<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------

                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
    ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                                       OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934

                        COMMISSION FILE NUMBER: 000-27376
    
                                ---------------

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


                   DELAWARE                                     04-3175156
      (State or other jurisdiction of                        (I.R.S. Employer
       incorporation or organization)                       Identification No.)


                                  10 OCEANA WAY
                          NORWOOD, MASSACHUSETTS 02062
                                 (617) 440-3333
          (Address, including zip code, and telephone number, including
             area code, of registrant's principal executive offices)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      None
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                                         Name of exchange
        Title of each class                             on which registered
        -------------------                             -------------------
     Common Stock, $.01 par value                            NASDAQ


     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 the 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 stock held by non-affiliates of
the registrant based on the closing price of such stock as quoted on NASDAQ for
March 14, 1997, and reported by the National Quotation Bureau, Inc. was
approximately $122 million. For purposes of this disclosure only, the registrant
has assumed that its directors, executive officers, and beneficial owners of 5%
or more of the registrant's common stock are affiliates of the registrant.

     The registrant had 26,771,877 shares of common stock, $.01 par value,
outstanding as of March 14, 1997


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement for the 1997 annual
meeting of stockholders of Elcom International, Inc. are incorporated by
reference into Part III of this report.


<PAGE>   2
                                     PART I

ITEM 1. BUSINESS

OVERVIEW

     Elcom International, Inc. (the "Company") develops and licenses proprietary
software systems which enable the conduct of interactive electronic commerce
and, through a subsidiary, uses this technology to support the sale and
marketing of PC products electronically. The Company's proprietary Personal
Electronic Catalog and Ordering System (PECOS(R)) technology enables the Company
and its licensees to create interactive electronic catalog and ordering systems
and thereby market products and services using PC-based electronic commerce
systems which operate on public and private Internet Protocol networks. PECOS is
designed to become an integral part of a customer's purchasing process by
computerizing various tasks associated with the product ordering, fulfillment
and delivery process. These tasks include gathering and searching through
product information, selecting products, checking product price and
availability, comparing and selecting shipping options, analyzing computer
system configurations, generating purchase requisitions, obtaining approvals,
and placing orders electronically from the customer's PC. The PECOS system also
can link electronically with a supplier's order entry and warehouse management
systems, thereby supporting the automation of the fulfillment of such orders.
The Company believes that its PECOS technology is the first client/server,
Windows- and transaction-based electronic marketing and ordering system to
generate substantial revenues in the emerging area of PC-based electronic
commerce. The Company, through its technology subsidiary, has signed a total of
ten license agreements for its PECOS technology and is pursuing additional
license agreements.

     The Company's proprietary PECOS technology is used by Catalink Direct, Inc.
(Catalink(R)), one of the Company's wholly-owned subsidiaries, to market and
sell PC-related products electronically. Catalink's use of PECOS represents the
first utilization of this technology and the Company believes that its PECOS
system significantly differentiates Catalink from other PC remarketers while
providing Catalink with certain marketing and cost advantages. Catalink
commenced operations in December 1993 and has achieved its growth through
various marketing efforts, including the expansion of its direct sales force
nationwide and through acquisitions. The Company's PC remarketer acquisition
strategy includes utilizing an acquired company's sales force to offer PECOS to
prospective customers in those new markets and, over time, to transition the
acquired company's customers to the PECOS system, thereby generating increasing
revenues transacted through the PECOS system. Although there can be no assurance
as to the timing or success of any acquisition, the Company intends to acquire
additional companies either to expand its customer base and the use of PECOS or
to complement its Elcom Systems' PECOS technology. A certain portion of the
Company's revenues continue to be generated by several companies acquired by the
Company which have not converted their customers' orders to transact through
PECOS and these entities continue to use, in whole or in part, traditional
methods of selling and order taking. On February 29, 1996, the Company completed
the acquisition of AMA (UK) Limited, a U.K.- based PC remarketer with calendar
1995 revenues of approximately $40 million which was accounted for as a pooling
of interests. On December 6, 1996, the Company acquired Prophet Group Limited, a
U.K.- based PC remarketer with 1996 (fiscal year ended April 30) revenues of
approximately $38 million which was accounted for as a purchase. On February 21,
1997, the Company acquired Data Supplies Limited, a U.K.-based PC remarketer
with calendar 1996 revenues of approximately $21 million which was accounted for
as a purchase.

     The PECOS system operates in a client/server environment supporting both a
dedicated Windows ("thick") client and World Wide Web-based browser ("thin")
client. The Windows client combines a convenient, easy to use, interactive,
graphical user interface and robust front-end client, with an integrated
back-end information and order transaction processing server system operating on
a UNIX-based platform. The PECOS servers can be designed to automatically
interact with a company's order processing system and, where applicable, with a
supplier's system, to automate various aspects of the order fulfillment process.
The PECOS "thick" front-end client includes the integrated electronic catalog
and ordering system and associated databases which, after loading, reside on the
hard disk drive of the customer's PC or its network server. Full-motion video
resides on, and is available from, a CD-ROM and provides "click-on-demand" video
advertising capability in CD-ROM based versions. PECOS is used by 


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a customer on a stand-alone basis "off-line" until an "on-line" connection is
required to the Company's back-end transaction-based server system. These
on-line computer communications are conducted via short duration "Commlinks,"
which generally average only one to three minutes, during which time order
transaction and other data are exchanged. In addition, during certain Commlinks,
a customer's PECOS database can be updated automatically to reflect selective
product and pricing changes since its last Commlink. Communications between
PECOS' front-end client and back-end servers are accomplished over common
carrier telephone networks or over the Internet.

     The Company's wholly-owned technology subsidiary Elcom Systems, Inc.
("Elcom Systems") has introduced and continues to develop a World Wide Web-based
front-end entitled "PECOS.net"(TM) which allows a licensee to create
interactivity between the front-end browser "thin" client and back-end servers
using Java applets to run executable program modules which download from a
server (web/home page) and execute in the front-end PC's random access memory.
In order to provide higher levels of transaction security on the Internet, Elcom
Systems has licensed security and public key encryption technology from RSA Data
Security, Inc. which is offered for sub-license as an additional PECOS module.
Although the PECOS technology is "open architecture" using TCP/IP which
interfaces to Oracle, Sybase, and other database architectures in the back-end,
a substantial amount of the software systems which operate on the front-end
client and back-end transaction server systems were designed and written by, and
are proprietary to, the Company.

     Catalink offers more than 18,000 products manufactured by leading companies
such as Compaq, IBM, Toshiba, Hewlett-Packard and Apple at competitive prices.
IBM, Compaq, Digital Equipment Corporation, Novell, Microsoft, and other product
manufacturers have paid, or have committed to pay, marketing fees to Catalink to
advertise their products in PECOS. In some cases, these advertisements use full
motion video and sound presentations which activate "on demand" when a customer
clicks for information on selected products. Orders through PECOS for products
which are in stock generally are fulfilled from the inventory of Catalink or one
of Catalink's Distribution Fulfillment Partners ("DFPs"), which includes Ingram
Micro, Inc., the largest PC product distributor in the world. By outsourcing a
significant portion of its product fulfillment and shipping, in conjunction with
product return policies in place with the suppliers from which it purchases
directly, Catalink believes that it can minimize its inventory-oriented costs
and associated risks. See "-Fulfillment/Logistics/Operations". PECOS is
distributed primarily by Catalink's telemarketing and direct sales personnel to
current and potential customers at no charge on four diskettes or a single
CD-ROM, and an abbreviated version is also available to "download" from
Catalink's World Wide Web site through the Internet. Catalink operates 26 Field
Sales and Support Offices ("FSSO") in the U.S. and the U.K. and also maintains
configuration and distribution facilities in Bristol, PA; Canton, MA; Irvine,
CA; Redditch, England and Langley, England.

     The Company's strategy also includes leveraging its technology in operating
units or joint ventures (in which the Company owns a minority position) to
create companies to market products in other industries. This strategy
reinforces PECOS' client/server system as a significant enabling technology for
electronic commerce while positioning Elcom Systems as a single source provider
for TCP/IP-based public and private Internet Protocol electronic commerce
systems. The Company has invested a nominal amount in, and licensed its
technology to, ShopLink Incorporated, a start-up joint venture approximately 40%
of which is owned by the Company. ShopLink Incorporated, which was in the
development stage during 1996, is a provider of personal computer-based shopping
services whereby consumers are able to use PECOS to conveniently purchase
groceries, health and beauty care products and other home consumable products
and services via the Company's electronic commerce technology and receive direct
deliveries from ShopLink's product consolidation centers or product fulfillment
partners to their homes or other specified locations. The Company is also
pursuing additional licensing agreements through its Elcom Systems subsidiary
for the PECOS technology and is investigating the creation of additional joint
ventures in other industries utilizing PECOS. Elcom Systems has begun to market
a range of PECOS system products designed to enable its customers to create and
manage their own multi-media electronic catalogs, and to build electronic
ordering systems to support remote transaction processing for their products and
services. The Company's strategy includes expanding its Internet-related
activities and services ranging from Web Site/Home Page design, to Web server
maintenance, to secure transaction-related services provided through the
Company's existing back-end, transaction-based computer server system. The
Company's strategy also includes augmenting its growth by acquiring companies
with complementary technology and expertise or existing customer bases.



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INDUSTRY OVERVIEW

     Electronic Commerce. Electronic commerce involves the automation of
business transactions through the use of telecommunications and computers to
exchange and process commercial information and to conduct and record
transactions electronically. Historically, the vast majority of electronic
commerce has been conducted using electronic data interchange ("EDI")
technologies, which typically has involved the interchange of information
between large trading partners and can be both complex and expensive to
establish. More recently, PC-based and network technologies have enabled
electronic commerce to be conducted through PCs using common carrier private
(usually telephone) networks such as AT&T, MCI, Sprint, Advantis, GEIS and
others, or over a public network such as the Internet. The Company believes that
interest in conducting business through electronic commerce is increasing
rapidly as the marketplace becomes more aware of emerging technology and of the
conveniences that can be offered to consumers and the reduced transaction time,
automation of tasks, and resultant lower transaction costs that electronic
commerce can provide to marketers.

     The Company believes that an interactive and integrated electronic catalog
and ordering system, such as PECOS, can provide users with demonstrable added
value through many conveniences and benefits, including immediate confirmation
of pricing and availability, automatic forms generation, one-time data entry,
reduced paperwork, electronic routing and approvals, accurate, secure and more
rapid exchange of business data, and reduced purchasing cycles. Such a system
also can provide electronic transmission of orders to suppliers for processing
and/or fulfillment, payment and shipping information, purchase order generation,
invoices, optional shipping costs, and other information directly from a
customer's PC. Hence, many redundant order processing tasks are eliminated by
transferring data entry from the seller to the customer while concurrently
increasing both parties' efficiency and overall convenience of conducting
business together. Previously, businesses communicated this information and
conducted transactions through the exchange of paper documents or verbally by
telephone. Paper-based and telephone transactions typically are more labor
intensive and prone to error. The Company believes that an integrated electronic
catalog and ordering system can reduce errors and shorten the purchasing cycle
for a typical business transaction. The use of transaction-based server systems
to communicate automatically to the computer systems of suppliers, supports the
automation of product fulfillment and delivery, increases efficiency, and
completes the electronic commerce "circle."

TECHNOLOGY

     Catalink's PECOS System. Catalink's PECOS system is a proprietary
Windows-based interactive and integrated multi-media electronic catalog and
interactive ordering system that takes advantage of Windows' graphical user
interface. While the PECOS technology can be implemented in customized versions,
most of its operational characteristics and basic functionality are common to
Catalink's PECOS system. PECOS is loaded on the hard disk drive of the
customer's PC and "senses" the hardware and color display capabilities of the
customer's PC system and displays one or more messages, if necessary, to allow
the customer to maximize the sound (if available) and color display capabilities
of their PC system to enhance displayed images. In the CD-ROM version, the
front-end client interface and associated product databases are installed on the
customer's hard drive from the CD-ROM while an object database consisting of
product information (including images, sound and full motion video
advertisements) resides on the CD-ROM. PECOS operates in a client/server
architecture and its front-end client interface resides on a customer's PC's
hard disk drive along with various product-oriented databases and operates like
an "electronic" catalog with interactive and integrated communications and
ordering capabilities. Click-on icon commands allow customers to "browse"
through visual display pages to view product images and information in varying
levels of detail or to search the product pricing and description databases and,
using various parameters and criteria, compare and select products. When
combined with the Company's transaction-based, back-end server systems which
communicate with the Company's and its two primary DFPs' inventory systems,
PECOS creates a "full circle" electronic commerce system.

     Products selected for purchase are copied automatically to a purchase list
or requisition form with all pertinent information and when finalized, PECOS can
(optionally) display the order in purchase order format listing all product
information, part numbers, and related information. After customers have
reviewed and compiled their 

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requisitions or orders (and optionally, circulated them internally for approval
using their electronic mail system), customers can then electronically place
those orders directly to Catalink's computer system using PECOS, which, for
orders to be fulfilled through the Company or its primary DFPs, concurrently
communicates with the applicable computer system, checks product availability
and other information, and displays this information and confirms the order to
the customer in real-time.

     To initiate an order, the customer enters his or her confidential password
authorization, and PECOS automatically initiates a Commlink via modem over a
toll-free number or the Internet to Catalink's back-end transaction server
system allowing information to be exchanged in real-time between the client (the
front-end client interface on the customer's PC) and the server (the back-end
transaction server systems at Catalink). Commlinks typically last one to three
minutes, depending on the extent of product data updates which are necessary,
with order-oriented information being exchanged concurrently with the computer
systems of the Company and/or its primary DFPs. A comprehensive electronic link
currently is utilized by Catalink with its two primary DFPs and electronic links
are being pursued with other DFPs. During periodic Commlinks, product
information and pricing databases on the customer's hard drive also are updated
automatically to reflect selective pricing changes, new PECOS electronic mail
messages, and other information updates, unless it has been so long since that
customer's last Commlink that it is determined that it would be more expedient
to send that customer a new set of PECOS disks. In order to refresh advertising,
product images and content, Catalink generally updates CD-ROM disks during each
quarter.

     Information System. The Company has licensed software from Oracle
Corporation and other software firms to augment its developing management
information system ("IS System") which is being designed to improve management's
ability to monitor and manage the Company. The Company's IS System will include
an integrated general ledger, order entry, inventory management and reporting
system designed to operate in an Oracle-based UNIX environment and support the
future growth of the Company, both organic and via acquisition. The Company
expects the system's installation to be substantially implemented in 1997.
Although the Company believes that its technology and operating systems will be
adequate for its current needs, such systems will undoubtedly require
modification and improvement as the Company expands and evolves.

     Intellectual Property. The Company's success and ability to compete is
dependent in part upon its proprietary technology. While the Company relies on
trademark, trade secret, patent and copyright law to protect its technology, the
Company believes that factors such as the technological and creative skills of
its personnel, new product developments, frequent product enhancements, name
recognition and reliable product availability and distribution are of equal
importance for establishing and maintaining a leadership position. Although the
Company has an application pending to patent certain aspects of its PECOS
technology, there can be no assurance that the PECOS technology is patentable,
or that other entities will not develop, or have not developed, technologies
that are similar or superior to the Company's technology. The source code for
the Company's proprietary software is also protected both as trade secret and as
an unregistered copyrighted work. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use some portions of the
Company's products or technology without authorization, or to develop similar
technology independently. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries, and the
global nature of the Internet makes it virtually impossible to control the
ultimate destination of the front-end client portion of PECOS.

     The Company generally enters into confidentiality or license agreements
with its employees, consultants, licensees and certain of its vendors, and
generally controls access to and distribution of its proprietary software,
documentation and other information. In connection with the distribution of
Catalink's PECOS front-end client, Catalink employs licenses that generally are
not paid for, or manually signed by, the end-user and, therefore, could in
certain circumstances, be found unenforceable under the laws of certain
jurisdictions. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's proprietary
system or to obtain and use information that the Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult. There can be
no assurance that the steps taken by the Company will prevent misappropriation
of its technology or that such agreements will be enforceable. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Such litigation could result in
substantial costs and diversion of resources and could have 


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a material adverse effect on the Company's business, operating results or
financial condition. The Company believes that each of the following are
proprietary features of its "front-end" client interface: the architecture
allowing for easy modification by the Company or its licensees, the capabilities
for display of certain business forms and catalog page screens, and the
interfaces to the "back-end." However, the most critical and proprietary
elements of its PECOS technology are the "back-end" transaction servers, order
processing authentication and catalog updating modules, which reside within the
computer systems in the Company's or licensee's facilities and are not available
to end-users.

CATALINK

     Catalink Direct, Inc., one of the Company's wholly-owned subsidiaries,
utilizes the PECOS system to support the sale and marketing of PC-related
products electronically. The Company commenced commercial operations in December
1993, and consummated the acquisitions of Catalink Direct (Connecticut), Inc.
(formerly known as Computer Specialties, Inc.) ("CDCI") in 1994, and Catalink
Direct (Pennsylvania), Inc. (formerly known as Computerware, Inc.)
("Computerware") and a group of companies which owned a U.K. remarketer of PC
products (collectively, "Lantec") in 1995, each of which operates as a
wholly-owned subsidiary of Catalink. As of December 31, 1995, CDCI was merged
into Catalink, and is no longer a separate entity. In February 1996, the Company
completed the acquisition of AMA (U.K.) Limited ("AMA"), a U.K.-based remarketer
of personal computer products which was accounted for as a pooling of interests.
In December 1996, Catalink acquired Prophet Group Limited, a U.K.-based PC
remarketer with 1996 revenues of approximately $38 million which was accounted
for as a purchase. On February 21, 1997 the Company acquired Data Supplies
Limited, a U.K.-based PC remarketer with 1996 revenues of approximately $21
million which was accounted for as a purchase. Catalink's acquisition strategy
is to utilize an acquired company's sales force to offer PECOS to prospective
customers in those new markets and to transition an acquired company's
customers, over time, to the PECOS technology.

PRODUCTS AND PRICING

     Products. Catalink offers approximately 18,000 products from a wide variety
of manufacturers through the PECOS system. Catalink currently purchases selected
products directly from IBM, Compaq, and Toshiba. Catalink provides customers
with a large product selection, including personal computer systems, monitors,
printers, peripherals, software, accessories and supplies. Catalink markets
products sold by the following manufacturers, among others:

                               PERSONAL COMPUTERS
           Compaq                      IBM                        Apple
             NEC              Digital Equipment Corp             Toshiba
       Hewlett-Packard                 AST                      Panasonic

                                    PRINTERS
       Hewlett-Packard               Canon                       Lexmark
            Epson                     QMS                       Tektronics

                                  PERIPHERALS
            NEC                      SONY                         Shiva
           Intel                 Creative Labs                  Kingston
       U.S. Robotics                 3Com                       Farrallon

                                   SOFTWARE
          Microsoft                 Lotus                       Borland
           Intuit                   Novell                      Cheyenne
            Adobe                   Claris                      Symantec

         Catalink has established electronic purchasing and supply relationships
with Ingram Micro, Inc. and Intelligent Electronics, Inc. as well as traditional
relationships with several other large, national PC product suppliers. The
Company's purchasing relationships with these suppliers are pursuant to
industry-standard 


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arrangements with negotiated pricing based on anticipated volume levels and with
payment being made through existing floor plan financing arrangements.

     In the U.K., Catalink offers a similar range of products, a majority of
which it purchases directly from manufacturers. In addition, Lantec is an
authorized product fulfillment aggregator for IBM and Compaq products. Lantec
also is in discussions with Ingram Micro (U.K.) on methods to access their
inventory electronically, although there can be no assurances that any DFP
arrangement or electronic links will be negotiated or developed with Ingram
Micro (U.K.), or if so, on what terms or timing.

FULFILLMENT/LOGISTICS/OPERATIONS

     Distribution Fulfillment Partners. In the U.S., in addition to its direct
purchasing capability, Catalink also sources its products from a number of DFPs,
including Ingram Micro, Inc. and Intelligent Electronics, Inc., its primary
DFPs, from which it normally purchases a majority of domestically purchased PC
products. Ingram Micro, Inc. is the largest PC product distributor in the world
with annual revenues in excess of $8 billion which distributes over 22,000
products from over 600 manufacturers and software publishers. Intelligent
Electronics, Inc. is one of the largest product aggregators in the U.S.
Augmented by its DFPs, Catalink draws from inventories which the Company
believes are well in excess of $1.5 billion. Catalink's customers can typically
expect products that are in stock and that do not require configuration to be
immediately available for shipment.

     For computer systems which require configuration, the Company operates
three configuration facilities in the U.S. and two in the U.K. The Company
purchases selected products directly from IBM, Compaq and Toshiba which are
typically shipped to these facilities and, in the U.S., sources the substantial
majority of other products from its DFPs. Although the Company believes that its
DFPs are given due consideration regarding supply of products by manufacturers
and that Catalink is given due consideration regarding supply of products by its
DFPs, constraints on certain products have been a historical problem in the PC
channel and there can be no assurance that such periodic constraints may not
have an adverse effect on the Company's business in the future. The Company has
commenced purchasing certain products directly in order to support certain
sizable fulfillment requirements. The Company believes that it can substantially
mitigate the risks associated with additional inventory positions resulting from
its direct purchasing relationships by limiting the range of models it stocks to
those in demand and by carefully monitoring items on hand relative to demand.
The Company also believes that its direct purchasing of these products will
improve its delivery time to customers and quality control of configured
systems.

     The electronic links between PECOS' front-end client "interface,"
Catalink's back-end transaction server system, and its primary DFPs' computer
systems provide the customer with seamless order processing and shipment, as if
a customer's order was shipped directly from Catalink. Using PECOS, when a
customer clicks and accepts an order, if applicable, its primary DFPs' system
prints out a "pick ticket" in a distribution facility, for the product to be
picked for direct shipment to the customer or to one of the Company's
configuration centers. PECOS also can automatically select one of the Company's
configuration and distribution facilities in the U.S. (and similarly in the
U.K.) as the source and print a pick ticket there for fulfillment. In order to
provide similar electronic links with other suppliers, Catalink is in the
process of pursuing electronic price and availability links with its secondary
suppliers, primarily aggregators, for electronic inquiry of product price and
availability. Until these links are fully established, Catalink obtains some of
its product to fulfill customer orders from these aggregators and its other
suppliers using direct order entry systems provided by these companies and by
telephone and facsimile transmissions. These traditional product fulfillment
methods involve expenses associated with ordering, invoicing and product
tracking being done manually. The Company has arrangements with most of these
"traditional" suppliers so that ordered products may still be directly shipped
to the customer, or if necessary, to a Company location for configuration prior
to shipment to the customer.

     PC Configuration Capabilities. Catalink offers customized configuration
services to its customers, whereby a customer can request, by clicking on an
option in PECOS, that Catalink configure their PC system, load software and test
the PC system for functionality prior to shipment. The configuration services
are offered generally on a fee basis and currently are performed primarily by
Catalink at its Bristol, PA, Canton, MA and Irvine, CA facilities and in an
outsourced facility in Hartford, CT. In addition, Catalink maintains product
distribution and 


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configuration facilities in Redditch and Langley in the U.K. Catalink's
technical support staff reviews the viability of configuration orders before the
order is released for fulfillment, or on demand via PECOS' Analyze Custom
Configuration function. The DFPs process, on a fee basis, certain of the
products returned by customers under the Company's product return policies.

MARKETING AND SALES

     Catalink Targeted Customer Segments. Catalink uses its telemarketing and
direct sales force to sell to targeted business and corporate accounts, its
educational and government customer base and, in the U.K., its value-added
reseller customers. As of December 31, 1996, Catalink employed approximately 258
sales representatives, account executives, telemarketers and related support
personnel to service those customer segments.

     Catalink sales and support personnel currently operate from FSSOs in 19
metropolitan areas in the U.S. and 7 in the U.K. Catalink's primary locations
and FSSOs are listed below:

         UNITED STATES:  19
         ------------------
         - Norwood, MA (Boston)                  - Dallas, TX
         - Hartford, CT                          - Austin, TX
         - Stamford, CT                          - Atlanta, GA
         - New York City, NY                     - Phoenix, AZ
         - Edison, NJ                            - San Francisco Bay Area, CA
         - Wilmington, DE                        - Chicago, IL
         - Bristol, PA (Philadelphia)            - San Diego, CA
         - Alexandria, VA (Washington, D.C.)     - Irvine, CA
         - Houston, TX                           - Pittsburgh, PA
         - Allentown, PA

         UNITED KINGDOM: 7
         -----------------
         - Langley, Berkshire                    - Manchester
         - London (City of)                      - Glasgow (Scotland)
         - Basingstoke, Hampshire                - Birmingham
         - Slough, Berkshire

     The Company's strategy is to open additional FSSOs in other metropolitan
areas as it deems necessary or advantageous.

     Corporate and Business Accounts. Large corporations that wish to make their
PC product procurement functions more efficient are primary target customers.
Corporate accounts typically employ purchasing agents or buyers with
above-average product knowledge who view most PC products as commodities.
Business accounts range from divisions of large corporations to businesses with
as few as fifty employees. Catalink penetrates the corporate market with both
direct sales efforts and telemarketing. The Company targets business customers
using a defined business telemarketing staff operating from certain of its U.S.
and U.K. locations whose mission is to introduce Catalink to businesses which
would not otherwise be cost effectively penetrated by Catalink's direct
corporate sales force. Catalink's direct sales efforts include on-site
presentations and PECOS demonstrations to potential corporate customers.
Telemarketers assist the sales professionals by contacting and pre-qualifying
accounts for follow-up, on-site visits by the direct sales force. Customer
support representatives and entry-level corporate sales representatives provide
day-to-day administrative and operational support in order to maximize the
selling time of the direct sales force.

     Educational and Governmental Accounts. Customers in this category consist
of educational institutions at a variety of levels, including, public and
private K-12 school systems in the U.S., colleges and universities, and state
and local governmental agencies. These customers require a remarketer with
special knowledge of budgetary cycles and bid processes, and the ability to work
directly with major manufacturers to support special programs designed to serve
educational institutions. Since 1992, when Apple Computer began its Apple
Education Sales Agent ("AESA") program for sales to grade K-12 schools,
Catalink's Computerware subsidiary (and its predecessors) has operated


                                       7
<PAGE>   9
under periodic contracts with Apple as the exclusive AESA in Pennsylvania, West
Virginia, Delaware and New Jersey. The current contract expires in September
1997. Under this sales agent arrangement Catalink recognizes as revenues only
the sales commissions on each sale rather than the full product sales price.
Sales to the education market also can generate sales of related products and
services. The Company has developed a specialized PECOS catalog on diskette
focused on education-oriented products and content which is being offered under
the name EdNet. Catalink serves these customers from certain FSSOs via a
separate dedicated sales force.

     Fulfillment Accounts. In the U.K., Lantec acts as a product aggregator for
IBM and Compaq products, typically serving small- to medium-sized value-added
resellers and remarketers that do not maintain significant inventory themselves.
These customers demand competitive pricing and typically require next-day
delivery anywhere in the U.K. The Company believes that although its product
fulfillment business is to a different market than its core remarketer business,
this fulfillment business, which Lantec has been operating for many years,
provides Lantec with the ability to generate incremental revenues over a fixed
cost structure.

CUSTOMER AND TECHNICAL SERVICES

     Catalink provides a wide range of customer service and technical support
ranging from nationwide toll-free presale and post-sale telephone-based support
to system integration support in certain markets. Catalink believes that
maintaining a direct customer and technical support link with its customers is
an important competitive factor and promotes customer satisfaction. In addition,
certain manufacturers require their remarketers to provide certain levels of
technical support as an ongoing condition to authorizing the remarketers to sell
their products.

PRODUCT WARRANTY AND SERVICE POLICIES

     In addition to providing its customers with manufacturers' warranties,
Catalink offers its customers certain return policies for products which have
not been damaged. Typically, such products can be returned to Catalink for a
refund or credit within thirty days of their purchase. Catalink believes that
its product return policies are competitive with those offered by other
remarketers. Typically, manufacturer warranties are included as part of, and are
packaged with, the product. When available from manufacturers, Catalink also
offers on-site and extended-term warranty and/or service policies as ancillary
products available for sale through the PECOS system. In addition to Catalink's
telephone-based technical support and manufacturer programs, Catalink offers a
full range of on-site and depot warranty and post-warranty service options in
the U.S., through nationwide outsourcing agreements with third party service
providers. Product returns are centralized at the Company's facilities, where
the various tasks are performed that are necessary to return products to
inventory, to one of the Company's DFPs or to a manufacturer for credit.

ELCOM SYSTEMS

     Elcom Systems designs, develops and licenses interactive and robust
electronic commerce software systems for private networks, Intranets and the
Internet. In addition, Elcom Systems offers a development toolset to customize
both presentation and functionality, and a full range of consulting services to
implement, support and operate its electronic commerce technology, including
complete outsourcing. The Company targets large manufacturers, distributors, and
direct marketers that wish to integrate an electronic commerce system with their
existing enterprise system to process a large number of routine orders, order
inquiries and purchase activity, and companies which need to communicate price
and product information accurately and frequently with customers.

     The Company's electronic commerce system creates a "full-circle" electronic
link between its licensees and their customers which automates and supports many
key functions necessary for large-scale interactive electronic commerce
including user registration and authentication, multimedia catalog and content
management, product searching and selection, order capture and management,
security, payment processing, customer service functions, and real-time links to
a licensee's (or its supplier's) order entry and warehouse management systems
thereby facilitating the fulfillment of such orders.

                                       8
<PAGE>   10

     Elcom Systems has been developing and enhancing the PECOS(TM) family of
integrated Personal Electronic Catalog and Ordering System software systems
since 1992, and began actively marketing PECOS in mid-1995. PECOS is a complete
business solution for interactive electronic commerce, incorporating a front-end
Customer Interface for presentation and end-user functionality which operates on
a user's PC and a back-end Transaction Server System ("TSS") for transaction
processing and electronic linkage to a licensee's internal information system.
The PECOS system creates electronic marketing capabilities, including support of
"click-on" product or other marketing videos (via CD-ROM), capture of a
customer's purchasing proclivity and consumption data, while also maximizing
efficiencies and reducing operational expenses by automating routine customer
service and other information or order-associated functions.

     Elcom Systems has introduced and continues to develop its PECOS technology
through the integration of a suite of Java Applet-based technologies
("PECOS.net") that will effectively provide a robust PECOS user interface over
the World Wide Web, using industry standard browsers such as Netscape Navigator
and Microsoft Explorer. When added to its other electronic commerce
technologies, the Company is able to offer a complete range of electronic
commerce technology options from full CD-ROM client/server-based video
interactivity, to a Java-enabled browser compliant front-end customer
interface.

     The Company's PECOS family of systems are designed to support large numbers
of end-user customers, products and transactions. PECOS is a "true"
client/server application, utilizing local databases and computer processing
capabilities as well as the availability of server based information, including
information stored on databases connected to the World Wide Web. In addition to
the efficiency and speed available to power users of the client application,
PECOS licensees can "forward integrate" both data and processes with their
customers' internal systems, thereby elevating electronic commerce from basic
transaction-based and integrated process-based relationships. The Company's
transactional client/server architecture provides a fully scaleable foundation
for robust system performance and high transaction capacity.

     In order to provide higher levels of transaction security on the Internet,
Elcom Systems has licensed RSA Data Security, Inc.'s security and public key
encryption technology which is offered by Elcom Systems for sub-license as an
additional PECOS module.

     Elcom Systems markets and sells its products through a variety of direct
sales and direct marketing methodologies. Due to its focus being primarily on
Catalink's implementation of PECOS, Elcom Systems' marketing and sales
activities did not begin actively until mid-1995. Elcom Systems moved into its
own leased facility in August 1996 and commenced more active sales activities by
expanding its sales personnel. The Company hired its first sales representative
in July 1995 and as of December 31, 1996, had 6 sales personnel in the U.S. and
2 in the U.K. Elcom Systems uses the PECOS system implemented for Lantec in the
U.K. as its reference site for European marketing of PECOS licenses.

     Although license revenues to date have not been material to the Company as
a whole, Elcom Systems has signed ten license agreements and is pursuing
additional licensing opportunities for its PECOS technology. Elcom Systems'
strategy is to enhance the PECOS technology, proliferate the technology via
licenses, and develop new versions that would take advantage of communications
and publishing opportunities afforded by the growing use of the Internet. A
further element of Elcom Systems' strategy is to create or acquire additional
expertise in Web site creation and maintenance in order to expand its service
offerings and combine these services with the Company's existing transaction
processing capabilities utilizing its PECOS back-end, transaction-based servers.
Elcom Systems has signed nine (not including Catalink) third-party license
agreements to date, covering such diverse industries as banking
supplies/service, PC products distribution, stationary and office supplies,
business machines supplies, home consumable products and others. The Company's
licensing and modification fees range from $10,000 for a minimal implementation,
to over $1 million for a material license including ongoing maintenance,
transaction and other fees.

COMPETITION

     Electronic Commerce Systems. The market for interactive electronic commerce
software is new and rapidly evolving and the Company expects competition to
intensify in the future. The Company competes with 

                                       9
<PAGE>   11

vendors of prepackaged electronic commerce software, vendors of software tools
for developing electronic commerce applications and system integrators. The
Company's competitors include Open Market, Inc., Connect, Inc., BroadVision,
Inc. and Netscape Communications Corp. The Company expects additional
competition from other emerging and established companies, including Microsoft
and Oracle, both of which have announced products for Internet-based electronic
commerce. The Company's potential competitors also include systems integrators
such as EDS and a number of EDI solution vendors, including Sterling Commerce,
Advantis and GEIS.

     These and other competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
the Company and thus may be able to develop or respond more quickly to new or
changing opportunities, technologies and customer requirements. Also, many
current and potential competitors have greater name recognition and more
extensive customer bases that could be leveraged, thereby gaining market share
to the Company's detriment. Such competitors may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies and
offer more attractive terms to purchasers than the Company and to bundle their
products in a manner that may discourage users from purchasing products offered
by the Company. In addition, current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to enhance their products. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. There can be no assurance that the Company will be
able to compete effectively with competitors or that the competitive pressures
faced by the Company will not have an adverse effect on the Company's business,
results of operations and financial condition.

     PC Products Marketplace. The Company has invested substantial effort and
capital to develop and implement its proprietary PECOS front- and back-end
system, including the hardware and electronic links with its DFPs. The overall
market of companies which sell PC products is highly fragmented and Catalink
operates in an extremely competitive environment which is rapidly evolving and
subject to rapid technological change. The Company believes that there are more
than 10,000 PC product remarketers of various types in the U.S. In response to
competitive pressures and lower margins, traditional computer resellers are
consolidating operations and acquiring or merging with other resellers to
increase efficiency. PC manufacturers are engaged in intense price competition
which has had a dramatic influence on the entire industry. A prospective
purchaser of personal computer products has the option to purchase directly from
a manufacturer or assembler (e.g., IBM, Dell, Gateway), from a major remarketer,
(e.g., Entex, Vanstar, MicroAge, Inacom, CompuCom), from a computer mail order
company (e.g., CDW, Micro Warehouse, Creative Computers, INMAC, PC Connection),
from a systems integrator (e.g., Andersen Consulting, EDS), from computer
superstores (e.g., CompUSA, Computer City), electronic superstores (e.g., Best
Buy, Circuit City), and local computer stores, among others. Catalink competes
with all of these entities for the sale of its PC products. Each of these
entities in the PC distribution channel competes on a wide variety of
capabilities including price, delivery performance, breadth of products,
services offered, overall convenience, and in some cases specialized and
distinct capabilities. Most of these potential competitors have substantially
greater financial, technical and marketing resources than the Company.

GOVERNMENT REGULATION

     The Company is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
between personal computers, among local area networks or on the Internet.
However, due to the increasing popularity and use of personal computers and the
Internet, it is possible that a number of laws and regulations may be adopted
with respect thereto, covering issues such as user privacy, pricing and
characteristics and quality of products and services. The adoption of any such
laws or regulations may decrease the growth of electronic commerce and/or the
Internet, which could in turn decrease the demand for the Company's products and
increase the Company's cost of doing business or otherwise have an adverse
effect on the Company's business, operating results or financial condition.
Moreover, the applicability to the Internet of existing laws governing issues
such as property ownership, libel and personal privacy is uncertain.

                                       10
<PAGE>   12


ENVIRONMENTAL MATTERS

     Based on the Company's experience to date, the cost of compliance with
environmental matters has been immaterial and the Company believes that it is in
material compliance with applicable environmental laws and regulations.

PERSONNEL

     As of December 31, 1996, the Company had a total of 838 personnel,
including 776 salaried and 62 hourly personnel. The Company believes that its
personnel relations are good and its personnel are not represented by any labor
union. The Company's future success depends in significant part upon the
continued service of its key technical and senior management personnel and its
continuing ability to attract and retain highly qualified technical and
managerial personnel, including its sales force. Competition for highly
qualified personnel is intense and there can be no assurance that the Company
can retain its key managerial and technical personnel or that it will be able to
attract or retain additional highly qualified technical and managerial personnel
in the future.

     The rapid execution necessary for the Company to fully exploit the
opportunities for its products and services and the Company's rapid growth has
presented a significant challenge to the Company's personnel and management
resources. To mitigate this challenge and manage its expected growth, the
Company will continue to implement and improve its information systems and will
continue to expand, train and manage its personnel base.

COMPANY TRADE NAMES AND TRADEMARKS

     The Company has referred to a variety of other entities and products in
this Annual Report on Form 10-K, certain of which are trade names or trademarks.
Such trade names or trademarks are the property of such companies.

ITEM 2.  PROPERTIES

<TABLE>

     As of December 31, 1996, the Company leased the properties set forth below,
and rented 21 other smaller field sales and support offices ("FSSOs"). The
following leases vary in length remaining, from less than one year to 18 years
for the Langley, Berkshire facility and, in some cases, include options to
extend the lease terms.
<CAPTION>

                                        APPROXIMATE
                                          SQUARE
   LOCATION                               FOOTAGE                                  USE
   ----------------------                 -------                         ----------------------
   <S>                                    <C>                 <C>
   Norwood, Massachusetts                 36,000                   Headquarters; Catalink Boston-area FSSO

   Westwood, Massachusetts                24,000                         Elcom Systems Headquarters

   Canton, Massachusetts                  84,000                   Catalink Configuration and Distribution

   Irvine, California                     14,000              Catalink FSSO, Configuration and Distribution

   Bristol, Pennsylvania                  35,000              Catalink Administrative, FSSO, Configuration and
                                                                                Distribution

   Langley, Berkshire (U.K.)              40,000                U.K. Headquarters; Catalink Configuration and
                                                                             Distribution; FSSO

   Manchester (U.K.)                       4,000                                    FSSO

   Basingstoke, Hampshire (U.K.)           7,500                      Catalink Administrative and FSSO
</TABLE>

  
                                       11
<PAGE>   13

     Subject to ongoing review, the Company considers its facilities to be
generally sufficient to meet its near-term space requirements in light of its
current growth plans. The Company's operations are dependent in part upon its
ability to protect its network infrastructure in its Norwood, Massachusetts
facility against damage from physical break-ins, natural disasters, operational
disruptions and other events.

     In addition to the leased properties mentioned above, the Company also
owns, through Prophet Group Limited, land and a building in Redditch, Hereford
U.K. comprising administrative, distribution, configuration and FSSO facilities
of approximately 20,000 square feet.

ITEM 3.  LEGAL PROCEEDINGS

     On May 30, 1996, the Company filed a complaint (Civil Action No.
96004108-22-05) in the Civil Division of the Court of Common Pleas of Bucks
County Pennsylvania (the "Court") against John R. Kovalcik, Sr., John R.
Kovalcik, Jr., James R. Kovalcik, Thomas M. Kovalcik and David E. Kovalcik
(collectively the "Kovalciks" or the "Defendants"), the principal former owners
of Computerware Business Trust ("Computerware"), which the Company acquired by a
merger in February 1995. As of May 29, 1996, none of the Kovalciks, certain of
whom had been terminated by the Company, were employed by the Company, including
John R. Kovalcik, Jr., a former Corporate Executive Vice President and President
of Catalink Direct, Inc., who resigned from the Company's Board of Directors
effective April 24, 1996. The Company's complaint, which was subsequently
amended, seeks to: (1) enforce confidentiality agreements/obligations and
prevent the misappropriation of proprietary Company information and Company
property, (2) obtain a declaration from the Court that certain of the Kovalciks'
rights under stock option agreements are limited; (3) enforce the covenants of
the merger agreement to determine the final amount of the purchase price of
Computerware, and (4) recover damages arising from various causes including the
Defendants' fraudulent misrepresentations, and certain breaches of the merger
agreement.

     The Defendants have counterclaimed against the Company seeking to: (1)
rescind the merger agreement on the purported grounds that it was not legal, or
in the alternative to receive unspecified additional purchase price
consideration; (2) receive unspecified damages for: fraud, breaches of the
merger agreement and of employment and stock option agreements, wrongful
termination, conversion, misappropriation of trade secrets, unfair competition,
and defamation; and (3) have the Court declare the status of the rights of
certain Kovalciks under their stock option agreements as being more favorable
than the Company contends.

     Pursuant to a stipulation filed with the Court on June 5, 1996, the
Defendants agreed to: (1) maintain the confidentiality of proprietary Company
information; (2) return all Company property in their possession; (3) not
solicit Company employees or customers; and (4) reprogram a sales software
application to permanently eliminate a "functionality interruption" which had
been programmed into this sales software application by a Defendant to disable
the functionality of that software application at a specific time after this
Defendant had left the employ of the Company.

     On September 13, 1996, Defendants filed a petition with the Court, based
primarily on their rescission claim, seeking preliminary injunctive relief with
regard to the Company's ongoing reorganization and consolidation of certain
departments and functions of the former Computerware. Defendants' petition was
denied by the Court on September 30, 1996.

     The Company believes that the Defendants' Counterclaims are without merit
and intends to vigorously defend against them. The Company, based on its
investigations and inquiries, in conjunction with consultations with its legal
counsel, has found no controlling precedent that supports the contention that
the merger was not legal and therefore, believes that the possibility of the
Computerware merger being rescinded by the Court is remote. However, if
Defendants were to prevail on this claim, it would have a material adverse
effect on the Company. The outcome of the other Counterclaims is not
predictable; however the Company does not believe the final resolution of these
Counterclaims will have a material adverse effect on its financial position.


                                       12
<PAGE>   14


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

         None

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

     The Company's Common Stock is listed on the NASDAQ National Market System
(Symbol: ELCO). As of December 31, 1996, there were approximately 220
stockholders of record of the Company's Common Stock. The high and low closing
sales prices reported by the NASDAQ National Market System for the period
January 1, 1996 to December 31, 1996 were: high: $14.63, and low: $5.38. For the
period from January 1, 1997 to March 14, 1997 such high and low prices were:
high: $9.00, and low: $6.38.

     The Company has never declared or paid cash dividends on its Common Stock.
The Company currently does not anticipate paying any dividends in the
foreseeable future. Any payment of future dividends will be at the discretion of
the Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
factors that the Company's Board of Directors deems relevant.

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>

     The following table sets forth selected consolidated financial data for the
Company for the periods from September 4, 1992 (inception) through December 31,
1996. The historical financial data are derived from the consolidated financial
statements of the Company audited by Arthur Andersen LLP, independent public
accountants. This information should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", which are included elsewhere in this Annual Report. The data for
the periods presented are not necessarily comparable because of acquisitions
throughout these periods.
<CAPTION>

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                      
                                               PERIOD FROM       
                                                INCEPTION                      YEAR ENDED DECEMBER 31,
                                         (SEPTEMBER 4, 1992) TO    --------------------------------------------------
                                            DECEMBER 31, 1992       1993          1994           1995          1996
                                          ---------------------    -------       -------       --------       -------
<S>                                               <C>              <C>           <C>           <C>            <C>     
INCOME STATEMENT DATA (1):
Net sales                                         $4,214           $22,387       $57,712       $311,423       $620,115
Gross profit                                         790             3,749         8,778         39,382         70,039
Selling, general and administrative expenses         629             4,996        10,364         36,016         57,551
Research and development expenses                     68               644         1,166          1,122          1,200
                                                  ------           -------       -------       --------       --------
Operating profit (loss)                               93            (1,891)       (2,752)         2,244         11,288
Interest and other income (expense), net             (22)             (116)         (146)        (1,909)        (2,303)
                                                  ------           -------       -------       --------       --------
Income (loss) before income taxes                     71            (2,007)       (2,898)           335          8,985
Provision for income taxes                            65               266           564          1,239          3,410
                                                  ------           -------       -------       --------       --------
Net income (loss)                                 $    6           $(2,273)      $(3,462)      $   (904)      $  5,575
                                                  ======           =======       =======       ========       ========
Net income (loss) per share                                                      $ (0.27)      $  (0.05)      $   0.19
                                                                                 =======       ========       ========

 Weighted average shares outstanding                                              12,749         20,001         29,739
                                                                                 =======       ========       ========
</TABLE>


                                       13

<PAGE>   15
<TABLE>
<CAPTION>

                                                                                    DECEMBER 31,
                                                               ----------------------------------------------------
                                                                1992      1993       1994       1995         1996
                                                               ------    ------    -------     -------     --------
<S>                                                            <C>       <C>       <C>         <C>         <C>     
CONSOLIDATED BALANCE SHEET DATA (1):
Total current assets                                           $2,602    $5,098    $20,313     $136,781    $210,185
Total assets                                                    2,735     7,010     22,356      174,231     260,769
Total current liabilities                                       2,473     5,169     13,997       89,290     161,158
Long-term liabilities, net of current portion                       4       401        236           91       1,008
Total stockholders' equity                                        258     1,440      8,123       84,850      98,603

<FN>

----------

(1)  The information presented includes the results of operations and financial
     condition of CDCI, which was acquired in October 1994 and AMA, which was
     acquired in February 1996. The acquisitions of CDCI and AMA were both
     accounted for on a pooling of interests basis. As a result, the Company's
     results of operations have been restated back to the Company's
     incorporation in September 1992 to include the results of operations of
     CDCI and AMA.
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

     To date, the Company's net sales have been derived substantially from the
sale of PC products by the Company's wholly-owned subsidiary, Catalink, and its
subsidiaries, to corporate customers. In addition, the Company, through its
wholly-owned subsidiary, Elcom Systems, generates revenues from licensing its
PECOS technology and providing related services to other companies. On a
stand-alone presentation basis for the year ended December 31, 1996, revenues
generated from Elcom Systems' licenses, including associated professional
services and maintenance fees, were approximately $3.4 million.

     The Company was founded in 1992, commenced operations in December 1993, and
has experienced rapid growth. The Company achieved its growth by offering its
PECOS technology to its Catalink customers and via their subsequent use of
PECOS, and by various marketing efforts, including the expansion of its direct
sales force nationwide and by the acquisition of six PC products remarketers. In
October 1994, the Company completed the acquisition of CDCI, a Connecticut-based
PC products remarketer, which was accounted for on a pooling-of-interests basis.
Accordingly, the results of this entity (which was merged into Catalink in
December 1995) have been included with the Company's results since the date of
the Company's organization. In February 1995, the Company acquired Catalink
Direct (Pennsylvania), Inc., formerly known as Computerware Business Trust
("Computerware"), a Bristol, Pennsylvania-based PC products remarketer. In June
1995, the Company acquired all of the equity of a PC products remarketer in the
U.K. operating as Lantec. The Computerware and Lantec acquisitions have been
accounted for as purchase transactions.

     In February 1996, the Company completed the acquisition of AMA, a
remarketer of PC products in the U.K., which has been accounted for on a
pooling-of-interests basis. Accordingly, AMA's results have been included with
the Company's results since the date of the Company's organization. In December
1996, the Company acquired Prophet Group Limited, a PC products remarketer and
in February 1997, the Company acquired Data Supplies Limited, a PC products
remarketer, both of which are located in the U.K. The Prophet Group and Data
Supplies acquisitions have been accounted for as purchase transactions. The
Company's remarketer acquisition strategy includes utilizing an acquired
company's sales force to offer PECOS to prospective customers in those new
markets and, over a period of time, to transition the acquired company's
customers to the PECOS system. The Company intends to acquire additional
companies either to expand its customer base and the use of PECOS or to
complement its Elcom Systems' PECOS technology, although there can be no
assurance as to the success or timing of any such acquisitions.

     Catalink's revenues are effected by general price reductions by PC
manufacturers, which has been substantial, particularly in the first quarter of
1997. Such price cutting requires that Catalink increase its base unit 


                                       14
<PAGE>   16


volumes, and associated peripheral product sales to existing and newly acquired
customers, in order to overcome the effect of the cost cutting and increase its
revenue volume. Consequently, in order to increase revenues, such unit volumes
of sales are required to increase substantially, which amplifies the impact of
any slowdown in corporate customer demand on Catalink's revenues.

RESULTS OF OPERATIONS

<TABLE>

     The following table sets forth various items as a percentage of net sales
for each of the years in the three year period ended December 31, 1996:
<CAPTION>

                                                     YEAR ENDED DECEMBER 31,
                                                  -----------------------------
                                                  1994        1995         1996
                                                  ----        ----         ----
         <S>                                      <C>         <C>          <C> 
         Net sales .............................  100%        100%         100%
         Gross profit ..........................   15          13           11
         Selling, general and
           administrative expenses .............   18          12            9
         Research and development expenses .....    2          --           --
         Operating profit (loss) ...............   (5)          1            2
         Interest expense ......................   --           1            1
         Interest income and other, net ........   --          --            1
         Provision for income taxes ............    1          --            1
         Net income (loss) .....................   (6)        (--)           1
</TABLE>
         

Year ended December 31, 1996 compared to year ended December 31, 1995

     Net Sales. Net sales for the year ended December 31, 1996 increased to
$620.1 million from $311.4 million in the year ended December 31, 1995 an
increase of $308.7 million, or 99%. Net sales in the U.S. increased to $435.1
million in 1996 from $219.4 million in 1995, a 98% increase. This increase is
generally attributable to increased sales staffing, the use of the Company's
PECOS technology to market to potential customers and the consequent generation
of incremental customers and related sales, and to a certain extent, from
increased sales to existing customers. Net sales of the Company's U.K.-based
operations (Lantec and AMA) increased to $185.0 million in 1996 from $92.0
million in 1995. This increase results primarily from the inclusion of Lantec's
results for all of 1996 vs. only a portion of 1995, as well as organic growth of
the U.K. group.

     Gross Profit. Gross Profit for the year ended December 31, 1996 increased
to $70.0 million from $39.4 million in the year ended December 31, 1995, an
increase of $30.6 million, or 78%. The increase in gross profit dollars
generated resulted from the substantial growth in net sales. Gross profit,
including the contribution from acquisitions, as a percent of net sales
decreased from 13% in 1995 to 11% in 1996. The decrease in gross profit
percentage is due primarily to the increasing contribution of net sales
generated from large corporate customers which typically generate lower gross
profit percentages on such larger volumes. The Company anticipates that its
gross profit percentage will continue to decline as a percentage of sales
because Catalink's business strategy includes generating substantial incremental
revenue from both new and existing large volume corporate customers which
typically generate lower gross margin percentages than other customers while
minimizing variable operating costs incurred in generating such gross profit
dollars.

     Selling, General and Administrative Expenses. Selling, general and
administrative ("S,G&A") expenses for the year ended December 31, 1996 increased
to $57.6 million from $36.0 million in the year ended December 31, 1995, an
increase of $21.6 million or 60%. This increase is attributable primarily to the
increase in the Company's work force and associated overhead as well as the
S,G&A of acquired entities, including $2.2 million of goodwill amortization.
S,G&A also reflects substantial increases in Elcom Systems' expenses required to
support the actual and expected growth of this subsidiary. Other S,G&A expenses
also increased as the Company continued to invest in administrative
infrastructure to support its growth, including the ongoing development,
augmentation, and implementation of its new management information system which
is being implemented to allow the Company to operate more efficiently by
providing an information systems backbone for the Company and to effectuate the


                                       15
<PAGE>   17


consolidation of the information and other internal systems of certain
acquisitions. As a result, the Company's level of S,G&A expenses in absolute
dollars and as a percentage of sales may be higher than anticipated, primarily
because the new management information system must be fully operational in order
to fully consolidate certain S,G&A functions of currently owned entities or
entities to be acquired in the future. The Company also is maintaining various
manual processes and associated personnel to facilitate its actual and
anticipated growth and will continue to do so until its new management
information system is fully functioning, which is expected to occur in the
summer and into the latter half of 1997. Given a phased implementation, certain
redundant overheads may be eliminated prior to such time. Nonetheless, S,G&A
expenses decreased as a percentage of net sales for the year ended December 31,
1996 to 9%, from 12% in 1995, reflecting the substantial impact of the increase
in net sales, as the Company transitioned out from its development stage.

     Research and Development Expense. Research and development expense has
remained relatively constant between 1995 and 1996. The Company's research and
development expense is focused on developing incremental functionality and
features for its PECOS technology, including modifications to allow
communication using the Internet, the continued development of a browser
compliant version of its PECOS technology, and the development of Java enabled
applets for license to other companies. The Company expects to continue
investing significant amounts in research and development.

     Interest Expense. Interest expense for the year ended December 31, 1996
increased to $3.8 million from $2.2 million in 1995. Interest expense in both
years results from floor plan line of credit borrowings in support of the
Company's accounts receivable and inventory balances and the increase for 1996
is reflective of the substantial increase in the Company's net sales referred to
above and consequent borrowings required to support the increased balances of
accounts receivable and inventory.

     Interest Income and Other, Net. Interest income and other, net, for the
year ended December 31, 1996 increased to $1.5 million from $255,000 in 1995.
This increase is a direct result of investment income generated by investment of
available net proceeds remaining from the sale of the Company's common stock in
its initial public offering in December 1995 and upon exercise of the
underwriters' over-allotment option in January 1996.

     Income Tax Provision. The income tax provisions in 1995 and 1996 primarily
relate to foreign income taxes of AMA and Lantec and certain current U.S. state
income tax provisions.

     Net Income (Loss). The Company reported net income of $5.6 million for the
year ended December 31, 1996 versus a net loss of $(904,000) in 1995 as a result
of the factors described herein.

Year Ended December 31, 1995 compared to year ended December 31, 1994

     Net Sales. Net sales for the year ended December 31, 1995 increased to
$311.4 million from $57.7 million in the year ended December 31, 1994, an
increase of $253.7 million, or 440%. Net sales for Catalink alone, excluding the
results of Computerware, Lantec, Elcom Systems and AMA grew from $28.8 million
in 1994 to $122.8 million in 1995, a 326% increase. This increase is
attributable to increased sales staffing, and the consequent generation of new
customers and related sales, and to a lesser extent, from increased sales to
existing customers.

     Gross Profit. Gross profit for the year ended December 31, 1995 increased
to $39.4 million from $8.8 million in the year ended December 31, 1994, an
increase of $30.6 million, or 348%. Gross profit, including the contribution
from acquisitions, as a percent of net sales decreased from 15% in 1994 to 13%
in 1995. The increase in gross profit dollars generated resulted from the
substantial growth in net sales. The decrease in gross profit percentage
reflects a higher portion of net sales in 1995 to large dollar volume corporate
accounts which generally yield lower gross profit percentages than lower dollar
volume accounts. The Company anticipates that the gross profit percentage will
continue to decline because Catalink's business strategy includes generating
incremental revenues from both new and existing large volume corporate accounts.


                                       16
<PAGE>   18

     Selling, General and Administrative Expenses. S,G&A expenses for the year
ended December 31, 1995 increased to $36.0 million from $10.4 in the year ended
December 31, 1994, an increase of $25.6 million or 246%. The substantial
increase is primarily attributable to the increase in the Company's work force
and the expenses of the acquired companies, including $1.5 million of 1995
goodwill amortization expense. Other selling, general and administrative
expenses also increased, as the Company continued to invest in administrative
infrastructure to support its growth. Selling, general and administrative
expenses decreased as a percentage of net sales from 18% in 1994 to 12% in 1995,
reflecting the impact of the substantial increase in net sales.

     Research and Development Expense. Research and development expense
decreased from approximately $1.2 million in 1994 to $1.1 million in 1995. This
decline reflects the Company's earlier stage investments in developing the PECOS
operating system and a shift in emphasis by the Company to market and implement
its proprietary electronic commerce technology in other industries. The Company
expects to continue investing significant amounts in research and development.

     Interest Expense. Interest expense for the year ended December 31, 1995
increased to $2.2 million from $.2 million in 1994. Interest expense in 1995
primarily results from the floor plan borrowings in support of the Company's
accounts receivable and inventory. Interest expense in 1994 related to both bank
borrowings in support of the Company's asset acquisitions and other operating
cash requirements, as well as floor plan borrowings in support of the Company's
accounts receivable and inventory. Generally, bank borrowings in 1994 were
repaid from equity funds raised.

     Income Tax Provision. The income tax provision in 1995 relates to foreign
income taxes of Lantec and certain current state income taxes payable by the
Company. In 1994, the tax provision related to the separate profitable
operations of CDCI prior to its acquisition by the Company.

     Net Loss. The net loss for 1995 was reduced by $2.6 million or 74%, from
$(3.5 million) in 1994 to $(904,000), reflecting the impact of the factors
described above.

Liquidity and Capital Resources

     Net cash used in operating activities for the year ended December 31, 1996
was $56.3 million, including $71.1 million relating to increases in accounts
receivable, resulting from the Company's increase in net sales during 1996. Net
cash used for investing activities was $15.4 million, consisting primarily of
$6.5 million in additions to property, equipment and software and $8.3 million
of cash paid for acquisitions. Net cash provided by financing activities was
$49.6 million, including $6.2 million in net proceeds from the Company's sale of
common stock to the underwriters of its initial public offering upon exercise of
their over-allotment option and a $43.0 million net increase in borrowings under
floor plan lines of credit.

     Net cash used in operating activities for the year ended December 31, 1995
was $39.4 million and included the net operating cash impact of Computerware and
Lantec after they were acquired, which occurred in February and June 1995,
respectively. Net cash used in operating activities also included $34.6 million
relating to increases in accounts receivable. Net cash used in 1995 investing
activities was $12.3 million and included $6.5 million related to the purchase
of Lantec and $5.8 million of additions to property, equipment and software. The
Company received a net total of $91.4 million from financing activities in 1995,
$40.1 million from the Company's sale of stock in its initial public offering
and related exercise of common stock warrants, $19.1 million from the sale of
Series B Convertible Preferred Stock and $37.5 million from a net increase in
borrowings under the Company's floor plan lines of credit. Financing activities
in 1995 also reflect a $5 million repayment of Computerware loans to the former
shareholders of Computerware.

     Net cash used in operating activities for the year ended December 31, 1994
was $9.4 million, including $9.9 million relating to increases in accounts
receivable. Net cash used in investing activities was $0.7 million, of which
$0.6 million was used for additions to property, equipment and software. Net
cash provided by financing activities was $14.9 million including approximately
$10.1 million from the sale of Series B Preferred Stock, and $4.9 million from a
net increase in borrowings under the Company's lines of credit.

                                       17
<PAGE>   19


     At December 31, 1996, the Company's principal sources of liquidity included
cash and cash equivalents of $23.3 million and floor plan lines of credit from
Deutsche Financial Services Corporation ("DFSC"). The DFSC facility provides for
aggregate borrowings of up to $100 million, and as of July 1, 1996, the interest
rate was reduced to the prime rate. Availability of borrowings is based on
DFSC's determination as to eligible accounts receivable and inventory. At
December 31, 1996, the Company's borrowings from DFSC on its floor plan line of
credit were $71.4 million, which approximated the Company's availability based
on eligible accounts receivable and inventory at that date. During the first
half of 1996, interest was payable monthly at the prime rate plus 1%, and
thereafter at the prime rate (8.25% at December 31, 1996), although
approximately one-half of the Company's initial borrowings do not bear interest
until after 30 days have lapsed. As of March 1, 1997, the interest rate was
reduced to prime minus 1%. The DFSC line of credit is secured primarily by the
Company's inventory and accounts receivable, although substantially all of the
Company's other assets also are pledged in support of the facility. The Company
is dependent upon the DFSC line of credit to finance increases in its eligible
accounts receivable arising from sales of PC products as well as its inventory
purchases and hence, the Company expects that its borrowings under such facility
will need to continue to increase substantially in order to support the
Company's anticipated growth. There can be no assurance, however, that the DFSC
line of credit will continue to be available, or be increased to support the
Company's requirements. The DFSC line of credit limits borrowings to defined
percentages of eligible inventory and accounts receivable and contains customary
covenants, including financial covenants with respect to the Company's net worth
and debt-to-equity ratios, and customary default provisions related to
non-payment of principal and interest, default under other debt agreements and
bankruptcy. The Company also has a $9.5 million floor plan financing agreement
with IBM Credit Corporation ("IBMCC") to support purchases of IBM products. The
DFSC and IBMCC borrowing facilities relate to domestic operations only. At
December 31, 1996, the Company's borrowings from IBMCC on its floor plan line of
credit were $4.3 million.

     Lantec maintains a financing facility with Kellock Limited, an affiliate of
NatWest Bank, PLC, which provides for borrowings of up to approximately $15.4
million. Borrowings bear interest at the Bank of Scotland base rate (6.0% at
December 31, 1996) plus 1.2% and are primarily secured by accounts receivable.

     AMA maintains a factoring agreement with International Factors Limited
(IFL), under which IFL acts as AMA's factor for a portion of its accounts
receivable. The factoring charges amount to the Lloyds Bank base rate (6.0% at
December 31, 1996) plus 1.75% of the accounts receivable assigned, in addition
to certain administration charges, as defined.

     Prophet Group maintains a financing arrangement with Confidential Invoice
Discounting Limited, a financing company, which provides for borrowings up to
the lesser of the security value of accounts receivable, as defined, or
$6,850,000. Borrowings bear interest at the Lloyds Bank base rate (6.0% at
December 31, 1996) plus 1.25%.

     As of December 31, 1996, the Company had borrowings aggregating
approximately $90 million outstanding under the aforementioned facilities, which
approximated its availability thereunder. 

     Based upon ongoing analyses, and the requirement that it establish a direct
purchasing relationship with a major PC manufacturer to support fulfillment
requirements under a recently awarded contract, the Company has decided to begin
purchasing products directly from selected manufacturers. The Company believes
that it can substantially mitigate the risks associated with additional
inventory positions by limiting the range of models it stocks to those in demand
and by carefully monitoring items on hand relative to demand. The Company
believes that this change should improve its delivery time to customers and the
quality control of configured systems and, over time, may increase the
profitability of the Company. The Company also will continue to maintain
electronic links, logistical and traditional relationships with selected
distributors and/or aggregators.

     In order to augment its capital position, focus attention on its PECOS
technology, and establish a market value for its technology subsidiary, the
Company is conducting discussions with selected investment banks to evaluate a
possible public offering of common stock of Elcom Systems, Inc., its
wholly-owned technology subsidiary which developed and licenses its PECOS
electronic commerce enabling software technology. The 


                                       18
<PAGE>   20

offering would only be made pursuant to a prospectus included in a registration
statement which would be filed with the Securities and Exchange Commission.
Although discussions and consideration of such an offering are ongoing, the
timing thereof has been deferred due to what the Company believes are
unfavorable market conditions. There can be no assurances as to the likelihood,
the success, the valuation, the timing or the size of any such possible capital
offering. In order to support such a possible capital offering, the Company is
likely to continue to invest greater than anticipated amounts in additional
sales and support staffing of Elcom Systems.

     The Company has filed a complaint against the principal former owners of
Computerware, who in turn have filed counterclaims against the Company. The
Company does not anticipate that the final resolution of this matter will have a
material adverse effect on its financial position, although there can be no
assurance thereof. See Part I, Item 3. Legal Proceedings, and Note 6 to the
Consolidated Financial Statements contained in Part II, Item 8., herein.

     The Board of Directors of the Company has authorized the purchase of up to
600,000 shares of common stock to be held as treasury stock specifically for
reissuance in connection with acquisitions. The Company anticipates that it may
acquire shares in the open market under this authorization from time to time.

     The Company's principal commitments consist of leases on its office
facilities, obligations under lines of credit, which are demand facilities and
are treated as current liabilities, and capital leases. Future growth of the
Company will require ongoing investment in property, equipment and software.

     The Company believes that its cash and cash equivalents, together with its
existing sources of liquidity, will be sufficient to meet its working capital
and capital expenditure requirements for the next year, so long as its financing
sources continue to make lines of credit available. However, as the Company's
business strategy includes growth through acquisitions, additional sources of
financing may be required to accomplish the Company's growth plans.

SEASONALITY AND IMPACT OF INFLATION

     Due to its growth, the Company historically has not experienced observable
seasonality in its business. Generally, however, sales in the PC remarketer
industry slow in the summer months and are stronger in the fourth calendar
quarter in the U.S. and somewhat weaker in the first calendar quarter, while
sales are generally strong in the first calendar quarter in the U.K. Due to its
current size and the nature of its customer base, it is likely that the sales of
Catalink will be impacted by general industry seasonality in the future. Elcom
Systems' net sales are not seasonal in nature.

     Inflation has been relatively low in recent years and, accordingly the
Company has not been significantly impacted by the effects of general inflation.
However, in the latter half of 1996 the Company has been increasingly impacted
by the low unemployment in certain of its markets, particularly in the Northeast
U.S. and the U.K., which has resulted in significant increases in salaries for a
variety of personnel (particularly technical personnel) in order for the Company
to remain competitive in the employment marketplace.

STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT

     Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K could include forward-looking
information. All statements other than statements of historical fact, including,
without limitation, those with respect to the Company's objectives, plans and
strategies set forth herein and those preceded by or that include the words
"believes," "expects," "anticipates," or similar expressions, are
forward-looking statements. Although the Company believes that such
forward-looking statements are reasonable, it can give no assurance that the
Company's expectations are correct. These forward-looking statements involve a
number of risks and uncertainties which could cause the Company's future results
of operations to differ materially from those anticipated, including: the
continued acceptance of the Company's PECOS technology, the impact of
competitive products and pricing, the success and timing of implementing the
Company's new management 


                                       19
<PAGE>   21


information system, risks associated with acquisitions of companies, business
conditions and growth in the PC industry, the results of pending litigation and
the other risks detailed from time to time in this Annual Report on Form 10-K
and in the Company's other SEC reports, including the Company's prospectus
included as part of the S-1 Registration Statement declared effective on
December 19, 1995 under the Securities Act of 1933.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See the Consolidated Financial Statements beginning on page F-1.
Supplemental quarterly financial information for the Company is included in Note
10 of Notes to Consolidated Financial Statements.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

     None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information concerning the directors of the Company is set forth in the
definitive Proxy Statement ("the Proxy Statement") to be sent to stockholders in
connection with the Company's 1997 Annual Meeting of Stockholders to be held
June 10, 1997, under the heading "Election of Directors", which information is
incorporated herein by reference. Information concerning each executive officer
of the Company is set forth in the Proxy Statement under the heading "Management
- Executive Officers", which information is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Executive Compensation", which information is
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Principal
Stockholders and Management Ownership", which information is incorporated herein
by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND TRANSACTIONS

     The information concerning certain relationships and related transactions
is set forth in the Proxy Statement under the heading "Certain Transactions",
which information is incorporated herein by reference.



                                       20
<PAGE>   22

                                     PART IV

ITEM 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

The following documents are filed as part of this Annual Report on Form 10-K:

     (a) (1) Consolidated Financial Statements:

             See Index to Consolidated Financial Statements on page F-1.

         (2) Consolidated Financial Statement Schedules for each of the
             Three Years in the Period Ended December 31, 1996:

                    Report of Independent Auditors on Schedule II Valuation and
                    Qualifying Accounts Schedule II Valuation and Qualifying
                    Accounts

             See Index to Schedule on page S-1

             All other schedules for which provision is made in the applicable 
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.

         (3) Index to Exhibits:

             The exhibits filed as part of this form 10-K are listed on the
Index to Exhibits beginning on page E-1, which Index to Exhibits is incorporated
herein by reference. The Company's current management contracts and executive
compensation plans and arrangements are listed in the Index to Exhibits
incorporated herein by reference at exhibit numbers 10.1; 10.2; 10.3; 10.19;
10.20; 10.22; 10.23; 10.29; 10.36; 10.37 and 10.38.


     (b) Reports on Form 8-K:

         During the quarter ended December 31, 1996, the Company filed a current
report on Form 8-K dated December 6, 1996 reporting pursuant to Item 2 thereof
the acquisition of Prophet Group Limited, a U.K. based remarketer of personal
computer products.

     (c) Exhibits:

         See Index to Exhibits beginning on page E-1.

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

The Company will provide copies of the Consolidated Financial Statement Schedule
and Index to Exhibits to stockholders upon request.


                                       21
<PAGE>   23

                                   SIGNATURES

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

                                         Elcom International, Inc.
                                         (Registrant)

Date:  March 21, 1997                    By:     /s/ Robert J. Crowell
                                            ------------------------------------
                                                     ROBERT J. CROWELL
                                            Chairman and Chief Executive Officer

<TABLE>

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<CAPTION>

           Signatures                             Title                           Date
           ----------                             -----                           ----
<S>                                         <C>                                <C>
    /s/ Robert J. Crowell                   Chairman of the                    March 21, 1997
-------------------------------------       Board of Directors             
        ROBERT J. CROWELL                   and Chief Executive Officer    
                                            (Principal Executive Officer)  
                                                                           
                                            
    /s/ Laurence F. Mulhern                 Corporate Executive                March 21, 1997
-------------------------------------       Vice President,                   
        LAURENCE F. MULHERN                 Chief Financial Officer, Treasurer
                                            and Secretary (Principal Financial
                                            and Accounting Officer)           
                                            

    /s/ William W. Smith                    Vice Chairman and Director         March 21, 1997
-------------------------------------
        WILLIAM W. SMITH


    /s/ James Rousou                        Corporate Executive                March 21, 1997
-------------------------------------       Vice President and Director
        JAMES ROUSOU                 


    /s/  J. Richard Cordsen                 Director                           March 21, 1997
-------------------------------------
         J. RICHARD  CORDSEN


    /s/  Richard J. Harries, Jr.            Director                           March 21, 1997
-------------------------------------
         RICHARD J. HARRIES, JR.


    /s/  John W. Ortiz                      Director                           March 21, 1997
-------------------------------------
         JOHN W. ORTIZ
</TABLE>


                                       22
<PAGE>   24
                            ELCOM INTERNATIONAL, INC.
                           ANNUAL REPORT ON FORM 10-K
                                INDEX TO EXHIBITS


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

    2.1      Agreement for the sale and purchase of shares in the capital of
             Prophet Group Limited dated December 6, 1996, by and among Lantec
             (Management) Limited (a subsidiary of the Registrant) and the
             Vendors (as defined therein). (3)

    2.2      Agreement and Plan of Merger by and among the Registrant, Catalink
             Acquisition Sub, Inc. and Computerware Business Trust
             (Computerware) and its former shareholders, dated February 6, 1995.
             (1)

    2.3      Lantec Share Purchase Agreement by and among the Registrant and the
             former shareholders of Lantec, dated June 12, 1995. (1)

    2.4      Agreement for the exchange of shares in the capital of AMA (UK)
             Limited for shares in the Registrant, dated February 29, 1996, by
             and among the Registrant and the Vendors (as defined therein). (2)

    2.5      Agreement for the sale and purchase of shares in the capital of
             Data Supplies Limited dated February 21, 1997, by and among Elcom
             Group Limited (a subsidiary of the Registrant), the Vendor (as
             defined therein) and Mr. Savage. (4)

    3.3      Second Restated Certificate of Incorporation of the Registrant. (5)

    3.4      By-Laws of the Registrant, amended as of November 6, 1995. (1)

    4.4      Specimen certificate of the Registrant's Common Stock. (1)

    4.5      Form of 8% Series A Cumulative Convertible Preferred ("Series A")
             Stock Purchase Agreement, with attached list of purchasers and
             number of shares purchased, as of December 10, 1993. (1)

    4.8      Form of Series B Preferred Stock Purchase Agreement for Closings
             held on April 15, June 21 and August 11, 1994, with attached list
             of purchasers and number of shares purchased. (1)

    4.9      Form of Series B Preferred Stock Purchase Agreement for Closings
             held on December 30, 1994 and February 6, 1995, with attached list
             of purchasers and number of shares purchased. (1)

    4.10     Form of Series C Preferred Stock Purchase Agreement for Closings
             held on June 22 and June 30, 1995, with attached list of purchasers
             and number of shares purchased. (1)

    4.12     Securities Agreement, dated September 1, 1993, as amended February
             1, 1994, by and among the Registrant, Robert J. Crowell, and 19
             other listed purchasers, as of June 2, 1995 (1) and list of other
             assignees of certain registration rights thereunder. (x)

    4.13     Securities Agreement, dated October 28, 1994, by and among the
             former stockholders of CSI and the Registrant. (1)



                                       E-1
<PAGE>   25
Exhibit No.                Description
-----------                -----------


   4.14      Computerware Stockholders' Agreement, dated February 6, 1995, by
             and among the Registrant, Robert J. Crowell and the former
             shareholders of Computerware. (1)
           
   4.15      Amended and Restated Lantec Stockholders' Agreement, dated April 6,
             1996, by and among the Registrant, Robert J. Crowell and the former
             shareholders of Lantec. (6)
           
   4.16      Form of Lantec Warrant Agreement, dated June 22, 1995, with
             attached list of holders and number of warrants held. (1)
           
   4.17      AMA Securities Agreement, dated February 29, 1996, by and among the
             Registrant and the former stockholders of AMA (UK) Limited. (x)
           
   10.1      Form of Indemnity Agreement for Executive Officers and/or Directors
             of the Registrant, with attached list of other Director and/or
             Executive Officer Indemnitees. (1)(*)
           
   10.2      Stock Option Plan of the Registrant dated February 23, 1993, as
             amended June 3, 1994 and November 6, 1995. (1) (*)
           
   10.3      1995 (Computerware) Stock Option Plan of the Registrant, dated
             February 6, 1995 (1), as amended by Amendment No. 1 dated August
             19, 1996. (x) (*)
           
   10.4      $100,000,000 Business Credit and Security Agreement Dated as of
             March 1, 1997 among Catalink Direct, Inc., Catalink Direct
             (Pennsylvania), Inc. and Deutsche Financial Services Corporation
             ("Deutsche"). (x)
          
   10.5      Lease Agreement for the Registrant's Headquarters, dated July 5,
             1993, by and among Oceana Way Associates and the Registrant. (1)
            
   10.6      Lease Agreements for Lantec Headquarters, among Allied Dunbar
             Assurance PLC to Businessland (UK) Limited and Businessland Inc.,
             dated November 23, 1988, with Licenses to Assign to Lantec
             Information Services Ltd., and Supplemental Deed dated November 4,
             1993. (1)
            
   10.13     Lock Box Agreement, dated May 1, 1994, by and among Deutsche, Fleet
             Bank of Massachusetts and the Registrant; and Storage Agreement by
             and between Ingram Micro and Deutsche. (1)
            
   10.15     Guaranty by the Registrant in favor of Deutsche, dated November 6,
             1995, as amended, guarantying Computerware's indebtedness to
             Deutsche (1) as ratified by a Reaffirmation of Guaranty dated March
             1, 1997. (x)
            
   10.19     Employment Agreement by and between the Registrant and Robert J.
             Crowell dated September 20, 1995. (1) (*)
            
   10.20     Employment Letter Agreement by and between Elcom Systems, Inc. and
             David Wolf, dated February 23, 1993, as amended April 21, 1993. (1)
             (*)
            
   10.22     Employment Agreement by and between the Registrant and James
             Rousou, dated April 1, 1996. (7 (*)
            
   10.23     Employment Letter Agreement by and between Elcom Systems and Andres
              Escallon, dated February 23, 1993, as amended April 21, 1993. (1)
             (*)

                                 E-2
<PAGE>   26
Exhibit No.                Description
-----------                -----------

   10.25      Invoice Discounting Agreement by and between Kellock Limited and
              Lantec Information Services, dated August 17, 1993, as amended
              February 14, 1995. (1)
             
   10.28      Software License and Support Agreement by and between the
              Registrant and Spectrum Associates, Inc., dated June 30, 1995. (1)
             
   10.29      1995 Non-Employee Director Stock Option Plan of the Registrant,
              dated October 9, 1995. (1) (*)
             
   10.33      Guaranty by the Registrant in favor of Deutsche, dated November 6,
              1995, guarantying Catalink's indebtedness to Deutsche (1) as
              ratified by a Reaffirmation of Guaranty dated March 1, 1997. (x)
             
   10.36      The 1996 Stock Option Plan of Elcom International, Inc. (8) (*)
             
   10.37      Employment Agreement by and between Registrant and Laurence F.
              Mulhern dated July 1, 1996. (8) (*)
             
   10.38      The 1996 Stock Option Plan of Elcom Systems, Inc. (x) (*)
             
   11.1       Statement regarding computation of pro forma income (loss) per
              common share. (x)
             
   21.1       List of the Registrant's Subsidiaries. (x)
             
   23.1       Consent of Arthur Andersen LLP. (x)
             
   23.2       Consent of Deloitte & Touche. (x)

   27         Financial Data Schedule. (x)

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

(1)   Previously filed as an exhibit to Registration Statement No. 33-98866 on
      Form S-1 and incorporated herein by reference.

(2)   Previously filed as an exhibit to Current Report on Form 8-K (date of
      report February 29, 1996) filed March 14, 1996, and incorporated herein by
      reference.

(3)   Previously filed as an exhibit to Current Report on Form 8-K (date of
      report December 6, 1996) filed December 19, 1996, and incorporated herein
      by reference.

(4)   Previously filed as an exhibit to Current Report on Form 8-K (date of
      report February 21, 1997) filed March 6, 1997, and incorporated herein by
      reference.

(5)   Previously filed as an exhibit to Registrant's Annual Report on Form 10-K
      for the year ended December 31, 1995, and incorporated herein by
      reference.

(6)   Previously filed as an exhibit to Registrant's Quarterly Report on Form
      10-Q for the quarter ended March 31, 1996, and incorporated herein by
      reference.

(7)   Previously filed as an exhibit to Registrant's Quarterly Report on Form
      10-Q for the quarter ended June 30, 1996, and incorporated herein by
      reference.

(8)   Previously filed as an exhibit to Registrant's Quarterly Report on Form
      10-Q for the quarter ended September 30, 1996, and incorporated herein by
      reference.

(x)   Filed herewith.

(*)   Management contract or compensatory plan or arrangement.


                                       E-3
<PAGE>   27


                        CONSOLIDATED FINANCIAL STATEMENTS

                   ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>

     The following consolidated financial statements of Elcom International,
Inc. are included in response to Item 8:
<CAPTION>

                                                                                                Page
                                                                                                ----
<S>                                                                                             <C>
Report of Independent Public Accountants                                                        F-2
Reports of Other Auditors                                                                       F-3 to F-4
Consolidated Balance Sheets as of December 31, 1995 and 1996                                    F-5
Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996      F-6
Consolidated Statements of Stockholders' Equity for the years ended
     December 31, 1994, 1995 and 1996                                                           F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996      F-8
Notes to Consolidated Financial Statements                                                      F-9 to F-21
</TABLE>



                                      F-1
<PAGE>   28


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To Elcom International, Inc.:

     We have audited the accompanying consolidated balance sheets of Elcom
International, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. The consolidated statements give retroactive effect to
the merger with AMA (UK) Limited on February 29, 1996, which has been accounted
for as a pooling of interests as described in Notes 1 and 2. These consolidated
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 did not audit the financial statements of Elcom International
Limited and AMA (UK) Limited, both of which are wholly-owned subsidiaries, which
statements, in the aggregate, reflect total assets constituting $56,625,000 and
$98,879,000 of the related 1995 and 1996 consolidated financial statement
totals, respectively, and which statements reflect net income of $774,000,
$1,224,000 and $4,301,000 of the 1994, 1995 and 1996 consolidated financial
statement totals, respectively. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
amounts included for Elcom International Limited and AMA (UK) Limited is based
solely upon the reports of the other auditors.

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

     In our opinion, based on our audits, and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Elcom International, Inc. and
subsidiaries as of December 31, 1995 and 1996 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.



ARTHUR ANDERSEN LLP



Boston, Massachusetts
March 21, 1997


                                      F-2
<PAGE>   29



                            REPORT OF OTHER AUDITORS



AUDITORS' REPORT TO THE DIRECTORS OF



ELCOM INTERNATIONAL LIMITED
(FORMERLY ELCOM HOLDINGS LIMITED)
(FORMERLY PCO 138 LIMITED)



We have audited the financial statements of Elcom International Limited (not
separately presented herein) which have been prepared under the accounting
policies set out in the notes to the accounts.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

As described on page 3 of the financial statements the company's directors are
responsible for the preparation of financial statements. It is our
responsibility to form an independent opinion, based on our audit, on those
statements and to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgments made by
the directors in the preparation of the financial statements and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.

OPINION

In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 December 1995 and 1996 and of its profit for
the years then ended.



DELOITTE & TOUCHE

Chartered Accountants
London

21 March 1997



                                      F-3
<PAGE>   30


                            REPORT OF OTHER AUDITORS




AUDITORS' REPORT TO THE DIRECTORS OF

AMA (UK) LIMITED



We have audited the financial statements of AMA (UK) Limited (not separately
presented herein) which have been prepared under the accounting policies set out
in the notes to the accounts.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

As described on page 2 of the financial statements the company's directors are
responsible for the preparation of financial statements. It is our
responsibility to form an independent opinion, based on our audit, on those
statements and to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgments made by
the directors in the preparation of the financial statements and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.

OPINION

In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 December 1995 and 1996 and of its profit for
each of the three years in the period ended 31 December 1996.



DELOITTE & TOUCHE

Chartered Accountants
London

21 March 1997


                                      F-4
<PAGE>   31


                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES
<TABLE>
 
                                  CONSOLIDATED BALANCE SHEETS
                               (IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>

                                                                                 DECEMBER 31,
                                                                          ------------------------
                                                                             1995           1996
                                                                          ---------      ---------
<S>                                                                        <C>           <C>      
                           ASSETS
CURRENT ASSETS:
  Cash and cash equivalents........................................        $ 44,977      $  23,259
  Accounts receivable, net of allowance for doubtful
    accounts of $1,709 and $ 4,312.................................          72,632        151,344
  Inventory........................................................          17,270         34,718
  Prepaids and other current assets................................           1,902            864
                                                                           --------      ---------
         Total current assets......................................         136,781        210,185
PROPERTY, EQUIPMENT AND SOFTWARE, AT COST:
  Computer hardware and software...................................          11,629         17,577
  Land, buildings and leasehold improvements.......................           1,935          3,415
  Furniture, fixtures and equipment................................           4,130          6,202
                                                                           --------      ---------
                                                                             17,694         27,194
  Less -- Accumulated depreciation and amortization................           8,740         13,308
                                                                           --------      ---------
                                                                              8,954         13,886
                                                                           --------      ---------

GOODWILL AND OTHER ASSETS, NET OF ACCUMULATED AMORTIZATION.........          28,496         36,698
                                                                           --------      ---------
                                                                           $174,231      $ 260,769
                                                                           ========      =========
              LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Lines of credit....................................................      $ 45,611      $  89,469
  Accounts payable...................................................        33,417         36,987
  Accrued expenses and other current liabilities.....................        10,077         34,405
  Current portion of capital lease obligations.......................           185            252
  Current portion of long-term debt..................................          --               45
                                                                           --------      ---------
         Total current liabilities...................................        89,290        161,158
                                                                           --------      ---------
OTHER DEFERRED LIABILITIES...........................................            43             32
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION....................            48            556
LONG-TERM DEBT, NET OF CURRENT PORTION...............................          --              420
                                                                           --------      ---------
                                                                                 91          1,008
                                                                           --------      ---------

COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value; Authorized -- 10,000,000 shares --
      Issued and outstanding -- none.................................          --             --
  Common stock, $.01 par value
      Authorized -- 50,000,000 shares
      Issued and outstanding -- 25,510,297 and 26,663,512 shares.....           255            267
  Additional paid-in capital.........................................        91,113         98,483
  Accumulated deficit................................................        (6,494)          (919)
   Treasury stock, at cost -- 0 and 37,546 shares....................          --             (366)
  Cumulative translation adjustment..................................           (24)         1,138
                                                                           --------      ---------
         Total stockholders' equity..................................        84,850         98,603
                                                                           --------      ---------
                                                                           $174,231      $ 260,769
                                                                           ========      =========
</TABLE>


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



                                       F-5
<PAGE>   32

                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES

<TABLE>
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>


                                              FOR THE YEARS ENDED DECEMBER 31,
                                           -------------------------------------
                                            1994           1995           1996
                                           -------       --------       --------

<S>                                        <C>           <C>            <C>     
Net sales...............................   $57,712       $311,423       $620,115
Cost of sales...........................    48,934        272,041        550,076
                                           -------       --------       --------
Gross profit............................     8,778         39,382         70,039
Expenses:
  Selling, general and administrative...    10,364         36,016         57,551
  Research and development..............     1,166          1,122          1,200
                                           -------       --------       --------
Total expenses..........................    11,530         37,138         58,751
                                           -------       --------       --------
Operating profit (loss).................    (2,752)         2,244         11,288
Interest expense........................      (208)        (2,164)        (3,837)
Interest income and other, net..........        62            255          1,534
                                           -------       --------       --------
Net income (loss) before income taxes...    (2,898)           335          8,985
Provision for income taxes..............       564          1,239          3,410
                                           -------       --------       --------

Net income (loss).......................   $(3,462)      $   (904)      $  5,575
                                           =======       ========       ========

Net income (loss) per share.............   $ (0.27)      $  (0.05)      $   0.19
                                           =======       ========       ========

Weighted average shares outstanding.....    12,749         20,001         29,739
                                           =======       ========       ========
</TABLE>

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

                                      F-6
<PAGE>   33

                            ELCOM INTERNATIONAL, INC
                                AND SUBSIDIARIES
<TABLE>

                                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                           (IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<CAPTION>

                                                                   CONVERTIBLE
                                                                 PREFERRED STOCK                COMMON STOCK            
                                                            ---------------------------   --------------------------   ADDITIONAL
                                                                NUMBER      $ 01 PAR         NUMBER      $ 01 PAR        PAID-IN
                                                              OF SHARES       VALUE         OF SHARES      VALUE         CAPITAL  
                                                            ---------------------------   --------------------------   -----------

<S>                                                         <C>              <C>          <C>              <C>           <C>     
BALANCE, DECEMBER 31, 1993 as previously reported              244,444       $  2          5,869,345       $ 59          $ 3,469 
Pooling of interests with AMA (U.K.) Limited...........             --         --          3,247,371         32                6  
                                                            ---------------------------   --------------------------     -------
BALANCE, DECEMBER 31, 1993, RESTATED...................        244,444          2          9,116,716         91            3,475  
  Conversion of Series A convertible preferred
    stock and reversal of dividend.....................        244,444          2                 --         --                6  
  Sale of Series B convertible
    preferred stock, net of offering
    costs of approximately $666........................      2,963,287         30                 --         --           10,046  
  Net loss.............................................             --         --                 --         --               --  
  Cumulative translation adjustment....................             --         --                 --         --               --  
                                                            ---------------------------   --------------------------     -------
BALANCE, DECEMBER 31, 1994.............................      3,452,175         34          9,116,716         91           13,527  
  Sale of Series B convertible
    preferred stock, net of offering
    costs of approximately $159........................      1,482,736         15                 --         --            5,200  
  Sale of Series C convertible
    preferred stock, net of offering
    costs of approximately $651........................      3,052,385         31                 --         --           13,817  
  Purchase of Computerware.............................             --         --          1,326,417         13            4,795  
  Purchase of Lantec...................................             --         --          2,899,820         29           13,745  
  Exercise of common stock options.....................             --         --              9,963         --               12  
  Conversion of Series B convertible
    preferred  stock into common stock.................     (4,934,911)       (49)         4,934,911         49               --  
  Conversion of Series C convertible
    preferred  stock into common stock.................     (3,052,385)       (31)         3,052,385         31               --  
  Proceeds from sale of common stock, net of
    offering costs of  approximately $4,558............             --         --          4,000,000         40           39,402  
  Exercise of warrants.................................             --         --            170,085          2              615  
  Net loss.............................................             --         --                 --         --               --  
  Cumulative translation adjustment....................             --         --                 --         --               --  
                                                            ---------------------------   --------------------------     -------
BALANCE, DECEMBER 31, 1995.............................             --         --         25,510,297        255           91,113  
  Proceeds from sale of common stock, net of
    offering costs of  approximately $200..............             --         --            629,489          6            6,234  
  Exercise of common stock options.....................             --         --            523,726          6              920  
  Tax effect of AMA (U K.) Limited pooling.............             --         --                 --         --              216  
  Net income...........................................             --         --                 --         --               --  
  Cumulative translation adjustment....................             --         --                 --         --               --  
                                                            ---------------------------   --------------------------     -------
BALANCE, DECEMBER 31, 1996.............................             --       $ --         26,663,512       $267          $98,483  
                                                            ===========================   ==========================     =======
<CAPTION>


                                                                                  TREASURY       CUMULATIVE        TOTAL      
                                                              ACCUMULATED           STOCK,       TRANSLATION     STOCKHOLDERS'   
                                                                DEFICIT            AT COST        ADJUSTMENT        EQUITY     
                                                              -----------          --------      -----------     ------------
                                                                                                                                
<S>                                                            <C>                  <C>            <C>              <C>         
BALANCE, DECEMBER 31, 1993 as previously reported......        $(2,867)             $  --          $   --           $   663     
Pooling of interests with AMA (U.K.) Limited...........            739                 --              --               777     
                                                               -------              -----          ------           -------     
BALANCE, DECEMBER 31, 1993, RESTATED...................         (2,128)                --              --             1,440     
  Conversion of Series A convertible preferred                                                                                  
    stock and reversal of dividend.....................             --                 --              --                 8     
  Sale of Series B convertible                                                                                                  
    preferred stock, net of offering                                                                                            
    costs of approximately $666........................             --                 --              --            10,076     
  Net loss.............................................         (3,462)                --              --            (3,462)    
  Cumulative translation adjustment....................             --                 --              61                61     
                                                               -------              -----          ------           -------     
BALANCE, DECEMBER 31, 1994.............................         (5,590)                --              61             8,123     
  Sale of Series B convertible                                                                                                  
    preferred stock, net of offering                                                                                            
    costs of approximately $159........................             --                 --              --             5,215     
  Sale of Series C convertible                                                                                                  
    preferred stock, net of offering                                                                                            
    costs of approximately $651........................             --                 --              --            13,848     
  Purchase of Computerware.............................             --                 --              --             4,808     
  Purchase of Lantec...................................             --                 --              --            13,774     
  Exercise of common stock options.....................             --                 --              --                12     
  Conversion of Series B convertible                                                                                            
    preferred  stock into common stock.................             --                 --              --                --     
  Conversion of Series C convertible                                                                                            
    preferred  stock into common stock.................             --                 --              --                --     
  Proceeds from sale of common stock, net of                                                                                    
    offering costs of  approximately $4,558............             --                 --              --            39,442     
  Exercise of warrants.................................             --                 --              --               617     
  Net loss.............................................           (904)                --              --              (904)    
  Cumulative translation adjustment....................             --                 --             (85)              (85)    
                                                               -------              -----          ------           -------     
BALANCE, DECEMBER 31, 1995.............................         (6,494)                --             (24)           84,850     
  Proceeds from sale of common stock, net of                                                                                    
    offering costs of  approximately $200..............             --                 --              --             6,240     
  Exercise of common stock options.....................             --               (366)             --               560     
  Tax effect of AMA (U K.) Limited pooling.............             --                 --              --               216     
  Net income...........................................          5,575                 --              --             5,575     
  Cumulative translation adjustment....................             --                 --           1,162             1,162     
                                                               -------              -----          ------           -------     
BALANCE, DECEMBER 31, 1996.............................        $  (919)             $(366)         $1,138           $98,603     
                                                               =======              =====          ======           =======     

</TABLE>


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


                                      F-7
<PAGE>   34


                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES

<TABLE>
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (IN THOUSANDS)

<CAPTION>
                                                                   FOR THE YEARS ENDED DECEMBER 31,
                                                                 -----------------------------------
                                                                   1994         1995          1996
                                                                 -------      ---------     --------
<S>                                                              <C>          <C>           <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).........................................     $(3,462)     $   (904)     $  5,575
  Adjustments to reconcile net income (loss) to net cash
    used in operating activities --
       Depreciation and amortization........................         637         3,101         6,704
       Provision for doubtful accounts......................         360           472         2,586
       Other deferred liabilities...........................        --            --             (11)
    Changes in current assets and liabilities, net
      of purchase acquisitions --
         Accounts receivable................................      (9,892)      (34,596)      (71,095)
         Inventory..........................................        (615)        4,357       (13,955)
         Prepaids and other current assets..................         127        (1,011)        1,064
         Accounts payable...................................       2,920        (1,181)       (6,858)
         Accrued expenses and other current liabilities.....         567        (9,675)       19,695
                                                                 -------      --------      --------
            Net cash used in operating activities...........      (9,358)      (39,437)      (56,295)
                                                                 -------      --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, equipment and software..............        (617)       (5,880)       (6,506)
  Increase in other assets and deferred costs...............        (102)         (105)         (795)
  Purchase of Computerware, net of cash acquired............        --             153          --
  Purchase of Lantec........................................        --          (6,452)         --
  Tax effect of AMA (U.K.) Limited Pooling..................        --            --             216
  Purchase of Prophet Group, net of cash acquired...........        --            --          (8,331)
                                                                 -------      --------      --------
        Net cash used in investing activities...............        (719)      (12,284)      (15,416)
                                                                 -------      --------      --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings under lines of credit......................       4,946        37,457        43,009
  Sale of common stock, net of offering costs...............        --          39,442         6,240
  Sale of preferred stock...................................      10,076        19,063          --
  Repayment of capital lease obligations and long-term debt.        (165)         (153)         (215)
  Exercise of common stock options..........................        --              12           560
  Exercise of common stock warrants.........................        --             617          --
  Repayment of Computerware stockholders' loans.............        --          (5,000)         --
                                                                 -------      --------      --------
        Net cash provided by financing activities...........      14,857        91,438        49,594
                                                                 -------      --------      --------
FOREIGN EXCHANGE EFFECT ON CASH.............................           8           (60)          399
                                                                 -------      --------      --------
NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS...............................................       4,788        39,657       (21,718)
CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD.......................................         532         5,320        44,977
                                                                 -------      --------      --------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................     $ 5,320      $ 44,977      $ 23,259
                                                                 =======      ========      ========
SUPPLEMENTAL DISCLOSURE OF CASH
  FLOW INFORMATION:
  Interest paid.............................................     $   199      $  1,964      $  3,711
                                                                 =======      ========      ========
  Income taxes paid.........................................     $   426      $    526      $    523
                                                                 =======      ========      ========

SUPPLEMENTAL DISCLOSURE OF NONCASH
  INVESTING AND FINANCING ACTIVITIES:
  Increase in capital lease obligations.....................     $    42      $   --        $    787
                                                                 =======      ========      ========
  Retirement of fully depreciated assets....................     $  --        $  1,304      $   --
                                                                 =======      ========      ========
</TABLE>



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



                                      F-8
<PAGE>   35


                            ELCOM INTERNATIONAL, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

     Elcom International, Inc. (the Company) is a developer of electronic
commerce applications (primarily the Personal Electronic Catalog and Ordering
System, hereinafter referred to as "PECOS") utilizing interactive
computer-to-computer based electronic catalog marketing and procurement
technologies. These technologies are licensed to third parties and are also
utilized by certain subsidiaries in the direct marketing and remarketing of
personal computer products. The Company commenced development operations in
September 1992, and began commercial operations in December 1993, as a
remarketer of personal computer products.

(a)  Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.

(b) Restatement of Prior Periods

     The accounting and reporting policies of the Company conform with generally
accepted accounting principles. As a result of the pooling of interests with AMA
(UK) Limited discussed in Note 2, these consolidated financial statements
reflect the Company's consolidated results as if the pooling occurred on
December 31, 1993.

(c) 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 amounts reported in the financial statements and
accompanying notes. Actual results may differ from such estimates.

(d) Cash and Cash Equivalents

     Cash equivalents at December 31, 1995 and 1996 consisted of U.S. Government
obligations with maturities of three months or less. These securities,
classified as held-to-maturity, are carried at cost plus accrued interest, which
approximates fair value in accordance with Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures About Fair Value of Financial Instruments,
and SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Since held-to-maturity securities are short-term in nature, changes
in market interest rates would not have a significant impact on the fair value
of these securities. Interest earned on all securities is included in interest
income and other, net in the Consolidated Statements of Operations.

     At December 31, 1995, the Company held approximately $14,925,000 in escrow
as custodian for the benefit of the selling stockholders who participated in the
Company's initial public offering, which was completed on December 26, 1995.
These funds are not included in the accompanying consolidated financial
statements as of December 31, 1995. These funds, along with the selling
stockholder proceeds relating to the underwriters' over-allotment option (See
Note 5 (e)), were distributed to the selling stockholders in February 1996.

(e) Inventory

     Inventory consists of purchased personal computer products, peripherals and
accessories available for resale. Inventories are stated at the lower of cost
(first-in, first-out) or market. The Company periodically reviews its inventory
for potential excess, slow-moving, nonsalable or obsolete inventory. To date,
the Company has not provided any material inventory reserves.


                                      F-9
<PAGE>   36


(f) Prepaids and Other Current Assets

     Consistent with the provisions of the American Institute of Certified
Public Accountants' Statement of Position (SOP) No. 93-7, Reporting on
Advertising Costs, the costs of maintaining, reproducing and mailing the
Company's PECOS front-end software, which constitute direct-response advertising
costs, are deferred and charged to operations over the estimated periods during
which related sales are expected to be realized, which is estimated to be five
months. Such net capitalized costs totaled $456,000 and $521,000 at December 31,
1995 and 1996, respectively. For each year in the three-year period ended
December 31, 1996 the Company charged approximately $225,000, $767,000 and
$839,000 respectively, of these costs to operations, none of which represented
write-downs to net realizable value of the capitalized costs.

(g) Depreciation and Amortization

     The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts that allocate the cost
of property, equipment and software over their estimated useful lives of three
to five years. Buildings are depreciated over a useful life of fifty years. The
capitalized cost of leased equipment and leasehold improvements are amortized
over the estimated life of the related assets.

(h) Goodwill and Other Assets

     The excess of the purchase price over the fair value of net assets acquired
in each acquisition accounted for as a purchase is classified as goodwill and
included in the accompanying consolidated balance sheets. Goodwill is amortized
on a straight-line basis over an estimated useful life of 15 years. Goodwill
(net of accumulated amortization of $1,132,000 and $3,021,000) was $26,525,000
and $34,649,000 at December 31, 1995 and 1996, respectively. Other intangible
assets (net of accumulated amortization of $329,000 and $724,000) associated
with acquisitions amounted to $1,612,000 and $1,517,000 at December 31, 1995 and
1996, respectively, and have been assigned a five year life. Amortization of
goodwill and such other intangibles amounted to $1,461,000 and $2,210,000 for
the years ended December 31, 1995 and 1996, respectively.

     In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
evaluates the realizability of goodwill based on profitability expectations,
using the undiscounted cash flow method, for each subsidiary having a material
goodwill balance. Based on its most recent analysis, the Company believes that
no impairment of goodwill exists at December 31, 1996.

     The Company generally expenses research and development costs as incurred.
However, in accordance with SFAS No. 86, Accounting for Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed, the Company capitalizes
certain software development costs, consisting primarily of personnel costs,
subsequent to the establishment of technological feasibility until the product
is available for general product release. Costs incurred prior to the
establishment of technological feasibility are charged to operations.
Development costs associated with product enhancements that extend the original
product's life or significantly improve the original product's marketability are
also capitalized, as incurred, after technological feasibility has been
achieved. Capitalized software development costs are amortized over their
estimated useful lives of two years. Net capitalized costs amounted to $230,000
and $461,000 as of December 31, 1995 and 1996, respectively. Amortization
expense amounted to $28,000, $62,000 and $195,000 for each of the three years in
the period ended December 31, 1996, respectively.

     The Company has capitalized certain costs that are associated with the
organization of the corporation totaling $152,000. The costs are being amortized
over an estimated useful life of five years. Amortization expense for each of
the three years in the period ended December 31, 1996 amounted to approximately
$33,000, $29,000 and $35,000, respectively.


                                      F-10
<PAGE>   37


(i) Revenue Recognition

     The Company derives substantially all of its revenue from sales of personal
computer products, peripherals and accessories. The Company provides for
estimated returns at the time of sale. Revenue from product sales is recognized
upon shipment.

     The Company recognizes software license revenue in accordance with the
provisions of SOP No. 91-1, Software Revenue Recognition. Revenue from the
licensing of software is recognized upon shipment of the software if there are
no significant post delivery obligations and collectibility of the revenue is
assured. If an acceptance period is required, revenues are recognized upon the
earlier of customer acceptance or the expiration of the acceptance period,
unless an additional performance target is mandated, in which case revenue is
recognized upon satisfaction of that target, in each case, as defined in the
applicable software license agreement.

     The Company also offers maintenance contracts and training. Maintenance and
training revenues are recognized ratably over the terms of the related
contracts. Amounts received in advance for maintenance agreements are deferred
and included in accrued expenses and other current liabilities in the
accompanying consolidated balance sheets.

(j) Postretirement Benefits

     The Company has no material obligations for postretirement benefits. The
Company and an indirect UK subsidiary each maintain separate defined
contribution benefit plans covering all eligible employees, as defined.

(k) Foreign Currency Translation

     The accounts of the Company's indirect UK subsidiaries are translated in
accordance with SFAS No. 52, Foreign Currency Translation. Accordingly, assets
and liabilities of the Company's foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date. Income and expense
accounts are translated using an average rate of exchange during the period.
Foreign currency translation adjustments are accumulated as a separate component
of stockholders' equity.

(l) Income Taxes

     The Company provides for income taxes in accordance SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these differences
reverse.

(m) Stock Options

     The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. In October, 1995, the Financial Accounting Standards Board issued
SFAS No. 123, Accounting for Stock-Based Compensation, which is effective for
1996. SFAS No. 123 establishes a fair value based methodology for accounting for
stock-based compensation plans. The Company has adopted the disclosure only
alternative under SFAS No. 123, which requires disclosure of the pro forma
effects on earnings and earnings per share as if SFAS No. 123 had been adopted
as well as certain other information. (See Note 5.)

(n) Net Income (Loss) Per Share

     Net Income (loss) per share is based on the weighted average number of
common and common equivalent shares outstanding during each year assuming the
conversion of the preferred stock discussed in Note 5 below. All shares, options
and warrants issued during the 12 months immediately preceding the Company's
initial public 
                                              
                                      F-11    
                                              
                                              
<PAGE>   38
                                              
              
offering were treated as if they had been outstanding for all periods, in
accordance with the treasury stock method. Common stock equivalents (certain
stock options and warrants) issued in earlier periods have not been included in
determining the 1994 and 1995 net loss per share, as the effect would have been
antidilutive.

(2) ACQUISITIONS


<TABLE>

   The Company has consummated the following acquisitions:

<CAPTION>
                                                                                                METHOD OF
         ENTITY                           DATE         CONSIDERATION                           ACCOUNTING
         ------                           ----         -------------                           ----------

   <S>                                <C>              <C>                                     <C>          
   Computer Specialties, Inc.         October 1994     510,345 shares of common stock          Pooling of
                                                                                               Interests

   Computerware, Inc.                February 1995     1,326,417 shares of common stock         Purchase


   Lantec                              June 1995       2,899,820 shares of common stock         Purchase
                                                       and $6.4 million of cash

   AMA (UK) Limited                  February 1996     3,247,371 shares of common stock        Pooling of
                                                                                               Interests

   Prophet Group Limited             December 1996     $8.4  million of cash and up to $5.0     Purchase
                                                       million   of   additional   purchase
                                                       price subject to 1997 earnings.


</TABLE>



     For the acquisitions accounted for as pooling of interests, previously
issued financial information, including the financial position and results of
the operations of the Company, have been retroactively restated for all prior
periods presented to give effect to those acquisitions. For acquisitions
accounted for as purchases, the purchase prices were allocated based on the fair
value of the tangible and intangible assets acquired and liabilities assumed.
(See Note 1(h)). Results of operations of those companies are included from
their respective date(s) of acquisition.

     The following is unaudited pro forma financial information for the years
ended December 31, 1995 and 1996 as if the purchase acquisitions noted above
were effective on January 1, 1995 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                              YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
                             ----------------------------------------------------------------------------------
                                 ELCOM                                    PROPHET
                             INTERNATIONAL,                                GROUP       PRO FORMA
                                  INC.      COMPUTERWARE      LANTEC      LIMITED      ADJUSTMENT      COMBINED
                                  ----      ------------      ------      -------      ----------      --------

 <S>                           <C>             <C>           <C>           <C>           <C>           <C>         
 Net sales..................   $311,423        $7,330        $51,496       $33,170       $    --       $403,419    
                               ========        ======        =======       =======       =======       ========
                                                                                                                                
 Net income (loss)..........   $   (904)       $ (201)       $ 2,012       $   894       $(2,200)      $   (399)
                               ========        ======        =======       =======       =======       ========
                                                                                                                                
 Pro forma net loss                                                      
    per share...............   $  (0.05)           (a)            (a)           (a)           (a)         (0.02)
                               ========        ======        =======       =======       =======       ========
                                                                                          
 Pro forma weighted average                                              
   shares outstanding.......     20,001            (a)            (a)           (a)        1,519         21,520                 
                               ========        ======        =======       =======       =======       ========
</TABLE>
                                                                              

                                      F-12
<PAGE>   39


<TABLE>

<CAPTION>
                                        YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
                                    ----------------------------------------------
                                        ELCOM      PROPHET
                                    INTERNATIONAL,  GROUP      PRO FORMA
                                         INC.      LIMITED    ADJUSTMENT  COMBINED
                                    -------------  -------    ----------  --------
<S>                                    <C>         <C>          <C>       <C>     
  Net sales.................           $620,115    $33,566      $  --     $653,681
                                       ========    =======      =====     ========
                                                                                 
                                                              
  Net income................           $  5,575    $ 1,017      $(566)    $  6,026
                                       ========    =======      =====     ========
                                                              
  Pro forma net income                                        
     per share..............           $   0.19         (a)        (a)    $   0.20
                                       ========    =======      =====     ========
                                                               
  Pro forma weighted average                                  
     shares outstanding.....             29,739         (a)        (a)      29,739
                                       ========    =======      =====     ======== 
                                                              
</TABLE>

 (a)  Not presented as the data is not meaningful.

     On February 21, 1997, the Company completed the acquisition of Data
Supplies Limited, a U.K.-based remarketer of personal computer products. The
acquisition, to be accounted for under the purchase method, included a cash
payment of $1.6 million and an interest bearing note in the amount of $752,000.

(3) LINES OF CREDIT

     At December 31, 1996, the Company had a $100 million floor plan and
accounts receivable line of credit available from Deutsche Financial Services
Corporation (DFSC). The DFSC line of credit provides for direct payment by the
lender to certain Company vendors. In the case of certain product purchases, the
borrowings bear interest immediately, and the borrowings related to the
remaining purchases bear interest after the lapse of the applicable
interest-free periods, which vary generally from 30 to 90 days. The DFSC line of
credit limits the borrowings to defined percentages of eligible inventories and
accounts receivable. The DFSC line of credit agreement also contains certain
covenants relating to net income and debt-to-equity ratios. As of December 31,
1996, the Company was in compliance with all such covenants. Interest is payable
monthly at the prime rate (8.25% at December 31, 1996). As of December 31, 1996,
the Company had $71,375,000 outstanding under this line of credit, which
approximated the Company's availability as of that date. As of December 31, 1996
the Company also had a $3,000,000 unsecured demand note outstanding with DFSC on
which Interest is payable monthly, at a rate of prime plus 1%. In January 1997,
the unsecured demand note was paid off.

     The Company also has a $9.5 million floor plan financing agreement with IBM
Credit Corporation (IBMCC) to support purchases of IBM products. The Company's
purchases under this arrangement bear interest at the prime rate (8.25% at
December 31, 1996) plus 6.25% after the lapse of interest-free periods, which
vary generally from 30 to 90 days. The Company typically repays this facility
upon the lapse of the interest-free periods. As of December 31, 1996, there was
approximately $4,282,000 outstanding under this line of credit.

     At December 31, 1996, Lantec had a financing arrangement with Kellock
Limited, an affiliate of NatWest Bank, PLC, which provides for borrowings of up
to $15,413,000. Borrowings bear interest at the Bank of Scotland base rate (6%
at December 31, 1996) plus 1.2% and are primarily secured by accounts
receivable. As of December 31, 1996, there was approximately $5,713,000 of
outstanding loans under this line of credit.

     AMA has a factoring agreement with International Factors Limited (IFL),
under which IFL acts as AMA's factor for a portion of its accounts receivable.
The factoring charges amount to the Lloyds Bank base rate (6.0% at December 31,
1996) plus 1.75% of the accounts receivable assigned, in addition to certain
administration charges, as defined. As of December 31, 1996, AMA had $4,872,000
outstanding under this agreement.


                                      F-13

<PAGE>   40


     Prophet Group has a financing arrangement with Confidential Invoice
Discounting Limited, a financing company, which provides for borrowings up to
the lesser of the security value of accounts receivable, as defined, or
$6,850,000. Borrowings bear interest at the Lloyds Bank base rate (6.0% at
December 31, 1996) plus 1.25%. As of December 31, 1996, there were no borrowings
outstanding under this line of credit.

     Prophet Group has a short-term financing arrangement with Allied Irish Bank
related to the purchase of computer equipment. The note is payable in monthly
installments including principal and interest through April 1997. As of December
31, 1996, the outstanding balance under this arrangement was $227,000.

(4) LONG-TERM DEBT

Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                          DECEMBER 31,
                                                       ------------------
                                                       1995          1996
                                                    ----------    -----------
<S>                                                    <C>          <C>    

Mortgage payable to a bank, interest at the
greater of the bank's base rate (6% at December
31, 1996) plus 3% or 8.75%, due in monthly
installments of principal plus interest through
June 2020, secured by certain land and buildings       $--          $465,000 
Less current portion                                    --            45,000 
                                                       ---          --------
                                                       $--          $420,000 
                                                       ===          ========
                                                    
</TABLE>
                                                   

(5) STOCKHOLDERS' EQUITY

(a) Common Stock

     The Company has authorized 50,000,000 shares of $.01 par value common
stock.

(b) Preferred Stock

     The Company has authorized 10,000,000 shares of $.01 par value preferred
stock. The Company had designated 5,000,000 of such shares as Series B
convertible preferred stock (Series B preferred stock) and in June 1995, the
Company designated 3,150,000 shares as Series C convertible preferred stock
(Series C preferred stock). All Series B and Series C preferred stock converted
into common stock prior to or upon completion of the Company's initial public
offering on December 26, 1995. The Company has amended its Certificate of
Incorporation to restore all previously issued preferred stock to authorized and
unissued status, with the Board of Directors authorized to fix the rights,
privileges, preferences and restrictions of any series thereof as it may
designate.

     In April 1994, the Company issued 488,888 shares of Series B preferred
stock and warrants to acquire an aggregate of 122,222 shares of the Company's
common stock, in exchange (on a two shares for one share basis) for all the
issued and outstanding shares of Series A 8% cumulative convertible preferred
stock (Series A preferred stock). All shares previously designated as Series A
preferred stock were retired and redesignated as Series B preferred stock during
1994. In addition, the Series A preferred stock provided for cumulative
dividends at a rate of 8%, payable annually in arrears, with the first dividend
payment due on December 31, 1995. In conjunction with the conversion of the
Series A preferred stock into Series B preferred stock, the stockholders waived
any accumulated dividends, which amounts were restored to additional paid-in
capital.

     All holders of preferred stock prior to conversion entered into stock
purchase agreements with the Company. Pursuant to the terms of the original
preferred stock purchase agreements, holders of common stock resulting from
conversion of preferred stock maintain limited registration rights.


                                      F-14

<PAGE>   41



(c) Stock Options

     The Company's stockholders have approved the adoption of two stock option
plans, as amended (the "Option Plans"). The Option Plans provide that an
aggregate of up to 6,000,000 incentive stock options (ISOs) and nonqualified
options may be granted to key personnel of the Company, as determined by the
Compensation Committee of the Board of Directors (the Compensation Committee).
Under the terms of the Option Plans, ISOs are granted at not less than the
estimated fair market value of the Company's common stock on the date of grant.
The Option Plans also provide that the options are exercisable at varying dates,
as determined by the Compensation Committee, and have terms not to exceed 10
years.

     In November 1995, stockholders also approved the adoption of the 1995
Nonemployee Director Stock Option Plan (the "1995 Nonemployee Director Plan").
The 1995 Nonemployee Director Plan provides that an aggregate of up to 250,000
nonqualified stock options to acquire the Company's common stock are reserved
for grant to outside directors of the Company. Under the terms of the 1995
Nonemployee Director Plan, the options are granted at not less than the fair
market value of the Company's common stock on the date of grant. The 1995
Nonemployee Director Plan also provides that the options vest over three years
and have terms not to exceed 10 years. Upon joining the Board of Directors, any
new nonemployee director is automatically granted 5,000 nonqualified stock
options. All nonemployee directors are granted an additional 5,000 nonqualified
stock options annually on each June 1, thereafter, while remaining on the Board
of Directors.

     In August 1996, the Board of Directors adopted the 1996 Stock Option Plan
of Elcom International, Inc. (the "1996 Option Plan"). The 1996 Option Plan
provides that an aggregate of up to 2,400,000 ISOs and nonqualified options to
acquire the Company's common stock may be granted to key personnel of the
Company, as determined by the Compensation Committee. Under the terms of the
1996 Option Plan, the options are granted at not less than fair market value of
the Company's common stock on the date of grant. The 1996 Option Plan also
provides that the options are exercisable at varying dates, as determined by the
Compensation Committee, and have terms not to exceed 10 years. To the extent the
1996 Option Plan is not ratified by the Company's stockholders at its 1997
Annual Meeting, all ISOs granted theretofore will be deemed to be nonqualified
options, and only nonqualified options may be granted under the 1996 Option Plan
thereafter.

     Information relating to the Company's stock option plans during the three
years in the period ended December 31, 1996 is as follows:

<TABLE>

<CAPTION>
                                                                             WEIGHTED 
                                            NUMBER         OPTION PRICE      AVERAGE
                                           OF SHARES         PER SHARE    EXERCISE PRICE
                                           ---------         ---------    --------------

  <S>                                     <C>             <C>                 <C>        
  Outstanding, December 31, 1993......     1,725,800      $  .11 - 3.00       $0.37
  Granted.............................       460,600        3.00 - 3.63        3.27
  Terminated..........................      (101,913)        .11 - 3.63        1.22
  Exercised...........................            --                 --          --
                                           ---------      -------------       -----
  Outstanding, December 31, 1994......     2,084,487      $  .11 - 3.63       $0.99
  Granted.............................     2,170,485       3.63 - 10.28        4.70
  Terminated..........................       (70,683)        .11 - 5.99        4.12
  Exercised...........................        (9,963)        .39 - 3.63        1.22
                                           ---------      -------------       -----
  Outstanding, December 31, 1995......     4,174,326      $ .11 - 10.28       $3.17
  Granted.............................     3,101,975       5.31 - 14.25        6.63
  Terminated..........................      (323,461)       .11 - 10.28        5.90
  Exercised...........................      (523,726)        .11 - 5.99        1.77
                                           ---------      -------------       -----
  Outstanding, December 31, 1996......     6,429,114      $ .11 - 14.25       $4.64
                                           =========      =============       =====
                                                                          
  Exercisable, December 31, 1994......       729,781      $  .11 - 3.00       $0.55
                                           =========      =============       =====
  Exercisable, December 31, 1995......     1,321,739      $  .11 - 3.63       $0.92
                                           =========      =============       =====
                                                                          
  Exercisable, December  31, 1996.....     2,032,325      $ .11 - 10.28       $2.72
                                           =========      =============       =====
</TABLE>
                                                                        


                                      F-15

<PAGE>   42

         The weighted average fair value per share of options granted during
1994, 1995 and 1996 were $1.72, $2.57 and $3.48, respectively.

     The following table summarizes information about stock options outstanding
at December 31, 1996.
<TABLE>
<CAPTION>

                                  OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                    ------------------------------------------------    --------------------------
                                       Weighted           Weighted                       Weighted-
    Range of                            Average            Average                        Average       
    Exercise           Number          Remaining          Exercise          Number       Exercise
     Prices         Outstanding     Contractual Life        Price        Exercisable       Price
    --------        -----------     ----------------      --------       -----------     ---------
  <S>                <C>              <C>                  <C>              <C>            <C>          
         $0.11       1,004,551         6.15 years          $ 0.11           956,492        $0.11
   0.39 - 3.63         634,367            6.51               2.40           597,850         2.46
          4.00       1,194,856            8.14               4.00           157,103         4.00
          4.75         216,250            8.48               4.75            47,675         4.75
     5.06-5.68         611,800            9.15               5.26           211,500         5.21
          5.81       1,252,200            9.30               5.81                --           --
   5.99 - 7.50         977,520            9.17               7.20            20,524         6.03
  7.56 - 13.50         510,520            9.12               8.58            41,181         8.59
         13.56           7,050            9.41              13.56                --           --
         14.25          20,000            9.41              14.25                --           --
                    ----------                                            ---------        -----
                     6,429,114                                            2,032,325        $2.72
                    ==========                                            =========        =====

</TABLE>

                                                                              
     As of December 31, 1996, 8,116,308 shares of common stock have been
reserved for issuance under the Company's stock option plans and 750,000 shares
have been reserved for issuance pursuant to warrants issued in connection with
the Lantec purchase as described below.

     As described in Note 1, the Company adopted the disclosure only alternative
under SFAS No. 123. Had compensation costs for awards in 1995 and 1996 under the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates consistent with the method set forth in SFAS No. 123, the
effect on the Company's net income and earnings per share would have been as
follows:

<TABLE>
<CAPTION>

                                          1995            1996
                                          ----            ----
                                     (in thousands, except per
                                             share data)
 <S>                                  <C>               <C>   
  Net income (loss):
       As reported                    $   (904)         $5,575
       Pro forma                      $ (1,581)         $3,330
  Net income (loss) per share:
       As reported                    $  (0.05)          $0.19
       Pro forma                      $  (0.08)          $0.11
</TABLE>


     Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may be greater as additional options are granted.

     The fair value of each option grant is estimated on the grant date using
the Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>

                                     1995          1996
                                     ----          ----
<S>                                 <C>           <C>   
Volatility                          53.52%        53.52%
Risk-free interest rate              6.25%          6.2%
Expected life of options           5 years       5 years
</TABLE>


                                      F-16


<PAGE>   43


     The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.

     The Company's wholly owned technology subsidiary, Elcom Systems, Inc., also
maintains a stock option plan (the "Systems Plan") pursuant to which 187,500
shares of its common stock are reserved for issuance. The Systems Plan has
provisions similar to the Company's Option Plans, and none of the options issued
thereunder were exercisable as of December 31, 1996. Elcom Systems, Inc. has 2.5
million common shares outstanding, all of which are owned by the Company.

(d) Warrants

     In conjunction with the conversion of Series A preferred stock described
above and the sale of Series B preferred stock in 1994, the Company issued
warrants to purchase 170,085 shares of the Company's common stock at $3.63 per
share. In conjunction with the Company's initial public offering of common stock
in December, 1995, all warrants were exercised.

     In June 1995, the Company issued warrants to purchase 750,000 shares of the
Company's common stock at $4.75 per share in connection with the purchase of
Lantec (see Note 2). As of December 31, 1996, all of these warrants were
exercisable.

(e) Initial Public Offering and Underwriter Over-allotment Option

     On December 19, 1995, the Company's S-1 registration statement was declared
effective and on December 26, 1995, the underwriters closed on the purchase of
5,500,000 shares of the Company's common stock at $11 per share. Of the shares
sold, 4,000,000 were sold by the Company and 1,500,000 were sold by certain
stockholders of the Company. Net proceeds to the Company upon closing were
approximately $39.4 million.

     On January 19, 1996, the underwriters of the Company's initial public
offering exercised their over-allotment option and purchased 800,000 shares of
common stock at $11 per share. Of the 800,000 shares sold, 629,489 were sold by
the Company and 170,511 were sold by certain stockholders of the Company. Net
proceeds to the Company as a result of this transaction amounted to
approximately $6.2 million.

(f) Open Market Stock Purchase Plan

     On February 23, 1996, the Board of Directors of the Company authorized the
purchase of up to an aggregate of 600,000 shares of common stock to be held as
treasury stock specifically for reissuance in connection with acquisitions.
Subject to legal requirements, the purchases may be made from time to time in
the open market based on then-existing market conditions. As of December 31,
1996, the Company has not acquired any treasury stock pursuant to this
authorization.

(6) LEASES AND OTHER COMMITMENTS AND CONTINGENCIES

(a)  Leases

     The Company has entered into capital leases for various software,
furniture, computer, telephone and other equipment. The lease terms range from
three to four years and, upon expiration, all leases provide purchase options at
a nominal price. Property, equipment and software includes assets under capital
leases of $582,000 and $1,369,000 and related accumulated amortization of
$387,000 and $617,300 as of December 31, 1995 and 1996, respectively.
Amortization of leased assets is included in depreciation expense.


                                      F-17


<PAGE>   44

     The Company has entered into operating leases for office space, software,
computer, autos and other equipment. The period covered by the leases ranges
from one to twenty-five years. Certain leases for office space require payment
of all related operating expenses of the building, including real estate taxes
and utilities.

     Future minimum rental payments as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>

                                                             CAPITAL        OPERATING
     YEAR ENDING DECEMBER 31,                                LEASES          LEASES
     ------------------------                                -------        ---------
     <S>                                                    <C>            <C>       
     1997 ..............................                    $343,000       $3,163,000
     1998...............................                     244,000        2,389,000
     1999...............................                     244,000        1,897,000
     2000...............................                     156,000        1,545,000
     2001...............................                          --        1,072,000
     Thereafter.........................                          --        7,408,000
                                                            --------      -----------
     Total Minimum lease payments.......                    $987,000      $17,474,000
                                                                          ===========
         Less - Amounts representing interest                179,000
                                                            --------
         Present value of net minimum lease payments        $808,000
         Current portion.....................                252,000
                                                            --------
      Long term portion...................                  $556,000
                                                            ========
</TABLE>

     Rent expense for operating leases for each of the three years ended
December 31, 1994, 1995 and 1996 amounted to approximately $220,000, $1,654,000
and $2,808,000, respectively.

(b) Employment Contracts

     The Company has employment contracts with certain key executives which
provide for annual salary and incentive payments as well as severance
arrangements.

(c) Contingencies

     On May 30, 1996, the Company filed a complaint in the Civil Division of the
Court of Common Pleas of Bucks County Pennsylvania (Civil Action No.
96004108-22-05) against John R. Kovalcik, Sr., John R. Kovalcik, Jr., James R.
Kovalcik, Thomas M. Kovalcik and David E. Kovalcik (collectively the "Kovalciks"
or the "Defendants"), the principal former owners of Computerware Business Trust
("Computerware"), which the Company acquired by a merger in February 1995. As of
May 29, 1996, none of the Kovalciks, certain of whom had been terminated by the
Company, were employed by the Company, including John R. Kovalcik, Jr., a former
Corporate Executive Vice President and President of Catalink Direct, Inc., who
resigned from the Company's Board of Directors effective April 24, 1996. The
Company's complaint, which was subsequently amended, seeks to: (1) enforce
confidentiality agreements/obligations and prevent the misappropriation of
proprietary Company information and Company property, (2) obtain a declaration
from the Court that certain of the Kovalciks' rights under stock option
agreements are limited; (3) enforce the covenants of the merger agreement to
determine the final amount of the purchase price of Computerware, and (4)
recover damages arising from various causes, including the Defendant's
fraudulent misrepresentations, and certain breaches of the merger agreement.

     The Defendants have counterclaimed against the Company seeking to: (1)
rescind the merger agreement on the purported grounds that it was not legal, or
in the alternative to receive unspecified additional purchase price
consideration; (2) receive unspecified damages for: fraud, breaches of the
merger agreement and of employment and stock option agreements, wrongful
termination, conversion, misappropriation of trade secrets, unfair competition
and defamation; and (3) have the Court declare the status of the rights of
certain Kovalciks under their stock option agreements as being more favorable
than the Company contends.


                                      F-18


<PAGE>   45


     The Company believes that the Defendants' Counterclaims are without merit
and intends to vigorously defend against them. The Company, based on its
investigations and inquiries, in conjunction with consultations with legal
counsel, has found no controlling precedent that supports the contention that
the merger was not legal and therefore, believes that the possibility of the
Computerware merger being rescinded by the Court is remote. However, if
Defendants were to prevail on this claim, it would have a material adverse
effect on the Company. The outcome of the other Counterclaims is not
predictable; however, the Company does not believe the final resolution of these
Counterclaims will have a material adverse effect on its financial position.

(7) FINANCIAL INFORMATION BY GEOGRAPHIC AREA

     Prior to the Company's acquisition of Lantec in June 1995 and AMA (UK)
Limited in February 1996, substantially all of the net sales, net income (loss)
and identifiable assets of the Company related to operations in the U.S. Net
sales, net income (loss) and identifiable assets (adjusted for allocation of
goodwill and related amortization for the Lantec acquisition) for the Company's
U.S. and U.K. operations for the years ended December 31, 1995 and 1996, are as
follows (in thousands):

<TABLE>
<CAPTION>
                                    UNITED        UNITED
                                    STATES       KINGDOM     ELIMINATIONS    CONSOLIDATED
                                    ------       -------     ------------    ------------
             Year Ended
          December 31, 1995
          -----------------
       <S>                         <C>           <C>           <C>           <C>      
       Net sales                   $219,396      $ 92,027      $    --       $311,423 
                                   ========      ========      =======       ========
       Net income (loss)           $(2,128)      $  1,224      $    --       $   (904)    
                                   ========      ========      =======       ========
       Identifiable assets         $119,675      $ 56,625      $(2,069)      $174,231    
                                   ========      ========      =======       ========

             Year Ended
          December 31, 1996
          -----------------
       Net sales                   $435,133      $184,982      $   --        $620,115    
                                   ========      ========      =======       ========
       Net income                  $  1,274      $  4,301      $   --        $  5,575    
                                   ========      ========      =======       ========
       Identifiable assets         $161,890      $ 98,879      $   --        $260,769    
                                   ========      ========      =======       ========
</TABLE>


     All revenues, net income and identifiable assets relate substantially to
the remarketing of personal computer products and related services.

(8)  INCOME TAXES

     The Company's income tax provision consists of the following:

<TABLE>
<CAPTION>

                            1994         1995          1996
                            ----         ----          ----
<S>                       <C>         <C>          <C>       
State Income Taxes        $188,000    $  150,000   $  718,000
Foreign Income Taxes       376,000     1,089,000    2,692,000
                          --------    ----------   ----------
                          $564,000    $1,239,000   $3,410,000
                          ========    ==========   ==========
</TABLE>

                                      F-19

<PAGE>   46



     The Company provides deferred income taxes for temporary differences
between assets and liabilities recognized for financial reporting and income tax
purposes. The income tax effects of these temporary differences are as follows:

<TABLE>
<CAPTION>

                                                           DECEMBER 31,
                                                       -------------------
                                                       1995           1996
                                                       ----           ----
 <S>                                               <C>            <C>      
  Deferred tax assets --
    Depreciation                                   $       --     $  228,000
    Nondeductible reserves                            724,000        358,000
    Other temporary differences                       400,000      1,121,000
    Foreign net operating loss carryforwards          659,000             --
    Net federal and state operating loss            2,746,000      1,619,000
  carryforwards
                                                   ----------     ----------
                                                    4,529,000      3,326,000
                                                   ----------     ----------
  Deferred tax liabilities --
    Depreciation                                      170,000             --
    Other temporary differences                                      671,000
                                                           --
                                                   ----------     ----------
                                                      170,000        671,000
                                                   ----------     ----------
  Valuation allowance                               4,359,000      2,655,000
                                                   ----------     ----------
                                                   $       --             --
                                                   ==========     ==========

</TABLE>

     The federal income tax provision varied from the amounts computed using the
statutory U.S. income tax rates because of the effect of net operating losses,
foreign tax adjustments, state income taxes and travel and entertainment
expenses.

     Due to the uncertainty surrounding the realization of the benefit of its
favorable tax attributes in future tax returns, the Company placed a full
valuation allowance against its net deferred tax asset. The valuation allowance
decreased during 1996 by approximately $1,704,000, reflecting realization of
certain net operating loss carryforwards. Prior to December 1993, two of the
Company's entities (Catalink and Elcom Systems) and, prior to its February 1995
acquisition, Computerware (See Note 2) had elected to be taxed as S corporations
under Section 1362 of the Internal Revenue Code. Therefore, until such elections
were terminated, the taxable income or loss of each entity was reported on their
stockholders' tax returns.

     The Federal and State net operating loss carryforwards relative to the
Company's operations as a C corporation cumulatively amount to approximately
$4,000,000 at December 31, 1996. The Federal and State net operating loss
carryforwards will begin to expire in 2008.

     The Tax Reform Act of 1986 limits the amount of federal net operating
losses that companies may utilize in any one year in the event of cumulative
changes in ownership over a three-year period in excess of 50%. The Company
believes that such an ownership change occurred during the year ended December
31, 1994; however, the Company does not believe that the impact is significant
as any unused amounts from any year are carried forward to future years within
the existing carryforward period.

     U.S. income taxes have not been provided on the undistributed net earnings
of the foreign subsidiary (Lantec). As of December 31, 1996, determining the tax
liability that would arise if these earnings were remitted is not practicable.
The Company plans to reinvest substantially all such earnings outside of the
U.S., thus indefinitely postponing the remittance of taxes on such earnings.

                                      F-20


<PAGE>   47



(9)   RELATED PARTY TRANSACTIONS

(a)  Notes Payable

     During 1993 and 1994, the Company's principal stockholder and Chief
Executive Officer made loans to the Company pursuant to demand and term
promissory notes. Demand note advances were charged interest at 7%, while term
promissory note advances were charged interest at 9%. Substantially all 1993
advances were converted to common stock during 1993, and all remaining 1993
advances were repaid as of December 31, 1993. In the first quarter of 1994, the
Company's principal stockholder and Chief Executive Officer made a demand note
advance to the Company, which was repaid within 30 days. Interest expense
related to these loans amounted to approximately $25,000 for the year ended
December 31, 1993 and it was not significant for the year ended December 31,
1994.

(b)   Transactions with Affiliated Company

     The Company owns approximately 40% of ShopLink Incorporated ("ShopLink"), a
development stage company that licensed the PECOS electronic commerce system to
service the home grocery and consumables market. The Company accounts for this
investment under the equity method, with its losses limited to its $4,000
investment. Accounts receivable from ShopLink at December 31, 1996 were
$326,135, which were substantially paid subsequent to year end.

(c)   Employee Loans

     In certain instances, the Company periodically makes loans to certain of
its officers and employees. These loans are included in accounts receivable in
the accompanying consolidated balance sheets and amounted to $1,625,000 at
December 31, 1996. Generally, these loans are collateralized by the employees'
shares of common stock.
<TABLE>


(10) QUARTERLY INFORMATION FINANCIAL DATA (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>

                                            FIRST      SECOND        THIRD      FOURTH
                                           QUARTER     QUARTER      QUARTER     QUARTER     TOTAL
                                           -------     -------      -------     -------     -----

YEAR ENDED DECEMBER 31, 1995
<S>                                       <C>         <C>          <C>         <C>         <C>     
Net sales............................     $ 42,929    $ 62,436     $ 97,898    $108,160    $311,423
Gross profit.........................        5,731       8,027       12,353      13,271      39,382
Operating profit (loss)..............         (305)       (108)       1,043       1,614       2,244
Net income (loss) ...................         (580)       (591)         (83)        350        (904)
Net income (loss) per share..........     $   (.04)   $   (.03)    $    (--)   $    .01    $   (.05)
Weighted Average Shares Outstanding..       15,781      17,423       23,201      25,386      20,001

YEAR ENDED DECEMBER 31, 1996
Net sales............................     $141,416    $146,305     $156,851    $175,543    $620,115
Gross profit.........................       16,345      17,040       17,332      19,322      70,039
Operating profit (loss)..............        2,240       2,514        2,736       3,798      11,288
Net income (loss) ...................        1,124       1,152        1,310       1,989       5,575
Net income (loss) per share..........     $    .04    $    .04     $    .04    $    .07    $    .19
Weighted Average Shares Outstanding..       29,142      30,079       29,435      29,950      29,739

</TABLE>


                                      F-21
<PAGE>   48
                   ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES
                           ANNUAL REPORT ON FORM 10-K
                                INDEX TO SCHEDULE

                                                                       Page
                                                                       Reference

Report of Independent Public Accounts on Schedule                      S-2

Schedule II - Valuation and Qualifying Accounts for the Years Ended
      December 31, 1994, 1995 and 1996                                 S-3



                                       S-1
<PAGE>   49
              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE




To Elcom International, Inc.

      We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Elcom International, Inc. and subsidiaries as
of December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996, included in this Form 10-K, and have issued
our report thereon dated March 21, 1997. Our audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The schedule listed in the index to schedule is the responsibility of the
Company's management and is presented for the purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.



ARTHUR ANDERSEN LLP



Boston, Massachusetts
March 21, 1997





                                       S-2
<PAGE>   50
                                                                     SCHEDULE II


                   ELCOM INTERNATIONAL, INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                     Balance                                       Balance
                                    Beginning                                        End
Allowance for Doubtful Accounts     of Period       Additions      Other (1)      of Period
-------------------------------     ---------       ---------      ---------      ---------

<S>                                 <C>             <C>            <C>            <C>   
Year ended December 31, 1994        $      --        $  360        $      --        $  360
                                    =========        ======        =========        ======

Year ended December 31, 1995        $     360        $  472        $     877        $1,709
                                    =========        ======        =========        ======

Year ended December 31, 1996        $   1,709        $2,586        $      17        $4,312
                                    =========        ======        =========        ======
</TABLE>

(1)   Includes allowances for doubtful accounts acquired through acquisition,
      net of write-offs.


<TABLE>
<CAPTION>
                                   Balance                                          Balance
                                  Beginning                                           End
Deferred Tax Valuation Accounts   of Period        Additions       Utilization     of Period
-------------------------------   ---------        ---------       -----------     ---------

<S>                               <C>             <C>              <C>             <C>   
Year ended December 31, 1994        $   50        $    1,923        $     --         $1,973
                                    ======        ==========        ========         ======

Year ended December 31, 1995        $1,973        $    2,386        $     --         $4,359
                                    ======        ==========        ========         ======

Year ended December 31, 1996        $4,359        $       --        $ (1,704)        $2,655
                                    ======        ==========        ========         ======
</TABLE>




                                       S-3