --------------
Outstanding at March 31, 1998                       448,906       $.95 - $10.26
     Exercised                                      (90,244)      $.95 - $4.76
     Cancelled                                      (23,887)      $.95 - $10.26
                                             --------------
Outstanding at March 31, 1999                       334,775       $.95 - $9.05
     Exercised                                     (146,300)      $.95 - $4.76
     Cancelled                                       (4,200)          $9.05
                                             --------------
Outstanding at March 31, 2000                       184,275       $.95 - $9.05
                                             ==============

Options exercisable at March 31, 2000               184,275       $.95 - $9.05
                                             ==============
Options exercisable at March 31, 1999               320,662       $.95 - $9.05
                                             ==============
Options exercisable at March 31, 1998               402,614       $.95 - $10.26
                                             ==============

Accounting for Stock-Based Compensation

      During the year ended March 31, 2000, the Company  recognized  stock-based
compensation  expense of $64 with respect to compensatory  options granted under
the 1999 Plan.  During the year ended March 31, 1999,  the Company  modified the
terms of certain outstanding options to include provisions that would accelerate
their vesting upon a change in control of the Company and to extend the exercise
period of vested options upon certain events. As a result of the  modifications,
the Company recognized stock-based  compensation expense of $112 during the year
ended March 31, 1999. During the year ended March 31, 2000, the Company credited
$83  of  previously  recognized  stock-based  compensation  expense  related  to
cancelled  and expired  options to income.  The Company  did not  recognize  any
compensation  expense with respect to stock options  granted under the Company's
plans during the year ended March 31, 1998.


                                       26
<PAGE>

      A comparison of the  Company's  net income (loss) and earnings  (loss) per
share as reported  and on a pro forma basis for the years ended March 31,  2000,
1999 and 1998  assuming  the Company had adopted the fair value based  method of
accounting  for  compensation  cost related to stock  options and other forms of
stock-based compensation set forth in SFAS 123 is as follows:

                                                 2000         1999       1998
                                               ---------     ------    -------

 Net income (loss)            As reported      $ (11,188)    $  361    $ 1,757
                              Pro forma        $ (11,928)    $ (173)   $ 1,522

 Basic earnings (loss)        As reported      $   (0.83)    $ 0.03    $  0.18
   per share                  Pro forma        $   (0.88)    $(0.01)   $  0.16

 Diluted earnings (loss)      As reported      $   (0.83)    $ 0.03    $  0.18
   per share                  Pro forma        $   (0.88)    $(0.01)   $  0.15


      The fair value of each option  granted  under the  Company's  stock option
plans is estimated on the date of grant using the  Black-Scholes  Option pricing
model. The significant  weighted-average assumptions used during the years ended
March 31,  2000,  1999 and 1998 to estimate  the fair values of options  granted
under the Company's stock option plans are summarized below:

                                              2000        1999         1998
                                           ---------   ---------    ----------
1999 Plan
    Expected dividend yield                      --           --           --
    Expected volatility                       77.66%          --           --
    Risk free interest rate                    6.20%          --           --
    Expected life                          4.0 years          --           --

1991 Plan
    Expected dividend yield                      --           --           --
    Expected volatility                       77.66%       47.07%       45.32%
    Risk free interest rate                    6.20%        6.20%        6.20%
    Expected life                          4.13 years   4.7 years    3.8 years

Directors Plan
    Expected dividend yield                      --           --           --
    Expected volatility                       78.52%       45.33%       45.32%
    Risk free interest rate                    6.20%        6.20%        6.20%
    Expected life                          4.0 years    4.0 years    3.8 years

      Based on these assumptions, the weighted average fair value of each option
granted under the  Company's  1999 Plan during the year ended March 31, 2000 was
$1.01.  The weighted  average fair value of each option  granted  under the 1991
Plan during the years ended March 31, 2000,  1999 and 1998 was $2.52,  $2.25 and
$2.46,  respectively.  The weighted  average  fair value of each option  granted
under the  Directors  Plan during the years ended March 31, 2000,  1999 and 1998
was $0, $1.80 and $2.38, respectively.


                                       27
<PAGE>

Common Stock Reserved

      The number of shares of common stock reserved for issuance pursuant to the
Company's stock option plans and outstanding  common stock warrants at March 31,
2000 and 1999 is summarized as follows:

                                                    2000            1999
                                                 ---------       ---------

       Stock  Option Plans                       2,636,972       1,807,734
       Redeemable Warrants                              --         603,750
       Underwriter Warrants                        105,000         105,000


Stockholder Rights Plan

      The Company  adopted a  Stockholder  Rights Plan and granted  common stock
purchase  rights as a dividend at the rate of one right ("Right") for each share
of  outstanding  common  stock of the Company  held of record as of the close of
business  on May 11,  1999.  When the Rights  become  exercisable,  the  holders
thereof will be entitled to purchase,  for an amount equal to $10 per Right (the
"Purchase  Price," which is subject to  adjustment)  common stock of the Company
with a fair  market  value  equal to two times such  amount.  Subject to certain
exceptions,  if certain persons or entities (an  "Acquirer"),  as defined in the
Stockholder Rights Agreement between the Company and its transfer agent,  become
the  beneficial  owners of 10% or more of the  common  stock of the  Company  or
announce a tender or exchange  offer which would result in its  ownership of 10%
or more of the common stock of the Company,  the Rights,  unless redeemed by the
Company,  become  exercisable ten (10) days after a public  announcement that an
Acquirer has become such. If,  following the Rights  becoming  exercisable,  the
Company is acquired in a merger or similar transaction, or if 50% or more of the
Company's assets or earning power are sold in one or more related  transactions,
the holders of the Rights would be entitled to purchase,  upon exercise,  common
stock  of the  acquiring  company  with a fair  market  value of two  times  the
Purchase Price.  The Rights may be redeemed at any time until ten days following
a public announcement that an Acquirer has become such at $.001 per Right upon a
vote therefore by a majority of the outside directors. Presently, the Rights are
not exercisable nor are they separately  traded from the Company's common stock.
The Rights expire on May 11, 2009.


                                       28
<PAGE>

NOTE 11 - INCOME TAXES

      Income tax expense for the years  ended March 31,  2000,  1999 and 1998 is
comprised of the following:

                                               2000          1999          1998
                                             -------       -------       -------

     Current tax expense (benefit):
     Federal                                 $    67       $  (422)      $   624
     State                                       (28)           72            21
                                             -------       -------       -------
                                                  39          (350)          645
                                             -------       -------       -------
     Deferred tax expense (benefit):
     Federal                                   2,894           550           124
     State                                       353            13            84
                                             -------       -------       -------
                                               3,247           563           208
                                             -------       -------       -------
     Net tax expense                         $ 3,286       $   213       $   853
                                             =======       =======       =======

      During the year ended March 31,  2000,  the  Company  recorded a valuation
allowance  equal to the entire  deferred tax asset balance because the Company's
financial  condition gives rise to an uncertainty as to whether the deferred tax
asset is  realizable.  The increase in the valuation  allowance  during the year
ended  March 31,  2000 was  $6,193.  There was no  increase  or  decrease to the
valuation allowance for the years ended March 31, 1999 and 1998.

      Deferred  tax assets and  liabilities  as of March 31,  2000 and March 31,
1999 are comprised of the following:

                                                       2000         1999
                                                      -------     -------

     Deferred tax assets:
     Accounts and notes receivable reserves           $   691     $   845
     Inventory and inventory reserves                     760         723
     Warranty and other accruals                          621         847
     Other assets and liabilities                         (14)         --
     State taxes                                          187          --
     Tax credit carryforwards                           1,442       1,213
     Net operating loss carryforwards                   6,236       3,729
                                                      -------     -------
                                                        9,923       7,357
                                                      -------     -------
     Deferred tax liabilities:
     Property, plant and equipment                          6          75
     Intangible and other assets                        1,395       1,675
     State taxes                                           --          85
                                                      -------     -------
                                                        1,401       1,835
                                                      -------     -------
     Excess of deferred tax assets over
       deferred tax liabilities                         8,522       5,522
     Less valuation allowance                          (8,522)     (2,359)
                                                      -------     -------
     Net deferred tax asset                                --       3,163
     Less current deferred tax asset                       --      (2,215)
                                                      -------     -------
     Non-current deferred tax asset                   $    --     $   948
                                                      =======     =======


                                       29
<PAGE>

      At  March  31,  2000,   the  Company  has  available  net  operating  loss
carryforwards  for federal and state tax purposes of  approximately  $16,789 and
$15,705  respectively,  which expire from 2001 through  2015.  In addition,  the
Company has  available  approximately  $1,442 in  research  and other tax credit
carryforwards, which expire from 2001 through 2015.

      The  utilization of certain net operating loss  carryforwards  for federal
income tax purposes is subject to an annual limitation of approximately  $200 as
a result of a previous change in ownership of TSG. In addition, these pre-change
losses may only be utilized to the extent that  taxable  income is  generated by
TSG. These  limitations  do not reduce the total amount of net operating  losses
that may be taken for  federal  income tax  purposes,  but rather  substantially
limit the amount that may be used during a particular  year. As a result,  it is
more  likely  than not that the  Company  will be  unable  to use a  significant
portion of these net operating loss  carryforwards.  The valuation  allowance of
$2,215 at March 31, 1999 relates to these carryforwards.

      The  reconciliation  of income tax attributable to income before taxes for
the years ended March 31, 2000, 1999 and 1998 computed at the U.S. statutory tax
rate to the Company's effective tax rate is as follows:

                                                     2000       1999       1998
                                                    ------     ------     ------

     U.S. statutory rate                            (34)%       34.0%      34.0%
     Increases (decreases) resulting from:
           State taxes, net of federal benefit         --       10.5        2.7
           Business credits                           2.9      (71.6)      (7.4)
           Amortization of goodwill                  (8.7)      40.8        2.5
           Stock option compensation                   --        6.6         --
           Expired net operating losses                --        7.8         --
           Change in valuation allowance             84.5         --         --
           Other                                     (3.1)       8.9         .9
                                                     ----       ----       ----
      Effective rate                                 41.6%      37.0%      32.7%
                                                     ====       ====       ====

NOTE 12 - DISCLOSURES ABOUT SEGMENTS AND RELATED INFORMATION

      The Company has two business segments,  the public payphone market segment
and the public Internet  appliance  market segment,  which is in the development
stage.  The Company has not generated any  significant  revenues from the public
Internet appliance market segment as of March 31, 2000. The Company's  customers
include private payphone operators and telephone  companies in the United States
and certain foreign countries and its distributors.  During the year ended March
31, 2000, the Company modified the way it analyzes its business. Previously, the
Company  analyzed its business  based on three  customer  groups  consisting  of
domestic   telephone   companies,   domestic  private  payphone   operators  and
international  customers.  Because of the development of its Internet  business,
the Company now analyzes its business based on two segments, the payphone market
segment and the Internet appliance market segment.

      The accounting policies of the segments are the same as those described in
the summary of significant  accounting policies set forth in Note 1. The Company
evaluates segment  performance based on gross profit and its overall performance
based on profit or loss from operations before income taxes.


                                       30
<PAGE>

         The products and services  provided by each of the reportable  segments
are similar in nature,  particularly  with  regard to public  telecommunications
terminals and related services.  However,  the public terminals  provided by the
Internet  appliance  segment  provide the  capability  to access  internet-based
content  in  addition  to their  public  telecommunications  capability  and the
services of this  segment  include the  management  of content  delivered to the
interactive  terminals.   There  are  no  transactions  between  the  reportable
segments.  External  customers  account for all sales revenue of each reportable
segment.  The information that is provided to the chief operating decision maker
to measure the profit or loss of reportable  segments  includes  sales,  cost of
sales  based  on  standards  and  gross  profit  based on  standards.  Operating
expenses, including depreciation,  amortization and interest are not included in
the  information  provided  to the chief  operating  decision  maker to  measure
performance of reportable segments.

      The sales  revenue  and gross  profit of each  reportable  segment for the
years ended March 31, 2000, 1999 and 1998 is set forth below:

<TABLE>
<CAPTION>
                                            2000                       1999                       1998
                                   ------------------------    ------------------------    ------------------------
                                     Sales     Gross Profit      Sales     Gross Profit     Sales      Gross Profit
                                   --------    ------------    --------    ------------    --------    ------------
<S>                                <C>           <C>           <C>           <C>           <C>           <C>
Payphone segment                   $ 47,217      $ 16,091      $ 65,263      $ 24,607      $ 46,250      $ 19,869
Internet appliance
  segment                                78            19            --            --            --            --
                                   --------      --------      --------      --------      --------      --------
                                   $ 47,295      $ 16,110      $ 65,263      $ 24,607      $ 46,250      $ 19,869
                                   ========      ========      ========      ========      ========      ========
</TABLE>

      The sales  revenue of each  reportable  segment by customer  group for the
years ended March 31, 2000, 1999 and 1998 is summarized as follows:

                                                 2000        1999          1998
                                               -------      -------      -------

       Payphone segment:
         Private operators                     $10,366      $20,081      $18,684
         Telephone companies                    27,209       32,507       15,999
         Distributors                            3,360        4,995        2,368
         International operators                 6,282        7,680        9,199
       Internet appliance segment:
         International operators                    78           --           --
                                               -------      -------      -------
                                               $47,295      $65,263      $46,250
                                               =======      =======      =======

      The  Company  does not  allocate  assets or other  corporate  expenses  to
reportable segments. A reconciliation of segment gross profit information to the
Company's financial statements is as follows:

                                                 2000        1999         1998
                                               --------    --------    --------

Total gross profit of reportable segments      $ 16,110    $ 24,607    $ 19,869
Unallocated cost of sales                        (3,995)     (2,979)     (2,264)
Unallocated corporate expenses                  (20,017)    (21,054)    (14,995)
                                               --------    --------    --------
(Loss) income before income taxes              $ (7,902)   $    574    $  2,610
                                               ========    ========    ========


                                       31
<PAGE>

      Information  with  respect  to  sales  of  products  and  services  of the
Company's  reportable  segments  during the years ended March 31, 2000, 1999 and
1998 is set forth below:

                                                      2000      1999       1998
                                                     -------   -------   -------

Payphone segment:
  Payphone terminals                                 $12,896   $23,758   $22,920
  Printed circuit board control modules and kits      15,056    18,790    10,436
  Components, assemblies and other products            5,804    12,200    10,070
  Repair, refurbishment and upgrade services          12,363     9,895     2,285
  Other services                                       1,098       620       539
Internet appliance segment:
  Internet appliance terminals                            78        --        --
                                                     -------   -------   -------
                                                     $47,295   $65,263   $46,250
                                                     =======   =======   =======

      The Company  markets its products and services in the United States and in
certain  foreign  countries.   The  Company's  international  payphone  business
consists of export sales,  and the Company does not  presently  have any foreign
operations.  Sales by geographic region for the years ended March 31, 2000, 1999
and 1998 were as follows:

                                                 2000         1999         1998
                                               -------      -------      -------

United States                                  $40,935      $57,583      $37,051
Canada                                           2,851        3,197        2,012
Latin America                                    3,023        3,943        6,168
Europe, Middle East and Africa                     410           41          195
Asia Pacific                                        76          499          824
                                               -------      -------      -------
                                               $47,295      $65,263      $46,250
                                               =======      =======      =======

      During the years ended March 31, 2000 and 1999, one customer accounted for
39% and 20%,  respectively,  of the Company's sales. During the year ended March
31, 1998, no single customer  accounted for 10% or more of the Company's  sales.
Ten domestic customers and five international customers account for $4,735 (62%)
and $1,826 (24%),  respectively,  of the Company's accounts  receivable at March
31, 2000.  The domestic  customers  primarily  include  telephone  companies and
distributors.  The international customers include cellular carriers and private
operators in Canada, Puerto Rico, Guatemala and Ecuador. Five domestic customers
and three  international  customers account for (net of specific  allowances for
credit losses) $479 (21%) and $1,276 (57%) respectively,  of the Company's notes
receivable at March 31, 2000. The domestic  customers  include private operators
and  the  international  customers  include  a  telephone  company  and  private
operators in Mexico and the Philippines.

NOTE 13 - SAVINGS PLAN

      The Company has a savings plan pursuant to Section  401(k) of the Internal
Revenue Code, whereby eligible employees may voluntarily contribute a percentage
of their compensation,  but not in excess of the maximum allowed under the Code.
The TSG 401(k)  retirement and profit sharing plan was merged into the Company's
savings plan on January 1, 1999,  and the Company's  plan was amended to include
provisions at least as favorable as those of the TSG plan.  The Company  matches
up to 50% of the  participants'  contributions,  up to an  additional  2% of the
participants'  compensation.  Participants are 100% vested with respect to their
contributions to the plan. Vesting in Company matching contributions


                                       32
<PAGE>

begins at 20% after one year of service with the Company and increases  annually
each year thereafter  until full (100%) vesting upon five years of service.  The
plan pays retirement benefits based on the participant's vested account balance.
Benefit  distributions  are  generally  available  upon a  participant's  death,
disability or retirement.  Participants  generally qualify to receive retirement
benefits  upon  reaching the age of 65.  Early  retirees  generally  qualify for
benefits provided they have reached age 55 and have completed 5 years of service
with  the  Company.  Benefits  are  payable  in lump  sums  equal to 100% of the
participant's  account balance.  Plan expense  approximated $189, $151 and $114,
respectively, for the years ended March 31, 2000, 1999 and 1998.

NOTE 14 - OTHER CHARGES (CREDITS)

      Other  charges  (credits) for the year ended March 31, 2000 consist of the
restructuring charges discussed in Note 8.

      During  the year  ended  March 31,  1999,  the  Company  was  involved  in
negotiations  concerning a possible  business  combination with an international
telecommunications  equipment  manufacturer.  During  April  1999,  the  Company
decided  that the terms  and  conditions  of the  business  combination  as then
proposed  would not be, at that time,  in the best  long-term  interests  of the
Company's   stockholders,   and  terminated  the  negotiations.   In  connection
therewith,  the Company  charged to  operations  approximately  $1.2  million of
expenses,  consisting  primarily of legal,  accounting and  consulting  fees and
expenses  incurred by the Company during the negotiations and in connection with
due diligence investigations. This charge, together with charges of $490 related
to the  reorganization  discussed in Note 8 and other  miscellaneous  charges of
$42, are reflected as other charges  (credits) in the accompanying  consolidated
statement of operations and other comprehensive income (loss) for the year ended
March 31, 1999.

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Litigation

      The Company is a defendant  in a punitive  class  action  alleging  that a
former customer of the Company that filed for bankruptcy  conspired with its own
officers and professionals,  and with various telephone suppliers (including the
Company) to defraud  investors  in that  customer by  operating a Ponzi  scheme.
Allegations include unlawful business practices,  fraudulent and unfair business
practices,  false and misleading  advertising,  fraud and deceit,  conspiracy to
defraud,  negligence and negligent  misrepresentation,  violations of California
law,  professional  negligence and legal malpractice and spoliation of evidence.
On September 28, 1998, the Company's  Motion for Summary Judgment was granted by
the Court and the Court dismissed the Company from the class action. On December
11, 1998,  the plaintiffs  appealed the Court's  decision to grant the Company's
Motion  for  Summary  Judgment.  On June 8, 2000,  the Court of  Appeal,  Fourth
Appellate District, Division One of the State of California affirmed the Summary
Judgment  entered  by the  Superior  Court of San  Diego  County in favor of the
Company.

      While the Company is subject to various other legal proceedings incidental
to its business, there are no such pending legal proceedings, which are believed
to be material to the business of the Company.


                                       33
<PAGE>

Operating Leases

      Minimum  future  rental  payments at March 31,  2000 under  non-cancelable
operating  leases with an initial term of more than one year are  summarized  as
follows:

                       Fiscal 2001                 $266
                       Fiscal 2002                  161
                       Fiscal 2003                  123
                       Fiscal 2004                  112
                       Fiscal 2005                   66
                                                   ----
                                                   $728
                                                   ====

      Rent  expense  for  the  years  ended  March  31,  2000,   1999  and  1998
approximated $399, $421 and $253, respectively.

Royalty and Technology Transfer Fee Agreements

      Pursuant to the terms of patent license and technology transfer agreements
entered  into in  connection  with the  acquisition  of the Lucent  assets,  the
Company  agreed to pay  royalties  and fees with  respect  to sales of  acquired
products. In addition, during the year ended March 31, 2000, the Company entered
into various other license  agreements  regarding  technology  used its Internet
appliance products.  Royalties and fees under these agreements during the fiscal
years ended  March 31,  2000,  1999 and 1998  approximated  $318,  $220 and $86,
respectively.

Employment Contracts

      On October 15, 1999, the Company hired a new President and Chief Executive
Officer.  The employment agreement between the Company and its new President and
Chief  Executive  Officer  expires on  October  11,  2002 and may be  terminated
earlier  by either  party  with 30 days  prior  written  notice.  The  agreement
provides for minimum annual base compensation of $250 and incentive compensation
of up to 50% of base  compensation  at the discretion of the Board of Directors,
subject  to a  minimum  of 25% of base  compensation  for the  period  beginning
October 15, 1999 and ending  December 31, 2000. In addition,  under the terms of
the agreement,  the President and Chief Executive Officer is entitled to receive
benefits made available to other executives of the Company and  reimbursement of
relocation  expenses of $40. Further,  the agreement provides for the payment of
severance  compensation  if the Company  terminates the agreement  without cause
equal to $250 unless the remaining  term of the agreement is less than 12 months
in which event such  amount is  prorated  over the  remainder  of the term.  The
employment agreement also contains  confidentiality and non-compete  provisions.
Pursuant to the terms of the agreement,  the Company  granted  options under the
1999  Plan to  purchase  539,988  shares  of the  Company's  common  stock at an
exercise price of $1.67 per share (see Note 10).

      In  addition,  the Company has entered  into  employment  agreements  with
certain of its other  officers that continue in effect until either party to the
agreement  terminates the agreement with at least 60 days prior written  notice,
subject to certain earlier termination  provisions.  Pursuant to the agreements,
the officers are entitled to minimum compensation  aggregating $380 annually. In
addition,  if these  agreements are terminated by the Company without cause, the
officers are entitled to receive the amount of  compensation  and benefits  they
would  otherwise  have  received  for a period  of six  months  from the date of
termination  and  thereafter  until they locate  employment  comparable to their
employment  at the date of  termination  but not for a period longer than twelve
months from the date of termination of employment.


                                       34
<PAGE>

NOTE 16 - LIQUIDITY

      During the year ended March 31, 2000,  the Company  reported a net loss of
$11,188.  Although sales and revenues from the Company's core payphone  business
began to decline in the previous  year,  the Company  believed  that the decline
would stabilize. However, based on reduced sales and revenues for the year ended
March 31, 2000, non-recurring charges related to an aborted business combination
during  the year  ended  March  31,  1999  and  significant  investments  in the
development  of the  Company's  Internet  terminal  appliances  and back  office
software systems,  the Company breached one of the financial covenants contained
in the loan agreements between the Company and its bank, as further described in
Note 7. As a result of the covenant default, the bank stopped advancing funds to
the Company under the revolving credit lines provided under the loan agreements,
and had the right to accelerate the maturity of outstanding  indebtedness  under
the loan agreements. On April 12, 2000, the Company entered into the Forbearance
Agreement pursuant to which the maturity date of indebtedness  outstanding under
the loan agreements was changed to July 31, 2000.

         The Company will not be able to pay its outstanding  bank  indebtedness
on  July  31,  2000  unless  it is  able  to  raise  additional  capital  and/or
restructure the bank  indebtedness,  and may not be able to remain in compliance
with the terms of the  Forbearance  Agreement  until July 31, 2000. As a result,
the Company is attempting to secure an  asset-based  financing  arrangement  and
raise  additional  equity  capital  and/or  other  sources of funding  through a
private placement of securities.

      The Company believes that its efforts to raise  additional  capital and/or
other funding will be successful,  and that it will be able to refinance  and/or
restructure its outstanding bank  indebtedness.  If the Company is successful in
raising  additional  equity capital,  the percentage  ownership of the Company's
then current stockholders will be reduced and such reduction may be substantial.
However, there is no assurance that the Company's efforts will be successful, or
if  successful,  that such  financing  would  not be on  onerous  terms.  If the
Company's  efforts to raise  additional  equity capital and/or other funding and
refinance and/or restructure its bank debt are not successful, the Company could
experience difficulties meeting its obligations and it may be unable to continue
normal operations, except to the extent permitted by its bank.

      Cash flows from  operations  will not be  adequate  to fund the  Company's
obligations and operations for the next twelve months without raising additional
capital. The Company may require additional funds during or after such period in
addition to that  currently  sought.  Additional  financing may not be available
except on onerous terms,  or at all. If the Company cannot raise adequate funds,
if and when necessary, to satisfy its capital requirements, it may have to limit
its operations  significantly,  which would adversely affect its prospects.  The
Company's future capital requirements depend upon many factors,  including,  but
not  limited  to,  the level of sales and  revenues  of its  payphone  business,
success of its Internet appliance business,  the extent to which it develops and
upgrades its network,  the extent to which it expands its content  solutions and
delivery  capabilities  and the rate at which it expands its sales and marketing
operations.


                                       35
<PAGE>



                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a)   List of Documents filed as part of this Report.

            (1)   Financial   Statements  -  See  the  index  to  the  financial
                  statements in Item 8.

            (2)   Financial Statement Schedules - See the index to the financial
                  statement schedules in Item 8.

            (3)   Exhibits -

Exhibit No.                                             Description of Exhibit

3.1         Certificate of Incorporation,  as amended (incorporated by reference
            to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the
            quarter ended December 31, 1999)

3.2         By-Laws,  as amended  (incorporated  by  reference to Exhibit 3.2 to
            Registrant's Annual Report on Form 10-K for the year ended March 31,
            1992)

4.1         Form of Common  Stock  Certificate  (incorporated  by  reference  to
            Registrant's  Registration  Statement on Form 8-A dated November 21,
            1986)

4.2         Representative's Warrant Agreement between Technology Service Group,
            Inc. and Brookehill Equities,  Inc. dated May 10, 1996 (incorporated
            by reference to Exhibit 4.3 to Registrant's  Registration  Statement
            on Form S-4, File No. 333-38439)

4.3         Supplemental  Warrant Agreement  between the Registrant,  Technology
            Service Group, Inc. and Brookehill Equities, Inc. dated December 18,
            1997  (incorporated  by  reference  to Exhibit  4.4 to  Registrant's
            Annual Report on Form 10-K for the year ended March 31, 1999)

4.4         Rights Agreement,  dated as of May 10, 1999,  between Registrant and
            American Stock Transfer and Trust Company (incorporated by reference
            to Exhibit 99.1 to Registrant's Form 8-K dated April 19, 1999)

10.1*       1991 Stock Option  Plan,  as amended  (incorporated  by reference to
            Exhibit 10.1 to Registrant's  Quarterly  Report on Form 10-Q for the
            quarter ended December 31, 1999)

10.2*       Directors Stock Option Plan, as amended  (incorporated  by reference
            to Exhibit 10.2 to  Registrant's  Quarterly  Report on Form 10-Q for
            the quarter ended December 31, 1999)

10.3*       1999 Stock Option Plan (incorporated by reference to Exhibit 10.3 to
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            December 31, 1999)


                                       36
<PAGE>

10.4*       1994  Omnibus  Stock  Plan  of  Technology   Service   Group,   Inc.
            (incorporated  by reference to Exhibit 10.3 to  Registrant's  Annual
            Report on Form 10-K for the year ended March 31, 1998)

10.5        Restated Loan Agreement  between  Registrant and  NationsBank,  N.A.
            dated November 25, 1997  (incorporated  by reference to Exhibit 10.1
            to Registrant's  Quarterly Report on Form 10-Q for the quarter ended
            December 31, 1997)

10.6        First Amendment to Loan and Security  Agreement  between  Registrant
            and  NationsBank,   N.A.  dated  March  29,  1999  (incorporated  by
            reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K
            for the year ended March 31, 1999)

10.7        Promissory Note between Registrant and NationsBank, N.A. dated March
            29, 1999  (incorporated by reference to Exhibit 10.7 to Registrant's
            Annual Report on Form 10-K for the year ended March 31, 1999)

10.8        First   Replacement   Promissory   Note   between   Registrant   and
            NationsBank, N.A. dated March 29, 1999 (incorporated by reference to
            Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year
            ended March 31, 1999)

10.9        Second   Replacement   Promissory   Note  between   Registrant   and
            NationsBank, N.A. dated March 29, 1999 (incorporated by reference to
            Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the year
            ended March 31, 1999)

10.10       Mortgage   Modification   and  Future  Advance   Agreement   between
            Registrant and NationsBank,  N.A. November 26, 1997 (incorporated by
            reference to Exhibit 10.3 to Registrant's  Quarterly  Report on Form
            10-Q for the quarter ended December 31, 1997)

10.11       Business Loan Agreement between Elcotel, Inc. and NationsBank,  N.A.
            dated June 29, 1999  (incorporated  by  reference to Exhibit 10.3 to
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            June 30, 1999) Commercial  Security Agreement between Elcotel,  Inc.
            and  NationsBank,  N.A. dated June 29, 1999 10.12  (incorporated  by
            reference to Exhibit 10.4 to Registrant's  Quarterly  Report on Form
            10-Q for the quarter ended June 30, 1999)

10.13       Promissory Note between Elcotel,  Inc. and  NationsBank,  N.A. dated
            June  29,  1999  (incorporated  by  reference  to  Exhibit  10.5  to
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            June 30, 1999)

10.14       Export-Import  Bank of the United States Working  Capital  Guarantee
            Program Borrower  Agreement  between Elcotel,  Inc. and NationsBank,
            N.A. dated June 29, 1999  (incorporated by reference to Exhibit 10.6
            to Registrant's  Quarterly Report on Form 10-Q for the quarter ended
            June 30, 1999)


10.15       Forbearance and Modification  Agreement  between  Elcotel,  Inc. and
            Bank  of  America,  N.A.  dated  April  12,  2000  (incorporated  by
            reference to Exhibit  10.15 to  Registrant's  Annual  Report on Form
            10-K for the Year Ended March 31, 2000)

10.16       Mortgage and Security  Agreement  between Elcotel,  Inc. and Bank of
            America,  N.A.  dated April 12, 2000  (incorporated  by reference to
            Exhibit  10.16 to  Registrant's  Annual  Report on Form 10-K for the
            Year Ended March 31, 2000)



                                      37
<PAGE>


10.17       Mortgage  Modification  Agreement between Elcotel,  Inc. and Bank of
            America,  N.A.  dated April 12, 2000  (incorporated  by reference to
            Exhibit  10.17 to  Registrant's  Annual  Report on Form 10-K for the
            Year Ended March 31, 2000)


10.18*      Employment  Agreement  between  Elcotel,  Inc.  and Michael J. Boyle
            dated October 15, 1999 (incorporated by reference to Exhibit 10.1 to
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            September 30, 1999)

10.19*      Retirement Agreement between Elcotel,  Inc. and Tracey L. Gray dated
            June  11,  1999  (incorporated  by  reference  to  Exhibit  10.2  to
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            June 30, 1999)

10.20*      Employment  Agreement  between  Elcotel,  Inc. and C. Shelton  James
            dated June 10, 1999  (incorporated  by  reference to Exhibit 10.1 to
            Registrant's  Quarterly  Report on Form 10-Q for the  quarter  ended
            June 30, 1999)

10.21*      Employment  Agreement  between  Elcotel,  Inc. and David F. Hemmings
            dated December 10, 1998  (incorporated  by reference to Exhibit 10.3
            to Registrant's  Quarterly Report on Form 10-Q for the quarter ended
            December 31, 1998)

10.22*      Employment  Agreement between Elcotel,  Inc. and William H. Thompson
            dated December 10, 1998  (incorporated  by reference to Exhibit 10.4
            to Registrant's  Quarterly Report on Form 10-Q for the quarter ended
            December 31, 1998)

10.23*      Employment  Agreement  between  Elcotel,  Inc.  and Kenneth W. Noack
            dated December 10, 1998  (incorporated  by reference to Exhibit 10.5
            to Registrant's  Quarterly Report on Form 10-Q for the quarter ended
            December 31, 1998)

10.24*      Employment  Agreement between Elcotel,  Inc. and Eduardo  Gandarilla
            dated December 10, 1998  (incorporated  by reference to Exhibit 10.9
            to Registrant's  Quarterly Report on Form 10-Q for the quarter ended
            December 31, 1998)

10.25*      Employment  Termination  Agreement between Elcotel, Inc. and Eduardo
            Gandarilla effective April 2, 2000 (filed herewith)

10.26       Technology  and Transfer  Agreement  between  Registrant  and Lucent
            Technologies   Inc.  dated  September  30,  1997   (incorporated  by
            reference to Exhibit 2.2 to  Registrant's  Form 8-K dated  September
            30, 1997)

10.27       Patent License Agreement between Registrant and Lucent  Technologies
            Inc. dated September 30, 1997  (incorporated by reference to Exhibit
            2.3 to Registrant's Form 8-K dated September 30, 1997)

10.28       Stockholders' Agreement (incorporated by reference to Exhibit 2.3 to
            Registrant's Registration Statement on Form S-4, File No. 333-38439)


                                       38
<PAGE>


21.1        Subsidiaries of the Registrant (incorporated by reference to Exhibit
            21.1 to  Registrant's  Annual Report on Form 10-K for the Year Ended
            March 31, 2000)


23.1        Independent Auditor's Consent (filed herewith)


27          Financial Data Schedule  (incorporated by reference to Exhibit 27 to
            Registrant's Annual Report on Form 10-K for the year ended March 31,
            2000)


*  Management compensation agreements and plans.

      (b)   Reports on Form 8-K

            The  Registrant  filed no  reports  on Form 8-K  during  the  fourth
            quarter of the year ended March 31, 2000.


                                      39
<PAGE>

                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized, on the 31st day of August 2000.


                                      ELCOTEL, INC.


                                      By: /s/ William H. Thompson
                                          --------------------------------------
                                              William H. Thompson
                                              Senior Vice President,
                                              Chief Financial Officer,
                                              Secretary (principal financial
                                              officer)




                                      40